Grainger Plc · LSE:GRI
Grainger — H1 2020 Earnings Presentation
58 slides from Grainger's earnings presentation, May 14, 2020
Slide 1: A strong business in a resilient sector
A strong business in a resilient sector 2020 Half Year Results 14 May 2020
Slide 2: Agenda
Agenda Originate Invest Operate 1. Overview Helen Gordon Chief Executive 2. Financial results Vanessa Simms Chief Financial Officer 3. Market and business update and Q&A Helen Gordon Chief Executive 4. Appendix Grainger Plc | www.graingerplc.co.uk 2
Slide 3: Our homes have never been so important
Our homes have never been so important Originate Invest Operate Highlighting the importance of quality accommodation for people’s lives Home as an office Home as a classroom Home as a social space Home as a gym Grainger Plc | www.graingerplc.co.uk 3
Slide 4: Our approach to Covid-19
Our approach to Covid-19 Originate Invest Operate Business continuity, leveraging technology, maintaining strategic momentum Innovating during the Full Virtual Critical Innovate coronavirus lockdown to remote viewings repairs maintain business as usual working continued and continue to serve our cap
Slide 5: Well positioned on all fronts
Well positioned on all fronts Originate Invest Operate Our asset class, business model and balance sheet are strong Continuity of service, no staff furloughed & dividend maintained 1 2 3 Strong balance Resilient rental Sales continue sheet and liquidity demand (since H1) through lockdown Available h
Slide 6: Customers, employees & communities
Customers, employees & communities Originate Invest Operate Supporting all stakeholders amidst uncertainty Customers Employees Communities Continuing to serve Protecting and Supporting our our customers supporting our staff communities Increased customer All employees working Residents community con
Slide 7: Strong H1 performance
Strong H1 performance Originate Invest Operate Rental Net rental income Adjusted earnings Dividend EPRA NTA growth (L4L) +3.4% £37.0m £33.7m 1.83pps 281pps (33) bps +27% (12)% +6% +1% Key highlights: ESG achievements: Significant income growth, both underlying and through investment Dividend maintai
Slide 8: Investment progress update
Investment progress update Originate Invest Operate Planning progress New openings Target cities Partnerships Consent achieved on Brook Place secured TfL Waterloo scheme for 215 Cardiff PRS homes Solstice Newbury Apartments Nottingham Applications submitted for Lewisham 4 schemes comprising H2 openi
Slide 9: A strong pipeline for growth
A strong pipeline for growth Originate Invest Operate £1,048m secured pipeline, post equity raise HY20 OPERATIONAL PORTFOLIO PIPELINE 9,270 homes, £2.8bn 8,536 homes, £2.0bn £349m c.£600m £1,090m £1,683m £1,048m Planning/ TfL* Regulated tenancies PRS* Secured pipeline Legals c.3,000 3,225 homes 6,04
Slide 10: Emerging stronger
Looking ahead in H2 Originate Invest Operate Confidence in our business resilience Adaptation & innovation: meeting the challenges of Covid-19 Business continuity: serving our customers and managing our properties Income growth: focus on delivering net rental income growth Sales momentum: successful
Slide 11: 2. HY20 Financial Results
2. HY20 Financial Results Vanessa Simms Chief Financial Officer 11
Slide 12: Financial highlights
Financial highlights Originate Invest Operate Continued growth in rental income Income HY19 HY20 Change Rental growth (like-for-like) 3.7% 3.4% (33) bps Net rental income £29.1m £37.0m +27% Adjusted earnings £38.3m £33.7m (12)% Adjusted EPRA earnings £14.7m £16.0m +9% Profit before tax £54.3m £49.6m
Slide 13: Income statement
Income statement Originate Invest Operate Net rental income: key driver of earnings Key highlights: HY19 HY20 Change Strong growth in NRI +27% Net rental income £29.1m £37.0m +27% Profit from sales £31.3m £22.8m (27)% Gross to net: 26.0% Stabilised GtN: 24.9% Mortgage income (CHARM) £2.8m £2.6m (7)%
Slide 14: Net rental income growth
Net rental income growth Originate Invest Operate Continued growth from investment delivery +£8.7m +£0.9m £37.0m +27% PRS L4L +3.0% • Renewals +2.7% £29.1m £(1.7)m • New Lets +3.5% Regs L4L +4.5% Total L4L +3.4% HY19 Net Disposals PRS Rental HY20 Net Rental Income investment growth Rental Income Gra
Slide 15: Income resilience
Income resilience Originate Invest Operate Low volatility, stable income profile Diverse customer Income profiles Residential rental income is robust ▪ Mid market price point 5% 6% Retired ▪ Diverse customer profiles 27% Employment Benefits ▪ Strength of inhouse operations MOD Backed Strong rent col
Slide 16: EPRA Net Asset Values
EPRA Net Asset Values Originate Invest Operate Valuations and NAV’s remain robust £m pence per share Property assets (market value) 3,032 449 Net liabilities (1,002) (148) EPRA NAV / EPRA Net Reinstatement Value (NRV) 2,030 301 Tax – deferred & contingent – trading assets (114) (17) Exclude: Intangi
Slide 17: EPRA Net Tangible Assets (NTA)
EPRA Net Tangible Assets (NTA) Originate Invest Operate Net rent and PRS valuation gains now key components +6p (2)p +4p (4)p +3p (3)p +6p (2)p (3)p 2p 281p 278p PRS +1.5% Regs +1.8% Total +1.6% * Breakdown of valuation growth by region available in the Appendix on pages 42-43. Grainger Plc | www.gr
Slide 18: Net debt
Net debt Originate Invest Operate Strong operational cashflow supports our growth plans £1,097m £(183)m Operating cashflow £(56)m +£21m £1,000m +£20m +£103m £(8)m +£6m £(101)m +£19m +£26m Grainger Plc | www.graingerplc.co.uk 18
Slide 19: Successful equity placing
Successful equity placing Originate Invest Operate Accelerated book build Earnings accretion upon stabilisation* 10% placing at 305p EPRA EPS +30% £183m net proceeds Adjusted earnings per share +5% £305m additional investment capacity Marginal earnings dilution in short term as Proceeds used to acce
Slide 20: Net rental income progression
Net rental income progression Originate Invest Operate Pipeline of significant NRI growth aligned to dividend progression Planning / legals Secured pipeline: £1,048m TfL: £600m* £349m +2.3x +£24m £172m +£17m +£18m £131m +1.8x +£14m +£13m +£11m £74m +£1m *TfL Partnership – indicative estimate of Grai
Slide 21: Strong balance sheet
Strong balance sheet Originate Invest Operate LTV at a 6 year low and liquidity headroom at a 6 year high HY 20 LTV at lowest level of recent times LTV Net debt £1,000m 6.5% 60% 6.0% Loan to value 32.9% 55% 5.5% 50% Cost of debt (weighted average) 3.0% 5.0% 4.5% 45% Incremental cost of debt 1.7% 4.0
Slide 22: Liquidity and capex
Liquidity and capex Originate Invest Operate £527m headroom to fund investment pipeline Strong liquidity Current liquidity position (£m) Strong headroom of £527m from cash and available facilities 329 ▪ £198m of cash 527 ▪ £329m available facilities 198 Committed capex funded Capital expenditure pla
Slide 23: Financial summary & outlook
Financial summary & outlook Originate Invest Operate Strong H1 performance; positive lead indicators for H2 Greater reliance on PRS assets and rental income: over 60% of profits from net rental income and over 60% PRS assets Strong rental growth: March YTD +3.4% and April stable at +3.3% Strong cash
Slide 24: 3. Market and business update
3. Market and business update Helen Gordon Chief Executive 24
Slide 25: The market leader in a compelling sector
The market leader in a Originate Invest Operate compelling sector Why PRS Why Grainger Resilient long-term returns Market leader with the largest operational PRS portfolio Inflation linked rent growth £2.0bn pipeline to come Underpinned by structural supply Fully integrated business model demand imb
Slide 26: PRS structural drivers remain
PRS structural drivers remain Originate Invest Operate Near term uncertainty supports long term structural drivers Rental demand set to increase during Housing undersupply set to worsen economic uncertainty 35% reduction in housing +24% +32% +81% +77% +43% +20% supply forecast by Knight Frank, under
Slide 27: Research backed capital allocation
Research backed capital allocation Originate Invest Operate Driving outperformance through proprietary research Weak existing Strong existing London Schemes secured tenant demand tenant demand but strong growth & strong growth Target locations prospects prospects Birmingham Manchester Under review B
Slide 28: Grainger's investment strategy delivering
Grainger’s investment strategy Originate Invest Operate delivering Selecting the strongest cities Selecting the right site locations Strong demographics Cluster strategy Strong economy Proximity to public transport/ commuter lines Inward investment Good local services Good infrastructure Safe neighb
Slide 29: Pipeline delivery continues
Pipeline delivery continues Originate Invest Operate Delivered this half Delivering next half Solstice Apartments, Apex Gardens, Apex Silbury Blvd, Milton House, London Keynes 163 PRS homes 139 PRS homes £60m investment £32m investment c.6.5% gross yield c.6% gross yield targeted targeted Millet Pla
Slide 30: Additional schemes from the equity raise
Additional schemes from the equity raise Originate Invest Operate Compelling pipeline in prime locations totalling £246m Exchange Square, Canning Town 3, Birmingham London 375 homes 132 homes £77m £56m c.6.5% GY c.5.5% GY Capital Quarter, Queens Road, Cardiff Nottingham 307 homes 348 homes £57m £56m
Slide 31: TFL JV Progressing
TFL JV Progressing Originate Invest Operate 3 sites in planning Southall, Ealing • 460 homes • c. £167m investment* • Planning submitted March 2020 Montford Place, Kennington • 139 homes • c. £67m investment* • Planning submitted March 2020 Arnos Grove, Enfield • 162 homes • c. £54m investment* • Pl
Slide 32: Focus on Operational Excellence evermore important
Focus on Operational Excellence Originate Invest Operate evermore important Customer Operating Licence to experience efficiency operate Enhancing Increases Live.Safe 2.0 customer platform satisfaction scalability Action Action Action taken: taken: taken: Enhanced standard Entering testing phase Lead
Slide 33: Market leader in residential for rent
Market leader in residential for rent Originate Invest Operate Importance of product and quality of offering Grainger’s Operational Strength Grainger’s Investment Strength Experienced operational team – managing Balance sheet strength – balanced and our properties and supporting our customers. flexi
Slide 34: Summary
Summary Originate Invest Operate Income and growth through the cycle 1. Income momentum: delivering consistent long term returns; interim dividend up 6% 2. Growth momentum: secured pipeline of over £1bn of income generating assets 3. Strong balance sheet: LTV at a 6 year low and good liquidity headr
Slide 35: Thank you Q&A
Thank you @ Investing in homes since 1912 grainger plc grainger plc 35
Slide 36: Appendix
Originate Invest Operate Appendix Contents ESG Page 37 1. Property information Portfolio overview Page 38 Resilient sales profile Page 39 Portfolio summary Page 40 Portfolio geographical breakdown Page 41 Valuation movements by region Pages 42-43 PRS Portfolio Pages 44-45 Secured pipeline schedule P
Slide 37: ESG: Securing our long-term future
ESG: Securing our long-term future Originate Invest Operate Being a responsible business through Covid-19 ▪ Continuing to serve customers who need a new home Supporting our ▪ Delivering virtual viewings and socially distant move-ins customers ▪ Organising virtual residents event programme ▪ Providin
Slide 38: Portfolio overview
Portfolio overview Originate Invest Operate Regulated tenancies PRS Tenant has the right to live in the property for the rest Leases with typical duration of 1-3 years of their life Market rents Sub-market rent set by Valuation Office Agency Returns based on Upon vacancy Grainger sells the property
Slide 39: Resilient sales profile
Resilient sales profile Originate Invest Operate Most sales are Chain free (last 18 months) Majority of all sales are of vacant properties 7% Sales in chains most impacted by social distancing Chain 93% of Grainger sales are chain free No Chain Majority of sales to cash buyers Auction sales have con
Slide 40: Portfolio summary
Portfolio summary Originate Invest Operate Vacant possession Reversionary Market value value surplus Units £m £m £m Net yield Residential – PRS 5,891 1,615 1,733 118 4.0% Residential – regulated tenancies 2,732 1,017 1,204 187 2.0% Residential – mortgages (CHARM) 493 73 73 - Forward Funded – PRS wor
Slide 41: Portfolio geographical breakdown
Portfolio geographical breakdown Originate Invest Operate PRS & Reversionary* (wholly owned and Vesta) PRS market Reversionary Total PRS value Reversionary market value Total market value Region units £m units £m units £m Central / Inner London 1,334 593 942 610 2,276 1,203 Outer London 807 347 284
Slide 42: Valuation movements by region
Valuation movements by region Originate Invest Operate HY20 Units Market value Change since Avg house price Region £m FY19 Avg VP per unit £000s Central / Inner London 2,274 1,202 +1.2% 598 Outer London 932 389 +3.5% 465 South East 1,224 268 +1.8% 268 South West 725 223 +1.3% 316 East and Midlands 8
Slide 43: Portfolio geographical breakdown
Portfolio geographical breakdown Originate Invest Operate PRS & Regulated tenancies (HY20) PRS Regulated tenancies Market Change Market Change Units value since FY19 Net yield Units value since FY19 Net yield Region £m £m Central / Inner London 1,334 593 +0.7% 3.4% 940 609 +1.6% 1.5% Outer London 65
Slide 44: PRS portfolio
PRS portfolio Originate Invest Operate Top 10 assets by value Asset City Units Annual ERV Clippers Quay Manchester 614 £8.1m Hawkins & George Bristol 194 £3.3m The Gardens London 209 £3.1m Argo Apartments London 134 £2.8m Ability Plaza London 112 £2.6m Springfield House London 96 £2.5m Brook Place S
Slide 45: PRS portfolio
PRS portfolio Originate Invest Operate Rent per calendar month (% of units) 7.4% £1500+ 18.0% 15.3% £1000-1500 7.9% 18.0% £750-£1000 3.3% 25.5% Under £750 4.6% Regions London +3.3% 97.2% 5-year Avg Annual Rental Growth Occupancy Grainger Plc | www.graingerplc.co.uk 45
Slide 46: Secured pipeline schedule
Secured pipeline schedule Originate Invest Operate (1 of 2 pages) Gross No. Targeted Est. Grainger Spend to yield Name units launch Status investment date target Forward funding / acquisition The Filaments, Gore Street, Manchester 376 Late FY20 On site £80m £75m c.7% East Street, Southampton 132 Mid
Slide 47: Secured pipeline schedule
Secured pipeline schedule Originate Invest Operate (Continued from previous page) Gross Targeted Est. Grainger Spend to yield Name No. units launch Status investment date target Direct development Apex Gardens, London 163 Late FY20 On site £60m £51m c.6.5% Newbury, West Berks 232 Late FY22 On site £
Slide 48: Secured pipeline projects
Secured pipeline projects Originate Invest Operate 18 high quality PRS schemes Secured Secured H1 2020 Forward funding/ Acquisitions Gore Street, East Street, Yorkshire Post, Hale Wharf, Fabrik, Manchester Southampton Leeds Tottenham Leeds Gilders Yard, YMCA, Milton Well Meadow. Canning Town Capital
Slide 49: Cumulative funding capacity
Cumulative funding capacity Originate Invest Operate Disciplined capital management Opening Headroom** Existing Committed Capex* Cash from operations*** Outer Pipeline Capacity £120m £305m Additional debt £185m £1,022m £1,022m £872m £872m £120m £120m £497m H2 2020 £602m £602m £347m £375m operational
Slide 50: Pipeline update
Pipeline update Originate Invest Operate Type of investment Top 5 cities by value £382m Forward funding (£) Direct development (£) £480m £666m £105m £80m £76m £63m London Birmingham Manchester Leeds Milton Keynes Indicative launches and future schemes FY20 Launches FY21 FY22 FY23 Future schemes Silb
Slide 51: Segmental income statement
Segmental income statement Originate Invest Operate HY19 HY20 £m PRS Reg* Other Group PRS Reg* Other Group Net rental income 18.8 10.3 - 29.1 27.1 9.8 0.1 37.0 Profit from sales – trading property 1.6 23.1 4.8 29.5 - 18.0 4.1 22.1 Profit from sales – investment property 1.8 - - 1.8 0.7 - - 0.7 Mortg
Slide 52: Balance sheet
Balance sheet Originate Invest Operate FY19 HY20 Market value balance sheet (£m) Residential – PRS 1,526 1,615 Residential – regulated tenancies 1,017 1,017 Residential – mortgages (CHARM) 76 73 Forward Funded – PRS work in progress 160 162 Development work in progress 120 124 Investment in JVs/asso
Slide 53: Segmental balance sheet
Segmental balance sheet Originate Invest Operate FY19 HY20 EPRA NTA market value PRS Reg* Other Group PRS Reg* Other Group balance sheet (£m) Investment property 1,550.7 23.9 - 1,574.6 1,637.3 24.3 - 1,661.6 Investment in joint ventures and 16.3 - 17.0 33.3 22.7 - 18.3 41.0 associates Financial inte
Slide 54: EPRA Earnings
EPRA Earnings Originate Invest Operate HY19 HY20 Earnings Shares Pence per Earnings Shares Pence per £m millions^ share £m millions^ share Earnings per IFRS income statement 54.3 548.5 9.9 49.6 628.0 7.9 Adjustments to calculate adjusted EPRA Earnings: Changes in value of investment properties, deve
Slide 55: EPRA NAV & NNNAV
EPRA NAV & NNNAV Originate Invest Operate FY19 HY20 Net assets Shares Pence per Net assets Shares Pence per £m millions^ share £m millions^ share NAV from the financial statements 1,223.5 613.8 199 1,425.8 675.2 211 Revaluation of other non-current investments 6.5 - 1 6.5 - 1 Revaluation of trading
Slide 56: EPRA NRV, EPRA NTA and EPRA NDV
EPRA NRV, EPRA NTA and EPRA Originate Invest Operate NDV FY19 HY20 EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV £m £m £m £m £m £m IFRS Equity attributable to shareholders 1,223.5 1,223.5 1,223.5 1,425.8 1,425.8 1,425.8 Diluted NAV 1,223.5 1,223.5 1,223.5 1,425.8 1,425.8 1,425.8 Include: Rev
Slide 57: Debt facilities
Debt facilities Originate Invest Operate Facility Lender Size Drawn Maturity Core Facilities: Corporate Bond Listed £350m £350m Apr 2028 Revolving Credit Facility HSBC, NatWest, Barclays £330m £251m Aug 2024 Term Debt HSBC, NatWest £200m - Mar 2022 Term Debt HSBC, NatWest, Barclays, AIB £170m £170m
Slide 58: Future reporting dates
Future reporting dates Originate Invest Operate 2020 Capital Markets Day & Trading update 29 September Full year results 19 November 2021 AGM / Trading update 10 February Half year results 13 May Trading update September Full year results 18 November Grainger Plc | www.graingerplc.co.uk 58