The changes afoot at Grainger (GRI) mirror the gradual maturing of the buy-to-let sector. The residential landlord has historically made almost all its profits through buying up properties subject to regulated tenancies and selling them on when the tenant dies. But, longer-term, says chief executive Andrew Cunningham, it will replace trading profits with rental cash flows. Its eventual transformation into a higher-yielding real-estate investment trust is "inevitable" - but is a "long way down the road".
This strategy - which received a boost from the recent Montague Review to promote institutional ownership of private-rented portfolios - sits behind some of Grainger’s more eye-catching announcements of recent months. It recently launched a for-profit social-housing provider to develop 77 units in Hampshire, and signed an innovative build-for-rent deal on a car park owned by the London Borough of Kensington & Chelsea. But Grainger still has a £1.39bn portfolio of trading properties and operating profit from selling these accounted for around 60 per cent of the total over the period. Its transformation into a pure rent collector will take a very long time.
More pressing is the company’s £1.19bn net debt pile, which is huge but shrinking - last year it was £1.45bn. Mr Cunningham has set a target to reduce it further to £1bn by the end of next year, at which point the dividend policy will be reviewed.
GRAINGER (GRI) | ||||
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ORD PRICE: | 114p | MARKET VALUE: | £475m | |
TOUCH: | 114-115p | 12-MONTH HIGH: | 119p | LOW: 81p |
DIVIDEND YIELD: | 1.7% | TRADING PROP: | £1.02bn | |
DISCOUNT TO NAV: | 49% | |||
INVESTMENT PROP: | £526m | NET DEBT: | 304% |
Year to 30 Sep | Net asset value* (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2008 | 305 | -112 | -34.8 | 3.53 |
2009 | 194 | -170 | -50.8 | 1.29 |
2010 | 200 | -20.8 | -2.90 | 1.70 |
2011 | 216 | 26.1 | 9.50 | 1.83 |
2012 | 223 | -1.70 | 0.10 | 1.92 |
% change | +3 | - | -99 | +5 |
Ex-div: 5 Dec Payment: 8 Feb *Including revaluation of trading |