Grainger Plc · LSE:GRI

Grainger — Investor Presentation (January 2016)

45 slides from Grainger's investor presentation, Jan 28, 2016

1. Slide 1: Grainger Strategy Update

   Grainger Strategy Update 28 January 2016

2. Slide 2: Objective: a strategy to deliver improved shareholder returns

   Objective A strategy to deliver improved shareholder returns Grow rents Simplify and focus Build on our heritage Strategy Update 2 28 January 2016

3. Slide 3: Strategy review process

   Strategy review process

4. Slide 4: The strategy review process

   The strategy review process  Bottom up review of every division  All major assets and portfolios appraised  All key sites assessed  Growth avenues explored  Group wide employee engagement Strategy Update 4 28 January 2016

5. Slide 5: The growth opportunity

   The growth opportunity  Residential – top performing asset class  Substantial market opportunity for growth in the Private Rented Sector (PRS) Residential market returns 25% Residential returns Residential v other asset classes % 20% 12 15% 10 7 10% 8 1 5% 1.7 1.6 6 6.9 0% 6 6.1 5.7 4 -5% 4 3.5 -1

6. Slide 6: Key findings

   Key findings Significant competitive advantages  Unparalleled residential expertise  Best in class asset management  High quality cash generative portfolio  National platform Reception at Springfield Lofts, Dalston, London  Significant market opportunity  Committed employees, ready for change

7. Slide 7: Key findings

   Key findings Improvement needed  Structure leading to lack of co-ordination  Complexity creating duplication  Too much focus on capital returns  Too much effort on small scale projects  Expertise shared too readily  High operating costs 7 28 January 2016

8. Slide 8: Simplified Grainger

   Simplified Grainger Focusing on growing rental income and maximising total returns The leading institutional UK residential investment vehicle Grow rents  Inject pace and improve PRS sourcing  Accelerate transition to a more balanced, lower risk business Simplify  Exit non-core assets and focus 

9. Slide 9: Delivering the strategy

   Delivering the strategy

10. Slide 10: New structure

    New structure Simplified and focused Current Divisional Action New Structure Structure UK Residential Regulated tenancies and PRS Simplified Grainger Value Drivers Development Rental income Exit non-core; support PRS Capital growth Two assets Funds No new funds; London/SE via GRIP Regulated PRS tena

11. Slide 11: Changing the composition of our business

    Changing the composition of our business Re-focusing a diverse, complex business Development ‘for sale’ Sales Equity Simplified Grainger Release Rents Regulated Capital tenancies Fees Growth PRS German Assets Rental Income / Growth Tenanted acquisitions New build PRS assets Strategy Update 11 28 Jan

12. Slide 12: Regulated tenancies

    Regulated tenancies A high quality residential investment that will help accelerate PRS growth  Compelling asset class  Highly cash generative and robust performance throughout cycles  Supports our growth into UK PRS  Future investment secondary to UK PRS capital allocation  >3,600 units  £1.1

13. Slide 13: Regulated tenancy business model

    Regulated tenancy business model 1. Buy at a discount 2. Hold and receive rental income 3. Sell and capture house price inflation and locked-in value (reversionary surplus) Value Recurring Rental Income House Price Inflation (“HPI”) Sales price Purchase Price Time Buy at Hold Sell discount 1. 2. 3.

14. Slide 14: Supporting our UK PRS growth

    Supporting our UK PRS growth  Excellent, proven liquidity, throughout cycles (see charts below)  Regulated tenancies estimated to deliver on average >£100m p.a. of gross cash to 2025  Strong total returns from residential assets UK Residential market returns Grainger’s strong cashflows 25% £m 20%

15. Slide 15: Nick Jopling, Executive Property Director

    Nick Jopling Executive Property Director

16. Slide 16: The UK PRS growth opportunity

    The UK PRS growth opportunity Continued undersupply of housing 27m households in the UK, housing market worth >£5 trillion New Supply Vs Population 400,000 70,000 New homes built (per annum) 350,000 65,000 300,000 UK Population (000s) 250,000 60,000 200,000 55,000 150,000 100,000 50,000 50,000 - 45,

17. Slide 17: The UK PRS growth opportunity: housing tenures

    The UK PRS growth opportunity UK housing tenures  Fastest growing housing tenure 10 (over 4m households) 9 8  1 million new households since 2005 7 Households (m) 6  Doubled in size in the last decade 5 4  One in five households rent privately, 3 one in four in London 2 1  1.7m more PRS custome

18. Slide 18: PRS target customers – UK Generation Rent

    PRS target customers – UK Generation Rent Households (25 - 34 years), by tenure Financial drivers 1.9  Mortgage constraints 1.7  Lower savings 1.5 Households (m) 1.3 Behavioural drivers 1.1  Later family formation  Greater job mobility 0.9  Urbanisation 0.7 0.5 buying with mortgage private rent

19. Slide 19: UK PRS – Competitive landscape

    UK PRS – Competitive landscape Significant opportunity for large scale, professional investors Number of properties per landlord 0% 1% 3% 1% 1 17% 2-4 5-9 10-24 25-100 More than 100 78% Source: ONS, Landlord Survey Strategy Update 19 28 January 2016

20. Slide 20: PRS investment case

    PRS investment case  Significant growth prospects  Compelling demographics  Stable, inflation linked income  Robust income  Compelling total return investment  Broad political support for large scale, institutional investment Hallsville Quarter, Canning Town, London, GRIP Portfolio Strategy Up

21. Slide 21: Growing our PRS pipeline

    Growing our PRS pipeline

22. Slide 22: Future direction

    Future direction Changing the composition of our business PRS Strategic Targets Wholly owned assets by value 100% Balance sheet 75%  Over £850m of investment targeted Regulated tenancies PRS assets  50%+ of wholly-owned PRS assets by 50% PRS assets 2020 25% 0% 2015 2020 Strategy Update 22 28 Janua

23. Slide 23: Future direction

    Future direction Changing the composition of our business PRS Strategic Targets 2015 2020 Income statement  Net rental income to exceed profit from sales  Net rents and other Sales Profit Net rents Sales Profit Net rents recurring incomePRS assets * to more than cover overheads, expenses and finan

24. Slide 24: Build to rent – Overview

    Build to rent – Overview Purpose built rental assets  Designed to optimise occupancy and rental levels  Constructed to reduce property operating costs  Closely managed development activities supplement returns Abbeville Apartments, Barking, London Strategy Update 24 28 January 2016

25. Slide 25: Attracting and retaining customers

    Attracting and retaining customers Transitioning a 104 year old business into the modern day  Moving to a business to consumer (B2C) brand  Technology led services  Designing products and services to meet customer preferences and lifestyles  Supports stable, recurring rental income Strategy Upda

26. Slide 26: Build to rent – Development re-focus

    Build to rent – Development re-focus On-balance sheet, secured PRS 1. Development re-focus development schemes provide the potential for over 700 units.  Exit schemes not aligned to PRS Including:  Honour existing commitments 1. Seven Sisters  Secure new PRS opportunities 2. Waterloo 3. Apex Hous

27. Slide 27: Increasing our UK PRS pipeline

    Increasing our UK PRS pipeline Re-allocate existing resources GRIP ~£100m Forward acquisition ~£250m Direct development ~£250m Tenanted acquisitions ~£250m PRS >£850m investment Strategy Update 27 28 January 2016

28. Slide 28: Increasing our UK PRS pipeline

    Increasing our UK PRS pipeline The experience and platform to be a leader in a growth market  Scale – National platform and local expertise  Experience – Manager of over 3,600 market rented properties  Transaction capability – Strong balance sheet and proven execution  Value add – Accretive asse

29. Slide 29: Tenanted acquisitions

    Tenanted acquisitions  Tenanted residential acquisitions will be  £88m of rental assets acquired in the a key component of our growth 2015 financial year, 927 homes strategy  c.£23m acquired since the start of FY16  Immediate income generation and earnings enhancement  Gross rental income of c.

30. Slide 30: Adding value – Spectrum, Liverpool case study

    Adding value – Spectrum, Liverpool case study  Single site in Liverpool City Centre, adjacent to Liverpool ONE  28 purpose built vacant apartments  Formerly serviced apartments  Acquired for £2.7m in Dec 2014  £0.25m refurbishment cost Liverpool ONE G Liverpool ONE, Source: Grosvenor Strategy U

31. Slide 31: Adding value – Spectrum, Liverpool case study

    Adding value – Spectrum, Liverpool case study Strategy Update 31 28 January 2016

32. Slide 32: Adding value – Spectrum, Liverpool case study

    Adding value – Spectrum, Liverpool case study Strategy Update 32 28 January 2016

33. Slide 33: Adding value – Spectrum, Liverpool case study

    Adding value – Spectrum, Liverpool case study Strategy Update 33 28 January 2016

34. Slide 34: Adding value – Spectrum, Liverpool case study

    Adding value – Spectrum, Liverpool case study  Annual rent £248k  Investment value at 30 September 2015 £3.4m  8.3% gross yield on cost  15% increase on cost Strategy Update 34 28 January 2016

35. Slide 35: Proven track record of acquiring quality PRS portfolios

    Proven track record of acquiring quality PRS portfolios  Proven ability to source accretive regional tenanted PRS portfolios  £88m of rental assets acquired in the 2015 financial year, 927 homes  Gross yield of c.7.7%  Ability to immediately integrate and manage the assets  Marginal incremental

36. Slide 36: Reducing costs

    Reducing costs

37. Slide 37: Improving efficiency to maximise returns

    Improving efficiency to maximise returns Opportunity to reduce overheads and costs through simplification and focus  Comprehensive operational review underway  Overheads of £36m in 2015; post Germany and Equity Release disposals, will reduce by c.10% (£32.5m)  Opportunity to significantly improve

38. Slide 38: Improving efficiency to maximise returns

    Improving efficiency to maximise returns Reducing financing costs and optimising our capital structure  Substantial progress in reducing financing costs and diversifying funding  £275m of corporate bonds issued (now investment grade rated by S&P)  New £680m syndicate facility  £150m facility ren

39. Slide 39: Financing Targets

    Financing Targets Reducing financing costs and increasing firepower Cost of Debt Loan to Value  4% average cost of debt target  Previous target of 45-50%  Supported by disposals  Expectation <40% following Equity Release and Germany disposals  Substantial overall cost savings  Longer term LTV

40. Slide 40: Vanessa Simms, Finance Director

    Vanessa Simms Finance Director

41. Slide 41: Summary

    grainger plc

42. Slide 42: Key drivers of performance

    Key drivers of performance  Significant growth potential  Re-focus team onto PRS  Accretive tenanted  Move up development curve acquisitions  Inflation linked  Capture higher returns  Value adding refurbishments  Manage development process RENTAL GROWTH PRS DEVELOPMENT  Overheads reduced by

43. Slide 43: Key actions

    Key actions 1. Significantly grow our UK PRS pipeline i. Increase PRS development pipeline (build to rent) ii. Accelerate investment into tenanted PRS portfolios 2. No new speculative ‘for sale’ development; team re-focused to PRS 3. Generate best value from our high quality regulated tenancy portfo

44. Slide 44: Strategy update

    Strategy update Grainger Focused on growing rental income and maximising total returns from residential investment Grow rents Simplify and focus Build on our heritage A strategy to deliver improved shareholder returns Strategy Update 44 28 January 2016

45. Slide 45: Thank you

    Thank you

Grainger — Investor Presentation (January 2016) on 6ix