Grainger PLC, Britain’s biggest specialist PRS investor that switched its strategy from investing in protected tenancy properties to straightforward buy-to-lets in the form of build-to-rents, announced growth of around 3 % over the 4 months to 31st January.
A period of political uncertainty and a flat-lining economy has seen its share price rise by around 3.5% as of 5th February.
The company continues to demonstrate its confidence that the sector will grow with its involvement in build-to-rent. Its forward development pipeline as of 31st January stands at 24 new-build schemes. These together represent 9,104 homes and a £2billion in investment.
Grainger manages some of this development in-house, while entering into joint ventures with outside parties including one £845 million deal with Transport for London and other projected at the planning stage. The company says its PRS investments continue to perform well, with occupancy at 97.5% and pricing around 1% above valuations.
According to City analysts, Grainger a company that can trace its roots back 107 years, the firm was drifting along when ex RBS director Helen Gordon took over as Chief Executive. Its mainstay was its cash-generating stock of 3600 regulated tenancy homes, a portfolio built-up over many years.
These investments house protected tenants on peppercorn rents, so the value is locked up until the tenants vacate, or more usually when they pass away. At that point Grainger would re-let at a market rent or sell the property.
Grainger had also invested heavily in the German property market under a joint venture arrangement and was, given the increasingly restrictive German letting laws, a capital-hungry business.
One-month after Gordon took over in 2015 she presented her radical new strategy plan to the City. The German venture was put on the market and eventually sold, another branch which managed an equity-release business was ditched, and a large bet was placed on the growing government supported build-to-rent sector. Gordon saw the potential to create a “cash-flow machine” which would provide a high yield and steady returns over an extended period of time.
Analysts in the City have admired the “turnaround” of a sleeping giant that Gordon has achieved, and the share price and dividends are beginning to reflect that. She parachuted herself into a difficult situation when she left RBS and started with a completely new management team. Her success to-date has surprised a lot of people in the City says one analyst.
Build-to-rent has been an ideal target for Grainger to aim at, as almost 100% of it’s competition are small-scale and smaller landlords plus the government has projected that the country needs 1.8 million more rentals by 2025.
Helen Gordon, Chief Executive, says of her success to-date as reported by UK Investor Magazine:
“I am pleased to report a period of continued momentum in our PRS growth strategy, as the UK’s leading provider of private rental homes. We have made good progress on a number of schemes in our pipeline, including those in the planning process and new acquisitions. Lettings on our recently launched schemes are progressing well and ahead of underwriting, a testament to the quality of the design of our buildings and customer service offering.
“We are seeing a growing customer demand for our rental homes across the portfolio with 97.5% occupancy and 3.5% like-for-like rental growth. Supporting our new build investment, sales from our regulated tenancy portfolio are transacting well, reflecting positive market sentiment.
“Since our last financial year end, we have secured two further schemes in line with our targeted investment strategy: Capital Quarter (307 PRS homes) in Cardiff for c.£57m, and our third scheme in Canning Town (132 PRS homes) for c.£55.5m. In addition, we have received planning consent for the redevelopment of one of our regulated tenancy assets in Waterloo, London
“The outlook for Grainger in 2020 is positive. Grainger is in a strong position to benefit from the market opportunities following the clear result of the General Election which is already driving improved housing market sentiment. The business is ready and equipped to deliver on our PRS growth strategy, which in turn will deliver attractive, sustainable returns to shareholders and, importantly, enable us to provide great homes and great service to our growing customer base.”