- Rent roll increasing on positive demand trends
- Property valuations leveling out
- Sector bouncing off recent lows
Industrial warehouse owner and operator Segro (SGRO) published a pleasing trading update for the year to date and promised to deliver ‘further compound growth in earnings and dividends during 2023 and beyond’.
The shares, which have been bumping along at post-pandemic lows, jumped to the top of the FTSE 100 leader board with a gain of 3% to 796p.
WHY ARE SEGRO SHARES UP?
Most of the attention on property firms and REITs (real estate investment trusts) this year has been on the fall in value of their portfolios due to the rise in interest rates, with little focus on the sector’s strong fundamentals such as tight supply/demand situation or rising rents.
The firm, which owns or manages close to 10 million square metres of space - the equivalent of 7,140 football pitches - with a value of almost £21 billion - reported strong growth in its rent roll during the quarter thanks to positive demand for industrial space.
‘Occupier demand continues to be high and is coming from a diverse range of customers, whilst supply remains limited across all our markets’, commented chief executive David Sleath.
‘These favourable dynamics, combined with the active asset management of our prime portfolio, have enabled us to drive strong rent roll growth from the leasing of recently completed space and the capture of reversion and indexation from our standing assets.’
Meanwhile, although the number of property deals remains subdued for the time being, asset values are stabilising not just in the UK but also Continental Europe where the firm has a large presence.
The positive vibes from Segro fed through into other industrial property and warehouse companies with shares in Warehouse REIT (WHR) gaining 3.9% to 109p, Urban Logistics REIT (SHED) rising 3.5% to 141p and Tritax Big Box REIT (BBOX) adding 2% to 149p.
EXPERT VIEW
‘Today’s statement comes very well received and should bring some much-need cheer to battle-hardened investors in the sector’, observed Shore Capital real estate analyst Andrew Saunders.
The company’s comments about asset values showing signs of stabilisation ‘should be well received by the market and are consistent with anecdotal evidence of the values we have observed assets actually changing hands at during the period’, he added.
At the current price, the shares trade at a 22% discount to Saunders’ full-year net tangible asset (NTA) forecast of 985p per share making the stock ‘an attractive investment opportunity as the cycle resets’.
