Grainger Plc · LSE:GRI
Grainger — H1 2018 Earnings Presentation
49 slides from Grainger's earnings presentation, May 17, 2018
Slide 1: Market leader with a strong growth trajectory
Market leader with a strong growth trajectory 2018 Half year results Helen Gordon, Chief Executive Vanessa Simms, Chief Financial Officer 17 May 2018 Grainger Plc | www.graingerplc.co.uk | Half year results for the six months ended 31 March 2018 | 17 May 2018
Slide 2: Agenda
Agenda Originate Invest Operate 1. Highlights and Helen Gordon strategic update Chief Executive 2. Financial review Vanessa Simms Chief Financial Officer 3. Market, business Helen Gordon update and outlook Chief Executive 4. Q&A Helen Gordon, Chief Executive Vanessa Simms, Chief Financial Officer Jo
Slide 3: Strong performance
Strong performance Originate Invest Operate Adjusted earnings Net rental income Rental EPRA growth NNNAV +20% +9% +4.1% +1% £40.9m £21.8m Like-for-like 306pps Key highlights Secured pipeline now up to £756m (FY17: £651m, HY17: £439m) Good visibility on investment opportunities beyond £850m Improved
Slide 4: A fully integrated business model
A fully integrated business model Originate Invest Operate How we create value Planning process Capital allocation Design Geographical targeting Layout Investment management Specifications Acquisitions Delivery management Asset recycling Valuation ▪ Overseeing delivery of c.3,200 Grow rents ▪ £236m
Slide 5: Delivering on our strategy
Delivering on our strategy Originate Invest Operate Since FY15 Strategic priority 1: Grow rents Net rental income increased by 35% £756m of PRS investment secured PRS investment plan beyond £850m to deliver significant growth in net rental income Property operating costs (gross to net) improved from
Slide 6: Further investment progress
Further investment progress Originate Invest Operate Potential funding capacity over next PRS investment, £m 3 years PRS Pipeline 756 258 519 0 200 400 600 800 1,000 1,200 1,400 SECURED PLANNING / LEGAL UNDER CONSIDERATION Breakdown of pipeline by acquisition type, £m Forward Funding 411 41 326 Dire
Slide 7: Long-term growth potential
Where we are investing Originate Invest Operate Our investible cities strategy, utilising our in-house research capability PRS Schemes secured Target locations Under review Not under consideration Operational & Weak existing Strong existing Top cities secured units tenant demand tenant demand London
Slide 8: Summary of highlights
Summary of highlights Originate Invest Operate Silbury Boulevard, Milton Keynes Good financial & operational performance Leading the market Further investment success Improved capital structure Accelerated asset recycling Well positioned for future growth Grainger plc | www.graingerplc.co.uk | Half
Slide 9: Financial review
Financial review East Street, Southampton Vanessa Simms Chief Financial Officer
Slide 10: Financial highlights
Financial highlights Originate Invest Operate Strong financial performance and improved capital structure Income HY17 HY18 Change Rental growth (like-for-like) 3.5% 4.1% +60 bps Net rental income £20.0m £21.8m +9% Adjusted earnings £34.1m £40.9m +20% Profit before tax £41.2m £50.6m +23% Operating ca
Slide 11: Income statement
Income statement Originate Invest Operate +20% growth in adjusted earnings Growth in adjusted earnings HY17 HY18 Change ‒ Increased net rental income Net rental income £20.0m £21.8m +9% ‒ Residential sales Profit from sales – residential £28.7m £32.3m +13% Profit from sales – development £6.3m £6.6m
Slide 12: Net rental income growth
Net rental income growth Originate Invest Operate Underpinning interim dividend growth of 9% £0.8m £21.8m +9% £1.7m PRS L4L 3.2% Regs L4L 5.5% £20.0m £(0.7)m Total L4L 4.1% HY17 Disposals Acquisitions Rental HY18 growth Grainger plc | www.graingerplc.co.uk | Half Year Results | 17 May 2018 12
Slide 13: Sales
Sales Originate Invest Operate +11% profit growth driven by strong residential sales Residential sales revenue HY17 HY18 and profit up +13% Revenue £m £m Strong performance from tenanted and other sales Residential sales on vacancy 49.5 38.3 providing capital for recycling into PRS Tenanted and othe
Slide 14: EPRA NNNAV
EPRA NNNAV Originate Invest Operate £1,350m 5p (7)p £1,325m 10p (1)p £1,300m (1)p 309p (3)p HY18 market value movement* 306p Central & Inner London 0.0% £1,275m Outer London 1.0% 303p South East 3.1% South West 2.3% East and Midlands 3.0% £1,250m North West 1.0% Other regions 0.1% Total 0.9% £1,225m
Slide 15: EPRA NAV & NNNAV
EPRA NAV & NNNAV Originate Invest Operate £m pence per share Property assets (market value) 2,250 537 Net liabilities (805) (192) EPRA NAV 1,445 345 Tax – deferred & contingent – regulated tenancies* (93) (22) Sub-total 1,352 323 Tax – deferred & contingent – PRS / Other** (47) (11) Mark to market f
Slide 16: Net debt
Net debt Originate Invest Operate +22% growth in operating cashflow Operating cashflow £128m £912m £78m £848m £(119)m £14m £18m £23m PRS £107m Dev/ refurb £18m Regs £3m FY17 Revenue Propex, Finance costs Dividend Investment HY18 overheads and tax Grainger plc | www.graingerplc.co.uk | Half Year Resu
Slide 17: Capital structure
Capital structure Originate Invest Operate Proforma* FY17 HY18 HY18 Net debt £848m £912m £935m Strategic execution Loan to value 37.7% 39.0% 39.9% Enhanced maturity profile Cost of debt (average) 3.5% 3.5% 3.1% Locked into low rates Incremental cost of debt < 2% < 2% < 2% Longer-term financing secur
Slide 18: £1.2bn of funding capacity
£1.2bn of funding capacity Originate Invest Operate Investment to date Future funding – 3 year outlook £756m secured £316m headroom, maintaining 40-45% LTV range £258m in planning / legals £250m operating cashflow £519m under consideration £120m asset recycling completed £130m further potential asse
Slide 19: Net rental income progression
Net rental income progression Originate Invest Operate Driving dividend growth £1.2bn funding capacity identified £519m £756m secured £258m under consideration £10m £94m £13m £4m £(6)m £195m, £31m £71m 38% of ‘under £258m consideration’ planning / legals £756m £8m £40m £2m Secured pipeline £32m FY15
Slide 20: Investment in technology
Investment in technology Originate Invest Operate Accelerate and maintain market leadership position Strategy 1. Leading customer experience 2. Scalable & efficient platform Digital self service-by-choice Growth with efficient cost base Outcomes 1. Customer advocacy 3. Lower operating costs Improved
Slide 21: Summary of financials
Summary of financials Originate Invest Operate Berewood, Strong financial performance and Hampshire rental income growth Transformed capital structure and cost base Funding capacity enhanced by accelerated asset recycling Investment activity progressing at pace Investing in technology for the future
Slide 22: Market, business update and outlook
Market, business Finzels Reach update and outlook Helen Gordon Chief Executive
Slide 23: Robust market fundamentals
Robust market fundamentals Originate Invest Operate Resilience of residential Supply: new homes delivery shortfall in UK Structural demand / supply imbalance 350 Strong history of resilience relative to the wider 300 Government target market 250 Shortfall 122,000 homes Supply constraints expected to
Slide 24: Vast market opportunity
Vast market opportunity Originate Invest Operate Significant growth prospects despite competition Years to save a deposit for first time buyers 15 4.7m households in PRS today 7.2m PRS households expected by 2025 10 118k supply of purpose-built PRS homes 8 7 7 Top 10 PRS providers have c.7,500 opera
Slide 25: Two attractive portfolios
Two attractive portfolios Originate Invest Operate Regulated tenancies PRS Tenant has the right to live in the property for life Leases with typical duration of 1-3 years Sub-market rent set by Valuation Office Agency Market rents Upon vacancy Grainger sells the property Returns based on Returns com
Slide 26: Regulated tenancy portfolio
Regulated tenancy portfolio Originate Invest Operate Portfolio Altrincham, Moor Pool, Manchester Birmingham Grainger is one of the largest owners with 3,338 units and market value of approx. £1.2bn Characteristics Strong investment market albeit number of units are declining. Standard UK tenancy unt
Slide 27: Regulated tenancy portfolio
Regulated tenancy portfolio Originate Invest Operate Predictable cashflow generation underpins funding for growth Scale gives predictable vacancy rate... ...resulting in resilient cashflow generation Average 6.8% Average £193m 7.8% 7.4% £300m 7.1% 6.7% 6.9% 6.4% 7.1% 6.6% 7.1% 6.0% 6.0% 6.2% £200m £
Slide 28: PRS portfolio
PRS portfolio Originate Invest Operate Portfolio Silbury Blvd, East Street, Milton Keynes Southampton c.5,100 PRS units and total value of £1.4bn (£833m Grainger share)* £756m secured PRS investment pipeline targeted to deliver significant net rental income growth PRS portfolio generates c.50% of gr
Slide 29: Strong lettings performance at Argo Apartments
Strong lettings performance at Originate Invest Operate Argo Apartments 134 Apartments £33m Investment via GRIP REIT (25% share) 97% … 4 42% let in… months 3yr lease Gross yield on cost 7.5% + mgmt. fees Target gross to 26% net “Argo is beautiful and the range of facilities on offer is second to non
Slide 30: Design and operational evolution
Design and operational evolution Originate Invest Operate Abbeville to Argo Apartments 9,000 sqft amenity with roof terrace Utilising customer insight and operational experience Broader range of amenities (guest suite, dining room, roof terrace) Improved fit out Higher grade specification (furniture
Slide 31: Leading through partnerships
Leading through partnerships Originate Invest Operate Delivering 4,908 homes through partnerships Defence Infrastructure Royal Borough of Kensington & Organisation Chelsea Gunhill at Wellesley, Aldershot 7 sites, London 3,850 homes, incl 107 PRS homes 162 homes Direct development Direct development
Slide 32: Market leader with a strong growth trajectory
Market leader with Originate Invest Operate a strong growth trajectory 1 Positive financial performance 4 Market leading operating Consistent growth in high quality earnings platform Adjusted earnings up +20% HY18 Proven ability to successfully drive Net rental income up +9% HY18 performance at scal
Slide 33: Q&A
Q&A Originate Invest Operate Finzels Reach, Bristol London • Bristol • Birmingham • Leeds • Manchester • Sheffield Hampshire • Milton Keynes • Liverpool • Southampton Grainger plc | www.graingerplc.co.uk | Half Year Results | 17 May 2018 33
Slide 34: Appendices
Appendices grainger plc
Slide 35: Investment case
Investment case Originate Invest Operate Strong foundations for growth National reach 1 Leading operational platform 5 Presence across the UK. Unparalleled scale and expertise Sourcing Transactions Development Local knowledge 2 Lettings and marketing Local market knowledge provides a competitive adv
Slide 36: Secured build to rent pipeline
Secured build to rent pipeline Originate Invest Operate Location Units Grainger Net rent FY18 FY19 FY20 FY21 Secured projects investment target est. Waterlooville, Berewood 104 £17m £1m Lease up Hampshire Gun Hill, Aldershot, Construction Phased lease 107 £22m £1m up Wellesley Hampshire Phased Finze
Slide 37: Secured pipeline schedule (1 of 2)
Secured pipeline schedule Originate Invest Operate (1 of 2) Name Status No. units Est. Grainger Gross yield Completion/ investment target First lets Forward funding / acquisition Clippers Quay, Salford On site 614 £99m c.8% Early FY19 Gore Street, Manchester On site 375 £80m c.7% Early FY20 YMCA, Mi
Slide 38: Secured pipeline schedule (2 of 2)
Secured pipeline schedule Originate Invest Operate (2 of 2) Name Status No. units Est. Grainger Gross yield Completion / investment target First lets Tenanted acquisitions Tribe Portfolio, Manchester Acquired 192 £26m c.7% FY18 The Rock, Bury, Manchester Acquired 233 £22m c.7.5% FY17 The Wirral Port
Slide 39: Balance sheet
Balance sheet Originate Invest Operate Market value balance sheet (£m) FY17 HY18 Residential – PRS 526 564 Residential – regulated tenancies 1,214 1,177 Residential – mortgages (CHARM) 86 86 Forward Funded – PRS under development 75 152 Development work in progress 63 60 Investment in JVs/associates
Slide 40: Portfolio summary
Portfolio summary Originate Invest Operate Property assets HY18 No. Vacant Reversionary £m units Market value possession value surplus Residential – PRS 2,775 564 618 54 Residential – regulated tenancies 3,338 1,177 1,396 219 Residential – mortgages (CHARM) 611 86 85 (1) Forward Funded – PRS under d
Slide 41: Total assets under management by region
Total assets under management Originate Invest Operate by region Reversionary* & PRS (wholly owned and co-investments^) HY18 Homes under Grainger’s share Average house price management Market value of market value (avg VPV per unit) Region units £m £m £000s Central / Inner London 3,292 1,601 1,109 5
Slide 42: Reversionary assets under management by region
Reversionary assets under Originate Invest Operate management by region Regulated tenancies & mortgages (CHARM) HY18 Homes under Average house price (avg management Market value VPV per unit) Region units £m £000s Central / Inner London 1,071 699 775 Outer London 360 136 450 South East 435 119 321 S
Slide 43: PRS assets under management by region
PRS assets under management Originate Invest Operate by region PRS (wholly owned & co-investments^) HY18 Homes under Grainger’s share Average house price management Market value of market value (avg VPV per unit) Region units £m £m £000s Central / Inner London 2,221 903 411 454 Outer London 263 86 4
Slide 44: JVs & Associates
JVs & Associates Originate Invest Operate Balance Sheet HY18 (£m) GRIP Walworth Other Total Residential property assets 668 205 - 873 Development assets 5 - 55 60 Other assets 83 11 7 101 Total assets 756 216 62 1,034 External debt (250) (80) - (330) Loans from equity participants (75) - (58) (133)
Slide 45: JVs & Associates – Reconciliation
JVs & Associates – Reconciliation Originate Invest Operate Property asset reconciliation HY18 GRIP Walworth Total (25%) (50%) Units Units Units Total no. units 1,751 565 2,316 Grainger share 435 283 718 Third party share 1,316 282 1,598 Market value £m £m £m Total market value property assets 668 20
Slide 46: See through debt
See through debt Originate Invest Operate GRIP Walworth Total Grainger Consolidated £m Group (25%) (50%) JVs share Group Syndicate 356 356 Corporate bond 275 275 Core bilaterals 140 140 Core total 771 771 Bilateral 150 150 Rothesay funding 75 75 HCA funding 8 8 Joint ventures and associates 250 80 3
Slide 47: Net asset reconciliation
Net asset reconciliation Originate Invest Operate Adj IAS 39 Add back re fixed rate Market fair value of loan and Deferred Statutory Market value Add back derivative derivative and NNNAV balance value balance def tax on financial financial contingent balance £m sheet adjustments sheet property instr
Slide 48: Future reporting dates
Future reporting dates Originate Invest Operate 2018 Trading update September FY18 Full Year results 30 November 2019 Trading update February Half year results 16 May Trading update September Full year results 28 November Grainger plc | www.graingerplc.co.uk | Half Year Results | 17 May 2018 48
Slide 49: Disclaimer
Disclaimer Originate Invest Operate This publication contains certain forward-looking statements. This publication is for information purposes only and no reliance Any statement in this publication that is not a statement of may be placed upon it. No representative or warranty, either historical fac