Segro Profit Declines as Property Sales Curb Rental Income

Segro Plc, the U.K.’s largest publicly traded owner of industrial properties, said half-year earnings fell 7.5 percent as the company collected less rent after property sales and the bankruptcy of one of its tenants.

Profit excluding changes in property values and one-time items dropped to 68.1 million pounds ($104 million) from 73.6 million pounds a year earlier, the Slough, England-based company said in a statement today. Net rental income fell 9.3 percent to 118.7 million pounds. The bankruptcy of mail-order company GmbH contributed to the decline in profit, according to the statement.

Segro this month agreed to sell a U.K. office park and a Frankfurt distribution facility for a total of 285 million pounds. The transaction is part of a plan, announced in 2011, to sell 1.6 billion pounds of real estate to help repay debt and focus on more profitable properties close to major transportation hubs or large cities across Europe.

“We’re already replacing a lot of rental income through operational improvements,” Chief Executive Officer David Sleath said by phone.

Divestment Target

The company has agreed to divest 437 million pounds of properties this year and will meet or slightly exceed its target of selling as much as 500 million pounds of buildings by the end of the year, Sleath said.

Segro had the biggest gain in new lease signings since 2010 in the second quarter, Sleath said. The company wants to take advantage of increased demand for space from Internet retailers by building facilities and renting out existing properties, he said.

In June, the company used 974 million euros ($1.3 billion) of its warehouses in mainland Europe to form a joint venture with Canada’s Public Sector Pension Investment Board. The venture will attempt to increase the portfolio’s value to at least 2 billion euros through developments and acquisitions.

Europe needs 25 million square meters (296 million square feet) of new distribution and storage warehouses in the next five years, about 11 percent of existing modern space, to keep up with Internet-sales growth, Jones Lang LaSalle Inc. said in March.

Segro reported net income 16.5 million pounds, or 2.2 pence a share, for the first half compared with a loss of 80.2 million pounds, or 10.8 pence, a year earlier.

The company owns data centers, distribution warehouses and light-industrial parks in the U.K., France, Germany, the Netherlands and Poland.

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