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Segro plunges into a major loss as interest rates rise and economic uncertainty hits real estate valuations
- The property developer said net rental income was up 18.9% last year to £522m
- It reported a £1.97bn pre-tax loss, compared to a £4.4bn profit last year
- Interest rate increases have led to a devaluation of the group’s real estate portfolio
Segro received a record level of rental income in 2022, although this could not prevent the company from plummeting to a loss due to a fall in the value of its real estate portfolio.
The commercial property developer said net rental income rose 18.9 per cent last year to £522 million, thanks to the completion of development of nearly 640,000 square feet of new space and strong demand in the UK, Germany and France.
Rents also grew by a record £98 million as the company signed new leases with data center operators benefiting from a boom in cloud computing and multiple customers in the transport and logistics sector.
Results: SEGRO said net rental income rose 18.9 per cent to £522 million last year, although it still posted a pre-tax loss of £1.97 billion (Photo: SEGRO Logistics Park, Northampton)
Amazon remained Segro’s largest customer, having taken up a significant amount of warehouse space in the early stages of the Covid-19 pandemic as online retail boomed.
Still, the company posted a pre-tax loss of £1.97 billion, compared to a profit of £4.36 billion last year, as property valuations plummeted amid increasing global economic volatility.
The Bank of England and other central banks have hiked interest rates on numerous consecutive occasions to try and dampen rising inflation due to the easing of Covid-19 restrictions and the war in Ukraine.
This has pushed up borrowing costs and depressed demand for warehouse rentals, devaluing Segro’s investment and trading portfolio by around £2.2 billion last year.
In the UK, the London-based company’s assets fell by 15.5 percent after growing by more than a third in 2021, while in Continental Europe they shrank by 8.8 percent.
Nevertheless, the group noted that warehouse needs remained significantly high, at 96 percent occupancy, and said it was well placed to benefit from trends towards urbanization and e-commerce.
It added that most of its sites were in critical clusters where land supply is low and is likely to remain constrained by higher financing and construction costs even with increasing demand, driving up rental income.
Chief executive David Sleath commented: ‘Our modern, well-located and highly sustainable warehouses continue to be in high demand from a diverse group of users, supported by long-term structural factors.
“Our strategy over the last decade has been to cultivate a unique portfolio in the most supply-constrained European urban and logistics markets, supported by a strong balance sheet to enable SEGRO to outperform the real estate cycle.”
Segro’s most prominent locations include the Slough Trading Estate near Heathrow Airport, home to Mars’ UK headquarters, Ferrari’s Northern Europe division and Belgian pharmaceutical group UCB.
SEGRO Shares closed trading Friday 3.6 percent higher at 866.2p, making them the biggest gainer on the FTSE 100 Index. However, in the past 12 months, they have fallen by about 35 percent.