Grainger plc

So good morning everyone, and welcome to Granger's Half Year Results. In a time of global uncertainty, our business continues to deliver strong results, growth in earnings, and an excellent outlook. Now this shouldn't be a surprise. We are in a needs-based real estate sector. We are a resilient business in a structurally supported sector, and we continue to deliver strong growth. The agenda this morning is I will take you through the highlights and Rob will take you through the financial results and then I'll talk about our market and the drivers of growth and we'll have time for Q&A. In the first half we have delivered a strong performance and we are delivering compounding earnings growth. Our guidance is to deliver 60 million of EPRA earnings this year, and that's a 12% uplift on 2025, and 72 million, a 35% increase by full year 29, and that's after rebasing our finance costs. We are on track. This is a resilient business with a high demand for our product, high occupancy and a large and diverse customer base. Our growth is underpinned by wage inflation and our strong customer affordability. Our growth is locked in with a committed pipeline on site and we are leasing into an undersupplied market, this with improved margins. Deleveraging is a priority and we'll see us reducing net debt, targeting a 300 to 350 million reduction and targeting a net debt to EBITDA of eight times. We have a great track record of asset recycling with disposals in line with valuation and our 850 million of non-core assets support our committed pipeline and our deleveraging. So we delivered another strong financial performance in line with expectations. Our rental income was up 7.8%, our like for like was 3.1% and our earnings growth was 4%. We have increased our dividend 3% And our NTA is 290 pence per share. Now, this is slightly lower than full year 25, and it reflects the valuers' sentiment about the sector rather than concrete deals in our geographies. And as a reminder, our NTA has been resilient as outward yield movement has been substantially mitigated by rental growth. Our operational platform continues to deliver ahead of the market. As a reminder, we underwrite at between 95% and 97% occupancy, and we've maintained high occupancy at 96%. We've achieved strong retention at 61%, healthy customer affordability at 27% of our customers' income spent on rent. And this is very healthy because on average, mid-30s is seen as affordable. We have strong operational efficiency, still at 25%, even after absorbing higher cost. And as a reminder, our gross-to-net includes all maintenance and refresh costs. Grainger is a resilient and growing business and here are five key reasons. One, we are a needs-based asset class. Everyone needs somewhere to live and there is a shortage of good quality rental homes and this is getting more challenging. We have low obsolescence, we are AI resilient and indeed we are more likely to be a beneficiary of AI in our operations because of our data and insights. Two, we deliver inflation linked growth underpinned by wage inflation and a trend for renting for longer. Three, we have a very diversified customer base and that's diversified in employment, diversified in geography and less than 10% of our customers are students and that's a self-imposed cap. Four, we have limited cost inflation exposure. In our developments, our construction costs are fixed. In our operations, our energy costs are around 2 million per annum. And of course, our homes are significantly more energy efficient than the wider market, helping our customers in their overall occupation costs. five we have embedded margin expansion and earnings growth. Our stable tech enabled platform is scalable for growth and as we add more homes through our committed pipeline this will increase earnings growth and deliver margin expansion. The strong pace of our disposals continues and it is this that is funding our deleveraging and future growth. And as a reminder, we have done over 2 billion of recycling since the start of our strategy and 700 million since 2022. There was a degree of market stagnation in RQ1, and the long-awaited and delayed budget caused many buyers to pause, but we've achieved £82 million of sales completed or exchanged year-to-date. And we are seeing strong demand for our ex-regulated properties and our non-core PRS, and we haven't seen any slowdown in momentum in recent weeks. we still have 850 million of non-core disposals to support our strategy. Now we included a similar slide to this a year ago, but it's important to revisit. Our disciplined capital allocation will drive returns. Our current priorities are the completion of our committed pipeline of schemes on site and deleveraging. Our committed pipeline of 775 homes will cost £120 million to complete and it is this that will drive our uplift in earnings. Our second priority will be to reduce our net debt to bring LTV to around 30% and net debt to EBITDA to 8 times and this is supported by our non-core disposal programme. These first two priorities facilitate the growth in our earnings and they optimise our capital structure. We have been clear that following our two priorities, we will consider other options to drive future returns for shareholders. And at our current share price, share buybacks are a strong contender for capital allocation following our key priorities of deleveraging and completion of our schemes on site. we will allocate capital into whichever is most accretive to shareholder returns. We are focused on delivering shareholder value in the short, medium and long term. So turning to our portfolio, we have a high quality build to rent portfolio of just under 3 billion and a pipeline delivering significant earnings growth. Our regulated tenancies continue to sell well but are now around £530 million and they are a source to fund our future growth. Our onsite committed pipeline seen here shaded in black will deliver 775 homes and 14 million of net rents, which is a key driver of our 35% earnings growth. And there's just 120 million to spend remaining. We have over 2000 homes secured and an outer pipeline of 1200 homes in planning and legals. We have strong partnerships and optionality for the future. The growth in our portfolio will leverage our central costs and drive our EBITDA margin expansion. At our current share price, share buybacks look more accretive than our secured pipeline. This pipeline, though, provides a valuable store of future growth. This slide demonstrates the consistent delivery of our business and the vast increase in our income and margin. We have consistently grown our income, our earnings, and our margin, and our growth is continuing. Our strong growth in our rents, in our EPRA earnings, and as we drive operational leverage, we will deliver more EBITDA margin expansion. We have a track record of delivering growth, but there is a lot more to come. And with that, I'll hand over to Rob.

Thank you, Helen, and good morning, everybody. Today, I'm going to run through the financial performance for the half year and outline the strong earnings growth that we have to come. The first half has been another period of strong growth with rents up 8% demonstrating Granger's resilience and our market leading position. We have again delivered a strong operational performance with light for light rental growth at 3.1% and occupancy at 96%. EPRA earnings grew by 4% and we're on track to deliver our guidance of 12% growth to 60 million for the full year. Our dividend per share increased by 3%. And EPRA NTA was down 2.7% to 290p due to valuations. And I'll cover this in more detail later. So turning to the income statement in more detail. Our overall like-for-like rental growth was strong at 3.1% in line with long-term averages. Stabilized gross to net remained at 25%, demonstrating our ongoing focus on cost efficiency. Our overheads were flat in the half, having implemented a £2 million annualised cost saving in the period, and this will keep overheads flat for the next two years. Interest costs increased during the half due to one-off costs relating to refinancing our bank debt, with the benefits of this to be delivered in the second half and beyond. We continue to see EPRA earnings growth up 4% in the half in line with our plan to deliver our guidance of 60 million for the full year. As expected, sales profits were lower at 5.2 million in the first half, reflecting phasing of regulated sales with a strong pipeline for the second half. Other adjustments include derivative valuation movements and restructuring costs associated with our cost saving initiatives. So looking at the moving parts of the 8% increase in our net rent for the period, strong occupancy and like-for-like rental growth of 3.1% contributed £1.5 million. And this was driven by good rental growth in BTR in line with guidance at 2.9%, with new lets delivering 2% and renewals 3.3%. Our regulated portfolio delivered 5.9%. The strong lease-up performance of our recent pipeline deliveries has contributed an additional £5.7 million of net rent, and our asset recycling programme offset this growth by £2.4 million. Looking forwards, we'd expect full-year build-to-rent rental growth to be in line with the long-term average of 3% to 3.5%. This chart shows the key movements in NTA over the period and our NTA was down 8p at 290p per share. Net rents and fees added 9p with overheads and finance costs offsetting this by 5p. Overall our portfolio valuation for the period was down 1.1% and the PRS portfolio saw 1.4% valuation decline with ERV growth of 1.1% offset by around 25 basis points of outward yield shift reflecting macro sentiment. Valuations on the REGS portfolio were up 0.6% demonstrating their resilience and further details of the valuation can be seen in the appendices of this presentation. Now looking at net debt. Net debt increased in the half to £1.5 billion in line with our plans. Operational cash flows remained strong with £85 million generated with disposals contributing £61 million net of fees. We're targeting £200 million of operational cash flows for the full year. As mentioned at the full year, investment in our built-to-rent portfolio has continued to moderate as we work our way through the committed pipeline. There was £80 million invested during the period, with a further £120 million to spend on the pipeline and the majority of this falling into FY27. As Helen explained, in line with our capital allocation strategy, we'll continue to generate high levels of sales. These proceeds will be used to fund the remaining committed pipeline and also to lower leverage by 300 to 350 million by FY29. Going forwards, we therefore expect net debt to be broadly flat on FY25 by the FY26 year end before starting to deliver from FY27. and our balance sheet remains in good shape. Both net debt at 1.5 billion and LTV at 40.2% were up slightly over the period in line with our plans. We maintain strong liquidity and a robust hedging profile with rates fixed in the mid 3% range. In the half, we successfully extended our £540 million of bank facilities to 2033 and reduced margins, further de-risking our balance sheets, and this will give an annualised saving of £1 million. As previously highlighted, we plan to reduce our debt by around £300 to £350 million by FY29 as we continue to sell through our lower yielding non-core assets. And this will see our net debt at around £1.1 billion, which will equate to around an eight times net debt to EBITDA, an LTV of around 30%, which we see is the right capital structure for the long term. As net debt is brought down, this will help mitigate the impact of rising finance costs as our low rate hedging rolls off, ensuring continued strong earnings growth. And we remain confident of delivering our previously communicated guidance. We're on track to deliver our EPR earnings guidance of 60 million this year and the 35% increase to 72 million by FY29. And we see this growth as exceptionally strong, particularly as it's delivered through a period in which we'll absorb the full rebasing of our interest costs to market levels. We've modelled interest at 5.5%, which a number of people thought was prudent last time, but of course is now looking more realistic. And the bridge on this slide breaks down the key drivers of delivering this, which are unchanged, and they include the benefits of like-for-like rental growth assumed at 3% to 3.5%, the yield pickup from recycling out of our lower-yielding REX assets into our Build to Rent portfolio, scale efficiencies with EBITDA margins growing to over 60%, and the mitigating impacts of reducing debt on higher interest rates. So to summarise, we've continued to deliver a very strong operational performance with rental income increasing by 8%. We continue to de-risk the balance sheet through refinancings. We're focused on deleveraging using disposals to reduce our debt by 300 to 350 million. We maintain our upper earnings guidance of £60 million for the full year and £72 million by FY29 from the delivery of just our committed pipeline alone, whilst also fully absorbing the headwind of higher interest rates. Despite the current macroeconomic uncertainty, our underlying business continues to demonstrate its compelling resilience and compounding growth both now and for the years to come. And with that, I now hand you back to Helen.

Thanks, Rob. In this section, I'm going to provide evidence to support why we and many others think build to rent is a great real estate sector to be in and why living and build to rent screens as one of the most wanted asset classes. Our investment case is that investing in residential provides low risk compounding growth with diversified customers, and this provides resilience and growth. The attraction of Build to Rent comes from two main features. It's positive growth drivers and it's low risk nature. So looking at just four features of its growth and four reasons why the sector is low risk. One, it has real scale and liquidity. There are 5.6 million rental households and Build to Rent is just 2.6%. There are market fundamentals of a needs-based asset class with a structural undersupply and growing demand. Three, it has a compounding effect, 3% plus rental growth over the long term and inflation linking through the cycle. And four, build to rent delivers a true net yield. All refresh costs are delivered through the gross to net, no dilapidations, and that's in stark contrast to commercial property. And then there are the four low risk factors. So linked to that previous point, designs of homes endure. There's no obsolescence as we've seen in other real estate sectors. Two, there is low volatility. Even during COVID, our occupancy was averaging 90% plus. Three, low depreciation. There are no end of lease write downs. And four, we have a growing low risk, diverse customer base with strong affordability and more customers renting for longer. So we are an attractive asset class with growth fundamentals and low risk. So just looking at these supportive attributes, the compounding effect means that private residential rents have significantly outperformed commercial. This growth has been resilient and affordable. It is underpinned by wage growth, and that's people's ability to pay. And that is providing inflation linkage and growth through the cycle. There's an opportunity to scale. Now, Grainger is the largest player, but there are 5.6 million rental homes and only 150,000 purpose-built built-to-rent homes. So there's a long way to go. And Granger's core customer demographic is 25 to 34, and it does not see the higher levels of unemployment or volatility in employment rates that are experienced by those below 25. So residential's resilient and growing demand base has helped rents to grow year on year without pricing corrections seen in the commercial sector. And this combined with a net yield that explicitly captures all ongoing maintenance, lettings, voids and refresh cost justifies its lower yield. Sadly, there is a continued reduction in private landlords and buy-to-let investors. Increasing regulation and fears of it, together with increased finance costs, has seen a net loss of over £200,000. rental properties from small private landlords between July 2022 and August 2025. So the blue bars here are the inflows and the orange bars are landlords selling and leaving the sector and the black line shows the reducing supply from small landlords. The introduction of the Renters' Rights Act led to a significant acceleration of this. The slide on the right is showing the steady decline of buy-to-let mortgages amongst individuals. Anecdotally, reports of accelerated sales by landlords reaching 700 homes a day in the run-up to the introduction of the Renters' Rights Act will exacerbate these numbers. But as a large investor with the leading operational platform, we deliver efficient management and stronger earnings growth. And we can comply much more easily with the new regulations. We have a sector-leading operating platform. This platform is leading to our EBITDA margin expansion, which has grown rapidly and we're on track to deliver 60%. And since the start of our strategy, we have a very disciplined approach to cost control. Our overheads now are broadly the same as they were 10 years ago, whilst our net rental income has more than tripled. As Rob mentioned, we've taken a further two million out of our cost base, and we've done this through our investment in our processes and technology. Our investment in our proprietary technology platform, Connect, and in data and AI to make our operations more efficient and more customer focused. We are leveraging data and AI to attract and retain customers and run our business more efficiently. It is also providing us with customer and asset level insights in real time. So this is a very valuable platform to attract, retain and serve our residents. And our customer base is reflective of the quality and the positioning of our portfolio. Modern, efficient assets aimed at a diverse mid-market customer. 85% of our residents are over 25 and the majority are in that 25 to 40 age range. And they have good customer affordability. 27% of their income is spent on rent, which is below the UK average. They work in diverse sectors of healthcare, financial, IT, education and many are key workers. And this together with our diverse geography gives us a great high quality customer and asset base providing resilient and growing income. Our homes are designed to insulate customers from energy cost inflation. Granger's customers pay for their own energy and Granger's built-to-rent properties are the most efficient. 99.9% are A to C and over 85% are A or B. And the chart shows the average energy bill for an apartment across EPC A to C and the comparison to the wider rental market. So our customers pay significantly lower energy bills as a result of our energy efficient portfolio. And Grange's direct energy bill is only 2 million per annum. Our strategy is to invest in cities with long-term growth fundamentals and supply and demand fundamentals. And it is the result of rigorous research, city champions driving local knowledge and insights. London remains our best city for long-term growth. We have a strong track record of sourcing across the UK and the gold stars represent where we have schemes under construction now. So our committed pipeline is in exactly the best places. Three schemes illustrated here are on site. The Merrick in Southall, next to the Elizabeth line, will be delivered early next year and that's over £9 million in net rental income when stabilised. Alloy Apartments in Guildford, 179 homes, phase 2 of the mint, will deliver £3 million of income when stabilised. And our Connected Living London JV with TfL at Chiswick Reach represents a real milestone. It is also our first scheme delivered by a house builder. And at this scheme, our income of £2 million will be enhanced by fees. Now this month marked a major milestone in England's private rented sector. On the 1st of May, the Renters' Rights Act came into force, giving a clear and certain environment to the build-to-rent investor. We have invested in processes, training and technology to prepare our business for the changes. But for small landlords, these may be seen as difficult to manage, but our scale and our technology puts us in a good position to embrace and adopt these changes. Reassuringly, the government chose not to implement rent control or caps when it had the opportunity to do so in this Act. They have repeatedly confirmed it is not their policy and this is not the policy of the main opposition. So we can now move forward with certainty. There is broad support across political parties for Build to Rent and recognition that Build to Rent can help raise standards, professionalise the rental sector and increase housing supply. So we are a business that delivers a high quality income stream with compounded earnings and embedded growth. We are a resilient business and vastly underestimated is the value of our operational platform vertically integrated, enabled by a tech first approach and a sector leading gross to net efficiency. This is enabling high occupancy and attracting a wide customer base. We have locked in growth from our committed pipeline. Our headline growth is delivered by our committed pipeline, but we have a secured pipeline of great sites, which gives us optionality for the future. We have a track record of delivering on sales, even in difficult markets, and we will use our 850 million of non-core assets to support one of our key priorities of deleveraging. We will deliver 60 million of earnings this year, a 12% increase, and we're on track to deliver 72 million by 2029 after refinancing. So we're a resilient growth business. As the UK's only listed build-to-rent platform, we continue to benefit from a structurally undersupplied rental market and long-duration inflation-linked income. So the earnings outlook for Grainger is excellent. Thank you. I'll now invite you to ask questions. I'm going to be joined by Rob, but we have got senior people in the room that can help with questions. Tom.