Leading the way in a growing market. Capital Markets Day Helen Gordon Chief Executive 27 September 2017

Transcription

1 Leading the way in a growing market Capital Markets Day Helen Gordon Chief Executive 27 September 2017

2 Agenda 1. Market Helen Gordon Chief Executive 2. Investment Andrew Saunderson Investment Director 3. Operations John Kenny Chief Operating Officer 4. Driving financial performance Vanessa Simms Chief Financial Officer 5. Q&A 6. Tour of Argo Apartments Anish Thobhani Customer Operations Director Grainger Plc Investor Day September

3 A market leader in the UK PRS The UK s largest listed residential landlord and a market leader in the UK build to rent and private rented sector (PRS). Offices in London, Newcastle, Birmingham and Manchester. Grainger is investing 850m into PRS, which will deliver c.5,000 new homes. Targeting deepest pools of demand in the mid-market. Achieving gross yields between %. Dividend to grow in line with Net Rental Income (NRI), with a policy to pay out the equivalent of 50% of NRI. Objective: Grow net rental income and enhance total returns Current portfolio: Over 8,700 rental homes Growth plan: Invest 850m by 2020 Progress so far: 517m secured Grainger Plc Investor Day September

4 Originate, invest & operate Our differentiated offer Planning process Design Layout Specifications Delivery management Grow rents Capital allocation Geographical targeting Acquisitions Investment mgmt. Asset recycling Valuation Simplify and focus Build on our experience Lettings On boarding Customer experience Customer expectations Management efficiencies Repairs & maintenance Grainger Plc Investor Day September

5 Originate, invest & operate Our differentiated offer driving results Planning obtained for 606 PRS units 517m PRS invesment secured Length of tenure increased from 18mths to over 2 years 97% occupancy 24% reduction of overheads Grow rents Simplify and focus Build on our experience c. 50m annualised cost savings 3.7% rental growth outperforming the market Gross to net reduced 31.5% to 26% Grainger Plc Investor Day September

6 A vast market opportunity PRS market Small landlords 98% Total market value 1,290bn Projections New PRS homes required by m Estimated required investment 360bn Today's supply side Pipeline of new PRS homes < 100k Estimated available capital 50bn Sources: English Housing Survey, PwC, BPF Grainger Plc Investor Day September

7 Grainger has a leading market share Grainger s portfolio Grainger s pipeline Homes 8,700 4,500 PRS homes 4,200 regulated tenancy homes Additional PRS homes 5,000 circa 2017 Residential Landlord of the Year 6% market share of new supply Above figures are as at the end of August 2017, including co-investment vehicles. Grainger Plc Investor Day September

8 An operational head start Operational PRS units 4,500 1,800 1, Grainger Get Living* L&Q PRS* M&G* Miflats Platform_ Fizzy Essential (Criterion) Living Be:Here Lasalle Quintain Legal & General Source: Company websites; * estimated Grainger Plc Investor Day September

9 Demand partly driven by affordability Years required to save for a 10% deposit and SDLT on the average first-time buyer home k k k 13k 14k London Bristol Manchester Birmingham Leeds Average First Time Buyer price based on Hometrack City Average Price and a 15% discount (Nationwide First Time Buyer Index). Number of years saving required for deposit and SDLT based on Grainger research, utilising ONS data for average first time buyer salaries and expenditure, and 2017 wage growth. Grainger Plc Investor Day September

10 but demand is also driven by other lifestyle factors Age groups, % +6% 46% 40% +7% Renting on the rise Greater job mobility Later family formation Preference for more flexibility Changing spending patterns 19% 26% 11% +4% 15% +5% 12% +1% +1% 7% 5% 6% 4% 5% or over Source: English Housing Survey Grainger Plc Investor Day September

11 Targeting the right locations First mover advantage Finzels Reach, Bristol London Bristol Birmingham Leeds Manchester Grainger Plc Investor Day September

12 The right assets in the right locations Andrew Saunderson Investment Director 27 September 2017

13 Originate, invest & operate Planning process Design Layout Specifications Delivery management Grow rents Capital allocation Geographical targeting Acquisitions Investment mgmt. Asset recycling Valuation Simplify and focus Build on our experience Lettings On boarding Customer experience Customer expectations Management efficiencies Repairs & maintenance Grainger Plc Investor Day September

14 Successfully securing investments 517m of new PRS investment secured since January m Under consideration Disciplined and robust process Speed of execution Flexible routes to invest Stabilised assets Development opportunities Via GRIP REIT, JV with APG Target 850m 341m Planning / legals Gore St: 80m 268m 389m 439m 517m 517m Secured Jan-16 HY16 FY16 HY17 To date Total Grainger Plc Investor Day September

15 Four routes to investment PRS investment identified, m 850m target PRS Pipeline SECURED PLANNING / LEGAL UNDER CONSIDERATION Breakdown of pipeline by acquisition type, m Forward Funding Direct Development Tenanted Acquisitions Co-investment (GRI Share) SECURED PLANNING / LEGAL UNDER CONSIDERATION Grainger Plc Investor Day September

16 Growth in net rental income More than doubling net rental income Illustration based on pipeline targets, typically % gross yield and 25-30% property operating costs. Includes share of GRIP net rental income. Grainger Plc Investor Day September

17 In-house knowledge and research Analysing current rental demand in each location year old population Employment rates Local average incomes Existing rental demand IT industry hubs Positive net migration Commuter destinations Big 4 accountant locations Analysing the potential growth of each location Population forecasts House price growth Universities, >10k students In-house, local expertise Local supply analysis Teaching hospitals Graduate retention rates 3 year economic forecasts PwC Good Cities Index Office take up locations Overall investment score Grainger Plc Investor Day September

18 Long-term growth potential Targeting growth across the UK Schemes secured Planning / legals Target locations Under consideration Not under consideration Weak existing tenant demand but strong growth prospects Strong existing tenant demand & strong growth prospects London Manchester Bristol Milton Keynes Leeds Weak existing tenant demand & weak growth prospects Strong existing tenant demand but weak growth prospects Current PRS demand Grainger Plc Investor Day September

19 A robust & efficient transactional process Operational and development team input Sourcing meeting Pipeline management meeting Introduction Opportunity Qualified opportunity In negotiation / provisional deal Closed deal Grainger Plc Investor Day September

20 Utilising Grainger s in-house expertise Market leader Design Layout Specifications Delivery management Planning process Location Connectivity Rental growth Economic growth HPI growth Population growth In-house expertise Lettings On boarding Customer experience Customer expectations Management efficiencies Clear strategy Well resourced Grainger Plc Investor Day September

21 Flexible routes to investment Stabilised asset acquisition Forward funding Direct development Grainger Plc Investor Day September

22 Stabilised assets Tenanted Immediate income Asset management potential Fewer investment opportunities Already built, no design input Limited amenities Gross yields of % achieved The Rock in Bury, Manchester Acquired in June PRS flats GRI Investment: 22m Gross yield of c.7.5% Gross to net c.29% Grainger Plc Investor Day September

23 Forward funding Accelerates sourcing Enables scalability Partnering with local developers Design input Minimised planning and development risk Project management oversight Gross yields 7 8% achieved Clippers Quay in Salford, Manchester Acquired in Feb 2016 First completions expected late PRS flats GRI Investment: 99m Gross yield of c.8% Gross to net c.26% Grainger Plc Investor Day September

24 Direct development Full design control Full delivery oversight Opportunity to enhance returns Leveraging in-house skills Managing planning and development risk effectively Gross yields of % achieved (London and South East) Berewood, Waterlooville, Hampshire Allocated for PRS in March 2016 Completion est. Autumn PRS homes GRI Investment: 17m Gross yield of c.7.5% Gross to net c.25% Grainger Plc Investor Day September

25 Investment return profiles for each of our routes to investment Acquisition type Characteristics Typical investment size ( m) Avg yields expected (secured pipeline) Typical time period Stabilised assets Immediate income Asset management potential Few investment opportunities 5m- 25m units 7% gross yield Immediate Already built, no design input Limited amenities Forward funding Accelerates sourcing Enables scalability Partnering local developers Design input Minimised planning and development risk Project management oversight 30m- 100m units Regional 7-8% gross yield London 5-6% gross yield + fees (via GRIP) months Direct development Full design control Full delivery oversight Opportunity to enhance returns 20m- 80m units London and SE 6.5% - 7.5% gross yield months (includes planning) Leveraging in-house skills Managing planning and development risk effectively The above table is a summary based on previously secured investment opportunities. Grainger Plc Investor Day September

26 Established operating platform driving growth John Kenny Chief Operating Officer 27 September 2017 Grainger Plc Investor Day September 2017

27 Originate, invest & operate Planning process Design Layout Specifications Delivery management Grow rents Capital allocation Geographical targeting Acquisitions Investment mgmt. Asset recycling Valuation Simplify and focus Build on our experience Lettings On boarding Customer experience Customer expectations Management efficiencies Repairs & maintenance Grainger Plc Investor Day September

28 The importance of operations Optimise rental income Increase efficiency Facilitate growth Maintain a reputation for great service Grainger Plc Investor Day September

29 Leading position and capability 8,700 rental homes worth 2.8bn 4,200 regulated tenancies 4,500 privately rented (PRS) homes Pipeline of c.5,000 new PRS homes Total assets under management Management offices in London, Newcastle, Birmingham and Manchester Existing PRS 4,500 units HY17 Regulated tenancies 4,200 units 24 / 7 / 365 operations We are there for, and with our customers Opportunity 1.8m new PRS homes required by 2025 PRS Pipeline c.5,000 units FY20 Regulated tenancies 3,400 units Existing PRS 4,500 units Unit numbers as at the end of Aug 2017; CHARM included in regulated tenancy units. The FY20 figures above are estimations for illustration purposes and not forecasts. Grainger Plc Investor Day September

30 The UK s leading national operating platform Asset managers Portfolio managers Technology team Asset design team Central operations Mobile Property managers Reliable repairs service Grainger office Asset cluster Grainger Plc Investor Day September

31 Our operational performance today Regulated Average gross yield of c.2-4% with aboveinflation linked rental growth 4.4% annualised rental growth Active asset management Highly cash generative Proven resilience PRS Acquiring at avg gross yields > 6.5% 3.2% rental growth c.97% occupancy rates 18 mths increased to over 2 years 1,780 tenancies renewed in the past 12 months 1,020 new lets in past 12 months Rental figures above for the eleven months to the end of August Grainger Plc Investor Day September

32 Portfolio shift by 2020 PRS Pipeline ( Build to rent ) Purpose built for the rental market Designed for efficiency Regulated tenancies Single family dwellings Built Pre-1980 Period properties Focus on maintenance Approx. <100k Fragmented ownership Strong liquidity Reversionary opportunity Focus on amenities 1.8m new PRS households by k units in UK pipeline Grainger pipeline: c.5k units Communal areas Professionals & families Existing PRS Majority apartments Less emphasis on communal space Less focus on amenities Dominated by small landlords 1.3trn 4.5m homes Grainger Plc Investor Day September

33 Customer persona Rental customer Main drivers Location Affordability Safety and security Wide age range Families Singles Sharers Retirees 20% of UK in PRS Convenience and flexibility Service and amenities 4.5m households 1.3 trillion 36% of PRS is families Source: UK Government, English Housing Survey , Published 2017 Grainger Plc Investor Day September

34 Value proposition live, work and socialise Physical Customer service Scale Efficiencies Durability On-site management Amenities Public realm Grainger Plc Investor Day September

35 A customer driven organisation Hierarchy of customer needs A robust customer feedback loop Is my home safe & secure? Is the property in a convenient and desirable location? Stability Can I put down roots? Is it value for money? Feedback gathered regularly Surveys Questionnaires Focus groups Mystery shopping Direct calls Audit checks Monitored and reviewed Action and improvement Grainger Plc Investor Day September

36 A service evolution Service 24 / 7 service National repairs service framework Dedicated property manager for each customer Central in-house rent collection service In-house team of expert surveyors for building works advice Facilities management in-house Block management Place making where applicable Amenity space where applicable Parking Bicycle storage On-site management Lettings management team On-site repairs service Concierge service Furniture service available Parcel collection and storage service Key holding service Residents lounge Gym Co-working spaces Bookable dining facilities Regulated Existing PRS New style PRS Grainger Plc Investor Day September

37 Core customer proposition Optional long term tenancies All inclusive rents No hidden admin fees Clear deposit protection High speed broadband included Professional management team on site Amenities available 24 / 7 Pet friendly options available 24 / 7 repairs / service team onsite Grainger Plc Investor Day September

38 Leveraging technology Property search Viewings Payment Application Move-in First repair request Move-out Renewal Grainger Plc Investor Day September

39 A fully optimised structure Using scale to drive efficiency Central services Clippers Quay 614 homes The Rock 233 homes Apple Building 53 homes Gore St 375 homes Grainger Plc Investor Day September

40 Driving financial performance Vanessa Simms Chief Financial Officer 27 September 2017

41 Driving shareholder returns Increasing income returns Asset management initiatives Reducing operating costs Enhanced customer retention Growing net asset values Asset management initiatives Disciplined capital allocation Development profit FY15 FY Guidance FY15 HY17 FY guidance Adj. earnings 31.5m Approaching 70m c.120% NNNAV Growth 263p 295p Modest increase on H1 Gross to net 31.5% 26% -550bps Investment pipeline - 439m 517m Overheads 36.1m 27.5m -24% Cost of debt 5.3% 3.5% -180bps Our strategy is to invest in high quality PRS assets and improve total returns. Enhancing our income return will enable us to cover costs, reduce reliance on sales and support a step change in dividends. Grainger Plc Investor Day September

42 Investing 850m to grow net rents 517m of PRS investment secured Gross to net cost leakage improved by 550bps from 31.5% to 26% Rental growth of > 3%, outperforming the market Avg. tenancy length increased from 18 months to over 2 years Illustration based on pipeline targets, typically % gross yield and 25-30% property operating costs. Includes share of GRIP net rental income. Grainger Plc Investor Day September

43 A step change in our cost base c. 50m of annualised cost savings 140 Cost of debt from 5.3% to 3.5% Overheads & other expenses reduced 11m Gross to net from 31.5% to 26% Propex (12.0)m Overheads & expenses (23.0)m (3.6)m (7.4)m (3.3)m Propex Finance costs FY15 Finance costs (quantum) Finance costs (margin) Overheads (disposals) Overheads & expenses (efficiency) Property operating costs (gross to net) Overheads & expenses Finance costs HY17 annualised Grainger Plc Investor Day September

44 Cost of debt (avg) LTV Capital structure Cost of debt 3.5%, target (4%) exceeded ahead of plan Loan to value target range 40-45% Headroom of c. 300m available at below 2% Financing activity Repaid higher rate debt from non-core disposals Re-couponed legacy swaps, c. 5m savings pa 100m refinanced, reducing CoD by 23bps Refinanced 450m of syndicated bank facility 2 year extension to 2022 Further extension options to 2024 Margins unchanged 5.5% 5.3% 5.1% 4.9% 4.7% 4.5% 4.3% 4.1% 3.9% 3.7% Finance cost 62m FY15 Finance cost* < 30m FY17 48% 46% 44% 42% 40% 38% 36% 34% 32% Progress on securing long term PRS debt funding 3.5% 30% Avg. cost of debt LTV * Annualised based on HY17 Grainger Plc Investor Day September

45 Q&A Grainger Plc Investor Day September

46 Market leading position Strong foundations for growth National reach We have presence across the UK. 1 Leading operational platform Unparalleled scale and expertise 5 Sourcing Transactions Local knowledge Our local team s market knowledge provides a competitive advantage. 2 Development Lettings and marketing Property and asset management A well established network Our scale and strong industry contacts ensure we see the best investment opportunities in the market. 3 Strong future cashflows Our regulated tenancy home sales will generate > 100m pa. 6 Flexible approach We can invest across the full spectrum of opportunities, from developments to tenanted assets. 4 Strong balance sheet We have the capacity to deliver our 850m investment plan. 7 Grainger Plc Investor Day September

47 Thank you