Recent events at industrial properties landlord Segro (SGRO) are a double-edged sword for investors.

The full takeover of a portfolio of properties which includes cargo facilities at Heathrow airport looks a sensible move. However, a £556m one-for-five rights issue provides more than Segro needs for the airport assets at a heavy discount of 345p (the shares currently trade at 454.5p).

Investors are entitled to be somewhat miffed given the real estate investment trust tapped shareholders for £325m in an equity placing only seven months ago.

Segro is now paying £365m to Aviva Investors to acquire the 50% of the Airport Property Partnership vehicle it does not already own. The transaction comprises £216m in cash and a property swap involving four London properties and a recently completed manufacturing facility in Portsmouth.

The price paid looks high but there is logic behind the move. The investment offers an initial yield of 3.6% but the go-ahead for a third runway at Heathrow announced in October 2016 is likely to lead to increased demand.

The £175m left over from the rights issue will be used to fund existing developments and invest in its land bank.

Morgan Stanley is positive on the medium-term prospects for the business, reiterating its ‘overweight position’ with a 510p price target and commenting: ‘Owners of well-located logistics and industrial property should see further improvement in pricing power.’

We agree with Morgan Stanley’s assessment and are positive on the investment case. (TS)

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