A robust performance in the year to September 2018 by residential landlord Grainger (GRI) was overshadowed by news that it is to acquire the entire share capital of GRIP REIT from its joint venture partner APG for £396m. GRIP is currently 75.1 per cent owned by APG, and the entire portfolio comprises 35 private rented sector (PRS) assets of around 1,700 homes.
Some investors might dislike the funding arrangements which will include a £346.7m rights issue on a seven-for-15 basis at 178p, a deep discount to the current share price.
However, the acquisition will bring significant advantages, not least of which will be increased operating efficiencies and will increase Grainger’s exposure to the private rental sector from under 50 per cent to around 60 per cent. At 4.9 per cent, the gross yield on the portfolio is slightly below Grainger’s 5-6 per cent average, but the portfolio has strong rental growth prospects. The company also revealed that its PRS investment pipeline target for 2020 has been increased from £850m to £1.37bn. Net rental income grew by 8 per cent to £43.8m, while the regulated tenancy sales business continued to generate strong cash flow of £135m.
Analysts at Peel Hunt are forecasting triple net asset value (NAV) of 325.6p at September 2019, from 316p in 2018.
| GRAINGER (GRI) | ||||
| ORD PRICE: | 280p | MARKET VALUE: | £1.17bn | |
| TOUCH: | 279.4-280p | 12-MONTH HIGH: | 323p | LOW: 266p |
| DIVIDEND YIELD: | 1.9% | TRADING STOCK: | £799m** | |
| DISCOUNT TO NAV: | 20% | |||
| INVEST PROPERTIES: | £735m* | NET DEBT: | 106% | |
| Year to 30 Sep | Net asset value (p)** | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 242 | 81 | 18.1 | 2.5 |
| 2015 | 263 | 51 | 10.7 | 2.75 |
| 2016 | 287 | 84 | 18.0 | 4.5 |
| 2017 | 343 | 86 | 18.0 | 4.86 |
| 2018 | 348 | 101 | 21.0 | 5.26 |
| % change | +1 | +17 | +17 | +8 |
| Ex-div | 13 Dec | |||
| Payment: | 11 Feb | |||
| *Includes investment in associates and joint ventures **Trading stock marked to market (triple NAV) | ||||
