Other commercial property companies like British Land, Hammerson and Land Securities may own much more glamourous property portfolios than Segro. Gleamingly modern shopping centres and impressive looking office buildings. They even have more glamorous names than Sergo, or the Slough Estates Group, to give the FTSE 100 commercial property company its full name. Sergo invests in warehouses. Or ‘sheds’ as the industrial property group’s assets were once disparaged as.
Segro is reminding investors more glamourous properties don’t mean better returns. Commercial property rivals, particularly those most exposed to retail, were struggling even before the Covid-19 pandemic. But the same trends of urbanisation, automation and online shopping that have led to the struggles of other commercial property sectors have been a boon to Segro’s ‘shed’ empire.
Between the last economic crisis in 2008 and the beginning of the current slump, Segro’s share price trebled to pass 920p. The company hasn’t been unaffected by the recent sell-off that has brought the whole stock market down. But it has suffered less than most, dropping by around 18.5%, compared to around 27.5% for the FTSE 100 index as a whole.
The underlying health of the company also means that Segro is, unlike most of its rivals, able to go ahead with paying out a dividend that will total £158 million. Segro CEO David Sleath says the board did give the dividend appropriate thought but that arriving at the decision to go ahead with it was “relatively straightforward”, given the company’s “strong financial position”.
Segro has access to cash and undrawn credit facilities worth £1.2 billion and while no real estate company is immune to a serious recession, the changing shape of the economy means warehouses are more insulated than most property categories. Rents are down, with 71% collected for the quarter compared to 96% last year. However, Mr Sleath isn’t overly worried and Segro have further burnished the company’s reputation by being understanding of the current scenario and rescheduling payments. He explains:
“There’s no point getting aggressive. They’re good businesses, they just have cash flow challenges”.
And plenty tenants remain in a strong place, with customers including Amazon, Fedex, Ocado, DHL and Booker as well as medical supplies companies serving the NHS. Mr Sleath also expects the current situation to highlight the importance of supply and logistics chains and benefit Segro’s speciality sector in the longer term.
Investors with the foresight to see past glossy images of impressive buildings and invest in a ‘sheds’ company are now being rewarded. Something else to remember once this storm has passed.