Grainger Plc · LSE:GRI
Grainger — FY2018 Earnings Presentation
68 slides from Grainger's earnings presentation, Nov 14, 2018
Slide 1: Accelerating our growth strategy
Accelerating our growth strategy 14 November 2018
Slide 2: Agenda
Agenda Originate Invest Operate 1. Overview Helen Gordon Chief Executive 2. FY18 Financial Results Vanessa Simms Chief Financial Officer 3. Financial impact of the transaction Vanessa Simms Chief Financial Officer 4. Market and business updated Helen Gordon Chief Executive 5. Summary Helen Gordon Ch
Slide 3: Accelerating our PRS growth strategy
Accelerating our PRS Originate Invest Operate growth strategy Acquisition of A large, high quality, Grainger-managed, 100% GRIP JV tenanted PRS portfolio – c.1,700 units Growing Great progress to date with £943m secured pipeline Expanding pipeline to £1.37bn Strong financial Strong financial perform
Slide 4: FY18 Results - Strong performance
FY18 Results^ - Strong performance Originate Invest Operate Adjusted Net rental Rental EPRA Total return earnings* income growth* NNNAV* ROSE* £94m £43.8m +4.0% 316pps 6.1% +26% +8% Like-for-like +4% Key highlights Secured pipeline increased to £943m to date (excl GRIP) Further £382m in planning and
Slide 5: Strong track record of delivery
Strong track record of delivery Originate Invest Operate We said… (in January 2016) We delivered… Target of £850m PRS investment by 2020 £943m secured to date Grow NRI 35% growth delivered from FY15 to FY18 Improve margins (gross to net) Gross to net reduced from 31% (FY15) to 26% (FY18) Reduce over
Slide 6: Opportunity to accelerate growth
Opportunity to accelerate growth Originate Invest Operate Raising equity (1) (2) for growth Acquiring c.1,700 tenanted Increasing our PRS PRS assets (GRIP) development pipeline Gross rents of c.£32.5m* £1,370m per annum targeted (FY18) Growth opportunity Funding our growth Acquisition of remaining 7
Slide 7: Acquiring GRIP – a large, high quality PRS portfolio
Acquiring GRIP – Originate Invest Operate a large, high quality PRS portfolio GRIP Portfolio – Total GAV of £696m (c.1,700 PRS units) Large, high quality, tenanted PRS portfolio in attractive, target locations in London and SE 92% Managed by Grainger since 2013 Avg GRIP rent as a % of 4.9%* gross yi
Slide 8: Acquisition rationale
Acquisition rationale Originate Invest Operate Strategic, scale and synergies 1. Strategic fit 2. Portfolio scale 3. Operational Aligned to our strategy Large, high quality tenanted synergies PRS portfolio Deep knowledge of the Immediate income and portfolio – Grainger dividend growth Mid-market ren
Slide 9: Increasing our PRS pipeline
Increasing our PRS pipeline Originate Invest Operate Increased Total Original £850m pipeline investment PRS investment, £m FY17: £651m target £1,370m £1,875m New pipeline 943 45 382 505 Secured GRIP Pipeline (75% of Investment) Planning/legals GRIP Portfolio (75% of GAV) Breakdown of pipeline by acq
Slide 10: Investing in strong rental growth markets
Investing in strong rental growth markets Originate Invest Operate Targeting the largest PRS locations with the best proven rental growth prospects Schemes secured Target locations Under review Not under consideration GRIP footprint New acquisition (FY18) Weak existing Strong existing tenant demand
Slide 11: Accelerating our transition to a PRS investment business
Accelerating our transition to a Originate Invest Operate PRS investment business FY15 Pre Strategy (£, GAV) FY18 Before Acquisition (£, GAV) PRS PRS 24% 35% £61m £70m £32m £44m Regs Regs Resi Sales Profit Net Rent 65% Resi Sales Profit Net Rent 76% FY18 After Acquisition* After Acquisition, Post Pi
Slide 12: 2. FY18 Financial Results review
2. FY18 Financial East Street, Southampton Results review Vanessa Simms Chief Financial Officer
Slide 13: Financial highlights
Financial highlights Originate Invest Operate Strong financial performance and further improved capital structure Income FY17 FY18 Change Rental growth (like-for-like) 3.8% 4.0% +20 bps Net rental income £40.4m £43.8m +8% Adjusted earnings £74.4m £94.0m +26% Profit before tax £86.3m £100.7m +17% Pro
Slide 14: Income statement
Income statement Originate Invest Operate +26% growth in adjusted earnings Increased net rental income +8% FY17 FY18 Change ‒ +4.0% like for like growth Net rental income £40.4m £43.8m +8% Profit from sales – residential £60.4m £70.1m +16% ‒ High rental margins maintained Gross to net 26.0% (FY17: 2
Slide 15: Net rental income growth
Net rental income growth Originate Invest Operate Underpinning dividend growth of 8% +8% £1.6m £43.8m £3.4m £40.4m £(1.6)m PRS L4L 3.0% Regs L4L 5.4% Total L4L 4.0% FY17 Disposals Acquisitions Rental FY18 growth www.graingerplc.co.uk 15
Slide 16: EPRA NNNAV
EPRA NNNAV Originate Invest Operate +4% growth supported by valuations, sales and NRI pence per share +3p +5p +13p FY17 Net Overheads & Finance Sales Disposals Valuations^ Valuations Tax & Dividends FY18 rents, expenses costs profit (trading (operational (development) other fees & assets) assets) in
Slide 17: EPRA NAV & NNNAV
EPRA NAV & NNNAV Originate Invest Operate £m pence per share Property assets (market value) 2,224 531 Net liabilities (767) (183) EPRA NAV 1,457 348 Tax – deferred & contingent – trading assets (109) (26) Sub-total 1,348 322 Tax – deferred & contingent – investment assets (22) (5) Mark to market fix
Slide 18: Net debt
Net debt Originate Invest Operate Strong cash generation from operations supports our PRS growth strategy Operating cashflow £133m £218m £866m £848m £33m £21m £23m £53m -£209m -£121m Net debt Revenue Propex, Finance Dividend Refinancing Asset Investment Net debt FY17 overheads costs activity recycli
Slide 19: 3. Financial impact of the transaction
3. Financial impact of the transaction
Slide 20: Attractive pricing
Attractive pricing Originate Invest Operate GRIP Acquisition Gross assets £696m (100%) Net assets of £513m* Purchase price £396m (for remaining 75%) 2.1% premium to GAV and 2.9%** premium to NAV (Sept 18) Tax 0.5% stamp duty on corporate acquisition (Not a property transaction, saving c.4.5%) Valuat
Slide 21: Financial impact of the transaction
Financial impact of the transaction Originate Invest Operate Unaudited Income Gross rents Immediate increase targeted of c.£32.5m pa* Gross to net Targeted reduction from 32% to 26%** Dividend Enhanced dividend supported by a step change in net rental income NRI potential £128m p.a on stabilisation
Slide 22: Step change in net rental income
Step change in net rental income Originate Invest Operate NRI progression driving sustainable income and dividend growth £,m £128m 2.9x 10 3 £111m 7 39 6 5 £69m 1.5x 24 118 108 111 69 44 44 32 FY15 FY18 GRIP Portfolio Rental Growth Disposals Operational Secured GRIP Secured Planning / Planning / Pot
Slide 23: Indicative NNNAV Impact
Indicative NNNAV Impact Originate Invest Operate Excludes valuation and rental growth Pence per share* Potential Future Gross Benchmark Potential NAV NAV Impact Development Yield Valuation Potential NAV Impact GRIP Acquisition Impact Per Share Profit on Cost Yield ^ NAV Impact Per Share Immediate im
Slide 24: Capital structure
Capital structure Originate Invest Operate Grainger FY18* Combined** Cost of debt LTV Net debt £866m £1,100.8m 6.5% 60% 6.0% 55% Loan to value 37.1% 37.9% 5.5% 50% Cost of debt (period end) 3.2% 3.2% 5.0% 45% 4.5% Incremental cost of debt < 2% < 2% 4.0% 40% 3.5% 35% Headroom £388m £395m 3.0% 30% Wei
Slide 25: Financial impact summary
Financial impact summary Originate Invest Operate Enhanced total returns, targeting > 8%* Step change in NRI and dividend Greater alignment to rental growth than house prices Lower risk business with greater reliance on PRS net rental income Accelerates transition from trading business to investment
Slide 26: 4. Market and business update
4. Market and business update
Slide 27: A fully integrated business model
A fully integrated business model Originate Invest Operate How we create value Site assembly Capital allocation Planning process Geographical targeting Design Investment management Layout Acquisitions Specifications Asset recycling Delivery management Valuation Grow rents Simplify and focus Build on
Slide 28: A vast market opportunity
A vast market opportunity Originate Invest Operate Fragmented and ripe for consolidation: 98% of all landlords in the UK own less than 10 properties Historic trend toward PRS Demand for PRS to continue to 4.7m 80 grow 60 PRS households 40 today 20 7.2m by 2025 0 1980 1985 1990 owner occupiers 1995 2
Slide 29: Supportive backdrop and resilient outlook
Supportive backdrop and Originate Invest Operate resilient outlook Planning reform Rental growth’s in favour of PRS resilient track record National Planning Policy Framework Aligned to wage growth changed to support PRS development and counter-cyclical Growing demand across all age groups 2016-17
Slide 30: Secured investment in key cities
Secured investment in key cities Originate Invest Operate Forward Funding scheme Direct Development – On Site Direct Development – In planning / pre-site Yorkshire Post, Leeds Clippers Quay, Salford Leeds, Yorkshire Gore Street, Manchester Eccy Village, Sheffield Silbury Blvd, Milton Keynes Gilders
Slide 31: Secured projects in the pipeline
Secured projects in the pipeline Originate Invest Operate 19 high quality PRS schemes Key: GRIP Grainger East Street, Southampton Silbury Boulevard, Milton Keynes Clippers Quay, Salford Gore Street, Manchester Gilders Yard, Birmingham Yorkshire Post, Leeds Eccy Village, Sheffield Leeds, Yorkshire YM
Slide 32: Increasing our PRS pipeline
Increasing our PRS pipeline Originate Invest Operate Increased Total Original £850m pipeline Investment PRS investment, £m FY17: £651m target £1,370m £1,875m New pipeline 943 45 382 505 GRIP Portfolio Secured GRIP Pipeline (75% of Investment) Planning/legals (75% of GAV) Total portfolio (units) STAB
Slide 33: Schemes in planning & legals
Schemes in planning & legals Originate Invest Operate Secured Planning & Legals Legally Exchanged Land Ownership Heads of Terms Heads of Terms + Fully committed + Subject to planning + Planning consent + Subject to planning granted Secured projects Waterloo Estate Two schemes Three schemes £943m Dir
Slide 34: New pipeline investments
New pipeline investments Originate Invest Operate +£310m added to the pipeline since FY17 Eccy Village, Sheffield 1 6 Leeds, Yorkshire 6 1 237 PRS units 200+ PRS units £32m investment £34m investment c.7% gross yield targeted c.6.5% gross yield targeted East Street, Southampton (GRIP) 2 Hale Wharf,
Slide 35: Constantly refining and enhancing the portfolio
Constantly refining and enhancing Originate Invest Operate the portfolio £157m of asset recycling completed in FY18 Disciplined approach to asset recycling Every property analysed for existing and future returns Quarterly review by portfolio Sales included Non-core JV’s Regulated tenancies with youn
Slide 36: Operational excellence
Operational excellence Originate Invest Operate Customer insight Customer service Enhancing training and efficiencies and development customer experience with technology Driving results 84% improvement in response time for customers Reduced arrears High occupancy at 97% +4.0% like for like r
Slide 37: Argo Apartments
Argo Apartments Originate Invest Operate Fully stabilised, performing ahead of underwriting and expectations 97% let in 4 months Valuation uplift on Free Superfast WiFi stabilisation Residents lounge +64%* 24hr Gym Guest room 42% customers on Dining suite 3yr leases Roof terrace Meeting rooms Gross
Slide 38: Berewood, Hampshire
Berewood, Hampshire Originate Invest Operate Family PRS housing in areas with high barriers to home ownership 104 homes Lettings achieved c.2.4% above ERV Gross yield on cost 7.5% targeted Local school within walking distance Long term tenancies available, up to 5 years c.50% take-up of tenancies >
Slide 39: Clippers Quay
Clippers Quay Originate Invest Operate Largest PRS scheme to launch outside of London UK record for pre-leasing in the PRS Phase 1 614 apartments 135 units Free Superfast WiFi Residents lounge 54% Gross yield on cost targeted 24hr Gym pre-let Phase 1 8% Cinema room Dining suite Best value PRS offeri
Slide 40: 5. Summary
5. Summary @ Investing in homes since 1912 grainger plc
Slide 41: Transaction context
Transaction context Originate Invest Operate Market context Business context 1. Increase in PRS demand 1. A rare and limited window of 2. Reducing supply with amateur, opportunity, off-market buy-to-let landlords exiting 2. Large, high-quality London PRS 3. Strong rental growth prospects portfolio a
Slide 42: Enhances dividend and total returns
Enhances dividend and total returns Originate Invest Operate Strategic priority 1: Grow rents Accelerating growth in net rental income Gross rent increases targeted to c.£32.5m pa post-deal* GRIP Developments deliver targeted c.£4m of further gross rent* Building greater scale to drive opera
Slide 43: Thank you
Thank you Q&A grainger plc grainger plc
Slide 44: Expected timetable and rights issue
Expected timetable and rights issue Originate Invest Operate Key expected dates Rights issue 14 November: Announcement of acquisition and Gross proceeds of c.£347m Rights Issue Number of shares 194.7m 30 November: General Meeting, acquisition Issue price of 178p conditional on shareholder approval R
Slide 45: Appendix
Appendix grainger plc grainger plc
Slide 46: Illustrative rights issue effects
Illustrative rights issue effects Originate Invest Operate Pre Issue X for Y rights issue Post issue Number of shares 417.3m 194.7m 612m Share price* (A) 291p Issue price (B) 178p Theoretical ex-rights price (TERP) (C) 255p Equity value £1,214.3m £346.7m £1,561m Theoretical nil-paid price (C-B) 77p
Slide 47: GRIP Acquisition
GRIP Acquisition Kimmerston House, Pimlico, London Argo Apartments, London Kew Bridge Court, London Ability Plaza, London Springfield House Lofts, London St Annes, Brighton West Tenter Street, London Shillington Old School, London www.graingerplc.co.uk 47
Slide 48: GRIP portfolio overview
GRIP portfolio overview Originate Invest Operate GRIP portfolio overview – asset type GRIP in numbers (30 September 2018, unaudited) # of units c.1,700 Conversion # of assets 35 30% GAV £696m NAV* £513m Purpose Gross yield 4.9% built L4L rental growth 3.0% 70% Occupancy** 95% Gross to net 32% MSCI t
Slide 49: Delivering additional value to GRIP through asset management
Delivering additional value to GRIP Originate Invest Operate through asset management Capital works Asset sales Pipeline Opportunities for asset Hierarchy-led asset 2 schemes under repositioning and recycling plan construction expected improvement to deliver c.£6m of Targeting c.£9m of NAV gain Plan
Slide 50: GRIP - well-located, income-generating portfolio
GRIP - well-located, income-generating portfolio Originate Invest Operate Mid-market price points Managed by Grainger since 2013 Avg GRIP rent as a % of 92% market avg (London) % of assets within 30 81% mins of city centre % of London assets within 94% 10 mins walk of Tube/Rail Network % of assets w
Slide 51: London and SE, markets with strong growth characteristics
London and SE, markets with strong Originate Invest Operate growth characteristics London and SE are key target Rental Price Index by Regions (Jan 2005 = 100) markets with the largest PRS 150 markets in the UK and greatest 140 growth prospective 130 Combined they account for 37% of 120 overall UK PR
Slide 52: Increasing our PRS pipeline
Increasing our PRS pipeline East Street, Southampton Besson Street, Lewisham, London Silbury Blvd, Milton Keynes Eccy Village, Sheffield www.graingerplc.co.uk 52
Slide 53: Secured pipeline schedule (1 of 2)
Secured pipeline schedule Originate Invest Operate (1 of 2) Est. Grainger Gross yield Completion Name Status No. units investment target /First lets Forward funding / acquisition Clippers Quay, Salford Phased completions 614 £99m c.8% Early FY19 Gore Street, Manchester On site 375 £80m c.7% Early FY
Slide 54: Secured pipeline schedule (2 of 2)
Secured pipeline schedule Originate Invest Operate (2 of 2) Est. Grainger Gross yield Completion Name Status No. units investment target / First lets Direct development Apex House, London On site 163 £60m c.6.5% Mid FY20 Gun Hill, Wellesley On site 107 £22m c.6.5% Early FY19 Berewood, Hampshire Phas
Slide 55: Balance sheet
Balance sheet Originate Invest Operate Adjustments in respect of FY18 Market value balance sheet (£m) Grainger GRIP transaction1 Pro Forma Residential – PRS 591 673 - 1,264 Residential – regulated tenancies 1,107 - - 1,107 Residential – mortgages (CHARM) 82 - - 82 Forward Funded – PRS work in progre
Slide 56: Dividend Impact
Dividend Impact Originate Invest Operate FY18 FY18 Proforma No. shares* 416.5 610.9 Dividend (£m) 21.9 32.6 Divided per share (p) 5.26 Adjusted DPS post rights issue 4.61 5.33 Proforma dividend accretion 16% * Excluding treasury shares www.graingerplc.co.uk 56
Slide 57: Portfolio summary
Portfolio summary Originate Invest Operate Property assets FY18 No. Vacant Reversionary £m units Market value possession value surplus Residential – PRS 2,841 591 641 50 Residential – regulated tenancies 3,109 1,107 1,317 210 Residential – mortgages (CHARM) 580 82 81 (1) Forward Funded – PRS work in
Slide 58: Net asset reconciliation
Net asset reconciliation Originate Invest Operate Adj IAS 39 Add back re fixed rate fair value of loan and Market derivative derivative Deferred Statutory Market value Add back financial financial and NNNAV balance value balance def tax on instruments Gross instruments contingent balance £m sheet ad
Slide 59: Total assets under management by region
Total assets under management Originate Invest Operate by region Reversionary* & PRS (wholly owned and GRIP) FY18 Homes under Average house price management Market value (avg VPV per unit) Region units £m £000s Central / Inner London 2,778 1,409 579 Outer London 611 226 420 South East 940 213 277 So
Slide 60: Reversionary assets under management by region
Reversionary assets under Originate Invest Operate management by region Regulated tenancies & mortgages (CHARM) FY18 Homes under Average house price (avg management Market value VPV per unit) Region units £m £000s Central / Inner London 1,021 653 765 Outer London 348 132 451 South East 409 113 325 S
Slide 61: PRS assets under management by region
PRS assets under management Originate Invest Operate by region PRS (wholly owned & GRIP) FY18 Homes under Average house price management Market value (avg VPV per unit) Region units £m £000s Central / Inner London 1,757 755 471 Outer London 263 94 379 South East 531 100 240 South West 317 121 394 Ea
Slide 62: Valuation movements by region
Valuation movements by region Originate Invest Operate FY18 Wholly owned Market value Change since Region units FY18, £m FY17 Central / Inner London 1,456 833 (0.2)% Outer London 441 162 +2.1% South East 698 168 +5.5% South West 576 165 +1.8% East and Midlands 692 122 +5.0% North West 1,596 189 +3.8
Slide 63: JVs & Associates
JVs & Associates Originate Invest Operate Balance Sheet FY18 (£m) GRIP Other Total Residential property assets 673 - 673 Development assets 23 23 46 Other assets 49 67 116 Total assets 745 90 835 External debt (216) - (216) Loans from equity participants (73) (57) (130) Other liabilities (19) (33) (
Slide 64: See through debt
See through debt Originate Invest Operate GRIP Grainger Consolidated £m Group (25%) share Group Syndicate 251 251 Corporate bond 350 350 Core bilaterals 140 140 Core total 741 741 Bilateral 150 150 Rothesay funding 75 75 HCA funding 7 7 Joint ventures and associates 217 54 54 Total group gross debt
Slide 65: Debt facilities schedule
Debt facilities schedule Originate Invest Operate Facility Lender Size Drawn Maturity Core Facilities: Corporate Bond Listed £350m £350m Apr 2028 Revolving Credit Facility HSBC, NatWest, Barclays £330m £66m Aug 2023* Term Debt Nationwide, AIB £130m £130m Aug 2020 Term Debt HSBC, NatWest, Barclays £1
Slide 66: Future reporting dates
Future reporting dates Originate Invest Operate 2018 Trading update September FY18 Full Year results 14 November 2019 Trading update February Half year results 16 May Trading update September Full year results 28 November www.graingerplc.co.uk 66
Slide 67: Definitions of non-IFRS measures
Definitions of non-IFRS measures Originate Invest Operate Adjusted earnings Adjusted earnings is defined as profit before tax, valuation movements on investment assets, derivatives and other adjustments that are considered to not form part of the normal ongoing revenue or costs of the business, but
Slide 68: Disclaimer
Disclaimer Originate Invest Operate THEDISTRIBUTIONOFTHISDOCUMENTINJURISDICTIONSOTHERTHANTHEUNITEDKINGDOMMAYBERESTRICTEDBYLAWANDPERSONSINTOWHOSEPOSSESSIONTHISDOCUMENTCOMESSHOULDINFORMTHEMSELVESABOUT ANDOBSERVEANYRELEVANTRESTRICTIONS.INPARTICULAR,THISDOCUMENTMAYNOTBEPUBLISHEDORDISTRIBUTED,DIRECTLYORI