CIH Affordable Housing Conference March 2014 Dominic Macer, Build - - PowerPoint PPT Presentation

CIH Affordable Housing Conference

March 2014 Dominic Macer, Build to Rent Project Director

Introduction to Grainger

• First year of our second century
• FTSE250 company, c. £1bn market cap
• Significant expertise in the residential real estate sector
• Diversified portfolio comprising:

– c. 9,300 UK wholly-owned reversionary properties: market value £1.3bn, vacant possession value £1.8bn – c. 4,000 wholly-owned market-rented properties in UK and Germany: c. £0.5bn – c.21,500 properties under management, market value of c. £2.8bn – On-going development activities

• Focus on complementary activities generates synergies across

divisions

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UK’s largest listed residential landlord and property manager

Business Overview

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Our Public Sector Partners

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Our Private Sector Partners

The housing market

A Positive Environment Underpinning Grainger’s Strategy

English housing survey for 2011 to 2012

• Total value of residential sector valued at £5 trillion
• £2 trillion of that in London and the SE

PRS is the only growing tenure…

% of homes privately rented

…and owner occupation has been in decline since 2005.

% of homes owner occupied

1999 2005 2012 1999 2005 2012

30% 10% 50% 70%

Why is the Demand for PRS Growing?

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Source: Savills Research

• Structural changes
• Migration flows
• Strong young professional mobility
• Different work/life patterns
• Household size
• Economic changes – affordability issues
• Decline of the ‘Bank of Mum and Dad’
• University fees – increased student debt
• Mortgage illiquidity, particularly for first time buyers
• Lower available LTV and higher prices are resulting in increasing deposits as

% of salary

• Limited social housing stock increase pool of PRS tenants at the low-income

end

We are well placed to benefit from Government initiatives, particularly in the private rented sector Government private rented sector support measures include:

• Build to Rent Fund extended to £1bn

– We are in the process of obtaining up to £57m of inexpensive Government debt for the construction phase

• f build-to-rent projects of over 500 units across London

and the South East

• Up to £10bn of UK Government guarantees for new private

and affordable rented homes

• Creation of a PRS Taskforce, which includes a Grainger

secondee

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London Road, Barking

UK Government Support for the Private Rented Sector

The Opportunity cont.

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London PRS is the strongest

• Strong future growth prospects for rental

sector

• Economic conditions adding to renting

demand

• Constrained mortgages
• High deposits
• Growing cultural acceptance of renting

Index of Private Housing Rental Prices

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7.7 7.6 11.0 8.3 6.0 5.3 7.6 5.5 5.2 0.0 2.0 4.0 6.0 8.0 10.0 12.0 South West South East London East West Midlands East Midlands Yorkshire & the Humber North West North East

England average 8.4

Increase in Rental Price Index from May 05 – 13

• Rents in all regions of the UK have increased in the last 8 years
• London has had the most dramatic increase in rental values

Source: ONS - Index of Private Housing Rental Prices - Historical Series

Return Profiles for Property Investment

Total returns over 13 year period to 2013

Historically has depended upon capital appreciation and trading but growing opportunity for a yield driven model

Growing market with attractive rental performance prospects Long term out performance: total returns Fundamental supply and demand imbalance in the UK, particularly London Very limited number of specialists: requirement/opportunity for a large scale professional operator Diversification opportunity with a new institutional asset class

Rental Levels

What are Investors Looking For?

• Net yields ~5%
• Rental growth
• Scale
• Blocks
• High quality
• Capital value growth?

Challenges of PRS Investment

• Limited acquisition
• pportunities, scale is

challenging

• High capital values

based on vacant possession value mean low yields

• Competition on land with

house-building for sale

• What concerns do we have

with long term management of PRS?

Appetite For Risk

Reward Risk Stabilised Assets Off Plan/Forward Purchase Development

Making PRS Investment Work

• Valuation on investment value
• Land value paid for over the long term
• Section 106?
• Design
• Management efficiencies (economies of scale)

Grainger plc is currently enabling built-to-rent projects through the following routes:

• Public Sector Partnerships – The Royal Borough of Kensington & Chelsea
• Forward Purchase – London Road, Barking
• Develop Part of Larger Scheme – Berewood, Hampshire

Driving Gross Yield

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Front of House

Driving Net Yield

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Back of House

CLG have asked ULI to form a panel to explore possibility of producing a ‘Design Guide’ for PRS. Grainger’s Nick Jopling is chairing the panel. Publication in April 2014.

Two Examples

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London Road, Barking Royal Borough of Kensington & Chelsea

Finding opportunities to grow our market rented portfolio with minimal capital outlay

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Investment outline

• 100 units
• Investment value: £13.7m
• Wholly owned
• Gross yield: circa 9%
• Cost of management: c.25%
• Net yield: circa 7%
• Geared IRR: circa 12.5%

Canary Wharf – 20 min Olympic Park – 20 min

Product

• Well connected location
• Designed with the customer

and management efficiencies in mind

• Equal bedroom sizes
• Durable finishes
• Wifi enabled, concierge
• Possibility of longer term

tenancies

Customer profile

• City workers
• Young professionals
• Young families
• £25k to £60k+ income

Rents starting at approximately £900/pcm

Timeline

• Start on site – Jan 13
• Completion – Q3 2015
• Fully rented in 6-9 months

London Road, Barking, East London

A purpose built, institutional grade market-rented block, valued on rental income

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• Planning consent obtained
• Appointed by the Council to redevelop

two Council-owned sites

• 84 new homes
• Total GDV c.£110m
• Grainger will develop, let and manage the

properties under a 125 year agreement

Build to rent with RBKC

Young St & Hortensia Rd developments with Royal Borough of Kensington and Chelsea Development profit, future rental income and fee income with no requirement to purchase land

Preliminary results 2013 Proposed development of Young Street, London Proposed development of Young Street, London

Thank you

Dominic Macer Build to Rent Project Director

dmacer@graingerplc.co.uk www.graingerplc.co.uk @graingerplc

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