Grainger Plc · LSE:GRI
Grainger — FY2014 Earnings Presentation
53 slides from Grainger's earnings presentation, Nov 20, 2014
Slide 1: Preliminary results for the full year ended 30 September 2014
Preliminary results for the full year ended 30 September 2014 20 November 2014 v1.3
Slide 2: Disclaimer
Disclaimer This presentation contains certain forward-looking statements. Any statement in this presentation that is not a statement of historical fact including, without limitation, those regarding Grainger plc’s future financial condition, business, operations, financial performance and other futu
Slide 3: Executive Directors
Executive Directors Andrew Cunningham, Chief Executive Mark Greenwood, Finance Director Nick Jopling, Executive Director, Property FY Results 2014 3
Slide 4: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 4
Slide 5: Grainger overview
Grainger overview • A pure residential play with consistent outperformance • Returns driven by asset value growth and income from sales, rents and fees • Highly cash generative business model • A high quality, national portfolio with significant defensive characteristics • Latent value in reversiona
Slide 6: Financial highlights
Financial highlights NAV NNNAV Total Dividend +20% +24% +22.6% 291p 242p 2.50p (FY13: 242p) (FY13: 195p) (FY13: 2.04p) Profit before tax Recurring PBT Return on +26% +27% Shareholder Equity £81.1m £47.1m +25.6% (FY13: £64.3m) (FY13: £37.0m) FY Results 2014 6
Slide 7: Operational highlights
Operational highlights Strong performance in the year Market value of our residential UK portfolios - Continued outperformance rose by 14.6% compared to Nationwide and Halifax indices of 9.5% (average) - Strong sales Vacant sales at 14.1% above Sept 13 values Sales and profit in second half of 2014,
Slide 8: Strong long term performance
Strong long term performance Grainger market value vs Nationwide & Halifax Loan to value* and NNNAV (p) 140 61% 135 235 59% 130 57% 215 125 55% 120 195 115 53% 110 51% 175 105 49% 155 100 47% 95 45% 135 2009 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Nationwide Halifax NNNAV (right axis) Grai
Slide 9: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 9
Slide 10: UK housing market – House Prices
UK housing market – House Prices • After two very strong years of • Major influencing factors: growth, we believe we are now mortgages, interest rates, politics, seeing signs of stabilisation and employment rate and wages more sustainable levels of growth • Favourable medium-term supply- • Continued
Slide 11: UK housing market – Growing Private Rental Sector
UK housing market – Growing Private Rental Sector • Strong, growing demand • Government and institutional support to develop a professionally • 2nd largest housing tenure in the UK managed private rental sector • Growing opportunities in the regions • Stable growth in underlying rents, but remain at
Slide 12: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 12
Slide 13: The Grainger portfolio
The Grainger portfolio Asset type by units Asset type by market value (£m) 5% 21% 33% Market rented assets Market rented assets Reversionary Reversionary Development 67% assets 74% Annualised No. of Market VP Reversionary gross units Value Value surplus IV/VP rent £m £m £m % £m Reversionary Assets 7
Slide 14: Our UK geographical exposure (wholly owned)
Our UK geographical exposure (wholly owned) Vacant No of % by Possession % by Avg VP* IPD region units units Value VP (£k) 1 London (Total) 2,357 28% 1,294 58% 557 2 South East 1,307 15% 245 11% 225 3 South West 1,302 15% 244 11% 212 4 East 832 10% 124 6% 181 5 East Midlands 292 3% 35 2% 158 6 West
Slide 15: Grainger's UK portfolio
Grainger’s UK portfolio • A resilient and defensive portfolio due to pricing, type, location and condition, with Units by price brackets* limited exposure to more volatile market 183, 2% areas 564, 7% • 80 units out of c.11,500 are worth £2m and over in the UK (vacant possession Under £250k value) 2
Slide 16: Reversionary surplus
Reversionary surplus £2.8bn £2.3bn Reversionary surplus: £503m (120p) £1.4bn Book value Market value Vacant possession value Acquisition – Buy at a Hold Period – Returns Sale – Reversal of discount to vacant from rental income and discount, crystallise possession value house price inflation profits,
Slide 17: Example: Pewsey, Wiltshire
Example: Pewsey, Wiltshire Purchased 26 Sept 2003 Tenancy Regulated Est. VP at acquisition £185,000 Price paid (excl. costs) £134,000 Discount (reversion) 27.6% 2003 Rent £3,510 pa 2014 Rent £6,656 pa Vacancy Jan 14 Sale agreed April 14 Pewsey, Wiltshire Sale Price £372,000 Ungeared IRR 11.2% Annual
Slide 18: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 18
Slide 19: 2014 financial highlights Balance sheet
2014 financial highlights Balance sheet Gross NAV NNNAV +20% +24% 291p 242p • In addition, there is the (FY13: 242p) (FY13: 195p) reversionary surplus of 120p per share* Group LTV • Issued £275m corporate bond 46.5% (FY13: 48.0%) * Includes our share of investment in Joint Ventures/Associates FY Res
Slide 20: Movement in NNNAV
Movement in NNNAV NNNAV up 24% since 30 Sept 2013 1,150 £223m £(55)m 1,100 Net revaluation movement: £264m £(33)m 1,050 £(9)m £1,012m 1,000 950 900 £41m 850 £811m £34m 800 750 30 Profit after Gross Elimination Hedge Dividend 30 September tax revaluation of previously reserve, tax September 2013 gain
Slide 21: Cashflow
Cashflow £m 1100 £95m £1,044m 1050 1000 £959m £(303)m £54m 950 £53m 900 £186m 850 800 750 700 650 600 Net debt Gross rent, Purchases & Capex Operational Swaps, FX, Net debt September sales & fees investment in Expenses interest, tax, September 2013 JVs dividends & 2014 other FY Results 2014 21
Slide 22: 2014 financial highlights Income statement
2014 financial highlights Income statement Recurring profit Profit before tax Income streams £47.1m £81.1m 11% Sales* (FY13: £37.0m) (FY13: £64.3m) 34% 55% Net rents Fees & other * Adjusted for tenanted sales FY Results 2014 22
Slide 23: Profit movement
Profit movement £m 85 £2.2m £81.1m £4.5m 80 £2.3m 75 £7.9m 70 £64.3m £(11.5)m £11.4m 65 60 55 50 PBT FY2013 Net rents Profit on Reduction in Increase in Valuation Non-recurring PBT FY2014 sales, fees, net finance profit from movements items CHARM, costs JV's and including overheads Associates deriva
Slide 24: Capital structure and Group debt analysis
Capital structure and Group debt analysis Capital structure • Diversified financing FY14 FY13 sources Net Debt £1,044m £959m • Corporate bond issue of Consolidated Loan to Value 46.5% 48.0% £275m 4.94% due 2020 Average maturity of drawn facilities 4.8 years 4.6 years • No significant repayments Head
Slide 25: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 25
Slide 26: Investment focus
Investment focus Generate income from rents, sales on 9.0 – 9.5% IRR Reversionary assets vacancy, refurbishment and development on an ungeared basis Market rent and build- Fastest growing housing tenure with good 8.0 – 10.0% IRR to-rent activities opportunities in the regions on an ungeared basis Fu
Slide 27: Operational highlights
Operational highlights 1. Macaulay Walk, Clapham Old Town 2. The Chelsea Houses Portfolio 3. Germany 4. London Road, Barking, East London 5. Pontoon Dock, East London 6. Sigma partnership FY Results 2014 27
Slide 28: Macaulay Walk, Clapham
Macaulay Walk, Clapham • 53 of the 57 private units released so far have been sold, exchanged or reserved • Residential values of £800-£1300/sq ft achieved with average of over £1000/sq ft • Significant outperformance of expectations from start on site in Aug ‘12 of values of £650/sq ft • Delivered
Slide 29: The Chelsea Houses Portfolio
The Chelsea Houses Portfolio • 61 freehold houses acquired for £160m • Core reversionary assets that fit our long term strategy • 83% of the portfolio situated in three streets less than 0.5 miles from Harrods in London • Significant opportunity for value enhancement through refurbishment and extens
Slide 30: Germany – overview and strategy
Germany – overview and strategy Our total net equity investment in Germany is £83m • Heitman vehicle proving to be a • 2015 – we are reviewing our major success with 15% return in remaining wholly owned assets and 2014 will thereafter consider moving them into a joint venture in the future, • Invest
Slide 31: London Road, Barking
London Road, Barking • 100 units PRS block, built by Bouygues and delivered six months early • Specially designed for rental customers • Letting to begin in Spring 2015 • Gross rent roll of c.£1.4m • Est. lease up of 3-4 months FY Results 2014 31
Slide 32: Pontoon Dock, East London
Pontoon Dock, East London • 211 units including PRS, affordable rent and shared ownership • Selected by the Greater London Authority: consortium led by Bouygues with Grainger and the London Pension Funds Authority • Grainger will co-invest (15%) with the LPFA as majority investor, and we will provid
Slide 33: Sigma partnership
Sigma partnership • An exciting opportunity to secure a large-scale regional build to rent portfolios on local authority land • Grainger has exclusivity on projects over 100 units and will appraise projects on a case by case basis • Sigma act as procurer and development manager, with returns aligned
Slide 34: Development pipeline
Development pipeline • We estimate that our development activities will generate on average £10- 12m of profit per annum. • Major development projects to deliver profit in forthcoming years: 2015 2016 2017 2018 • Berewood • Berewood • Berewood • Apex House • Macaulay • Macaulay (office to • RBKC • B
Slide 35: Agenda
Agenda 1. Introduction Andrew Cunningham 2. UK housing market overview Andrew Cunningham 3. The Grainger portfolio Andrew Cunningham 4. Financial highlights Mark Greenwood 5. Operational highlights Nick Jopling 6. Summary and outlook Andrew Cunningham FY Results 2014 35
Slide 36: Our strategy
Our strategy Lead the market Creates opportunities through recognition Continue to invest in reversionary assets where appropriate Maximising returns Regional opportunities Medium to long term growth of market rented Balancing income streams portfolio to be first and foremost truly national market r
Slide 37: Summary and outlook
Summary and outlook NNNAV +24% 242p (FY13: 195p) • We remain confident in our ability to deliver value from our portfolios Profit before tax • Cash generation will support our +26% investment in build to rent and market £81.1m rented assets (FY13: £64.3m) UK Portfolio market valuation +14.6% (FY13:
Slide 38: Thank you
Thank you FY Results 2014 38
Slide 39: Appendices
Appendices FY Results 2014 39
Slide 40: Portfolio summary (wholly owned)
Portfolio summary (wholly owned) Annualised Gross No. of Market VP Reversionary Gross sales Profit on units Value Value surplus IV/VP rent proceeds sale £m £m £m % £m £m £m Reversionary Assets Regulated 3,777 1,105 1,417 312 77% 27 11 1.0 Vacant 294 68 71 3 96% - 78 42.9 RS Reversion 2,646 240 347 1
Slide 41: Portfolio summary by division / Asset performance
Portfolio summary by Asset performance division £m 2014 2013 2014 2013 Vacant Vacant Vacant Vacant Possession Market Possession Market Possession Market Possession Market Value value Value value Value Value Value Value UK Residential 1,793 1,448 1,451 1,145 HPI (Nationwide and Retirement Halifax) 9.
Slide 42: German portfolio
German portfolio Wholly owned, excl Heitman Market value % of market Germany No of Units £m value 1 Baden – Württemberg 209 16 10% 2 Hesse 1,064 62 41% 3 Northrhine – Westphalia 1,162 47 32% 4 Bavaria 73 3 2% 5 Lower Saxony 66 3 2% 6 Rhineland – Palatinate 221 12 8% 7 Other 64 5 5% Total 2,859 148 1
Slide 43: Asset overview JV & Associates
Asset overview JV & Associates Joint Ventures Associates Prague/ Hammersmith Curzon Sovereign Walworth Heitman GRIP G:Res Total Zizkov Park £m Property assets 24 6 35 51 169 186 474 - 945 Other assets 1 0 0 4 7 26 26 7 71 Total assets 25 6 35 55 176 212 500 7 1,016 External debt (9) - (6) (24) (60)
Slide 44: Profit summary
Profit summary 2014 2013 £m £m Profit on sale of assets* 88.6 77.7 Net rents 37.0 48.5 Management fees 12.8 12.9 CHARM 6.4 5.7 Overheads and other expenses (37.3) (37.2) Operating profit** 107.5 107.6 Finance costs, net (63.4) (71.3) JV's and associates 3.0 0.7 Recurring profit before tax 47.1 37.0
Slide 45: Property sales and profits
Property sales and profits Full Year 2014 Full Year 2013 No. of units Gross sales Profit Gross sales value (£m) (£m) No. of units value (£m) Profit (£m) Trading sales on vacancy UK Residential 287 78.1 42.9 337 79.5 40.2 Retirement Solutions 364 45.2 17.7 338 36.9 12.0 651 123.3 60.6 675 116.4 52.2
Slide 46: Regular, resilient cashflows
Regular, resilient cashflows Average cashflow per annum over the 9 year period was £300m £m 2014 2013 2012 2011 2010 2009 2008 2007 2006 Gross rents UK Residential 44 51 58 51 39 41 42 39 47 Retirement Solutions 2 4 5 5 6 6 6 2 - Development 0 - - - 1 1 1 2 1 Germany 11 16 27 30 30 30 22 10 5 Total
Slide 47: Movement in recurring profit
Movement in recurring profit Recurring profit up 27% £m 65.0 £2.1m £(13.9)m £2.6m 60.0 £11.3m 55.0 50.0 £47.0m £7.9m 45.0 40.0 £37.0m 35.0 Recurring profit Reduction in net Increase in Movement in Increase in profit Decrease in Recurring profit FY 2013 finance costs residential overheads, from JV's
Slide 48: NAV measures reconciliation
NAV measures reconciliation Adj IAS 39 Add back re fixed rate Market Fair value of loan and Deferred Statutory Market value Add back derivative derivative and NNNAV Grainger Balance Value Balance Def Tax on financial financial Contingent Balance NAV Grainger Sheet Adjustments Sheet property instrume
Slide 49: Movement in NAV
Movement in NAV NAV up 20% since 30 Sept 2013 £'m 1,350 £223m £(55)m 1,300 Total Gross Revaluation £(29)m 1,250 £(7)m movement: £264m £1,215m 1,200 1,150 1,100 1,050 £41m £1,008m £34m 1,000 950 Gross NAV Profit after tax, Gross Elimination of Impact of Dividend & Gross NAV 30 September including val
Slide 50: Look through debt
Look through debt Group 3rd Party Total 3rd Party Group Counterparty Debt Heitman WIP GRIP Sovereign Other Debt Debt Share Share (£m) 25% 50% 25% 50% 50% (£m) (£m) (£m) (£m) Syndicate 457 457 457 Corporate Bond 275 275 275 M&G 100 100 100 Core Total 832 832 832 Bilateral 134 134 134 Insurance Compan
Slide 51: Facility maturity profile
Facility maturity profile FY Results 2014 51
Slide 52: Tax
Tax • The Group has an overall tax charge of £6.4m for the period (2013: £10.7m), comprising a £7.3m UK tax charge and a £0.9m overseas tax credit. • The net reduction of £11.4m, from the expected charge of £17.8m, comprises profit from joint ventures and associates taxed above the line (£4.2m), def
Slide 53: Status update for major development projects
Status update for major development projects Major development projects with planning consent 2014 Total No. of units Project Description Status 217 hectares greenfield site held freehold with Entrance works complete and site serviced. First phase Berewood (previously overage interest. Outline plann