Grainger grows income while buy-to-let stumbles

The buy-to-let market looks increasingly unappealing due to the end of mortgage interest rate relief and potential changes to the capital gains tax regime. Yet Grainger’s (GRI) full-year figures are an indication of why investors can stand to gain from exposure to the structural demand growth for rental properties, without the taxation headache. 

The group reported a 97 per cent average rent collection rate across the 12 months and the launch of new apartments, including in Milton Keynes and East London, pushed net rental income up further to 16 per cent. 

However, the group was not unaffected by pandemic, with average occupancy below the norm at 95 per cent. August and September typically benefit from a flurry of moving activity as international students come over to the UK, chief executive Helen Gordon said. “This year that was delayed and so we saw more voids in September than we had previously, but then we saw it really pick-up,” she said. Occupancy will remain broadly in line with last year’s level in FY2021, Ms Gordon added, before reverting back to the 97-98 per cent range over the longer-term. 

Like-for-like rental growth of 2.5 per cent for the private rented sector portfolio was also behind last year’s 3.4 per cent rate due to a higher proportion of renewals versus new lets. However, that compared with 1.4 per cent growth in private rents across the broader market during the year to October, according to the Office for National Statistics. 

However, developments and re-letting are expected to continue driving NAV growth over the medium-term, with Panmure Gordon forecasting a rise in NAV to 321p a share at the end of September next year, rising to 338p the same time in 2022. Following this year’s capital raise and £350m bond issue, it has £650m of headroom to fund its entire committed pipeline and no debt maturing before November 2022. Buy. 

Last IC view: Buy, 248p, 14 May 2020