Grainger PLC (GRGTF) (H1 2025) Earnings Call Highlights: Strong Rental Income and Strategic ...

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16-05-2025

Net Rental Income Growth: 15% increase, supported by 4.4% like-for-like rental growth.
EPRA Earnings Growth: 23% increase, leveraging operational platform.
Dividend Growth: 12% increase in dividend per share.
Occupancy Rate: 96%, considered full occupancy.
Customer Retention: High at 62%.
Net Tangible Assets (NTA): GBP 3 per share, up 1%.
Adjusted Earnings: Up 13% to GBP 50.1 million.
Operational Cash Flow: Over GBP 200 million annually.
Net Debt: GBP 1.475 billion, with LTV at 38.5%.
Build to Rent Portfolio: Valued at over GBP 2.8 billion, comprising 9,689 homes.
Pipeline of Homes: 4,565 homes, expected to significantly boost earnings.
Asset Recycling: GBP 549 million delivered over the last 2.5 years.
Interest Costs: Increased due to higher average debt levels.
Future Earnings Growth: 50% growth in EPRA earnings by FY 2029.
REIT Conversion: Expected to generate GBP 15 million savings in the first year.
Warning! GuruFocus has detected 5 Warning Signs with GRGTF.
Release Date: May 15, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Grainger PLC (GRGTF) reported a 15% growth in net rental income, supported by strong like-for-like rental growth of 4.4%.
The company achieved a 23% increase in EPRA earnings, demonstrating strong operational leverage.
Grainger PLC (GRGTF) plans to convert to a REIT, which is expected to generate GBP 15 million in tax savings in the first year alone.
The company maintains a strong balance sheet with liquidity and a robust hedging profile, with no major refinancing needs until 2029.
Grainger PLC (GRGTF) has a substantial pipeline of over 4,565 homes, which is expected to drive significant earnings growth in the coming years.
Interest costs have increased due to higher average levels of debt in the first half of the year.
Overhead costs rose by 4% in the half year, in line with wage inflation.
The company's net asset value (NTA) grew by only 1% during the period, reflecting modest valuation growth.
The UK housing market faces severe undersupply, with planning consents and housing starts falling, which could impact future growth.
Grainger PLC (GRGTF) faces rising construction cost inflation, although it mitigates this risk through fixed-price contracts.
Q: Can you explain how you achieve the 3.5% income return in your 8% Total Accounting Return (TAR) given the impact of leverage and costs? A: Robert Hudson, CFO, explained that the 3.5% income return is based on their 5-year earnings bridge, with 50% growth in earnings locked in despite higher interest costs. The compounding benefits of scale on their platform and tightly controlled central costs contribute to this return.
Q: Does the 8% TAR include maintenance CapEx, or should that be deducted? A: Robert Hudson confirmed that ongoing maintenance and refreshment costs are fully expensed as they go, factored into their 25% gross-to-net yield, making it a fully expensed net yield.
Q: Are there changes in the sources of capital for investment activities? A: Helen Gordon, CEO, noted new entrants in the market, including private equity, alongside traditional institutions and sovereign wealth funds, driving investment demand. Residential investment has maintained value compared to other real estate asset classes.
Q: How do you view the outlook for yields, and have we reached a period of stabilization? A: Helen Gordon mentioned that yields are at historic highs, and while they have been stable for a couple of years, they are still grouped with other real estate asset yields. She emphasized the stability and attractiveness of residential yields.
Q: What is the timeline for the secured pipeline to transition into the committed pipeline? A: Helen Gordon explained that the committed pipeline is already on-site with GBP 166 million of CapEx remaining. The secured pipeline has planning consent and controlled land, with ongoing improvements to planning and regulatory compliance.
Q: Are you seeing any urgency to start development in London, and how have you avoided building safety issues? A: Helen Gordon highlighted the lack of housing starts in London and the positive reception for build-to-rent projects. Michael Kenny noted that their timeline allowed them to redesign schemes to meet the latest fire safety regulations, avoiding regulatory bottlenecks.
Q: What are you observing regarding construction cost inflation? A: Michael Kenny stated that their fixed-price contracts mitigate the impact of inflation. They regularly rebase cost plans and are seeing tenders coming in at or below estimates, indicating moderated inflation levels.
Q: How do you plan to allocate your GBP 1.1 billion firepower between pipeline and stabilized acquisitions? A: Helen Gordon explained that they match CapEx with asset recycling, maintaining values without write-downs. They evaluate returns on an IRR basis, considering immediate rental uplift from stabilized acquisitions versus development returns.
Q: How do you plan to mitigate cost inflation as rent growth momentum decelerates? A: Helen Gordon and Eliza Pattinson emphasized their in-house operational platform, cluster efficiencies, procurement, and void management to manage gross-to-net effectively, absorbing costs within their 25% gross-to-net yield.
Q: Is the FY '26 EPRA earnings guidance conservative, or is there a potential drag on earnings? A: Robert Hudson clarified that the guidance accounts for strong growth and is based on the committed pipeline alone. Seasonal cost weighting and lumpiness in management fees prevent simple annualization of first-half numbers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.