Segro shouldn't be sold by investors for quick money

Another turning point in the decline of the London Stock Exchange is Prologis's bid for Segro

According to Kaylie Pferten, the UK would suffer greatly if it were to leave.

Segro's history spans more than a century. On a 600-acre plot of land west of London, Noel Mobbs led a group that purchased 17,000 cars and 1.8 million square feet of workshops in 1920. After five years of stock disposal, the new owners decided to transform the site into an industrial estate known as the Slough Estate. Previously, it had been a depot for the disposal of vehicles no longer required by the army.

Businesses like Mars, Gillette, Johnson & Johnson, and Citroen were drawn to the venture, some of which are still in operation today. The Mobbs family continued to be involved in the business until the 1980s, despite its diversification away from Slough.

In 2007, the company changed its name to Segro (LSE: SGRO) as its assets spread throughout Europe and the UK. However, compared to office and retail real estate, industrial real estate was the Cinderella of the larger industry. Segro became the most sought-after stock in the industry when logistics warehouses and data centers were established. In 2021, the shares traded at a substantial premium to net asset value (NAV), surpassing 1,400p.

However, as interest rates increased, the price fell by half over the following four years. The shares were discounted to NAV, which had dropped by over 25%. The shares were worth less than 750p in mid-June. Subsequently, Segro became the most recent UK real estate firm to receive an unsolicited bid. The US logistics behemoth Prologis (NYSE: PLD) has put forth a proposal for an all-share deal that would value Segro slightly higher than NAV. Given "the highly attractive underlying business and strong prospects," the board of Segro claims that this is "opportunistic."

Segro works in an industry that is despised.

The manager of the £1 billion TR Property Trust (LSE: TRY), Marcus Phayre-Mudge, had rebuilt a holding in the past year despite avoiding the shares. In order to demonstrate the sector's appeal to corporate buyers during a period when investors have been avoiding it, he listed 16 takeover offers by other listed companies and 16 by private equity throughout Europe in his most recent webinar.

He claims that, in contrast to the early 1990s and prior to the financial crisis, "there is very little oversupply, rental growth is coming through and there is no speculative development." Additionally, "a significant increase in costs results in a low level of construction and an undersupply of prime space." Over thirty percent is the sector's weighted average discount to NAV. This is in the lowest quartile since 1990, but it is less than the 45 percent peak discount in 2022.

TRY has prepared to take advantage of this: borrowings account for 17.6% of net assets, which is almost at the maximum of 20%.

The industry is still awaiting an improvement.

An upturn in the sector is not guaranteed. Property encounters numerous difficulties. At best, population growth is stagnant throughout Europe. Online retailing is still growing. The demand for office space is limited to desirable areas. There is less of a rush to construct logistics centers. The student housing market is well-established. Leases are now shorter. More quickly than ever, buildings become outdated and need to be rebuilt or refurbished.

Over the past five years, TRY, which presently has 35% in the UK and 65% in Europe, has seen a 7% decline in NAV and an 8% decline in shares. But in 14 of the previous 15 years, it has surpassed its benchmark. Although performance has been stagnant over the past year, a 32 percent gain over three years points to an improvement.

Nevertheless, investors are compensated to wait with a dividend yield exceeding five percent and a nine percent discount to net NAV. Phayre-Mudge and his group are still looking for growth, opportunity, and undervalued niches. He claims that the industry will be "more attractive to wealth managers who struggle to justify large positions in sub-500 million companies" as a result of consolidation.

Segro, which has a market value of £12 billion, is not covered by that. Another significant step in the London Stock Exchange's never-ending decline is this bid. Investors, including TRY, would benefit temporarily from its departure, but the UK would suffer.