CIH Affordable Housing Conference March 2014 Dominic Macer, Build - PowerPoint PPT Presentation

CIH Affordable Housing Conference March 2014 Dominic Macer, Build to Rent Project Director

Introduction to Grainger

Business Overview UK’s largest listed residential landlord and property manager • First year of our second century • FTSE250 company, c. £1bn market cap • Significant expertise in the residential real estate sector • Diversified portfolio comprising: – c. 9,300 UK wholly-owned reversionary properties: market value £1.3bn, vacant possession value £1.8bn – c. 4,000 wholly-owned market-rented properties in UK and Germany: c. £0.5bn – c.21,500 properties under management, market value of c. £2.8bn – On-going development activities • Focus on complementary activities generates synergies across divisions 3 3

Our Public Sector Partners 4

Our Private Sector Partners 5

The housing market

A Positive Environment Underpinning Grainger’s Strategy % of homes owner occupied 30% 70% % of homes privately rented …and owner occupation has been 10% PRS is the only growing tenure… in decline since 2005. 50% 1999 2005 2012 1999 2005 2012 • Total value of residential sector valued at £5 trillion • £2 trillion of that in London and the SE English housing survey for 2011 to 2012

Why is the Demand for PRS Growing? • Structural changes • Migration flows • Strong young professional mobility • Different work/life patterns • Household size • Economic changes – affordability issues • Decline of the ‘Bank of Mum and Dad’ • University fees – increased student debt • Mortgage illiquidity, particularly for first time buyers • Lower available LTV and higher prices are resulting in increasing deposits as % of salary • Limited social housing stock increase pool of PRS tenants at the low-income end Source: Savills Research 8

UK Government Support for the Private Rented Sector We are well placed to benefit from Government initiatives, particularly in the private rented sector Government private rented sector support measures include: • Build to Rent Fund extended to £1bn – We are in the process of obtaining up to £57m of inexpensive Government debt for the construction phase of build-to-rent projects of over 500 units across London and the South East • Up to £10bn of UK Government guarantees for new private London Road, Barking and affordable rented homes • Creation of a PRS Taskforce, which includes a Grainger secondee 9

The Opportunity cont. London PRS is the strongest • Strong future growth prospects for rental sector • Economic conditions adding to renting demand o Constrained mortgages o High deposits • Growing cultural acceptance of renting 10

Index of Private Housing Rental Prices • Rents in all regions of the UK have increased in the last 8 years • London has had the most dramatic increase in rental values England Increase in Rental Price Index from May 05 – 13 average 8.4 North East 5.2 North West 5.5 Yorkshire & the Humber 7.6 East Midlands 5.3 West Midlands 6.0 East 8.3 London 11.0 South East 7.6 South West 7.7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 11 Source: ONS - Index of Private Housing Rental Prices - Historical Series

Return Profiles for Property Investment Total returns over 13 year period to 2013

Rental Levels Historically has depended upon capital appreciation and trading but growing opportunity for a yield driven model Growing market with attractive rental performance prospects Long term out performance : total returns Fundamental supply and demand imbalance in the UK, particularly London Very limited number of specialists : requirement/opportunity for a large scale professional operator Diversification opportunity with a new institutional asset class

What are Investors Looking For? • Net yields ~5% • Rental growth • Scale • Blocks • High quality • Capital value growth?

Challenges of PRS Investment • Limited acquisition • Competition on land with opportunities, scale is house-building for sale challenging • What concerns do we have • High capital values with long term based on vacant management of PRS? possession value mean low yields

Appetite For Risk Reward Development Off Plan/Forward Purchase Stabilised Assets Risk

Making PRS Investment Work • Valuation on investment value • Land value paid for over the long term • Section 106? • Design • Management efficiencies (economies of scale) Grainger plc is currently enabling built-to-rent projects through the following routes: • Public Sector Partnerships – The Royal Borough of Kensington & Chelsea • Forward Purchase – London Road, Barking • Develop Part of Larger Scheme – Berewood, Hampshire

Driving Gross Yield Front of House 18

Driving Net Yield Back of House CLG have asked ULI to form a panel to explore possibility of producing a ‘Design Guide’ for PRS. Grainger’s Nick Jopling is chairing the panel. Publication in April 2014. 19

Two Examples London Road, Barking Royal Borough of Kensington & Chelsea 20

Finding opportunities to grow our market rented portfolio with minimal capital outlay London Road, Barking, East London A purpose built, institutional grade market-rented block, valued on rental income Investment outline Product • • Well connected location 100 units • • Designed with the customer Investment value: £13.7m and management • Wholly owned efficiencies in mind • Gross yield: circa 9% • Equal bedroom sizes • Cost of management: c.25% • Durable finishes • Net yield: circa 7% • Wifi enabled, concierge • Geared IRR: circa 12.5% • Possibility of longer term tenancies Olympic Park – Customer profile 20 min Timeline • City workers • Start on site – Jan 13 • Young professionals • Completion – Q3 2015 • Young families • Fully rented in 6-9 months • £25k to £60k+ income Canary Wharf – 20 min Rents starting at approximately £900/pcm 21

Build to rent with RBKC Young St & Hortensia Rd developments with Royal Borough of Kensington and Chelsea Development profit, future rental income and fee income with no requirement to purchase land • Planning consent obtained Proposed development of Young Street, London • Appointed by the Council to redevelop two Council-owned sites • 84 new homes • Total GDV c.£110m • Grainger will develop, let and manage the properties under a 125 year agreement Proposed development of Young Street, London Preliminary results 2013 22

Thank you Dominic Macer Build to Rent Project Director dmacer@graingerplc.co.uk www.graingerplc.co.uk @graingerplc 23