REG - Grainger PLC - Final Results
22/11/2023 07:00
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RNS Number : 1966U Grainger PLC 22 November 2023
22 November 2023
Grainger plc
Full year financial results
for the twelve months ended 30 September 2023
An outstanding year of record delivery
and an excellent outlook
§ Delivering 1,640 new homes in 2023
§ Net Rental Income up +12%
§ EPRA Earnings up +41%
§ Total dividend per share up +11%
§ Adjusted Earnings up +4%
§ Like-for-like PRS rental growth up +8.0%
§ EPRA NTA resilient at 305pps
§ Customer NPS up 26% to +43pts
§ Doubling post tax EPRA earnings from FY22 in next 3 years
Grainger plc, the UK's largest listed residential landlord and leader in the
build-to-rent sector, today announces an outstanding year of record delivery
and a strong performance for the 12 months ended 30 September 2023. Grainger
has a £3.3bn operational portfolio of 10,208 private rental homes and a
£1.6bn, 5,634-home build-to-rent pipeline.
Helen Gordon, Chief Executive, said:
"It is with great pleasure that I can report an outstanding year of record
delivery and a strong performance for Grainger, growing net rental income
strongly and enabling us to increase our dividend to our shareholders by 11%,
while improving the rental experience for our growing number of customers.
"We are now delivering our pipeline at pace and are set to deliver
market-leading earnings growth, a culmination of years of planning and
implementation since setting out the Company strategy in 2016. We have
delivered c.1,200 new build-to-rent homes and are scheduled to deliver a
further c.400 by the end of the calendar year. This year, we have exceeded
more than £100m of annual net rental income on a passing basis, which is more
than three times what it was at the start of the strategy. We now own and
operate more than 10,000 rental homes nationally and this is set to grow
significantly over the coming years. Our PRS portfolio now represents 77% of
our operational portfolio by value.
"In the next three years, post-tax EPRA earnings will double compared to last
year, as we deliver our fully-funded committed pipeline.
"Despite the macro-economic turbulence which marked the beginning of our
financial year, the Grainger business has performed exceptionally well. This
performance has been delivered by our market-leading operating platform,
robust balance sheet and disciplined approach to capital allocation. Our
property valuations held up well, underpinned by strong rental growth. Our
capital discipline puts us in a strong position from a balance sheet
perspective too, with our cost of debt fixed in the mid 3% for the next five
years, enabling us to deliver on our committed pipeline and continue our
growth trajectory.
"Our market-leading operating platform continues to drive value both for
shareholders and residents. Occupancy in our PRS portfolio remains at an
all-time high of 98.6%. Like-for-like rental growth is also strong at 8.0% for
our PRS portfolio, in line with wage inflation, split between 9.2% on new lets
and 7.2% on renewals, demonstrating our commitment to customer loyalty.
"Our focus on customer service is proving successful, with customer
satisfaction levels continuing to rise. We are achieving industry-leading
customer satisfaction levels, with our Net Promoter Score now +43, ahead of
many well-known consumer brands.
"We remain very conscious of the affordability challenges facing many renters,
and therefore closely monitor rent affordability in our rental communities
across the UK, seeking to closely align rental increases with wage inflation.
Our average customer rental affordability is c.28% of gross income, well below
the widely accepted one-third threshold. In addition, our homes are highly
energy efficient, providing our customers with lower energy bills, and many
customers benefit from free Wifi, free on-site gyms, free resident lounges and
co-working spaces, on-site Resident Services teams and much more.
"We are pleased today to announce a new partnership with Network Rail and bloc
group, through their joint venture 'Blocwork', which will provide Grainger a
new route for growth giving us optionality to forward fund and acquire a
number of build-to-rent schemes across Network Rails' expansive land holdings.
"We remain in a very strong position to continue to deliver great performance
and a great rental experience to our customers, with everyone at Grainger
committed to our collective purpose of 'Renting homes and Enriching lives'."
Highlights
§ +12% growth delivered in Net Rental Income(1) to £96.5m (FY22: £86.3m)
§ +41% growth delivered in EPRA Earnings to £39.8m (FY22: £28.2m)
§ Final dividend up +11% to 6.65p per share (FY22: 5.97p per share)
§ Adjusted Earnings(2) grown +4% to £97.6m (FY22: £93.5m)
§ +8.0% like-for-like rental growth(3) in our PRS portfolio (FY22: 4.8%)
§ +9.2% like-for-like rental growth on new lets in our PRS portfolio (FY22:
5.6%)
§ +7.2% like-for-like rental growth on renewals in our PRS portfolio (FY22:
4.1%)
o +5.9% like-for-like rental growth in our Regulated Tenancy Portfolio
(FY22: 4.6%)
o Total, blended like-for-like rental growth of +7.7% across our whole
portfolio (FY22: 4.7%)
§ Occupancy of 98.6% in our PRS portfolio
§ IFRS Profit before tax of £27.4m (FY22: £298.6m) due to the prior year
one-off £81.2m valuation gain from the transfer of trading assets in
preparation for REIT conversion along with a lower valuation performance in
FY23
§ Strong sales performance with £194m of sales proceeds including
accelerated asset recycling
§ EPRA NTA proving resilient at 305pps (FY22: 317pps)
§ Strong balance sheet and funding position, debt costs fixed in mid 3% for
the next five years
§ New partnership announced with Network Rail and bloc group to forward fund
and acquire build-to-rent schemes on sites adjacent to major rail hubs in line
with our investment and cluster strategy (see separate announcement for
further details)
§ New acquisition of 65-home build-to-rent scheme in Tottenham Hale from
Waterside Places, a JV between Canal & River Trust and Muse Places,
adjacent to our existing operational asset, Windlass Apartments
Financial Highlights
Income returns FY22 FY23 Change
Rental growth (like-for-like) 4.7% 7.7% +302 bps
PRS rental growth (like-for-like) 4.8% 8.0% +314 bps
PRS like-for-like (new lets) 5.6% 9.2% +358 bps
FY22 FY23 Change
PRS like-for-like (renewals) 4.1% 7.2% +313 bps
Regulated tenancy rental growth (like-for-like, annualised) 4.6% 5.9% +126 bps
Net rental income (Note 5) £86.3m £96.5m +12%
Adjusted earnings (Note 2) £93.5m £97.6m +4%
EPRA Earnings £28.2m £39.8m +41%
IFRS Profit before tax (Note 2)(4) £298.6m £27.4m (91)%
Earnings per share (diluted, after tax) (Note 9)(4) 30.9p 3.5p (89)%
Dividend per share (Note 10)(5) 5.97p 6.65p +11%
Capital returns FY22 FY23 Change
Total Property Return(6) 7.5% 0.4% (713) bps
Total Accounting Return (Note 3) 8.8% (1.8)% (1,065) bps
EPRA NTA per share (Note 3) 317p 305p (4)%
Net debt £1,262m £1,416m +12%
Group LTV 33.4% 36.8% +340 bps
Cost of debt (average) 3.1% 3.3% +12 bps
Reversionary surplus £248m £213m (14)%
Build-to-rent investment pipeline Investment Homes
Committed £721m 2,609
Secured £541m 2,009
Planning/ Legals £316m 1,016
Total investment value £1.6bn 5,634
ESG benchmark performance
FTSE4Good since 2010
ISS ESG Prime Rating
MSCI ESG 'AA'
Sustainalytics ESG Risk Rating Low Risk
EPRA Sustainability Best Practice Reporting Gold Award
CDP (formerly the Carbon Disclosure Project) 'B' Rating
Workforce Disclosure Initiative 80%
GRESB Public Disclosure 'A' Rating
Future reporting dates
2024
AGM & Trading update 7 February
Half year results 16 May
Trading update September
Full year results 21 November
( )
( )
(1) Refer to Note 5 for net rental income calculation.
(2) Refer to Note 2 for profit before tax and adjusted earnings
reconciliation.
(3) Rental growth is the average increase in rent charged across our portfolio
on a like-for-like basis.
(4) FY22 IFRS Profit before tax includes an £81.2m valuation uplift from
one-off transfers from trading property to investment property.
(5) Dividends - Subject to approval at the AGM, the final dividend of 4.37p
per share (gross) amounting to £32.2m will be paid on 14 February 2024 to
Shareholders on the register at the close of business on 29 December 2023.
Shareholders will again be offered the option to participate in a dividend
reinvestment plan and the last day for election is 24 January 2024. An interim
dividend of 2.28p per share amounting to a total of £16.9m was paid to
Shareholders on 3 July 2023 - refer also to Note 10.
(6) Total Property Return (TPR) represents the change in gross asset value,
net of capital expenditure incurred, plus net income, expressed as a
percentage of gross asset value.
Results presentation
Grainger plc will be holding a presentation of the results at 08:45am (UK
time) today, 22 November 2023, which can be accessed via webcast and a
telephone dial-in facility (details below), which will be followed by a live
Q&A session for sell side analysts and shareholders.
Webcast details:
To view the webcast, please go to the following URL link. Registration is
required.
https://brrmedia.news/GRI_FY23 (https://brrmedia.news/GRI_FY23)
The webcast will be available for six months from the date of the
presentation.
Conference call details:
Call: +44 (0)330 551 0200
Confirmation Code: Quote Grainger - Full Year Results when prompted by the
operator
A copy of the presentation slides will also be available to download on
Grainger's website (http://corporate.graingerplc.co.uk/
(http://corporate.graingerplc.co.uk/) ) from 08:00am (UK time).
For further information, please contact:
Investor relations
Kurt Mueller, Grainger plc:
+44 (0) 20 7940 9500
Media
Ginny Pulbrook / Geoffrey Pelham-Lane, Camarco:
+44 (0) 20 3757 4992 /
4985
Forward-looking statements disclaimer
This publication contains certain forward-looking statements. Any statement in
this publication that is not a statement of historical fact including, without
limitation, those regarding Grainger plc's future financial condition,
business, operations, financial performance and other future events or
developments involving Grainger, is a forward-looking statement. Such
statements may, but not always, be identified by words such as 'expect',
'estimate', 'project', 'anticipate', 'believe', 'should', 'intend', 'plan',
'could', 'probability', 'risk', 'target', 'goal', 'objective', 'may',
'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or
variations on these expressions. By their nature, forward-looking statements
involve inherent risks, assumptions and uncertainties as they relate to events
which occur in the future and depend on circumstances which may or may not
occur and go beyond Grainger's ability to control. Actual outcomes or results
may differ materially from the outcomes or results expressed or implied by
these forward-looking statements. Factors which may give rise to such
differences include (but are not limited to) changing economic, financial,
business, regulatory, legal, political, industry and market trends, house
prices, competition, natural disasters, terrorism or other social, political
or market conditions.
Grainger's principal risks are described in more detail in its Annual Report
and Accounts, set out in the Risk Management report on pages 62 to 67 of the
2023 Annual Report and Accounts.
A number of risks faced by the Group are not directly within our control such
as the wider economic and political environment.
In line with our risk management approach the key risks to the business are
under regular review by the Board and management, applying Grainger's risk
management framework. It is currently considered that the principal risks
previously reported remain our principal risks. The risks to Grainger will
continue to be monitored closely as well as the potential controls and
mitigants that may be applied.
These risks and other factors could adversely affect the outcome and financial
effects of the events specified in this publication. The forward-looking
statements reflect knowledge and information available at the date they are
made and Grainger plc does not intend to update on the forward-looking
statements contained in this publication.
This publication is for information purposes only and no reliance may be
placed upon it. No representative or warranty, either expressed or implied, is
provided in relation to the accuracy, completeness or reliability of the
information contained in this publication. Past performance of securities in
Grainger plc cannot be relied upon as a guide to the future performance of
such securities.
This publication does not constitute an offer for sale or subscription of, or
solicitation of any offer to buy or subscribe for, any securities of Grainger
plc.
Chief Executive's Statement
An Outstanding Year of Record Delivery
It is with great pleasure that I can report another year of strong performance
for your Company.
This year marks a year of record delivery of new homes for Grainger, leading
to strong growth in net rental income and your dividend. We are delivering
1,640 new homes, 1,201 of which are completed and a further 439 completing
later this calendar year.
We are now delivering our pipeline at pace and are set to deliver
market-leading earnings growth, a culmination of years of planning and
implementation since setting out the Company strategy in 2016.
This year, we have increased net rental income by 12%, exceeding more than
£100m of annual net rental income on a passing basis, which is more than
three times what it was at the start of the strategy.
Despite the macro-economic turbulence that marked the beginning of our
financial year, the Grainger business has performed exceptionally well, with
our market-leading operating platform, robust balance sheet and disciplined
approach to capital allocation.
We now own and operate more than 10,000 rental homes nationally and this is
set to grow significantly over the coming years.
Our market-leading operating platform continues to drive value both for
Shareholders and residents. PRS occupancy remains at an all-time high of
98.6%. Like-for-like rental growth is also exceptionally strong at 8.0% for
our PRS portfolio, which now represents 77% of our portfolio by value.
Like-for-like rental growth on new lets in our PRS portfolio was 9.2% for the
year, while like-for-like rental growth for renewals was 7.2%, demonstrating
our commitment to customer loyalty.
Customer satisfaction has continued to rise, and occupancy and retention have
continued to increase. On average, our PRS customers stay with us for 32
months.
We are achieving industry-leading customer satisfaction levels, with our Net
Promoter Score now +43, ahead of many well-known consumer brand names.
We remain very conscious of the affordability challenges facing many renters,
and therefore closely monitor rents against wage growth to protect
affordability levels in our rental communities across the UK. On average, our
customers spend 28% of their income on rent, below the national average.
Despite the turmoil in the financial markets and rising interest rates, which
has badly affected other real estate markets throughout the UK and globally,
UK residential has proven resilient, with Grainger's valuations holding up
well, only 2.4% down in the year, underpinned by exceptional rental growth.
This is reflected in the movements in Profit Before Tax and EPRA NTA in the
year. In the year prior, PBT was enhanced by the transfer of trading assets in
preparation for REIT conversion. In September 2022, in the wake of the
mini-Budget, we put in place an outperformance plan which delivered an
increase in adjusted earnings despite macro-economic headwinds. We delivered a
strong sales performance in a challenging market with £194m of sales
including our accelerated asset recycling programme, consisting of regulated
tenancies, old style PRS assets and strategic land.
We have closely managed costs, and while facing energy, insurance and other
rising costs, we maintained our operating costs in line with last year with
stabilised gross-to-net held at 25.5%.
Our capital discipline puts us in a strong position from a balance sheet
perspective, with our cost of debt fixed in the mid 3% for the next five
years, enabling us to deliver on our committed pipeline and continue our
growth trajectory.
There's much to look forward to.
In the next three years, post-tax EPRA earnings will double compared to last
year, as we deliver our pipeline.
Our enhancements to our operating platform, our investment in technology, data
science and analysis, and customer experience, will continue to support our
growth, deliver efficiencies and improve our residents' experience of renting.
Our Market Opportunity
The UK private rented sector comprises 5.5 million households. Large-scale,
institutional landlords (often referred to as build-to-rent), like Grainger,
make up only 1.7% of the sector. The total addressable market we have in front
of us is therefore vast and it is growing, with the demand for renting
expanding while supply is reducing. This year we have seen many small
landlords continue to exit the market, further increasing the demand for our
homes.
All of this is underpinned by the single biggest defining characteristic of
the UK housing market, which is one of severe undersupply of all types and
tenures of housing. It is estimated that the shortfall is 4.3m homes 1
(#_ftn1) and growing as housing supply numbers continue to fall short of
increasing demand.
As these numbers show, there is a huge opportunity for Grainger to increase
our market share and support the UK in delivering more, high quality rental
homes.
Our Commitment to Acting Responsibly
As a leading housing provider in the UK, we take this responsibility very
seriously from how we treat our customers, colleagues and suppliers, through
building safety, reducing our environmental impact and continuing to enhance
our positive social impact.
From the Board to our on-site teams, everyone plays a part.
I am pleased that, for the first time, we are now able to fully report our
carbon emissions across all Scopes 1, 2 and 3. This enables us to build on our
existing commitment to be net zero carbon in operations by 2030, and we have
set ourselves a new target to reduce upfront embodied carbon by 40% excluding
offsetting for direct development schemes in design by 2030.
Our Living a Greener Life campaign, which supports our residents in reducing
their carbon footprint (which is by far one of Grainger's largest components
of our carbon emissions in Scope 3), was recognised by industry peers as
market-leading, when we were awarded the Outstanding Contribution to Society
Award for Environment by EPRA, the European Public Real Estate Association.
We are leading the sector in our approach to building safety, going beyond
what's been set out in the new Building Safety Act, continuing to build on our
Live.Safe programme.
Through an innovative partnership with the White Rose charity, we have enabled
residents to give 18,700kg of clothing to charity, generating c.£100,000 for
the charity and saving 67 tonnes of carbon in the process.
Positively Engaging in the Political Debate on Housing
Grainger is committed to improving the experience of renters and is taking a
proactive approach to engaging with all political parties to help inform and
shape public policy affecting housing and renting. This year, more than ever,
we have engaged on issues important to us and our residents, from raising
standards in the rental sector to building safety and energy efficiency
standards. We are working hard to make the case for the importance of
encouraging institutional investment into the build-to-rent sector and the
benefits that it can bring to regional growth, economic productivity and
regeneration.
We were pleased when the Conservative Government and Labour Party both
publicly ruled out rent controls in England, recognising the damage they would
do to supply, and ultimately renters. Equally, we were pleased to see the
proposals for rental reform in Parliament reflect many of the points we made
to Government throughout the consultation process, and that these reforms
align to our responsible business model.
Putting People at the Heart of our business
To maintain our leading position in the sector and to support our growth
ambitions, it is important that we can continue to attract and retain the best
possible talent into the sector and our business. Our People Strategy, and the
detailed action planning that sits behind it, ensures Grainger can maintain
our position as a top employer.
An important aspect of this is our listening culture, which we support through
our internal engagement programme. Colleague feedback is regularly sought and
acted upon, with close attention paid by the Board and Executive Committee. I
am therefore very pleased to report that our employee engagement scores have
once again improved materially, and recognise Grainger as a 'Very Good' place
to work. All areas of the business have now achieved a 'Star rating' in our
annual employee engagement survey.
Equally, we recognise that Grainger's future success is predicated on being
welcoming to as many talented colleagues and residents from as many walks of
life as possible. Two very compelling reasons behind our strong commitment to
promoting Diversity, Equality and Inclusion (DEI) both for colleagues and
residents alike.
We continue to support greater diversity of all types across all levels of the
business, with, for example, our gender pay gap continuing to reduce, due to
the deliberate actions we are taking. We now have exceptionally high diversity
data coverage for our colleagues, which will enable the business to
effectively support its colleagues across all aspects of diversity. A notable
step this year, was the Company's commitment to achieving the UK's highest
standard for DEI, the National Equality Standard.
Another Strong Performance with a Confident Outlook
The business delivered another strong performance for the year, and remains in
a good position to continue to successfully deliver on our strategic growth
plans, the quality of our product and our commitment to excellent customer
service.
Our disciplined investment approach means we have the funding in place to
deliver our sizeable pipeline of committed projects. Our reliable cashflow
from the unwinding of our regulated tenancy portfolio and our successful asset
recycling programme provides us sufficient capacity for continued growth.
We remain in a very strong position to continue to deliver great performance
and a great rental experience to our customers.
I'd like to thank the whole Grainger team and their tremendous effort and
commitment to delivering on our collective purpose of 'Renting homes and
Enriching lives'.
Helen Gordon
CEO
21 November 2023
Financial review
FY23 was another year of excellent performance for the business driven by the
strength of our platform and demand for our mid market product. Operationally,
we have capitalised on these dynamics and delivered strong results. Occupancy
is high at 98.6%, LFL rental growth strong at 7.7% across the portfolio
overall and higher in our PRS portfolio at 8.0%. The investment we are making
in our pipeline is continuing to deliver annual step changes in our net rent
with a 12% increase this year. Indeed, FY23 was a record year of both
investment and delivery (£312m invested in new homes), with 1,201 new homes
delivered and a further 439 scheduled to complete in calendar year 2023.
Despite the challenging economic backdrop, we have delivered excellent sales
profits and delivered on our strategy of increasing asset recycling, with
total sales for the year at £193.7m. Valuations have remained resilient in
the period, reducing just 4% (£70m), with the strong operational performance
driving ERV growth which in turn largely offset outward yield movement. The
close relationship between rental growth and wage inflation was again evident
in the year and demonstrates our natural valuation hedge in a high inflation
and interest rate environment.
The balance sheet remains in good shape with net debt broadly flat on the half
year position and with debt costs fixed in the mid 3% and no further material
refinancing due until 2028, we have very limited exposure to rising interest
rates in the medium term.
With a further 50% increase in net rents to come from our committed pipeline
we are on track to deliver significant earnings growth over the coming years.
The proposed final dividend for the year is 4.37 pence per share, taking the
total dividend for the year to 6.65 pence per share, up 11% demonstrating the
continuing growth in net rents.
Financial highlights
Income return FY22 FY23 Change
Rental growth (like-for-like) 4.7% 7.7% +302 bps
Net rental income (Note 5) £86.3m £96.5m +12%
Adjusted earnings (Note 2) £93.5m £97.6m +4%
Profit before tax (Note 2) £298.6m £27.4m (91)%
Dividend per share (Note 10) 5.97p 6.65p +11%
Capital return FY22 FY23 Change
EPRA NTA per share (Note 3) 317p 305p (4)%
Total Property Return 7.5% 0.4% (713) bps
Total Accounting Return (NTA basis) (Note 3) 8.8% (1.8)% (1,065) bps
Net debt £1,262m £1,416m +12%
Group LTV 33.4% 36.8% +340 bps
Cost of debt (average) 3.1% 3.3% +12 bps
Income statement
Adjusted earnings increased by +4% to £97.6m (FY22: £93.5m) as a result of
another strong year of increasing net rents which were up 12%, and a resilient
sales performance with vacant sales profits up despite the naturally shrinking
portfolio.
IFRS Profit before tax was £27.4m, down from £298.6m in the prior year as
result of the one-off £81.2m valuation gain from the transfer of trading
assets in FY22 in preparation for REIT conversion, along with a lower
valuation performance.
The operational leverage inherent in our business model means that EPRA
earnings have increased by 41% to £39.8m (FY22: £28.2m) as we continued to
deliver our pipeline and launch new homes.
FY22 FY23
Income statement (£m) Change
Net rental income 86.3 96.5 +12%
Profit on sale of assets - residential 65.3 57.8 (11)%
CHARM income (Note 15) 4.8 4.7 (2)%
Management fees 4.4 5.0 +14%
Overheads (31.8) (33.5) +5%
Pre-contract costs (0.8) (1.2) +50%
Joint ventures and associates (1.4) 0.1 (107)%
Net finance costs (33.3) (31.8) (5)%
Adjusted earnings 93.5 97.6 +4%
Valuation movements 133.4 (70.2) (153)%
Other valuation movements(1) 81.2 - (100)%
Other adjustments (9.5) - (100)%
Profit before tax 298.6 27.4 (91)%
(1 ) Profit before tax includes an £81.2m valuation uplift from one-off
transfers from trading property to investment property in FY22 in preparation
for REIT conversion, and £9.5m fire safety provision following full review of
legacy projects.
Rental income
Net rental income was up +12% during the year at £96.5m (FY22: £86.3m)
reflecting continued delivery of our PRS pipeline. Like for like growth was
strong at 7.7% (FY22: 4.7%), broadly in line with national wage growth, with
8.0% rental growth in our PRS portfolio (FY22: 4.8%) and 5.9% in our regulated
tenancy portfolio (FY22: 4.6%). New lets in our PRS portfolio delivered 9.2%
rental growth with a lower level of 7.2% on renewals, reflecting our retention
strategy.
FY23 was a record year of deliveries with 1,201 homes delivered across 6
schemes with a combined net rent roll of £13m which will benefit next years
net rent by c.£8m. We continue to remain focused on cost efficiency with
gross to net for the period on our stabilised portfolio at 25.5%, consistent
with previous periods.
£m
FY22 Net rental income 86.3
Disposals (2.8)
PRS Investment 4.3
LFL Rental growth 8.7
FY23 Net rental income 96.5
Sales and development activity
Sales revenues increased in line with our plan of delivering high levels of
asset recycling. Overall sales profits were £57.8m (FY22: £65.3m),
reflecting the mix of trading and investment sales with revenues increasing to
£193.7m (FY22: £174.7m). We delivered £34.1m of profit from vacant property
sales (FY22: £32.4m) from revenues of £70.1m (FY22: £73.9m) with sales
prices achieved that were a modest -1.9% of previous valuations reflecting the
attractiveness of these unique assets.
Sales of tenanted properties delivered £19.4m of profit (FY22: £30.9m) from
revenues of £88.1m (FY22: £74.8m), the lower profit margins reflecting the
higher level of investment sales compared to trading tenanted asset sales.
Development profits increased to £4.3m (FY22: £2.0m) from revenues of
£35.5m (FY22: £26.0m) as a result of a profitable exit from a legacy scheme
at Seven Sisters and strong land sales at our Berewood site.
FY22 FY23
Sales (£m) Revenue Profit Revenue Profit
Residential sales on vacancy 73.9 32.4 70.1 34.1
Tenanted and other sales 74.8 30.9 88.1 19.4
Residential sales total 148.7 63.3 158.2 53.5
Development activity 26.0 2.0 35.5 4.3
Overall sales 174.7 65.3 193.7 57.8
Balance sheet
Our balance sheet remains in a strong position with LTV of 36.8% (FY22: 33.4%)
following a record year of investment in our pipeline. This represents a small
increase on the half year position (HY23: 36.1%).
We have a very strong liquidity and cash position with headroom of £519m
(FY22: £663m), and our committed pipeline is fully funded and our debt costs
are almost fully hedged meaning we have minimal exposure to potential interest
rate rises over the next five years. Following a strong year of delivery our
PRS portfolio now represents 77% of our asset base.
Market value balance sheet (£m) FY22 FY23
Residential - PRS 2,189 2,423
Residential - regulated tenancies 812 693
Residential - mortgages (CHARM) 69 67
Forward Funded - PRS work in progress 466 441
Development work in progress 182 126
Investment in JVs/associates 55 91
Total investments 3,773 3,841
Net debt (1,262) (1,416)
Other liabilities (41) (66)
EPRA NRV 2,470 2,359
Deferred and contingent tax - trading assets (111) (91)
Exclude: intangible assets - (1)
EPRA NTA 2,359 2,267
Add back: intangible assets - 1
Deferred and contingent tax - investment assets (116) (106)
Fair value of fixed rate debt and derivatives 240 171
EPRA NDV 2,483 2,333
EPRA NRV pence per share 333 318
EPRA NTA pence per share 317 305
EPRA NDV pence per share 334 314
EPRA NTA decreased 4% during the year to 305p per share (FY22: 317p per
share). The decrease was largely driven by a 13p reduction from valuations
with a 5p positive contribution from EPRA earnings, offset by the payment of
our final dividend (6p). This NTA measure excludes the mark to market of our
fixed rate debt which is £171m or 23 pence per share.
EPRA NTA movement
£m Pence per share
EPRA NTA at 30 September 2022 2,359 317
Net rents, fees & income 106 14
Overheads (34) (5)
Finance costs (32) (4)
EPRA earnings 40 5
Valuations (trading & investment property) (93) (13)
Sales profit 4 1
Tax & other 3 1
Dividends (46) (6)
EPRA NTA at 30 September 2023 2,267 305
Property portfolio performance
Our overall portfolio valuation was down 2.4% (FY22: increase of 4.4%) with
our stabilised PRS portfolio decreasing by 2.3% (FY22: increase of 4.6%) and
our regulated portfolio decreasing by 2.0% (FY22: increase of 4.1%). While
yields on our PRS portfolio moved out by c.40bps as a result of the macro
economic environment, the majority of the valuation impact was offset by the
8.1% ERV growth that we delivered during the year. Our Regional PRS portfolio
outperformed London and South East given that it only experienced 30 bps yield
shift compared to 50bps in London. ERV growth in London and South East was
8.8% compared to 7.3% in the Regions.
Portfolio Region Capital Value Total Valuation movement
(£m) £m %
PRS London & SE 1,324 (67) (5.2)%
Regions 1,099 11 (1.2%)
PRS Total 2,423 (56) (2.3%)
REGS London & SE 590 (11) (1.9)%
Regions 103 (3) (2.5)%
REGS Total 693 (14) (2.0)%
Operational Portfolio 3,116 (70) (2.0)%
PRS Development 567 (21) (3.8)%
Total Portfolio 3,683 (91) (2.4)%
Financing and capital structure
Our capital structure remains in a very strong position. Net debt for the year
was £1,416m (FY22: £1,262m) with £209m of operational cashflows including
asset recycling, offset by £312m of investment in our PRS pipeline, £47m of
dividends and £4m of tax and other payments. This however represents an
increase of only £22m compared to the half year (HY23: £1,394m) as capex
spend decreased and asset recycling increased.
During the year we successfully extended £915m of bank facilities by one year
and now have no material refinancing requirements until 2028. The average cost
of debt increased only marginally to 3.3% (FY22: 3.1%) during the period as a
result of our strong hedging profile with a maturity of five years that will
ensure our interest costs remain in the mid 3%. From FY24 onwards we expect
capex to be funded by operational cashflows including asset recycling.
FY22 FY23
Net debt £1,262m £1,416m
Loan to value 33.4% 36.8%
Cost of debt 3.1% 3.3%
Headroom £663m £519m
Weighted average facility maturity (years) 6.5 5.5
Hedging 97% 95%
Summary and outlook
Following another strong year of performance, we see the high levels growth in
net rents and earnings set to continue as our pipeline continues to deliver.
With a solid balance sheet and strong operational cashflow generation we are
well placed to continue our growth trajectory.
Despite the economic challenges, the nature of our business model and the
resilience of our income stream mean that our growth continues, with a fully
funded pipeline and debt costs fixed we will continue to see a step change in
rents and earnings cover the coming years.
Rob Hudson
Chief Financial Officer
21 November 2023
Consolidated income statement
For the year ended 30 September Notes 2023 2022
£m
£m
Group revenue 4 267.1 279.2
Net rental income 5 96.5 86.3
Profit on disposal of trading property 6 54.8 64.4
Profit on disposal of investment property 7 3.3 1.7
Income from financial interest in property assets 15 4.6 6.0
Fees and other income 8 5.0 4.4
Administrative expenses (33.5) (31.8)
Other expenses (1.2) (10.3)
Goodwill impairment (0.1) -
(Impairment)/reversal of impairment of inventories to net realisable value 12 (1.0) 1.5
Operating profit 128.4 122.2
Net valuation (losses)/gains on investment property 11 (68.8) 129.0
Net valuation gains on investment property reclassifications 1c, 11 - 81.2
Finance costs (34.0) (34.6)
Finance income 2.2 1.3
Share of (loss)/profit of associates after tax 13 (0.1) 1.2
Share of loss of joint ventures after tax 14 (0.3) (1.7)
Profit before tax 2 27.4 298.6
Tax charge 20 (1.8) (69.2)
Profit for the year attributable to the owners of the Company 25.6 229.4
Basic earnings per share 9 3.5p 31.0p
Diluted earnings per share 9 3.5p 30.9p
Consolidated statement of comprehensive income
For the year ended 30 September Notes 2023 2022
£m
£m
Profit for the year 2 25.6 229.4
Items that will not be transferred to the consolidated income statement:
Remeasurement of BPT Limited defined benefit pension scheme 21 (1.1) 5.7
Items that may be or are reclassified to the consolidated income statement:
Changes in fair value of cash flow hedges (16.1) 47.3
Other comprehensive income and expense for the year before tax (17.2) 53.0
Tax relating to components of other comprehensive income:
Tax relating to items that will not be transferred to the consolidated income 20 0.3
statement
(1.4)
Tax relating to items that may be or are reclassified to the consolidated 20 4.0
income statement
(11.9)
Total tax relating to components of other comprehensive income 4.3 (13.3)
Other comprehensive income and expense for the year after tax (12.9) 39.7
Total comprehensive income and expense for the year attributable to the owners 12.7
of the Company
269.1
( )
Consolidated statement of financial position
2023 2022
As at 30 September Notes £m £m
ASSETS
Non-current assets
Investment property 11 2,948.9 2,775.9
Property, plant and equipment 8.6 4.2
Investment in associates 13 15.8 16.7
Investment in joint ventures 14 75.2 38.5
Financial interest in property assets 15 67.0 69.1
Retirement benefits 21 9.6 9.8
Deferred tax assets 20 3.7 1.2
Intangible assets 1.0 0.5
3,129.8 2,915.9
Current assets
Inventories - trading property 12 392.2 453.8
Trade and other receivables 16 34.0 40.5
Derivative financial instruments 19 45.3 56.5
Current tax assets - 16.5
Cash and cash equivalents 121.0 95.9
592.5 663.2
Total assets 3,722.3 3,579.1
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 19 1,533.5 1,317.6
Trade and other payables 17 6.9 2.2
Provisions for other liabilities and charges 18 1.1 1.1
Deferred tax liabilities 20 122.3 136.9
1,663.8 1,457.8
Current liabilities
Interest-bearing loans and borrowings 19 - 40.0
Trade and other payables 17 120.7 105.9
Provisions for other liabilities and charges 18 8.6 8.6
Current tax liabilities 0.6 -
129.9 154.5
Total liabilities 1,793.7 1,612.3
NET ASSETS 1,928.6 1,966.8
EQUITY
Issued share capital 37.2 37.1
Share premium account 817.8 817.6
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve 20.0 32.1
Retained earnings 1,033.2 1,059.6
TOTAL EQUITY 1,928.6 1,966.8
( )
Consolidated statement of changes in equity
Notes Issued Share Merger Capital Cash Retained Total
share
premium account
reserve
redemption
flow
earnings
equity
capital
£m
£m
reserve
hedge
£m
£m
£m
£m
reserve
£m
Balance as at
1 October 2021
37.1 817.3 20.1 0.3 (3.3) 867.5 1,739.0
Profit for the year 2 - - - - - 229.4 229.4
Other comprehensive income for the year - - - - 35.4 4.3 39.7
Total comprehensive income - - - - 35.4 233.7 269.1
Award of SAYE shares - 0.3 - - - - 0.3
Purchase of own shares - - - - - (3.3) (3.3)
Share-based payments charge 22 - - - - - 1.7 1.7
Dividends paid - - - - - (40.0) (40.0)
Total transactions with owners recorded directly in equity
- 0.3 - - - (41.6) (41.3)
Balance as at
30 September 2022
37.1 817.6 20.1 0.3 32.1 1,059.6 1,966.8
Profit for the year 2 - - - - - 25.6 25.6
Other comprehensive loss for the year - - - - (12.1) (0.8) (12.9)
Total comprehensive income - - - - (12.1) 24.8 12.7
Award of SAYE shares 0.1 0.2 - - - - 0.3
Purchase of own shares - - - - - (7.9) (7.9)
Share-based payments charge 22 - - - - - 2.4 2.4
Dividends paid - - - - - (45.7) (45.7)
Total transactions with owners recorded directly in equity 0.1 0.2 - - - (51.2) (50.9)
Balance as at 37.2 817.8 20.1 0.3 20.0 1,033.2 1,928.6
30 September 2023
Consolidated statement of cash flows
For the year ended 30 September Notes 2023 2022
£m
£m
Cash flow from operating activities
Profit for the year 2 25.6 229.4
Depreciation and amortisation 1.1 0.9
Goodwill impairment 0.1 -
Net valuation losses/(gains) on investment property 11 68.8 (129.0)
Net valuation gains on investment property reclassifications 1c, 11 - (81.2)
Net finance costs 31.8 33.3
Share of loss of associates and joint ventures 13, 14 0.4 0.5
Profit on disposal of investment property 7 (3.3) (1.7)
Share-based payment charge 22 2.4 1.7
Income from financial interest in property assets 15 (4.6) (6.0)
Tax charge 20 1.8 69.2
Cash generated from operating activities before changes in working capital 124.1 117.1
Decrease/(Increase) in trade and other receivables 6.5 (1.9)
Increase in trade and other payables 37.0 8.5
Increase in provisions for liabilities and charges - 8.4
Decrease in inventories 61.6 24.8
Cash generated from operating activities 229.2 156.9
Interest paid (46.9) (42.0)
Tax received/(paid) 2.7 (12.3)
Payments to defined benefit pension scheme 21 (0.3) (0.6)
Net cash inflow from operating activities 184.7 102.0
Cash flow from investing activities
Proceeds from sale of investment property 7 63.5 20.9
Proceeds from financial interest in property assets 15 6.7 8.6
Dividends received from associates 13 0.8 -
Investment in joint ventures 14 (34.0) (6.4)
Loans advanced to joint ventures 14 (3.0) (4.4)
Acquisition of investment property 11 (302.0) (289.2)
Acquisition of property, plant and equipment and intangible assets (6.1) (3.7)
Net cash outflow from investing activities (274.1) (274.2)
Cash flow from financing activities
Award of SAYE shares 0.3 0.3
Purchase of own shares (7.9) (3.3)
Proceeds from new borrowings 330.0 14.2
Payment of loan costs (2.3) (6.1)
Cash flows relating to new derivatives / settlement of derivatives (4.9) (13.7)
Repayment of borrowings (155.0) (0.9)
Dividends paid (45.7) (40.0)
Net cash inflow/(outflow) from financing activities 114.5 (49.5)
Net increase/(decrease) in cash and cash equivalents 25.1 (221.7)
Cash and cash equivalents at the beginning of the year 95.9 317.6
Cash and cash equivalents at the end of the year 121.0 95.9
( )
Notes to the preliminary financial results
1. Accounting policies
1a Basis of preparation
The Board approved this preliminary announcement on 21 November 2023. The
financial information included in this preliminary announcement does not
constitute the Group's statutory accounts for the years ended 30 September
2022 or 30 September 2023. Statutory accounts for the year ended 30
September 2022 have been delivered to the Registrar of Companies. The
statutory accounts for the year ended 30 September 2023 will be delivered to
the Registrar of Companies following the Company's annual general meeting.
The auditors, KPMG LLP, have reported on the accounts for both years. The
reports were unqualified, did not include reference to any matters by way of
emphasis and did not contain statements under section 498 (2) or (3) of the
Companies Act 2006.
These financial statements for the year ended 30 September 2023 have been
prepared under the historical cost convention except for the following assets
and liabilities, and corresponding income statement accounts, which are stated
at their fair value; investment property; derivative financial instruments;
and financial interest in property assets.
The accounting policies used are consistent with those contained in the
Group's full annual report and accounts for the year ended 30 September 2023.
The financial information included in this preliminary announcement has been
prepared in accordance with UK-adopted international accounting standards
(IFRS) and applicable law.
1b Adoption of new and revised International Financial Reporting Standards
and interpretations
The following new standards and amendments to standards were issued in the
year and have no material impact on the financial statements:
• Reference to the conceptual framework (amendments to IFRS 3);
• Onerous contracts - cost of fulfilling a contract (amendments to IAS 37);
• Annual improvements to IFRS Standards 2018-2020;
• Property, Plant and Equipment: proceeds before intended use (amendments to
IAS 16)
The following new standards and amendments to standards have been issued but
are not yet effective for the Group and have not been early adopted:
• Classification of liabilities as current or non-current (amendments to IAS
1)
• IFRS 17 insurance contracts
• Accounting policies, changes in accounting estimates and errors:
definition (amendments to IAS 8)
• Presentation of financial statements and making materiality judgements
(amendments to IAS 1, IFRS Practice
Statement 2)
• Deferred tax related to assets and liabilities arising from a single
transaction (amendments to IAS 12)
The application of these new standards and amendments are not expected to have
a material impact on the Group's financial statements.
1c Significant judgements and estimates
Estimates
i. Valuation of property assets
Residential trading property is carried in the statement of financial position
at the lower of cost and net realisable value and investment property is
carried at fair value. The Group does, however, in its principal non-GAAP net
asset value measures, EPRA NRV, EPRA NTA and EPRA NDV, include trading
property at market value.
Notes to the preliminary financial results continued
The adjustment in the value of trading property is the difference between the
statutory book value and its market value as set out in Note 3. For investment
property, market value is the same as fair value. In respect of trading
properties, market valuation is the key assumption in determining the net
realisable value of those properties.
In all cases, forming these valuations inherently includes elements of
judgement and subjectivity with regards to the selection of unobservable
inputs. The valuation basis and key unobservable inputs are outlined in Note 2
in the 2023 Annual Report and Accounts.
The results and the basis of each valuation and their impact on both the
financial statements and market value for the Group's non-GAAP net asset value
measures are set out below:
PRS Other Total Valuer % of properties
for which
£m Reversionary £m £m
external valuer
provides
£m
valuation
Trading property 10.4 348.9 32.9 392.2
Investment property 2,928.9 20.0 - 2,948.9
Financial asset (CHARM) - 67.0 - 67.0
Total statutory book value 2,939.3 435.9 32.9 3,408.1
Trading property
Residential 9.6 673.3 - 682.9 Allsop LLP 84%
Developments - - 51.4 51.4 CBRE Limited 98%
Total trading property 9.6 673.3 51.4 734.3
Investment property
Residential 329.5 20.0 - 349.5 Allsop LLP / CBRE Limited 100%
Developments 74.7 - - 74.7 CBRE Limited 100%
New build PRS 2,203.3 - - 2,203.3 CBRE Limited 100%
Affordable housing 178.7 - - 178.7 Allsop LLP 100%
Tricomm housing 142.7 - - 142.7 Allsop LLP 100%
Total investment property 2,928.9 20.0 - 2,948.9
Financial asset (CHARM)(1) - 67.0 - 67.0 Allsop LLP 100%
Total assets at market value 2,938.5 760.3 51.4 3,750.2
Statutory book value 2,939.3 435.9 32.9 3,408.1
Market value adjustment(2) (0.8) 324.4 18.5 342.1
Total assets at market value 2,938.5 760.3 51.4 3,750.2
Net revaluation loss recognised in the income statement for wholly-owned (68.8)
properties
Net revaluation loss relating to joint ventures and associates(3) (0.5)
Net revaluation loss recognised in the year(3) (69.3)
( )
(1) Allsop LLP provides vacant possession values used by the Directors to
value the financial asset.
(2) The market value adjustment is the difference between the statutory book
value and the market value of the Group's properties. Refer to Note 3 for
market value net asset measures.
(3) Includes the Group's share of joint ventures and associates revaluation
loss after tax.
Notes to the preliminary financial results continued
Judgments
i. Distinction between investment and trading property
The Group considers the intention at the outset when each property is acquired
in order to classify the property as either an investment or a trading
property. Where the intention is either to trade the property or where the
property is held for immediate sale upon receiving vacant possession within
the ordinary course of business, the property is classified as trading
property. Where the intention is to hold the property for its long-term rental
yield and/or capital appreciation, the property is classified as an investment
property. The classification of the Group's properties is a significant
judgement which directly impacts the statutory net asset position, as trading
properties are held at the lower of cost and net realisable value, whilst
investment properties are held at fair value, with gains or losses taken
through the consolidated income statement.
The Group continually reviews properties for changes in use that could
subsequently change the classification of properties. A change of use occurs
if property meets, or ceases to meet, the definition of investment property
which is more than a change in management's intentions. The fact patterns
associated with changes in the way in which properties are utilised are
considered on a case by case basis and to the extent that a change in use is
established, property reclassifications are reflected appropriately.
There have been no property reclassifications in the year. During the prior
year, four property portfolios were reclassified from trading property to
investment property where changes in use had been identified. Trading property
with a cost of £116.5m and market value of £197.7m was reclassified as
investment property, resulting in valuations gains of £81.2m on
reclassification which were recognised in the consolidated income statement.
In addition, £20.3m contingent tax on trading property has been reclassified
as deferred tax on investment property in our EPRA NAV metrics which increased
EPRA NTA by 3p per share.
1d Group risk factors
The principal risks and uncertainties facing the Group are set out in the Risk
Management report of the 2023 Annual Report and Accounts.
A number of risks faced by the Group are not directly within our control such
as the wider economic and political environment.
Risks, including updates to principal risks, are outlined in the 2023 Annual
Report and Accounts.
1e Going concern assessment
The Directors are required to make an assessment of the Group's ability to
continue to trade as a going concern for the foreseeable future. Given market
volatility over the past 12 months and the impact on the macro-economic
conditions in which the Group is operating, the Directors have placed a
particular focus on the appropriateness of adopting the going concern basis in
preparing the financial statements for the year ended 30 September 2023.
The financial position of the Group, including details of its financing and
capital structure, is set out in the financial review on pages 37 to 42 in the
2023 Annual Report and Accounts. In making the going concern assessment, the
Directors have considered the Group's principal risks (see pages 64 to 67 in
the 2023 Annual Report and Accounts) and their impact on financial
performance. The Directors have assessed the future funding commitments of the
Group and compared these to the level of committed loan facilities and cash
resources over the medium term. In making this assessment, consideration has
been given to compliance with borrowing covenants along with the uncertainty
inherent in future financial forecasts and, where applicable, severe
sensitivities have been applied to the key factors affecting financial
performance for the Group.
Notes to the preliminary financial results continued
The going concern assessment is based on forecasts to the end of March 2025,
which exceeds the required period of assessment of at least 12 months in order
to be aligned to the Group's interim reporting date, and uses the same
forecasts considered by the Group for the purposes of the Viability Statement.
The assessment considers a severe downside scenario, reflecting the following
key assumptions:
· Reducing PRS occupancy to 92% by 31 March 2025
· Contraction in rental levels of 3.75% per annum
· Reducing property valuations by 17.5% by 31 March 2025, driven by
either yield expansion or house price deflation
· 20% development cost inflation
· Operating cost inflation of 20% per annum
· An increase in SONIA rate of 5% from 1 October 2023
The Group's forecasts incorporate the likely impact of climate change and
sustainability requirements including costs to deliver our climate related
targets. This includes EPC upgrades across the portfolio and investing in
energy efficient solutions for central heating systems.
No new financing is assumed in the assessment period, but existing facilities
are assumed to remain available. Even in this severe downside scenario, the
Group has sufficient cash reserves, with the loan-to-value covenant remaining
no higher than 55% (facility maximum covenant ranges between 70% - 75%) and
interest cover above 2.94x (facility minimum covenant ranges between 1.35x -
1.75x) for the period to March 2025 to align with reporting periods, which
covers the required period of at least 12 months from the date of
authorisation of these financial statements.
Based on these considerations, together with available market information and
the Directors' experience of the Group's property portfolio and markets, the
Directors continue to adopt the going concern basis in preparing the accounts
for the year ended 30 September 2023.
1f Forward-looking statement
Certain statements in this preliminary announcement are forward-looking.
Although the Group believes that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual results may
differ materially from those expressed or implied by these forward-looking
statements. We undertake no obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Notes to the preliminary financial results continued
2. Analysis of profit before tax
The table below details adjusted earnings, which is one of Grainger's key
performance indicators. The metric is utilised as a key measure to aid
understanding of the performance of the continuing business and excludes
valuation movements and other adjustments that are one-off in nature, which do
not form part of the normal ongoing revenue or costs of the business and,
either individually or in aggregate, are material to the reported Group
results.
2023 2022
£m Statutory Valuation Other adjustments Adjusted earnings Statutory Valuation Other adjustments Adjusted earnings
Group revenue 267.1 - - 267.1 279.2 - - 279.2
Net rental income 96.5 - - 96.5 86.3 - - 86.3
Profit on disposal of trading property 54.8 (0.3) - 54.5
64.4 (0.8) - 63.6
Profit on disposal of investment property 3.3 - - 3.3
1.7 - - 1.7
Income from financial interest in property assets 4.6 0.1 - 4.7
6.0 (1.2) - 4.8
Fees and other income 5.0 - - 5.0 4.4 - - 4.4
Administrative expenses (33.5) - - (33.5) (31.8) - - (31.8)
Other expenses (1.2) - - (1.2) (10.3) - 9.5 (0.8)
Goodwill impairment (0.1) 0.1 - - - - - -
(Impairment)/reversal of impairment of inventories to net realisable value (1.0) 1.0 - -
1.5 (1.5) - -
Operating profit 128.4 0.9 - 129.3 122.2 (3.5) 9.5 128.2
Net valuation (losses)/gains on investment property (68.8) 68.8 - -
129.0 (129.0) - -
Net valuation gains on investment property reclassifications - - - -
81.2 (81.2) - -
Change in fair value of derivatives - - - -
- - - -
Finance costs (34.0) - - (34.0) (34.6) - - (34.6)
Finance income 2.2 - - 2.2 1.3 - - 1.3
Share of (loss)/profit of associates after tax (0.1) 0.5 - 0.4
1.2 (0.9) - 0.3
Share of loss of joint ventures after tax (0.3) - - (0.3)
(1.7) - - (1.7)
Profit before tax 27.4 70.2 - 97.6 298.6 (214.6) 9.5 93.5
Tax charge (1.8) (69.2)
Profit for the year attributable to the owners of the Company 25.6
229.4
Basic adjusted earnings per share 10.3p
10.2p
Diluted adjusted earnings per share 10.3p
10.2p
Profit before tax in the adjusted columns above of £97.6m (2022: £93.5m) is
the adjusted earnings of the Group. Adjusted earnings per share assumes tax of
£21.5m (2022: £17.8m) in line with the standard rate of UK Corporation Tax
of 22.0% (2022: 19.0%), divided by the weighted average number of shares as
shown in Note 9. The Group's IFRS statutory earnings per share is also
detailed in Note 9. The classification of amounts as other adjustments is a
judgement made by management and is a matter referred to the Audit Committee
for approval. There were no other adjustments in the current year. In 2022,
the £9.5m cost within other adjustments comprises fire safety expenses
including remedial work in respect of legacy assets. These transactions do not
form part of the Group's ongoing activities and, as such, have been classified
as other adjustments.
Notes to the preliminary financial results continued
3. Segmental Information
IFRS 8, Operating Segments requires operating segments to be identified based
upon the Group's internal reporting to the Chief Operating Decision Maker
('CODM') so that the CODM can make decisions about resources to be allocated
to segments and assess their performance. The Group's CODM are the Executive
Directors.
The two significant segments for the Group are PRS and Reversionary. The PRS
segment includes stabilised PRS assets as well as PRS under construction due
to direct development and forward funding arrangements, both for wholly-owned
assets and the Group's interest in joint ventures and associates as relevant.
The Reversionary segment includes regulated tenancies, as well as CHARM. The
Other segment includes legacy strategic land and development arrangements,
along with administrative expenses.
The key operating performance measure of profit or loss used by the CODM is
adjusted earnings before tax, valuation and other adjustments.
The principal net asset value (NAV) measure reviewed by the CODM is EPRA NTA
which is considered to become the most relevant, and therefore the primary NAV
measure for the Group. EPRA NTA reflects the tax that will crystallise in
relation to the trading portfolio, whilst excluding the volatility of mark to
market movements on fixed rate debt and derivatives which are unlikely to be
realised. Other NAV measures include EPRA NRV and EPRA NDV which we report
alongside EPRA NTA.
Information relating to the Group's operating segments is set out in the
tables below. The tables distinguish between adjusted earnings, valuation
movements and other adjustments and should be read in conjunction with Note 2.
2023 Income statement
£m PRS Reversionary Other Total
Group revenue 121.5 123.9 21.7 267.1
Segment revenue - external
Net rental income 82.2 13.4 0.9 96.5
Profit on disposal of trading property (0.5) 54.2 0.8 54.5
Profit on disposal of investment property 3.3 - - 3.3
Income from financial interest in property assets - 4.7 - 4.7
Fees and other income 4.6 - 0.4 5.0
Administrative expenses - - (33.5) (33.5)
Other expenses (1.2) - - (1.2)
Net finance costs (24.9) (6.3) (0.6) (31.8)
Share of trading profit of joint ventures and associates after tax 0.1 - - 0.1
Adjusted earnings 63.6 66.0 (32.0) 97.6
Valuation movements (70.1) (0.1) - (70.2)
Other adjustments - - - -
Profit before tax (6.5) 65.9 (32.0) 27.4
A reconciliation from adjusted earnings to EPRA earnings is detailed in the
table below, with further details shown in the EPRA performance measures
section at the end of this document:
£m PRS Reversionary Other Total
Adjusted earnings 63.6 66.0 (32.0) 97.6
Profit on disposal of trading property 0.5 (54.2) (0.8) (54.5)
Profit on disposal of investment property (3.3) - - (3.3)
EPRA earnings 60.8 11.8 (32.8) 39.8
Notes to the preliminary financial results continued
2022 Income statement
£m PRS Reversionary Other Total
Group revenue 103.2 150.5 25.5 279.2
Segment revenue - external
Net rental income 70.8 15.2 0.3 86.3
Profit on disposal of trading property (0.1) 61.7 2.0 63.6
Profit on disposal of investment property 1.6 0.1 - 1.7
Income from financial interest in property assets - 4.8 - 4.8
Fees and other income 3.8 - 0.6 4.4
Administrative expenses - - (31.8) (31.8)
Other expenses (0.8) - - (0.8)
Net finance costs (24.7) (7.8) (0.8) (33.3)
Share of trading loss of joint ventures and associates after tax (1.4) - - (1.4)
Adjusted earnings 49.2 74.0 (29.7) 93.5
Valuation movements 133.6 (0.2) - 133.4
Valuation movements on investment property reclassifications 81.2 - - 81.2
Other adjustments - - (9.5) (9.5)
Profit before tax 264.0 73.8 (39.2) 298.6
A reconciliation from adjusted earnings to EPRA earnings is detailed in the
table below:
£m PRS Reversionary Other Total
Adjusted earnings 49.2 74.0 (29.7) 93.5
Profit on disposal of trading property 0.1 (61.7) (2.0) (63.6)
Profit on disposal of investment property (1.6) (0.1) - (1.7)
EPRA earnings 47.7 12.2 (31.7) 28.2
Segmental assets
The principal net asset value measures reviewed by the CODM are EPRA NRV, EPRA
NTA and EPRA NDV. These measures reflect the current market value of trading
property owned by the Group rather than the lower of historical cost and net
realisable value. These measures are considered to be a more relevant
reflection of the value of the assets owned by the Group.
EPRA NRV is the Group's statutory net assets plus the adjustment required to
increase the value of trading stock from its statutory accounts value of the
lower of cost and net realisable value to its market value. In addition, the
statutory statement of financial position amounts for both deferred tax on
property revaluations and derivative financial instruments net of deferred
tax, including those in joint ventures and associates, are added back to
statutory net assets. Finally, the market value of Grainger plc shares owned
by the Group are added back to statutory net assets.
EPRA NTA assumes that entities buy and sell assets, thereby crystallising
certain levels of deferred tax liabilities. For the Group, deferred tax in
relation to revaluations of its trading portfolio is taken into account by
applying the expected rate of tax to the adjustment that increases the value
of trading stock from its statutory accounts value of the lower of cost and
net realisable value, to its market value. The measure also excludes all
intangible assets on the statutory balance sheet, including goodwill.
EPRA NDV reverses some of the adjustments made between statutory net assets,
EPRA NRV and EPRA NTA. All of the adjustments for the value of derivative
financial instruments net of deferred tax, including those in joint ventures
and associates, are reversed. The adjustment for the deferred tax on
investment property revaluations excluded from EPRA NRV and EPRA NTA are also
reversed, as is the intangible adjustment in respect of EPRA NTA, except for
goodwill which remains excluded. In addition, adjustments are made to net
assets to reflect the fair value, net of deferred tax, of the Group's fixed
rate debt.
Notes to the preliminary financial results continued
Total Accounting Return (NTA basis) of -1.8% is calculated from the closing
EPRA NTA of 305p per share plus the dividend of 6.65p per share for the year,
divided by the opening EPRA NTA of 317p per share.
These measures are set out below by segment along with a reconciliation to the
summarised statutory statement of financial position:
2023 Segment net assets
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,729.8 151.7 47.1 1,928.6 260
Total segment net assets (EPRA NRV) 1,839.3 476.9 43.1 2,359.3 318
Total segment net assets (EPRA NTA) 1,835.1 395.0 37.4 2,267.5 305
Total segment net assets (EPRA NDV) 1,729.2 395.0 208.7 2,332.9 314
2023 Reconciliation of EPRA NAV measures
£m Statutory balance sheet Adjustments EPRA NRV Adjustments to deferred and contingent tax and intangibles EPRA NTA balance sheet Adjustments to derivatives, fixed rate debt and intangibles EPRA NDV
to market
balance
balance
value, deferred
sheet
sheet
tax and
derivatives
Investment property 2,948.9 - 2,948.9 - 2,948.9 - 2,948.9
Investment in joint ventures and associates 91.0 - 91.0 - 91.0 - 91.0
Financial interest in property assets 67.0 - 67.0 - 67.0 - 67.0
Inventories - trading property 392.2 342.1 734.3 - 734.3 - 734.3
Cash and cash equivalents 121.0 - 121.0 - 121.0 - 121.0
Other assets 102.2 (33.7) 68.5 (1.0) 67.5 45.9 113.4
Total assets 3,722.3 308.4 4,030.7 (1.0) 4,029.7 45.9 4,075.6
Interest-bearing loans and borrowings (1,533.5) - (1,533.5) - (1,533.5) 182.1 (1,351.4)
Deferred and contingent tax liabilities (122.3) 122.3 - (90.8) (90.8) (162.6) (253.4)
Other liabilities (137.9) - (137.9) - (137.9) - (137.9)
Total liabilities (1,793.7) 122.3 (1,671.4) (90.8) (1,762.2) 19.5 (1,742.7)
Net assets 1,928.6 430.7 2,359.3 (91.8) 2,267.5 65.4 2,332.9
2022 Segment net assets
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,711.7 190.7 64.4 1,966.8 265p
Total segment net assets (EPRA NRV) 1,833.0 584.9 52.7 2,470.6 333p
Total segment net assets (EPRA NTA) 1,827.6 485.6 45.8 2,359.0 317p
Total segment net assets (EPRA NDV) 1,712.0 485.6 285.4 2,483.0 334p
Notes to the preliminary financial results continued
2022 Reconciliation of EPRA NAV measures
£m Statutory balance sheet Adjustments EPRA NRV Adjustments to deferred and contingent tax and intangibles EPRA NTA balance sheet Adjustments to derivatives, fixed rate debt and intangibles EPRA NDV
to market
balance
balance
value, deferred
sheet
sheet
tax and
derivatives
Investment property 2,775.9 - 2,775.9 - 2,775.9 - 2,775.9
Investment in joint ventures and associates
55.2 - 55.2 - 55.2 - 55.2
Financial interest in property assets
69.1 - 69.1 - 69.1 - 69.1
Inventories - trading property
453.8 419.2 873.0 - 873.0 - 873.0
Cash and cash equivalents
95.9 - 95.9 - 95.9 - 95.9
Other assets 129.2 (51.4) 77.8 (0.5) 77.3 56.5 133.8
Total assets 3,579.1 367.8 3,946.9 (0.5) 3,946.4 56.5 4,002.9
Interest-bearing loans and borrowings
(1,357.6) - (1,357.6) - (1,357.6) 263.0 (1,094.6)
Deferred and contingent tax liabilities
(136.9) 136.0 (0.9) (111.1) (112.0) (195.5) (307.5)
Other liabilities (117.8) - (117.8) - (117.8) - (117.8)
Total liabilities (1,612.3) 136.0 (1,476.3) (111.1) (1,587.4) 67.5 (1,519.9)
Net assets 1,966.8 503.8 2,470.6 (111.6) 2,359.0 124.0 2,483.0
( )
4. Group revenue
2023 2022
£m
£m
Gross rental income (Note 5) 133.7 121.4
Gross proceeds from disposal of trading property (Note 6) 128.4 153.4
Fees and other income (Note 8) 5.0 4.4
267.1 279.2
5. Net rental income
2023 2022
£m
£m
Gross rental income 133.7 121.4
Property operating expenses (37.2) (35.1)
96.5 86.3
Notes to the preliminary financial results continued
6. Profit on disposal of trading property
2023 2022
£m
£m
Gross proceeds from disposal of trading property 128.4 153.4
Selling costs (2.8) (4.0)
Net proceeds from disposal of trading property 125.6 149.4
Carrying value of trading property sold (Note 12) (70.8) (85.0)
54.8 64.4
7. Profit on disposal of investment property
2023 2022
£m
£m
Gross proceeds from disposal of investment property 65.3 21.3
Selling costs (1.8) (0.4)
Net proceeds from disposal of investment property 63.5 20.9
Carrying value of investment property sold (Note 11) (60.2) (19.2)
3.3 1.7
8. Fees and other income
2023 2022
£m
£m
Property and asset management fee income 3.2 2.7
Other sundry income 1.8 1.7
5.0 4.4
Included within other sundry income in the current year is £1.6m (2022:
£1.1m) liquidated and ascertained damages ('LADs') recorded to compensate the
Group for lost rental income resulting from the delayed completion of
construction contracts.
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit or loss
attributable to the owners of the Company by the weighted average number of
ordinary shares in issue during the year, excluding ordinary shares purchased
by the Group and held both in Trust and as treasury shares to meet its
obligations under the Long-Term Incentive Plan ('LTIP') and Deferred Bonus
Plan ('DBP'), on which the dividends are being waived.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of shares in issue by the dilutive effect of ordinary shares that the
Company may potentially issue relating to its share option schemes and
contingent share awards under the LTIP and DBP, based upon the number of
shares that would be issued if 30 September 2023 was the end of the
contingency period. Where the effect of the above adjustments is antidilutive,
they are excluded from the calculation of diluted earnings per share.
Notes to the preliminary financial results continued
30 September 2023 30 September 2022
Profit for Weighted average number of shares (millions) Earnings Profit for Weighted average number of shares (millions) Earnings
the year
per share (pence)
the year
per share (pence)
£m
£m
Basic earnings per share
Profit attributable to equity holders 25.6 739.9 3.5 229.4 740.5 31.0
Effect of potentially dilutive securities
Share options and contingent shares - 2.5 - - 2.6 (0.1)
Diluted earnings per share
Profit attributable to equity holders 25.6 742.4 3.5 229.4 743.1 30.9
( )
10. Dividends
Subject to approval at the AGM, the final dividend of 4.37p per share (gross)
amounting to £32.2m will be paid on 14 February 2024 to Shareholders on the
register at the close of business on 29 December 2023. Shareholders will again
be offered the option to participate in a dividend reinvestment plan and the
last day for election is 24 January 2024. An interim dividend of 2.28p per
share amounting to a total of £16.9m was paid to Shareholders on 3 July 2023.
11. Investment property
2023 2022
£m
£m
Opening balance 2,775.9 2,179.2
Acquisitions 9.8 14.4
Capital expenditure - completed assets 20.4 9.2
Capital expenditure - assets under construction 271.8 265.6
Total additions 302.0 289.2
Transfer from inventories (Note 1c) - 116.5
Disposals (Note 7) (60.2) (19.2)
Net valuation (losses)/gains on investment properties (68.8) 129.0
Net valuation gains on investment property reclassifications (Note 1c) - 81.2
Closing balance 2,948.9 2,775.9
12. Inventories - trading property
2023 2022
£m
£m
Opening balance 453.8 595.2
Additions 10.2 58.6
Transfer to investment property (Note 1c) - (116.5)
Disposals (Note 6) (70.8) (85.0)
(Impairment)/reversal of impairment of inventories to net realisable value (1.0) 1.5
Closing balance 392.2 453.8
Notes to the preliminary financial results continued
13. Investment in associates
2023 2022
£m
£m
Opening balance 16.7 15.5
Share of (loss)/profit for the year (0.1) 1.2
Dividends paid in the year (0.8) -
Closing balance 15.8 16.7
The closing balance comprises share of net assets of £1.2m (2022: £2.1m) and
net loans due from associates of £14.6m (2022: £14.6m). At the balance sheet
date, there is no expectation of credit losses on loans due.
As at 30 September 2023, the Group's interest in active associates was as
follows:
% of ordinary share capital held Country of incorporation Accounting period end
Vesta LP 20.0 UK 30 September
14. Investment in joint ventures
2023 2022
£m
£m
Opening balance 38.5 29.4
Share of loss for the year (0.3) (1.7)
Further investment(1) 34.0 6.4
Loans advanced to joint ventures 3.0 4.4
Closing balance 75.2 38.5
( )
(1) Grainger invested £34.0m into Connected Living London (BTR) Limited in
the year (2022: £6.4m).
The closing balance comprises share of net assets of £46.9m (2022: £13.2m)
and net loans due from joint ventures of £28.3m (2022: £25.3m). At the
balance date, there is no expectation of credit losses on loans due.
At 30 September 2023, the Group's interest in active joint ventures was as
follows:
% of ordinary share capital held Country of incorporation Accounting period end
Connected Living London (BTR) Limited 51 UK 30 September
Curzon Park Limited 50 UK 31 March
Lewisham Grainger Holdings LLP 50 UK 30 September
15. Financial interest in property assets ('CHARM' portfolio)
2023 2022
£m
£m
Opening balance 69.1 71.7
Cash received from the instrument (6.7) (8.6)
Amounts taken to income statement 4.6 6.0
Closing balance 67.0 69.1
Notes to the preliminary financial results continued
The CHARM portfolio is a financial interest in equity mortgages held by the
Church of England Pensions Board as mortgagee. It is accounted for under IFRS
9 and is measured at fair value through profit and loss.
It is considered to be a Level 3 financial asset as defined by IFRS 13. The
financial asset is included in the fair value hierarchy within Note 19.
16. Trade and other receivables
2023 2022
£m
£m
Rent and other tenant receivables 3.0 4.7
Deduct: Provision for impairment (1.5) (1.5)
Rent and other tenant receivables - net 1.5 3.2
Contract assets - 1.9
Restricted deposits 10.2 14.3
Other receivables 17.9 17.1
Prepayments 4.4 4.0
Closing balance 34.0 40.5
The Group's assessment of expected credit losses involves estimation given its
forward-looking nature. This is not considered to be an area of significant
judgement or estimation due to the balance of gross rent and other tenant
receivables of £3.0m (2022: £4.7m). Assumptions used in the forward-looking
assessment are continually reviewed to take into account likely rent
deferrals.
At the balance sheet date, there is no expectation of any material credit
losses on contract assets.
Restricted deposits arise from contracts with third parties that place
restrictions on use of funds and cannot be accessed. These deposits are held
in connection with facility arrangements and are released by the lender on a
quarterly basis once covenant compliance has been met.
The fair values of trade and other receivables are considered to be equal to
their carrying amounts.
17. Trade and other payables
2023 2022
£m
£m
Current liabilities
Deposits received 10.7 10.1
Trade payables 15.9 22.8
Lease liabilities 0.2 0.8
Tax and social security costs 3.0 0.7
Accruals 81.9 63.8
Deferred income 9.0 7.7
120.7 105.9
Non-current liabilities
Lease liabilities 6.9 2.2
6.9 2.2
Total trade and other payables 127.6 108.1
Within accruals, £60.2m comprises accrued expenditure in respect of ongoing
construction activities (2022: £43.0m).
Notes to the preliminary financial results continued
18. Provisions for other liabilities and charges
2023 2022
£m
£m
Current provisions for other liabilities and charges
Opening balance 8.6 0.2
Additions 0.3 8.7
Utilisation (0.3) (0.3)
8.6 8.6
Non-current provisions for other liabilities and charges
Opening balance 1.1 1.1
1.1 1.1
Total provisions for other liabilities and charges 9.7 9.7
Within current provisions, £8.6m (2022: £8.6m) has been provided for
potential fire safety remediation costs relating to a small number of legacy
properties that Grainger historically had an involvement in developing and may
require fire safety related remediation works. Where appropriate, the Group is
seeking recoveries from contractors and insurers which may reduce the overall
liability over time.
19. Interest-bearing loans and borrowings and financial risk management
2023 2022
£m
£m
Current liabilities
Bank loans - Pounds sterling - 40.0
- 40.0
Non-current liabilities
Bank loans - Pounds sterling 490.1 275.2
Bank loans - Euro 0.9 0.9
Non-bank financial institution 347.3 347.2
Corporate bond 695.2 694.3
1,533.5 1,317.6
Closing balance 1,533.5 1,357.6
The above analyses of loans and borrowings are net of unamortised loan issue
costs and the discount on issuance of the corporate bond. As at 30 September
2023, unamortised costs totalled £13.8m (2022: £14.4m) and the outstanding
discount was £1.9m (2022:
£2.2m).
Categories of financial instrument
The Group holds financial instruments such as financial interest in property
assets, trade and other receivables (excluding prepayments), derivatives, cash
and cash equivalents. For all assets and liabilities excluding
interest-bearing loans the book value was the same as the fair value as at 30
September 2023 and as at 30 September 2022.
As at 30 September 2023, the fair value of interest-bearing loans is lower
than the book value by £291.6m (2022: £263.1m greater than book value), but
there is no requirement under IFRS 9 to adjust the carrying value of loans,
all of which are stated at unamortised cost in the consolidated statement of
financial position.
Notes to the preliminary financial results continued
Market risk
The Group is exposed to market risk through interest rates, the availability
of credit and house price movements relating to the Tricomm Housing portfolio
and the CHARM portfolio. The Group is not significantly exposed to equity
price risk or to commodity price risk.
Fair values
IFRS 13 sets out a three-tier hierarchy for financial assets and liabilities
valued at fair value. These are as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets
and liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly; and
Level 3 - unobservable inputs for the asset or liability.
The following table presents the Group's assets and liabilities that are
measured at fair value:
2023 2022
Assets Liabilities Assets Liabilities
£m
£m
£m
£m
Level 3
CHARM 67.0 - 69.1 -
Investment property 2,948.9 - 2,775.9 -
3,015.9 - 2,845.0 -
Level 2
Interest rate swaps - in cash flow hedge accounting relationships 45.3 -
56.5 -
45.3 - 56.5 -
The significant unobservable inputs affecting the carrying value of the CHARM
portfolio are house price inflation and discount rates. A reconciliation of
movements and amounts recognised in the consolidated income statement are
detailed in Note 15.
The investment valuations provided by Allsop LLP and CBRE Limited are based on
RIC's Professional Valuation Standards, but include a number of unobservable
inputs and other valuation assumptions.
The fair value of swaps and caps were valued in-house by a specialised
treasury management system, using first a discounted cash flow model and
market information. The fair value is derived from the present value of future
cash flows discounted at rates obtained by means of the current yield curve
appropriate for those instruments. As all significant inputs required to value
the swaps and caps are observable, they fall within Level 2.
The reconciliation between opening and closing balances for Level 3 is
detailed in the table below:
Assets - Level 3 2023 2022
£m
£m
Opening balance 2,845.0 2,250.9
Amounts taken to income statement (64.2) 216.2
Other movements 235.1 377.9
Closing balance 3,015.9 2,845.0
Notes to the preliminary financial results continued
20. Tax
The tax charge for the year of £1.8m (2022: £69.2m) recognised in the
consolidated income statement comprises:
2023 2022
£m
£m
Current tax
Corporation tax on profit 18.9 17.8
Adjustments relating to prior years (4.3) (5.2)
14.6 12.6
Deferred tax
Origination and reversal of temporary differences (14.2) 51.7
Adjustments relating to prior years 1.4 4.9
(12.8) 56.6
Total tax charge for the year 1.8 69.2
( )
The 2023 current tax adjustments relating to prior years reflect adjustments
which have been included in submitted tax returns and represent movements
between deferred and current tax in relation to investment properties and
capital allowances.
The Group works in an open and transparent manner and maintains a regular
dialogue with HM Revenue & Customs. This approach is consistent with the
'low risk' rating we have been awarded by HM Revenue & Customs and to
which the Group is committed.
The Group's results for this year are taxed at an effective rate of 22.0%
(2022: 19.0%).
In addition to the above, a deferred tax credit £4.3m (2022: charge of
£13.3m) was recognised within other comprehensive income comprising:
2023 2022
£m
£m
Remeasurement of BPT Limited defined benefit pension scheme (0.3) 1.4
Fair value movement in cash flow hedges (4.0) 11.9
Amounts recognised in other comprehensive income (4.3) 13.3
Deferred tax balances comprise temporary differences attributable to:
2023 2022
£m
£m
Deferred tax assets
Short-term temporary differences 3.7 1.2
3.7 1.2
Deferred tax liabilities
Trading property uplift to fair value on business combinations (5.2) (6.3)
Investment property revaluation (95.2) (108.9)
Short-term temporary differences (13.2) (8.6)
Fair value movement in financial interest in property assets (1.1) (1.2)
Actuarial gain on BPT Limited defined benefit pension scheme (0.9) (1.2)
Fair value movement in derivative financial instruments (6.7) (10.7)
(122.3) (136.9)
Total deferred tax (118.6) (135.7)
( )
Notes to the preliminary financial results continued
Deferred tax has been calculated at a rate of 25.0% (2022: 25.0%) in line with
the enacted main rate of corporation tax applicable from 1 April 2023.
In addition to the tax amounts shown above, contingent tax based on EPRA market value measures, being tax on the difference between the carrying value of trading properties in the consolidated statement of financial position and their market value has not been recognised by the Group. This contingent tax amounts to £85.5m, calculated at 25.0% (2022: £104.8m, calculated at 25.0%) and will be realised as the properties are sold.
21. Retirement benefits
The Group retirement benefit asset decreased from £9.8m to £9.6m in the year
ended 30 September 2023. This movement has arisen from £0.3m company
contributions and £0.6m net interest income, offset by a £0.8m loss on plan
assets, as well as losses due to changes in assumptions of £0.3m (primarily
market observable discount rates and inflationary expectations). The principal
actuarial assumptions used to reflect market conditions as at 30 September
2023 are as follows:
2023 2022
% %
Discount rate 5.6 5.0
Retail Price Index (RPI) inflation 3.5 3.8
Consumer Price Index (CPI) inflation 2.8 3.0
Salary increases 4.0 4.3
Rate of increase of pensions in payment 5.0 5.0
Rate of increase for deferred pensioners 2.8 3.0
22. Share-based payments
The Group operates a number of equity-settled, share-based compensation plan
comprising awards under a Long-Term Incentive Plan ('LTIP'), a Deferred Bonus
Plan ('DBP'), a Share Incentive Plan ('SIP') and a Save As You Earn Scheme
('SAYE'). The share-based payments charge recognised in the consolidated
income statement for the period is £2.4m (2022: £1.7m).
23. Related party transactions
During the year ended 30 September 2023, the Group transacted with its
associates and joint ventures (details of which are set out in Notes 13 and
14). The Group provides a number of services to its associates and joint
ventures. These include property and asset management services for which the
Group receives fee income. The related party transactions recognised in the
consolidated income statement and consolidated statement of financial position
are as follows:
2023 2022
Fees Year end Fees Year end
recognised
balance
recognised
balance
£'000
£'000
£'000
£'000
Connected Living London (BTR) Limited 1,455 480 1,303 596
Lewisham Grainger Holdings LLP 307 368 319 -
Vesta Limited Partnership 838 227 743 207
2,600 1,075 2,365 803
Notes to the preliminary financial results continued
2023 2022
Interest Year end loan Interest Interest Year end loan Interest
recognised
balance
rate
recognised
balance
rate
£'000
£m
%
£'000
£m
%
Curzon Park Limited - 18.1 Nil - 18.1 Nil
Lewisham Grainger Holdings LLP 871 10.2 11.2 692 7.2 6.9
Vesta LP - 14.6 Nil - 14.6 Nil
871 42.9 692 39.9
EPRA Performance Measures - Unaudited
The European Public Real Estate Association (EPRA) is the body that represents
Europe's listed property companies. The association sets out guidelines and
recommendations to facilitate consistency in listed real estate reporting, in
turn allowing stakeholders to compare companies on a like-for-like basis. As a
member of EPRA, the Group is supportive of EPRA's initiatives and discloses
measures in relation to the EPRA Best Practices Recommendations ('EPRA BPR')
guidelines. The most recent guidelines, updated in February 2022, have been
adopted by the Group.
EPRA Earnings
2023 2022
Earnings Shares Pence per Earnings Shares Pence per share
£m millions share £m millions
Earnings per IFRS income statement 27.4 742.4 3.7 298.6 743.1 40.1
Adjustments to calculate adjusted EPRA Earnings, exclude:
i) Changes in value of investment properties, development properties held for 68.9 - 9.3 (211.4) - (28.4)
investment and other interests
ii) Profits or losses on disposal of investment properties, development (3.3) - (0.4) (1.7) - (0.2)
properties held for investment and other interests
iii) Profits or losses on sales of trading properties including impairment (53.8) - (7.3) (65.9) - (8.9)
charges in respect of trading properties
iv) Tax on profits or losses on disposals - - - - - -
v) Negative goodwill/goodwill impairment 0.1 - - - - -
vi) Changes in fair value of financial instruments and associated close-out - - - - - -
costs
vii) Acquisition costs on share deals and non-controlling joint venture - - - - - -
interests
viii) Deferred tax in respect of EPRA adjustments - - - - - -
ix) Adjustments i) to viii) in respect of joint ventures 0.5 - 0.1 (0.9) - (0.1)
x) Non-controlling interests in respect of the above - - - - - -
xi) Other adjustments in respect of adjusted earnings - - - 9.5 - 1.3
EPRA Earnings/Earnings per share 39.8 742.4 5.4 28.2 743.1 3.8
EPRA Earnings per share after tax 4.2 3.1
( )
EPRA Performance Measures - Unaudited (continued)
EPRA NRV, EPRA NTA and EPRA NDV
2023 2022
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,928.6 1,928.6 1,928.6 1,966.8 1,966.8 1,966.8
Include/Exclude:
i) Hybrid Instruments - - - - - -
Diluted NAV 1,928.6 1,928.6 1,928.6 1,966.8 1,966.8 1,966.8
Include:
ii.a) Revaluation of IP (if IAS 40 cost option is used) - - - - - -
ii.b) Revaluation of IPUC (if IAS 40 cost option is used) - - - - - -
ii.c) Revaluation of other non-current investments 11.6 11.6 11.6 5.1 5.1 5.1
iii) Revaluation of tenant leases held as finance leases - - - - - -
iv) Revaluation of trading properties 347.3 256.5 256.5 425.5 314.4 314.4
Diluted NAV at Fair Value 2,287.5 2,196.7 2,196.7 2,397.4 2,286.3 2,286.3
Exclude:
v) Deferred tax in relation to fair value gains of IP 105.8 105.8 - 115.6 115.6 -
vi) Fair value of financial instruments (34.0) (34.0) - (42.4) (42.4) -
vii) Goodwill as a result of deferred tax - - - - - -
viii.a) Goodwill as per the IFRS balance sheet - (0.4) (0.4) - (0.5) (0.5)
viii.b) Intangible as per the IFRS balance sheet - (0.6) - - - -
Include:
ix) Fair value of fixed interest rate debt - - 136.6 - - 197.2
x) Revalue of intangibles to fair value - - - - - -
xi) Real estate transfer tax - - - - - -
NAV 2,359.3 2,267.5 2,332.9 2,470.6 2,359.0 2,483.0
Fully diluted number of shares 743.0 743.0 743.0 742.9 742.9 742.9
NAV pence per share 318 305 314 333 317 334
EPRA Performance Measures - Unaudited (continued)
EPRA NIY
2023 2022
£m
£m
Investment property - wholly-owned 2,948.9 2,775.9
Investment property - share of JVs/Funds 65.6 32.4
Trading property (including share of JVs) 734.3 873.0
Less: developments (617.1) (664.8)
Completed property portfolio 3,131.7 3,016.5
Allowance for estimated purchasers' costs 125.2 121.9
Gross up completed property portfolio valuation B 3,256.9 3,138.4
Annualised cash passing rental income 140.1 124.8
Property outgoings (39.1) (33.9)
Annualised net rents A 101.0 90.9
Add: rent incentives 0.3 0.2
'Topped up' net annualised rents C 101.3 91.1
EPRA NIY A/B 3.1% 2.9%
EPRA 'topped up' NIY C/B 3.1% 2.9%
Gross up completed property portfolio valuation 3,256.9 3,138.4
Adjustments to completed property portfolio in respect of regulated tenancies (740.9) (863.8)
Adjusted gross up completed property portfolio valuation b 2,516.0 2,274.6
Annualised net rents 101.0 90.9
Adjustments to annualised cash passing rental income in respect of newly 11.2 6.6
completed developments and refurbishment activity
Adjustments to property outgoings in respect of newly completed developments (3.2) (1.9)
and refurbishment activity
Adjustments to annualised cash passing rental income in respect of regulated (17.0) (18.9)
tenancies
Adjustments to property outgoings in respect of regulated tenancies 4.7 5.1
Adjusted annualised net rents a 96.7 81.8
Add: rent incentives 0.3 0.2
EPRA 'topped up' NIY c 97.0 82.0
Adjusted EPRA NIY a/b 3.8% 3.6%
Adjusted EPRA 'topped up' NIY c/b 3.9% 3.6%
EPRA Vacancy Rate
2023 2022
£m
£m
Estimated rental value of vacant space A 1.8 2.0
Estimated rental value of the whole portfolio B 112.7 95.7
EPRA Vacancy Rate A/B 1.6% 2.1%
The vacancy rate reflects estimated rental values of the Group's stabilised
habitable PRS units as at the reporting date.
EPRA Performance Measures - Unaudited (continued)
EPRA Cost Ratio
2023 2022
£m
£m
Administrative expenses 33.5 31.8
Property operating expenses 37.2 35.1
Share of joint ventures expenses (0.1) 1.4
Management fees (3.2) (2.7)
Other operating income/recharges intended to cover overhead expenses (1.8) (1.7)
Exclude:
Investment property depreciation - -
Ground rent costs (0.2) (0.2)
EPRA Costs (including direct vacancy costs) A 65.4 63.7
Direct vacancy costs (2.2) (2.3)
EPRA Costs (excluding direct vacancy costs) B 63.2 61.4
Gross rental income 133.7 121.4
Less: ground rent income (0.6) (0.6)
Add: share of joint ventures (gross rental income less ground rents) 0.8 0.7
Add: adjustment in respect of profits or losses on sales of properties 58.1 66.1
Gross Rental Income and Trading Profits C 192.0 187.6
Adjusted EPRA Cost Ratio (including direct vacancy costs) A/C 34.1% 34.0%
Adjusted EPRA Cost Ratio (excluding direct vacancy costs) B/C 32.9% 32.7%
EPRA LTV
2023
£m Group Share of Joint Ventures Share of Associates Combined
Borrowings from Financial Institutions 849.2 - - 849.2
Bond loans 700.0 - - 700.0
Net payables 93.6 6.7 14.6 114.9
Exclude:
Cash and cash equivalents (117.8) (3.5) (0.5) (121.8)
Net debt A 1,525.0 3.2 14.1 1,542.3
Investment properties at fair value 2,433.4 - 15.4 2,448.8
Investment properties under development 515.5 50.3 - 565.8
Properties held for sale 734.3 - - 734.3
Financial assets 109.9 - - 109.9
Total property value B 3,793.1 50.3 15.4 3,858.8
EPRA LTV % A/B 40.2% 6.5% 91.9% 40.0%
EPRA Performance Measures - Unaudited (continued)
2022
£m Group Share of Joint Ventures Share of Associates Combined
Borrowings from Financial Institutions 674.2 - - 674.2
Bond loans 700.0 - - 700.0
Net payables 67.6 6.0 14.9 88.5
Exclude:
Cash and cash equivalents (95.4) (2.7) (1.1) (99.2)
Net debt A 1,346.4 3.3 13.8 1,363.5
Investment properties at fair value 2,197.7 - 15.9 2,213.6
Investment properties under development 578.2 16.5 - 594.7
Properties held for sale 873.0 - - 873.0
Financial assets 109.0 - - 109.0
Total property value B 3,757.9 16.5 15.9 3,790.3
EPRA LTV % A/B 35.8% 20.0% 86.8% 36.0%
EPRA Capital Expenditure
2023
£m Trading Properties Investment Properties Group (excl Joint Ventures) Share of Joint Ventures Combined
Acquisitions - 9.8 9.8 - 9.8
Development 5.9 255.9 261.8 33.3 295.1
Completed assets
- Incremental letting space - - - - -
- No incremental letting space 2.7 20.4 23.1 - 23.1
- Tenant incentives - - - - -
- Other material non-allocated types of expenditure
- - - - -
Capitalised interest 1.6 15.9 17.5 0.4 17.9
Total capital expenditure 10.2 302.0 312.2 33.7 345.9
2022
£m Trading Properties Investment Properties Group (excl Joint Ventures) Share of Joint Ventures Combined
Acquisitions 0.1 14.4 14.5 - 14.5
Development 49.5 253.8 303.3 5.4 308.7
Completed assets
- Incremental letting space - - - - -
- No incremental letting space 8.8 9.2 18.0 - 18.0
- Tenant incentives - - - - -
- Other material non-allocated types of expenditure - - - -
-
Capitalised interest 0.2 11.8 12.0 0.3 12.3
Total capital expenditure 58.6 289.2 347.8 5.7 353.5
1 (#_ftnref1) Centre for Cities
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