18 November 2021

 

Grainger plc

 

Full year financial results

for the twelve months ended 30 September 2021

 

 

Robust performance; a period of momentum and growth

 

·   Adjusted Earnings up +2%

·   Profit before tax up +53%

·   Like-for-like rental growth of +1.0%

·   Occupancy of 94% in PRS portfolio by September, now 95%

·   Passing net rental income 15% ahead of reported FY21 reported NRI

·   PRS rent collection of 98%

·   6 new operational PRS assets added during FY21, totalling over 1,300 new homes, a record year of delivery and already 91.5% let

·   4 acquisitions for £299m during FY21

·   PRS now represents 69% of Grainger's total portfolio

 

 

Helen Gordon, Chief Executive of Grainger, the UK's largest listed residential landlord, said:

"We have delivered a robust performance for the year, and with our strong strategic momentum we are entering our next phase of dynamic growth.

 

"Our success has delivered 53% growth in profit before tax, 2% growth in adjusted earnings and passing net rental income¹ 15% ahead of FY21 reported NRI, with our resilient regulated tenancy portfolio providing strong rental income growth and strong sales performance, which more than offset the slight reduction in occupancy in our PRS portfolio caused by the pandemic earlier in the year.  We are proposing a final dividend of 3.32p per share².

 

 "Our well-established growth strategy has continued unabated with our delivery of more than 1,300 new operational PRS homes and four new acquisitions totalling £299m of investment.  

 

"The UK private rented sector, particularly build-to-rent, remains a highly attractive sector to invest in. It proved resilient during the pandemic. Our strategy of investing in high quality, mid-market private rental homes in target cities across the UK, identified by our in-house research and aligned to sound responsible business and ESG values, remains the right strategy for Grainger.

 

"Looking to Grainger's future, we plan to increase our growth momentum and build upon our £3.1bn operational portfolio of 9,727 rental homes.  Our £1.9bn PRS pipeline will more than double our net rental income. This growth will enable us to further enhance shareholder returns. The scalable platform we have developed delivers a compounding effect on earnings growth as we increase our top line rental income, which we expect to increase 2.5 times from our pipeline.

 

"Grainger is at an exciting point in its continued growth momentum, and with its compounding earnings growth potential, scalable platform and PRS pipeline, remains well placed to deliver continued growth in shareholder returns."

 

Highlights

§ +2% growth in Adjusted Earnings³ to £83.5m

§ Profit before tax up +53% to £152.1m

§ Passing net rent was up +15% to £81m on FY21 reported net rental income (NRI). This follows the successful lease up of our newly launched schemes and a swift reduction in voids in our PRS portfolio, demonstrating the improvement on our reported NRI for the year which was £70.6m, which  reflects our investment sales programme and the slightly higher than typical void rate in our PRS portfolio, a result of Covid-19 lockdowns

§ Occupancy further increased to 95% today, up from 89% at the end of August and 94% at the end of September

§ EPRA Net Tangible Assets (NTA) rose 4% to 297p per share, supported by the successful lease up of our five new PRS schemes in the year

§ Proposed final dividend of 3.32p per share, with a total dividend for the year of 5.15p per share, and a total dividend distribution of £36.9m in line with last year (FY20: £36.8m)

§ Total operational portfolio of 9,727 rental homes valued at £3.1bn, more than two thirds of which is PRS, and a £1.9bn PRS pipeline of a further 8,373 rental homes

 

Financial Highlights  

Income return	FY20	FY21	Change
Rental growth (like-for-like)	3.0%	1.0%	(195) bps
PRS rental growth (like-for-like, after incentives)	2.5%	0.3%	(218) bps
Regulated tenancy rental growth (like-for-like)	4.6%	3.6%	(99) bps
Net rental income (Note 5)	£73.6m	£70.6m	(4)%
Passing net rental income	£74.1m	£80.9m	+9%
Adjusted earnings (Note 2)	£81.8m	£83.5m	+2%
Profit before tax (Note 2)4	£99.1m	£152.1m	+53%
Earnings per share (diluted) (Note 9)4	12.7p	16.1p	+27%
Dividend per share (Note 10)	5.47p	5.15p	(6)%

 

Capital return	FY20	FY21	Change
EPRA NDV per share (Note 3)4	273p	284p	+4%
EPRA NTA per share (Note 3)	285p	297p	+4%
Net debt	£1,032m	£1,042m	+1%
Group LTV	33.4%	30.4%	(301) bps
Cost of debt (average)	3.1%	3.1%	+3 bps
Reversionary surplus	£301m	£265m	(12)%
Total Property Return5	5.4%	7.5%	+209 bps
Total Accounting Return (NTA basis) (Note 3)	3.6%	5.5%	+188 bps

 

Positive rental growth

§ +1.0% like-for-like rental growth⁶ across our total portfolio (FY20: 3.0%)

§ 0.3% like-for-like rental growth in our PRS portfolio after incentives are taken into account, while we prioritised occupancy over rental growth (FY20: 2.5%)

§ Excluding incentives, like for like rental growth in our PRS portfolio would have been +1.6%

§ The difference in rental growth performance between our London and regional portfolios has been relatively minor, with a slightly earlier recovery in occupancy in the regions, and with London demand coming back strongly in August and September

§ 3.6% like-for-like rental growth in our regulated tenancy portfolio (FY20: 4.6%), which contributes 26% of our total net rental income

§ Strong rent collection of 98%

 

Strong sales performance

§ Strong performance with residential sales profit up +14% to £67.5m (FY20: £59.4m)

§ The natural wind down of our regulated tenancy portfolio led to 7.3% of the portfolio being sold as they naturally became vacant during the year, capturing the valuation uplift

§ In addition, we sold these vacant ex-regulated tenancy properties at prices on average 2.6% above valuations

§ We also increased the speed of sales from 120 days to 108 days

§ In addition to vacant sales, we continue to actively manage our portfolio through our asset recycling programme where we sell tenanted properties including regulated tenancies as investment assets without vacant possession, where we can capitalise on strong market dynamics or we feel we can enhance the overall performance of the portfolio. We accelerated our asset recycling this year to take advantage of the strong market. These investment sales totalled £81.7m, delivering £27.9m profit

§ Total sales proceeds from our regulated tenancies totalled £117.9m, with £75.5m delivered from vacant sales and a further £42.4m delivered from tenanted regulated sales

 

Positive valuation performance

§ Our portfolio valuation rose 4.5% by £142m, supported by strong lease up performance of our new PRS assets

 

PRS portfolio growth, driving future NRI growth

§ 1,304 new PRS homes added to the portfolio this year, already 91.5% let at the end of October

§ In addition to launching five schemes from our pipeline and acquiring a completed, stabilised asset in the period, we continued to add to our pipeline which stands at £1.9bn, 8,373 PRS homes:

o  Acquired Millwrights Place, Bristol - £63m, 231 homes

o  Acquired Becketwell, Derby - £38m, 259 homes

o  Acquired Merrick Place, West London - £141m, 401 homes

§ Secured pipeline now totals £996m, 3,987 homes

 

Robust and flexible capital structure to support our growth

§ Successfully raised £209m gross proceeds in an equity placing in September, with strong investor backing for accelerating our growth, with the proceeds deployed into three acquisitions

§ We are in a strong liquidity position with £641m of total available headroom, ensuring that we have enough funding capacity to finance our entire committed investment pipeline

§ LTV at 30.4% (FY20: 33.4%); taking account of future committed capital expenditure in our pipeline, LTV would be 40.1%

§ No debt maturities until November 2022, with a weighted average debt maturity of 5.6 years (FY20: 6.6 years)

§ Average cost of debt maintained at 3.1% (FY20: 3.1%)

 

Operational highlights

Our leading operating platform and the actions we have taken to enhance it enabled us to capitalise on the reopening of the UK and the lettings market in late summer. We successfully returned our PRS portfolio back to pre-pandemic occupancy of 95% as of today. Looking forward, our platform also enables us to scale up and grow, delivering compounding earnings growth as we leverage our platform as we deliver our £1.9bn pipeline. Highlights over the year include:

§ Continued investment in our CONNECT technology platform with new capabilities introduced including enhanced digital leasing, customer relationship management, supply chain management and repairs and maintenance management, including a new digitised repairs service for our customers

§ 82% of all PRS customer online reviews were 5 out of 5 stars during the year

§ Reduced our cost to let as we increased our in-house direct lettings capability

§ Improved conversion rates through an improved customer journey experience

 

Outlook

 

Having delivered a robust performance for the year we are well positioned for a strong year of rental growth in FY22. With occupancy having now recovered to stabilised levels our focus will return to delivering rental growth and the associated valuation growth. As we grow over the medium term, delivering our pipeline and leveraging our platform, we will see significant net rental income growth translate into strong earnings and dividend growth. With funding already in place to deliver this secured pipeline we will continue to pursue further accretive growth opportunities and maintain our leadership position in the PRS sector.

 

Responsible business and ESG leadership

We continue to build on Grainger's socially-responsible business model of delivering good quality, mid-market rental homes with support for our customers and local communities.

We appointed Carol Hui to the Board as a Non-Executive Director, who will be the Chair of our new Responsible Business Board Committee which will be established in FY22.

We continue to reduce our environmental impact and are making good progress against our long-term commitments, including progress against our 2030 net zero carbon commitment.

We retained our top ESG benchmark scores.

We publish our first TCFD summary report today within our Annual Report and will be publishing our first ESG Summary Report in early 2022, expanding on the disclosure within our Annual Report.

Highlights for the year include:

Focus areas & Long term commitments
Social impact   Measure and deliver a positive social value	§ Added over 1,300 mid-market rental homes to our operational portfolio § Delivered 183 new affordable homes during the year and now have 878 affordable homes in operation, representing 5% of net rental income § Defined our social value priorities § Embedded community engagement best practice blueprint and delivered 552 events for residents and local communities, including initiatives to support wellbeing and green living § Supported local people into employment (over 50% of new joiners in FY21 live within 5 miles of their workplace) § Helped alleviate youth homelessness and became a LandAid charity pro bono and First Steps partner with YMCA North Tyneside to create new accommodation for at-risk young people § Provided subsidised accommodation to NHS workers during the pandemic § Helped young people into work, specifically in property careers, with a particular focus on reaching those from under-represented groups, including o  our graduate programme with four participants o  expanded our apprenticeship programme to operations with three apprentices across the Group during the year o  a partner of the TfL built environment educational engagement programme, and partnered with three different schools o  funding a bursary for a young person from a disadvantaged background to attend university though the Worshipful Company of Chartered Surveyors § Provided pro bono support to the East Cleveland Youth Homelessness Charity, as part of LandAid's pro bono charity programme
Diversity & Inclusivity   Ensure Grainger's workforce is reflective of society	§ Developed our strategic framework for diversity & inclusion § Employee-led D&I Network delivered programme of activity for employees and residents § Members of Real Estate Balance § Updated our design specification to enhance accessibility
Progress toward Net Zero Carbon   Net zero carbon for our operations by 2030 (updated in FY21 to cover all Scope 1 & 2 emissions)	§ Despite growing our portfolio by over 1,300 homes, our carbon footprint has remained the same. Emissions per £m value of assets under management have reduced by 10%. § Published Grainger's net zero carbon road map § Consolidating all purchased energy onto renewable or low carbon energy contracts and in FY21 increased renewable electricity purchased to 84% § 85% of Grainger's PRS portfolio has EPC ratings C or higher, ahead of the 2025 mandatory deadline § Grainger properties emit 62% less CO2 on average than a typical home § COP26 Built Environment Virtual Pavilion Commercial Partner § Between 2020 and 2021 we undertook major refurbishments on six properties achieving energy consumption reductions of up to 23% year-on-year, with total savings expected between 30-50%
Sustainable investment decisions   Integrate ESG into all investment decisions	§ Issued our first TCFD summary report § Developed Grainger's sustainable finance framework, which we will publish shortly, to enable us to access new sources of green and socially-responsible financing

 

ESG benchmark performance
FTSE4Good	member since 2010
ISS ESG	Prime Rating
MSCI ESG	'AA'
Sustainalytics ESG Risk Rating	Low Risk
EPRA Sustainability Best Practice Reporting	Gold Award
GRESB Public Disclosure	'A' Rating

 

Future reporting dates
2022
AGM & Trading update	9 February
Half year results	12 May
Trading update	September
Full year results	17 November

 

¹ Passing net rental income is the annual rental income receivable on a property net of estimated property operating expenditure as at the reporting date.

² Dividends - Subject to approval at the AGM, the final dividend of 3.32p per share (gross) amounting to £24.6m

will be paid on 14 February 2022 to Shareholders on the register at the close of business on 31 December 2021.

Shareholders will again be offered the option to participate in a dividend reinvestment plan and the last day for

election is 24 January 2022. An interim dividend of 1.83p per share amounting to a total of £12.3m was paid to

Shareholders on 2 July 2021.

³ Refer to Note 2 for profit before tax and adjusted earnings reconciliation.

⁴ Restated following change in accounting policy as a result of the IFRIC interpretation of IAS38 relating to development costs on Software as a Service. See Note 25 for an explanation of prior year restatements.

⁵ Total Property Return (TPR) represents the change in gross asset value, net of capital expenditure incurred,

plus net income, expressed as a percentage of gross asset value.

⁶ Rental growth is the average increase in rent charged across our portfolio on a like-for-like basis.

 

Results presentation

 

Grainger plc will be holding a presentation of the results at 8:30am (UK time) today, 18 November 2021. The presentation can be accessed remotely via webcast and a telephone dial-in facility (details below).

 

 

Webcast details:

 

To view the webcast, please go to the following URL link. Registration is required.

 

https://webcasting.brrmedia.co.uk/broadcast/61712bcb013c91413d5db66a  

The webcast will be available for six months from the date of the presentation.

 

 

Conference call details:

 

Call: +44 (0)330 336 9127

Confirmation Code: 7808264

 

A copy of the presentation slides will also be available to download on Grainger's website (http://corporate.graingerplc.co.uk/) from 08:00am (UK time).

 

 

 

For further information, please contact:

 

Investor relations

Kurt Mueller, Grainger plc:                                                          +44 (0) 20 7940 9500

 

Media

Ginny Pulbrook / Geoffrey Pelham-Lane, Camarco:                   +44 (0) 20 3757 4992 / 4985

                              

 

 

Forward-looking statements disclaimer

 

This publication contains certain forward-looking statements. Any statement in this publication 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 future events or developments involving Grainger, is a forward-looking statement.  Such statements may, but not always, be identified by words such as 'expect', 'estimate', 'project', 'anticipate', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties as they relate to events which occur in the future and depend on circumstances which may or may not occur and go beyond Grainger's ability to control. Actual outcomes or results may differ materially from the outcomes or results expressed or implied by these forward-looking statements. Factors which may give rise to such differences include (but are not limited to) changing economic, financial, business, regulatory, legal, political, industry and market trends, house prices, competition, natural disasters, terrorism or other social, political or market conditions.

 

Grainger's principal risks are described in more detail in its Annual Report and Accounts, set out in the Risk Management report on pages 48-51 of the 2021 Annual Report and Accounts.

 

A number of risks faced by the Group are not directly within our control such as the wider economic and political environment.

 

In line with our risk management approach detailed on pages 46-47 of the 2021 Annual Report and Accounts, the key risks to the business are under regular review by the Board and management, applying Grainger's risk management framework.  The Covid-19 pandemic has had a substantial impact on many aspects of society, including business, with the duration and depth of the impact being uncertain.  Specifically in relation to Grainger, it is currently considered that the principal risks previously reported remain our principal risks.  However, it is recognised that a pandemic, and consequently Government restrictions and societal behavioural changes flowing therefrom increase the likelihood of such risks being accelerated or becoming more acute.  This would include, but is not limited to market, regulatory and supplier risks. The risks to Grainger will continue to be monitored closely as well as the potential controls and mitigants that may be applied during this unprecedented period. 

 

These risks and other factors could adversely affect the outcome and financial effects of the events specified in this publication. The forward-looking statements reflect knowledge and information available at the date they are made and Grainger plc does not intend to update on the forward-looking statements contained in this publication.

 

This publication is for information purposes only and no reliance may be placed upon it. No representative or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this publication. Past performance of securities in Grainger plc cannot be relied upon as a guide to the future performance of such securities.

 

This publication does not constitute an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of Grainger plc. 

 

 

 

 

 

Chairman's statement

Continued growth from a position of strength demonstrating the resilience of the business

Dear Shareholders

 

Grainger has once again delivered a robust financial performance and has continued to successfully execute on its well-established growth strategy, despite economic disruption and a challenging market due to Covid-19 lockdowns.

 

The business demonstrated strong resilience throughout the pandemic maintaining strong rental collection rates and driving occupancy levels back up towards normalised levels by the year end as lockdown restrictions were eased. The business also capitalised on the strong sales market by increasing its rate of asset recycling to support new investment. This, together with another very successful equity raise of £209m gross proceeds, has allowed the business to step up investment with a number of additional acquisitions, added to its growing pipeline. Once again, the Board is very grateful for the support our Shareholders have provided to the Company's growth strategy.

 

Over the course of the year, Grainger has delivered over 1,300 new, high-quality rental homes. A record year for the business and, importantly, each of these six new schemes are leasing up ahead of expectations.

 

We spoke last year of the great responsibility being a landlord brings with it and the importance we place on health and safety through our own Live.Safe programme. Our focus, commitment and work in this area remains a top priority. We continue to show our leadership in our design specification and have been recognised for our leading approach to health and safety and fire safety, specifically, by the UK Government's Industry Safety Steering Group.

 

We have continued to make good progress across all areas of ESG including our four long-term ESG commitments. We set out the details of this within the ESG section of our Annual Report. We remain committed to improving diversity within the organisation and are making positive headway through our Diversity and Inclusion Programme. We are also encouraging greater diversity within our sector by working with young people in educational settings, and we continue to attract and support more diverse and inclusive communities within our buildings. To provide additional focus at Board level on these important topics we are establishing a new committee of the Board, the Responsible Business Committee, which will focus on all aspects of ESG.

 

During the year we have successfully rolled out key elements of our technology platform and we have already seen real benefits coming through, especially against a backdrop of having to operate virtually at times during the year. Over the coming years we expect to see further benefits including efficiencies and scalability, and continued enhancements to the experience we deliver for our customers.

 

During the year we saw Vanessa Simms leave the Company as previously announced, and Rob Hudson replace her as Group CFO. Rob joined the Board on 1 September and brings a wealth of experience from the real estate sector. Carol Hui joined the Board on 1 October as Non-Executive Director and will be Chair of the new Responsible Business Committee. Carol brings experience from a number of sectors and has been responsible for delivering ESG strategies elsewhere. At the AGM in February 2022, Andrew Carr-Locke will be stepping down from the Board by rotation and we are very grateful for his service as both Senior Independent Director and the Chair of the Audit Committee. Andrew has made an invaluable contribution over the last seven years and we wish him every success in the future.

 

The proposed final dividend for the year is 3.32p per share, reflecting our policy of distributing 50% of our net rental income, taking the total dividend for the year to 5.15p per share. This reflects the growth in net rental income from new schemes offset by the acceleration of our asset recycling initiatives combined with lower occupancy levels due to the Covid-19 restrictions affecting the lettings market earlier in the year.

 

As we look ahead, Grainger's path is clear. The Board will continue to focus on accelerating growth within the private rented sector in the UK, building on its strong foundations, delivering great homes, great places and great service to its customers.

 

Mark Clare

Chairman

17 November 2021

 

 

Chief Executive's review

Robust performance and a record year of delivery

 

I am pleased to report that your Company is in a strong position and has continued to grow despite the challenges of the past year.  The demand for our homes and the delivery of new schemes means our growth strategy has continued unabated.  We delivered a record number of new homes and leased these swiftly whilst also recovering occupancy across our whole PRS portfolio. We are focussed on continually improving the homes we provide by enhancing our offer to our customers, achieving a collective purpose of 'Renting homes, enriching lives'.

 

We added six further schemes, totalling 1,304 great rental homes, to our portfolio.

 

Our successful equity placing in September, which was heavily over-subscribed, has enabled us to continue our expansion and bring forward and commit to new schemes.

 

For the year we delivered growth in Adjusted Earnings up 2% to £83.5m, growth in the value of our portfolio with EPRA NTA up 4% to 297p per share and passing net rental income was up to £81m at the year end. Reported net rental income for the year was £70.6m, reflecting the investment disposals we made and the reduced occupancy we experienced during the year caused by the pandemic, at the time of writing this has now been recovered. We are pleased to maintain our total dividend distribution of £36.9m (FY20: £36.8m) with a proposed final dividend of 3.32p per share.

 

We are set to accelerate our well-established growth trajectory, with a £1.9bn pipeline which will see our net rental income grow by 2.5 times and creating a high-quality portfolio for future growth.

 

Our growth strategy continues to be the right one

 

Our strategy of investing in high-quality mid-market private rental homes in target cities across the UK, remains the right strategy for Grainger.

 

The UK rental market (or private rented sector) remains a highly attractive sector to invest in. It proved resilient during the pandemic. In fact, consumer rental trends we identified a few years ago have accelerated during the pandemic in favour of our product of high-quality homes and more professional customer service. 

 

We allocate capital based on insights, data and research to determine which cities to invest in.  This has proven successful as demonstrated by the resilience of our portfolio and the successful lease up of our new buildings.  Our business has benefited from this strategy by having the right product in the right places.

 

Our three strategic focus areas that we set out in 2016: (1) grow rents, (2) simplify and focus, and (3) build on our experience, remain relevant today.

 

Establishing scale is important for us as a business. It enables us to enhance both returns to Shareholders, and importantly it also enables us to enhance our offer to our customers and all our stakeholders. That is why we are focused on growth, driving net rental income and dividend. Today, our net rental income is more than double what it was when we set out our strategy, and our growing pipeline, supported by our recent equity placing, will see net rental income more than double again, supporting dividend growth of the same magnitude.

 

During the year we took the opportunity to further simplify the business by selling assets which we felt would not deliver for our Shareholders and our customers in the longer term into a strong market.  Whilst this reduced net rental income in the short term, it also will reduce capital expenditure and vacancy in the portfolio over the long term and ensure a high-quality portfolio.

 

We are grateful to our Shareholders for their overwhelming support for our equity placing in September, which enabled us to bring forward our growth plans even further by securing new acquisitions.

 

Building on our experience

 

Maintaining our position as market leader remains a strategic focus for us. Our experience and heritage as a responsible, residential landlord in the UK since 1912 provides us a strong foundation for future growth. Our growth plans are coupled with a continued focus on what makes a good experience of renting while continually refining our business model and operating platform, focusing on scalability and efficiencies. This enables us to outperform and outcompete. And as we grow, our business model and operating platform has been designed so that our central cost base does not significantly increase, so that as our net rental income grows over the coming years this will lead to compounding of returns and significant growth to our earnings.

 

Our guiding values align to our strategy

 

Our values are our guiding principles for the business. They have been developed by our employees so that they complement and align with our strategy, taking account of our customers and communities. By embedding these values, we believe we will be a better, stronger business, delivering better service and homes to more customers, support to our communities and drive better returns for Shareholders and importantly being a business people want to work in.

 

People at the heart

 

One of our core guiding values is 'People at the heart'. This value guides how we think about our customers but also employees which is wide-ranging from employee attraction and retention through to mental health, wellbeing, professional development and diversity. We are especially proud of the work of our employee-led Diversity & Inclusion Network, and the foundations we continue to lay to support gender and ethnicity diversity across the business.

 

Once again, the Grainger team have demonstrated exceptional commitment to our customers, our colleagues and the Grainger business.

 

At the start of the financial year we were able to return to our offices and the levels of staff engagement were high in all areas of the business, but by the end of the first quarter we were in a second lockdown. I was proud of the way the business swiftly responded, showing no sign of complacency or resignation but rising to the challenge of serving our customers well. 

 

Our frontline Resident Services teams in our build-to-rent properties stayed in place and supported our customers, many of whom were working from home. The teams provided additional services and enhanced health and safety regimes.

 

Our office-based teams returned over the summer and by the end of September we saw between 75% and 95% of our colleagues return to our offices, with high levels of engagement and enthusiasm to create and support our next stage of growth.

 

Our 'People at the heart' value helps guide our customer service strategy. Using data and insight, including direct, independently-gathered customer feedback, we have in-depth knowledge and understanding of our customers, their wants, needs and preferences. And this insight and data informs our decision-making, from capital allocation, through to design, operations and marketing.

 

Securing a future for all

 

We strongly believe that Grainger is a force for good, providing high-quality homes, with high service standards, to the mid-market, in a country with a housing shortage and an inadequate rental offering generally. But our ESG ambitions reach far beyond this, with stretching commitments and targets relating to carbon reductions, social impact and diversity.

 

Throughout the business, from the Board through to on-site operational teams and supply chain partners, we are challenging ourselves to do more, embedding ESG and responsible business objectives in every team and in every process and decision.

 

Our leading ESG strategy and efforts will help secure Grainger's future as a responsible business and will help secure a brighter future for all our stakeholders. We were pleased to be a commercial partner for the COP26 Built Environment Virtual Pavilion. This year, our sustainability and ESG efforts were recognised again through multiple awards and benchmarks, including achieving a Gold Award for EPRA's Sustainability Best Practice Reporting for the eighth consecutive year. We have also maintained our sector leading Prime Rating on the ISS ESG assessment. We were awarded an A rating on the GRESB Public Disclosure Assessment and were the highest scoring UK residential organisation. Grainger contributed to the development of the British Property Federation's Residential ESG Guidance and the UK Apartment Association's ESG Best Practice Guide, which seek to increase consistency of ESG performance and reporting across the private rented sector.

 

Enhancing our platform to enable occupancy to outperform

 

The business proved exceptionally resilient during the course of the pandemic with rent collections averaging between 97% and 99%.  The restrictions put in place due to the coronavirus pandemic did lead to reduced lettings activity and we entered this financial year at reduced occupancy levels.

We addressed this by building our own in-house leasing team, refurbishing and enhancing our older rental properties when voids occurred.

 

In February this year we launched our customer Service Desk available to all residents but particularly those who have less access to an on-site Resident Services team.

 

The in-house leasing team enabled us to respond quickly to the surge of enquiries as the market opened up over the Summer.  We achieved record numbers of lettings across the country. 

 

By the end of September, we were close to fully recovering occupancy at 94% and shortly thereafter were back to a stabilised occupancy of 95% on our PRS portfolio. In addition, we outperformed against our expectations on the lease up of all our new assets, totalling over 1,300 new rental homes, which were 91.5% let by the end of October.

 

We continued to invest in our technology platform, CONNECT, during the year.  Our digital leasing capability has been expanded to the entirety of our PRS portfolio, and we have introduced new, market-leading technology supporting customer relationship management, our repairs process and supply chain, asset management and data reporting. In addition to enhancing our and boosting our occupancy levels, this will support our future growth, and enable us to deliver a better service, more efficiently.

 

Delivering Shareholder returns

 

Our strategy is delivering for Shareholders and our robust results demonstrate resilient performance during the pandemic.

 

Rent collection was high, new lettings outperformed and voids were successfully reduced.  Our rental growth was lower than in previous years reflecting our desire to retain customers and encourage occupancy over rental growth. We expect our ability to increase rents while maintaining high retention rates to return in future years.

 

Our early investment sales timed to capitalise on a healthy investment market reduced overall income, however as we go into our next year our exceptional lease up of new schemes places us in a great position to continue to grow rents substantially.

 

Through these actions, we saw an increase in Adjusted Earnings and a notable increase in the value of our portfolio with EPRA NTA up 4% to 297p. And as we deliver our pipeline of new schemes the growth in net rental income will drive growth in our dividend and will generate compounded growth in earnings as we leverage up on our operating platform.

 

An exceptional year of new openings

 

During the year we launched five new schemes and acquired one stabilised scheme, our largest delivery to date and our new homes are performing ahead of expectations.  Our scheme Gatehouse Apartments in Southampton was let in four months at rents ahead of expectations.  Our schemes in London were launched in July and August and are leasing well and our central Leeds project, The Headline, has beaten leasing velocity records, reaching stabilised levels within 3.5 months.  These new developments are homes that the Grainger team are very proud of, they represent years of hard work and attention to detail and as our residents settle into these new communities the feedback has been extremely positive. 

 

Board visits and engagement 

 

I am grateful for the commitment of the Grainger Board in supporting the growth of the business by being responsive and agile.  Despite the restrictions of lockdown, the Board visited two new Grainger schemes during the year in Southampton and London. The interest, enthusiasm and engagement is a boost to the frontline operational team.

 

The strength of the Grainger team

 

We have further strengthened our team with senior appointments during the year. 

 

John Blanshard, our Director of Operations joined us in March from Unite, the student housing provider, and has a strong operational and customer-focused background. 

 

Our new CFO, Rob Hudson, joined in late August replacing Vanessa Simms who left in late April.  Vanessa worked with me on the repositioning of Grainger over the past five years, and I thank her for her friendship, contribution and support during this time. 

 

Rob brings a wealth of real estate experience from his previous roles at British Land and as CFO and Interim CEO of St Modwen. He also has a strong technology and data background from his tenure at Experian.

 

Concluding remarks

 

The Grainger team have worked exceptionally hard over the past year to continue to deliver great homes and service to our customers and drive returns for Shareholders. I would like to thank them all for their hard work and resilience during the challenges of the last year.

 

As the market leader, Grainger paves the way when it comes to influencing and shaping the future of the rental homes market in the UK. Our longer-term tenancies, inclusive super-fast WiFi and pet- friendly policies are just some of the ways that we are providing our customers with better value and a better rental experience. 

 

We are building a business our employees and shareholders can be proud of.   We have a clear strategy and commitment to quality and service which guides us.  We are building communities where we can support people to have a better quality of life.

 

Helen Gordon

Chief Executive

17 November 2021

 

 

 

 

Financial review

 

Poised for growth

 

In a year that has seen numerous disruptions, Grainger's focus on delivering our growth strategy has continued unabated, delivering 1,304 homes across six schemes, securing further pipeline opportunities amounting to 1,174 homes across four schemes and continuing to invest in our best-in-class operating platform. The opportunity in the build-to-rent sector is significant. Grainger has the people, platform, and capital to maximise this opportunity and it is certainly a very exciting time to join the business.

 

Having proved robust during the lockdown, our leading operating platform and the actions we have taken to enhance it enabled us to capitalise on the reopening of the UK and the lettings market in late Summer resulting in September year-end occupancy at 94%, rising to 95% today. With demand for good quality mid-market build-to-rent homes as strong as ever we are well positioned to see a return to pre-pandemic rental growth levels.

 

A strong sales performance has ensured continued earnings growth throughout the year with dividend payments flat for the year at £36.9m (FY20 £36.8m). The proposed final dividend for the year is 3.32p per share, reflecting our policy of distributing 50% of our net rental income, taking the total dividend for the year to 5.15p per share.

 

Valuations are starting to reflect the strength of investment markets with this reflected in 10bps yield compression in our prime regional centres during the year.

 

Our ambitious growth agenda is always combined with a prudent approach to balance sheet management, and with an LTV of 30.4% and £641m of headroom we remain in good shape. The successful equity raise in September, which was significantly oversubscribed, has enabled us to continue to accelerate our growth strategy further, exploiting the operating leverage in our business model and continuing to improve our return profile over time.

 

 

Financial highlights  

Income return	FY20	FY21	Change
Rental growth (like-for-like)	3.0%	1.0%	(195) bps
Net rental income (Note 5)	£73.6m	£70.6m	(4)%
Passing net rental income	£74.1m	£80.9m	+9%
Adjusted earnings (Note 2)	£81.8m	£83.5m	+2%
Profit before tax (Note 2)1	£99.1m	£152.1m	+53%
Earnings per share (diluted) (Note 9)1	12.7p	16.1p	+27%
Dividend per share (Note 10)	5.47p	5.15p	(6)%

 

Capital return	FY20	FY21	Change
EPRA NTA per share (Note 3)	285p	297p	+4%
Net debt	£1,032m	£1,042m	+1%
Group LTV	33.4%	30.4%	(301) bps
Cost of debt (average)	3.1%	3.1%	+3 bps
Total Property Return	5.4%	7.5%	+209bps
Total Accounting Return (NTA basis) (Note 3)	3.6%	5.5%	+188 bps

 

¹ Restated following change in accounting policy as a result of the IFRIC interpretation of IAS38 relating to development costs on Software as a Service. See Note 25 for an explanation of prior year restatements.

 

Income statement 

 

Despite the challenging economic backdrop adjusted earnings increased by 2% to £83.5m (FY20: £81.8m). Net rental income was impacted by accelerated asset recycling in H1 and the temporary reduction in occupancy but will return to significant growth in FY22 and beyond as our sizable pipeline converts into rental income. Residential sales profit increased by 14% to £67.5m (FY20: £59.4m) as a strong underlying sales market supported both volumes and pricing.

 

We continue to invest in our market leading operating platform that enables us to scale our business without significant cost increases and continue our transition to an income-focused PRS business.

 

Income statement (£m)	FY20	FY21	Change
Net rental income	73.6	70.6	(4)%
Profit on sale of assets - residential	59.4	67.5	+14%
Profit on sale of assets - development	4.2	1.8	(57)%
CHARM income (Note 15)	5.1	4.9	(4)%
Management fees	3.5	5.1	+46%
Overheads	(28.7)	(30.2)	+5%
Pre-contract costs	(0.6)	(0.6)	+0%
Joint ventures and associates	(0.7)	(0.4)	(43)%
Net finance costs	(34.0)	(35.2)	+4%
Adjusted earnings	81.8	83.5	+2%
Valuation movements	29.7	80.7	+172%
Other adjustments1	(12.4)	(12.1)	(2)%
Profit before tax1	99.1	152.1	+53%

¹ Restated following change in accounting policy as a result of the IFRIC interpretation of IAS38 relating to development costs on Software as a Service. See Note 25 for an explanation of prior year restatements.

 

 

Net rental income 

 

Net rental income was down 4% during the year at £70.6m (FY20: £73.6m) due to a combination of lower average occupancy (- £5.3m) and disposals (- £4.4m) offset by £1.5m rental growth and £5.2m from PRS investment. Of the 1,304 homes delivered during the year, let up has been strong with 91.5% already let at the end of October which will underpin a strong increase in net rental income in the coming year.

 

With occupancy having recovered strongly in Q4 leaving year end occupancy at 94%, and new schemes having let up well, the passing rent at the year-end stands at £80.9m, up some 15% on the FY21 reported net rental income, delivering strong growth momentum into the new financial year. This reflects £6.2m from void recovery and £5.5m from lettings on FY21 launches less £1.4m disposal impact. We expect a further £3m additional net rent from the remaining lease up of FY21 launches and FY22 pipeline deliveries which are largely H2 weighted with lease up primarily in FY23 . As we continue our asset recycling, we would expect disposals to be in line with prior years.

 

Despite the challenging market backdrop, our like-for-like growth remained resilient at 1.0% (FY20: 3.0%) with 0.3% rental growth in our PRS portfolio (FY20: 2.5%) and 3.6% in our regulated tenancy portfolio (FY20: 4.6%). Having prioritised occupancy through the pandemic impacted period through use of incentives, PRS like-for-like growth was 1.6% excluding these, and we believe that we are now well placed to return to pre pandemic rental growth levels of c.3%.

 

The difference between the performance of our London and regional portfolios has been relatively minor with a slightly earlier recovery in occupancy in the regions, and with London demand coming back strongly in August and September.

 

Our secured pipeline will see net rental income increase by c.90% to c.£137m upon delivery and stabilisation over the coming years.

 

	£m
FY20 Net rental income	73.6
Voids	(5.3)
Disposals	(4.4)
PRS Investment	5.2
Rental growth	1.5
FY21 Net rental income	70.6
Annualised disposals	(1.4)
Void recovery	6.2
Annualised lettings on new launches	5.5
FY21 Net passing rent	80.9

 

 

Sales and development activity

 

Our residential sales business had a strong year delivering £67.5m of profit (FY20: £59.4m) from revenues of £157.2m (FY20: £138.7m) and continues to provide a key element of funding for our PRS growth. Vacant property sales delivered £39.6m of profit (FY20: £35.2m) from revenues of £75.5m (FY20: £65.9m).

 

In line with our disciplined asset recycling strategy we have taken the opportunity to sell into a strong market delivering strong sales with both volumes and pricing at good levels. The prices achieved were 2.6% ahead of previous valuations with a sales transaction velocity (keys to cash) of 108 days (FY20: 120 days).

 

Sales of tenanted properties delivered £27.9m of profit (FY20: £24.2m) from revenues of £81.7m (FY20: £72.8m). Development for sale activity has largely stopped as we focus on developing our PRS pipeline, however we did take the opportunity to maximise potential from some strategic land sales. Profits for the year were £1.8m (FY20: £4.2m).

 

	FY20			FY21
Sales (£m)	Revenue	Profit				Revenue	Profit
Residential sales on vacancy	65.9	35.2				75.5	39.6
Tenanted and other sales	72.8	24.2				81.7	27.9
Residential sales total	138.7	59.4				157.2	67.5
Development activity	5.4	4.2				30.6	1.8
Overall sales	144.1	63.6				187.8	69.3

Balance sheet 

 

Our operational PRS portfolio now makes up 69% (FY20: 63%) of our overall asset base as we continue to deliver our pipeline and recycle out of our regulated tenancy portfolio. With an LTV of 30.4% and available headroom of £641m we are balancing the wider business growth strategy with prudent balance sheet management and have the funding in place to deliver our committed pipeline in line with our policy.

 

Intangible assets have been restated to align with the recently issued IFRIC interpretation of IAS 38  which requires development costs that relate to Software as a Service to be expensed rather than capitalised.

 

Market value balance sheet (£m)	FY201	FY21
Residential - PRS	1,624	2,024
Residential - regulated tenancies	968	896
Residential - mortgages (CHARM)	73	72
Forward Funded - PRS work in progress	231	244
Development work in progress	147	146
Investment in JVs/associates	42	45
Total investments	3,085	3,427
Net debt	(1,032)	(1,042)
Other liabilities	(20)	(35)
EPRA NRV	2,033	2,350
Deferred and contingent tax - trading assets	(109)	(142)
Exclude: intangible assets	(1)	-
EPRA NTA	1,923	2,208
Add back: intangible assets	1	-
Deferred and contingent tax - investment assets	(24)	(59)
Fair value of fixed rate debt and derivatives	(57)	(38)
EPRA NDV	1,843	2,111
EPRA NRV pence per share	301	316
EPRA NTA pence per share	285	297
EPRA NDV pence per share	273	284

                                                                                                                       

¹ Restated following change in accounting policy as a result of the IFRIC interpretation of IAS38 relating to development costs on Software as a Service. See Note 25 for an explanation of prior year restatements.

 

 

EPRA NTA increased by 4% during the year to 297p per share (FY20: 285p per share). The primary driver of the growth was a 19pps valuation uplift, with earnings before tax adding 2pps, and disposals of trading assets 2pps. This was offset by 5pps of dividend payments and a one-off 5pps reduction resulting from the increase in our deferred tax liabilities as a result of the announced increase in corporation tax from 19% to 25% in 2023. Growth before the impact of this one-off tax adjustment was 6%.

 

 

EPRA NTA movement
	£m	Pence per share
EPRA NTA at 30 September 2020	1,923	285
Adjusted earnings	84	11
Valuations (trading & investment property)	142	19
Disposals (trading assets)	(56)	(7)
Tax (current, deferred & contingent)	(4)	(1)
Dividends	(37)	(5)
Equity placing	204	2
Other adjustments	(14)	(2)
EPRA NTA before tax adjustment	2,242	302
Deferred Tax adjustment	(34)	(5)
EPRA NTA at 30 September 2021	2,208	297

 

 

  

Property portfolio performance 

 

Our overall portfolio valuation growth was 4.5% (FY20: 2.4%) with our operational PRS portfolio increasing by 3.4% (FY20: 3.1%) and our regulated portfolio delivering 3.7% valuation growth (FY20: 4.0%). Our PRS portfolio is valued on a net rent and yield basis reflecting the institutional nature of the investment market, with the PRS valuation growth driven by completion and stabilisation of developments together with a c.10bps inwards yield shift on our regional PRS assets, and 1.4% ('ERV') rental growth. Our regulated tenancy portfolio is valued on a discount to vacant possession value, and with 81% of this portfolio in greater London the uplift is largely in line with market price movements.

 

 

 

Portfolio​	Region​	Capital Value​	ERV / HPI Growth ​		Yield & Other​		Total Valuation movement​
​	​	(£m)​	£m​	%​	£m​	%​	£m​	%​
PRS​	London & SE​	1,228	12	1.0	9	0.8	21	1.8
​	Regions​	796	15	2.0	30	4.0	45	6.0
​	PRS Total​	2,024	27	1.4	39	2.0	66	3.4
Regulated ​Tenancies	London & SE​	726	8	1.1	11	1.6	19	2.7
	Regions​	170	12	7.7	1	0.5	13	8.2
​	Regulated Total​	896	20	2.3	12	1.4	32	3.7
Operational Portfolio​		2,920	47	1.7	51	1.8	98		3.5
​	Development​	390	6	1.7	38	11.1	44	12.8
Total Portfolio​		3,310	53	1.7	89	2.8	142		4.5

 

 

 Financing and capital structure 

 

Our capital structure remains in a strong position giving us a solid foundation on which to build our ambitious growth strategy. Our LTV now stands at 30.4% (FY20: 33.4%) with our headroom of £641m (FY20: £650m) covering our committed pipeline capex of £559m, ensuring our ability to deliver on our pipeline independent of any funding requirements or operational cashflows. Including this committed capex in our LTV calculation would see our LTV rise to 40.1%, comfortably within our LTV range of 40-45%.

 

Net debt for the year was relatively flat at £1,042m (FY20: £1,032m) with £128m of operational cashflows, £64m of proceeds from asset recycling (excluding sales of regulated tenancy properties)  and the £204m proceeds of equity raise, offset by £348m of investment in our PRS pipeline. The proceeds from our equity raise have been deployed into 3 schemes amounting to £236m.

 

The average cost of debt remained flat at 3.1% (FY20: 3.1%), while finance costs for the year were up 5% to £30.2m (FY20: £28.7m). This reflected investment activity with associated higher average levels of net debt during the year, with debt reducing in September as a result of our equity raise. For FY22 we would expect to see finance cost increase by c.£2m as we continue to invest in our pipeline.

 

		FY20	FY21
Net debt		£1,032m	£1,042m
Loan to value		33.4%	30.4%
Cost of debt		3.1%	3.1%
Headroom		£650m	£641m
Weighted average facility maturity (years)		6.6	5.6
Hedging		100%	100%

 

 

Summary and outlook 

 

Having delivered a robust performance for the year we are well positioned for a strong year of rental growth in FY22. With occupancy having now recovered to stabilised levels our focus will return to delivering rental growth and the associated valuation growth. As we grow over the medium term, delivering our pipeline and leveraging our platform, we will see significant net rental income growth translate into strong earnings and dividend growth. With funding already in place to deliver this secured pipeline we will continue to pursue further accretive growth opportunities and maintain our leadership position in the PRS sector.

 

Rob Hudson 

Chief Financial Officer 

17 November 2021