Directors’ Deals: Segro chair puts faith in big boxes

Segro’s share price may have been slashed by a quarter since an Amazon profit warning in May sent its share price — and those of fellow warehouse developers — tumbling, but company directors have continued to buy up shares.

Since the Amazon update, newly appointed chair Andy Harrison has made a couple of sizeable share purchases — the latest being a £248,000 investment on August 15. The former chief executive of Whitbread now owns just shy of £1mn worth of shares in Segro.

When Harrison’s appointment was announced in January he said he wanted to “build on the tremendous growth the company has achieved in recent years” but its most recent results for the half-year to June 30 indicate that growth could be slowing or even reversing. Pre-tax profit dipped by 2.7 per cent compared with the equivalent period last year, while earnings per share nudged up by just 1 per cent.

The issue for the likes of Segro is the question mark around demand from ecommerce companies, which have been key to their success over the past decade. Amazon’s profit warning made investors feel queasy in part because the online behemoth accounted for a quarter of all newly-leased warehouse space in the UK in 2020 and 2021 but also because it is a bellwether for all ecommerce companies as inflation soars while consumer confidence falls.

Meanwhile, online shopping penetration looks likely to have peaked for the foreseeable future. Having hit a record high in January 2021, ecommerce’s share of all retail transactions has fallen sharply since.

Savills calculates that a record amount of warehouse space was leased in the first half of this year, yet all indicators suggest that this sky-high level of activity cannot continue.

Industrials Reit head sells shares to repay loans

The huge amount of warehouse space leased in the first half of this year meant vacancy rates fell to an all-time low of 1.18 per cent, but there are signs that fears about the health of the economy is extracting some of the heat from the market.

Investment in UK industrial property dropped to £1.6bn in the second quarter, from £4.6bn in the first, according to Colliers. As a result, the £6.2bn half-year figure is down by more than a fifth on the same period last year.

Investors in this market have done pretty well over the past few years but given the outlook it’s understandable that shareholders might want to crystallise gains — especially if, like a company associated with Industrials Reit chief executive Paul Arenson, you’ve borrowed a chunk of money to pay for them.

Lonat Ltd, owned by a trust of which Arenson is a beneficiary, borrowed £6.5mn from a subsidiary of the Reit in three separate chunks between 2015-17. The loans were made through a company share purchase plan at the Reit’s own average borrowing rate of 2.16 per cent, repayable within 10 years. More than 5mn shares were pledged as security on the loans.

The Reit listed in May 2018 and although its valuation has experienced some dips along the road (the most serious occurring during the Covid-related market panic in early 2020) it generally enjoyed an upward trajectory until the end of last year, gaining by 73 per cent from inception to a peak of 204p in December. The shares slumped by more than a quarter in the first half of this year but have rallied since mid-July.

Lonat has capitalised on recent gains, cashing in 3.5mn shares on August 18 and using the £5.24mn net proceeds generated to pay back most of the loans. The remaining £1.26mn was due to be repaid in cash a week later.

Industrials Reit said it would use the money to buy more multi-let industrial property. In its most recent trading update, it said the commercial investment market was “experiencing volatility” but that it is well-placed to capitalise, with free cash ready to deploy and a relatively low loan-to-value ratio of 26 per cent.

Arenson still has skin in the game, too — following the Lonat sales, he has a “direct and indirect interest” in 13.6mn shares — a stake of about 4.55 per cent.