Grainger Plc · LSE:GRI
Grainger — FY2013 Earnings Presentation
51 slides from Grainger's earnings presentation, Nov 7, 2013
Slide 1: Preliminary results for the year ended 30 September 2013
Preliminary results for the year ended 30 September 2013 7 November 2013
Slide 2: 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 Preliminary results 2013 2
Slide 3: Agenda
Agenda 1. Introduction Andrew Cunningham 2. Market and future strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational highlights Nick Jopling 5. Summary and outlook Andrew Cunningham Preliminary results 2013 3
Slide 4: Financial highlights
Financial highlights • Return on shareholder equity of 25% Gross NAV NNNAV • EPRA NNNAV up 24% 242p 195p (2012: 223p) (2012: 157p) • EPRA Gross NAV up 9% Recurring profit Profit before tax • Debt reduction target achieved • Total dividend for the year of 2.04p, an £37.0m £64.3m increase of 6.25% (20
Slide 5: Operational highlights
Operational highlights Continued valuation Market value of our residential UK portfolios rose by 8.3% outperformance compared to Nationwide and Halifax indices of 5.6% (average) Sales consistently above 7.9% above 2012 values (2012: 6.1%) valuations Heitman co-investment Fees & equity stake vehicle
Slide 6: Strategy – 2010 to 2013
Strategy – 2010 to 2013 Objective Action Outcome Optimise asset Generate outperformance in 60% of UK portfolio in London and SE locations valuation and sales Structure innovative transactions to Focus on rental London Rd, Barking; Partnership increase exposure to the rental market market with RBKC;
Slide 7: Results of our strategy
Results of our strategy Gross NAV (p) 250 225 200 175 2009 Sept 2010 March 2010 Sept 2011 March 2011 Sept 2012 March 2012 Sept 2013 March 2013 Sept Group net debt (£m) 1700 1500 1300 1100 900 2009 Sept 2010 March 2010 Sept 2011 March 2011 Sept 2012 March 2012 Sept 2013 March 2013 Sept Preliminary re
Slide 8: Continued outperformance against the market
Continued outperformance against the market Capital values – Grainger UK Portfolios vs Nationwide & Halifax 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 2009 2010 2011 2012 2013 Nationwide Halifax Grainger UK Residential Grainger UKR & Retirement Solutions Preliminary results 2013 8
Slide 9: Agenda
Agenda 1. Introduction Andrew Cunningham 2. Market and future strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational highlights Nick Jopling 5. Summary and outlook Andrew Cunningham Preliminary results 2013 9
Slide 10: Drivers of the UK housing market
Drivers of the UK housing market Number of Households Great Britain • Improving economic • Supply / demand (millions) 30 prospects imbalance in housing 25 • Increasing confidence in • Mortgage market 20 regions, not just London improving 15 1983 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 Capi
Slide 11: UK housing market
UK housing market London (UQ) London (All) Oxford, Cambridge London (LQ) Source: Hometrack (size of circle relates to average price) Preliminary results 2013 11
Slide 12: Current strategy
Current strategy Evolution of strategy to reflect current point in market cycle Leading − Developing innovative products and leveraging owner-manager platform the market − Creates business opportunities and attracts high quality partners Maximising − Active asset management and geographical focus re
Slide 13: Investment focus
Investment focus Main areas of focus 9.0 – 9.5% IRR Reversionary assets on an ungeared basis 20.0% + equity or Fund management and fee business promote gross margin on costs 8.0 – 10.0% IRR Market rent and build-to-rent activities on an ungeared basis Preliminary results 2013 13
Slide 14: Important considerations for build-to-rent
Important considerations for build-to-rent • Does not compete with owner- Build to rent viability occupation market • Demographics (25 to 35 year olds) • Local economic performance • Rental growth prospects and current demand • Employment levels • Land and build costs Source: Hometrack Preliminary r
Slide 15: Agenda
Agenda 1. Introduction Andrew Cunningham 2. Market and future strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational highlights Nick Jopling 5. Summary and outlook Andrew Cunningham Preliminary results 2013 15
Slide 16: 2013 financial focus
2013 financial focus • Objective: To increase shareholder value by growing net asset values, while driving down our net debt and operational costs, and improving our overall capital structure • Rationale: To reflect the changes in the market and in our business • Strategy: Increased sales, innovativ
Slide 17: 2013 financial highlights: Balance sheet
2013 financial highlights Balance sheet • NNNAV up 24% Gross NAV NNNAV • Gross NAV up 9% 242p 195p (2012: 223p) (2012: 157p) • Reversionary surplus of £527m (127p per share)* Net debt Group LTV £959m 48% (2012: £1,194m) (2012: 55%) * Includes £44m within Joint Ventures/Associates Finlay Street, Fulh
Slide 18: Movement in NNNAV
Movement in NNNAV NNNAV up 24% since 30 Sept 2012 850 £26m £(8)m £811m £14m 800 £71m 750 £54m 700 £654m 650 600 30 September Profit after tax Net valuation Tricomm debt Hedge reserve, Dividend 30 September 2012 increase on contingent tax 2013 trading stock and other 157p 13p 17p 3p 7p (2)p 195p Prel
Slide 19: Movement in NAV
Movement in NAV NAV up 9% since 30 Sept 2012 £'m 1,080 £14m £(47)m 1,060 £71m 1,040 £(13)m 1,020 £1,008m 1,000 £54m 980 960 £929m 940 920 900 Gross NAV Profit after tax Net valuation Tricomm debt Impact of Dividend & Gross NAV 30 September increase on derivatives & other 30 September 2012 trading st
Slide 20: Movement in net debt
Movement in net debt Net debt reduced by 20% £'m 1,500 £110m £(62)m £(431)m 1,400 £148m 1,300 £1,194m 1,200 1,100 1,000 £959m 900 800 Net debt Swaps, FX, Investment, Net project inflows Gross rent, sales Net debt September 2012 interest, tax, operational (Walworth,Tilt, and fees September 2013 divid
Slide 21: Capital structure and Group debt analysis
Capital structure and Group debt analysis September September 2013 2012 £m £m Capital structure Balance sheet debt 1,049 1,267 Cash & Cash equivalents 90 73 • LTV between 45% and 50% Net Debt 959 1,194 • Manage our average cost of debt Available cash and undrawn facilities 292 148 downwards towards
Slide 22: 2013 financial highlights: Income statement
2013 financial highlights Income statement OPBVM Recurring profit Profit before tax £107.6m £37.0m £64.3m (2012: £126.4m) (2012: £34.6m) (2012: £(1.7)m) Profit from sales Dividend per share £77.7m 2.04p (2012: £77.6m) (2012: 1.92p) * Adjusted for tenanted sales Preliminary results 2013 22
Slide 23: Movement in recurring profit
Movement in recurring profit Recurring profit up 6% £m 60.0 £1.9m £(18.5)m £2.1m 55.0 £19.4m 50.0 45.0 £(1.6)m 40.0 £(0.9)m £37.0m 35.0 £34.6m 30.0 Recurring Reduction in Increase in Increase in fee Decrease in Decrease in Other Recurring profit net finance profit from and other gross rents income f
Slide 24: Predictable long term future cash flows
Predictable long term future cash flows • Represents a pipeline of profits with no planning or development risk • Supports our plan for re-investment Annual cash flow from reversionary assets £m Regulated Reversion Charm Total 160 120 80 40 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 * Assumes 4%
Slide 25: Agenda
Agenda 1. Introduction Andrew Cunningham 2. Market and future strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational highlights Nick Jopling 5. Summary and outlook Andrew Cunningham Preliminary results 2013 25
Slide 26: Operational achievements
Operational achievements Market value of our Continued valuation residential UK portfolios outperformance rose by 8.3% Sales consistently 7.9% above 2012 above valuations values (2012: 6.1%) Heitman co- investment vehicle Fees & equity stake created GRIP fund, Canonbury Heights, London Created GRIP
Slide 27: Operational pipeline: Macaulay Walk, Clapham
Operational pipeline Macaulay Walk, Clapham, London Generating sales through select developments • A high quality development in a highly sought after area, Clapham Old Town • 84 new homes • Total GDV c.£58m • Practical completion and sales to begin in early 2014 • A targeted marketing campaign bega
Slide 28: Operational pipeline: Young St & Hortensia Rd
Operational pipeline Young St & Hortensia Rd developments with Royal Borough of Kensington and Chelsea Development profit, future rental income and fee income with no requirement to purchase land • Planning committee in December 2013 Proposed development of Young Street, London • Appointed by the Co
Slide 29: Operational pipeline: King Street, Hammersmith
Operational pipeline King Street, Hammersmith 50:50 joint venture with Helical Bar • Planning committee on 12 November 2013 • 196 new homes, new retail space, 40,000 sq.ft. of new council offices and a new Curzon cinema • Total GDV of c.£150m • Start on site – 2015 Preliminary results 2013 King Stre
Slide 30: Operational pipeline: Berewood, Waterlooville
Operational pipeline Berewood, Waterlooville Land sales and build-to-rent • 2,550 new homes • Phase 1 under construction by Bloor Homes (194 homes) • Phase 2 sold to Redrow (c.250 homes) – 15 acres for £14.75m an increase of 9% on Phase 1 • Phase 3 – first Grainger Build to Rent product (c.106 units
Slide 31: Value-enhancing opportunities
Value-enhancing opportunities 9.0 – 9.5% IRR Reversionary assets on an ungeared basis 20.0% + equity stake Fund management and fee business or promote gross margin on costs 8.0 – 10.0% IRR Build-to-rent on an ungeared basis Types of build-to-rent projects: Forward purchase: London Rd, Barking Local
Slide 32: Agenda
Agenda 1. Introduction Andrew Cunningham 2. Market and future strategy Andrew Cunningham 3. Financial highlights Mark Greenwood 4. Operational highlights Nick Jopling 5. Summary and outlook Andrew Cunningham Preliminary results 2013 32
Slide 33: Summary
Summary Valuation outperformance Excellent progress on strategic objectives… 125.0 Nationwide • Continued outperformance 120.0 • Growth in net asset values 115.0 Halifax 110.0 • Strong cash generation 105.0 Grainger UK • Capturing opportunities in the market 100.0 Residential • Reversionary value cr
Slide 34: The investment case for Grainger
The investment case for Grainger Three income streams: sales, rents and fees • Offers a geared exposure to the • Prudent valuations residential investment market • Resilient, defensive asset class • Continued valuation outperformance • Recurring rents and fees underpin • £527m of unrealised reversio
Slide 35: 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 36: Thank you
Thank you Preliminary results 2013 www.graingerplc.co.uk 36
Slide 37: Appendices
Appendices
Slide 38: Portfolio summary (wholly owned)
Portfolio summary (wholly owned) No. of Market VP Reversionary Gross Gross sales Profit on units Value Value surplus IV/VP rent proceeds sale £m £m £m % £m £m £m Reversionary Assets Regulated 4,096 836 1,110 274 75% 30 87 17 Vacant 149 42 42 - 100% - 80 40 RS Reversion 4,217 339 517 178 66% 3 50 12
Slide 39: Asset Performance
Asset Performance 2013 Market VPV value Year-on-year HPI (Nationwide and Halifax) 5.6% UK Residential portfolio VPV rise and market value rise 8.2% 9.3% Retirement solutions portfolio VPV rise and market value rise 2.3% 5.9% Combined UK Grainger VPV rise and market value rise 6.4% 8.3% Reversionary
Slide 40: Grainger UK portfolio
Grainger UK portfolio Vacant Market No. of possession value, Market UK units value, £m £m value, % 1 Central London 595 357 280 18% 60% Inner London 1,163 436 345 22% Outer London 770 184 134 8% 2 South East 1,531 259 188 12% 3 South West 1,541 266 227 14% 4 East 1,050 140 102 6% 5 East Midlands 448
Slide 41: Asset Overview – JV/Associates
Asset Overview – JV/ Associates Joint Ventures Associates Prague/ Hammersmith Curzon Gebau Sovereign Walworth Heitman GRIP G:Res Total Zizkov Park £m Property assets 27 6 37 - 55 133 198 412 - 868 Other assets 2 0 0 1 3 3 14 18 15 56 Total assets 29 6 37 1 58 136 212 430 15 924 External debt * (12)
Slide 42: Profit summary
Profit summary Sept 13 Sept 12 £m £m Profit on sale of assets* 77.7 77.6 Net rents 48.5 63.5 Management fees 12.9 11.0 Charm 5.7 7.1 Overheads and other expenses (37.2) (32.8) OPBVM** 107.6 126.4 Finance costs, net (71.3) (90.7) JV's and associates 0.7 (1.1) Recurring profit before tax 37.0 34.6 Val
Slide 43: Property sales and profits
Property sales and profits Full Year 2013 Full Year 2012 Gross Gross Units proceeeds Profit Units proceeeds Profit Trading sales on vacancy £m £m Margins £m £m Margins UKR 337 79.5 40.2 50.6% 390 89.2 37.4 41.9% RS 338 36.9 12.0 32.6% 323 38.7 13.3 34.4% 675 116.4 52.2 44.9% 713 127.9 50.7 39.6% Ten
Slide 44: Regular, resilient cashflows
Regular, resilient cashflows Average cashflow over the 8 year period to 2013 is £300m £m 2013 2012 2011 2010 2009 2008 2007 2006 Gross rents UK Residential 51 58 51 39 41 42 39 47 Retirement Solutions 4 5 5 6 6 6 2 - Development - - - 1 1 1 2 1 Germany 16 27 30 30 30 22 10 5 Total 71 90 86 76 78 71
Slide 45: NAV measures reconciliation
NAV measures reconciliation Add back Fair Adj IAS 39 re value of fixed rate loan Add back Def derivative and derivative Statutory Market Value Market value Tax on financial financial Deferred and NNNAV Grainger Balance Sheet Adjustments Balance Sheet property instruments Gross NAV instruments Contin
Slide 46: NAV Reconciliation
NAV Reconciliation p 300 250 242p 7p (20)p 18p 106p (27)p 195p 200 150 111p 100 50 Statutory Uplift stock to Adjust for Deferred tax on Gross NAV Adjust for Deferred and NNNAV balance sheet market value derivative property derivative / fixed contingent tax revaluation rate loans £466m £442m £73m £27
Slide 47: Look through debt
Look through debt Total Total Third Third Group Party Total Party Group Counterparty Debt Heitman Sovereign GRIP WIP Other Debt Debt Share Share (£m) 25% 50% 25% 50% 50% (£m) (£m) (£m) (£m) Syndicate 597 597 597 M&G 100 100 100 Convertible 24 24 24 Core Total 721 721 721 Bilateral 159 159 159 Insura
Slide 48: Debt repayment profile
Debt repayment profile Preliminary results 2013 48
Slide 49: Derivative liability run-off chart
Derivative liability run-off chart Preliminary results 2013 49
Slide 50: Tax
Tax • The tax charge for the period ended 30 September 2013 is £10.7m • Reduction of £4.4m, from expected tax charge of £15.1m, results primarily from a prior period credit of £7.5m related to agreement of tax positions with the UK and German tax authorities, reduced by non-deductible expenditure of
Slide 51: Principal development schedule
Principal development schedule Key project name Description, planning status and strategy Progress GDV GDV Market No. of (without (with value at units planning) planning) 30 Sept 2013 Wholly owned £M £M £M Aldershot 400 acre brownfield site in Hampshire; Development partner Resolution to grant issue