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 ! |
 CRS
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
dividends.
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. |
>coby4
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 |
steady as she goes |
GRI Grainger looking to become a pure Property Play.......
BROKERS...........
PEEL HUNT
The equity release division is being sold for £325m which
equates to c12% of Grainger’s entire portfolio. The transaction
includes £150m of attached debt and the deal will reduce
leverage and the cost of debt. The price is marginally below the
Sep ‘15 market value and after mark-to-market debt and tax
adjustments, the sale will lead to an £18m or c1% reduction in
Gross NAV. The new CEO is holding a strategy day on 28
January and today’s deal likely gives an indication of what
to expect.
JP MORGAN
The
transaction has four main benefits in our view: 1) The sale is a clear sign of
new CEO Helen Gordon's intention to streamline the business, focusing on the
residential rental sector 2). The sale lowers debt costs as the debt transferred
has a cost of 6.9% vs the group average 4.6%. 3) reinvestment could more
than double recurring net profit on the £350m of capital proceeds to £13.6m.
4) LTV post sale will fall to less than 40% from 45.5% at September 2015.
Grainger’s wide range of residential related businesses is not fully
valued by the market, and the streamlining of the business model along
with a greater focus on residential rental income will be a positive for the
equity story, in our view. CEO Helen Gordon said “this is an important
transaction for Grainger. It accelerates the transition to a business focused
on the residential rented sector and will simplify the Group. It will
materially reduce our financial and operational costs, including costs
associated with running a FCA regulated business, and will significantly
strengthen our balance sheet and capacity for investment.”
Proceeds to be reinvested in residential rental business (PRS): We
assume the £350m proceeds are reinvested in PRS at a gross yield of 7.0%,
achievable outside of SE England markets, using a 50% debt capital
structure and incremental debt cost of LIBOR +170 bps (the refinancing rate
of the syndicate debt refinancing in FY15). This would imply net income at
a 30% cost margin of 4.9% or £17.15m, and debt costs of £3.9m for
recurring rental based Net Profit of £13.6m vs the £6.1m recurring income
from the retirement solutions business. The impact of reinvestment will not
be fully felt until the FY17 period. This would also represent a 7.8% ROE
on the £175m, clearly accretive and a step in the right direction. |
Three women with their hand on the helm. I wonder what the City will make of that! |
 Grainger plc ("Grainger", the "Company" or the "Group"), the UK's largest listed residential property owner and manager, is pleased to confirm that yesterday Standard & Poor's Ratings Services announced it had raised its issue rating on the Company's existing £275 million senior secured notes, due 2020, to investment grade, 'BBB-' from 'BB+'.
S&P's re-rating is based on their "improved valuation of the group's assets".
The Company also announces that it has signed a refinancing of its Grainger Invest property portfolio bank facility, as planned, with the existing lenders, HSBC and Santander, reducing its cost and extending its maturity.
The Grainger Invest property portfolio comprises c. 1,200 units split over eight high quality residential blocks predominantly in central London.
The new £150m facility replaces the existing £120m facility and will represent 11% of total group facilities (£1,367m). The facility will mature in September 2020 (previously March 2016) and leaves the Company with no further significant facility maturities until 2020. The margin on the facility has been reduced by 85bps to 170bps and the structure enables further pricing benefits to be gained at future lower levels of loan to value. Covenants remain unchanged. |
Share price looking very firm.
An interesting take on Grainger from activist investors Crystal Amber who hold a
3.45 stake.
"Grainger was established in 1912 and is the UK's largest listed residential
property owner and manager. Its traditional reversionary business is based
predominantly on regulated tenancies, which provide substantial, high quality,
predictable and resilient cash flows. Its portfolio of 7,400 reversionary
assets has a carrying value of GBP1.5 billion. Properties revert vacant to
Grainger after an average of ten years. As these properties become vacant,
Grainger estimates that they will generate a surplus of GBP500 million,
equivalent to 120p a share. This embedded value is the difference between
today's market value compared to the vacant possession value at today's
prices. It does not reflect any future benefit from house price inflation.
This portfolio is expected to generate GBP120 million of gross cash each year
until 2030. Grainger also owns 8,400 properties as part of its market rented
portfolio valued in excess of GBP1.1 billion.
The cash generated by the reversionary business is recycled into Private Rented
Sector (PRS) residential developments. Grainger is the UK market leader in
equity release schemes principally for retired home owners. It also owns 3,000
homes directly and 3,000 homes indirectly via a joint venture in Germany.
Trading results for the six months to 31 March showed a 3.8 per cent advance in
the value of its UK residential assets, compared to 1.9 per cent for the
Halifax and Nationwide indices. Grainger acquired or exchanged contracts for GBP
87 million of properties to add to its reversionary portfolio; purchased a new
build to rent scheme in Canning Town, London; achieved planning consent for
build to rent projects at two further sites; and completed another scheme in
Barking, which is now fully let. The company expects to complete around 1,070
market rented units over the next two years.
We believe that Grainger's portfolio, providing visibility of cash realisations
through to 2030, represents an attractive asset for an insurance company
seeking to match this asset profile against long- term future liabilities.
Despite a recent reduction in the average cost of debt from 5.1 per cent to 4.6
per cent on Grainger's GBP1.1 billion of debt, we believe that in the current
interest rate environment, there remains further scope to secure better terms
for shareholders. We also believe that annual administrative expenses of GBP35
million are excessive. This equates to an administrative expense ratio of 3 per
cent on GBP1.2 billion of net assets, which is substantially higher than its peer
group.
Since first investing in June 2015, we have engaged with the chairman, the
outgoing executive team and other senior participants in the property sector.
We believe that our comments about the need to reduce both operating and
finance costs together with a tighter, more focused strategic direction have
been well received. In August 2015, the company announced that it would
explore the disposal of its German assets. The Fund regards this as a helpful
first step to refocus and simplify the company's structure. The company also
confirmed that the new CEO would arrive earlier than previously announced and
that the Finance Director would retire"
The German assets were previously valued at £300 million.That could have grown since. |
Whi ireland have a note on Grainger in their August monthly bulletin. |
 article doesn't actually understand what a regulated tenancy is by the sounds of it - you don't "allow" a regulated tenant to pay under market rent - the rents and the increases allowed are set by the local Rent Officer - you don't get a choice. they will be below market rents for the duration of the tenancy - they don't normally leave unless they die and there are some circumstances where the tenancy can be passed on - hence the discount to open market value of the property which can only be realised when sold when its vacant - so no matter who might buy the company they still couldn't cash in on that reversionary surplus. the other half of the assets are from equity release schemes. puchased at an even bigger discount because there is no rent payable and the occupant has the right to stay until they die. cant cash the reversionary value in there either
a lot of good news around with this company and no real reason its share price should lag so far behind its value
good to see some refinancing and look forward to a better dividend! |
Agree with you there u813061, weekend press comments fuelling the rise this morning no doubt:
Private equity outfits eyeing potential bid for Grainger, report says
By Alexander Bueso
Date: Sunday 16 Aug 2015
The pressure on the management team at Grainger to increase its payout to shareholders is growing as private equity groups run the rule over the outfit in preparation for a possible bid.
According to The Sunday Times private equity outfits are studying both a possible full-scale takeover or piecemeal asset sales.
The report came amid recent strong trading for the £1bn residential property landlord which specialises in regulated tenancies, purchasing properties at a discount while allowing their owners to live in them their entire lives at sub-market rents.
On 13 August the firm, which is listed on London's second tier index, said that in the ten months ending on 31 July rental increases had averaged 6.0% on a like-for-like basis on new lets and 2.3% on renewals, compared with 4.2% and 3.2% in July 2014.
The company, which is carrying nearly a £1bn in net debt on its balance sheet, recently refinanced its debts.
Together with its investments in market rented assets, financed from its reversionary assets, and a simplified structure, that would allow the outfit to be able to improve its profitability, and boost its payout, analysts at Numis said in a research report e-mailed to clients that same day.
"It would enable Grainger to improve distributions to shareholders, which in turn should help the share price close the discount to net asset value."
The Newcastle upon Tyne headquartered firm also disclosed it had named investment bank Lazard & Co in Frankfurt to advise on the disposal of its wholly-owned residential property assets in Germany, which it described as "non-core".
Grainger also accelerated its plans to renew its top ranks. Helen Gordon was now set to join the company as CEO designate by 1 December, earlier than previously stated.
In parallel, it was announced that Mark Greenwood would retire as finance director at the end of December 2015.
Year-to-date shares of Grainger were sporting a rise of 30% as of the close of trading on 14 August, versus a gain of 9.5% for the FTSE 250. |
Nice breakout to 5 year high.
This is a one way bet as share price is close to reported net asset value yet there is plenty of opportunity to be unlocked as activist funds are already putting plans in place. |
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