Good morning everybody. Thanks for joining us this morning at short notice. Today, let's move on slide 1, so some quick intros before we get started. I'm delighted today to be joined by Bill Davis, Chief Investment Officer of Pure Data Centres Group. And for the Q&A session we'll also be joined by Andrew Pilsworth, our Chief of Staff, who amongst other things leads our data center strategy, as well as Soumen Das, our CFO. Next slide please. Before we get into the transaction we announced this morning, I'd like to quickly recap some of the things that we told you with our full year results presentation just a few weeks ago. Firstly, a reminder of our track record in data centers. We've been operating in this market since 2005 and we have a good understanding of the business as well as strong relationships with the major participants.
It represents about 8% of our current portfolio by rent. We have 34 data center assets in the U.K., mostly in Slough, which, as you know, is Europe's largest hub of data centers. Our strategy to date has mostly been to deliver powered shells and our announcement today marks the evolution of that strategy, the rationale for which I'll come on to shortly. Onto slide 4, please. We also told you about our 2.3 GW land enabled power bank focused on key availability zones, which we believe is one of the largest pipelines in Europe, and we gave you a rough timeline for the delivery of that power capacity.
Our focus on major urban markets means that we are well placed to benefit both from cloud driven requirements as well as the inference aspects of AI growth, and this opportunity will likely be accelerated by the emergence of technologies like Deep Seek, which will democratize and accelerate the adoption of AI. We believe that demand for data center space in these core markets will outstrip supply for many years to come, and we are confident that we have a significant and deliverable value creation opportunity with our exceptional power bank and related land positions. On to slide 5. As we have also discussed before, there are a number of routes that a real estate data center strategy can take, and they are illustrated on this slide. Our focus to date has been on powered shells, although we have also sold data center land.
Given the expected market growth plus the rarity of the land and power positions that we control, we've been considering how best to capitalize on the opportunity in front of us, and specifically whether SEGRO can efficiently capture a larger slice of the value creation pie. The announcement today formalizes the evolution of our strategy to include the development of fully fitted data centers on certain sites. We believe this will enable us to deploy capital at scale and generate returns over and above most other investment opportunities available to us. There are some risks involved in moving up the value curve, but we intend to carefully manage and mitigate these risks through, initially at least, working in partnership with experienced operators, as we're doing with this first project. Today's announcement does not mean that everything we do from here on will be fully fitted.
We intend to remain agile and will pursue whichever model offers the most attractive opportunity and risk-adjusted returns for each site. You are likely to see us deploy a mix of powered shells, fully fitted data centers, and in some cases powered land sales. Next slide. Let's move on to this morning's announcement. The formation of a joint venture to develop our first fully fitted data center. It is a 50-50 JV with Pure Data Centres Group, a company with over a decade of experience and a track record of delivering data centers to the most sophisticated users. The innovative partnership combines a 10 acre site that we own in Park Royal with 70 MVA of power available today that Pure have secured.
Through this partnership we intend to develop a data center with a 56 MW of IT load and we expect to pre-lease it to a major hyperscaler. As this site is in a key London availability zone where land and power are severely constrained and where we know hyperscalers are focused on growing their capacity. This partnership provides us with the technical expertise to embark on a fully fitted project and it will help us further strengthen our own data center expertise and knowledge. Now before going into more details on the project, I'm going to hand over first of all to Bill to tell you a little bit more about Pure and to provide some color on the market.
Terrific.
Next slide please.
First off.
Thank you David.
I just want to say how excited we are to announce this joint venture and excited we are to be here with you. Just very briefly about Pure. We are a hyperscale data center owner, developer and operator with a specific focus on core cloud infrastructure and in particular fully fitted and operational buildouts. As David mentioned, the company's been in existence for approximately 10 years. We have 500 megawatts of capacity either online or in development in core markets, primarily in Europe, with additional focuses on the GCC and APAC. We are a portfolio company of Oaktree Capital Management, one of the world's largest alternative asset allocators with approximately 250 people across the world. Next slide please. Fundamentally this is the backdrop for why we're so excited about this. London is the leading data center market within Europe and one of the very largest markets globally.
The market public cloud has roughly tripled over the past five years and frankly, it's not slowing down at all. We anticipate it to grow another roughly two and a half times over the next five years. It is, as I'm sure most of you have read, it is a key growth sector being backed not just by corporate interest by the U.K. government as well, and just worth really pushing on. Data centers are a form of real estate and so the specific location and submarket really matters. While there are a lot of themes in the sector, this site is beautifully positioned for core cloud infrastructure where there is a very significant supply demand imbalance. It gives us a great deal of conviction about the execution.
Just by way of example, you can look at some of the quotes from some of the biggest technology companies in the world. The level of commitment they're publicly making to this market that this site is exceptionally well positioned to capture.
Okay, thank you very much, Bill. Let's go on to the next slide then, please. Slide 9. Thanks a lot, Bill. Given those attractive market dynamics that Bill has just described, we're really excited about this opportunity that we've created together in West London. We're thrilled to be working with Pure, a business that we've known and admired for some time, which has the approach, capabilities, and experience to be a perfect partner for us. The trigger for this first project together is that each partner is bringing a special ingredient. We have the land and Pure has the power. Both of these are rare commodities in a tightly supplied availability zone such as the Park Royal availability zone. The 10 acre site on which the data centre will be built is owned by SEGRO and sits on the edge of our Premier Park estate.
It currently houses an older warehouse recently vacated by Matches Fashion, which filed for insolvency last year. Premier Park sits within one of London's key availability zones, Park Royal. This is a target growth market, as Bill just said, for a number of hyperscalers. The site does not have sufficient power for data center development anytime soon. If you do not have the power lined up today, it is a long wait, which is where Pure come in.
They've secured 70 MVA of power capacity in West London, which is available today, but which will need connecting to the site over the next 18-24 months. Over and above that, and as Bill's just explained, Pure also have the technical expertise and the experience of doing the data center fit out for the most demanding users as well as strong customer relationships with some of the largest players in this space. Together we intend to develop a 30,000 sq ft fully fitted data center with three storeys capable of delivering a 56 megawatt IT load. The building pack will be sized to accommodate a further 22 MVA or 16 megawatts of IT load which will be provided by a second phase of power due after 2030.
As Bill said, given the known customer demand in this area, we expect to pre-let the entire capacity to a single hyperscaler. Next slide please. The total investment in the project is expected to be around GBP 1 billion, much larger than we would see for a powered shell. This is due to the cost of the fit-out, which includes generators, cabling, cooling systems, security, and fire suppression systems, etc. The funding structure will also be different to that which we would use for a normal project. Once we've secured a pre-lease with a hyperscaler, the joint venture will seek to secure non-recourse bank financing on the project, which is a very well supported funding model given the expected quality of the covenant.
The balance of the financing will come 50-50 from the two partners in the form of land and power contributions and a cash equity contribution. We expect SEGRO's share of cash equity contribution to be roughly GBP 150 million. Now, whilst the total investment cost is substantial, the returns are attractive. We expect the unlevered net yield on cost for this project to be between 9%-10%, leading to a significant development gain and an attractive overall IRR. The other point to note here is that we're not paying any development fees. Both partners are providing their expertise and input at no additional cost to the JV. On to slide 11 please. Finally, a few words on the timeline. Now that the JV is signed, site clearance will begin, a planning application will be submitted and pre-marketing of the site will commence.
Financing and the construction contract will be arranged in parallel with lease negotiations. We hope and expect to be able to start construction in 2026, which means the shell should complete in late 2027. The fit out would then be undertaken and would be delivered to the customer in phases, most likely in 2029 and 2030, at which point it will start to generate income from that stage. Onto slide 12 then. To conclude, we're really delighted to be working with Pure to deliver our first fully fitted data center in what is a creative partnership that is expected to deliver a GBP 1 billion fully fitted data center, producing strong returns for our shareholders. Our 2.3 GW land enabled power bank located in core availability zones across Europe offers the potential for further significant value creation in this fast growing sector.
As we move forward, we'll assess each and every opportunity to decide on the approach that optimizes the value upside and delivers the most attractive risk adjusted returns, whether that be further powered shells or fully fitted data centers, perhaps in conjunction with partners like Pure or through other routes. Thank you for listening to us. We're very happy now to take questions and I think we're going to go to the conference line first of all. Drew, if you'd like to open it up for questions, please.
Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, it is star followed by two. Our first question today comes from Rob Jones from BNP Paribas. Your line is now open. Please go ahead.
Great. Thank you very much for taking my couple of questions. The first one was on the value of the land. I appreciate you have not disclosed it. If I think about, or if I assume a yield. Sorry, if I assume an LTC rather than LTV of say 70%, then implicitly that would be GBP 1 billion of total costs, GBP 700 million of debt held by the JV and GBP 300 million of equity. Now I appreciate you have already said that you are contributing GBP 150 million of cash equity and HoldCo 6, I guess also puts in GBP 150 million of cash equity. Some of that obviously already adds up to GBP 1 billion. That would imply zero value for the land. I am just wondering if you have any comments around that.
Maybe the answer is the value of the land plus site clearance in terms of your cost equals the implied value of the 70 MVA that Pure are contributing. That was my first question.
Okay, Rob, I'll let Soumen comment on the detail. There's probably a bit of precision in your calculations that might be leading you to the wrong conclusion because we value the land at quite a bit more than zero. Soumen, do you want to make a comment on that?
Yeah, look, I think the point to make is there's quite a lot of moving parts here that we're entering into the joint venture today. We've set out the plan to kind of create our first fully fitted DC, but there's quite a lot of water needs to pass on the bridge between from where we are today to securing the pre let, then building it out and having it fully operational. The reality is powered land in the Park Royal area and particularly in Premier Park, you would typically value in the order of GBP 5 million-GBP 10 million per acre. And so as David said, we're clearly not valuing it at zero. We're saying obviously our equity contribution is that plus a further, call it, around GBP 150 million of equity and the gross capital spend on the whole project is around GBP 1 billion.
I would just draw your attention to the circa that precedes the billion pounds to say there is, there's a little bit of just deliberately approximating around it. The debt package for this, something like this with a hyperscale lease in place, if you go to the market you get something 60-70% loan to cost. The area is very doable. It's just you're not kind of, the land value is not zero. I think you're telling other things you said are not far off, but just be slightly careful around being too precise in a project that's got some way to travel.
Okay, clear. Then the other one was in terms of yield on completion, if I was assuming, I don't know, 5.5% yield, that would imply roughly GBP 350 million of development profit to come per JV partner and I guess linked to that. I guess A, do you have any comment on that? Then secondly, if we were assuming say an LTV at the end of say 60% potentially that could mean you could get all of your equity back out should you wish to, and then use that to fund other projects going forwards. I wonder if that was a consideration on your part post completion, post finding.
Yeah, Rob, I think that's interesting speculation on the likely shape of the numbers and I'm not going to comment on those because as Soumen has already said, there's quite a lot of moving parts. Some of the numbers you've come up with there are kind of in the right ballpark, but we're not going to give you the exact specifics.
Very fair. Thank you very much for taking my questions.
You're welcome.
Our next question today comes from Marios Pastou from Bernstein. Your line is now open. Please proceed. Marius, your line is open. Please go ahead.
Hi, thank you very much. Apologies. Thank you for taking my questions and for the additional information. Just a couple of questions from my side. Can I just check in terms of you mentioned your planning application is to be submitted. Is there any issues here you could foresee that potentially could delay any of the project timeline, depending on the change of use, or also your plans for the future timeline of the project?
I mean, we never take planning for granted. We've got a number of important stakeholders to inform and take with us on the journey. Both Brent Council, the GLA are very important stakeholders in this. We've had some early conversations with them. The project is compliant with the planning guidelines. Also, as you'll probably be aware, the U.K. government has identified data centers as strategically critical national infrastructure. You'll have seen also the quotation in our release from the Secretary of State. I think we won't take anything for granted, but we'd like to think that there's a very good chance this will be supported at the planning stage.
Very clear, thank you. In terms of those discussions progressing on a potential lease, how secure is this in terms of achieving a lease ahead of construction?
Yeah, look, I'll let Bill comment on it, but you know, as we've already said, this is an absolutely critical target availability zone for a number of hyperscalers. We know that the power and the land availability is incredibly scarce for any hyperscaler who wants space in this area. As I said earlier, we're confident that demand is going to outstrip supply. Bill, maybe you could add a bit of color.
Yeah, happy to. Completely reinforcing what David said. We're not going to overly specifically comment on customer negotiations at the moment, as I'm sure you'll appreciate, but given the location, supply, demand imbalance, we're exceptionally confident of the ability to let this space in line with the time frame that's been laid out.
Okay, very clear, thank you. Finally, one more from my side on slide 11 of the presentation. Can I just confirm the exact point at which the income starts getting produced on the lease to the JV partners? Is it at the point where the construction and fit out commences? Is it the kind of plus 18 month period where the first fit out completes? I just want to make sure that the income from the lease, when it kicks in, is aligned with expectations?
Yeah, I mean, I'll let Bill comment on specifics, but again, we've given you an indicative time frame. There are lots of moving parts that all need to come together. Bill, maybe you comment on that.
I'll just make a conceptual point rather than a specific quarter X or quarter Y. Large projects like this come online in phases, and you'll see the first phase, the second, the third, the fourth, cash flowing while the remaining phases are fitted out.
Yeah.
Okay, thank you.
Our next question today comes from Zachary Gauge from UBS. Your line is now open. Please go ahead.
Hi. Morning everyone. Couple of questions, one more specifically for Pure DC and then one for both of you. For Pure DC, it says in the press release you have 500 megawatts under construction and available power that you've developed. On your website it says 200 megawatts, which is quite a sizable difference. If you could touch on why sort of the gap there is so wide and also perhaps give a few examples of hyperscalers that you've worked with on a prelist basis and delivered fully fitted units for globally. The second one for everyone and kind of following up on one of the earlier questions, I think we know globally the challenge with this model has been securing the Pure Leaf. That's obviously the really valuable part of this development project and that's where you get sort of the uplift on value.
What sort of really makes you confident on this specific location? Perhaps if you could touch on why Park Royal is seen as slightly different to Slough, where obviously SEGRO already has a platform and has quite a lot of power availability. Why is Park Royal different in that sense? Again, why are you sort of very confident that you will secure a pre-lease? Could you give any examples of hyperscalers who have recently pre-leased a fully fitted unit in and around the London area? Give us some context on that.
Thanks
Bill. Do you want to start off?
Yeah, look, a couple of things to hit on there. One, you have correctly noted our website needs a refresh. There's nothing I can do but apologize on that. I tell you that is in flight and we expect to launch that shortly. The figure, Gauge, today is the correct figure and I hope you'll appreciate. Again, as a private company, we're not going to overly disclose specifics about our portfolio, but we are in a number of major European markets like London, although of course none is as big as London in Europe and our customer base is the very, very largest customers in the world. The AAA and AA rated American technology hyperscalers of whom we have multiple deals with multiple of them across our global footprint. In terms of the pre -let, this is fundamentally again a function of location.
Right, you noted Slough and Park Royal. Slough is the single largest submarket within what is broadly defined as London. The way that, without going too far into specifics, the core cloud infrastructure works separate from things like artificial intelligence is through what are called cloud regions that need to be balanced. For the major hyperscale customers, they have big footprints in Slough, they have matching footprints in Park Royal. Slough cannot run that far ahead of Park Royal in order for their infrastructure offering to work as they have promised it to their customers. This is fundamentally a function of supply and demand. There is enormous demand for growth and there is an extreme constraint on supply in this submarket and there is a lack of flexibility.
Our customer base cannot put this capacity in the Docklands, they cannot put this capacity in Waltham Cross and have it work the way they need it to. You look at the overall trend line, the supply and the demand, again, it is what makes us so confident about the ability to pre- let this.
Maybe just to add, Bill, in terms of that London and West London market, there are effectively three key availability zones, Park Royal, Hayes and Slough. It is all about having the ability to replicate and have resilience. If you are a hyperscaler, you do not want to rely just on one data center cluster in one availability zone. That is why you see demand for space in all three of these areas.
Yeah, and you mentioned, have we seen examples? Again, I won't, I won't cite specifics because they're confidential, but we are just within the last, call it, 24 months, aware of at least five or six specific examples.
Okay, great. Just maybe a very quick follow on. Appreciate your private company. So did not mention anything, but have you delivered fully fitted operational data centers to these large hyperscalers that are currently up and running?
Yes.
Yes, I was at our data center, operating data center live with a major hyperscaler in West London on Friday. We were just doing a little walk around following the Heathrow scare, making sure everything was good and talking with the team. Happy to say no impact operations at all.
Very good. Thanks and welcome to the sector.
Our next question today comes from Max Nimmo from Deutsche Bank. Your line's now open. Please go ahead.
Morning guys. Thanks for the presentation and the Q&A. Just a quick one from me. You've been pretty clear about the fact that you're not going to be taking on IT equipment, racking servers, this kind of stuff. I guess one of the big questions that the sector still has as a whole though is just on this kind of obsolescence point and as you said at the top, this is not risk-less. Within that sort of M & E element, sort of long lead equipment, where do you see the biggest obsolescence risks are? Obviously you're trying to mitigate those as much as you can, but just to try and get a bit of a feel for where are some of those obsolescence risks that sit within this over a 15 year, you know, tie horizon.
Thanks.
So.
It's a really good question. It's one we think about a lot as well. It's worth really driving on the fact that while we are an enabler of high technology, we're providing infrastructure. Fundamentally, power and cooling are not significantly rapidly changing concepts. You do see some evolution in the specifics, but the relative scale of the refreshes at the end of these leases are relatively modest. While obviously the sector has grown significantly, there were a number of these contracts signed now 10 years ago and those contracts have rolled. You probably see this a little bit more in the U.S. but the scale of the refresh and the releasing is entirely consistent with what we'd expect, which is that demand remains robust and there is a relatively modest requirement for refurbishment.
I would also just add that the lease structure that's being pursued by the joint venture is designed to further insulate from this in terms of responsibility for maintaining the equipment.
Got it. That's very clear. Thank you.
Our next question today comes from Jonathan Carter from Goldman Sachs. Your line is now open. Please proceed.
Good morning. Thank you for taking my questions too. If I may. The first one, I think we discussed in the past about sort of rule of thumb of about GBP 1 billion to 100 megawatt, excluding the cost of land, I guess, for all the equipment and the MEPs, etc. I just wonder if rule of thumb still works or if you've seen increases in costs more recently or if you're building, I don't know, for instance, for higher spec. That's the first question. Please.
Andrew, do you want to comment on that?
Yeah. Morning.
I mean, obviously we have built in. We've built in what we think. The numbers here are indicative.
As Soumen said, that's the first point to make.
We've built in what we think are very sensible cost estimates in line with market. When it all triangulates, when you.
Look at the expected yield on cost, noting that that is indicative.
We believe it's bang in line with market.
A yield on cost of 9-10%.
I think probably those numbers you quote there probably have moved on a bit. But as Soumen said at the start.
That you need to be really careful.
With this, given the numbers are indicative.
Not to go too precise on dividing one number by another to get to the cost per megawatt. We're very comfortable that the estimates that.
We use here, whilst being indicative, are.
In line with market.
I think the point is that, you know, the other point is that, you know, Park Royal is not the cheapest location in the world. You wouldn't, you know, if we were building this in some remote location in Spain, for example, you'd expect the cost to be considerably lower. You know, the costs are higher, but so will the revenues be higher because of the loop, because of the scarcity of the location.
Yeah. Okay, very clear. The second question was if I look at the JV contribution. You are saying that on the SEGRO part you are contributing the land and GBP 150 million. I just wanted to understand on the Pure DC part. There is the power contribution. Are you also going to contribute the same amount of GBP 150 million of equity or is that a different contribution?
Yeah, I mean both parties are contributing some, if you like, tangible asset. In the case of Pure, it's the power. In the case of SEGRO, the land. Both will be contributing a cash equity sum to fund the development that's not covered by the project finance. That's kind of all the detail we can share with you on that.
Both parties ultimately are putting 50% of the equity in, whether in kind or in cash.
Okay, so the contribution on the D.C. part is not GBP 150 million. It's not the same.
I'm not going to comment on the valuation of the power, but overall the equity that both parts are putting in is 50-50. You see, you can come to a reasonably good view as to what the land value being contributed in is. And we're saying that our cash equity is a further GBP 150 million. The total equity contribution of our partner will be of the same magnitude.
In total,
yeah, it's a 50:50 joint venture. If it ends up being GBP 150 million of equity from SEGRO, it will be GBP 150 million of cash equity from Pure as well.
Okay.
All right, thank you.
Our next question today comes from Ventsi Iliev from Kempen. Your line is now open. Please proceed.
Good morning everyone. Thank you for the presentation. Just a quick question. Is this a one time JV or are you actively exploring further opportunities together? Actually just one clarification question. Does the GBP 1 billion capital commitment include the value of the land and the power? Thank you.
Just deal with the second piece, yeah? $1 billion does include the value of the land and the power. On your first question, is this a one off? I hope not. I mean this is the first deal we've done with Pure. As I said earlier, it's something we've known for a long time. We've been talking specifically about this project, but our partnership and our intent is not limited to a single site. I wouldn't be at all surprised if you find that we announce further deals with Pure or indeed other potential partners in the future.
All right, very clear, thank you.
Our next question comes from Callum Marley from Kolytics. Your line's now open. Please go ahead.
Morning guys. Thanks for taking my question. Just a couple. On the fully fitted model, given the significant CapEx and equipment required, how sensitive is the 9-10% development yield to CapEx overruns in the construction phase? What are the kind of new delivery or operational risks that you're now exposed to in this model versus the powered shell?
Look, I can say that, as I sort of say in the beginning, you've got the priority of the joint venture next 12 months is to get a pre lease secured. Alongside that we'll be negotiating a debt package and a construction contract. All those three things will come, the plans, they come together together and therefore the construction contract will match the specification, the requirements. That's under the lease. Now clearly in any development project there is a risk of overrun. Look, given the Pure track record in this particular space and our wider track record across our wider pipeline, I think that's a manageable risk. Frankly, when we know the specification of what we're building, it won't surprise you that within the GBP 1 billion that we're talking about, there's a reasonably decent contingency in there for the unknowns that sitting here today we're not aware of.
That's clear. Just the second one, it sounds like the net lease structure is the preferred method. If you can't achieve this over the next couple of months, would you consider going into the operational model or a hybrid between the two, and then would that materially change anything with yields or profit and cost?
Yeah. No. Look, at the end of the day we're here to serve our customer and provide the product they want. Our preference is to go for a fully fitted model where it's a net lease structure and those are numbers we've quoted on that basis. If the customer, for whatever particular reason requires it to be a, if you like, a fully serviced operational data center. The good news is Pure have tons of experience of doing that, providing that capability, and the economics on a net basis would still work out to be similar. The gross income would be higher, and that would cover the cost of providing the services required. Either way we're comfortable with the overall net return we're showing here.
Okay, that's clear. Thank you.
I'll now hand over to Claire to run through the webcast.
Questions?
Thank you. We just have one question on the webcast. With the change here to a kilowatt per month pricing model versus the usual square footage model, how do you expect this to change the income profile of the lease, please?
Oh yeah, that's pretty straightforward. It's not a variable price is the point to say this is not like a turnover lease according to the pallet. So it's just the way that the lease is negotiated. The data center market talks about prices per kilowatt of capacity. Once you've negotiated and agreed it that's fixed. So the income profile is exactly the same as any other real estate lease. It's just the way. It's the way the headline pounds and millions are calculated is just done differently. You end up with the same profile.
It's likely there'll be some form of inflation linkage going forward. Yeah, that's a good point. You wouldn't have. Unlike a typical U.K. lease structure we have a five year upward only review. Look, everything is. I say to launch this joint venture we need to go and negotiate it and turn it.
That's a good point. There will be inflation protection.
Yes.
Okay, terrific. Thank you all very much for sparing the time this morning. We as I said earlier, are super excited about this first step into the fully fitted market. We're thrilled to be working with Pure. A lot of work to do but this is a great first step for us, so we look forward to updating you all in the coming months. Thank you.