The latest trading update from industrial property investor Segro (SGRO) would be the envy of many other real estate firms but it received the brush off from the market with the shares down 1.8% to 920.7p.
While rent collection was robust, the company also paid 7% of its dividend in shares. Alongside the update the company announced the £133 million purchase of a warehouse complex in Canning Town - close to Canary Wharf and London City Airport.
The terms of the deal, with a net initial yield of just 2.3%, reflect the strong demand for this type of asset and the prime location as well as the relatively low rate of rent currently paid by tenants.
The average in-place rent of £14 per square foot compares with an estimated rental value of £21 per square foot.
Segro also said it had collected 85% of rent due in the fourth quarter. The rate of rental collection for the three months through December was currently higher than at the equivalent date in the second and third quarters.
A further 13% of rent had been deferred by agreement with customers, most of which was now payable monthly, meaning that the majority would have been received by the end of the year.
Segro said it had collected 96% and 95% of rents for the second and third quarters, respectively, in line with payment plans agreed with customers.
‘OBSTACLE TO GROWTH’
Of the remaining £9 million, the company said it expected to collect £6 million by the end of the year and the remainder in 2021.
Segro said it signed contracts worth £15.8 million of new headline rent in the third quarter, up from £15.3 million year-on-year.
Rent roll growth from existing space, net of take-backs was £5.6 million, up from £2.1 million, and the vacancy rate was stable at 5.2%.
AJ Bell investment director Russ Mould said: ‘One obstacle to growth for the group is that, while it has the means at its disposal to acquire properties, it has become increasingly expensive to buy industrial assets as institutions and other investors have cottoned on to the strong dynamics in this market.
‘This was reflected in the terms of the transaction announced alongside today’s trading update, with the well-located urban warehouse estate in Canning Town purchased at a premium valuation.
‘The company can generate higher returns from its development pipeline, and is channelling most of its investment in this direction, but developing assets also comes with a higher degree of risk.’
