Business
Grainger : 2024 Annual Report and Accounts
Grainger : 2024 Annual Report and
About this update from Grainger Plc
Annual Report and Accounts 2024 Renting homes Strategic report Our year in review 02 Chair's statement 04 Chief Executive's statement 05 Great renting 09 The shape and strength of our business 18 Our market 24 Our business model 26 Key performance indicators ('KPIs') 28 Non-financial and ESG KPIs 30 Financial review 31 ESG introduction 37 Great people 39 Great assets 44 Great environment 46 Task force on Climate-related Financial 48 Disclosures Stakeholder engagement - section 172 55 reporting Risk management 56 Principal risks and uncertainties 58 Viability statement 64 Governance Chair's introduction to governance 66 Leadership and purpose 68 Division of responsibility 78 Composition, succession and evaluation 80 Responsible business 84 Audit, risk and internal controls 86 Remuneration 91 Statement of Director's responsibilities 110 Directors' report 110 Financial statements Independent auditor's report 116 Consolidated income statement 123 Consolidated statement 124 of comprehensive income Consolidated statement 125 of financial position Consolidated statement 126 of changes in equity Consolidated statement 127 of cash flows Notes to the financial statements 128 Parent company statement 165 of financial position Parent company statement 165 of changes in equity Notes to the parent company 166 financial statements EPRA performance measures 171 (unaudited) Five-year record (unaudited) 175 Other information Alternative performance measures 176 Shareholders' information 177 Glossary of terms 178 Advisers 179 p 05 Chief Executive's statement p 04 Chair's statement p 31 Chief Financial Officer's review Forward-looking statements This Report may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the future financial condition, business performance and results of Grainger plc. Further information about forward-looking statements can be found in the Shareholders' Information section on page 177. Strategic report Governance Financial statements Grainger plc 1 Annual Report and Accounts 2024 We are changing the way people think about renting. We are creating great rental homes that meet the needs of renters. As one of the UK's largest professional landlords we are providing homes to help alleviate the UK's housing shortage and delivering homes that are great value, in great locations, whilst providing a great customer service and creating great communities. p 09 Read more about our great rental offer. Millwrights Place, Bristol 2 Grainger plc Annual Report and Accounts 2024 Our year in review A great performance Consistently delivering outperformance and growth Grainger delivered another great performance across the business this year. With the delivery of four new schemes and the purchase of the stabilised asset, The Astley in Manchester, we have added 1,236 new homes to our portfolio and continue to see our pipeline developing well. The outlook for Grainger is excellent. Our market leadership in the growing build-to-rent sector with the UK's largest portfolio, largest pipeline and best-in-class operating platform, is delivering compounding growth for Shareholders, whilst providing a brilliant service and rental experience to our customers. Our newest build-to-rent schemes We have delivered four exciting new schemes this year and continued to develop our cluster strategy in key UK cities. Highlights Total operational portfolio size 11,069 New homes added 1,236 Total portfolio value £3.4 bn Schemes added 5 The Copper Works, Cardiff Windlass Apartments Phase 2, North London Millwrights Place, Bristol The Silver Yard, Birmingham The Astley, Manchester (acquired) Strategic report Governance Financial statements Grainger plc 3 Annual Report and Accounts 2024 Like-for-like rental growth (PRS) Great performance driven by our best-in-class operational platform and high demand for our product. +6.3% PRS rental growth (%) 10 8 6 4 2 0 2019 2020 2021 2022 2023 2024 Net rental income The successful lease up of new launches, supported by our high-quality product and service offering has delivered double digit growth in net rental income. +14% Net rental income (£m) 120 110 100 90 80 70 0 2019 2020 2021 2022 2023 2024 Millwrights Place, Bristol Key facts A platform that consistently delivers excellent operational performance. The Silver Yard, Birmingham Occupancy 97.4 % Customer retention 63 % Average length of stay (PRS) 31 months Rent paid on time 99 % Customer satisfaction (NPS) +48 Energy Efficient Properties EPC A-C (PRS) 94 % 4 Grainger plc Annual Report and Accounts 2024 Chair's statement Positioned "Grainger has delivered another year of strong performance." Dear Shareholders, I am pleased to say that Grainger has delivered another year of strong performance with a significant step up in net rental income, further dividend growth and excellent customer satisfaction scores, despite a challenging external environment. In the last 12 months Grainger has successfully delivered over 1,200 new homes in Cardiff, Birmingham, Bristol and London. The strategy to grow the business remains a priority and is supported by a substantial pipeline of schemes, a robust operating platform and great people across the whole organisation. Delivering for customers remains a key area for the Board and great progress has been made through the delivery of our Customer Experience Programme which has, once again, resulted in further improvements in customer satisfaction levels and therefore customer advocacy. This is key to driving both customer retention levels and new customer enquiries. There continues to be a focus on how the use of data and AI will enable us to continue to make strides in delivering for our customers as well as improving the efficiency of everything we do. The Board was pleased to see the Company's continued success of its ESG strategy and progress toward its ESG commitments, including further reducing its carbon emissions on an intensity basis. It was also good to hear the positive comments from colleagues in Grainger's new energy-efficient London office. As the market leader, we continue to take the initiative on health and safety matters. We know that with over 25,000 residents staying in our properties every night, we must go above and beyond to keep them safe. Our commitment to this is evidenced through our Live.Safe programme, with the results of our annual health and safety survey showing our Live.Safe culture is firmly embedded across the business and ahead of our peer group. In light of the Grenfell report this year, it is reassuring that a key focus for Grainger has been fire safety, where the Company is taking measures to be at the forefront of building safety. One of the highlights of the year was the Board's visit to two of Grainger's newest communities in Nottingham and Derby, meeting colleagues and residents. It is always an uplifting experience hearing the enthusiasm of colleagues who have delivered these schemes as well as those on site delivering great service to our customers every day. The Board closely reviewed and discussed people matters over the year including wellbeing, reward and recognition, diversity and inclusion and I am pleased to report some significant achievements in this area too. This year Grainger achieved the UK's leading recognition for equality, diversity and inclusion, the National Equality Standard. Grainger was also recognised as a Top 100 Employer by Best Companies as a result of the Company's bi-annual employee engagement survey. Finally, Grainger ranked highly in the FTSE Women Leaders review at 19th position out of the FTSE 250. During the year, Grainger's Company Secretary, Adam McGhin, left the business after 13 years and I would like to thank him for his important contribution to the business and the support he provided to the Board over that time. I would also like to welcome our new Company Secretary and General Counsel, Sapna FitzGerald, to Grainger. The Board and I look forward to working closely with her. The past year saw significant political change take place in the UK. The Board regularly reviewed Grainger's engagement with UK Government ministers and officials and the three main political parties, ensuring that Grainger's perspective and expertise helps inform policy making. We were pleased that the new Labour Government has publicly rejected the introduction of rent controls, recognising that it would harm housing supply and investment. Reflecting the Company's strong performance and our commitment to deliver a progressive dividend, the Board is pleased to propose a final dividend per share of 5.01p, in line with our policy to distribute the equivalent of 50% of net rental income. This will result in a total dividend of 7.55p per share, an increase of 14% from last year. Grainger is well positioned to continue to deliver significant earnings growth for years to come as it completes the existing schemes in its pipeline and new schemes it secures. One of the key areas of focus for the Board continues to be how quickly the Company can grow the pipeline into the future given the serious mismatch that exists in this country between the demand for homes and current supply. Given the size of the opportunity the Board remains confident that the Company can deliver further substantial value for Shareholders and customers alike going forward. Mark Clare Chair 20 November 2024 Strategic report Governance Financial statements Grainger plc 5 Annual Report and Accounts 2024 Chief Executive's statement Excellent Delivering homes "We have a substantial opportunity to accelerate growth." It is my pleasure to report another year of continuing accelerated growth for your Company and a very strong growth outlook. Building on last year's record delivery of new homes, we have had another year of strong delivery, adding 1,236 new homes to our expanding portfolio. We added four new communities to our existing clusters in Birmingham, Bristol, London, and Manchester and building on our national footprint of carefully selected locations, we are now building meaningful scale in these cities. The Silver Yard - Birmingham In June 2024 we launched our second scheme in Birmingham. 375 Homes One of these was the acquisition of an existing BTR asset, The Astley, demonstrating the potential of stabilised acquisitions as a route to growth. We also opened our first scheme in Wales in Cardiff. These new homes together with like-for- like rental growth of 6.3% have meant we have once again delivered double digit income growth at 14%, ahead of last year's 12% growth. For our Shareholders this also means a 14% growth in our dividend. Our portfolio returned to valuation growth in the second half with a 1.1% increase which offset the decline in the first half related to the one-off impact of tax changes (the removal of multiple dwellings relief, MDR). Over the whole year valuation declined by 0.8% (FY23: (2.4)%) including this one off impact; excluding MDR underlying valuations increased 0.8% during the year. Over the past two years, due to rising interest rates, we've experienced yield expansion yet our portfolio value's decline was successfully largely offset by rental growth due to the resilience of our assets and the strength of our operating platform. 6 Grainger plc Annual Report and Accounts 2024 Chief Executive's statement continued Our customers Affordability ratio 28% of household income paid on rent on average in a Grainger home. Our proactive asset recycling programme drives continued growth, which also preserves the strength of our balance sheet. This year we disposed of a recent record number of non-core assets generating £274m of gross revenue from these lower yielding assets. We are then reinvesting this capital into higher-yielding, modern, purpose-built, energy efficient, attractive homes. This, together with our high level of asset recycling last year is leading to the continued high quality and strong potential of our portfolio. The investment and focus we have placed on creating the UK's leading build-to-rent ('BTR') operating platform means that we can leverage our planned growth using our central platform and deliver significant margin gains, with our EBITDA margin set to grow by six percentage points to over 60% by FY29, a compounding effect on our earnings growth. The strategic transformation we have undergone since setting out our strategy in 2016 is enabling us to convert to a REIT in October 2025, made possible by the fact that the business will be majority BTR homes, focused on investment and growing net rental income and no longer reliant on trading profits. Our BTR/PRS portfolio now represents 83% of our operational portfolio given the success of both our pipeline delivery and recycling of our regulated tenancy portfolio. High customer satisfaction and healthy customer affordability We are committed to delivering great homes and a great service to our customers. Satisfied customers deliver the most robust returns for our Shareholders. Our investment in customer experience, including deeper customer insight, our CONNECT technology platform and our Company-wide customer service training programme, has led to year-on-year improvements in customer metrics. Our key metric for customer satisfaction, the Net Promoter Score (NPS), has increased even further this year following last year's exceptional score, and is now +48, significantly ahead of industry peers and many other industry market leaders. Customer retention is high at 63%. On average, our customers stay with Grainger for nearly three years. In addition to our customers telling us that they are happy renting with Grainger, we closely monitor the financial health of our customers and their rental affordability. It is generally accepted that housing costs should be no more than a third of a household's gross income. I am pleased to report that Grainger's customer affordability remains healthy at 28%. Operational excellence We have successfully been leasing our four new schemes well ahead of underwriting, which typically assumes 12-18 months to fully lease up a new building. In Cardiff, at the Coppers Works (307 homes), in Bristol at Millwrights Place (231 homes), in Birmingham at The Silver Yard (375 homes), and in London, our second phase of Windlass Apartments (65 homes), our newly completed buildings are all leasing exceptionally well, ahead of underwriting. We continue to reap the benefits of scale as we grow. Operating expenses continue to be improved with our 'gross to net' leakage down from 25.5% to 25%, a 75% gross rental margin. This margin is after refresh and refurbishment costs which are included in the 25%. In addition, with scale we have created efficiencies in our procurement and supply chain. Good examples of this were our consolidation of our repairs and maintenance supplier in the South of England and our consolidation of national furniture suppliers this year, both enabling us to drive savings and, importantly, further enhance customer experience. Our fully integrated and fully digitised customer journey, combined with our CONNECT technology platform, enables Strategic report Governance Financial statements Grainger plc 7 Annual Report and Accounts 2024 us to benefit from the significant data and insight we have at our fingertips, a benefit of operating all our own properties directly. CONNECT, along with our data, enables us to readily utilise AI and analytics across the business, such as lettings, customer experience, building operations, asset management, development and our core corporate functions too. We also launched a new website improving our leasing journey for those wishing to rent with Grainger. Leading the way on sustainability and responsibility We continue to demonstrate our leadership in sustainability and responsibility. 94% of our properties are compliant with future energy efficiency standards expected to come into force in 2030 (BTR/PRS portfolio, EPC ratings A-C). We continue to make good progress against our target to be net zero carbon for our operations by 2030 with our Scope 1 & 2 emissions reducing again year on year by 8%. Our focus to reduce Scope 3 emissions, particularly our customer emissions, supported by our consumer campaign, Living a Greener Life, continues to bear fruit, with operational Scope 1-3 emissions per m 2 reducing by 9% year on year on the PRS portfolio. Through targeted initiatives, we have successfully established a robust baseline of customer emissions data, which has enabled us to apply for our established carbon targets to be recognised as science-based targets, an important step on our net zero carbon pathway. Safety remains a core focus for Grainger. All housing businesses have a responsibility to keep their residents safe. Most of our BTR properties were built post Grenfell. This year, with the publication of the report on Grenfell, we have further invested in keeping safety at the front of all Grainger employees' minds, a commitment that runs from the Board all the way through the organisation. Our Live.Safe programme continues to successfully engender a safety-first culture. With the enactment of the Building Safety Act, we have been at the forefront of the industry, getting ahead of new building safety regulations and going beyond the new minimum safety standards. Political and regulatory landscape During the year we have worked with both Governments on their proposals for reforming the rental housing market, which have been broadly similar. The UK now has a Labour Government with a notable majority. The Labour manifesto focused on driving economic Our customers High Customer Satisfaction We have continued to increase our net promoter score for customer satisfaction. +48 nps Delivering homes +231 homes Millwrights Place - Bristol Millwrights Place, the second of three Grainger developments in Bristol. By creating an operational cluster we are investing £275 million in the local Bristol community and providing a total of 893 new, high-quality, energy-efficient homes. 8 Grainger plc Annual Report and Accounts 2024 Chief Executive's statement continued growth through stimulating the supply side, particularly through the delivery of 1.5 million new homes over this Parliament. At the same time, the Labour Government also committed to raising standards in the private rented sector. We have been heavily engaged in dialogue with policy makers, including the Labour Party, both before the election and now they are in government, to ensure our perspective is understood and that policy and regulation continues to encourage investment into private rented homes, which is being met positively. We were pleased to see that the Labour Government publicly ruled out any form of rent controls in favour of stimulating housing supply and raising standards. Proposals to raise rental standards have been consistently informed by Grainger over the years. We will continue to engage with Government and policy makers to ensure such changes protect future investment and housing delivery. Our ambition is to lead in the quality of homes and services our customers enjoy. The Labour Government's commitment to reforming the planning system to stimulate housing delivery is also welcome and aligns to our growth strategy. We will continue to engage with policy makers and the UK Government in the shaping of future legislation and regulation. A great place to work We know Grainger is a great place to work because our colleagues tell us it is. The number one reason is because of the people. I am very proud to announce that Grainger this year achieved the UK's leading benchmark for Equality, Diversity and Inclusion (ED&I), the National Equality Standard, which entailed an in-depth and comprehensive assessment of our ED&I programme and supportive culture and policies. I am also proud that this year Grainger was recognised as a leading FTSE business for women in business, ranking 19th out of the FTSE250 in the FTSE Women Leaders review. It is also pleasing to report that our colleague engagement scores remain high, achieving a 'Very Good' rating in our annual survey administered independently by Best Companies. Grainger is now in the Top 100 Employers according to Best Companies. Outlook of compounding growth and market momentum FY24 marked another year of very strong growth in net rental income and EPRA earnings as our operating platform and excellent pipeline continue to deliver compounding growth. With earnings guidance increased for the next two years and a sizable opportunity for further additional growth beyond, we are accelerating our growth and delivering on our strategy. The market opportunity for the UK BTR sector is substantial and Grainger, as market leader with a proven track record of successfully launching and operating new BTR homes, is best placed to continue to accelerate and grow in this sector. Rental growth for the year ahead is expected to remain above the long-term historical average of 3.5% as well as above our underwriting assumptions. Our pipeline for growth is impressive at c.50% of our current BTR portfolio. This growth in our core cities will be delivered with our strengthening relations with partners including public sector landowners. Our asset recycling programme will continue to support our growth ambitions whilst allowing us to maintain a strong balance sheet. Structural undersupply combined with a pipeline for growth, our expertise and leading operating platform means we are perfectly positioned to continue to grow rapidly. The benefits of scale will enhance returns and deliver compound earnings growth for our Shareholders as well as providing a great experience for renters. I am proud to lead a great team whose purpose is to enrich people's lives by the homes we create and the service we deliver. I want to thank the Grainger team, our Board and our Shareholders for continuing to support us in this endeavour. Helen Gordon Chief Executive Officer 20 November 2024 Our colleagues Engaged Workforce Colleague engagement remains high with Grainger now in the Top 100 best companies in the independently administered survey by Best Companies. Attention : This is an excerpt of the original content. To continue reading it, access the original document here .