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Grainger could double rentals

Grainger could double its UK rented portfolio just as demand for rented accommodation continues to rise.
May 18, 2015

Headline figures tell anything but the true story for residential landlord Grainger (GRI). Interim numbers were affected by one-off costs and lower valuation gains, but stripping these out meant pre-tax profits rose from £49.8m to £53.9m.

IC TIP: Buy at 214p

Exceptional items included £18.2m relating to the re-acquisition of home reversions group Equity Release. This was sold in January last year, but the buyer failed to pay a £35m deferred consideration, and Grainger exercised an option to buy it back. A further cost of £9.2m was incurred with the maturity of a swap agreement, although a new agreement has been secured on better terms.

Crucially, Grainger is soon to start feeling the benefit of recent investments, notably a build-to-rent scheme in Barking. Furthermore, there is a secured pipeline of over 1,000 rented units, which will add nearly 40 per cent to the UK rented portfolio in the next two years. Beyond the secured pipeline, there are a number of projects at an advanced stage that could add a further 950 rented units. Added together, these could double the number of UK rented units.

A slight triple net asset value decline reflected the effect of one-off costs, but doesn't factor in Grainger's reversionary surplus - the uplift from market value of its properties to vacant possession value, which will be realised as its tenants pass away. Grainger reckons the uplift could be £500m, or 120p a share.

Analysts at Numis are forecasting net asset value per share of 251p by the September year-end.

GRAINGER (GRI)
ORD PRICE:214pMARKET VALUE:£890m
TOUCH:213.5-214p12-MONTH HIGH:227pLOW: 168p
DIVIDEND YIELD:1.2%TRADING PROPERTIES:£1bn
DISCOUNT TO NAV**:12%
INVESTMENT PROPERTIES:£603m*

NET DEBT:

103%

Half-year to 31 MarNet asset value (p**)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201424249.811.00.61
20152409.11.600.64
% change-1-82-85+5

Ex-div: 4 Jun

Payment: 3 Jul

*Includes investments in joint ventures and associates **Triple net asset value