Segro, the former Slough Estates, has traditionally monitored the balance between UK and mainland European assets to benefit from different real estate and economic cycles. The Brixton acquisition has boosted its portfolio but also tilted it heavily toward the UK.
"On Dec. 31, 2008 our portfolio was by space almost exactly 50-50 Europe and UK," Coull says. "As a result of the Brixton acquisition it is now 72-28 in favor of the UK. But I never set out a target breakdown between the two. We got to 50-50 because we were investing more in Europe in the two years leading up to the end of '08 than we were in the UK, simply investing where we thought we were going to get the best returns. So looking forward I'm not saying we're going to get back to 50-50 this year, next year or the year after. We may well do, but it will be because we have invested our capital in the right place."
With an asset portfolio of $8.1 billion, Segro provides flexible business space across Europe - offices, light industrial, logistics, warehouses and datacentre properties. For 2009, it reported net rental income up 10% at $413 million and adjusted pre-tax profit up 16.8% at $160 million, reflecting inclusion of Brixton results for the last four months. "Brixton was a fantastic opportunity for us and was one that at the beginning of 2009 we couldn't have anticipated," Coull says. "It had always been fully valued and had a high market cap relative to the size of its assets but it got into so much financial distress leading up to and then in the first few months of last year."
Coull had moved early to strengthen Segro's balance sheet, already in April raising $767 million at a time when many firms saw their share prices too depressed, and the stock market unwilling to support equity moves. But the proceeds gave Segro financial firepower just at a time when Brixton was in trouble. "We frankly had no choice but to go after them; it would have been corporately criminal just to have ignored it," Coull says. "The approach was made in May and the deal was secured by August. We paid an enterprise value of $1.8 billion for a company that was worth $7.7 billion two years earlier."
Coull was surprised by the collapse of UK property in the crisis, estimating trough to peak at 47% compared to 20% in mainland Europe. The group is active in nine countries: three core - France, Germany and Poland - but also Belgium, Italy, Netherlands, Spain, Hungary and the Czech Republic. "The reason we are in Europe is because we do see diversification across geographies as being quite an important hedge against one economy doing particularly well or badly," he says.
So where does Coull see Segro placing most emphasis in the next months? "We're still a cautious company; we're still quite bearish about the global economy. We are not in the double-dip camp but we are still very concerned that economies are not out of the mire yet, and the possibility of bumping along in Europe and the UK with zero to 1% GDP growth is a real possibility.
Allan Saundersonis a managing editor of Property Investor Europe and a contributor to GlobeSt.com.Want to continue reading?
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