In the wake of government intervention to kick-start the housing market, Grainger chief executive Helen Gordon wants more done to encourage the rental sector.
“The government should encourage more building in this sector,” Gordon said, adding that the build-to-rent market is in a strong position, but investment is threatened by rent controls, tax and stamp duty surcharges.
She welcomed housing secretary Robert Jenrick’s opposition to London mayor Sadiq Khan’s call for rent controls, which Jenrick said would drive landlords out of the market and lead to poor-quality housing.
“That was helpful for investment,” said Gordon. “There are still taxation imbalances between building for sale and for rent. The professional BTR sector also pays stamp duty as if it was a second home – it would be helpful if [government] removed that.”
She said the sector was “not seeking any special treatment” and added that recent extensions to the furlough scheme were positive for the economy and confidence levels.
But she anticipated “structural” changes in the market, including a potential drop in house sales, could see more people opting for mid-market rental accommodation. “They want to be in that mid-market range, which is exactly where we position our properties,” said Gordon.
Gordon spoke to EG as Grainger posted record rental income levels, up 27% to £37m for the six months to 31 March.
Grainger’s dividend policy distributes 50% of net rental income between its interim and final dividend. It confirmed a 6% growth in the interim dividend to 1.83p per share.
While almost every housebuilder in the private-sale market cancelled or postponed its dividend over the past two months as a result of coronavirus, Grainger has collected the vast majority of rents, allowing it to pay out to shareholders.
The company collected 95% of March rents and 94% of April rents on time, with less than 2% falling into arrears at the end of the month.
“It has reinforced the view that this is a very resilient sector,” Gordon said. “It has a diverse customer base and is diverse in terms of geography and income.
“The business is in a great shape from the point of view of our liquidity, and our balance sheet is in the best shape it has been in for the last six years.”
At the end of March, Grainger had an LTV of 32.9%, a six-year low, with £527m of available headroom, of which £200m is cash. This compares to a capital expenditure of £165m for the next 12 months.
It means Grainger can continue sourcing new opportunities to expand its £2bn pipeline of roughly 9,000 homes. This includes the potential to take a greater share in the £600m Transport for London joint venture to build 3,000 homes, if necessary. However, Gordon stressed that despite recent cashflow challenges, “they have been absolutely unwavering in their commitment to pursue homes for rent”.
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