Grainger plc · LSE:GRI
Grainger — H1 2011 Earnings Presentation
75 slides from Grainger's earnings presentation, May 19, 2011
Slide 1: Half Year Financial Results Presentation
Half Year Financial Results Presentation 19 May 2011 Final
Slide 2: Disclaimer
Disclaimer This presentation contains certain forward-looking statements. Any statement in this presentation that is not a statement of historical fact including, without limitation, those regarding Grainger plc’s future financial condition, business, operations, financial performance and other futu
Slide 3: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 3
Slide 4: Highlights
Highlights • Acquisition of Genesis share in Grainger GenInvest, giving 100% ownership of c1,650 Central London properties (£289m market value, £354m vacant possession value (VPV)) • Acquisition of HI Tricomm for £18.5m, let to MoD, financed by non-recourse debt with a final maturity in October 2028
Slide 5: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 5
Slide 6: Grainger plc
Grainger plc The UK’s largest listed specialist residential property owner and manager • Business activities comprise ownership and trading of tenanted residential properties, provision of retirement solutions, property services, fund management and a small development component • Activities and por
Slide 7: Our Business
Our Business • Grainger owns, acquires and trades regulated and market-let tenanted properties, and has a substantial portfolio of home reversion properties. We also undertake fund, property and asset management along with a limited level of residential-led development • The Group generates income f
Slide 8: Our Business
Our Business • The heart of Grainger’s business model is to gain Concept of Reversion control of assets at low value and sell them at significantly higher value Acquire asset with tenant “Investment” phase Sell asset in place with VP – This runs through many of the UK businesses: UK Residential, Ret
Slide 9: Portfolio Characteristics
Portfolio Characteristics Sustained demand through the cycle supports asset values Cumulative Performance vs. HPI (Rebased, • Defensive nature of Grainger’s properties is 2004=100)(1) demonstrated in lower volatility of its UK asset 125 values compared to national averages 120 115 • This is driven b
Slide 10: Portfolio Characteristics
Portfolio Characteristics Further support for asset values • The proceeds realised by Grainger upon vacant Average HPI Growth over 8-Year Period(1) possession are linked to long term, rather than short 8 year grow th 200% term HPI 175% 150% – For example, for properties sold during the year 125% to
Slide 11: Portfolio Characteristics
Portfolio Characteristics Stability of cashflows due to low rental defaults and predictable reversion rate • Grainger has demonstrated a predictable cash flow Historic Reversion Rates(1) profile from rental income and sales proceeds 10.0% • Rental income is very stable with minimal cash 7.8% leakage
Slide 12: Portfolio Characteristics
Portfolio Characteristics Income stability underpinned by predictable reversion rate Reversion Rate Stable at 6% – 7%, Providing Steady Stream of Properties for Sale High Sales Velocity at Good Prices Cash Generation From Property Sales Page 12
Slide 13: Regular, Resilient Cashflows
Regular, Resilient Cashflows Financial Years Ended 30 September 6 months to 31 March 2011 2010 2009 2008 2007 2006 Gross rents (£m) UK Residential 21 39 41 42 39 47 Retirement Solutions 3 6 6 6 2 - Development - 1 1 1 2 1 Germany 15 30 30 22 10 5 Total 39 76 78 71 53 53 Total Property Sales (£m) UK
Slide 14: Grainger Proposition
Grainger Proposition Large and well Robust asset values relative positioned portfolio to broader market Good geographic balance with Outperformance of wider weighting towards London and market achieved through SE in UK, virtually no exposure selective investment policy, to newbuild active portfolio
Slide 15: Key Strategic Initiatives
Key Strategic Initiatives Initiatives Examples Portfolio refocus on selective areas of value or growth, through application of – Already in hand via recent acquisitions such as GenInvest (£289m), HI careful acquisition criteria Tricomm Holdings (£105m) Increase weighting towards London and – Geninve
Slide 16: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 16
Slide 17: Financial Highlights
Financial Highlights • Gross NAV per share increased by 5% to 210p • NNNAV per share increased by 13% to 158p • Operating profit increased by 24% to £59.4m • Profit before tax increased to £65.2m from £3.5m • Further progress on re-shaping sources of debt; work continues • Tender offer for shares in
Slide 18: Half Year Financial Results Summary
Half Year Financial Results Summary March 2011 March 2010 Movement Operating profit* (£m) 59.4 48.0 +24% Profit before tax (£m) 65.2 3.5 March 2011 September 2010 Gross NAV per share** 210p 200p +5% NNNAV per share** 158p 140p +13% Net debt (£m) 1,570 1,350 of which - syndicate (63%) 992 (78%) 1,056
Slide 19: Wholly Owned Portfolio Summary
Wholly Owned Portfolio Summary Portfolio No of Market VP Reversionary units value value surplus VP £m £m £m % Regulated 6,472 1,009 1,355 346 74 AST 1,237 231 264 33 88 Vacant 255 61 61 - 100 Tricomm (MOD) 317 105 105 - 100 Other 50 44 56 12 79 Total UK Residential 8,331 1,450 1,841 391 79 (UKR) Rev
Slide 20: Gross NAV balance sheet
Gross NAV balance sheet 31 March 30 September 2011 2010 £m £m Property related assets - wholly owned 2,445 2,127 - jv/associates 74 116 Total property related assets 2,519 2,243 Other assets 33 20 Cash 73 95 Gross assets 2,625 2,358 Debt (1,643) (1,446) Other net liabilities (107) (80) Net assets 87
Slide 21: Movement in Gross NAV
Movement in Gross NAV 1000 £37m £(25)m £49m £(10)m £(5)m £875m £832m £(3)m 900 £'m 800 700 600 Gross NAV Profit after tax Revaluation Elimination of Fair value of Dividend Other Gross NAV Sept 10 Surplus valuation derivatives net March 11 surplus on of tax disposal This is the standard bridge chart
Slide 22: NAV Reconciliation at March 2011
NAV Reconciliation at 31 March 2011 400 300 Pence per share 13p 210p (18p) 57p (15)p 200p 200 16p (34)p 83p 158p 98p 100 0 Statutory Uplift stock Adjust for Deferred tax Gross NAV Adjust for Deferred NNNAV Discounted Deferred tax Grainger Balance to market derivative on property (EPRA) derivative/ a
Slide 23: Income Statement
Income Statement March March £m 2011 2010 Movement Commentary Gross rental income 39 38 1 No change - rent reduction from sales of property Property expenses (12) (11) (1) balanced by increases from new acquisitions Net rental income 27 27 - (e.g. Tricomm) Property sales net of sales fees 86 89 (3)
Slide 24: Group Debt Analysis
Group Debt Analysis March September 2011 2010 £m £m Gross debt 1,656 1,455 Unamortised loan cost (13) (10) Balance sheet debt 1,643 1,445 Cash 73 95 Net debt (A10) 1,570 1,350 Cash/ undrawn committed facilities 155 260 March September 2011 2010 Average debt maturity (years) 4.0 3.5 Hedging level on
Slide 25: Movement in the Composition of Lenders
Movement in the Composition of Lenders Facility £m 400.0 350.0 300.0 250.0 200.0 Sep-10 150.0 Mar-11 100.0 50.0 0.0 Page 25
Slide 26: Movement in net debt
Movement in net debt 1,650.0 255 (39) 13 1,570 16 (88) 23 (17) 14 1,550.0 41 27 1,450.0 £m 1,350 (25) 1,350.0 1,250.0 Page 26
Slide 27: Summary Cashflow
Summary Cashflow 6 months ended £m March 2011 March 2010 Income Net rents and other income net of overheads 16 15 Property sales 88 89 Working capital movements (1) (5) Total cash generated 103 99 Interest, tax and dividends (41) (42) Net operating cash 62 57 Loan movements (39) (156) Net proceeds f
Slide 28: Use of Rights Proceeds
Use of Rights Proceeds £m Net proceeds from rights issue in December 2009 237 The intention of the rights issue was to repay some debt and take advantage of significant opportunities Some of the transactions we have undertaken since December 2009 are: Repayment of syndicate debt (105) Acquisition/Re
Slide 29: Tender Offer
Tender Offer Tender offer of 1 for 238 at 149p, representing a premium of 20.4% to the mid closing share price of 123.75p on 18 May 2011, will be proposed in a circular to be issued shortly, delivering £2.6m of cash to shareholders. • This is in place of this year’s interim dividend and returns appr
Slide 30: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 30
Slide 31: Strategy in Action
Strategy in Action Leveraging our asset base and management capabilities Page 31
Slide 32: Achievements
Achievements 1. JV with Moorfield (October 2010) 2. HI Tricomm Holdings Limited (February 2011) 3. Aldershot Urban Extension (February 2011) 4. Newlands, Waterlooville (March 2011) 5. Grainger GenInvest (March 2011) 6. Lloyds’ Residential Asset Management Platform (May 2011) 7. German Residential Pa
Slide 33: JV with Moorfield
October 2010 JV with Moorfield Third party capital • £17.5m + acquisition costs • Rationale: reputable and long term investment partner; enables us to leverage our Retirement Solutions platform • Strategic drivers: • Provides additional income stream • Introduces third party capital • Helps access t
Slide 34: HI Tricomm Holdings Limited
February 2011 HI Tricomm Holdings Limited Strong yield, 9+% • £18.5m for 317 freehold properties let to MoD until 2028 in five locations in Bristol and Portsmouth. • Gain on acquisition of £14.9m. • Rationale: good yield; long term debt; high quality assets; long term returns; enhancement of recurri
Slide 35: Aldershot Urban Extension
February 2011 Aldershot Urban Extension Long term income; minimal risk • Appointed as preferred developer by the MoD and HCA. • MoD own the land. • 148 hectares of development land for up to 4,500 houses. • 15-20 year project. We receive development service fee. • Rationale: no development risk; lon
Slide 36: Newlands, Waterlooville
March 2011 Newlands, Waterlooville Long term; good returns • Outline planning consent for 2,550 houses and detailed planning consent on phase 1 for 194 dwellings to be brought to market from H1 2012. • c200 acres of developable land with consent. Grainger to service parcels of land over 10–15 years
Slide 37: Grainger GenInvest
March 2011 Grainger GenInvest One of a kind London portfolio • c1,650 units, most within 4 miles of Westminster. • Full ownership from 50:50 jv with Genesis. Market Value of £285m. 469 regulated tenancies, 302 assured tenancies, 654 market lets. • Rationale: good quality assets with strong capital g
Slide 38: Lloyds RAMP
May 2011 Lloyds RAMP Additional income stream • Chosen provider of Residential Asset Management Platform (RAMP) for Lloyds Banking Group • £2m fee income per annum on existing instructions • Rationale: • Ability to add value to portfolio • Alignment of interests between Lloyds and Grainger • Strateg
Slide 39: Portfolio Overview
Portfolio Overview Substantial asset value and future revenue potential embedded in Grainger’s large, mature and geographically diverse portfolio focused on attractive areas Vacant No. of possession Investment UK units value, £m(1) Value, £m % London & SE: 61% 1 London (Total) 4,148 1,173 918 48% of
Slide 40: German Residential
German Residential Key indicators Business as usual Average rent psm €6.41 sqm/ per • Working to strategic plan outlined in November month Vacancy rate 5.74% by units • Strategy: excluding units for sale • Optimise revenue and capital expenditure Gross and net rental 6.85% gross, 4.67% yields net ex
Slide 41: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 41
Slide 42: Where are we today?
Where are we today? Two years ago we wanted to: Today we have: Strengthen management team Management team in place and delivering Reduce LTV LTV (core facility) is now 54% from 66% in 2009 Take advantage of opportunities Seized several opportunities, e.g. Aldershot; HI Tricomm; GenInvest Rebalance o
Slide 43: Outlook
Outlook • Board expects Grainger’s actively managed portfolio to outperform the subdued broader market conditions • Selective investment approach with clear criteria • Spread of activities (rental, trading, development and investment) provide a strong platform uniting a core skills set • Attractive
Slide 44: Strategy in Action: Financial Times article
Strategy in Action Financial Times 3 May 2011 Grainger’s eye for a deal One headline stood out in the personal finance sections of last weekend’s papers: “Can you make money out of a stagnant housing market?” Grainger, the UK’s largest residential landlord, is showing exactly how, following recent d
Slide 45: Agenda
Agenda 1. Highlights 2. Background to business and strategy 3. Financial performance and update 4. Portfolio performance 5. Outlook and close 6. Appendices Page 45
Slide 46: Key Segments at a Glance
Key Segments at a Glance UK Residential Retirement Solutions Fund Management • Owns and manages a portfolio of • Market leader in the home reversion • Our fund management and residential tenanted residential properties sector of equity release. Significant investments business comprises our • Proper
Slide 47: Types of UK Tenancies
Types of UK Tenancies Regulated Assured Assured Shorthold Life/Home Reversion % of UK portfolio(1) 48% 6% 11% 27% Regulated by Rent Act 1977 Housing Act 1988 Housing Act 1988 FSMA 2000 Security of tenure Yes – with succession Yes 6 months Yes rights Rent Set by Rent Officer Market rent Market rent U
Slide 48: The Reversionary Business Model
The Reversionary Business Model Lifecycle of a regulated tenancy or home reversion Acquire asset with Sell asset with vacant tenant in place “Investment” phase possession • Regulated tenancies typically • Low rent (or zero for home reversion) payable; • Reversion typically arises through acquired in
Slide 49: Regulated Tenancies
Regulated Tenancies • Approx. 120,000 regulated units remaining in England(1) – Grainger is the largest owner with 6,472 units, with a market share that has increased over the past year – The market is highly fragmented – Other notable traders of UK regulated tenancies include Mountview Estates plc,
Slide 50: Regulated Tenancies (Cont'd)
Regulated Tenancies (Cont’d) • Regulation through legislation – Most residential lettings by non-resident private landlords which began before 15 January 1989 are regulated tenancies. Since this date, no further regulated tenancies have been created – Regulated tenancies are governed by the Rent Act
Slide 51: Equity Release
Equity Release • There are two main types of equity release in the UK – Home reversion plan – Owners sell a percentage of the value of the property for cash lump sum with right to remain in the property, rent free until death or move into long term care. This is Grainger’s core business model within
Slide 52: Equity Release
Equity Release • Grainger estimates there are 15,000 - 20,000 existing home reversions plans in the UK – Grainger estimates it has a 20-25% share of the existing market – Home Reversions represent c.3% of new Equity Release sales and Grainger funds 85% of these • Equity Release providers are regulat
Slide 53: Development Portfolio
Development Portfolio Committed Project Description Status Expenditure Newlands Common, 537 acre Greenfield site. Freehold with Outline consent granted for 2,500 residential units £4.0m Hampshire overage interest and 1 million sq ft B1-B8 space in March 2011 Detailed consent granted for 97 residenti
Slide 54: Appendices (A1 – A21)
Appendices (A1 — A21) Gitar rat eerie, grainger plc
Slide 55: A1 Income Statement reconciliation
A1 Income Statement reconciliation Statutory Management income Non- Adjust income £m statement Valuation recurring Trading overheads CHARM statement Net rental income 21 - - 21 6 27 Profit on disposal of trading 39 - - 39 3 42 property Overheads (6) - - (6) (9) (15) Other income and expenses 1 - 3 3
Slide 56: A2 31 March 2011 Divisional Income Statement
A2 31 March 2011 Divisional Income Statement £m UKR RS PS FM/ RI Development Germany Group Total Group revenue 75.5 14.9 0.2 2.4 20.2 20.6 - 133.8 Gross rent 21.1 2.8 - - 0.3 14.9 - 39.1 Trading property sales 54.2 11.5 - - 19.9 - - 85.6 Other income 0.2 0.6 0.2 2.4 - 0.1 - 3.5 Service charge income
Slide 57: A3 31 March 2010 Divisional Income Statement
A3 31 March 2010 Divisional Income Statement £m UKR RS PS FM/ RI Development Germany Group Total Group revenue 78.1 14.0 0.3 2.5 10.2 21.2 - 126.3 Gross rent 19.2 2.7 - - 0.5 15.7 - 38.1 Trading property sales 58.9 11.3 - - 9.7 0.7 - 80.6 Other income - - 0.3 2.5 - 0.1 - 2.9 Service charge income -
Slide 58: A4 Movement in Operating profit
A4 Movement in Operating profit 100 £12.0m £1.7m £(1.6)m £(1.0)m £(1.0)m £59.4m £48.0m £1.3m £'m 0 Operating profit Increase in Increase in Increase in Increase in Reduction in Other Operating profit March 10 residential development gross rents and property CHARM March 11 trading profits trading pro
Slide 59: A5 Revenue and Property Sales and Margins
A5 Revenue and Property Sales and Margins Group Revenue Sales and Margins March 2011 March 2010 March 2011 March 2010 Units Sold Gross Gross Sales Profit Margin sales Profit Margin Gross rent £m £m £m £m % £m £m % UKR 21.1 19.2 Trading Property Sales RS 2.8 2.7 UKR 332 54.2 22.2 41.0 58.7 21.9 37.3
Slide 60: A6 Regular and resilient revenue cash streams
A6 Grainger has regular and resilient revenue cash streams 6 months Financial years ended 30 September £m to 31 March 2011 2010 2009 2008 2007 2006 Gross rents UKR 21 39 41 42 39 47 RS 3 6 6 6 2 - Development - 1 1 1 2 1 Germany 15 30 30 22 10 5 Total 39 76 78 71 53 53 Total Property Sales (net of f
Slide 61: A7 Net debt including JV/ Associates
A7 Net debt including JV/ Associates March September 2011 2010 Group JV/ Assoc* Total Group JV/ Assoc* Total £m £m £m £m £m £m Gross debt 1,643 252 1,895 1,445 440 1,885 Cash 73 28 101 95 35 130 Net debt 1,570 224 1,794 1,350 405 1,755 *JV/ Associate is the full amount of debt and not just Grainger'
Slide 62: A8 Joint Venture and Associates debt funding
A8 Joint Venture and Associates debt funding Joint venture Associate Curzon Grainger Total Grainger At 31 March 2011 (£m) Park Prague GenInvest * G:Res share Gross debt 15 12 - 225 252 63 Cash - 1 - 27 28 15 Net debt 15 11 - 198 224 48 As at September 2010 (£m) Gross debt 15 11 189 225 440 156 Cash
Slide 63: A9 Debt Maturity Profile – Group only
A9 Debt Maturity Profile – Group only Maturing in the 6 months to As at 31 March 2011 Drawn at Total Sept 2011 Mar 2012 Sept 2012 Mar 2013 Sept 2013 Mar 2014 period end facility Undrawn UK Core banking facility Term Facility A 142 142 - - - - 142 - Term Facility B 108 108 - 19 19 19 51 - Facility A
Slide 64: A10 Debt Maturity
A10 Debt Maturity September 2010 2,000 1,500 £m 1,000 500 0 2011 Sept 2012 Sept 2013 Sept 2014 Sept 2015 Sept 2016 Sept 2017 Sept March 2011 2,000 1,500 £m 1,000 500 0 2011 Sept 2012 Sept 2013 Sept 2014 Sept 2015 Sept 2016 Sept 2017 Sept Page 64
Slide 65: A11 Summary Terms of Existing Debt
A11 Summary Terms of Existing Debt Drawn Size: Position at 31/03/2011 Facility Amount • Current MOF bank facility totals £1,099m with headroom of £107m £m £m Maturity: Term A: due Jun 2013 142 142 • FSF A, £367m, matures in December 2012 Term B: final maturity Jun 2013 108 108 • FSF B, £254m matures
Slide 66: A12 Group debt and interest costs
A12 Group debt and interest costs As at March 2011 Blended rate Interest Debt UK Germany Total charge to 31 March £m % % % £m Fixed 85 5.5 1.1 4.2 1.8 Hedged by SWAPS 994 6.3 5.3 6.0 27.2 Hedged by CAPS 80 3.2 2.1 2.6 0.7 Variable 497 3.2 2.2 3.2 6.1 1,656* 5.1 4.3 4.9 35.8 Cash 73 Net debt 1,583 %
Slide 67: A13 Residential asset valuation movement
A13 Residential asset valuation movement - 6 months to 31 March 2011 Market value Market value before after revaluation revaluation Movement Portfolio £m £m % Regulated 978 1,009 3.1 AST 231 231 - Vacant 55 61 13.0 Tricomm (MOD) 105 105 (0.2) Other 42 44 3.8 Total UKR* 1,411 1,450 2.8 Reversion 287
Slide 68: A14 Portfolio Overview – Joint Ventures and Associates
A14 Portfolio Overview – Joint Ventures and Associates Joint Ventures Associate Curzon Park Hammersmith Prague/ Zizkov Gebau Sovereign G:Res Total £m Property assets 37 - 28 - 66 375 506 Other assets - 4 3 - 2 27 36 Total assets 37 4 31 - 68 402 542 External debt (16) - (12) - - (225) (253) Other li
Slide 69: A15 Corporate and Property acquisitions
A15 Corporate and Property acquisitions Corporate acquisition Individual units Total Grainger GenInvest Tricomm (MOD) Tenure Units Market value (£m) Units Market value (£m) Units Market value (£m) Units Market value (£m) Regulated 467 93 20 3 487 96 AST 630 128 630 128 Assured 304 57 304 57 Leasehol
Slide 70: A16 Net Asset Values per Share
A16 Net Asset Values per Share March September March 2011 2010 2010 Number of shares for NAV 416,362,420 416,362,420 416,352,300 Statutory net assets per share 98 83 86 Increase to market value 83 80 72 Mark to market adjustment 16 24 20 Deferred tax on property valuations 13 13 13 Gross NAV per sha
Slide 71: A17 Grainger NAV – sensitivity analysis
A17 Grainger NAV – sensitivity analysis Without discounting tax Note 7.93% 7.00% 4.93% • Grainger NAV brings in the present taxed 0% 200 205 217 value of reversionary surpluses in our long term portfolio 2% 211 217 232 HPI 4% 225 232 251 • Grainger WACC: 4.93% 5% 233 241 262 • Full sensitivity avail
Slide 72: A18 Grainger Wholly Owned Portfolio Summary
A18 Grainger Wholly Owned Portfolio Summary Portfolio No of Market VP Reversionary Gross Gross sales Profit on units value value surplus VP rent proceeds sale £m £m £m % £m £m £m Regulated 6,472 1,009 1,355 346 74 15 22 9 AST 1,237 231 264 33 88 3 2 1 Vacant 255 61 62 1 100 - 29 12 Tricomm (MOD) 317
Slide 73: A19 Gross NAV and NNNAV Reconciliation to Statutory Balance Sheet
A19 Gross NAV and NNNAV Reconciliation to Statutory Balance Sheet Statutory Adjust Adjust Deferred Add back derivatives Add back deferred balance to market for tax on property Gross adjust for fixed tax and adjust for £m sheet value derivatives revaluations NAV rate loans contingent tax NNNAV Invest
Slide 74: A20 Appendices – Glossary of Terms
A20 Appendices – Glossary of Terms Property Assured periodic tenancy (“APT”) Market rented tenancy arising from succession from regulated. Tenant has security of tenure. Assured shorthold tenancy (“AST”) Market rented tenancy where landlord may obtain possession if appropriate notice served. Assured
Slide 75: A21 Appendices – Glossary of Terms
A21 Appendices – Glossary of Terms Financial (continued) Gearing The ratio of borrowings, net of cash, to market net asset value. Hedging The use of financial instruments to protect against interest rate movements. IFRS International Financial Reporting Standards. Interest cover Profit on ordinary a