Slide 1: Half year results
Half year results Six months ended 31 March 2017 Updated on 6 July 2017 with minor corrections 1 www.graingerplc.co.uk 19 May 2017
Slide 2: Agenda
Agenda 1. Highlights Helen Gordon 2. Financial review Vanessa Simms 3. Business review and outlook Helen Gordon Helen Gordon 4. Q&A Vanessa Simms Nick Jopling www.graingerplc.co.uk 2 19 May 2017
Slide 3: Highlights
Highlights Helen Gordon, Chief Executive Officer 3 www.graingerplc.co.uk 19 May 2017
Slide 4: Highlights
Highlights Strong financial performance Net rental Rental Adjusted EPRA Cost of debt income growth (L4L) earnings NNNAV (period end) +11% +3.5% +39% +3% to 295p 3.6% Positioning for growth Step change in our operating platform, driving efficiencies, preparing for growth Lower overheads, finance
Slide 5: A clear strategy
A clear strategy The leading listed UK PRS investment business Grow rents Growth in net rental income +11% £439m investment secured in PRS assets £425m of investment in advanced stages Simplify On track for a 24% reduction in overheads and focus Increasing scalability whilst minimising ove
Slide 6: 2016 – A busy year
2016 – A busy year Planning Planning consent for consent for Grow rents PRS, £60m Newbury PRS GRIP PRS REIT Apex House, Scheme conversion London Simplify and focus Finzels Construction started on Reach, £46m PRS scheme in Berewood, PRS acqn in Waterlooville, Hampshire Bristol £57m Kew Bridge £15m PR
Slide 7: 2017 – Continued momentum
2017 – Continued momentum Two Yorkshire Post, stabilised Leeds – planning assets Grow rents consent granted acquired for GRIP PRS Newbury, West Berewood – REIT Berks – planning benchmark unit Simplify and focus completed Launch of lettings consent granted at Hortensia Rd, Show flat RBKC Construction
Slide 8: Grainger’s competitive advantage
Grainger’s competitive advantage The leading end-to-end PRS business Originate Invest Operate Sourcing assets Development Complete, in house, Deal execution Forward Funding property mgmt. platform Stabilised assets Co-investment Leading operational platform Grainger manages £2.8bn of existing asse
Slide 9: Driving operational excellence
Driving operational excellence Building scalability and increasing efficiency People Processes Technology Improved operating platform and customer experience Operating expenses (gross to net) reduced from 29.2% to 25.8% 1. Lettings processes improved 120 steps to 30 2. New repairs and maintenance
Slide 10: PRS pipeline
PRS pipeline £439m secured £850m target £439m £425m £323m SECURED PLANNING / LEGAL UNDER CONSIDERATION Breakdown of pipeline by acquisition type £187m £175m £166m Forward Funding £179m £196m £24m Direct Development £54m £23m £65m Stabilised Acquisitions £19m £31m £68m Co-investment (GRI Share) 0 100
Slide 11: 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
Slide 12: Financial review
Financial review Vanessa Simms, Chief Financial Officer 12 www.graingerplc.co.uk 19 May 2017
Slide 13: Financial highlights
Financial highlights Income HY16 HY17 Change Rental growth (like for like) 4.0% 3.5% -50 bps Net rental income £18.0m £20.0m +11% Adjusted earnings £24.5m £34.1m +39% Profit before tax £36.6m £41.2m +13% Dividend per share 1.45p 1.60p +10% Capital FY16 HY17 Change EPRA NAV per share 330p 3
Slide 14: Income statement
Income statement 39% growth in adjusted earnings, driven by lower costs and higher rents HY16 HY17 Change Net rental income £18.0m £20.0m +11% Profit from sales £36.4m £35.0m -4% Mortgage income (CHARM) £3.2m £3.1m -3% Management fees £3.3m £2.3m -30% Overheads £(16.2)m £(13.4)m -17% Other expenses
Slide 15: Net rental growth
Net rental growth +11%, +£2m 21 0.9 20.0 20 0.8 19 1.0 18.0 (0.7) £m 18 PRS L4L 2.9% 17 Regs L4L 4.3% Total L4L 3.5% 16 15 HY16 Disposals Acquisitions Rental Property HY17 growth operating efficiencies www.graingerplc.co.uk 15 19 May 2017
Slide 16: Net rental income progression
Net rental income progression +130%, +£43m 90 3 (5) 80 19 75 70 60 19 £m 50 2 40 5 32 30 20 FY15 FY16 HY17 Secured Remaining Rental Regulated Target pipeline pipeline growth tenancy disposals Illustration based on pipeline targets, typically 6.5-7.5% gross yield and 25-30% property operating costs.
Slide 17: Secured build to rent pipeline
Secured build to rent pipeline £19m projection for additional net rental income Secured projects Units Grainger Gross Net rent 2017 2018 2019 2020 investment yield target est. est. Berewood, Hampshire 104 £17m 7.5% £1m Completion Gun Hill, Wellesley, 107 £22m 6.5% £1m Construction Completion Aldersh
Slide 18: Driving operational efficiency
Driving operational efficiency Lower operating costs, enhancing our income returns Property operating costs (gross to net) HY16 29.2% Significant efficiency and scalability improvements HY17 25.8% Sustainable medium term target Improvement 340bps Overheads HY16 £16.2m Successful restructuring,
Slide 19: Step change in our cost base
Step change in our cost base c.£50m of annualised cost savings 140 120 (12) Propex (23) £11m reduction 100 Overheads (3.6) 80 & expenses (7.4) (3) £m 60 Propex Overheads & 40 Finance expenses costs 20 Finance costs 0 FY15 Finance costs Finance costs Overheads Overheads & Property HY17 (quantum) (mar
Slide 20: Growth in EPRA NNNAV
Growth in EPRA NNNAV +3%, +8p 305 8 (6) 300 (2) 8 295 295 pence per share 290 287 285 280 275 FY16 Retained Valuation Disposals Contingent tax, HY17 earnings* growth - trading (trading dividends, properties assets)** other *Before derivatives. ** Difference between the book value and market value so
Slide 21: Portfolio performance (wholly owned assets)
Portfolio performance (wholly owned assets) Our portfolio remains resilient HY17 investment value movement Central & Inner London +0.7% Outer London +4.6% Modest growth in Central & Inner London South East +6.3% South West +2.0% Good growth in the East and Midlands +2.9% South East, Outer North
Slide 22: Reconciliation from NAV to NNNAV
Reconciliation from NAV to NNNAV EPRA NAV to NNNAV £’m pps EPRA NAV reflects the market value of assets and liabilities at the balance sheet date. Property assets 2,197 525 EPRA NNNAV adjusts for: Net liabilities (785) (187) Deferred and contingent tax, primarily linked to valuation gains EPRA NAV
Slide 23: Net debt
Net debt Strong cash generation supports investment LTV 36% 850 £51m operating cash 800 78 791 764 (111) 750 £m 16 700 44 650 600 FY16 net debt Revenue Propex, Finance costs Investment HY17 net debt overheads, tax and dividends www.graingerplc.co.uk 23 19 May 2017
Slide 24: Capital structure
Capital structure 5.5% 48% 5.3% FY16 HY17 46% 5.1% 44% Cost of debt (avg) 4.9% Finance cost* 42% 4.7% <£30m FY17 40% LTV Net debt £764m £791m 4.5% Finance cost 38% 4.3% Loan to value 35.9% 36.0% £62m FY15 36% 4.1% 34% Headroom £321m £283m 3.9% 3.7% 32% Cost of debt (average) 4.4% 3.7% 3.5% 30% Cost
Slide 25: Summary
Summary Strong start to the year, HY17 adjusted earnings up 39% Second half has started well Growing rents, further improving our platform, on-boarding PRS schemes Step change delivered in property operating costs Down to 25.8% of gross rental income, a sustainable level for the future R
Slide 26: Business review and outlook
Business review and outlook Helen Gordon, Chief Executive Officer 26 www.graingerplc.co.uk 19 May 2017
Slide 27: Market update
Market update Positive structural dynamics for PRS Structural growth Political support 250k new PRS households in 2016 Housing White Paper supports PRS with proposals to change: 4.5m PRS households in total Planning system Affordable housing 1.8m new PRS households by 2025 Encouraging PRS in local p
Slide 28: PRS portfolio – 4,236 units
PRS portfolio – 4,236* units Grainger wholly owned PRS Portfolio 2,079 units Located c.50:50, London v Rest of England Average rental growth of 3% High occupancy of over 97% GRIP, PRS REIT Assets predominantly located in 25% Grainger, 75% APG London, with remainder in SE Current value of
Slide 29: Kings Dock Mill, Liverpool
Kings Dock Mill, Liverpool Proactive asset management driving performance Tenanted acquisition Rental growth of 5.2% since acquisition in March 2016 Net yield increased by 41bps and Investment value by +5% Driving 120 units Improvement on performance on new lets renewals Enhanced lettings Actively m
Slide 30: Argo Apartments, Canning Town, London
Argo Apartments, Canning Town, London Investing via GRIP PRS REIT Forward funding agreement Under construction Completion in H2 2017 £6m Grainger 134 units investment Amenities: • Gym • Workstations • Fitness studio • TV Lounge • Guest suite • Games room • Concierge • Meeting rooms • Lounge Acquired
Slide 31: The Kensington and Chelsea Collection, London
The Kensington and Chelsea Collection, London Sourcing PRS opportunities through public partnerships Direct development Public sector partnership Under construction 7 phases completing over 2017-19 114 PRS units 162 units in total Development profit and fees Property and asset management fees
Slide 32: Berewood, Hampshire
Berewood, Hampshire Finding PRS opportunities in our existing assets Direct development Grainger Under construction PRS Completion expected H2 17 c.7.5% £17m gross yield investment 104 family style PRS homes Accelerating the delivery of Grainger’s 2,550 home Berewood scheme Acquired Consented Constr
Slide 33: Regulated tenancy portfolio
Regulated tenancy portfolio Annualised rental growth of 4.3% 3,654 units Average vacant asset value of £410k Current tenanted value: c.£1.3bn Stable vacancy rate of c.6.5% Potential to generate over £100m of gross Value if properties were vacant cash per annum for c.10 years today incl
Slide 34: Our regulated tenancy portfolio – diverse and resilient
Our regulated tenancy portfolio – diverse and resilient Moor Pool Estate, Birmingham Chelsea, London Stratford-upon-Avon North East England Waterloo Estate, London Hackney, London www.graingerplc.co.uk 34 19 May 2017
Slide 35: Outlook and summary
Outlook and summary 35 www.graingerplc.co.uk 19 May 2017
Slide 36: Update on key sites
Update on key sites Originate Invest Operate Argo Apartments, Canning Town – completing 2017 Clippers Quay, Salford – completing 2018-2019 Finzels Reach, Bristol – completing 2019 Yorkshire Post, Leeds – completing 2019 www.graingerplc.co.uk 36 19 May 2017
Slide 37: The UK’s leading PRS landlord in a growing sector
The UK’s leading PRS landlord in a growing sector Foundations to Growing pipeline Growth cities scale up London £439m secured Manchester People £425m in planning/legals Bristol Processes Leeds Technology Birmingham Reduced Stronger cost Improved processes cost of debt discipline and supply chain 3.6
Slide 38: Thank you
Thank you 38 www.graingerplc.co.uk 19 May 2017
Slide 39: Appendices
Appendices 39 www.graingerplc.co.uk 19 May 2017
Slide 40: FY17 reporting dates
FY17 reporting dates Trading update Capital Markets Day Full year results 27 September 2017 27 September 2017 30 November 2017 www.graingerplc.co.uk 40 19 May 2017
Slide 41: Investment case
Investment case A growth market High quality pipeline Market leader 1.8m new PRS households £439m investment secured PRS expert 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
Slide 42: Secured pipeline schedule
Secured pipeline schedule Name Status No. units Est. Grainger Gross yield Expected investment target completion Forward funding / acquisition Clippers Quay, Salford On site 614 £99m c.8% First completions FY18 Finzels Reach, Bristol On site 194 £46m c.7% FY19 Yorkshire Post, Leeds Construction to co
Slide 43: Clippers Quay, Salford
Clippers Quay, Salford Acquired Consented Construction Fit-out Marketing Launch Forward funding agreement Under construction Completion in 2019 c.8% £99m acquisition gross yield 614 units www.graingerplc.co.uk 43 19 May 2017
Slide 44: Finzels Reach, Bristol
Finzels Reach, Bristol Acquired Consented Construction Fit-out Marketing Launch Forward funding agreement Under Completion in construction 2018 c.7% £46m gross yield acquisition 194 units www.graingerplc.co.uk 44 19 May 2017
Slide 45: Yorkshire Post, Leeds
Yorkshire Post, Leeds Acquired Consented Construction Fit-out Marketing Launch Forward funding agreement Construction to Completion commence in H2 2017 in 2019 c.7% £42m gross yield acquisition 242 units www.graingerplc.co.uk 45 19 May 2017
Slide 46: 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 £247m Value Recurrin
Slide 47: Chelsea Houses Portfolio
Chelsea Houses Portfolio Value protected through reversions 61 units acquired in 2014 for £160m crystallised, active asset (predominantly regulated tenancies) management and investment 54 units remaining in the portfolio, Average vacant possession value per valued at £144m unit of remaining
Slide 48: Sales
Sales FY16 HY17 Units Units Sales Profit Sales Profit sold sold £m £m £m £m Residential sales on vacancy 174 62.7 29.6 148 49.5 24.7 Tenanted and other sales 38 5.1 2.8 55 7.3 4.0 Residential sales total 212 67.8 32.4 203 56.8 28.7 Development sales - 13.0 4.0 - 19.2 0.4 Construction contract - - -
Slide 49: Balance Sheet
Balance Sheet FY16 HY17 £m £m Residential - Market Rented 461 470 Residential - Reversionary 1,342 1,340 Development Work In Progress 105 125 Investment in JVs/Associates 193 191 Total Investments 2,101 2,126 Net Debt -764 -791 Other Assets/Liabilities 32 77 Discontinued (excluding loans) 11 - EPRA
Slide 50: JV & Associates
JV & Associates HY17 (£m) GRIP Walworth Other Total Property assets 653 194 45 892 Other assets 34 11 4 49 Total assets 687 205 49 941 External debt (216) (80) - (296) Loans to/(from) equity participants (91) - (36) (127) Other liabilities (12) (16) (17) (45) Total liabilities (319) (96) (53) (468)
Slide 51: Look through debt
Look through debt Counterparty Group WIP GRIP Total JVs Grainger Share JVs (£m) 50% 25% (£m) Syndicate 337 Corporate Bond 275 M&G 100 Core Total 712 Bilateral 150 HCA funding 8 Joint Ventures and associates 80 216 296 94 Total Group Gross Debt 870 80 216 296 94 Cash (71) Finance Costs (8) Total Grou
Slide 52: Portfolio summary
Portfolio summary No. units Market value Vacant possession Reversionary surplus HY17 £'m value £'m £’m Residential - PRS (market rented) 2,079 470 508 38 Residential - regulated tenancies 3,654 1,250 1,497 247 Residential - Mortgages 667 90 88 (2) Development work in progress - 125 125 - Wholly-owne
Slide 53: Assets under management by region
Assets under management by region Regulated tenancies and PRS (wholly owned, GRIP REIT and WIP JV) Grainger’s Homes under share of Average house management Market value market value price (avg VPV per Region (units) (£m) (£m) unit) (£’000) Central / Inner London 3,418 1,643 1,155 557 Outer London 52
Slide 54: Net asset reconciliation
Net asset reconciliation HY17 (£m) Adj IAS 39 re Add back fixed rate Fair value of loan and Statutory Market 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
Slide 55: Grainger, the UK’s leading residential landlord
Grainger, the UK’s leading residential landlord 55 www.graingerplc.co.uk