Segro/industrial property: delivery hero

Phil Redding has had a long run at Segro. As a rank-and-file staffer in the 1990s, he witnessed some torrid times in the world of industrial property funds, then the sector’s poor relation. More recently, as chief investment officer, he has ridden a huge rally — shares are up fourfold since his appointment as CIO in 2011. What a time to head out the door.

Investors seeking decent returns in UK property have had scarce few choices. Segro has the greatest exposure to urban and light industrial assets, which are used as distribution centres (customer fulfilment centres) for ecommerce. Roughly half its portfolio is located in London and the south-east. Segro trades at almost a 40 per cent premium to its net asset value, reflecting the market’s optimism.

That premium, the biggest since 2003, prices in a lot of growth in this subsector. Yet growth is slowing. The UK is reaching saturation point. Industrial value growth slowed to just 0.1 per cent in October, according to CBRE.

Chart shows price to net asset value per share showing UK property groups

This slowdown comes at a bad time for Segro. One-third of its property portfolio is in big box real estate: large distribution warehouses. With UK vacancy rates and availability both increasing last year, these look especially vulnerable to falling valuations.

That is one reason Segro has turned to Europe. Lower ecommerce penetration compared with the UK suggests more potential there. Capital values in many European cities are rising faster than in London. Logistics property values in Paris and Berlin grew in the low teens while London was flat last year, according to Cushman & Wakefield. Rents in the two cities also ticked up.

Segro has rivals for its European expansion plans. Juicy ecommerce-backed returns have attracted other large institutional investors, including Blackstone’s Mileway fund.

Segro clearly caught the right trend for retail, but the ecommerce distribution dividend is comfortably baked into the share price. Impeccable timing, Mr Redding.

The Lex team is interested in hearing more from readers. Will Segro keep rising as ecommerce sales expand? Or is the best behind it. Please tell us what you think in the comments section below


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