Grainger plc · LSE:GRI
Grainger — H1 2015 Earnings Presentation
51 slides from Grainger's earnings presentation, May 14, 2015
Slide 1: Interim results for the six months to 31 March 2015
Interim results for the six months to 31 March 2015 14 May 2015
Slide 2: Agenda
Agenda 1. Introduction Andrew Cunningham 2. The Grainger portfolio Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational update Nick Jopling 5. Summary and outlook Andrew Cunningham 2
Slide 3: Grainger overview
Grainger overview • A market leading residential owner and manager with consistent outperformance • Returns driven by asset value growth and income from sales, rents and fees • Highly cash generative business model Berewood Phase 2 • A high quality, national portfolio • Latent value in reversionary
Slide 4: Grainger's business model
Grainger’s business model - Regulated - Regulated tenancies tenancies - Market rented - Development assets - Home reversions - Fund and asset management Fees HY Results 2015 4
Slide 5: Financial highlights
Financial highlights Underlying* Gross NAV and NNNAV up by 3.7% and 1.7%, respectively, since Sept 14 Gross NAV NNNAV Interim dividend 293p 240p 0.64p (FY14: 291p) (FY14: 242p) (HY14: 0.61p) Recurring PBT Profit before tax** Normal sales margins £26.2m £9.1m 52.6% (HY14: £23.1m) (HY14: £49.8m) (HY14
Slide 6: Operational highlights
Operational highlights Strong underlying performance GRI UK Market value UK house prices* - Continued valuation outperformance after two strong years of growth +3.8% +1.9% Profit on sales Vacant sales up to £45.1m prices 6.6% above - Strong sales performance (HY14: £42.8m) Sept 14 values +6.2% on ne
Slide 7: Key transactions
Key transactions Building for the future £101m of committed on balance sheet investment • c.£87m investment (acquired or contracts exchanged) into stabilised regional assets • Abbeville Apartments, London Rd, Barking, a purpose built PRS block, completed ahead of schedule and acquired in May (£14m a
Slide 8: Market commentary
Market commentary UK housing market Capital values and housing sales Rental market • Strong fundamental background drivers • Strong fundamental background drivers • Improving economy and labour market; low • Improving economy and labour market mortgage interest rates • High levels of investor intere
Slide 9: Housing & politics
Housing & politics Pre-Election Conservative proposals Pre-Election Labour proposals, no longer a risk in the medium term – Support for PRS and build to rent and increase in housing supply – Mansion tax – Right to Buy extension – Rent caps – Help to Buy extension Grainger’s focus – London Land Commi
Slide 10: Agenda
Agenda 1. Introduction Andrew Cunningham 2. The Grainger portfolio Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational update Nick Jopling 5. Summary and outlook Andrew Cunningham 10
Slide 11: Grainger's portfolio
Grainger’s portfolio Wholly owned Asset type by units Asset type by market value (£m) 5% 22% Market rented assets 35% Market rented assets Reversionary Reversionary Development 65% assets 73% Annualised No. of Market VP Reversionary gross units Value Value surplus IV/VP rent £m £m £m % £m Reversiona
Slide 12: Our UK geographical exposure (wholly owned)
Our UK geographical exposure (wholly owned) Vacant No of % by Possession % by Avg VP* IPD region units units Value (£m) VP (£k) 1 London (Total) 2,303 27% 1,289 56% 567 2 South East 1,289 15% 259 11% 237 3 South West 1,269 15% 245 11% 215 4 East 802 9% 126 6% 188 5 East Midlands 461 5% 46 2% 122 6 W
Slide 13: UK portfolio characteristics
UK portfolio characteristics Resilient and defensive Low house prices, highly liquid assets Attractive pricing, type, location and condition 61% of our portfolio (5,204 properties) are worth £250k or below* ≤ £250k Units by price brackets** 61% 582 183 Minimal exposure to higher value homes Under £2
Slide 14: Agenda
Agenda 1. Introduction Andrew Cunningham 2. The Grainger portfolio Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational update Nick Jopling 5. Summary and outlook Andrew Cunningham
Slide 15: 2015 financial highlights: Balance sheet
2015 financial highlights: Balance sheet Gross NAV NNNAV • Underlying* Gross NAV and NNNAV up by 3.7% and 1.7%, 293p 240p respectively since September 2014 (FY14: 291p) (FY14: 242p) • Follows 30% and 54% growth in Gross NAV and NNNAV for the two year period to September 2014 Group LTV • 120p per sha
Slide 16: Movement in NNNAV
Movement in NNNAV NNNAV down by 2p per share since 30 Sept 2014 £m 1,150 £51m £(41)m 1,100 £33m £(26)m 1,050 £1,029m £(18)m £1,012m £(9)m £1,002m 1,000 950 900 850 800 30 September Profit after tax Revaluation Elimination of Fixed rate NNNAV before Impact of ERIL Derivatives 31 March 2015 2014 befor
Slide 17: Movement in net debt
Movement in net debt Strong cashflows and reinvestment £m 1,400 1,200 £1,044m £(128)m £44m £1,042m £56m £26m 1,000 800 600 400 200 0 Net debt Gross rent, sales Purchases, capex Property Tax, dividends, Net debt March September 2014 & fees and investment in expenses and interest, swaps, 2015 JVs over
Slide 18: Income statement highlights
Income statement highlights Recurring profit Profit before tax Income streams 7% Sales* £26.2m £9.1m Net rents (HY14: £23.1m) (HY14: £49.8m) 33% 60% Fees & other £m Movement in recurring profit 30 £1.2m £(0.3)m £(0.4)m £26.2m £2.6m 25 £23.1m 20 15 Recurring profit JVs/Associates Trading profits, Pro
Slide 19: Debt position
Debt position Capital structure Pro forma HY15* HY15 FY14 • Syndicate refinancing in Net Debt £1,089m £1,042m £1,044m progress Consolidated Loan to Value 47.2% 46.0% 46.5% • Reduction in average cost of Average maturity of drawn facilities 4.7 years 4.4 years 4.8 years debt (excl commitment fees) to
Slide 20: JV & associates
JV & associates* £187m equity invested in co-investment vehicles Units Grainger Gross Grainger Return HY15 Return FY14 share (%) assets investment Annualised** incl. loans £m £m £m £m GRIP 1,594 24.9% 516 89 12 21 Walworth 607 50% 183 55 5 16 Heitman 2,751 25% 201 16 1 3 Sovereign*** 767 50% 55 14 2
Slide 21: Agenda
Agenda 1. Introduction Andrew Cunningham 2. The Grainger portfolio Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational update Nick Jopling 5. Summary and outlook Andrew Cunningham
Slide 22: Operational update - agenda
Operational update - agenda 1. Reversionary assets a. Our portfolio b. Chelsea Houses Portfolio acquisition – reversionary surplus and redevelopment opportunities 2. Private rented sector (market rent) a. Current portfolio b. Routes to market c. Pipeline HY Results 2015 22
Slide 23: Reversionary assets
Reversionary assets Portfolio size and valuation • 7,395 units • £1.5bn reversionary portfolio at market value Portfolio and asset characteristics • £1.9bn at vacant possession value • Broad geographic spread • Low average value • Generally un-refurbished/un-modernised – Long term income and strong
Slide 24: Chelsea Houses Portfolio
Chelsea Houses Portfolio Reversionary assets • 61 freehold tenanted residential properties with significant redevelopment opportunities • Acquired in 2014 for £161m • Strategy • Acquire • Hold for the long term • Refurbish or redevelop • Sell First Street Hasker Street • 17 vacant units in process o
Slide 25: The private rented sector
The private rented sector The opportunity What we bring to the market • Strong UK demographics for market rented • A strong, reputable management homes platform • Government support to grow rental market • Knowledge of creating, managing and trading residential property • Opportunity to leverage our
Slide 26: Market rented assets
Market rented assets Current portfolio Market rented assets UK Germany Total Units Market value Units Market value Units Market value £m £m £m Wholly owned assets 1,176 323 2,848 140 4,024 463 Co-investment vehicles 1,594 489 2,751 171 4,345 660 Total assets under 2,770 812 5,599 311 8,369 1,123 man
Slide 27: Routes to market: delivery model in PRS
Routes to market Our delivery model in PRS Low Model Activities Pipeline Examples: Land assembly, planning, construction of infrastructure, construction costs of PRS Berewood and Wellesley Strategic land homes, rental values, opex and capital value Build to rent Examples: Speed to income Land assemb
Slide 28: Build to rent & PRS pipeline
Build to rent & PRS pipeline Secured pipeline of a further c.1,070 market rented units c.40% growth in our total managed market rented portfolio in the UK, to total c.3,840 units Est. completion 1. Regional portfolios – balance sheet c.570 units 2015 2. Abbeville Apartments – balance sheet c.100 uni
Slide 29: PRS pipeline reconciliation
PRS pipeline reconciliation c.2,020 units in our total PRS pipeline (secured and in advanced stages) Acquisitions Units Value £'m Secured Pipeline Summary Units Market Rented - standing stock, regions Contracts exchanged for H2'15 completion* 570 Completed in six months to 31 March 2015 Market rente
Slide 30: Berewood and Wellesley
Berewood and Wellesley PRS on Strategic Land sites • c.210 units on two phases at Berewood and Wellesley, Hampshire, South East of England • Accelerating delivery • Improving place making Berewood (similar style to PRS phase) • Maximising values • Enhancing returns • Berewood PRS Phase on balance sh
Slide 31: Abbeville Apartments, Barking
Abbeville Apartments, Barking • Acquisition completed post-period end • 100 apartments will generate gross rent of c.£1.4m • Completed ahead of schedule • Designed for the rental customer • On-site management staff • Residents’ lounge • Fitness Studio • Wifi from Day One • Only double bedrooms • Thr
Slide 32: PRS regional investment
PRS regional investment During period: c.250 units (completed) Post-period & secured: c.570 units Post-period & in advanced stages: c.150 units (Sigma) Case study: Acquisition of regional portfolios during and post-period end • Tenanted portfolios consisting of £71m of market rented assets and £16m
Slide 33: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational update Nick Jopling 6. Summary and outlook Andrew Cunningham
Slide 34: Summary and outlook
Summary and outlook GROWTH IN VALUE UNDERLYING* STRENGTH UK Portfolio Nationwide Gross market valuation & Halifax NAV NNNAV 3.8% 1.9% 3.9% 1.7% HIGHER MARGINS BUILDING FOR THE FUTURE Vacant sales above Margins on normal Completed Secured Sept 14 values sales up to acquisition of PRS pipeline 6.6% 52
Slide 35: Thank you
grainger plc
Slide 36: Appendices
grainger plc Appendices
Slide 37: Portfolio summary (wholly owned)
Portfolio summary (wholly owned) Gross No. of Market VP Reversionary Gross sales Profit on units Value Value surplus IV/VP rent proceeds sale £m £m £m % £m £m £m Reversionary Assets Regulated 3,750 1,105 1,414 309 78% 14 2 - Vacant 298 67 67 - 100% - 47 28 RS Reversion 2,555 241 350 109 69% 1 15 7 C
Slide 38: Portfolio summary by division and asset performance
Portfolio summary by Asset performance division £m HY 2015 FY 2014 HY 2015 FY 2014 Vacant Vacant Vacant Vacant Possession Market Possession Market Possession Market Possession Market Value value Value value Value Value Value Value UK Residential 1,824 1,482 1,793 1,448 HPI (Nationwide and 1.9% 9.5%
Slide 39: Asset overview JV & Associates
Asset overview JV & Associates Joint Ventures Associates Prague/ Hammersmith Curzon Sovereign Walworth Heitman GRIP G:Res Total Zizkov Park £m Property assets 22 6 35 48 175 171 498 - 955 Other assets 2 - - 7 8 30 18 6 71 Total assets 24 6 35 55 183 201 516 6 1,026 External debt (7) - (4) (23) (60)
Slide 40: German portfolio
German portfolio Our focus: • Investing in our platform – Wholly owned, excl Heitman Market value % of market people, processes and systems Germany No of Units £m value 1 Baden – Württemberg 209 14 10% • Major refurbishment programme 2 Hesse 1,066 59 42% on some of our wholly owned 3 Northrhine – We
Slide 41: Profit summary
Profit summary HY 2015 HY 2014 £m £m HY HY Non-Recurring 2015 2014 Profit on sale of assets* 45.1 42.8 £m £m Profit on disposal of subsidiary/JV - 0.8 Net rents 19.0 19.5 ERIL - impairment of receivable (11.4) - Management fees 4.4 5.1 ERIL – impairment due to mark to (6.8) - CHARM 4.6 4.9 market de
Slide 42: Property sales and profits
Property sales and profits HY 2015 HY 2014 Gross sales Profit Gross sales Profit No. of units No. of units value (£m) (£m) value (£m) (£m) Trading sales on vacancy UK Residential 152 47.4 27.6 149 35.8 19.2 Retirement Solutions 138 18.1 6.9 187 21.8 8.7 290 65.5 34.5 336 57.6 27.9 Tenanted and other
Slide 43: Regular, resilient cashflows
Regular, resilient cashflows £m HY 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Gross rents UK Residential 22 44 51 58 51 39 41 42 39 47 Retirement Solutions 1 2 4 5 5 6 6 6 2 - Development - - - - - 1 1 1 2 1 Germany 5 11 16 27 30 30 30 22 10 5 Total 28 57 71 90 86 76 78 71 53 53 Property Sale
Slide 44: Movement in PBT
Movement in PBT £m 60 £2.6m £(1.8)m £(26.6)m £2.3m 50 £49.8m 40 30 £(17.2)m 20 £9.1m 10 0 PBT HY14 Profit on sales Increase in Net rents, fees, Valuation Non-recurring PBT HY15 profit from JV's CHARM, movements items and Associates overheads, including expenses and derivatives net finance costs HY R
Slide 45: NAV measures reconciliation
NAV measures reconciliation* Add back Fair Adj IAS 39 re value of fixed rate loan Add back derivative and derivative Statutory Market Value Market value Def Tax on financial financial Deferred and NNNAV Grainger NAV Grainger Balance Sheet Adjustments Balance Sheet property instruments Gross NAV inst
Slide 46: Movement in NAV
Movement in NAV NAV up 2p per share since 30 September 2014 £m 1,300 £51m £41m 1,280 1,260 £8m 1,240 £18m £15m £8m £1,222m £1,215m 1,220 1,200 1,180 1,160 1,140 1,120 1,100 30 September PAT before Revaluation Elimination of Dividend Swap breaks Other 31 March 2014 derivatives gains on previously 201
Slide 47: Look through debt
Look through debt 3rd 3rd Group Party Total Party Group Counterparty Debt Heitman WIP GRIP Sovereign Other Debt Debt Share Share (£m) 25% 50% 24.9% 50% 50% (£m) (£m) (£m) (£m) Syndicate 475 475 475 Corporate Bond 275 275 275 M&G 100 100 100 Core Total 850 850 850 Bilateral 135 135 135 HCA funding 25
Slide 48: Facility maturity profile
Facility maturity profile (£m's) Core facility Corporate bond Other UK & Europe 1,600 1,400 1,200 1,000 800 600 400 200 - HY Results 2015 48
Slide 49: Tax
Tax • The Group has an overall tax charge of £2.7m for the period (2014: £4.6m), which relates to UK tax only. • The net increase of £0.8m, from the expected charge of £1.9m, results from a prior period credit of £2.4m, a £0.9m reduction as tax on associates and joint ventures profit is included abo
Slide 50: ERIL re-acquisition
ERIL re-acquisition • January 2014 sale to Clifden Holdings Limited (‘CHL’) with terms that included a £35m deferred consideration payment. Failure to pay prompted Grainger to exercise its security rights. This was done through appointment of administrators; • The re-acquisition completed on 2 April
Slide 51: 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