Grainger plc (LON:GRI) have today provided half year results for the six months ended 31st March 2020.
Strong H1 performance; positive lead indicators for H2
· Net rental income up +27%
· Like-for-like rental growth up +3.4%
· LTV at six year low at 32.9%
· No staff furloughed
· Dividend policy maintained, +6% on a per share basis
Helen Gordon, Chief Executive of Grainger, the UK’s largest listed residential landlord, said:
“Grainger is in a strong position financially and our portfolio is performing as expected, showing a high degree of resilience during these uncertain times. We have achieved high rent collection, strong rental growth and maintained occupancy levels over 97%. We have continued to grow our business, serve our customers and deliver new rental homes.
“Our business has been focused on three key areas since the coronavirus lockdown: Innovate, Communicate and Improve. We have implemented new ways of serving our customers remotely and enabling safe interactions and property transactions using technology and virtual viewings. We have increased our contact with and support for our customers, suppliers and partners. And we have been investing in training for our employees so that we can emerge from this global crisis stronger.
“Due to the strength of the business and the resilience of our sector, our dividend policy will be maintained, with a +6% increase in our interim dividend.
“Our focus for the rest of the year will remain on the continuity of service to our customers and the delivery of new rental homes, whilst ensuring the health and safety of all our employees, customers and suppliers remains our highest priority.”
Key financial headlines
- Resilient rental demand
o 60% of Grainger’s income is now derived from PRS assets
o Net rental income1 up +27% to £37.0m in H1 (HY19: £29.1m)
o +3.4% like-for-like rental growth2 in H1 across our entire portfolio (HY19: 3.7%)
o Rent collection for March 2020 of 95% and April 2020 of 94%
o Rental growth in April of +3.3% (PRS: 3.0%; Regulated tenancies: 4.0%)
- Robust sales in H1, continuing in H2
o H1 sales generated £22.8m of profits (HY19: £31.3m) with last year having a higher level of asset recycling from our GRIP portfolio
o In line with Government guidelines we took swift action to ensure sales momentum continue into early H2 with new offers received and contracts exchanged. Government guidelines were further relaxed on 13 May 2020.
- Pipeline delivery continues and construction sites active
o Our PRS pipeline remains in progress, totalling £2bn of investment and c.9,000 new rental homes
o The majority of our schemes under construction in our secured pipeline are open and active, with a few having temporarily closed in order to implement social distancing and new safety guidelines
§ Strong balance sheet and liquidity
o £527m of cash and committed undrawn facilities available, a six year high
o LTV at six-year low at 32.9%
o No debt maturities until March 2022
o Cost of debt reduced to 3.0%
- Robust H1 performance
o Adjusted earnings3 were in line with expectations at £33.7m (HY19: £38.3m) due to higher levels of asset recycling last year
o Profit before tax3 was £49.6m (HY19: £54.3m)
o Adjusted EPRA earnings4 were up +9% to £16.0m (HY19: £14.7m)
o Valuation of our total portfolio increased +1.6%
o EPRA Net Tangible Assets (NTA)4 per share rose to 281p (FY19: 278p)
o Dividend policy maintained with interim dividend per share increased +6% to 1.83p per share5 (HY19: 1.73p), driven by rental growth and investment activity
Financial Highlights
| Income return | HY19 | HY20 | Change |
| Rental growth (like-for-like)2 | 3.7% | 3.4% | (33) bps |
| PRS rental growth (like-for-like) | 3.4% | 3.0% | (41) bps |
| Regulated tenancy rental growth (like-for-like) | 4.4% | 4.5% | +7 bps |
| Net rental income1 | £29.1m | £37.0m | +27% |
| Adjusted earnings3 | £38.3m | £33.7m | (12)% |
| Adjusted EPRA Earnings4 | £14.7m | £16.0m | +9% |
| Profit before tax | £54.3m | £49.6m | (9)% |
| Earnings per share (diluted, after tax) | 9.0p | 6.4p | (29)% |
| Dividend per share5 | 1.73p | 1.83p | +6% |
| Capital return | FY19 | HY20 | Change |
| EPRA NTA per share4 | 278p | 281p | +1% |
| EPRA NNNAV per share4 | 272p | 280p | +3% |
| Net debt6 | £1,097m | £1,000m | (9)% |
| Group LTV6 | 37.1% | 32.9% | (420) bps |
| Cost of debt (average) | 3.2% | 3.0% | (20) bps |
| Reversionary surplus | £302m | £306m | +1% |
Net rental income – strong H1, resilient performance in early H2 trading
- Overall net rental income increased +27% to £37m (HY19: £29.1m).
- We achieved strong like-for-like rental growth across our total portfolio of +3.4% (HY19: 3.7%), with +3.0% growth on our PRS homes (HY19: 3.4%) and +4.5% annualised growth on regulated tenancy rent reviews (HY19: 4.4%).
- Our gross to net (property operating costs ratio) remained stable at 26.0% and we achieved further efficiencies on our stabilised portfolio with gross to net now at 24.9% (HY19: 26.2% / 25.2%).
- Occupancy within our PRS portfolio remains high at 97.2% (HY19: 97.5%).
- Rental performance proving resilient in early H2 trading. For the month of April, post-half year close, we have seen similar levels of rent collection (94%) and rental growth (+3.3%) albeit with a higher proportion of renewals compared to new lets in our PRS portfolio, as customers choose to cancel or postpone their home moves.
- The lettings market remains active, albeit at lower levels. We have seen a pick-up in enquiries in recent weeks, returning to normal pre-Covid levels. Leveraging our digital platform and virtual viewings capability, we have safely continued to secure new customers.
Sales – strong H1, transactions continuing in early H2 trading with strong visibility on pipeline for remainder of year
Profit from sales was £22.8m (HY19: £31.3m) with last year’s performance reflecting a higher level of asset recycling from the GRIP portfolio.
- In H1, we have been selling vacant residential properties 1.0% ahead of previous valuations (FY19 vacant possession value).
- Sales velocity (our ‘keys to cash’ metric) during H1 remained strong, measuring 113 days (HY19: 112 days).
- We have taken actions that enable us to safely conduct sales transactions within current government guidelines, and we are seeing the benefits of this come through.
- As we enter the second half of our financial year, sales activity continues:
o We have transacted on six vacant properties in the month of April, ahead of valuations, compared with seven vacant properties this time last year.
o As at 30 April 2020, we have £23.9m of properties in our sales pipeline (committed or in solicitors’ hands) compared to £21.5m this time last year, providing us with a high degree of visibility on future sales in H2.
Valuations
- The market value of our total portfolio rose by +1.6% (HY19: 0.6%).
o The market value of our PRS portfolio rose by +1.5% (HY19: 0.9%).
o The market value of our regulated tenancy portfolio rose by +1.8% (HY19: 0.3%).
o Our PRS development pipeline remained flat reflecting current market uncertainty.
Operational highlights: supporting all stakeholders amidst uncertainty
- Our primary focus has been on the health and safety of our customers, staff, partners and suppliers.
- We have successfully implemented our business continuity plans with little to no disruption in business operations.
- We have retained all of our staff across the whole business, with no employee furloughed and no one laid off as a result of Covid-19.
- We have continued to serve our customers throughout the current crisis, including all critical repairs and maintenance work across our portfolio of c.9,300 homes.
- Our strategic focus on providing mid-market homes continues to serve us well, and our homes remain in high demand.
- We have increased support for our customers, including enhanced outreach and communications, particularly with our older customers. We have also included initiatives to support mental health and wellbeing.
- To date, we have been contacted by less than 2% of our customers regarding affordability concerns due to Covid-19. With support from our specialist inhouse team many customers have subsequently successfully accessed government support measures. For those that have required further assistance, we have agreed rent deferral repayment plans. This totals less than 1% of our customer base.
- Overheads remained stable at £13.8m for the half year (HY19: £13.8m) despite our growth, demonstrating our operational leverage.
Investment activity & pipeline update
- Grainger’s PRS growth strategy remains as relevant as ever and we continue to see opportunities in the market and are pursuing those that meet with our strict investment criteria. We are, however, remaining prudent and highly disciplined in our investment decision making during these times of increased economic uncertainty.
- During the first half, we secured five new schemes totalling £376m and 1,377 new PRS homes, including:
o Exchange Square, Birmingham – £77m investment and 375 units
o Canning Town 3, London – £56m investment and 132 units
o Capital Quarter, Cardiff – £57m investment and 307 units
o Queens Road, Nottingham – £56m investment and 348 units
o Waterloo, London – £130m additional investment and 215 units
- We have £1,048m of investment in our secured PRS pipeline, comprising 4,213 new homes. In addition, we have a further £349m in the planning and legal process and £600m for the TfL partnership. Further details on our secured pipeline below.
- Development activity is ongoing on all nine sites under construction in our pipeline. A number of our projects under construction paused due to social distancing measures. We are pleased to report that all sites are now open and active.
| Secured pipeline | |
| Total investment value | £1,048m |
| Total units | 4,213 |
| Total number of schemes | 18 |
| Total number of schemes under construction | 9 |
| Targeted net rental income | £51m |
| Targeted gross yield on cost (weighted average) | 6.5% |
Strong cash position and robust capital structure
- We are well capitalised and in a strong financial position to weather any near-term economic uncertainty.
- Following the successful equity raise in February to support our strategic growth plans, we have £527m of available headroom in cash and committed undrawn facilities, compared to an expected capital expenditure of £165m for the next twelve months.
- Loan to value6 stands at a six-year low of 32.9% (FY19: 37.1%).
- Average cost of debt at 3.0% for the first half of the year (FY19: 3.2%), with our incremental cost of debt at 1.7%.
- Net debt6 was £1,000m (FY19: £1,097m).
- We have no debt maturities until March 2022, and we have significant headroom to our debt covenants.
Dividend
- Dividend policy maintained: to distribute the equivalent of 50% of net rental income (with a one-third, two-third split between interim and full dividend).
- +6% growth in our interim dividend to 1.83p per share (HY19: 1.73p).
Positive lead indicators for H2
- Rent collection stable at 95% and 94% in March and April respectively.
- Rental growth in April stable with the first half at +3.3%.
- Occupancy remains high at 97.2%.
- Continued to secure new customers, and a similar level of vacant sales completed in April as at the same time last year, with resilient pricing in line with valuations.
1 Refer to Note 5 for net rental income calculation.
2 Rental growth is the average increase in rent charged across our portfolio on a like-for-like basis.
3 Refer to Note 2 for profit before tax and adjusted earnings reconciliation.
4 Refer to Note 3 for reconciliation of EPRA measures and EPRA performance measures section at the end of this document.
5 Dividend – The dividend of 1.83p per share (gross) amounting to £12.3m will be paid on 3 July 2020 to shareholders on the register at the close of business on 29 May 2020. Shareholders will again be offered the option to participate in a dividend re-investment plan and the last day for election is 12 June 2020 – refer also to Note 10.
6 Refer to Note 19 for net debt and LTV calculations.
Future reporting dates
§ Capital Markets Day & Trading update – 29 September 2020
§ Full year results – 19 November 2020
Half year results presentation
Grainger plc will be holding a virtual presentation of the results at 8:30am (UK time) today, 14 May 2020 via webcast and a telephone dial-in facility (details below), which will be followed by a Q&A session.
