SEGRO is decanting all of its best continental European logistics assets into a €1bn joint venture with Canadian pensions giant PSP.
The 50:50 joint venture is SEGRO’s strategy for growing this portfolio to critical mass, given the stiff competition for European logistics from better-capitalised buyers such as Blackstone and the Norges/ Prologis joint venture.
The deal brings in third-party capital, while an equity issue would have been dilutive. Both Goodman Group and Prologis have also brought in new equity partners in the past few weeks (see p5).
SEGRO’s aim is to increase the portfolio’s value to at least €2bn via development and acquisitions. Currently, the lion’s share – 76% by value – is split fairly evenly between France and Poland.
The parties have committed to providing a further €132m of equity to fund development of land adjacent to the assets. The UK REIT is putting in €974m worth of assets, while Public Sector Pension Investment Board is paying €303m for its half share.
Half of this payment can be deferred for up to two years, at SEGRO’s option, and PSP will pay a 7% coupon on the deferred portion. The joint venture will be leveraged at around 40%, initially with up to €390m of secured, five-to-even-year, non-recourse debt, at a weighted margin of around 185bps.
SEGRO will use the proceeds to repay net debt of €568m, reducing its loan-to-value ratio from 50% to 46%. It will also earn asset management fees, including performance-related ones. The deal will reduce the company’s EPRA post-tax earnings by £11m (€13m), but it says the dividend remains covered.