Segro looks to lift rents 50 per cent in next three years as warehouse demand continues to grow

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QuotedData property analyst Richard Williams argued yesterday that the Custodian merger no longer represented the best option for Abrdn Property Income shareholders.
QuotedData property analyst Richard Williams argued yesterday that the Custodian merger no longer represented the best option for Abrdn Property Income shareholders.

Segro, the London-listed real estate investment trust that owns a portfolio of warehouses and industrial property, said this morning that it could see rental income from its portfolio grow by more than 50 per cent over the next three years as high occupier demand drives growth.

The company’s boss, David Sleath, made these comments alongside its full-year numbers, which showed a 12.5 per cent jump in rental income.

During 2023 “favourable occupier markets” supported new headline rent commitments of £88m, including £27m of new pre-let agreements and a 31 per cent average uplift on rent renewals.

Adjusted pre-tax profit rose six per cent to £409m. However, as a result of “interest-rate driven yield expansion” the value of the portfolio declined. Segro reported a net asset value per share of 907p, down 6.1 per cent year-on-year.

Still, the company hiked its final dividend by 4.9 per cent to 19.1p per share, taking the full-year payout to 27.8p, up 5.7 per cent year-on-year.

Segro has 623,900 sq m of projects under construction or in advanced negotiations equating to £71m of potential rent. A total of 73 per cent of this new floorspace has or is expected to be pre-let.

The company had £1.9bn of available liquidity and a “modest” loan-to-value ratio of 34 per cent at the end of December. The cost of debt at the end of the year was 3.1 per cent.

Sleath said: “Segro delivered a strong operating performance in 2023, despite the weaker macroeconomic backdrop. Significant rental uplifts on the standing portfolio and our profitable development programme have driven further growth in both earnings and dividends.

“In the next three years we expect to increase our passing rents by more than fifty per cent through capturing embedded reversion, leasing vacant units and developing new space. Looking beyond this our exceptional land bank, continuing occupier demand and constrained supply, offer significant additional opportunities for profitable growth.”