Britain’s biggest private rentals business Grainger PLC is to invest £850m in private rentals following a major strategic review and its decision to consider a sale of its reversionary (regulated tenancy) investment arm to a private equity group.
Grainger has no doubt eyed the lucrative returns that landlords have been getting from the growing number of people needing to rent, and following the recent tax changes which will make it more difficult for many small-scale buy-to-let investors to make the profits they were doing.
However, investment fund managers Crystal Amber are not impressed with Grainger’s plans which include cutting overheads and debt costs, and have said they will be selling their 3.4 per cent stake in Grainger, or at least seeking a sale of the company, or a spin-off of its regulated tenancies division.
Their reversionary investments consist of 3,600 properties whose tenants have total security of tenure dating back to legacy tenancy laws brought in by a 1960s Labour government. The investments work because their values often double when their occupants pass away and they can be sold for full market values.
Crystal Amber estimates there is around £500m of hidden potential value in the holding that at present are not shown on Grainger’s balance sheet, though other analysts are sceptical.
Richard Bernstein, investment adviser for Crystal Amber, which owns a 3.4 per cent stake in Grainger told the Financial Times (FT):
“We’ve been approached by other holders as well as interested parties from the sector. We’re now hoisting the For Sale sign,”
Helen Gordon, Grainger’s new chief executive, who joined this month from Royal Bank of Scotland, thinks that the cash generated over time by sales of the so-called reversionary assets “is best spent investing in large-scale rented developments aimed at young city dwellers. There is a fantastic market opportunity and we are positioned to take advantage of it”
Ms Gordon thinks the additional taxes to be imposed on amateur landlords would open up an opportunity for corporates.
She said shareholders were “interested in investing in our business” rather than selling out. “There is nothing that makes me think shareholders will be unhappy with this plan.”
In a recent report PwC has forecast that an extra 1.8m more households would need to be housed in the private rented sector (PRS) by 2025, bringing that total to 7.2m.
Grainger, the 104-year-old Newcastle-based FTSE 250 Investment Company is currently capitalised at £934m. It is not the only corporate looking to take advantage of a structural shift towards rentals brought about by national shortage of new homes coupled with rapidly rising house prices.
Grainger to invest £850m in private rentals – https://t.co/Rel5YOT9gG
— LandlordZONE (@LandlordZONE) February 3, 2016