CIH Affordable Housing Conference March 2014 Dominic Macer, Build to Rent Project Director
Introduction to Grainger
Business Overview UK s largest listed residential landlord and property manager First year of our second century FTSE250 company, c. 1bn market cap Significant expertise in the residential real estate sector Diversified portfolio comprising: c. 9,300 UK wholly-owned reversionary properties: market value 1.3bn, vacant possession value 1.8bn c. 4,000 wholly-owned market-rented properties in UK and Germany: c. 0.5bn c.21,500 properties under management, market value of c. 2.8bn On-going development activities Focus on complementary activities generates synergies across divisions 3
Our Public Sector Partners 4
Our Private Sector Partners 5
The housing market
A Positive Environment Underpinning Grainger s Strategy 30% 70% % of homes owner occupied % of homes privately rented 10% PRS is the only growing tenure 50% and owner occupation has been in decline since 2005. 1999 2005 2012 1999 2005 2012 Total value of residential sector valued at 5 trillion 2 trillion of that in London and the SE English housing survey for 2011 to 2012
Why is the Demand for PRS Growing? Structural changes Migration flows Strong young professional mobility Different work/life patterns Household size Economic changes affordability issues Decline of the Bank of Mum and Dad University fees increased student debt Mortgage illiquidity, particularly for first time buyers Lower available LTV and higher prices are resulting in increasing deposits as % of salary Limited social housing stock increase pool of PRS tenants at the low-income end Source: Savills Research 8
UK Government Support for the Private Rented Sector We are well placed to benefit from Government initiatives, particularly in the private rented sector Government private rented sector support measures include: Build to Rent Fund extended to 1bn We are in the process of obtaining up to 57m of inexpensive Government debt for the construction phase of build-to-rent projects of over 500 units across London and the South East Up to 10bn of UK Government guarantees for new private and affordable rented homes London Road, Barking Creation of a PRS Taskforce, which includes a Grainger secondee 9
The Opportunity cont. London PRS is the strongest Strong future growth prospects for rental sector Economic conditions adding to renting demand o Constrained mortgages o High deposits Growing cultural acceptance of renting 10
Index of Private Housing Rental Prices Rents in all regions of the UK have increased in the last 8 years London has had the most dramatic increase in rental values Increase in Rental Price Index from May 05 13 North East 5.2 England average 8.4 North West 5.5 Yorkshire & the Humber 7.6 East Midlands 5.3 West Midlands 6.0 East 8.3 London 11.0 South East 7.6 South West 7.7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Source: ONS - Index of Private Housing Rental Prices - Historical Series 11
Return Profiles for Property Investment Total returns over 13 year period to 2013
Rental Levels Historically has depended upon capital appreciation and trading but growing opportunity for a yield driven model Growing market with attractive rental performance prospects Long term out performance: total returns Fundamental supply and demand imbalance in the UK, particularly London Very limited number of specialists: requirement/opportunity for a large scale professional operator Diversification opportunity with a new institutional asset class
What are Investors Looking For? Net yields ~5% Rental growth Scale Blocks High quality Capital value growth?
Challenges of PRS Investment Limited acquisition opportunities, scale is challenging Competition on land with house-building for sale High capital values based on vacant possession value mean low yields What concerns do we have with long term management of PRS?
Reward Appetite For Risk Stabilised Assets Off Plan/Forward Purchase Development Risk
Making PRS Investment Work Valuation on investment value Land value paid for over the long term Section 106? Design Management efficiencies (economies of scale) Grainger plc is currently enabling built-to-rent projects through the following routes: Public Sector Partnerships The Royal Borough of Kensington & Chelsea Forward Purchase London Road, Barking Develop Part of Larger Scheme Berewood, Hampshire
Driving Gross Yield Front of House 18
Driving Net Yield Back of House CLG have asked ULI to form a panel to explore possibility of producing a Design Guide for PRS. Grainger s Nick Jopling is chairing the panel. Publication in April 2014. 19
Two Examples London Road, Barking Royal Borough of Kensington & Chelsea 20
Finding opportunities to grow our market rented portfolio with minimal capital outlay London Road, Barking, East London A purpose built, institutional grade market-rented block, valued on rental income Investment outline 100 units Investment value: 13.7m Wholly owned Gross yield: circa 9% Cost of management: c.25% Net yield: circa 7% Geared IRR: circa 12.5% Customer profile City workers Young professionals Young families 25k to 60k+ income Rents starting at approximately 900/pcm Product Well connected location Designed with the customer and management efficiencies in mind Equal bedroom sizes Durable finishes Wifi enabled, concierge Possibility of longer term tenancies Timeline Start on site Jan 13 Completion Q3 2015 Fully rented in 6-9 months Olympic Park 20 min Canary Wharf 20 min 21
Build to rent with RBKC Young St & Hortensia Rd developments with Royal Borough of Kensington and Chelsea Development profit, future rental income and fee income with no requirement to purchase land Planning consent obtained Proposed development of Young Street, London Appointed by the Council to redevelop two Council-owned sites 84 new homes Total GDV c. 110m Grainger will develop, let and manage the properties under a 125 year agreement Preliminary results 2013 Proposed development of Young Street, London 22
Thank you Dominic Macer Build to Rent Project Director dmacer@graingerplc.co.uk www.graingerplc.co.uk @graingerplc 23