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Grainger transformation continues

But there's plenty of reversionary income still to be crystallised
May 17, 2018

Grainger (GRI) continued to transform the business to focus on the private rental sector, and now has a PRS investment portfolio worth £756m with another £258m at the planning stage. As the UK’s largest listed residential landlord, Grainger achieved 9 per cent rental income growth in the six months to March 2018 and 4.1 per cent excluding acquisitions. Over 1,353 PRS homes were added in the six-month period, and there are altogether six strategic partnerships with land owners such as Network Rail and the Ministry of Defence.

IC TIP: Buy at 314.4p

Grainger is also working with local authorities, and has been selected by Lewisham council as preferred partner on the development of 232 homes. The funding comes from Grainger and third parties, while the council provides the land, and in doing so generates rental income.

The transformation from reliance on trading income and capital value growth to a greater focus on recurring rental income is still ongoing. Grainger still owns 3,338 units with regulated tenancies, and these are sold when the tenant departs; the current average tenant age is 76 years. The rent provides a useful revenue stream and within the £1.2bn portfolio there is around £272m of reversionary income yet to be crystallised.

Analysts at Peel Hunt are forecasting adjusted net asset value at the September 2018 year-end of 319.7p per share, from 307.5p in 2017.

GRAINGER (GRI)   
ORD PRICE:314.4pMARKET VALUE:£1.31bn
TOUCH:314.4-315.2p12-MONTH HIGH:322pLOW: 249p
DIVIDEND YIELD:1.6%DEVELOPMENT PROP:£819m**
PREMIUM TO NAV:3%NET DEBT:118% 
INVESTMENT PROPERTIES:£648m*  
Half-year to 31 MarNet asset value (p)**Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201729541.28.11.6
201830650.610.11.74
% change+4+23+25+9
Ex-div:24 May   
Payment:05 Jul   
*Includes investments held in associates and joint ventures **Trading properties marked to market (triple NAV)