Grainger taps into rental demand

The shortage in new housing has pushed up demand for rental properties, with the number of households in the rented sector rising by almost two-thirds in the 10 years to 2017, according to the Office for National Statistics. Grainger has a portfolio of around 4,900 private rented homes after it purchased the 75 per cent of GRIP it did not own, boosting its portfolio by about 50 per cent. High demand was evidenced by a further half-point increase in occupancy levels in its rented portfolio to 97.5 per cent during the first half.

That – coupled with rent reviews on its regulated tenancies – helped boost rental income on a like-for-like basis by 3.7 per cent, or a third after including the 1,700 properties acquired with GRIP. Management says the integration of that portfolio is running ahead of schedule, helping to improve the leakage of gross costs to net costs from 32 per cent to 26 per cent and saving £4m a year in overheads. Management keeps operating costs down across the group by keeping service provision – including rent collections and maintenance – in-house.      

Admittedly, the GRIP acquisition was funded via a £347m rights issue, at a 39 per cent discount to the share price the day prior to its announcement. However, the gap between the fundraising price and the level at which the shares were trading prior to the announcement of the rights issue has since narrowed.

The development pipeline stood at £1.8bn at the end of March, equivalent to 8,200 homes, which is almost almost as much as Grainger's existing portfolio and includes 3,000 new homes in partnership with Transport for London. Net rental income has already grown 40 per cent since the refreshed strategy was unveiled in January 2016.

The group still had a portfolio of just under 3,000 regulated tenancies, valued at £1.08bn at the end of March. During the first half of 2018-19 it sold regulated properties at 0.4 per cent ahead of the estimated value of vacant possession, generating a £31.3m profit. However, in the accounts there is still a £202m reversionary surplus – the difference between the market value of the assets while tenanted and the value that could be realised if they became vacant and were sold – waiting to be crystallised, albeit in dribs and drabs.