Grainger Plc · LSE:GRI
Grainger — H1 2013 Earnings Presentation
49 slides from Grainger's earnings presentation, May 16, 2013
Slide 1: Half Year Results
Half Year Results 16 May 2013 1
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 Peter Couch, Chief Operating Officer and Director of Retirement Solutions 3
Slide 4: Agenda
Agenda 1. Highlights Andrew Cunningham 2. Market and strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Case studies Nick Jopling 5. Summary and outlook Andrew Cunningham 4
Slide 5: Highlights
Highlights Strong financial performance March 2013 Sept 2012 • NNNAV up 6.6% • Debt down NNNAV 167p 157p • by £40m at 31 March 2013 Gross NAV 224p 223p • by £118m at 13 May 2013 Net debt £1.15bn £1.19bn Strong operational performance • Continued valuation outperformance March 2013 March 2012 • Margi
Slide 6: Agenda
Agenda 1. Highlights Andrew Cunningham 2. Market and strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Case studies Nick Jopling 5. Summary and outlook Andrew Cunningham 6
Slide 7: The housing market showing signs of recovery
The housing market showing signs of recovery Signs of recovery backed by further Government support • Demand projected to grow with regional variations • Government support measures: • Funding for Lending and Help to Buy Projected household growth (2011-2021) % 16.0 RICS 14.0 12.0 10.0 8.0 “In April
Slide 8: Growing demand for renting
Growing demand for renting Strengthening investment market in England • Between 2001 and 2011, owner occupation fell for the first time in a century • Private Renting is the fastest growing tenure for the last decade • More households privately renting than social renting • Over 50% of all London ho
Slide 9: UK Government support
UK Government support We are well placed to benefit from Government initiatives, particularly in the private rented sector Private rented sector support measures • Build to Rent Fund extended to £1bn • We have been shortlisted for funding of up to £57m of inexpensive Government debt for the construc
Slide 10: A strategy to meet a changing housing market
A strategy to meet a changing housing market Continue trading reversionary assets while leveraging our expertise to generate rents and fees underpinned by the appropriate capital structure Increase recurring income Rents Build to rent – GRIP, London Road, Berewood, Wellesley, Aldershot Fees Leverage
Slide 11: Delivering on strategy
Delivering on strategy The location and active Outperformance vs Nationwide & Halifax 115.0 management of assets leads to Grainger UKR continued outperformance 110.0 Grainger 3.0% increase in UK residential UKR and RS 105.0 portfolios compared to an average Nationwide increase of 1.6% in Nationwide
Slide 12: Delivering on strategy
Delivering on strategy Debt Net debt (£m) On target to reduce debt to £1bn by 1700 end of 2013 1500 1300 As at 13 May net debt has fallen to 1100 an estimated £1,076m from a peak 900 of £1,570m in March 2011 2009 Sept 2010 Sept 2011 Sept 2012 Sept Post Walworth JV Gross NAV (p) Gross NAV 230 Up 15.6
Slide 13: Sales – Trading
Sales – Trading Profits from residential sales Sales Run off for Regulated and at 31 March 2013 - £35m RS Properties 160,000 Characteristics: RS Sales UKR Reg Sales Total Sales • Typically reversionary assets 140,000 (purchased at significant discount to vacant possession value) 120,000 • Predictabl
Slide 14: Rental income
Rental income Net rents to 31 March 2013 - £27m Existing Market rented properties Regulated tenancies Market value: £570m Investment value: £905m Gross rent: £21m Gross rent: £16m 4,781 units 4,855 units Pipeline London Rd, Berewood PRS 1 RBKC Barking Completes 2015 2014 – 2016 2014 – 2016 Investmen
Slide 15: Fee income
Fee income Fee income increased by 35% at 31 March 2013 to £6.8m • Current contributors to fee Fees (£m) income: 8 • RAMP 7 6 • GRIP 5 • Heitman JV 4 • Sovereign JV 3 • Wellesley, Aldershot 2 1 0 • Future contributor: 2009 2010 2011 2012 2013 March March March March March • RBKC 15
Slide 16: Germany – market overview
Germany – market overview Attractive residential investment market 1. Traditional culture of renting 2. Established institutional investment asset class 3. Strong economic backdrop 4. Growing population 16
Slide 17: Germany strategy
Germany strategy Focused on 3 key areas Portfolio Co-investment Value-add measures optimisation model • Gross to net position • Block trades and • Capitalise on Heitman privatisations JV and strategic • Rental growth partnership • Value-add capex (refurb • Capital values / additional residential • P
Slide 18: Agenda
Agenda 1. Highlights Andrew Cunningham 2. Market and strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Case studies Nick Jopling 5. Summary and outlook Andrew Cunningham 18
Slide 19: Financial highlights
Financial highlights Income statement March 2013 March 2012 Operating profit (£m)* 53.4 64.1 Recurring profit (£m) 14.9 16.4 Profit before tax (£m)** 11.0 15.1 Dividends per share (p) 0.58 0.55 Balance Sheet Proforma March 2013 September post 2012 Walworth NNNAV per share*** 167p 167p 157p Gross NAV
Slide 20: Movement in recurring profit
Movement in recurring profit £m 18.0 £16.4m £(6.3)m 16.0 £9.0m £14.9m 14.0 12.0 £(4.7)m 10.0 8.0 £1.8m £(0.7)m £(0.6)m 6.0 4.0 2.0 0.0 Recurring profit Decrease in Decrease in Increase in fee Decrease in Other Improvement in Recurring profit March 2012 gross rents residential income development net
Slide 21: Movement in NNNAV
Movement in NNNAV NNNAV up 6.6% since 30 Sept 2012 750 700 £14m £9m £697m £15m £(6)m £11m £654m 650 600 550 500 September Profit after Net valuation Dividend Tricomm debt Hedge March 2013 2012 tax increase on reserve, trading stock contingent tax and other 157p 2p 4p (1)p 3p 2p 167p 21
Slide 22: Movement in net debt
Movement in net debt £'m 1,350 1,300 £42m £(45)m 1,250 £51m £(138)m 1,200 £1,194m £50m £1,154m £(83)m 1,150 1,100 £5m £1,076 1,050 1,000 950 Net debt Swap Investment, Project Rent, Interest, Net debt Walworth Other Pro Forma Est. net September settlement purchases inflows sales, fees tax, March net
Slide 23: Group debt analysis
Group debt analysis March September 2013 2012 £m £m Gross debt 1,231 1,286 Unamortised costs 15 19 Cash 62 73 Net debt 1,154 1,194 Headroom 93 148 Average debt maturity (years) 4.7 5.5 Hedging level on gross debt 52% 84% LTV - core facility 49% 48% Interest cover - core facility 3.3:1 3.0:1 LTV on a
Slide 24: Agenda
Agenda 1. Highlights Andrew Cunningham 2. Market and strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Case studies Nick Jopling 5. Summary and outlook Andrew Cunningham 24
Slide 25: Growing market rented portfolio: London Road, Barking
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 • 100 units • Well connected location • Investment value: £13.7m • Desi
Slide 26: Attracting institutional investment partners: GRIP
Using our expertise to attract institutional investment partners GRIP One of the UK’s largest market-let residential funds, with an appetite to grow through build to rent and acquisitions PORTFOLIO OUTLINE • UK’s largest PRS fund Europe’s largest pension fund asset • ~1,300 units (Assured Shorthold
Slide 27: Walworth JV
Capturing value, supporting our strategy and retaining potential for upside Walworth JV 50:50 JV with Dorrington for £111m South London Estate Deal outline Rationale • 50:50 JV with Dorrington • Capture value uplift • Investment value: £111m • Equity return on portfolio since • Gross yield: 5.3% ful
Slide 28: Tricomm
Finding opportunities to enhance returns Tricomm • Bought in Feb 2011: 317 freehold properties let to the MoD until 2028 • Purchased at a discount of £14.9m • Bought in debt at a discount of £15.4m • Investment of £69m in the portfolio which: • Generates £9m of gross annual income • Is let long term
Slide 29: Agenda
Agenda 1. Highlights Andrew Cunningham 2. Market and strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Case studies Nick Jopling 5. Summary and outlook Andrew Cunningham 29
Slide 30: Summary and outlook
Summary and outlook Outperformance vs Nationwide & Halifax Good progress on strategic objectives 115.0 Grainger UKR 110.0 Grainger UKR and RS 105.0 1. Continued outperformance Nationwide 100.0 Halifax 2. Growth in asset value 95.0 2009 Sept 2010 Sept 2011 Sept 2012 Sept 2013 March 3. Reducing debt G
Slide 31: END
END www.graingerplc.co.uk 31
Slide 32: Appendices
Appendices 32
Slide 33: Portfolio summary (wholly owned)
Portfolio summary (wholly owned) 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 4,855 905 1,204 299 75% 16 18 4 Vacant 155 35 35 - 100% - 40 20 RS Reversion 4,349 338 521 183 65% 2 33 6 CH
Slide 34: Grainger UK portfolio
Grainger UK portfolio Vacant possessio No. of n value, Market Market UK units £m value, £m value, % 1 Central London 614 346 271 16% Inner London 2,103 605 489 28% 63% Outer London 892 198 145 8% 2 South East 1,646 272 196 11% 3 South West 1,614 276 234 13% 4 East 1,098 142 103 6% 5 East Midlands 46
Slide 35: Grainger German portfolio
Grainger German portfolio Excl Heitman JV Market value % of market Germany No of Units €m value 1 Baden – Württemberg 245 21 10% 2 Hesse 1,329 100 44% 87% 3 Northrhine – Westphalia 1,222 70 31% 4 Bavaria 73 5 2% 5 Lower Saxony 66 5 2% 6 Rhineland – Palatinate 229 18 8% 7 Other 63 7 3% Total 3,227 22
Slide 36: Portfolio overview – JV/Associates
Portfolio overview – JV/ Associates Joint Ventures Associates Curzon Park Hammersmith Prague/ Gebau Sovereign G:Res GRIP Heitman Total Zizkov £m Property assets 37 - 27 57 - 352 198 671 Other assets 4 3 3 18 8 10 46 Total assets 37 4 30 - 60 18 360 208 717 External debt (13) - (12) (28) - (139) (128
Slide 37: Profit summary
Profit summary March 2013 March March 2012 March £m 2013 £m 2013 Profit on sale of assets 34.5 50% 39.9 52% Net rents 27.3 40% 31.8 41% Management fees 6.8 10% 5.0 7% Sales, net rents and fees 68.6 100% 76.7 100% Charm 2.4 2.8 Overheads (15.9) (15.3) Other net expenses (1.7) (0.1) OPBVM* 53.4 64.1 F
Slide 38: Property sales and profits
Property sales and profits Half Year 2013 Half Year 2012 Units Sold Sales Profit Units sold Sales Profit £m £m £m £m Sales on vacancy UK residential 167 39.6 19.5 172 40.7 18.8 Retirement solutions 162 17.0 5.8 149 17.7 6.0 329 56.6 25.3 321 58.4 24.8 Tenanted and other 552 53.9 9.4 103 35.1 14.3 Re
Slide 39: Regular, resilient cashflows
Regular, resilient cashflows 6 months to Financial Years Ended 30 September 31 March (£m) 2013 2012 2011 2010 2009 2008 2007 2006 Gross rents UK Residential 28 58 51 39 41 42 39 47 Retirement Solutions 2 5 5 6 6 6 2 - Development - - - 1 1 1 2 1 Germany 9 27 30 30 30 22 10 5 Total 39 90 86 76 78 71
Slide 40: NAV measures reconciliation
NAV measures reconciliation Adj to market Adj IAS 39 re fixed Deferred Grainger Statutory value, deferred rate loan and and NNNAV Reversionary Balance tax and derivative financial Contingent Balance surplus Grainger Sheet derivatives Gross NAV instruments Tax Sheet adjustments NAV Investment Propert
Slide 41: NAV Reconciliation as at March 2013
NAV Reconciliation as at 31 March 2013 250 9p 224p (28)p 23p 92p (29)p 200 167p 150 100p 100 50 0 Statutory Uplift stock Adjust for Deferred tax Gross NAV Adjust for Deferred and NNNAV balance to market derivative on property derivative / contingent sheet value revaluation fixed rate tax loans £419m
Slide 42: Movement in gross NAV
Movement in gross NAV £'m 1,050 1,000 £14m £(31)m £929m £15m £934m 950 £11m £(6)m £2m 900 850 800 Gross NAV Profit after Net Tricomm Swap Dividend Other Gross NAV Sept 2012 tax valuation debt breaks net March 2013 increase on of tax trading stock 223p 2p 4p 3p (7)p (1)p 0p 224p 42
Slide 43: Grainger NAV
Grainger NAV Pence per £m share NNNAV as at 31 March 2013 697 167 Discounted reversionary surplus 265 64 Tax thereon at 23% (61) (15) Grainger NAV as at 31 March 2013 901 216 The major assumptions we have used in calculating the base case Grainger NAV are as follows: • House price inflation is taken
Slide 44: Look through debt
Look through debt Group Total 3rd Party Group Counterparty Debt Heitman Sovereign GRIP Other Debt Share Share (£m) 25% 50% 27% 50% Core 767 767 767 Bilateral 154 154 154 Insurance Companies 180 180 180 Convertible 24 24 24 Joint Ventures and Associates 128 28 139 25 320 (224) 96 Germany 106 106 106
Slide 45: Debt repayment profile
Debt repayment profile £m Core Other UK and Europe 700 600 500 400 300 200 100 - 45
Slide 46: Derivative liability run off chart
Derivative liability run off chart Mark to Market run off 140 120 100 80 £m 60 40 20 - Mar Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep 2013 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Reserves 15 12 6 3 0 - - - - - - - - - - - - Income Statemen
Slide 47: Tax
Tax • The tax charge for the period ended 31 March 2013 is £0.2m • Reduction of £2.4m, from expected tax charge of £2.6m, results from a prior period credit of £3.6m related to agreement of tax positions with the UK and German tax authorities, and non-deductible expenditure of £1.2m • Corporation Ta
Slide 48: Principal development schedule
Principal development schedule Key project Description, planning status and strategy Progress GDV GDV (with Market value as name (without planning at 31 March planning) permission) 2013 Wellesley, 400 acre brownfield site in Hampshire; Development Planning application submitted December 2012, Alders
Slide 49: Principal development practical completion timetable
Principal development practical completion timetable £96m £54m £13-18m £12-16m 2013 2014 2015 2016 Berewood Phase 2 Macaulay Walk Berewood Phase 3 RBKC Land sale receipt: £13-18m GDV: £54m Land sale receipt: £12-16m Fees and development profit generated Wellesley, Aldershot Phase 1 Hammersmith JV Fe