Grainger plc · LSE:GRI
Grainger — H1 2008 Earnings Presentation
39 slides from Grainger's earnings presentation, May 22, 2008
Slide 1: Interim Results for the six months ended 31 March 2008
INTERIM RESULTS for the six months ended 31 March 2008 22 May 2008 Page 1
Slide 2: Agenda
Agenda • Introduction • Operational Highlights • Financial Results • Market • Portfolio Overview • Update on Strategy • Outlook • Key Conclusions • Appendices Page 2
Slide 3: Operational Highlights
Operational Highlights • Normal sales at 4.2% above September vacant possession values • Planning permission obtained at Newlands Common • Tender offer for FranconoRheinMain, subsequently unconditional • Signed development agreement with London Borough of Hammersmith and Fulham for major mixed-use r
Slide 4: Financial Summary
Financial Summary 31 March 2008 30 Sept 2007 Growth Property and related assets (£m) 2,603 2,505 +3.9% Gross NAV per share (p) 806 828 (2.7%) Grainger NAV per share (p) (basic) 707 732 (3.4%) LTV% 58% 53% - 31 March 2008 31 March 2007 Operating profit before valuation movements (£m) 48.2 38.3 26% Ea
Slide 5: Financial Results - Market Value Balance Sheet
Financial Results - Market Value Balance Sheet 31 March 30 September 2008 2007 Before any contingent tax £m £m Property related assets - wholly owned 2,420 2,322 - jv/associates 183 183 Total property related assets 2,603 2,505 +3.9% Other assets and cash 117 105 Gross assets 2,720 2,610 +4.2% Debt
Slide 6: Financial Results - Analysis of Wholly Owned Assets
Financial Results - Analysis of Wholly Owned Assets 31 March 30 September 2008 2007 Residential Development Total Total UK 2,001 119 2,120 2,069 +2.5% Germany/Europe 285 15 300 253 +18.6% 2,286 134 2,420 2,322 +4.2% Page 6
Slide 7: Financial Results - Analysis of JV's/associates
Financial Results - Analysis of JV’s/associates Total Gross Liabilities/ Net Grainger Grainger Grainger Assets Debt Assets Share Share Loan Investment Designation £m £m £m % £m £m £m UK - Residential G:res1 Associate 457 (244) 213 21.6% 46 - 46 Schroder Associate 90 - 90 22.4% 20 - 20 GenInvest JV 3
Slide 8: Financial Results - Change in Gross NAV
Financial Results - Change in Gross NAV Gross NAV movements 1100 £(5)m £2m £3m £1,037m £1,065m £0m £(28)m £'m 1050 1000 Gross NAV Profit after tax Revaluation Dividends Translation Other Gross NAV Sept 07 surplus reserve Mar 08 eliminated on movement sales 828p 0p (21)p (4)p 1p 2p 806p Page 8
Slide 9: Financial Results - Net Asset Value Per Share
Financial Results - Net Asset Value Per Share 31 March 30 September Pence per Share 2008 2007 Gross net asset value 806 828 Add/(Deduct): Mark to market adjustments (7) 6 Deferred tax on revaluation surpluses (undiscounted) (216) (221) NNNAV 583 613 Page 9
Slide 10: Financial Results - Summary Operating Contributions
Financial Results - Summary Operating Contributions £m March 2008 March 2007 UK core portfolio 47.5 42.6 Home reversion 9.0 4.3 Europe 5.2 3.9 Development (0.1) 0.9 Fund management and residential investments 3.3 3.6 * 64.9 55.3 Direct and administrative overheads (16.7) (17.0) Operating profit befo
Slide 11: Financial Results - Post Tax Earnings
Financial Results - Post Tax Earnings £m March 2008 March 2007 Operating profit before valuation and fair value movements 48.2 38.3 Valuation/Fair value movements Revaluation surpluses 0.1 0.6 Fair value of derivatives (3.4) (0.2) 44.9 38.7 Interest (41.0) (28.9) Joint ventures/associates (3.7) 2.3
Slide 12: Financial Results - Cashflow
Financial Results - Cashflow £m March 2008 March 2007 Income Rents and other income net of overheads 9 4 Property sales 80 74 Net proceeds from sale of equity in G:res1 - 159 Working capital movements (1) (10) 88 227 Interest, tax and dividends (48) (33) Net operating income 40 194 Loan movements 12
Slide 13: Financial Results - Debt Analysis
Financial Results - Debt Analysis £m 31 March 2008 30 September 2007 Gross debt 1,591 1,422 Cash (89) (80) Net debt (before deducting costs) 1,502 1,342 Available headroom (whole Group) 440 226 Average maturity (years) 4.8 5.4 Hedging level 78% 74% Blended interest rate 6.4% 6.1% LTV 58% 53% The mat
Slide 14: Financial Results – Covenant position
Financial Results – Covenant position UK Main syndicated debt • LTV at 31 March 2008, 58% • Two tier covenant structure • purchase restriction 70% LTV • default 80% LTV • Cash flow covenant, 1.25 x interest; currently 2.6 x • Headroom on UK facility £282m Page 14
Slide 15: The Market - UK Residential - Market Commentary
The Market - UK Residential - Market Commentary • Inevitable short term decline in values – demands careful purchasing approach • Pressure has come from decrease in supply of finance • Oversupply in certain speculative markets where we have virtually no exposure • Medium and long term supported by i
Slide 16: Portfolio Analysis – Wholly Owned
Portfolio Overview - Portfolio Analysis – Wholly Owned Gross Vacant Gross No of Book Market Possession Reversionary rents units value £m Value £m Value £m Surplus £m VP% £m Regulated 7,582 731 1,213 1,561 348 78% 35.0 Home reversion 6,166 471 559 812 253 69% 5.4 Assured 655 117 124 140 16 89% 4.5 Va
Slide 17: UK Portfolio Location
Portfolio Overview - UK Portfolio Location Number Investment Value Vacant Possession Value of units £m % £m % 01 Central London 609 216 10.8% 276 10.5% 01 Inner London 1,167 292 14.6% 365 13.8% 01 Outer London 1,330 222 11.1% 291 11.0% 02 South East 2,540 334 16.7% 447 16.9% 03 South West 1,496 164
Slide 18: Core portfolio - Characteristics
Portfolio Overview - Core portfolio - Characteristics - Gross asset value £1,442m • Model does not rely on high price inflation – net rental income and reversionary surplus • Primarily (90% by value) regulated properties or vacant ex regulated • Diverse portfolio assembled over a number of years; ac
Slide 19: Home Reversions - Characteristics
Portfolio Overview - Home Reversions - Characteristics - Gross Asset Value £559m • Grainger is market leader with 37% of market (March 2008 figures from SHIP) through our various marketing initiatives • Winner of ‘Best Home Reversion Provider’ for second year running • Core skills in distribution an
Slide 20: Fund Management and JV's/associates
Portfolio Overview - Fund Management and JV’s/associates - Gross Asset Value £183m • Fund manager for G:res1, showed value increase of 8% to December 2007 (last valuation), Grainger equity £46m • Property and asset advisor to Schroders ResPUT: Grainger equity £20m (22.4%) • Grainger GenInvest: 50/50
Slide 21: Property and Asset Management Services
Portfolio Overview - Property and Asset Management Services • Provides unique perspective of owner/manager • Combines long term asset management, day to day property management and specialist sales and acquisitions teams on nationwide basis • Provides services to JV’s/associates as well as owned por
Slide 22: Development
Portfolio Overview - Development • Gross balance sheet value at 31 March 2008 (including share of JV’s) £138m (cost £127m) • Expected end development value: • with planning consent £271m • without planning consent £608m £879m • Resolution to grant planning for 100,000 sq.metres commercial space, 1,5
Slide 23: Hammersmith
Portfolio Overview - Hammersmith • JV with Helical Bar for mixed-use development at Hammersmith Town Hall • 290 new homes • 11,000 sq.m civic office building • 5,200 sq. m retail, cafes and restaurants • Preferred developer status obtained Page 23
Slide 24: Development Current Developments
Portfolio Overview - Development Current Developments Newlands Common Hornsey Units 1,550 Units 150 (private) Timescale Infrastructure Start 2008 Timescale Completion Aug-Nov 08 Page 24
Slide 25: Development – Status of Major Projects
Portfolio Overview - Development – Status of Major Projects Gross Development Value of schemes Project Description Status Committed With planning Without planning Development permission £m permission £m Expenditure £m Hornsey Road Islington 212 residential units, community buildings Under constructi
Slide 26: Strategy for Germany
Portfolio Overview - Strategy for Germany • Grainger Model • Acquisitions in areas of population growth • Smaller lot sizes – build portfolio on property characteristics • Platform and pipeline established, although current acquisitions limited • Potential for capital growth after long term stagnati
Slide 27: Acquisition of FranconoRheinMain
Acquisition of FranconoRheinMain • Cost to Grainger c. €46m of equity • Portfolio of 2,300 units, value €146.7m at 31 December 2007 • Will enable Grainger to achieve critical mass with portfolio worth c. €500m • Immediate focus will be on integration of the two businesses and driving returns through
Slide 28: Portfolio Overview - Germany
Portfolio Overview - Germany Portfolio overview Portfolio Overview (post FRM) Sylt • 6,948 residential units1) Oldenburg • 352 commercial units1) Emden • 1 nursing home in Northern Hamm Rotenburg/Wümme Germany Oyten Recklinghausen Bremen Braunschweig • 491,073 sq. metres in total1) Hannover Berlin •
Slide 29: Update on Strategy and Outlook
Update on Strategy and Outlook • Long term strategy unchanged • Tactical flexibility in the short term • Maximise efficiency of capital structure through introduction of third party equity and debt • Strong operational platform and access to deals in order to diversify income streams • Unique brand
Slide 30: Key Conclusions
Key Conclusions • Core portfolio has strong defensive characteristics • Grainger is not wholly dependent on UK house price growth; substantial in- built reversion (£638m) • Increasingly diversified business model – with potential to grow and diversify income • Strong liquidity and debt position = fi
Slide 31: Appendices - Detailed Profit and Loss Account
Appendices - Detailed Profit and Loss Account 31 March 2008 31 March 2007 UK Residential UK Development Europe Total UK Residential UK Development Europe Total £m £m £m £m £m £m £m £m Gross rents/other income 27.4 0.6 8.0 36.0 21.4 0.7 4.3 26.4 Property expenses (5.9) (0.1) (2.8) (8.8) (4.9) (0.3) (
Slide 32: Appendices - Detailed UK Residential Income Account
Appendices - Detailed UK Residential Income Account £m Fund m anagem ent and Core Hom e Reversion residential investm ents Total Gross rents/other income 21.3 2.8 3.3 27.4 Property expenses (5.3) (0.6) - (5.9) 16.0 2.2 3.3 21.5 Trading Profits 31.3 4.7 - 36.0 Profit on sale of fixed assets 0.2 - - 0
Slide 33: Appendices – Grainger NAV – Sensitivity Analysis
Appendices – Grainger NAV – Sensitivity Analysis Without discounting tax Discount rate 8.90% 7.0% 5.90% Note • Grainger NAV brings in the 0% 707p 735p 756p present taxed value of 2% 739p 776p 802p reversionary surpluses in our long term portfolio HPI 4% 781p 827p 860p 5% 805p 857p 894p • Grainger WA
Slide 34: Appendices - Portfolio Affordability
Appendices - Portfolio Affordability 31 March 2008 30 September 2007 £523m £531m 30.0% £526m 30.5% £521m 30.2% 29.9% £383m £394m 22.0% £114m £194m 22.6% £111m £184m 6.5% 11. 2% 6.3% 10.6% £1m £1m 0.1% 0.1% £1,741m £1,742m By vacant possession value *Regulated, assured and vacants only £0-£50K £50-£1
Slide 35: Portfolio Analysis – JV's and associates
Appendices - Portfolio Overview - Portfolio Analysis – JV’s and associates Gross Gross Vacant Grainger Market Possession Share of No of Value Value Grainger Grainger Reversionary units £m £m Share % Equity £m Surplus £m G:res1 2,186 437 482 21.6 46 10 Schroders 702 86 95 22.4 20 2 Grainger GenInvest
Slide 36: Appendices - Analysis of JV's/Associate Income
Appendices - Analysis of JV’s/Associate Income Fixed 2007 Net asset Revaluation Other Profit/ Grainger £m Designation rents profit gain/(loss) Interest Cost Loss Share £m G:res1 Associate 8.1 1.5 - (6.5) (3.0) 0.1 - Schroders Associate 1.7 0.9 (0.7) 0.1 (0.8) 1.2 0.3 Grainger GenInvest portfolios JV
Slide 37: Appendices – Committed Facilities
Appendices – Committed Facilities As at 31 March 2008 £m Syndicate Bantam Total German Bond 2050 2000 1950 1900 1850 1800 £400 Revolving Facility B 1750 due 30June 2010 1700 m 1650 Revolving Facility A 1600 £475 1550 due 30 Jun 2011 1500 1450 £28.57 £28.5 £28.5 £28.5 £28.5 £28.5 £28.5 Term facility
Slide 38: Appendices - Glossary of Terms
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 ten
Slide 39: Appendices - Glossary of Terms
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 activi