Grainger PLC - Full Year Financial Results

Acceleration of Grainger's private rented sector (PRS) growth strategy

·     Strong full year financial results and operational performance across all metrics 

·     Expanded PRS investment pipeline to £1.37bn

·     Proposed acquisition of GRIP REIT PLC, £696m PRS portfolio

·    Proposed c.£347m Rights Issue to fund growth

·    Enhanced total shareholder returns: step change in rental income and dividend

Following the successful implementation of its PRS growth strategy and a strong set of financial results for the year ending 30 September 2018, today Grainger announces its intention to accelerate its strategy. 

Grainger has conditionally agreed to acquire the entire share capital and shareholder loans in GRIP REIT plc ("GRIP") from its joint venture partner, APG, for £396 million (the "Acquisition"). GRIP is currently owned 75.1% by APG and 24.9% by Grainger and comprises 35 PRS assets (c.1,700 units) with a gross asset value of £696m. Following the acquisition Grainger will become the 100% owner of GRIP.

Grainger also announces a significant increase in its PRS investment pipeline to £1.37bn, ahead of its £850m target set for 2020.

To support its accelerated strategy, Grainger today announces its intention to raise £346.7m through a proposed Rights Issue.

Alongside the publication of the Company's full year results to the year ending 30 September 2018, a press release has today been published which outlines the full details of the proposed Rights Issue, including the acquisition of GRIP and the expanded PRS Pipeline.


GRIP Acquisition - Excellent strategic fit

GRIP's large, high quality residential property portfolio of c.1,700 PRS units at mid-market rental price points, are already well known to Grainger, who has managed the portfolio directly since 2013:

The Acquisition is expected to be accretive to EPRA NNNAV in the medium term due to additional value from asset management initiatives on the GRIP portfolio and future development profits from the expanded pipeline which are expected to more than offset any immediate dilution from the Rights Issue and Acquisition

Delivers £32.5m of gross rents per annum

Generates a gross yield of 4.9% with strong rental growth prospects

Assets located in strong rental growth locations in London and the South East of England;

Mid-market pricing - average weekly rent in the GRIP portfolio is 8% lower in London than the market average and 24% lower in the SE than the market average, supporting high occupancy of 95% and strong rental growth of 3.0% for the year to 30 June 2018

A portfolio with a strong track record of performance:

o  +4.2% outperformance in MSCI UK Residential Universe over the past 3 years

o  Sector Leader award for past two years in the Global Real Estate Sustainability Benchmark

£17m of additional profit targeted from value add opportunities within the GRIP portfolio

Alignment of operational and portfolio strategies which will deliver improvements on occupancy levels and gross to net from 32% to 26% in line with Grainger's overall operational performance

Expanded pipeline to £1.37bn

Secured PRS investments of £943m (FY17: £651m), with a further £45m from the GRIP acquisition and £382m in the planning or legal stages, totalling £1.37bn and an additional c.5,300 PRS units on top of Grainger's existing portfolio of c.8,200 rental properties

Impact on Grainger - enhanced total shareholder returns

Step change in net rental income and dividend; additional £32.5m gross rents per annum; projected increase in net rental income of approximately 3 times post pipeline stabilisation, underpinning dividend growth

Future NAV growth potential captured from expanded pipeline; small EPRA NNNAV dilution day one, expected strong accretion from pipeline, planned asset management and recycling programme

Enables the Company to use existing funding capacity to expand its PRS pipeline and take full control over PRS investments in London and the South East

Operational and financial synergies

Supports improved credit profile

PRS portfolio will exceed regulated tenancy portfolio based on gross asset value

Acceleration to REIT conversion

Strong financial performance for FY18

Adjusted earnings1 up +26% to £94.0m (FY17: £74.4m)

Profit before tax1 increased +17% to £100.7m (FY17: £86.3m)

Net rental income2 up +8% to £43.8m (FY17: £40.4m)

EPRA NNNAV3 up +4% to 316p per share (FY17: 303pps)

+4.0% like for like rental growth4 across our entire portfolio (FY17: 3.8%)

Investment value increased by +1.6% on total property portfolio

Strong overall sales performance with sales profit of £81.8m, up 9% on the year (FY17: £75.1m)

Recommended dividend per share up +8% to 5.26p5 (FY17: 4.86p)

Net debt6 of £866m reflecting our continuing investment into PRS assets (FY17: £848m)

Loan to value6 of 37.1% (FY17: 37.7%). The Company's target range remains 40-45%

Cost of debt reduced to 3.2% at period end, supported by the successful refinancing of our corporate bond (£350m, BBB- at 3.375% for 10 years)


Positive outlook for PRS market performance

Fundamental undersupply of housing remains, with further compounding factors including reduction in buy-to-let supply

Demand for rental housing set for continued growth

Strong rental growth prospects in target locations

PRS remains a resilient asset class

Improved favourability in the planning system for PRS development underpins pipeline and ongoing investment


FY19 reporting dates

Trading update - February 2019

Half year results - 16 May 2019

Trading update - September 2019

Full year results - 28 November 2019

Chairman's statement

I am pleased to report that 2018 has been a year of significant progress in delivering the strategy, underpinned by a good financial performance. This puts Grainger in a strong position going forward to deliver growth in the business and its returns.

Net rental income growth reflects acquisitions and strong like for like rental growth ahead of the market. Sales from the regulated portfolio and asset recycling initiatives have contributed to the strong profit performance, supported by a continued focus on cost control.

Progress on growing our PRS business continues with the launch of Argo in London and Clippers Quay in Manchester. Over the next few years around 5,300 PRS units are expected to be added to our pipeline. In parallel, our commitment to the efficient management of our regulated portfolio and delivering good levels of service remains.

During the year the board carried out a thorough review of the company's strategy and were very satisfied with the progress made. The key areas discussed included how growth of the PRS portfolio could be accelerated and how the investment in operational efficiency and enhancing customer experience will be delivered.

Our business as a housing provider is important, serving those who either cannot get onto the 'housing ladder' or simply don't want to buy. Forecasts of the growth needed to match demand isn't being delivered and that is why we will continue to lobby Government to support PRS in order to accelerate housing supply and enable us to deliver good quality homes for rent where people can put down roots.

The board takes governance requirements very seriously and our aim is to take a leadership position where we can. One of the critical areas of focus is health and safety. The company has clear plans to ensure that it continues to keep staff, customers and the general public safe. Alongside delivering a customer service culture, keeping safe is one of the highest priorities within the business.

Tony Wray has decided to step down at the AGM in 2019, by which time he will have served over seven years on the Board as a Non-Executive Director.  I would like to thank Tony for his significant contribution to the success of the Company and wish him well for the future.

The board is pleased to see the company receive external recognition for the service it provides its customers as Asset Manager of the Year at the RESI Awards but it also acknowledges that the job is not done. The board has a real expectation of continued progress which will deliver critical competitive advantage going forward.

Following on from the strong financial performance delivered, the Board is pleased to recommend an increase in the final dividend to 3.52p per share, bringing the total for the year to 5.26p per share, up 8% on the prior year.

This performance is testament to the hard work and dedication of every member of the Grainger team. I thank everyone, on behalf of the Board.

Looking ahead, our objective remains the same: to deliver great homes for rent and a great customer experience. We will do this by delivering our growth strategy, investing to improve our operational efficiency and by improving the performance of our portfolio wherever we can.

Mark Clare


13 November 2018



Growing our income return 




Rental growth (like for like) 



+20 bps 

Net rental income 




Adjusted earnings (Note 3) 




Adjusted EPS (after tax) (Note 3) 




Profit before tax (Note 3) 




Dividend per share (Note 11) 




Earnings per share (diluted) (Note 10)  






Driving our capital return 




EPRA NAV per share 




EPRA NNNAV per share 




Net debt 




Group LTV 



(53) bps 

Cost of debt (average) 



(13) bps 

Cost of debt (year end) 



(22) bps 

Reversionary surplus 




Total return on shareholder equity 



(120) bps 


Summary and outlook 

We have delivered strong financial results for FY18, which reflects our focus on operational excellence, disciplined investment and cost management.

The investment we are making into our business and operational platform, including technology, will underpin future financial performance as we continue to grow and maintain our position as the UK's largest listed residential landlord and a market leader in the PRS.

The £943m pipeline of PRS investments we have built up since setting out our strategy in January 2016 will significantly increase our net rental income over the next two to three years as the projects complete and are stabilised. This will enable us to both grow our dividend significantly and our NAV over coming years. 

The actions we have taken over the recent years to improve our capital structure, operations and financial discipline to our investments put us in a position for accelerating our growth trajectory and delivering strong shareholder returns. 

Vanessa Simms 

Chief Financial Officer 

13 November 2018