Grainger plc · LSE:GRI

Grainger — FY2016 Earnings Presentation

42 slides from Grainger's earnings presentation, Dec 1, 2016

1. Slide 1: Full year results

   Full year results Year ended 30 September 2016 1 www.graingerplc.co.uk 1 December 2016

2. Slide 2: Agenda

   Agenda 1. Highlights Helen Gordon 2. Financial review Vanessa Simms 3. Outlook Helen Gordon Helen Gordon Vanessa Simms 4. Q&A Nick Jopling www.graingerplc.co.uk 2 1 December 2016

3. Slide 3: Results highlights

   Results highlights Net rental income Adjusted earnings Dividend per share (Recurring profit) £37.4m +15% £53.1m +69% 4.5p +64% (FY15: £32.4m) (FY15: £31.5m) (FY15: 2.75p) EPRA NNNAV LTV Cost of debt (at period end) 287p +9% 35.9% -960bps 3.9% -70bps (FY15: 263p) (FY15: 45.5%) (FY15: 4.6%) Total retu

4. Slide 4: Growing net rental income and maximising total returns

   Growing net rental income and maximising total returns The leading listed UK PRS investment business Grow rents  Inject pace and improve PRS sourcing  Accelerate transition to a more balanced, lower risk business Simplify  Exit non-core assets and focus  No further focus on new third party fee m

5. Slide 5: Delivering against our strategy

   Delivering against our strategy Grow rents  £389m of investment in PRS assets secured  Net rental income up by +15% to £37.4m  Like for like PRS rental growth of 3.6% ‒ £52m tenanted PRS stock acquired ‒ Kew Bridge Court, 98 PRS homes, £57m acquisition (via GRIP) ‒ Clippers Quay, 614 PRS homes, £

6. Slide 6: Growing net rental income

   Growing net rental income £736m of PRS investment secured or in planning / legals £850m target £389m £347m £207m Secured In planning / legals Under consideration Breakdown of pipeline by acquisition type 2020 target £145m £158m £72m Forward Funding £179m £157m £22m Direct Developments £52m £76m Tena

7. Slide 7: Delivering against our strategy

   Delivering against our strategy Simplify  Exited non-core and non-UK assets and focus  Driving operational efficiencies  Gross to net cost down to 28% (FY15: 31%)  Cost of debt below 4% target  £12m finance cost reduction in FY16  Action taken to reduce overheads by 24% ‒ Sold German and Equit

8. Slide 8: Enabling our strategic transition

   Enabling our strategic transition Building on our heritage  Resilient and highly cash generative regulated tenancy portfolio enables our PRS strategy  £123m residential sales at 49% margin in FY16  Prices on sale of vacant properties 8.6% above FY15 valuations  Predictable rental income stream R

9. Slide 9: Timeline of strategic activity

   Timeline of strategic activity Planning Planning consent for consent for PRS, £60m Newbury Apex House, PRS Scheme London Construction started on £46m PRS PRS scheme in Berewood, acqn in Waterlooville, Hampshire Bristol £57m Kew Bridge £15m PRS PRS acqn by GRIP tenanted acqn Leeds, £40m PRS Kings Doc

10. Slide 10: Driving shareholder value

    Driving shareholder value Measuring strategic performance through our KPIs  Driving operational efficiency  Rental growth  Adjusted earnings  Creating greater scalability Operations Income  EPS  Customer service management  Cost of debt  Technology-led innovation  Dividend  Sourcing invest

11. Slide 11: Financial review

    Financial review Vanessa Simms, Chief Financial Officer 11 www.graingerplc.co.uk

12. Slide 12: Financial highlights

    Financial highlights Income FY15 FY16 Change PRS rental growth (like for like) 3.4% 3.6% ↑ 20 bps Net rental income £32.4m £37.4m ↑ +15% Adjusted earnings (recurring profit) £31.5m £53.1m ↑ +69% Adjusted EPS (after tax) 6.0p 10.2p ↑ +70% PBT £51.4m £84.2m ↑ +64% Dividend per share 2.75p 4.5p ↑ +64%

13. Slide 13: Income statement

    Income statement FY15 FY16 Change % Net rental income £32.4m £37.4m +15% Profit from sales £70.6m £71.5m +1% Mortgage income (CHARM) £6.5m £6.5m 0% Management fees £5.6m £6.2m +11% Overheads £(32.4)m £(31.8)m -2% Other expenses £(3.2)m £(1.1)m -66% JVs £0.9m £1.5m +67% Finance cost £(48.9)m £(37.1)m

14. Slide 14: Net rental growth

    Net rental growth +15%, +£5m 40 £1.3m £37.4m £1.4m 35 £4.4m £32.4m £(2.1)m £m 30 25 FY15 Disposals Acquisitions Rental growth Property FY16 operating efficiencies www.graingerplc.co.uk 14 1 December 2016

15. Slide 15: Increasing dividend in line with rents

    Increasing dividend in line with rents  Revised dividend policy to distribute Dividend Distribution the equivalent of 50% of net rental income during Grainger’s strategic transition FY16 net rental income £37.4m 50% pay-out £18.7m  Aligned with our strategy to grow net rental income FY16 Interim d

16. Slide 16: Net rental income progression

    Net rental income progression £90m £4m -£5m £80m £23m £75m Under consideration £70m Planning / Legals £60m £16m £50m £'m £40m £5m £37m £32m £30m £20m £10m £0m FY15 FY16 Secured Remaining Rental Regulated Target pipeline pipeline growth tenancy disposals Illustration based on pipeline targets, typica

17. Slide 17: Driving operational efficiency

    Driving operational efficiency Improving metrics Net rental income – property operating costs Property operating costs  Improving efficiency & scalability of our platform FY15^ property operating cost 30.7%  270 bps gross to net cost reduction FY16 property operating cost 28.0% YoY improvement 270

18. Slide 18: Growth in EPRA NNNAV

    Growth in EPRA NNNAV p +9%, +24p 310 20p -12p 300 6p -6p -4p 290 287p 20p 280 270 263p 260 250 FY15 PAT* Valuation Disposals Discontinued Contingent Fair value FY16 growth - (trading operations tax, dividends, movement on trading assets)** other fixed rate debt properties *Before discontinued operat

19. Slide 19: Reconciliation from NAV to NNNAV

    Reconciliation from NAV to NNNAV EPRA NAV to NNNAV £’m pps Property assets/investments 2,163 518 EPRA NAV reflects the market value of assets and liabilities at the balance sheet date Net liabilities (783) (188) EPRA NAV 1,380 330 EPRA NNNAV adjusts for: Tax – deferred & contingent (146) (35) • Defe

20. Slide 20: Reducing net debt

    Reducing net debt £'m -33%, -£374m 1300 £162m -£451m 1200 £1,138m -£235m 1100 £38m £42m 1000 £70m 900 800 £764m 700 FY15 Net Gross rent, Propex, Finance Swap Investment Discontinued FY16 Net debt sales and overheads, costs recoupon operations debt fees tax and dividends www.graingerplc.co.uk 20 1 De

21. Slide 21: More efficient capital structure and reducing cost of debt

    More efficient capital structure and reducing cost of debt 6.5% 60% FY16 FY15 6.0% 55% Fin. cost* £37m FY16 Cost of debt (avg) 5.5% 50% LTV 5.0% 45% Net debt £764m £1,138m Fin. cost £91m FY12 4.5% 40% Loan to value 35.9% 45.5% Headroom £321m £142m 4.0% 35% Cost of debt (average) 4.4% 5.3% 3.5% 30% C

22. Slide 22: 2020 strategy financial targets

    2020 strategy financial targets Progress against our 2020 Targets 1. Investing £850m into PRS assets 2. More than half of our portfolio PRS assets 1,000 60% 900 £850m target Under 50% target 50% 800 consideration 700 40% 600 £347m 500 Planning 30% / Legals 50% 400 20% 300 £389m 10% 23% 27% 200 100 S

23. Slide 23: Looking ahead – FY17

    Looking ahead – FY17 1. Growing net rental income 2. Building the PRS pipeline 3. Developing out our secured investments 4. Improving operational and financial efficiencies 5. Transitioning to an increasingly income focused model www.graingerplc.co.uk 23 1 December 2016

24. Slide 24: Growing net rental income

    Growing net rental income Helen Gordon, Chief Executive Officer 24 www.graingerplc.co.uk 1 December 2016

25. Slide 25: The PRS market opportunity

    The PRS market opportunity 1. The need for more homes 2. Differentiation from Buy to Let Housing completions (England) 400,000 98% of landlords own less than 10 350,000 properties. 300,000 250,000 200,000 150,000 100,000 Broad political support for 50,000 Institutional Investment in PRS, with 0 wani

26. Slide 26: Market review

    Market review House prices Rental market House price growth in the year +3.7% (LSL) Private rental prices rose by 2.3%, +5.3% (Grainger) compared to Grainger’s 3.6% +5.5% (Nationwide & Halifax) +7.7% (ONS) All English regions saw rental £359,000 inflation over the period Grainger’s average house pri

27. Slide 27: Market leading position

    Market leading position (1) National reach (5) Leading operational platform We have presence across the UK Unparalleled scale and expertise • Transactions • Development • Sourcing • Lettings and marketing (2) Local knowledge • Property and asset management Our local team’s market knowledge provides

28. Slide 28: Proven ability to access new stock

    Proven ability to access new stock Apex House, London Yorkshire Post, Leeds  Direct development  Forward funding  Secured  In planning  163 new homes  242 new homes  c.6.5% gross yield  c.7% gross yield  Planning consent received  Planning application  Construction to commence submitted i

29. Slide 29: Investment case

    Investment case A growth market High quality pipeline Market leader 1.8m new PRS households £389m investment secured Expertise with a national by 2025 presence Scalable operating Capacity for growth Resilient portfolio platform Enabled by our cash Robust valuations, Gross to net property generative

30. Slide 30: Thank you

    Thank you 30 www.graingerplc.co.uk 1 December 2016

31. Slide 31: Appendices

    Appendices 31 www.graingerplc.co.uk

32. Slide 32: FY17 reporting dates

    FY17 reporting dates Trading update Interim results Trading update Full year results 9 February 2017 18 May 2017 10 August 2017 30 November 2017 www.graingerplc.co.uk 32 1 December 2016

33. Slide 33: Secured pipeline schedule

    Secured pipeline schedule Name Status No. units Forecast GRI Gross yield Expected investment target completion Forward funding Clippers Quay, Salford On site 614 £99m c.8% First completions FY18 Finzels Reach, Bristol Construction to commence in 194 £46m c.7% FY19 2017 Total secured (target £250m) 8

34. Slide 34: Portfolio summary

    Portfolio summary FY16 No. units Market value Vacant possession £'m value £'m Reversionary surplus £’m Residential - PRS (market rented) 2,092 461 500 39 Residential - regulated tenancies 3,652 1,249 1,507 258 Residential – Mortgages 704 93 91 (2) Development work in progress - 105 105 - Wholly-owne

35. Slide 35: Geographic breakdown of our portfolio

    Geographic breakdown of our portfolio Grainger’s Homes under share of Average house management Market value market value price (avg VPV per Region (units) (£m) (£m) unit) (£’000) Central London 1,020 691 524 798 Inner London 2,358 959 634 471 Outer London 542 183 177 400 South East 665 159 147 305 S

36. Slide 36: Regulated tenancy business model

    Regulated tenancy business model 1. Buy at a discount 2. Hold and receive rental income  Biennial rent reviews, achieving rental growth of up to 5% + RPI 3. Sell and capture house price inflation and reversionary surplus  Reversionary surplus relating to regulated tenancies of £258m Value Recurrin

37. Slide 37: Balance Sheet

    Balance Sheet FY16 FY15 £m £m Residential - Market Rented 461 399 Residential - Reversionary 1,342 1,317 Development Work In Progress 105 95 Investment in JVs/Associates 193 166 Total Investments 2,101 1,977 Net Debt (764) (1,138) Other Assets/Liabilities 32 18 Discontinued (excluding loans) 11 477

38. Slide 38: JV & Associates

    JV & Associates FY16 (£m) GRIP Walworth Other Total Property assets 621 193 49 863 Other assets 26 10 2 38 Total assets 647 203 51 901 External debt (215) (60) - (275) Loans to/(from) equity participants (80) (13) (35) (128) Other liabilities (9) (16) (20) (45) Total liabilities (305) (89) (55) (449

39. Slide 39: Sales

    Sales FY16 FY15 Units sold Sales Profit Units sold Sales Profit £m £m £m £m UK residential 307 103.1 52.0 310 92.0 52.8 Charm sales 54 6.9 0.2 61 7.5 0.4 Sales on vacancy 361 110.0 52.2 371 99.5 53.2 Tenanted and other 59 12.5 7.7 130 23.5 8.0 Residential sales total 420 122.5 59.9 501 123.0 61.2 De

40. Slide 40: Net asset reconciliation

    Net asset reconciliation FY16 (£m) Adj IAS 39 re Add back fixed rate Market Fair value of loan and Statutory value Add back derivative derivative Deferred and NNNAV Balance Market Value Balance Def Tax on financial financial Contingent Balance Sheet Adjustments Sheet property instruments Gross NAV i

41. Slide 41: Look through debt

    Look through debt Counterparty Group WIP GRIP Total JVs Grainger Share JVs (£m) 50% 25% (£m) Syndicate 302 Corporate Bond 275 M&G 100 Core Total 677 Bilateral 150 HCA funding 25 Joint Ventures and associates 60 217 277 84 Total Group Gross Debt 852 60 217 277 84 Cash (80) Finance Costs (8) Total Gro

42. Slide 42: Glossary of terms

    Glossary of terms PROPERTY FINANCIAL Assured periodic tenancy (‘APT’) Contingent tax Market-rented tenancy arising from succession from a regulated tenancy. The amount of tax that would be payable should trading property be sold at the Tenant has security of tenure. market value shown in the market

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