UK’s Largest Listed Residential Landlord March 2020 Presentation
Agenda Originate Invest Operate 1. Overview 2. FY19 Financial Results 3. Market and Business Update 4. Equity Placing 5. CONNECT 6. Summary 2 Grainger Plc | www.graingerplc.co.uk
Originate Invest Operate Renting homes, enriching lives Serving over 20k customers The Grainger Collection at Wellesley, Hampshire 3 Grainger Plc | www.graingerplc.co.uk
The market leader in a compelling Originate Invest Operate sector Why PRS Why Grainger Market leader with the largest Compelling long-term returns operational PRS portfolio £2.1bn pipeline to come Strong inflation linked rent growth Fully integrated business model Underpinned by structural supply We originate, invest and operate in house demand imbalance Operational excellence PRS demand growing Supported by technology 4.5m to 7.2m by 2025 Research led capital allocation Supply reducing Strong regional growth potential Depth of experience Limited competition 94% of landlords are individuals Partner of choice Professionalisation Policy changes encouraging professional operators and discouraging private, amateur Strong balance sheet landlords Grainger Plc | www.graingerplc.co.uk 4
A transformational year Originate Invest Operate Delivering today and building for tomorrow FY19: Rental Net rental Adjusted Profit Total property growth (L4L) income earnings before tax return +3.6% £63.5m £82.5m £131.3m 5.0% +45% +30% Delivering value today Building value for tomorrow A predominantly PRS business – £1.52bn PRS £2.1bn PRS pipeline – representing c.9.4k portfolio, delivering +3% L4L rental growth and homes 97.5% occupancy * TfL partnership – secured partnership for c.3,000 homes Efficient operating platform – stabilised gross to net of 25.2% c.1,000 homes to be delivered in FY20 1,152 PRS homes delivered in FY19 – performing Investing in our operational platform and ahead of underwriting CONNECT , building a business for growth Regulated portfolio sales income remains robust Leveraging our leading position in a strong market * Trading Update, 5 February 2020 Grainger Plc | www.graingerplc.co.uk 5
Successfully delivering returns Originate Invest Operate from the GRIP acquisition Strategic Portfolio Operational Financial fit scale synergies benefits We said… We delivered… Immediate income growth £17.7m additional net rent in 9 months Accelerates PRS transition PRS now majority of portfolio & income Simplify structure GRIP now fully integrated Gross to net reduced from 32% to 25% Align operations London demand fuelling rental growth Located in highest grow area £13.6m already delivered £17m of value add £103m secured post acq in addition to Enable investment in London & South TfL partnership East on balance sheet S&P upgrade in Dec 18 Improve credit rating Debt cost reduced by 1/3 Lower debt cost 6 Grainger Plc | www.graingerplc.co.uk
A clear growth trajectory Originate Invest Operate Accelerating our pipeline with £1bn secured and £91m new investment in planning and legals Post equity raise Bringing forward £246m of investment in our secured pipeline, with an additional £59m of capacity FY19 OPERATIONAL PORTFOLIO PIPELINE 9,387 homes, £2.1bn 8,940 homes, £2.6bn £528m c.£600m £1,093m £1,526m £978m Planning/ TfL** Regulated tenancies PRS Secured pipeline Legals* c.3,000 3,343 homes 5,597 homes 4,369 homes 2,018 homes homes +£246m FY19 -Pre equity raise FY19 OPERATIONAL PORTFOLIO PIPELINE 8,940 units, £2.6bn 9,104 units, £2.0bn £683m c.£600m £1,093m £1,526m £732m Planning/ TfL* Regulated tenancies PRS Secured pipeline Legals c.3,000 3,343 homes 5,597 homes 3,209 homes 2,895 homes homes * Planning / Legals – additional £91m of opportunities added since FY19. ** TfL Partnership – indicative estimate of Grainger’s unlevered 51% share based on c.3,000 units at an assumed £400k per unit. Grainger Plc | www.graingerplc.co.uk | HY19 | May 2019 7
2. FY19 Financial Results
Financial highlights Originate Invest Operate Transformational year; PRS and net rent now the key drivers Income FY18 FY19 Change Rental growth (like-for-like) 4.0% 3.6% (38) bps Net rental income £43.8m £63.5m +45% Adjusted earnings £94.0m £82.5m (12)% Profit before tax £100.7m £131.3m +30% Dividend per share* 4.75p 5.19p +9% Capital FY18 FY19 Change EPRA NTA per share 274p 278p +1% EPRA NNNAV per share - post rights issue* 270p 272p +1% Total Property Return 6.0% 5.0% (100) bps Total Accounting Return (ROSE)** 6.1% 4.4% (174) bps Reversionary surplus £277m £302m +9% Net debt £866m £1,097m +27% Group LTV 37.1% 37.1% - Cost of debt (year end) 3.2% 3.0% (17) bps *Pence per share comparatives for FY18 have been adjusted for the impact of the rights issue. Pre rights issue FY18 NNNAV restated for bonus adjustment only stood at 286p **Excludes 5p mark to market movement in FY19 9 Grainger Plc | www.graingerplc.co.uk
Income statement Originate Invest Operate Greater reliance on recurring net rental income Key highlights: FY18 FY19 Change Net rental income £43.8m £63.5m +45% Significant growth in NRI Profit from residential sales £70.1m £60.4m (14)% Gross to net = 26.1% Stabilised GtN = 25.2% Profit from development £11.7m £7.4m (37)% Passing net rent = £70m pa Mortgage income (CHARM) £5.8m £5.5m (5)% Management fees £7.1m £4.4m (38)% Sales performance Overheads £(27.9)m £(28.0)m +0% Sales velocity maintained at 111 days Pre-contract costs £(1.1)m £(0.6m) (45)% Selling at 0.4% ahead of valuations Joint ventures £9.6m £2.0m (79)% Lower volumes of vacant properties due to strong close to FY18 and lower Net finance costs £(25.1)m £(32.1)m +28% vacancy rate at 5.9% (FY18: 6.7%) Adjusted earnings £94.0m £82.5m (12)% Development for sale concluded Adjusted EPS* (diluted, after tax) 16.4p 11.5p (30)% Cost control Flat overheads with larger portfolio Profit before tax £100.7m £131.3m +30% Earnings per share* Interest cost lowered by 30bps 18.9p 19.8p +5% (diluted, after tax) Joint Ventures : FY18 includes one off Adjusted EPRA Earnings £26.1m £28.8m +10% £7m profit from WIP sale * Pence per share comparatives for FY18 have been restated for the bonus adjustment of the rights issue in December 2018. 10 Grainger Plc | www.graingerplc.co.uk
EPRA Net Asset Values Originate Invest Operate Revised EPRA measures provide a more appropriate measure £m pence per share Property assets (market value) 2,932 478 Net liabilities (1,111) (181) EPRA NAV / EPRA Net Reinstatement Value (NRV) 1,821 297 Tax – deferred & contingent – trading assets (102) (17) Exclude: Intangible assets (11) (2) EPRA Net Tangible Assets (NTA) 1,708 278 Add back: Intangible assets 11 2 Tax – deferred & contingent – investment assets (19) (3) Mark to market fixed rate debt and derivatives (34) (5) EPRA NNNAV / EPRA Net Disposal Value (NDV) 1,666 272 Reversionary surplus – excluded from NAV metrics 302 49 EPRA Net Tangible New EPRA measures Reversionary surplus Assets (NTA) EPRA NTA is the most £302m of reversionary appropriate NAV measure. surplus to crystallise, after 278pps £23m realised in FY19 277p Excludes the value of intangibles (technology +49pps investment). 11 Grainger Plc | www.graingerplc.co.uk
Net debt Originate Invest Operate Strong operational cashflow supports our growth plans GRIP Transaction +£239m +£400m £(335)m Operating cashflow £(184)m £(88)m +£235m £1,097m £(292)m +£25m +£4m +£174m +£38m +£70m £866m 12 Grainger Plc | www.graingerplc.co.uk
Robust and flexible capital structure Originate Invest Operate Low risk, flexible capital structure to support growth FY19 Net debt £1,097m Cost of debt LTV Loan to value 37.1% 6.5% 60% 6.0% 55% Cost of debt (period end) 3.0% 5.5% 50% 5.0% Incremental cost of debt 1.7% 4.5% 45% 4.0% 40% Fully drawn cost of debt 2.9% 3.5% 35% 3.0% Headroom £430m 2.5% 30% FY14 FY15 FY16 FY17 FY18 FY19 Weighted avg. facility maturity 5.8 years LTV Avg. cost of debt Funding strategy: Diversification, lower debt cost, extend maturity Credit rating upgrade £325m refinanced Robust and flexible Diverse sources S&P upgraded to BB+ £275m GRIP debt A low risk, robust capital A variety of lenders, following GRIP acquisition refinancing at 2.3% structure, with flexibility to reducing risk and from 3.2% support growth optimising costs and structure New £50m facility with Wells Fargo 13 Grainger Plc | www.graingerplc.co.uk
Financial summary Originate Invest Operate Acceleration of our PRS strategy and repositioning our return profile Strong rental growth continues at +3.6% Transitioning our return profile – greater reliance on resilient net rental income Asset base now 58% PRS and post pipeline >75% Strong and flexible capital structure GRIP fully integrated and delivering returns Pipeline now delivering with potential to more than double net rental income Investment in technology driving platform efficiency to further improve operating leverage 14 Grainger Plc | www.graingerplc.co.uk
3. Market and business update
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