|Trading statement today, guiding to upper end of expectations
|N+1 Singer's view on Research Tree
"Grainger has issued a trading update covering the 10 month period YTD to the end of July. Rents have continued to grow on both new lets and renewals, whilst sales completed year to date, and in the pipeline, are as expected. Sales transactions are performing well with prices realised 7.7% above the last valuation, and no material impact post-Referendum. We note continued progress towards strategic goals: PRS investment and capturing cost savings. We leave our forecasts unchanged. We continue to believe that Grainger should trade at a small premium to NNNAV given the opportunity in the PRS pipeline."|
|Interesting in the trading update today to see that Grainger is pushing up rents far faster than rpi / cpi and yet still letting properties more quickly than previously
"Year to date rental growth on new lets of 4.9% and 2.8% on renewals.
On newly acquired assets, we have seen rental growth increasing over the past three months, with rent increases on new lets in July averaging 5.8% and the time taken to let the properties falling steadily over the last three months."|
|Singer's note out this morning:
"Stability of residence is a core aspiration of most UK households. Traditionally, this has been through homeownership, and recently the advent of institutionally backed private-rented sector (“PRS”) accommodation which has similar characteristics. We believe that companies involved in the provision of PRS – Sigma Capital and Grainger – are likely to be beneficiaries of economic weakness which results from Brexit driving demand for more affordable accommodation. We see this as an entry point to capitalise on this opportunity."
|Mountview, to which CRS has (unfavourably from some angles) compared GRI released its prelims today
CRS has more ammunition for its attack on GRI's cost base
In the prelims MTVW reports
gross profit £53.014m
Administrative Expenses £5.148m
Profit before tax £48.388m
In the last half year results, GRI reported Profit before tax of £36.6m after administrative costs of £16.2m
Sure, it isn't comparing apples with apples, but it isn't so far off|
|Looking medium term (2020) then I believe it is reasonable to expect Net rental income ~£114m 50% of which would generate 13p dividend of yielding 6% at current price.
However its notable they have been able to quickly identify 25% operational cost savings although admin costs are remaining exorbitantly high and that must be addressed.|
|valuation is as at start of October and that process must start some time earlier so figures would be quite old now and should be performing well against them. portfolio is weighted towards the south east having sold off holdings in poorer performing regions to raise cash in past years. odd though that the biggest PRS acquisition is north so far. doesn't easily fit into a segment which has dogged this share for years, maybe the simplification of the model will help that in the future. holding for the moment|
|Understandable that the market has responded well to the interims and I am comfortable with my holding having listened to the webcast of the presentation.
Good to be reminded that in addition to NNNAV of 283p per share there is the Recessionary Surplus of 80p per share. Simplification of the business is good as is decision to increase dividends –though even with this year’s projected 4p per share it is a long way from being an income share.
Interested in their comment that current sales are buoyant and above valuation-including their development in Chelsea-their only London super prime. They did caution us that sales were front loaded to HI given the stamp duty changes.
No questions asked about how Brexit proof they are and cannot find any info as the regional weighting of their portfolio or indeed in which market segment they are in.
If the price continues in the 220/245 range, at the moment I do not see myself buying or selling.|
|dramatic change from a tried and tested model, i think ER was making money but hampered by some crazy funding arrangements in an era of historically low interest rates? - that part really not clever - whoever was sorting that in their finance team i hope isnt sorting the small print for their PRS|
|New policy appears to make a lot of sense. The equity release division was presumably making little profit after finance and admin charges so that the return was not acceptable.
Hopefully the share price will pick up with the revised dividend policy and also the activist interest from Crystal Amber but I'm certainly happy with today's results and presentation.|
|hopefully being very careful and cherry picking the best potential sites and not influenced by HAVING to show progress and cash burning holes in pockets - only time can tell on that. very happy with new dividend policy!|
|If you are a supporter of the strategy to invest £850m into PRS properties, then you have to be encouraged by the half year results to March 2016: good progress has been made, with £268m already spent
The German and equity release sales seem to be all but done and dusted, with the proceeds earmarked for further PRS investment to leave debt at around 40% - 45% LTV at a target interest rate of 4% (current 4.5%)
There is some more generally welcome news on cost cutting
The tone is upbeat|
|hmmm, still not convinced. Grainger actually have a lot less than 4,000 regulated properties. the shares have traded at a discount for many years, cant see jumping on the rental bandwagon when so many other funds are doing the same is going to make the massive difference hoped for. supply and demand - introduce tens of thousands of new properties to rent and its pretty obvious that with greater choice rents fall to ensure maximum occupancy. waiting to see what the strategic review has identified for the companys significant cost savings! should be announcing something soon|
|Questor share tip: bet on Grainger as buy-to-let crackdown begins...
"...Questor is optimistic about Grainger’s prospects, with its discounted shares likely to drive a higher return and dividend yield. Buy."|
|"Neither is the Fund convinced of the merits of investing GBP850 million into the private rental sector rather than reducing debt, particularly at the time of global financial uncertainty for asset classes."
Neither is jpjp100|
|if they got their wish of seeing Grainger sell off their reg portfolio it would be curtains I reckon, would be nothing left to pay all the overheads with !|
from a review of their results last week and their holding in GRI.
Grainger is the UK's largest listed residential property owner and manager.
Since our initial engagement we have urged the board to streamline the
business, cut its administration costs and reduce the quantum and cost of debt.
In July 2015 we requested that Grainger carry out a strategic review.
During the period, Grainger sold its stake in a German joint venture and
announced its intention to sell its wholly-owned German portfolio. It also
refinanced its UK syndicated bank debt, reducing its cost and extending its
maturity, and implemented management changes, following which it now has a new
chief executive officer and finance director.
After the end of the period, on 4 January 2016, Grainger announced the exchange
of contracts, subject to regulatory approval, to sell its Equity Release
division on or before 30 May 2016 for an estimated gross consideration of GBP325
million, comprising GBP175 million cash and the transfer to the buyer of GBP150
million debt. Grainger said the sale would significantly reduce its financial
and operational costs.
On 28 January 2016 Grainger announced the outcome of its strategy review, which
includes plans to reduce overheads through a streamlined structure, exit
non-core development assets and reduce financing costs with a target of 4 per
cent cost of debt. It also announced plans to invest over GBP850 million by 2020
into the private rented sector to drive the growth of rental income and
The Fund welcomes and supports Grainger's actions to streamline the business
and cut costs; however we remain concerned both with the pace and scope of cost
cutting. We note that last year Grainger, with a GBP900 million market
capitalisation, incurred administrative costs of GBP42 million. Mountview
Estates, a company in the same sector with a market capitalisation of GBP450
million, incurred administrative costs of GBP5 million. Neither is the Fund
convinced of the merits of investing GBP850 million into the private rental
sector rather than reducing debt, particularly at the time of global financial
uncertainty for asset classes.
We continue to believe that further significant value can be realised through
either a spin-off of the regulated tenancies division or a sale of Grainger.|
|Grainger is not a large multinational company. So this rule will not apply.|
I think the combination of the Fixed Ratio Rule and the additional stamp duty are both heavy hits directly to the face of the strategy update put forward by the newly arrived CEO back at the end of January
time will tell, but I will be scaling back my holding sometime on Monday|
|interesting, look forward to hearing. the chancellors revelation that large companies will not be exempt from having to pay the additional 3% stamp duty on buy to let properties makes its total diversion to private rented sector acquisitions a more expensive proposal. selling the equity release division rather than securing cheaper borrowing on it may turn out to be an error|
|Has anyone calculated if GRI will be affected by the introduction of the Fixed Ratio Rule limiting corporation tax deductions for net interest expense to 30% of a group's UK EBITDA in the Budget 2016?
I had a go. Do not rely on these calculations for anything at all.
The business tax roadmap is interesting
"2.33 The UK will be introducing a Fixed Ratio Rule limiting corporation tax deductions for net interest expense to 30% of a group’s UK earnings before interest, tax, depreciation and amortisation (EBITDA). This approach is in line with the rules that exist in several other countries and international best practice addressing profit-shifting through interest. A level of 30% remains sufficient to cover the commercial interest costs arising from UK economic activity for most businesses."
AIUI (and I could very easily be wrong), that means that for every £1 EBITDA (over £2m), only 30p of interest can be deducted for corporation tax calculations.
Assuming an interest rate of 4.6% (lifted from the Grainger annual report) I think that means that the interest costs on borrowings of £6.52 per £1 of EBITDA are tax deductible. Anything over that is not.
It doesn't report a clean EBITDA number, but the nearest reported number is OPBVM (operating profit before valuation movements), which is a bit like EBITDA for these purposes. That was £101.9m
Grainger has £1,226.4m in interest bearing loans and borrowings (12.1 x OPBVM)
It paid £62.3m in interest last year
If you take the £101.9m, that would mean that £30.57m of interest could be deducted. That leaves £31.73m of interest that is not deductible. At 20% tax, that would have been £6.3m of extra tax to pay. The tax charge for 2015 was £7.4m for the UK business. So, if my sums are right (and there is a very high likelihood that they are wrong, but I think they are in the ball park), that would be an increase in the tax bill for Grainger of 85.1%
As I own a few shares in Grainger, I have emailed the investor relations team to ask them what the impact of this policy will be on Grainger. I don't expect a quick / detailed answer, but anything I get back, I will post here.|
|They can't realise the reversionary surplus any quicker than they have for the last 30 years because the regs are sitting tenants. In almost all circumstances they only get vacancy and can sell when the tenant has died. They aren't moving to buy to let either. It's market rented stock purchased in volume in blocks that allow management of the freehold and achieve economies of scale. Whether that bandwagon works remains to be seen over the next few years. Unless a takeover scuppers those plans in the meantime|
|Is the move from regulated tenancies, with nice chunks of money coming from the realisation of the reversionary surplus, towards becoming a BuyToLet landlord generally viewed as good?|
|ye, wish i had a slice of the assets from the recent sale.
still a lot of 'gold' as you put it in the company, and looking to make some quick cash wwith some buytolets.|
|steadily into the hands of a takeover, lot of eyes on its gold dust reg portfolio|