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RNS Number : 1875L Grainger PLC 12 May 2022
12 May 2022
Grainger plc
Half year financial results
for the six months ended 31 March 2022
Net Rental Income up 23%,
accelerating growth and total returns
§ Adjusted Earnings up +23%
§ Like-for-like rental growth of +3.5%
§ Occupancy 98% (PRS)
§ Dividend per share up 14%
§ Four acquisitions in H1
Grainger plc, the UK's largest listed residential landlord with a £3.1bn
operational portfolio and £2.4bn pipeline, today announces strong earnings
growth in the first half of its financial year.
Helen Gordon, Chief Executive said:
"We have delivered a particularly strong performance for the first half of the
year with Adjusted Earnings up +23%, largely driven by our acceleration of
growth in Net Rental Income of +23%. This is a result of an exceptional
lettings performance by the team, which also drove occupancy in our PRS
portfolio to 98% combined with like-for-like rental growth of 3.5% and a
record rate of lease up of our recent launches. The market has strengthened
swiftly over the past six months and we have successfully capitalised on this
opportunity.
"We are delivering on our growth plans which will see us double in size in the
coming years, providing exceptional earnings growth and attractive high single
digit total returns to shareholders. The UK rental market continues to have a
hugely attractive outlook with significant demand, rental growth, yield
compression, and structural drivers that favour the professional, large-scale
landlord. At the same time, Grainger is in a strong position as market leader
with a scalable national operating platform, fully-funded secured pipeline and
fully integrated business model.
"We are well prepared for the economic challenges facing the UK today of
inflation and cost of living rises. With a resilient customer base, high
quality energy efficient homes, fixed debt costs, fixed delivery costs across
the majority of our secured pipeline and limited direct exposure to other
inflationary pressures, we are confident in the outlook for our business."
Key highlights
§ +23% growth in Adjusted Earnings(1) to £46.3m (HY21: £37.5m)
§ +23% growth delivered in Net Rental Income(2) to £42.8m (HY21: £34.7m)
§ +3.5% like-for-like rental growth(3) in H1 across our total portfolio
(HY21: 1.7%)
o +3.5% like-for-like rental growth in our PRS portfolio (HY21: 1.0%)
o +3.7% like-for-like rental growth in our regulated tenancy portfolio
(HY21: 4.0%), which contributes 18% of our total net rental income
§ 98% occupancy in our PRS portfolio at the end of March, ahead of
pre-pandemic levels, reflecting the strength of our operating platform and
attractiveness of our portfolio
§ Residential sales profit up +7% to £31.6m (HY21: £29.4m)
o Sales prices achieved were strong at an average of 3.6% ahead of
valuations
§ Total Property Return for the half year of 3.8% due to strong valuation
gains of +£79m with the market value of our total property portfolio up +2.3%
in the first half and EPRA Net Tangible Assets up +3% to 305p since FY21 and
up +7% year-on-year, reflecting the completion and leasing performance of new
assets and yield compression
Financial Highlights
Income returns HY21 HY22 Change
Rental growth (like-for-like) 1.7% 3.5% +183 bps
- PRS 1.0% 3.5% +248 bps
- Regulated tenancies (annualised) 4.0% 3.7% (28) bps
Net rental income (Note 5) £34.7m £42.8m +23%
Adjusted earnings (Note 2) £37.5m £46.3m +23%
Profit before tax (Note 2)(4) £44.5m £98.8m +122%
Earnings per share (diluted, after tax) (Note 9)(4) 5.0p 10.2p +104%
Dividend per share (Note 10)(5) 1.83p 2.08p +14%
Capital returns HY21 HY22 Change
Total Property Return(6) 2.4% 3.8% +137 bps
Total Accounting Return (Note 3) 1.0% 3.2% +221 bps
FY21 HY22
EPRA NTA per share (Note 3) 297p 305p +3%
Net debt £1,042m £1,131m +9%
Group LTV 30.4% 31.4% +106 bps
Cost of debt (average) 3.1% 3.1% -
Reversionary surplus £265m £242m (9)%
Secured pipeline
Total investment value £1,022m
Total homes 4,001
(1) Refer to Note 2 for profit before tax and adjusted earnings
reconciliation.
(2) Refer to Note 5 for net rental income calculation.
(3) Rental growth is the average increase in rent charged across our portfolio
on a like-for-like basis.
(4) HY21 restated following change in accounting policy as a result of the
IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an explanation of
prior year restatements.
(5) Dividend - The dividend of 2.08p per share (gross) amounting to £15.4m
will be paid on 1 July 2022 to shareholders on the register at the close of
business on 27 May 2022. Shareholders will again be offered the option to
participate in a dividend re-investment plan and the last day for election is
10 June 2022 - 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.
Future reporting dates
§ Capital Markets Day - 22 June 2022
§ Trading Update - September 2022
§ Full year results - 17 November 2022
Half year results presentation
Grainger plc will be holding a presentation of the results at 9:00am (UK time)
today, 12 May 2022, 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://webcasting.brrmedia.co.uk/broadcast/6230643961bd9a4d1029096d
(https://webcasting.brrmedia.co.uk/broadcast/6230643961bd9a4d1029096d)
The webcast will be available for six months from the date of the
presentation.
Conference call details:
Call: +44 (0)330 165 4012
Confirmation Code: 1829192
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 08:30am (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 48-51 of the 2021
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 detailed on pages 46-48 of the 2021
Annual Report and Accounts, the key risks to the business are under regular
review by the Board and management, applying Grainger's risk management
framework. The war in Ukraine, as well as the devasting human impact, has
substantially increased the geopolitical uncertainty in Europe and beyond.
This has led to wider economic ramifications for society and business, with
the duration and depth of the impact of the conflict being unclear. This lack
of clarity is in the pre-existing context of inflationary pressures and, more
recently, rising interest rates. Specifically in relation to Grainger, it is
currently considered that the principal risks previously reported remain our
principal risks. However, it is recognised that the Ukrainian war, the
prevailing economic context and future uncertainty in that regard have
arguably increased the likelihood of such risks being accelerated or becoming
more acute. This would include, but is not limited to, market, development,
regulatory and supplier risks. The risks to Grainger will continue to be
monitored closely as well as the potential controls and mitigants that may be
applied during this volatile and uncertain period.
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 review
Overview - accelerating growth and total returns
Our growth strategy and focus on the mid-market build-to-rent sector is
delivering strong results and is set to deliver significant earnings growth at
pace and high single digit total returns over the coming years. Our market
leading position, scalable national operating platform and fully-funded £1bn
secured pipeline positions us strongly to capitalise on the market opportunity
in this growth sector.
In the first half of the year, we delivered growth in Adjusted Earnings of
23%, driven primarily by a 23% increase in Net Rental Income, with occupancy
in our PRS portfolio now at 98% and total like-for-like rental growth of 3.5%
for the period.
Our fully funded secured pipeline is expected to double net rental income when
those assets are fully operational and our longer term, outer pipeline could
see net rental income nearly treble from FY21's level. The scalable nature of
our operating platform means this will drive an acceleration in earnings, as
we leverage our CONNECT platform and central capabilities.
With 5m renters in the UK and only 1.4% of these build-to-rent properties, the
continuing exit of small landlords from the market presents a significant
opportunity for us to grow our market share, further supported by rental
growth and yield compression prospects and a landlord-friendly investment
landscape when compared to other major international rental markets.
Our £2.2bn operational PRS portfolio is now 71% of our portfolio by value,
and we are quickly nearing an important milestone of 10,000 operational rental
homes, which is expected in the second half of this year. Our total £2.4bn
pipeline will see our portfolio more than double in our target cities over the
coming years, with significant delivery happening year on year, driving
earnings growth.
Building on last year's delivery of 1,304 new rental homes, this year we
expect to deliver another 1,174 and c.1,741 next year.
PRS market opportunity - a growth sector
The market opportunity in the UK private rented sector and build-to-rent
subsector remains very compelling.
The market is large with 5m households in the UK renting privately,
representing 25% of all households, with a further 3.6m young people aged
20-34 living at home with their parents, representing potential additional
demand. Only 1.4% of these 5m households are purpose built, build-to-rent
properties owned by professional landlords such as ourselves. The vast
majority of the rental market is made up of small landlords who are selling
their properties and exiting the sector at an increasingly faster pace, driven
by fiscal changes and increased regulation. This presents a significant
opportunity for us to increase our market share.
This structural shift in the private rented sector is underpinned by an
ongoing and severe housing shortage in the UK which is systemic and not
expected to change in the medium to long term.
Coupled with strong prospects for rental growth and yield compression, and a
landlord friendly investment landscape when compared to other European
markets, the investment case for our market is strong.
Our leadership in a growth sector
As market leader, we will continue to invest in this growth sector and retain
our leading position.
Our leading operating platform, which includes our operations team, but also
our investment and development teams and digital capabilities, provides us a
unique competitive advantage unrivalled in the UK.
This platform is both scalable and national. We will grow significantly while
leveraging our existing central cost base, delivering significant earnings
growth. Our national footprint, the largest in the sector, enables us to
capitalise on a wider pool of opportunities, developing clusters and
increasing operational efficiencies as we grow further.
Our £1bn secured pipeline is locked in. Funding is in place. Planning
permissions have been secured and 12 out of the 16 schemes have fixed price
build contracts in place. This secured pipeline represents a doubling in net
rental income when delivered and leased up over the next few years.
Highlights
Leasing performance
In our existing operational portfolio, we have successfully delivered record
occupancy in our PRS portfolio of 98% and like-for-like rental growth of 3.5%,
ahead of pre-pandemic levels, reflecting the attractiveness of our properties
and strength of our operating platform.
In the past twelve months, we have stabilised six new assets (1,304 homes) to
our portfolio and have exceeded leasing expectations across all, delivering
£16m of additional net rental income and £23m of valuation gains.
Pipeline delivery
So far in this financial year we have launched two schemes comprising 448 new
homes, representing £5m potential net rental income.
The Pin Yard in Leeds, comprising 216 homes, launched in March 2022 and is
already 65% let at rents above underwriting, exceeding our expectations and
currently outperforming our record lease up at The Headline in Leeds last
year. Just a few weeks ago in April, we launched the first phase at Weavers
Yard in Newbury, comprising a total of 232 homes, with final phases completing
in 2023.
Three assets with potential net rental income (NRI) of £8m are to be
delivered in the remainder of 2022, with Gilders Yard in Birmingham (158
homes, £2m NRI) launching imminently, Enigma Square in Milton Keynes (261
homes, £3m NRI) and the Copper Works in Cardiff (307 homes, £3m NRI)
completing toward the end of the year.
Pipeline progress (TFL)
Since partnering with Transport for London in July 2019, we have successfully
secured full planning consent on four schemes in London, totalling 1,204 new
homes, with construction expected to commence next financial year. Planning
committee has resolved to approve consent on a fifth TFL JV scheme,
Cockfosters, subject to agreeing the Section 106 agreement and TFL gaining
clearance from the Department for Transport for the release of the land.
Acquisitions
Over the first half we made four acquisitions, adding potentially c.1,131
homes to our build-to-rent, PRS pipeline and £14m of annual net rental
income. Three of the four are land acquisitions, leveraging our in-house
development capabilities, and the fourth is a forward funding project. Two of
the four are secured projects and sit within our secured pipeline, with the
other two in the planning process and therefore in our planning & legals
pipeline.
§ Merrick Place, Southall, London - 401 homes, potential £6m net rental
income, forward funding, secured, building on our West London cluster of 959
homes
§ Exmouth Junction, Exeter - 230 homes, potential £3m net rental income,
direct development, secured, first scheme in Exeter
§ Berewood, Hampshire - acquired the remaining interest in the land, enabling
Grainger to add a further c.250 PRS homes, potential £3m net rental income,
direct development, planning & legal pipeline
§ 'Brook Place 2', Sheffield - c.250 homes, potential £2m net rental income,
direct development, planning & legal pipeline, building on our Sheffield
cluster of c.750 homes
Operational highlights
Our Customer Insight Programme continues to provide us with valuable
understanding of our customers, driving decision making across the business.
Our aim is to provide an even better service to our customers, enabling us to
optimise rental income.
Our technology platform, CONNECT, continues to deliver value, through faster
lettings, improved supply chain management, greater data and business insight,
while also enabling us to deliver a better service to our customers,
digitising the rental experience such as service requests and contacting the
Grainger team through the MyGrainger App, part of the CONNECT platform.
Fire safety
With much of our portfolio having been built recently (post-Grenfell), and our
preference often for brick facades, we have limited exposure to cladding or
other fire safety remediation costs within our portfolio.
Following an extensive review of legacy development projects, we have taken a
provision of £9.2m for potential fire safety remediation costs as a one-off
item, excluded from adjusted earnings, which relates 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, we
are seeking recoveries from contractors and insurers which may reduce the
overall liability over time.
The UK Government has confirmed that, as a build-to-rent, PRS landlord, we are
not subject to the forthcoming 'cladding tax' known as the Residential
Property Developers Tax, nor were we within the scope of the recent Building
Safety Repairs Pledge which saw a number of the country's largest
housebuilders pledge up to a reported £2bn.
Inflation and resilience
We are well prepared for a higher inflationary environment. Rental growth
tends to track wage inflation which follows general inflation. 1 (#_ftn1) As
a result, we expect our top line growth to offset the impact of any cost
inflation we face.
12 of our 16 secured pipeline schemes are with fixed price contracts. 96% of
our debt is hedged and our secured pipeline is fully funded. 2 (#_ftn2)
We are alert to the challenges our customers may face with the rises in cost
of living, however we believe our customer base is better off than average,
with 73% of renters in employment, compared to only 59% of home owners. 3
(#_ftn3) Data shows that rent as a proportion of household income remains
stable. 4 (#_ftn4)
Our value-for-money, mid-market, energy-efficient properties support our
customers financially, with our new, build-to-rent properties offering free
super-fast broadband, gyms, and co-working spaces.
ESG
Improving our existing PRS portfolio
We continue to improve the energy efficiency of our PRS portfolio. We are well
ahead of the national average and well prepared for future regulations. Our
higher than average energy efficient properties mean our customers have lower
than average energy bills, helping mitigate the current rise in energy prices.
87% of our operational PRS portfolio is EPC ratings A-C, compared to the wider
PRS sector which is only 42%. Of this, 53% of our operational PRS portfolio is
EPC ratings A and B, compared to the wider sector which is just 2%. Current
regulations require minimum EPC rating of E for new lets. It is anticipated
that this will be updated with the new regulations to require a minimum EPC C
rating by either 2025 or 2026, although this has not yet been confirmed. We
are confident we will be there well ahead of these new regulations.
Our regulated tenancy portfolio is not affected by the current EPC minimum
standards because they are not typically re-let but instead are sold when
vacated, however we continue to invest in this portfolio where appropriate and
are putting plans in place to bring these properties up to EPC ratings of A-C
where we can.
Switching to green and renewable energy (Scope 1 and 2 emissions)
100% of our contracts for landlord energy supplies are now renewable or green
energy.
Supporting our customer to reduce their emissions (Scope 3)
Our customers are responsible for their own energy supplies and we are
therefore ensuring that our properties are well insulated and energy
efficient, with efficient heating, hot water and electrical systems and energy
efficient appliances to help them both keep their bills down and reduce their
carbon emissions.
We have launched our customer campaign, 'Living a Greener Life', which is a
multi-year programme of communications to educate and encourage our customers
toward greener living.
We are trialling a series of potential solutions to capturing customer energy
data usage, ensuring GDPR compliance.
Homes for Ukraine
We have committed to offering support for Ukrainian refugees through providing
free accommodation through the Homes for Ukraine scheme, and through
charitable donations to the DEC Ukrainian Appeal, to an approximate total
value of £150,000.
Dividend
In line with our policy to distribute the equivalent of 50% of net rental
income with a one third, two third split between the interim and final
dividend payments, respectively, our interim dividend is 2.08 pence per share,
up 14%.
Outlook
As we embark on our 110(th) year since Grainger was established in Newcastle,
England and as we near 10,000 operational rental homes, we are in a strong
position to continue to grow and capitalise on the market opportunity in the
UK private rented sector and build-to-rent sector and remain UK market leader.
Our operating platform enables earnings accretive growth. Our fully-funded
secured pipeline, strong balance sheet and robust debt capital structure
underpins our future growth. The business has proven its resilience and market
leadership over the past six years and will continue to do so as we deliver on
our strategic growth strategy.
Helen Gordon
Chief Executive
12 May 2022
Financial review
The past six months have seen a strong recovery in occupational markets
reflected in both record occupancy levels at 98% and strong like-for-like
rental growth at 3.5%. These strong market conditions combined with the
delivery of our pipeline schemes have driven significant growth in net rental
income at 23%, with this top line growth also driving a similar magnitude of
growth in adjusted earnings. With a strong pipeline of schemes to deliver over
the coming years we expect to see this strong growth continue as we continue
to execute on our strategy.
Valuation growth during the period was 2.3% reflecting the continuation of
rental growth and yield compression. Our residential sales also had a strong
half, with profits up 7% and sales prices 3.6% ahead of previous vacant
possession valuations.
Our balance sheet remains in great shape with a low LTV and strong liquidity.
Our secured pipeline is already fully funded and almost fully hedged in line
with our policy giving us minimal exposure to interest rate rises. Following a
strong half, we are increasing our interim dividend by 14% to 2.08p on a per
share basis (HY21: 1.83p) in line with our dividend policy to distribute 50%
of annual net rental income as a dividend, with a one-third payment at the
interim stage.
While there are some challenges for consumers on the horizon most notable with
the cost-of-living squeeze, our mid-market offering and customer demographic
should ensure our resilience. Having weathered the pandemic period without
rental growth turning negative, the current supply and demand imbalance should
continue to deliver strong growth in the second half.
Highlights
Income returns HY21 HY22 Change
Rental growth (like-for-like) 1.7% 3.5% +183 bps
- PRS 1.0% 3.5% +248 bps
- Regulated tenancies (annualised) 4.0% 3.7% (28) bps
Net rental income (Note 5) £34.7m £42.8m +23%
Adjusted earnings (Note 2) £37.5m £46.3m +23%
Adjusted EPRA earnings (Note 3) £9.4m £16.8m +79%
Profit before tax (Note 2)(1) £44.5m £98.8m +122%
Earnings per share (diluted, after tax) (Note 9)(1) 5.0p 10.2p +104%
Dividend per share (Note 10) 1.83p 2.08p +14%
(1) HY21 restated following change in accounting policy as a result of the
IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an explanation of
prior year restatements.
Capital returns HY21 HY22 Change
Total Property Return 2.4% 3.8% +137 bps
Total Accounting Return (Note 3) 1.0% 3.2% +221 bps
FY21 HY22 Change
EPRA NTA per share (Note 3) 297p 305p +3%
Net debt £1,042m £1,131m +9%
Group LTV 30.4% 31.4% +106 bps
Cost of debt (average) 3.1% 3.1% -
Reversionary surplus £265m £242m (9)%
Income statement
Adjusted earnings increased by 23% to £46.3m (HY21: £37.5m) with the strong
£8.1m increase in net rental income the primary driver, illustrating the
inherent operating leverage in our business resulting from the benefits of our
in-house platform and technology. As our pipeline continues to deliver over
the coming years, we will continue to see significant growth in net rents with
a good proportion of this dropping straight through to earnings.
Income statement (£m) HY21 HY22 Change
Net rental income 34.7 42.8 +23%
Profit from residential sales 29.4 31.6 +7%
Profit from development sales 0.2 - -
Mortgage income (CHARM) (Note 15) 2.4 2.4 -
Management fees 2.3 2.8 +22%
Overheads (13.9) (14.6) +5%
Pre-contract costs (0.3) (0.3) -
Net finance costs (17.1) (17.0) (1)%
Joint ventures and associates (0.2) (1.4) n/a
Adjusted earnings 37.5 46.3 +23%
Valuation movements 12.8 61.7 +382%
Other adjustments(1) (5.8) (9.2) +59%
Profit before tax(1) 44.5 98.8 +122%
( )
(1) HY21 restated following change in accounting policy as a result of the
IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an explanation of
prior year restatements. HY22 other adjustments comprise fire safety remedial
works provisions in respect of legacy assets. See commentary below in
'Overheads and other expenses'.
Net rental income
Net rental income increased by 23% to £42.8m (HY21: 34.7m) with our occupancy
now at 98%, with strong demand and lettings of new launches adding £6.6m of
net rent.
Like-for-like rental growth across the portfolio was +3.5%, with rental growth
in our PRS portfolio accelerating to +3.5% (HY21: +1.7%). Rental growth and
occupancy was similar in both London and the regions, with rental growth on
new lets of +4.4% and +2.7% on renewals and the regulated tenancy portfolio
delivering 3.7% rental growth. Gross to net for the period on our stabilised
portfolio is 25.5% which is lower than the previous period (HY21: 27.0%) due
to lower levels of void and cost efficiencies.
£m
HY21 Net rental income 34.7
Disposals (1.5)
PRS investment 6.6
Rental growth 1.0
Occupancy 2.0
HY22 Net rental income 42.8
YoY growth +23%
Sales
Our residential sales performance continued to be strong throughout the period
with profits up by 7% to £31.6m (HY21: £29.4m) as we took advantage of
ongoing strength in the residential sales market.
Vacant property sales profits in the period were up 8%, delivering £16.0m of
profit (HY21: £14.8m) from £37.2m of revenue (HY21: £26.7m). The lower
profit margin is a result of the sales mix with some large London sales with
lower margins pulling down the average. Vacancy rates were down slightly to
6.5% (HY21: 7.3%), however pricing achieved remained very strong with sales
values 3.6% ahead of previous vacant possession values. The speed of executing
sales improved slightly with our keys to cash metric at 118 days (HY21: 120
days).
Sales of tenanted and other properties delivered £15.6m of profit (HY21:
£14.6m) from £36.3m of revenue (HY21: £55.0m).
We have good visibility on our sales pipeline for the second half with £28.5m
of sales currently in solicitors hands and we expect total sales and profit
for the year to be at a similar level to FY21.
Sales
HY21 HY22
Units sold Revenue Profit Units sold Revenue Profit
£m £m £m £m
Residential sales on vacancy 73 26.7 14.8 64 37.2 16.0
Tenanted and other sales 360 55.0 14.6 123 36.3 15.6
Residential sales total 433 81.7 29.4 187 73.5 31.6
Development activity 0.2 0.2 1.8 0.0
Overall sales 433 81.9 29.6 187 75.3 31.6
Overheads and other expenses
Overheads increased by 5% in the period to £14.6m (HY21: £13.9m) reflecting
some modest investment in our platform infrastructure slightly ahead of
inflation to support the delivery of the 23% growth in our rents.
Following an extensive review of legacy development projects over the past 30
years, we have taken a full provision of £9.2m for potential fire-safety
remediation costs as a one-off item, excluded from adjusted earnings. Where
appropriate, we are seeking recoveries from contractors and insurers which may
reduce the overall liability over time.
Balance sheet
Our strong business performance continues to be underpinned by strength in our
balance sheet. With our LTV at 31.4% (FY21: 30.4%) and cash and available
facilities of £725m we are well placed to enable the continuation of our
growth strategy. With our secured pipeline already fully funded and our entire
debt book near fully hedged at 96% we have minimal exposure to potential
interest rate rises.
Market value balance sheet (£m) FY21 HY22
Residential - PRS 2,024 2,115
Residential - regulated tenancies 896 863
Residential - mortgages (CHARM) 72 71
Forward Funded - PRS work in progress 244 294
Development work in progress 146 202
Investment in JVs/associates 45 47
Total investments 3,427 3,592
Net debt (1,042) (1,131)
Other liabilities (35) (58)
EPRA NRV 2,350 2,403
Deferred and contingent tax - trading assets (142) (139)
EPRA NTA 2,208 2,264
Deferred and contingent tax - investment assets (59) (72)
Fair value of fixed rate debt and derivatives (38) 38
EPRA NDV 2,111 2,230
EPRA net asset values (pence per share)
EPRA NRV pence per share 316 324
EPRA NTA pence per share 297 305
EPRA NDV pence per share 284 300
EPRA NTA increased by 3% from the year end to 305p per share (FY21: 297p per
share) with an 11p uplift coming from valuation increases being the main
driver alongside a 6p contribution from adjusted earnings, this was offset by
the payment of our final dividend (3)p. EPRA NTA excludes the value of our
reversionary surplus of £242m or 33p per share (FY21: £265m).
EPRA NTA movement
£m Pence per share
EPRA NTA at 30 September 2021 2,208 297
Adjusted earnings 46 6
Valuations (trading & investment property) 79 11
Disposals (trading assets) (29) (4)
Tax (current, deferred & contingent) (6) (1)
Legacy asset fire-safety remediation provision (9) (1)
Dividends (25) (3)
EPRA NTA at 31 March 2022 2,264 305
Property portfolio valuations
The market value of our overall property portfolio increased by +2.3% (HY21:
+1.3%) over the six-month period. Our PRS portfolio saw valuation growth of
2.1% with two thirds of the uplift driven by rental growth and the remainder
yield shift. Our regional PRS portfolio outperformed London marginally with
10bps yield compression on newly developed schemes in both portfolios. The
regulated tenancy portfolio delivered 3.2% valuation growth, with the regions
again outperforming with a 5.4% increase compared to a 2.5% increase in
London.
Portfolio Region Capital Value Rental Growth Yield & Other Total Valuation movement
£m £m % £m % £m %
PRS London & SE 1,255 14 1.1% 5 0.4% 19 1.5%
Regions 860 13 1.6% 11 1.3% 24 2.9%
PRS Total 2,115 27 1.3% 16 0.8% 43 2.1%
Regulated tenancies ('Regs') London & SE 706 18 2.5% 0 0.0% 18 2.5%
Regions 157 8 5.4% 0 0.0% 8 5.4%
Regs Total 863 26 3.2% 0 0.0% 26 3.2%
Operational Portfolio 2,978 53 1.8% 16 0.5% 69 2.3%
Development 496 7 1.4% 3 0.5% 10 1.9%
Total Portfolio 3,474 60 1.7% 19 0.6% 79 2.3%
Financing and capital structure
We are a very well capitalised business, with a low risk, flexible capital
structure. Our policy of having a fully funded secured pipeline ensures that
our headroom of £725m covers our committed pipeline capex of £529m.
Including this committed capex in our LTV calculation would see our LTV rise
to 40%, comfortably within our LTV range of 40-45%.
Net debt increased to £1,131m (FY21: £1,042m) as we invested £151m into our
pipeline during the period and paid our final dividend of £25m. This was
partly offset by positive operating cashflow of £54m and asset recycling of
£35m.
We secured £150m of new bank facilities from a combination of existing and
new lenders during the period on the same terms as our existing facilities,
lowering our average cost of debt when drawn. We have also extended £150m of
facility maturities with an average overall debt maturity of 6.2 years
including extension options and no significant maturities until August 2024.
Our average cost of debt remained flat compared to the full year at 3.1% (HY21
3.1%) with our fully drawn cost of debt at 2.9%. Finance costs were marginally
down at £17.0m (HY21: £17.1m) as we ran a slightly lower average net debt
over the period following our September equity raise.
FY21 HY22
Net debt £1,042m £1,131m
Loan to value 30.4% 31.4%
Cost of debt (average) 3.1% 3.1%
Headroom* £641m £725m
Weighted average debt maturity (years)** 6.2 6.2
Hedging 100% 96%
(*) Including £150m of new facilities.
(**) Including extension options
Summary and outlook
With a strong first half performance we see this momentum continuing
throughout the second half. We see the potential for delivering high single
digit total returns with an increasing component from income following the
delivery of our secured pipeline and REIT conversion, particularly attractive
when considered on a risk-adjusted basis, as we deliver our secured pipeline
and benefit from the significant growth in net rental income, capital growth
as we deliver new assets, operating efficiencies and REIT conversion.
With a strong market backdrop we continue to further differentiate ourselves
with our quality homes at mid-market prices and excellent customer service.
With a business model and balance sheet designed for growth, we are confident
that we will further extend our leadership in the build to rent market,
enhancing returns and delivering for all stakeholders.
Rob Hudson
Chief Financial Officer
12 May 2022
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
§ the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the UK;
§ the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Helen
Gordon
Rob Hudson
Chief Executive
Officer
Chief Financial Officer
12 May
2022
12 May 2022
Independent Review Report to Grainger plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
March 2022 which comprises the Condensed Consolidated Income Statement, the
Condensed Consolidated Statement of Other Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed Consolidated
Statement of Changes in Equity, the Condensed Consolidated Statement of Cash
Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2022 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements of the group
were prepared in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union and in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and the next annual financial
statements will be prepared in accordance with UK-adopted international
accounting standards. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly financial
report in accordance with IAS 34 as adopted for use in the UK.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E145GL
12 May 2022
Consolidated income statement
Unaudited
For the 6 months ended 31 March Notes 2022 2021
£m
(restated)(1)
£m
Group revenue 4 126.6 101.3
Net rental income 5 42.8 34.7
Profit on disposal of trading property 6 31.0 29.8
Profit/(loss) on disposal of investment property 7 0.6 (0.1)
Income from financial interest in property assets 15 3.4 4.7
Fees and other income 8 2.8 2.3
Administrative expenses 2 (14.6) (19.7)
Other expenses 2 (9.5) (0.3)
Reversal of impairment of inventories to net realisable value 12 1.2 0.1
Operating profit 57.7 51.5
Net valuation gains on investment property 11 59.3 10.3
Finance costs (17.0) (17.2)
Finance income - 0.1
Share of profit of associates after tax 13 0.4 -
Share of loss of joint ventures after tax 14 (1.6) (0.2)
Profit before tax 2 98.8 44.5
Tax charge for the period 19 (23.2) (10.2)
Profit for the period attributable to the owners of the Company 75.6 34.3
Basic earnings per share 9 10.2p 5.1p
Diluted earnings per share 9 10.2p 5.0p
(1) See Note 24 for an explanation of the prior period restatement
Consolidated statement of comprehensive income
Unaudited
2021
For the 6 months ended 31 March Notes 2022 (restated)(1)
£m
£m
Profit for the period 2 75.6 34.3
Items that will not be transferred to the consolidated income statement:
Actuarial gain on BPT Limited defined benefit pension scheme 20 1.6 3.7
Items that may be or are reclassified to the consolidated income statement:
Changes in fair value of cash flow hedges 9.9 7.4
Other comprehensive income and expense for the period before tax 11.5 11.1
Tax relating to components of other comprehensive income:
Tax relating to items that will not be transferred to the consolidated income 19 (0.4) (0.7)
statement
Tax relating to items that may be or are reclassified to the consolidated 19 (2.5) (1.4)
income statement
Total tax relating to components of other comprehensive income (2.9) (2.1)
Other comprehensive income and expense for the period after tax 8.6 9.0
Total comprehensive income and expense for the period attributable to the 84.2 43.3
owners of the Company
(1) See Note 24 for an explanation of the prior period restatement
Consolidated statement of financial position
Unaudited Audited
31 March 2022 30 Sept
2021
As at Notes £m £m
ASSETS
Non-current assets
Investment property 11 2,334.7 2,179.2
Property, plant and equipment 3.8 1.4
Investment in associates 13 15.9 15.5
Investment in joint ventures 14 30.9 29.4
Financial interest in property assets 15 71.1 71.7
Retirement benefits 20 5.3 3.5
Deferred tax assets 19 1.9 3.7
Intangible assets 0.5 0.5
2,464.1 2,304.9
Current assets
Inventories - trading property 12 614.0 595.2
Trade and other receivables 16 29.6 38.5
Derivative financial assets 18 5.4 -
Current tax assets 8.6 16.0
Cash and cash equivalents 232.3 317.6
889.9 967.3
Total assets 3,354.0 3,272.2
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 18 1,298.8 1,347.5
Trade and other payables 17 2.6 0.6
Provisions for other liabilities and charges 1.1 1.1
Deferred tax liabilities 19 83.7 69.5
1,386.2 1,418.7
Current liabilities
Interest-bearing loans and borrowings 18 50.0 -
Trade and other payables 17 113.2 109.8
Provisions for other liabilities and charges 8.4 0.2
Derivative financial instruments 18 - 4.5
171.6 114.5
Total liabilities 1,557.8 1,533.2
NET ASSETS 1,796.2 1,739.0
EQUITY
Issued share capital 37.1 37.1
Share premium account 817.3 817.3
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve 4.1 (3.3)
Retained earnings 917.3 867.5
TOTAL EQUITY 1,796.2 1,739.0
Consolidated statement of changes in equity
Notes Issued Share Merger Capital Cash flow Retained Total
share
premium account
reserve
redemption
hedge
earnings
equity
capital
£m
£m
reserve
reserve
£m
£m
£m
£m
£m
Balance as at 1 October 2020 as restated (1) 33.8 616.3 20.1 0.3 (16.6) 789.1 1,443.0
Profit for the period as restated 2, 24 - - - - - 34.3 34.3
Other comprehensive income for the period - - - - 6.0 3.0 9.0
Total comprehensive income - - - - 6.0 37.3 43.3
Purchase of own shares - - - - - (0.2) (0.2)
Share-based payments charge 21 - - - - - 0.9 0.9
Dividends paid - - - - - (24.5) (24.5)
Total transactions with owners recorded directly in equity - - - - - (23.8) (23.8)
Balance as at 31 March 2021 as restated(1) 33.8 616.3 20.1 0.3 (10.6) 802.6 1,462.5
Profit for the period - - - - - 75.2 75.2
Other comprehensive income for the period - - - - 7.3 1.3 8.6
Total comprehensive income - - - - 7.3 76.5 83.8
Issue of share capital 23 3.3 200.8 - - - - 204.1
Award of SAYE shares - 0.2 - - - - 0.2
Purchase of own shares - - - - - (0.1) (0.1)
Share-based payments charge - - - - - 0.8 0.8
Dividends paid - - - - - (12.3) (12.3)
Total transactions with owners recorded directly in equity 3.3 201.0 - - - (11.6) 192.7
Balance as at 30 September 2021 37.1 817.3 20.1 0.3 (3.3) 867.5 1,739.0
Profit for the period 2 - - - - - 75.6 75.6
Other comprehensive income for the period - - - - 7.4 1.2 8.6
Total comprehensive income - - - - 7.4 76.8 84.2
Purchase of own shares - - - - - (3.2) (3.2)
Share-based payments charge 21 - - - - - 0.8 0.8
Dividends paid 10 - - - - - (24.6) (24.6)
Total transactions with owners recorded directly in equity - - - - - (27.0) (27.0)
Balance as at 31 March 2022 37.1 817.3 20.1 0.3 4.1 917.3 1,796.2
(1) See Note 24 for an explanation of the prior period restatement
Consolidated statement of cash flows
Unaudited
2021
For the 6 months ended 31 March Notes 2022 (restated)(1)
£m
£m
Cash flow from operating activities
Profit for the period 2 75.6 34.3
Depreciation and amortisation 0.4 0.4
Net valuation gains on investment property 11 (59.3) (10.3)
Net finance costs 17.0 17.1
Share of loss of associates and joint ventures 13, 14 1.2 0.2
(Profit)/loss on disposal of investment property 7 (0.6) 0.1
Share-based payment charge 21 0.8 0.9
Income from financial interest in property assets 15 (3.4) (4.7)
Tax 19 23.2 10.2
Cash generated from operating activities before changes in working capital 54.9 48.2
Decrease in trade and other receivables 8.9 5.8
Increase in trade and other payables 12.0 20.3
Increase/(decrease) in provisions for liabilities and charges 8.2 (0.3)
(Increase)/decrease in inventories (18.8) 15.3
Cash generated from operating activities 65.2 89.3
Interest paid (22.5) (21.2)
Tax paid (2.5) (8.1)
Payments to defined benefit pension scheme 20 (0.2) (0.2)
Net cash inflow from operating activities 40.0 59.8
Cash flow from investing activities
Proceeds from sale of investment property 7 10.3 30.3
Proceeds from financial interest in property assets 15 4.0 4.3
Investment in joint ventures 14 (2.9) (0.9)
Loans advanced to joint ventures 14 (0.2) (0.3)
Acquisition of investment property 11 (105.9) (132.5)
Acquisition of property, plant and equipment and intangible assets (2.8) (0.5)
Net cash outflow from investing activities (97.5) (99.6)
Cash flow from financing activities
Purchase of own shares (3.2) (0.2)
Repayment of borrowings - (47.0)
Dividends paid 10 (24.6) (24.5)
Net cash outflow from financing activities (27.8) (71.7)
Net decrease in cash and cash equivalents (85.3) (111.5)
Cash and cash equivalents at the beginning of the period 317.6 369.1
Cash and cash equivalents at the end of the period 232.3 257.6
(1) See Note 24 for an explanation of the prior period restatement
Notes to the unaudited interim financial results
1. Accounting policies
1a Basis of preparation
These condensed interim financial statements are unaudited and do not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006.
On 31 December 2020, EU-adopted IFRS was brought into UK law and became
UK-adopted international accounting standards, with future changes to IFRS
being subject to endorsement by the UK Endorsement Board.
The Group transitioned to UK-adopted international accounting standards for
the financial period beginning 1 October 2021. This change constitutes a
change in accounting framework however, there is no impact or changes in
accounting policies from the transition.
This condensed set of financial statements has been prepared using accounting
policies consistent with UK-adopted international accounting standards, in
accordance with IAS 34 Interim Financial Reporting, and in accordance with the
Disclosure Guidance and Transparent Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
The current period financial information presented in this document has been
reviewed, not audited.
The accounting policies used are consistent with those contained in the
Group's last annual report and accounts for the year ended 30 September 2021
which is available on the Group's website (www.graingerplc.co.uk
(http://www.graingerplc.co.uk) ). The Grainger business is not judged to be
highly seasonal, therefore comparatives used for the six month period ended 31
March 2022 Consolidated Income Statement are the six month period ended 31
March 2021 Consolidated Income Statement. It is therefore not necessary to
disclose the Consolidated Income Statement for the full year ended 30
September 2021 (available in the last annual report).
The comparative figures for the financial year ended 30 September 2021 are not
the Company's statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
All property assets are subject to a Directors' valuation at the half year
end, supported by an independent external valuation. External valuations at
the half year are conducted by the Group's valuers, Allsop LLP and CBRE
Limited, as well as Avison Young (UK) Limited in respect of property held by
Vesta LP. The valuation process is consistent with the approach set out on
pages 118-119 of the 2021 Annual Report and Accounts, with the exception being
the Group's Residential portfolio valued by Allsop LLP. At the half year,
Allsop LLP inspected 10.9% of the Residential portfolio, with the movement
extrapolated over the non-sampled assets to form 50% of the valuation movement
for these portfolios. The remaining 50% is based on a blended rate arrived at
by taking Halifax and Nationwide indices (25.0% weighting each), applied on a
regional IPD basis.
The Group's financial derivatives were valued as at 31 March 2022 in-house by
a specialised treasury management system, using 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.
1b Adoption of new and revised International Financial Reporting Standards
and interpretations
New standards, amendments and interpretations in the period
The following new standards, amendments to standards and interpretations were
effective for the Group in the period and have no material impact on the
financial statements:
· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -
Interest Rate Benchmark Reform (Phase 2)
A number of new standards and amendments to standards have been issued but are
not yet effective for the Group and have not been early adopted. 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
Full details of critical accounting estimates are given on pages 117-120 of
the 2021 Annual Report and Accounts. This includes detail of the Groups
approach to valuation of property assets and the use of external valuers in
the process.
The valuations exercise is an extensive process which includes the use of
historical experience, estimates and judgements. The Directors are satisfied
that the valuations agreed with our external valuers are a reasonable
representation of property values in the circumstances known and evidence
available at the reporting date. Actual results may differ from these
estimates. Estimates and assumptions are reviewed on an on-going basis with
revisions recognised in the period in which the estimates are revised and in
any future periods affected.
1d Group risk factors
The principal risks and uncertainties facing the Group are set out in the Risk
Management report on pages 48 - 51 of the 2021 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 detailed on pages 46-47 of the 2021
Annual Report and Accounts, the key risks to the business are under regular
review by the Board and management, applying Grainger's risk management
framework. The war in Ukraine, as well as the devasting human impact, has
substantially increased the geopolitical uncertainty in Europe and beyond.
This has led to wider economic ramifications for society and business, with
the duration and depth of the impact of the conflict being unclear. This lack
of clarity is in the pre-existing context of inflationary pressures and, more
recently, rising interest rates. Specifically in relation to Grainger, it is
currently considered that the principal risks previously reported remain our
principal risks. However, it is recognised that the Ukrainian war, the
prevailing economic context and future uncertainty in that regard have
arguably increased the likelihood of such risks being accelerated or becoming
more acute. This would include, but is not limited to, market, development,
regulatory and supplier risks. The risks to Grainger will continue to be
monitored closely as well as the potential controls and mitigants that may be
applied during this volatile and uncertain period.
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.
The going concern assessment is based on the first 18 months of the Group's
viability model, covering the period from 1 April 2022 to 30 September 2023,
and is based on a severe downside scenario, reflecting the following key
assumptions:
· Reducing property valuations by 3% at both September 2022 and
September 2023
· Reducing PRS occupancy to 80% by 30 September 2022, to 75% by 31
March 2023 and to 70% by 30 September 2023
· 10% development cost inflation
· Operating cost inflation of 10% per annum
· Credit rating downgrade to increase coupon rates on corporate
bonds by 1.25% from 1 April 2022
The Directors consider these assumptions appropriate given the majority of
costs are incurred under fixed price contracts, development agreements, or are
under the company's control.
Financing activity that has occurred between 1 April and the date of
authorisation of the interim financial statements is disclosed in Note 25. In
addition to this, within the next 18 months, one bi-lateral loan facility of
£40m is due to mature and this is the only refinancing assumed in the
assessment period. All other 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 45%
(facility maximum covenant ranges between 70% - 75%) and interest cover above
2.6x (facility minimum covenant ranges between 1.35x - 1.75x) for the 18
months to September 2023, which covers the required period of at least 12
months from the date of authorisation of the interim 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 interim
financial statements for the period ended 31 March 2022.
1f Forward-looking statement
Certain statements in this interim 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.
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.
For the 6 months ended 2022 2021
31 March (unaudited) (restated)(1)
£m Statutory Valuation Other adjustments Adjusted earnings Statutory Valuation Other adjustments Adjusted earnings
Group revenue 126.6 - - 126.6 101.3 - 101.3
Net rental income 42.8 - - 42.8 34.7 - - 34.7
Profit on disposal of trading property 31.0 - - 31.0 29.8 (0.1) - 29.7
Profit/(loss) on disposal of investment property 0.6 - - 0.6 (0.1) - - (0.1)
Income from financial interest in property assets 3.4 (1.0) - 2.4 4.7 (2.3) - 2.4
Fees and other income 2.8 - - 2.8 2.3 - - 2.3
Administrative expenses (14.6) - - (14.6) (19.7) - 5.8 (13.9)
Other expenses (9.5) - 9.2 (0.3) (0.3) - - (0.3)
Reversal of impairment of inventories to net realisable value 1.2 (1.2) - - 0.1 (0.1) - -
Operating profit 57.7 (2.2) 9.2 64.7 51.5 (2.5) 5.8 54.8
Net valuation gains on investment property 59.3 (59.3) - - 10.3 (10.3) - -
Finance costs (17.0) - - (17.0) (17.2) - - (17.2)
Finance income - - - - 0.1 - - 0.1
Share of profit of associates after tax 0.4 (0.2) - 0.2 - - - -
Share of loss of joint ventures after tax (1.6) - - (1.6) (0.2) - - (0.2)
Profit before tax 98.8 (61.7) 9.2 46.3 44.5 (12.8) 5.8 37.5
Tax charge for the period (23.2) (10.2)
Profit for the period attributable to the owners of the Company 75.6 34.3
Diluted adjusted earnings per share 5.0p 4.5p
(1) See Note 24 for an explanation of the prior period restatement
Profit before tax in the adjusted columns above of £46.3m (2021: £37.5m) is
the adjusted earnings of the Group. Adjusted earnings per share assumes tax of
£8.8m (2021: £7.1m) in line with the standard rate of UK Corporation Tax of
19.0% (2021: 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 prior
to issuing the financial statements. The £9.2m cost in other adjustments in
2022 comprises fire safety remedial works provisions in respect of legacy
assets. The £5.8m cost within other adjustments in 2021 comprises software
development costs following the change in accounting policy in the prior year,
with further detailed contained in note 24. Any transaction classified as
other adjustments do not form part of the Group's ongoing activities and, as
such, have been classified as other adjustments.
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.
March 2022 Income statement (unaudited)
For the 6 months ended 31 March 2022 PRS Reversionary Other Total
£m
Group revenue 50.1 76.0 0.5 126.6
Segment revenue - external
Net rental income 34.9 7.7 0.2 42.8
Profit on disposal of trading property - 31.0 - 31.0
Profit on disposal of investment property 0.6 - - 0.6
Income from financial interest in property assets - 2.4 - 2.4
Fees and other income 2.5 - 0.3 2.8
Administrative expenses - - (14.6) (14.6)
Other expenses (0.3) - - (0.3)
Net finance costs (12.2) (4.4) (0.4) (17.0)
Share of trading loss of joint ventures and associates after tax (1.4) - - (1.4)
Adjusted earnings 24.1 36.7 (14.5) 46.3
Valuation movements 61.7
Other adjustments (9.2)
Profit before tax 98.8
A reconciliation from adjusted earnings to adjusted EPRA earnings is detailed
in the table below, with further details shown in the EPRA performance
measures section at the end of this document:
For the 6 months ended 31 March 2022 PRS Reversionary Other Total
£m
Adjusted earnings 24.1 36.7 (14.5) 46.3
Profit on disposal of investment property (0.6) - - (0.6)
Previously recognised profit through EPRA market value measures - (28.9) - (28.9)
Adjusted EPRA earnings 23.5 7.8 (14.5) 16.8
March 2021 Income statement (unaudited) (restated)(1)
For the 6 months ended 31 March 2021 PRS Reversionary Other Total
£m
Group revenue 37.8 62.8 0.7 101.3
Segment revenue - external
Net rental income 25.3 9.3 0.1 34.7
Profit on disposal of trading property (0.1) 29.6 0.2 29.7
Loss on disposal of investment property (0.1) - - (0.1)
Income from financial interest in property assets - 2.4 - 2.4
Fees and other income 1.7 - 0.6 2.3
Administrative expenses - - (13.9) (13.9)
Other expenses (0.3) - - (0.3)
Net finance costs (11.2) (5.5) (0.4) (17.1)
Share of trading loss of joint ventures and associates after tax (0.2) - - (0.2)
Adjusted earnings 15.1 35.8 (13.4) 37.5
Valuation movements 12.8
Other adjustments (5.8)
Profit before tax 44.5
(1) See Note 24 for an explanation of the prior period restatement
A reconciliation from adjusted earnings to adjusted EPRA earnings is detailed
in the table below:
For the 6 months ended 31 March 2021 PRS Reversionary Other Total
£m
Adjusted earnings 15.1 35.8 (13.4) 37.5
Loss on disposal of investment property 0.1 - - 0.1
Previously recognised profit through EPRA market value measures - (28.2) - (28.2)
Adjusted EPRA earnings 15.2 7.6 (13.4) 9.4
Segmental assets
The 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.
Total Accounting Return of 3.2% is calculated from the closing EPRA NTA of
304.7p per share plus the dividend of 2.08p per share for the year, divided by
the opening EPRA NTA of 297.2p per share.
These measures are set out below by segment along with a reconciliation to the
summarised statutory statement of financial position:
March 2022 Segment net assets (unaudited)
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,522.2 224.9 49.1 1,796.2 242p
Total segment net assets (EPRA NRV) 1,709.3 642.2 51.6 2,403.1 324p
Total segment net assets (EPRA NTA) 1,675.3 537.3 51.1 2,263.7 305p
Total segment net assets (EPRA NDV) 1,603.8 537.3 88.8 2,229.9 300p
March 2022 Reconciliation of EPRA NAV measures (unaudited)
£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 2,334.7 - 2,334.7 - 2,334.7 - 2,334.7
Investment in joint ventures and associates 46.8 - 46.8 - 46.8 - 46.8
Financial interest in property assets 71.1 - 71.1 - 71.1 - 71.1
Inventories - trading property 614.0 525.3 1,139.3 - 1,139.3 - 1,139.3
Cash and cash equivalents 232.3 - 232.3 - 232.3 - 232.3
Other assets 55.1 2.5 57.6 (0.5) 57.1 5.4 62.5
Total assets 3,354.0 527.8 3,881.8 (0.5) 3,881.3 5.4 3,886.7
Interest-bearing loans and borrowings (1,348.8) - (1,348.8) - (1,348.8) 44.9 (1,303.9)
Deferred and contingent tax liabilities (83.7) 79.1 (4.6) (138.9) (143.5) (84.1) (227.6)
Other liabilities (125.3) - (125.3) - (125.3) - (125.3)
Total liabilities (1,557.8) 79.1 (1,478.7) (138.9) (1,617.6) (39.2) (1,656.8)
Net assets 1,796.2 606.9 2,403.1 (139.4) 2,263.7 (33.8) 2,229.9
September 2021 Segment net assets (audited)
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,484.7 256.1 (1.8) 1,739.0 234p
Total segment net assets (EPRA NRV) 1,637.4 677.8 34.8 2,350.0 316p
Total segment net assets (EPRA NTA) 1,608.5 571.8 27.5 2,207.8 297p
Total segment net assets (EPRA NDV) 1,550.2 571.8 (10.9) 2,111.1 284p
September 2021 Reconciliation of EPRA NAV measures (audited)
£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 2,179.2 - 2,179.2 - 2,179.2 - 2,179.2
Investment in joint ventures and associates 44.9 - 44.9 - 44.9 - 44.9
Financial interest in property assets 71.7 - 71.7 - 71.7 - 71.7
Inventories - trading property 595.2 535.5 1,130.7 - 1,130.7 - 1,130.7
Cash and cash equivalents 317.6 - 317.6 - 317.6 - 317.6
Other assets 63.6 4.9 68.5 (0.5) 68.0 12.8 80.8
Total assets 3,272.2 540.4 3,812.6 (0.5) 3,812.1 12.8 3,824.9
Interest-bearing loans and borrowings (1,347.5) - (1,347.5) - (1,347.5) (46.7) (1,394.2)
Deferred and contingent tax liabilities (69.5) 66.1 (3.4) (141.7) (145.1) (58.3) (203.4)
Other liabilities (116.2) 4.5 (111.7) - (111.7) (4.5) (116.2)
Total liabilities (1,533.2) 70.6 (1,462.6) (141.7) (1,604.3) (109.5) (1,713.8)
Net assets 1,739.0 611.0 2,350.0 (142.2) 2,207.8 (96.7) 2,111.1
4. Group revenue
Unaudited
2022 2021
£m
£m
Gross rental income (Note 5) 59.1 48.3
Gross proceeds from disposal of trading property (Note 6) 64.7 50.7
Fees and other income (Note 8) 2.8 2.3
126.6 101.3
5. Net rental income
Unaudited
2022 2021
£m
£m
Gross rental income 59.1 48.3
Property operating expenses (16.3) (13.6)
42.8 34.7
6. Profit on disposal of trading property
Unaudited
2022 2021
£m
£m
Gross proceeds from disposal of trading property 64.7 50.7
Selling costs (1.8) (1.0)
Net proceeds from disposal of trading property 62.9 49.7
Carrying value of trading property sold (Note 12) (31.9) (19.9)
31.0 29.8
7. Profit/(loss) on disposal of investment property
Unaudited
2022 2021
£m
£m
Gross proceeds from disposal of investment property 10.6 31.2
Selling costs (0.3) (0.9)
Net proceeds from disposal of investment property 10.3 30.3
Carrying value of investment property sold (Note 11) (9.7) (30.4)
0.6 (0.1)
8. Fees and other income
Unaudited
2022 2021
£m
£m
Property and asset management fee income 1.7 0.8
Other sundry income 1.1 1.5
2.8 2.3
Included within other sundry income in the current period is £1.1m (2021:
£0.8m) 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 period, 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 31 March 2022 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.
Unaudited
31 March 2022 31 March 2021
(restated)(1)
Profit for Weighted average number of shares (millions) Earnings Profit for Weighted average number of shares (millions) Earnings
the period
per share (pence)
the period
per share (pence)
£m
£m
Basic earnings per share
Profit attributable to equity holders 75.6 740.3 10.2 34.3 673.1 5.1
Effect of potentially dilutive securities
Share options and contingent shares 2.8 - - 2.6 (0.1)
Diluted earnings per share
Profit attributable to equity holders 743.1 10.2 34.3 675.7 5.0
(1) See Note 24 for an explanation of the prior period restatement
10. Dividends
The Company has announced an interim dividend of 2.08p (March 2021: 1.83p) per
share which will return £15.4m (March 2021: £12.3m) of cash to shareholders.
In the six months ended 31 March 2022, the final dividend for the year ended
30 September 2021 which amounted to £24.6m has been paid.
11. Investment property
Unaudited 31 March Audited
30 Sept
2022 2021
£m
£m
Opening balance 2,179.2 1,778.9
Acquisitions 7.7 78.0
Capital expenditure - completed assets 0.9 22.8
Capital expenditure - assets under construction 97.3 261.5
Total additions 105.9 362.3
Disposals (Note 7) (9.7) (38.8)
Net valuation gains 59.3 76.8
Closing balance 2,334.7 2,179.2
12. Inventories - trading property
Unaudited 31 March Audited 30 Sept
2022 2021
£m
£m
Opening balance 595.2 657.4
Additions 49.5 12.6
Disposals (Note 6) (31.9) (74.7)
Reversal of impairment/(impairment) of inventories to net realisable value 1.2 (0.1)
Closing balance 614.0 595.2
13. Investment in associates
Unaudited 31 March Audited 30 Sept
2022 2021
£m
£m
Opening balance 15.5 14.7
Share of profit for the period 0.4 0.8
Closing balance 15.9 15.5
The closing balance comprises share of net assets of £1.3m (September 2021:
£0.9m) and net loans due from associates of £14.6m (September 2021:
£14.6m). At the balance sheet date, there is no expectation of any material
credit losses on loans due.
As at 31 March 2022, the Group's interest in active associates was as follows:
% of ordinary Country of incorporation Accounting period end
share capital held
Vesta LP 20.0 UK 30 September
14. Investment in joint ventures
Unaudited 31 March Audited 30 Sept
2022 2021
£m
£m
Opening balance 29.4 27.3
Share of loss for the period (1.6) (0.3)
Further investment(1) 2.9 0.8
Loans advanced to joint ventures 0.2 1.6
Closing balance 30.9 29.4
(1) Grainger invested £2.9m into Connected Living London (BTR) Limited in the
period (September 2021: £0.8m).
The closing balance comprises share of net assets of £9.8m (September 2021:
£8.5m) and net loans due from joint ventures of £21.1m (September 2021:
£20.9m). At the balance date, there is no expectation of any material credit
losses on loans due.
At 31 March 2022, 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)
Unaudited Audited 30 Sept
31 March
2022 2021
£m
£m
Opening balance 71.7 73.3
Cash received from the instrument (4.0) (8.8)
Amounts taken to income statement 3.4 7.2
Closing balance 71.1 71.7
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 18.
16. Trade and other receivables
Unaudited Audited 30 Sept
31 March
2022 2021
£m
£m
Rent and other tenant receivables 6.2 5.7
Deduct: Provision for impairment (2.3) (2.3)
Rent and other tenant receivables - net 3.9 3.4
Contract assets - 2.6
Other receivables 21.5 29.8
Prepayments 4.2 2.7
Closing balance 29.6 38.5
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 £6.2m (2021: £5.7m). Assumptions used in the forward-looking
assessment are continually reviewed to take into account likely rent
deferrals.
At the balance date, there is no expectation of any material credit losses on
contract assets.
Other receivables include £5.9m (2021: £10.4m) due from land sales, which is
receivable no later than September 2022.
The fair values of trade and other receivables are considered to be equal to
their carrying amounts.
17. Trade and other payables
Unaudited Audited 30 Sept
31 March
2022 2021
£m
£m
Current liabilities
Deposits received 9.4 9.1
Trade payables 27.5 16.3
Lease liabilities 0.8 0.7
Tax and social security costs 0.6 4.9
Accruals 67.8 72.6
Deferred income 7.1 6.2
113.2 109.8
Non-current liabilities
Lease liabilities 2.6 0.6
2.6 0.6
Total trade and other payables 115.8 110.4
Within accruals, £47.8m comprises accrued expenditure in respect of ongoing
construction activities September 2021: £43.7m).
18. Interest-bearing loans and borrowings and financial risk management
Unaudited Audited 30 Sept
31 March
2022 2021
£m
£m
Current liabilities
Bank loans - Pounds sterling 50.0 -
50.0 -
Non-current liabilities
Bank loans - Pounds sterling 257.2 306.5
Bank loans - Euro 0.8 0.9
Non-bank financial institution 346.9 346.6
Corporate bond 693.9 693.5
1,298.8 1,347.5
Closing balance 1,348.8 1,347.5
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 31 March 2022,
unamortised costs totalled £9.6m (September 2021: £10.7m) and the
outstanding discount was £2.4m (September 2021:
£2.6m).
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 31
March 2022 and as at 30 September 2021.
As at 31 March 2022, the fair value of interest-bearing loans is greater than
the book value by £44.9m (September 2021: £46.7m), 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.
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:
Unaudited Audited
31 March 2022 30 September 2021
Assets Liabilities Assets Liabilities
£m
£m
£m
£m
Level 3
CHARM 71.1 - 71.7 -
Investment property 2,334.7 - 2,179.2 -
2,405.8 - 2,250.9 -
Level 2
Interest rate swaps - in cash flow hedge accounting relationships 5.4 - - 4.5
5.4 - - 4.5
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:
Unaudited Audited
31 March 2022 30 Sept 2021
Assets - Level 3 £m £m
Opening balance 2,250.9 1,852.2
Amounts taken to income statement 62.7 84.0
Other movements 92.2 314.7
Closing balance 2,405.8 2,250.9
19. Tax
The tax charge for the period of £23.2m (2021 £10.2m) recognised in the
consolidated income statement comprises:
Unaudited
2022 2021
£m
£m
Current tax
Corporation tax on profit 10.1 9.9
Deferred tax
Origination and reversal of temporary differences 12.3 0.3
Adjustments relating to prior periods 0.8 -
13.1 0.3
Total tax charge for the period 23.2 10.2
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 period are taxed at an effective rate of 19.0%
(September 2021: 19.0%).
In addition to the above, a deferred tax charge of £2.9m (2021: £2.1m) was
recognised within other comprehensive income comprising:
Unaudited
2022 2021
£m
£m
Actuarial gain on BPT Limited pension scheme 0.4 0.7
Fair value movement in cash flow hedges 2.5 1.4
Amounts recognised in other comprehensive income 2.9 2.1
Deferred tax balances comprise temporary differences attributable to:
Unaudited 31 March 2022 Audited
£m
30 Sept
2021
£m
Deferred tax assets
Short-term temporary differences 1.9 2.1
Losses carried forward - 0.2
Actuarial deficit on BPT Limited pension scheme - 0.2
Fair value movement in derivative financial instruments - 1.2
1.9 3.7
Deferred tax liabilities
Trading property uplift to fair value on business combinations (7.6) (7.8)
Investment property revaluation (68.4) (55.7)
Actuarial surplus on BPT Limited pension scheme (0.2) -
Short-term temporary differences (4.8) (4.6)
Fair value movement in financial interest in property assets (1.4) (1.4)
Fair value movement in derivative financial instruments (1.3) -
(83.7) (69.5)
Total deferred tax (81.8) (65.8)
Deferred tax has been calculated at a rate of 25.0% (September 2021: 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 £131.3m, calculated at 25.0% (September 2021: £133.9m) and will
be realised as the properties are sold.
20. Retirement benefits
The Group retirement benefit asset increased by £1.8m to £5.3m in the six
months ended 31 March 2022. This movement has arisen from changes in
assumptions of £2.4m (primarily market observable discount rates), and £0.2m
company contributions, offset by losses on plan assets of £0.8m. The
principal actuarial assumptions used to reflect market conditions as at 31
March 2022 are as follows:
Unaudited Audited
31 March 2022 30 Sept 2021
% %
Discount rate 2.75 2.10
Retail Price Index (RPI) inflation 4.25 3.70
Consumer Price Index (CPI) inflation 3.45 2.90
Salary increases 4.75 4.20
Rate of increase of pensions in payment 5.00 5.00
Rate of increase for deferred pensioners 3.45 2.90
21. 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 £0.8m (2021: £0.9m).
22. Related party transactions
During the period ended 31 March 2022, 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:
Unaudited
31 March 2022 31 March 2021
Fees Period end Fees Period end
recognised
balance
recognised
balance
£'000
£'000
£'000
£'000
Connected Living London (BTR) Limited 432 497 335 835
Lewisham Grainger Holdings LLP 159 1,089 159 770
Vesta Limited Partnership 349 304 213 219
940 1,890 707 1,824
Unaudited Audited
31 March 2022 30 September 2021
Interest Period 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 - 3.0 Nil - 2.8 Nil
Vesta LP - 14.6 Nil - 14.6 Nil
- 35.7 - 35.5
23. Issue of share capital
In September 2021, the Group issued 67,379,369 new shares at an issue price of
310.0p raising a total amount of £204.1m net of costs. The shares were issued
with a nominal value of £0.05p per share. This increased share capital by
£3.3m and the share premium account by £200.8m.
24. Prior period restatement
In the prior year, the IFRS Interpretations Committee published accounting
guidance for configuration and customisation expenditure relating to cloud
computing arrangements, including Software as a Service (SaaS). The guidance
recognises differences in accounting treatment for SaaS expenditure between
functionality that is broadly available to the software supplier's general
customer base and functionality that is restricted to a specific user. The
Committee had clarified the position that expenditure can only be capitalised
to the extent a SaaS customer has the power to obtain the future economic
benefits by restricting others access to those benefits, otherwise expenditure
in relation to developing SaaS for use should be expensed.
Following the interpretation being published, the Group has reviewed and
revised its accounting policy in relation to intangible assets which includes
accounting for computer software. This has resulted in reclassifying relevant
expenditure that was previously capitalised as an intangible asset and
expensing this to the income statement as administrative expenses.
The impact of this change is outlined in the following table:
31 March 2021 (previously reported) £m Restatement £m 31 March 2021 restated
£m
Consolidated income statement impact
Administration expenses (13.9) (5.8) (19.7)
Profit before tax 50.3 (5.8) 44.5
Tax charge (10.2) - (10.2)
Profit for the period attributable to the owners of the Company 40.1 (5.8) 34.3
Basic earnings per share 6.0p (0.9)p 5.1p
Diluted earnings per share 5.9p (0.9)p 5.0p
Consolidated statement of financial position impact
Intangible assets 28.3 (27.5) 0.8
Deferred tax assets 5.4 1.1 6.5
Total non-current assets 2,043.8 (26.7) 2,017.1
Deferred tax liabilities 36.7 (0.6) 36.1
Total non-current liabilities 1,385.1 (0.6) 1,384.5
Net assets 1,488.3 (25.8) 1,462.5
Retained earnings 828.4 (25.8) 802.6
Total equity 1,488.3 (25.8) 1,462.5
25. Post balance sheet events
The following financing activity has taken place between 1 April 2022 and the date of authorisation of the interim financial statements:
On 14 April 2022, an existing £50m sterling bank loan facility was increased
to £125m (an additional £75m), and the maturity date was extended by a
further five years and remains undrawn.
On 26 April 2022, the maturity date on a £50m sterling bank loan was extended by a further five years.
On 29 April 2022, an additional £75m, three year sterling bank loan facility
was agreed and remains undrawn.
On 10 May 2022, the maturity date on an additional £50m sterling bank loan was extended by a further five years.
Each facility above has 2 x 1 year extension options. Following the financing activity and taking into account the relevant extension options, our weighted average debt maturity has increased to 6.2 years.
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 October 2019, have been
adopted by the Group.
EPRA Earnings
31 March 2022 31 March 2021
(restated)(1)
Earnings Shares Pence per Earnings Shares Pence per share
£m millions share £m millions
Earnings per IFRS income statement 98.8 743.1 13.3 44.5 675.7 6.6
Adjustments to calculate adjusted EPRA Earnings, exclude:
i) Changes in value of investment properties, development properties held for (60.3) - (8.1) (12.6) - (1.8)
investment and other interests
ii) Profits or losses on disposal of investment properties, development (0.6) - (0.1) 0.1 - -
properties held for investment and other interests
iii) Profits or losses on sales of trading properties including impairment (30.1) - (4.0) (28.4) - (4.2)
charges in respect of trading properties
iv) Tax on profits or losses on disposals - - - - - -
v) Negative goodwill/goodwill impairment - - - - - -
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 (0.2) - - - - -
x) Non-controlling interests in respect of the above - - - - - -
xi) Other adjustments in respect of adjusted earnings 9.2 - 1.2 5.8 - 0.8
Adjusted EPRA Earnings/Earnings per share 16.8 743.1 2.3 9.4 675.7 1.4
Adjusted EPRA Earnings per share after tax 1.9 1.1
(1) See Note 24 for an explanation of the prior period restatement
Adjusted EPRA Earnings have been divided by the average number of shares shown
in Note 9 to these financial statements to calculate earnings per share.
Adjusted EPRA Earnings per share after tax is calculated using the standard
rate of UK Corporation Tax of 19.0% (2021: 19.0%).
EPRA NRV, EPRA NTA and EPRA NDV
31 March 2022 30 Sept 2021
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,796.2 1,796.2 1,796.2 1,739.0 1,739.0 1,739.0
Include/Exclude:
i) Hybrid Instruments - - - - - -
Diluted NAV 1,796.2 1,796.2 1,796.2 1,739.0 1,739.0 1,739.0
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 6.5 6.5 6.5 6.0 6.0 6.0
iii) Revaluation of tenant leases held as finance leases - - - - - -
iv) Revaluation of trading properties 532.9 394.0 394.0 543.3 401.6 401.6
Diluted NAV at Fair Value 2,335.6 2,196.7 2,196.7 2,288.3 2,146.6 2,146.6
Exclude:
v) Deferred tax in relation to fair value gains of IP 71.5 71.5 - 58.3 58.3 -
vi) Fair value of financial instruments (4.0) (4.0) - 3.4 3.4 -
vii) Goodwill as a result of deferred tax - - - - - -
viii.a) Goodwill as per the IFRS balance sheet - (0.5) (0.5) - (0.5) (0.5)
viii.b) Intangible as per the IFRS balance sheet - - - - - -
Include:
ix) Fair value of fixed interest rate debt - - 33.7 - - (35.0)
x) Revalue of intangibles to fair value - - - - - -
xi) Real estate transfer tax - - - - - -
NAV 2,403.1 2,263.7 2,229.9 2,350.0 2,207.8 2,111.1
Fully diluted number of shares 742.8 742.8 742.8 742.8 742.8 742.8
NAV
NAV pence per share 323.5 304.7 300.2 316.4 297.2 284.2
(( 1 (#_ftnref1) )) ONS
(( 2 (#_ftnref2) )) Secured and committed schemes, not including the Waterloo
project which is secured but not yet committed.
3 (#_ftnref3) English Housing Survey 2020/21, published January 2022
4 (#_ftnref4) ONS, Private rental affordability
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