Housebuilder Grainger is to double the size of its portfolio in the next three years as it completes its repositioning strategy.
New chief executive Helen Gordon initiated the PRS-led strategy in early 2016 when the firm was the subject of takeover rumours.
The UK’s largest listed residential operator has a £1bn pipeline of units either in development or secured and has “opportunities” on another £500m of stock, which would more than double its current £1.4bn portfolio.
When the strategy was announced the firm had an £850m investment target, of which it has now deployed £756m.
Chief executive Helen Gordon said: “Our investment plans will see Grainger fundamentally transform from a business that relied heavily upon trading income and capital value growth to one more balanced with a greater focus on recurring net rental income.”
Rising rents
In its half-year results to the end of March, Grainger said rents had increased by 9%, while like-for-like rents were up by 4.1%. Profits before tax increased by 23% to £50.6m on 2017.
Occupancy stands at around 97% in its 5,100 operational apartments. The new pipeline of acquisitions and development would boost this to more than 10,000 flats.
Some £1.2bn of funding has been identified for the expansion over the next three years, based on existing investment, financial headroom, operational cash flows and asset recycling. Alongside the £120m of stock sold in the six months to March 2018, the firm has identified another £130m of non-core stock to sell.
Once all developments in Grainger’s pipeline are completed, this £1.2bn will triple.
While Grainger has concentrated on buying development opportunities, Gordon did not rule out buying existing blocks from other operators as the sector starts to consolidate.
Access to stock
“What we are looking to do, as we have a great operating platform ourselves, is not necessarily to acquire operators, what we are looking for is access to stock,” she said.
“It depends why they have run into trouble. If they have the wrong product or an overpriced product that doesn’t sit within our strategy, then we would not necessarily be interested. But I think over time as the sector matures we are going to have more people not being able to get scale and I think you will see people coming in and trading assets.”
She said Grainger would not be looking at Quintain’s Wembley project, which is too geographically concentrated.
Tenant retention in the portfolio has also been rising: since the new strategy was implemented, the average stay has risen from 18 to 30 months, while in its new-build blocks 40% of tenants are taking three-year leases.
Gordon says Grainger’s business model is to target the deepest pool of demand and it always underwrites schemes on the basis of local rents, with average rent just £806 per month for a flat.
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