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Operator: Ladies and gentlemen, thank you for attending today's SEGRO Half Year 2025 Results Call. My name is Aida and I will be your operator today. [Operator Instructions] I would now like to pass the conference over to our host, David Sleath, CEO of SEGRO. David, please go ahead.
David John Rivers Sleath: Thank you Aida. Good morning, everybody. Welcome to our half year '25 results presentation. Thanks for taking the time to join what is clearly a very busy morning for you all. We're going to take a slightly different approach today with audio-only webcast, but we're live here in New Burlington Place, and we'll be taking your questions at the end, even if you can't see us. So let me start by highlighting 3 key points that we'd like you to take away from today's announcement. The first is that our existing portfolio is performing well. We've seen the first NAV uptick since mid-2022, consistent with the view that we shared earlier this year that capital values have stabilized. And the active asset management by our teams on the ground has driven an impressive 7.8% growth in like-for-like net rental income. That's been a key driver of the 6.5% uplift in earnings per share, and it's set to continue. Second point is that whilst European pre-let markets have been significantly slower over the past 18 months, thanks to the macro and geopolitical uncertainty, which has slowed down occupier decision-making, Development prospects are now improving. And our near-term pipeline of deals in advanced stages of negotiation has picked up well in recent months. This is an important leading indicator of pre-let signings to come. All of this bodes well for the future, meaning that we are well placed to continue delivering mid- to high single-digit EPS and dividend growth over the medium term. And then finally, we're progressing with the build-out of our data center platform. We're progressing plans for our 2.3 gigawatt land-enabled power bank, and we've signed our joint venture to develop our first fully fitted data center. So we'll go into all of these points in more detail shortly, but first, let me hand over to Soumen, who for the last time, will be taking you through the key features of today's results. Soumen?
Soumen Das: Thank you very much, David. Good morning, everybody. So starting on Slide 4. The key takeaway, as David has mentioned on the first half results is our leasing activity within the existing portfolio is continuing to drive really attractive earnings and dividend growth. And you can really see that illustrated on the top half of this slide, which is illustrating our key financial metrics. We delivered 6.5% growth in earnings and in dividends per share. We're recommending an interim dividend of 9.7p. That's in line with usual practice of setting up 1/3 of the prior year's full dividend. But I would just note that we have an exceptional track record of delivering growth in our dividend every year for the past 12 years, and we're well positioned to continue doing this going forward. The portfolio value increased to GBP 18.5 billion with a small increase in the like-for-like valuation, which continues to demonstrate the stabilization in asset values. NAV per share is up 3p to 9p, 10p, the first increase since 2022 and further supports a view that we have passed the inflection point in values. And the balance sheet is in good shape with loan to value at 31%, providing considerable capacity for growth. Turning to Slide 5 now on the income statement. So the wholly owned portfolio saw 10% growth in net rental income during the period, which I'll break down to you on the next slide. But before we get there, just a couple of things to note on this slide. Capitalized interest of GBP 32 million in the first half, similar to the first half of 2024, and we expect the full year number to be around GBP 65 million. And on cost, pleasingly, the cost ratio is down for the full year at 19%. And we hope to maintain this in the second half of the year and potentially reduces further as we expect our rental income to grow faster than costs. Net finance costs fell GBP 7 million due mostly to interest rates. And also just to note that the differential growth rate between adjusted profit and EPS was down due to the higher average share count this half year as a result of the equity raise and the interim dividend scrip take-up during the first half of 2024. Turning to Slide 6 now and looking at that growth in net rental income in some more detail. We delivered strong growth in net rent, up GBP 22 million, an increase of 7%. The largest contributor of that growth was a GBP 21 million of rent that we captured from the existing portfolio with an impressive 7.8% like-for-like growth rate. The U.K. grew really strongly at 8.4%, benefiting with a higher capture of reversion alongside asset management initiatives across the portfolio. The continent showed excellent like-for-like growth of 6.7%, which we know is well ahead of inflation, due mainly to the better performance of our urban portfolio. Development completions added GBP 17 million during the period. Investment activity resulted in a net loss of GBP 3 million of income due to a higher-than-normal amount of disposals in 2024. We expect that impact to be lower going forward as we return to a more normal level of disposals. The last bar of other of GBP 13 million is a mix of take back to development, FX and nonrecurring items likely surrender premiums. Now looking ahead from here, strong like-for-like growth, especially from the reversion of the portfolio and new income for the development pipeline will continue to drive rental income strongly in the coming years. And Slide 7 on the valuation. Now the upward trend has continued from last year with a further small increase in asset values in the first half in both the U.K. and in Continental Europe. And this, along with our investment and development activity has helped the portfolio grow to GBP 18.5 billion. Yields are pretty flat across the board. ERV group -- ERV growth for the group was 1%, with the U.K. delivering 1.4% growth and the continent delivering 0.4%. You can see there are some quite big differences between our markets. Those that have been more active in terms of letting activity saw the strongest growth, particularly U.K., Germany and Spain. On the other hand, our more development-led markets, which is Italy and the Czech Republic, saw less progression as the absence of large pre-lets and then there was less evidence to support moving ERVs on. And you can also see on the boxes on the right-hand side that our urban portfolio outperformed the big box, both in the U.K. and on the continent, as we typically expect due to the tighter land supply in these markets. Turning now to Slide 8 on the balance sheet, which remains in great shape and provides a significant firepower of growth with almost GBP 2 billion of available liquidity. Loan to values increased slightly to 31%. Our credit rating is stable at A-, and our debt metrics are in good shape with net debt-to-EBITDA 8.8x and interest cover at over 4x. And on to Slide 9. We have low refinancing requirements in the next few years due to the financing activity of the past year, including new bonds out of both SEGRO and SELP. We've got a diversified long-duration debt profile with an average debt maturity of 6.6 years, which, as you can see on the graph on the left, has debt stretching up until 2042. Now the graph on the right help to quantify the impact of what's to come in terms of interest costs from refinancing, and it hasn't changed much since the full year. Based on refinancing debt as it comes due at current rates in the same currency, the overall cost of debt moves up only 10 basis points this year and by 50 basis points to 2027, but only up to a level that's still lower than in 2023. And as a reminder, that's about GBP 25 million. So not immaterial, but it's much, much lower than the reversion we hope to capture in that period, so it absolutely supports the earnings growth going forward. So to conclude for me on Slide 10, the existing portfolio has delivered an impressive 7.8% like-for-like NRI growth during the first half of 2025 and that helped support 6.5% growth in earnings and in dividends. That really shows that our business is capable of delivering some of the strongest earnings and dividend growth in our sector, even when our development engine is turning more slowly. And we believe this growth is sustainable due to the reversion we have available to capture, which Dave will come on to shortly. We saw an increase in NAV for the first time since 2022, supporting our view that we're past the inflection point. And we have a strong balance sheet with limited near-term refinancing needs. And with that, I'll hand you back to David.
David John Rivers Sleath: Thank you very much, Soumen. Okay. Well, let's start to dig into those areas that lie behind the financials, starting with the performance from our existing portfolio. As we said before, we have a great portfolio of assets concentrated in Europe's most attractive submarkets, particularly the major business and population centers and distribution corridors. We have an excellent land bank. We have a market-leading operating platform with local teams everywhere dedicated to staying close to customers and other key stakeholders. We believe these factors create a competitive advantage, which help us to deliver great results and source new opportunities. We argue therefore that SEGRO is structurally advantaged to outperform over the medium term. And that advantage is further enhanced by the weighting of our portfolio with 2/3 of our economic interest being concentrated in the largest, most congested and densely populated cities of Europe, where land supply is highly constrained and, in many cases, shrinking where the occupier base is both diverse and dynamic and where our ability to drive performance through active asset management is strongest. The remaining 1/3 is represented by big box logistics assets. Here, we own and manage one of the best positioned, most modern portfolios in Europe, offering stable, secure income with more moderate rental growth and asset management opportunities, but with more development potential. No one else has this quality and structured portfolio, and it's simply irreplicable. Let's now take a moment to talk about occupier demand, which continues to be supported by these 4 enduring long-term structural trends. Undoubtedly, these forces have been dampened by the macro over the past 18 months, most recently by all the noise associated with potential trade wars following liberation day. But that said, overall European take-up remains close to pre-pandemic averages. But what's been missing from the market are the larger pre-let or build-to-suit projects as occupiers have chosen to delay big investment decisions in the face of this macro uncertainty. We know from direct conversations with customers that they do want to expand and take new space, but uncertainty has meant that they've been less keen to commit to something that might not be fully operational for 2 or 3 years. And instead, they're being much more short-term focused or often taking secondhand or speculatively developed space to satisfy their immediate needs rather than committing forward. Right now, though, we do feel more optimistic about the market. The e-commerce sector is becoming more active again. One particular global online retailer is out looking for space after 2-year hiatus. And we're also seeing new players enter the European market. For example, we've signed 6 deals with 1 particular Chinese e-commerce business in the last month alone, covering multiple geographies. And we're observing more activity amongst 3PLs. Generally, we're seeing good new inquiries and a strengthening of our pipeline of near-term pre-lets in recent months. But what have we actually signed in the first half of '25. Well, you can see here, it's GBP 31 million of new rent commitments with the vast majority coming from the existing portfolio. the relatively small contribution from development, which is the red bit of the bar is reflecting exactly what I've just been talking about. In fact, if you also look at the bar for the second half of 2024, you'll see that development lettings have been low for a good 12 months. I'll talk about the future pipeline shortly. But in the meantime, our asset management teams have delivered some impressive performance from the existing portfolio. We signed over 60 lettings of existing space, some with existing offers expanding or moving around within the portfolio and also welcome several new customers into the portfolio. And the logos on the right give you just a flavor of some of the active customers. We've continued to push rents where we can. For example, we achieved a new record rent of GBP 35 per square foot on one of our states in Park Royal. But the highlight of the period is that we completed over 100 rent reviews, renewals and regears which have produced about GBP 10 million of new income. Now with the timing of lease events being weighted to the second half and a more encouraging development picture, we're expecting the second half of the year to be quite a lot stronger than H1 in terms of new rent commitments. Digging into that reversion a bit more, we achieved, on average, a 55% uplift in our U.K. rent reviews and renewals, with over 80% being achieved on some leases in Heathrow and East London. This is our fourth consecutive year of impressive reversion capture and is set to continue. Meanwhile, occupancy has improved very slightly to 94.3% and retention has stayed very high at 90%. This partly reflects the market dynamics I referred to earlier, with more occupiers tending to stay put rather than expand into new space. But it also reflects, I believe, the quality and the mission-critical nature of the space we provide along with our excellent customer service. You can see here that the portfolio is currently 15% reversionary, most of which has arisen since 2021 and mostly in the U.K. since we have annual indexation uplifts on the continent. That gives us GBP 116 million of rental uplift to capture, GBP 67 million of which comes up for review or renewal in the next 3 years. This will more than offset the GBP 25 million impact of refinancing that Soumen told you about and should support attractive earnings and dividend growth even before considering the contribution from development. Before moving on to development, just a few remarks about our investment activity. We went into quite a lot of detail with our full year results as to our approach to capital allocation and how our focus on total returns drives our portfolio choices. After a very active and successful year disposals in 2024, we've not pushed the button on too many sales so far this year. Frankly, that's because investor sentiment has been dampened by the macro, and we feel better pricing will come later. We've remained selective of our investment acquisitions. These, of course, tend to be opportunistic in terms of timing and they always depend on us finding the right quality of assets that complement our existing portfolio and offer accretive risk-adjusted returns. The acquisitions we completed so far this year have all been [ via self ], which included the form of Tritax EuroBox assets in Germany and the Netherlands, plus a modern logistics part in Prague, which together represent great additions to the SELP portfolio. Development remains the focus of our capital deployment given the more attractive returns it offers to us. However, the lower-than- expected level of pre-let signings in the first half does mean that we've pushed back the start date of some projects. And so we are reducing our CapEx guidance for FY '25, which we now expect to be around GBP 400 million. So let's now talk about development. We completed 6 projects in the first half, equating to GBP 19 million of new rent, 92% of it was leased as of the end of June and is expected to deliver an attractive yield of 7.7%. All of it was rated BREEAM Excellent or higher, reflecting our determination to develop the most sustainable and energy-efficient space for our customers. Looking forward, we have GBP 50 million of rent in our current and near-term pipeline, GBP 34 million of which is projects currently under construction and GBP 16 million is associated with near-term pre-lets. Combined, we expected to deliver a 7.3% development yield, roughly 50% of it is pre-leased or 32% if you look solely at what's under construction. Now that's lower than our usual 60% to 70% run rate. But as you can see from the chart on the top right, the absolute volume of spec development is actually pretty similar to normal levels. So the missing piece, again, is the big pre-lets that I mentioned earlier. Regarding the spec space under construction, half of it is in our German urban portfolio, where we're seeing strong demand and about half of that is already leased under offer or part of active leasing conversations. There's also some quite encouraging news on potential pre-lets, which we refer to as our near-term pipeline. These are projects which are signed subject to some conditionality or where we've agreed terms with the occupier but are going through legal documentation. The volume of these dropped off quite materially during 2024 and you can see that they remain low through to the end of the year. And that's what explains why we've signed fewer pre-lets in the last 12 months. However, as you can also see, it's picked up again. We currently have 7 projects in that near-term pipeline, representing GBP 16 million of rent. And while that's not quite back at the level we've been running for most of the last decade, it's much healthier than it was. Behind this, we're discussing about 30 other customer requirements. On top of the current and the near-term projects, we have an estimated GBP 356 million of additional rent associated with our remaining land bank, which we'll build out over the coming years. From bars on the -- or the pictures on the right-hand side, you can see that the opportunity set is weighted slightly towards urban, and it's also weighted more to the U.K. than the continent. And you'll see from the map that we have opportunities in most of our existing markets. And what I can tell you is these are absolutely terrific sites in great locations. The returns from this land bank are attractive with an average development yield of about 7.5% or above 10% on a cash-on-cash basis, excluding the land cost. On top of that, we also have a pipeline of land options providing an additional GBP 123 million of further opportunity. So bringing together the opportunity from our existing portfolio and our development pipeline as we usually do, we still have the ability to more than double our rent roll over the coming years. The existing portfolio offers the potential to add GBP 255 million through rent frees burning off, leasing up the vacant space and capturing reversion. The development pipeline offers a further GBP 529 million of opportunity through completing our current and near-term development projects as well as building out our land bank and options, including the assumption of powered shell data centers only. So there's additional upside in the form of redevelopment of existing assets. The chart doesn't factor in any further ERV growth or indexation. It doesn't include the accretive effects of our capital recycling activities and it doesn't include the potential upside from the development of fully fitted as opposed to powered shell data centers, which brings me to the final section of our presentation. As you know, we've been operating in the data center market for over 20 years now. We have a strong understanding of that market, relationships with the major data center operators and an established data center team. And therefore, we've had a head start on most others in this space. Today, we have 34 data centers leased as powered shells or land leases, and our data center portfolio represents GBP 56 million of headline rent, growing to over GBP 60 million with projects under construction, so around 7% or 8% of rent roll. This equates to 0.5 gigawatt of capacity and mostly, it's in Slough. We've been working hard over the last couple of years to expand the opportunity set by sourcing land and power across the established and emerging data sets markets of Europe. And in February, we shared an overview of our 2.3 gigawatt the land-enabled power bank showing the 1.8 gigawatt of development potential, and we also provide an indication of the key markets where this capacity sits. We've not updated the numbers on this slide. We intend to do that annually. However, we have been progressing the pipeline, firming up the certainty and timing of energy commitments and adding to the size of the opportunity. But even what we've shown you here represents a massive opportunity for SEGRO. It's one of the biggest power banks that anyone in Europe controls. It's across multiple geographies with about 30 different sites. Most of these sites are located in attractive established availability zones near major population centers and business centers, where demand is expected to grow faster than the supply of sites with power. In most cases, we have certainty or at least a high degree of confidence that power and planning will be forthcoming. Given the scale of the opportunity in front of us, we've also been reviewing our data center strategy. And in March, we announced the creation of a joint venture with pure data centers limited to develop our first fully fitted data center. This was a neat deal that brought together a piece of land in Park Royal, that we've recently taken back for redevelopment with 70 mega -- 70 MVA of power that our joint venture partner has brought to the table. Jointly, we intend to develop a 56-megawatt IT load data center that we're targeting pre-let to a hyperscaler on a net lease basis. It's a large potential investment, about GBP 1 billion of growth capital, but the funding structure using nonrecourse development finance means that our equity commitment is relatively modest, and the anticipated returns are good with a 9% to 10% yield on cost and a very attractive return on equity for SEGRO. By making our first steps into the fully fitted space in this way, SEGRO will benefit from the experience and impressive capabilities of our joint venture partner, whilst creating a lot of value out of a relatively small plot of land. Today, the JV itself is up and running and is on track to submit a planning consent in the second half of this year, and we're targeting to sign a pre-let next year. So with that in mind, what is our data center strategy going forward. It's very clear. It's all about optimizing the value creation opportunity and making the most of the sought after and scarce land and power positions that we control. Now let me explain what I mean. So in some respects, powered shells and fully fitted data centers are similar, at least a building structure is going to be the same for each. But for the fully fitted model, we would also build the internal data halls and install the machinery and equipment. So things like backup generators, cooling systems, et cetera, whilst the customer would install and operate their own IT equipment, the servers. So there's considerably more technical complexity involved in building a fully fitted data center, which is why we're likely to work with experienced partners on our initial ventures into this space. There's also a lot more capital intensity involved in developing a fully fitted DC. But since we expect both these models to deliver returns well above our cost of capital, there is an attraction in deploying the additional capital into fully fitted DCs since the economic profit generation or the value creation, if you like, should be considerably higher. It's these potentially superior economics that have attracted us to move further up the value curve in the right circumstances so that we can capture more of the economic profit embedded within these rare sites. We're not saying that everything will be fully fitted from here onwards. It's going to be very much a case-by-case, site-by-site assessment, evaluating the commercial opportunity the supply-demand dynamics, the time and considerations and ultimately, the expected returns and the risks involved in each opportunity. And the truth is there are rarely 2 sites that will look the same. So we will be flexible in our approach. We've successfully developed and leased over 20 powered shells in recent years, and I'm sure we'll do more in the future. But now we have the capability and the flexibility to follow both models. And indeed, there will also be some situations where we choose to simply sell the land. I know the analysts listening today will be keen to get an idea of how many fully fitted data centers we might do, along with the timing and more precise figures to help with the modeling. And I'm afraid we're just not going to provide that information at this stage because there are too many moving parts. But to give you a rough idea, we're currently looking at a handful of sites with something in the region of 300 MVA capacity that could potentially go down this fully fitted route. So to conclude and maybe coming back to the key messages that I shared with you at the start of the presentation. Our prime portfolio of assets in the most supply-constrained markets is delivering strong like-for-like growth in rental income, which is underpinning attractive earnings growth. Embedded rent reversion plus the leasing up of good quality vacant space will support more of this in the coming years. And we'll add to this through indexation, further market rental growth and the benefits of our active asset management. And there's further upside from development. Right now, development volumes are relatively modest, particularly compared to the past few years. and where the future potential sits. But as I've explained, there are encouraging signs that development pre-lets are picking up again. And with over GBP 500 million of estimated rent at a DY between 7% and 8% compared to the current marginal cost funding of, say, 4%. There is every reason to believe that as development volumes improve, we can drive our earnings growth rate towards the high single- digit level that we've averaged over the past 8 years. On top of that, the 1.8 gigawatts of capacity in our land-enabled powered bank and our flexibility to deliver on this, both as powered shells and fully fitted data centers provides us with a very significant further value creation opportunity. These factors mean that SEGRO is well primed to continue delivering profitable growth in both income and dividends in the years ahead. So thank you for your attention. We're going to move now to questions and we'll be joined for those by James Craddock, our U.K. MD; Marco Simonetti, who runs Continental Europe; and Andrew Pilsworth, who leads on data centers. We'll take the first question from the conference call line, and then we'll go to the webcast. So Aida, I think over to you to run the Q&A, please. If you can, by the way, please limit -- just going to say, could you please limit it to one question to start just to give everybody a chance to answer a question.
Operator: [Operator Instructions] So first question comes from Frederic Renard from Kepler Cheuvreux.
Frederic Renard: Just wanted to come back on one of your comments. You said that you expect H2 to be quite a lot stronger in terms of rent commitment. Just wanting to have a view on where do you think it will happen? And maybe leasing back with your development requirement CapEx that you cut by around 20%. Do you think you could surprise up positively the market if development comes back?
David John Rivers Sleath: Yes, sure. I mean the comment I made about the second half being stronger than the first half is a combination of 2 things really. One is that, we know the timing of lease events. In other words, we know what dates rent reviews are due and we know where current negotiations are on a bunch of open rent reviews. And that's why I think I said we secured GBP 10 million of rent from reviews in the first half. We've got great visibility that we'll be reporting quite a bit more than that in the second half. So even before taking count of space under offer and there's some of that vacant space that's under offer, we're pretty sure the second half will be stronger. That's the primary driver on that piece. And then the second bit is around development pre-lets. I mentioned we've got GBP 16 million of pre-let income that is quite well advanced. Some of it actually has already become unconditional in the second half. And hopefully, the rest of it will do also. So 2 reasons why we think both of the -- both parts of the bar that we showed you in the first half will be bigger in the second half. In terms of what does that do for CapEx, I think it depends on how quickly we get on site with some of those pre-lets. That's the key factor. But realistically, we don't think we will have got on site fast enough to have materially changed the likely CapEx that we'll have in the full year this year. So we still think probably 400 is the right number for this year. But clearly, getting on site with those projects sooner rather than later, will be a key determinant of how much we spend next year.
Operator: Next question comes from Rob Jones from BNP Paribas.
Robert Alan Jones: My one question was just on the London urban logistics portfolio. If you have any figure for either the change in occupancy over the last 6 months or how ERVs are growing in that specific part of your wider portfolio?
David John Rivers Sleath: Yes, thanks for your question. James is sitting right here, I'll let him answer that one.
James Craddock: Yes. Thanks, David. Yes, as you know, so we report on our urban vacancy, which is circa around 90% at the moment, which is broadly stable from the last period. What I can tell you is that we've got some good interest and conversations on existing portfolio. So about 1/3 of our London vacancy is either under offer in active conversations or with proposals out to customers.
David John Rivers Sleath: Yes. And the vacancy is 10%, not 90%, sorry.
Operator: Next question is from Marios Pastou from Bernstein.
Marios Antonios Pastou: Just on your fully fitted data scheme. Maybe if you could provide some comments around any discussions you're having with a potential occupier I appreciate this is targeting a pre-let in 2026, but if you could maybe provide a bit of an update here will be useful.
David John Rivers Sleath: Yes. I mean, Andrew Pilsworth is here. He's spending a lot of time on that and all matters data center. So why don't you cover that, Andrew?
Andrew Pilsworth: Yes, absolutely. The key focus for us on our site at Premier Park right now -- we're making good progress and the key focus for us, as David mentioned in his script, is progressing the planning application. So we're in continual discussion with customers, including hyperscalers, and we're very, very confident about the prospects for this site. And as David also mentioned, the target remains to do a pre-let in 2026.
Operator: Next question comes from Zachary Gauge from UBS.
Zachary Daniel Gauge: Just a question for me on capitalized interest. I think you're guiding to that being give or take, flat this year versus last year. Could you just sort of talk through the mechanics of that? Because I'm thinking about this too simplistically, but I would have thought as your CapEx guidance has fallen and you're obviously spending less on development and you've got schemes which have now sort of started to complete from previous years of stronger pre-let activity, but that number should be coming down, and if it is not coming down in this year, should we be expecting it to start to come down in '26 and '27?
Soumen Das: I'll take that, Zach. So yes, you're obviously right. We capitalized interest against projects that are active. Obviously, the most visibly active are the ones that we are building new buildings on for pre-lets, so for all 3 spec. We're also active on sites like Radlett, in Berlin and others, where we're putting infrastructure work in place to be able to build the buildings in the future. And so that work is also capitalized as well. But that -- but when we start the work on site, the whole project, and therefore, to land with it goes into our capitalized bucket. That's why you're not seeing the capital number fall so much.
Zachary Daniel Gauge: Okay. So just try to think about that, though, in terms of earnings growth. Is it fair to assume that unless the pre-lets, therefore, pick up and start to generate the rental income of those sites that is going to be a headwind at some point?
Soumen Das: No, I don't think it is. In the extreme event, we never lease those or never lease the buildings on that land. And yes, but that's, I think, an extreme case. What I think we've got is obviously a delay that we're seeing in terms of when we're doing this pre-let signed up. It actually will not really change the ultimate outcome, which is when these buildings are finished and leased, you'll see the rent come on to the income statement, and you'll see the interest that applies to essentially both the build costs, the infrastructure cost and the land also come on to the income statement as well. So actually, it will make no difference to the earnings impact at all.
Operator: Next question is from Suraj Goyal from Green Street.
Suraj Goyal: So just on ERVs. If I understand correctly, the ERV guidance across the big books and urban on average, is approximately 3% to 4%. But ERV only grew by 1% in the first half, particularly a week on the content at 0.4%. Are you -- I appreciate there are some nuances, but are you confident that this will pick up towards the end of the year towards 3%? Or it is now the expectation for the foreseeable future?
David John Rivers Sleath: I think it ultimately depends on the occupier markets. And it's very hard to give any real forecast on a 3- or a 6-month basis because it's such a short period. It depends on lease events. I mean, quite often, I mean, if you look at the overall in a number of pre-lets done in the market, that's low. We know that. And that means the opportunity to create and set new market evidence is more limited in that space. I think if you look across our numbers, trailing the 12-month average is 2.7% rental growth, so slightly below our long-term guidance range. At this stage, we don't see any reason to change our forward guidance. We're still comfortable with what we've put out there. Second half, we'll see. I mean we signed 60 lettings in the first half of the year. I can't tell you at this juncture, where the 60 or 70 lettings we'll do in the second half are going to settle. But certainly, we feel that rents are moving forward, but we're not quite at the same rate that we expect on a midterm basis.
Operator: Next question comes from [indiscernible] from [ Kempen ].
Unidentified Analyst: When highlighting that your disposal were below run rate for H1, you mentioned that investor sentiment has been dampened and that you expect better pricing for disposals later. Taking this into consideration, how do you see potential for opportunistic acquisitions being on the other side of the table?
David John Rivers Sleath: Yes. I mean we've got our eyes and ears open across the business, always looking for accretive opportunities where the returns look great and the portfolio fit is strong. But I think we made it very clear, we've got a ton of opportunity in our development pipeline through the existing industrial logistics plans we have plus data centers. So our priority, given the choice is to deploy capital through the development route. But we'll certainly make accretive acquisitions if the right ones come along.
Operator: We will move to the next question from Jonathan Kownator from Goldman Sachs.
Jonathan Sacha Kownator: You had impressive reversion, obviously, this half, your overall reversion in the portfolio is now 15% and there is increasing supply teams in the market from market data. So can you explain how you're seeing that reversion shape up over the next sort of 12, 18 months. Are you going to be able to continue capturing these levels? Or is that going to fall quickly as you obviously capture that reversion, that impressive track record that you're developing at this stage?
David John Rivers Sleath: Look, Jonathan, we put a slide in, in that we're showing the timing of when the reversion comes up for capture. And clearly, that's assuming flat rents, but we're not expecting rents to be flat. We -- as we said, we're expecting rents to revert to the -- or the growth rate to revert to our long-term guidance. So whilst we're not going to be -- I don't think we'll be printing 5% or 10% per annum on market rents, we think it's perfectly reasonable to expect 3%, 4%, 5%, that kind of level. So yes, the total amount of reversion will shrink over time, but it's over a multiyear basis. I mean, we don't -- the reversion never gets captured in 1 year. So even if you've got a year or 2 of softer market rental growth, as long as it reverts to the level we think it will, that should mean we can sustain strong like-for-like growth for quite a years to come. So we're not too worried about that tailing off. And frankly, if it's a little bit lower, sooner or later, the development engine that Soumen referred to we'll start turning faster as well. So I think what's really attractive about this portfolio is the combination of the strong like-for-like rental growth and the ability to really run that development engine quite fast with data centers offering some cream on top of that.
Jonathan Sacha Kownator: And so the new supply that you're seeing is not something that [indiscernible] asset?
David John Rivers Sleath: No, we're not really not worried about supply levels anywhere, frankly. And in the submarkets we're in, it's pretty well constrained. Vacancy rates are a little bit up on where they were, for example, during the pandemic and soon thereafter. But overall vacancy rates in all of our key markets are pretty modest, frankly. And there's not -- we didn't talk about it in the presentation, there's not a lot of new space being built on a speculative basis right now in our markets.
Jonathan Sacha Kownator: It's mostly old [indiscernible] that you're seeing.
David John Rivers Sleath: There's a bit of older space coming back but mostly not competing with what we're offering and where we're located.
Soumen Das: I mean, Jon, the good news, as David said, you've seen vacancy tick down in our portfolio as a whole. You've seen ERVs up 1%, which tells you that there's still good rental tension there. And incentives on our standing portfolio are actually down a touch across half 1 '24 to half 1 '25. So there's -- the underlying operating conditions are still pretty healthy. So that reversion capture and we sort of laid out the '25, '26, '27 amounts totaling GBP 67 million. I think we are -- they're very visible, and we're very confident with capturing them and more, frankly, so we get -- as more rental growth comes through.
Operator: Next question is from Paul May from Barclays.
Paul J. May: Just keeping it to one at the moment. You're confident to the full year on sort of developments and outlook for the operational market and tenant take-up, which subsequently proved to be a bit too optimistic given the outturn over the first half and obviously, the guidance reduction in CapEx now. You're now confident again that we're going to get an uptick in that improvement coming through in the occupier markets and development. What risk is there that actually that also proves to be too optimistic, and we don't see that coming through. I think you've seen from some of your European peers, a little bit of a more subdued outlook. So just wondering the sort of differentiation you're seeing in your optimism that it will pick up now? And is there any risk to that?
David John Rivers Sleath: Yes. And I think the -- it's a [ fair ] challenge, Paul. I think we have had various points over the last 12 months, you're right back to mid last year when we were starting to see some green shoots, some optimistic things we're going to pick up. But the -- frankly, the geopolitics and the macro has produced a few rabbits out the hat. So it'd be wrong to say we're through all that because who knows where some of these trade deals are going to settle. But I'd say the most -- the real reason why we've got more confidence at this time, it will actually be the start of something, is that the pipeline of near-term pre-lets that we've actually got ready to start. If you look back at each of the quarterly statements we've put out for -- right back to the mid of last year, we didn't have those near-term projects ready to go. We do now. And we know we've got customers who want to take that space despite having factored in all that macro uncertainty. I think there comes a point when occupiers say, we need to get on and take some decisions and start planning for the future, and it feels like that's there. Now what the geopolitics does over the next couple of months, who knows? Because you can't discount that having an impact. But right now, the evidence in that near-term pipeline that things are picking up.
Operator: Next question is from Callum Marley from Kolytics.
Callum Marley: Just kind of a follow-up to that, I guess. You've outlined the strong organic and earnings growth and mentioned that the portfolio is impossible to replicate yet performance year-to-date has been one of the lowest kind of in the global industrial sector across global REITs. When you're speaking to investors and potential new investors, what are they waiting to see to get excited about the SEGRO growth story again or put it another way, what do investors not understand about the SEGRO growth story?
Soumen Das: I hesitate to answer that given I'm speaking to a call full of [indiscernible] investments. So telling you what I think you're thinking is a slightly dangerous space to start. However, I'll start with [indiscernible] by just this morning. We've had a real glut of results announcements in the last 24 hours, as I think all of you are aware. I haven't checked this precisely, but I think our earnings and dividend growth is right up there. And it's funny. When I look at some of the commentary attached to some of the others, which are described as strong, in our case, the earnings dividend growth, we sort of -- we've seen that done that, let's talk about development. And I think there's a single thing I think the market is slightly missing is the strength of the underlying portfolio to drive extremely healthy levels of return. And the optionality that comes from a fantastic land bank to increase that overall return potential through development, and it's in that order. And then we haven't even started to talk about data centers in terms of the results over the last 24 hours. I'm sure you'll all have seen Meta and Microsoft last night, they've added a lot more around the kind of the investment they intend to make into the world of AI, which then will further support our data center story. So I think there's a little bit of looking at a single area, which is development, which is actually one part for a much wider business. And I'd say, actually, at these levels where our shares of a 4.5% dividend yield and a very, very high confidence and visible ability to grow that at very healthy levels from here. I think that's probably -- I think there's a little bit of glass half empty when I sort of look at it glass half full from where I'm sitting.
Operator: This is the last question from the telephone line. We will now move to questions on the webcast.
Unidentified Company Representative: Yes. We have just a couple of questions from the webcast. The first one is with regards to the mention of record rents at Park Royal. Can you give us any more color on this? What sort of occupied demand are you seeing in this part of the portfolio, et cetera?
David John Rivers Sleath: James, do you want to answer that?
James Craddock: Yes, sure. But I think I'll refer back to our Capital Markets Day, our London portfolio, generally, in particular, our West London portfolio has an incredibly diverse customer base. And there isn't a single sector that necessarily dominate in terms of the deals that we're seeing. So again, I think the diversity of customer base is one of the strengths of the London portfolio and we're continuing to see that play through.
Unidentified Company Representative: And then we have another question on -- particularly on strength and structural trends on the continent and what we're seeing there in terms of e-commerce-led demand and weather defense, given some of the recent announcements could be a potential source of demand?
David John Rivers Sleath: Marco, do you want to pick that one up?
Marco Simonetti: Yes. This is an emerging sector, and we are monitoring and defense as many other factors that David mentioned before in the speech.
Unidentified Company Representative: Perfect. And there's one more that's just come through. Some news recently on open market rent reviews in the U.K.? Do we think there's any impact of that on the SEGRO portfolio?
David John Rivers Sleath: Can go to James.
James Craddock: Yes. So I think from a SEGRO perspective, we anticipate the impact of that to be limited. As you've already seen, we've got an under- rented portfolio. And you can see that from the reversion that we've still got there to capture in the portfolio. But also it's this piece that we have to raise the portfolio in the U.K. that we are in the strongest markets, which we expect to perform better than anywhere else over the medium and longer term. So ultimately, we're still trying for good rental growth, and so it should be limited impact.
David John Rivers Sleath: Yes. Not really something we lose any sleep over that one. Okay.
Unidentified Company Representative: That's it.
David John Rivers Sleath: Okay. I think we're done. Great. Thank you very much, everybody, for listening. Have a great day. We look forward to catching up with many of you no doubt in the coming days and weeks. Have a good summer.
Unidentified Company Representative: Thank you.