Segro ties up with Canadians in €1b JV

UK-based REIT Segro is joining forces with one of Canada's largest pension funds to establish a continental European logistics joint venture valued at nearly €1 bn.

In a statement on Friday, Segro said it will contribute virtually all of its assets in mainland Europe to the new 50-50 partnership with Canada's Public Sector Pension Investment Board (PSP Investments).

The portfolio, valued at €974 mln, involves 1.6 million m2 of Grade A logistics space across 34 sites in France, Germany, the Netherlands, Belgium, Poland and the Czech Republic.

The deal is in line with Segro's strategy to increase the use of third-party capital in order to increase its foothold in mainland Europe. 'The intention is to grow the portfolio to at least €2 bn through developments and acquisitions over the coming years,' the Slough-based company said. The venture will have a right of first refusal on logistics land retained by Segro in these markets, which totals 170 hectares.

As part of the deal, PSP Investments is committing equity of €303 mln for a 50% share, of which €152 mln will be paid at closing, expected for the third quarter of the year. The Canadian group has also agreed to provide another €62 mln to fund the development of a land bank of 84 hectares in Poland, Germany and Belgium, which offers potential for a further 390,000 m2 of modern logistics space. The partnership is also being financed with medium-term debt of up to €390 mln.

'This joint venture represents a significant strategic milestone for Segro,' said Segro's CEO David Sleath. 'The transaction is the first step in building what we expect to be a strong long-term relationship with PSP Investments as we seek to take advantage of the growth and consolidation opportunities in the Continental European logistics market.'

Segro will act as asset, property and development manager for the portfolio and will earn management fees from the venture. The proceeds from the transaction will initially reduce Segro's loan to value ratio (LTV) by 4% to 46%.

Following the deal, the UK REIT's remaining Continental European portfolio will include core assets in France, Germany, Poland and Belgium / Netherlands valued at €340 mln.

Morgan Stanley acted as exclusive financial adviser to Segro on the transaction.

Segro's tie-up with the Canadians comes just a few days after Brookfield Property Partners took control of UK-based logistics developer Gazeley. The vendor was Economic Zones World (EZW), a subsidiary of Dubai World.

Gazeley’s portfolio of large-scale logistics warehouses and distribution centres currently totals 524,000 m2 of lettable space. The company also holds a substantial land bank of 1.3 million m2 with a further 1.1 million m2 held under option agreements.