REG - Grainger PLC - Half year financial results
11/05/2023 07:00
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RNS Number : 0061Z Grainger PLC 11 May 2023
11 May 2023
Grainger plc
Half year financial results
for the six months ended 31 March 2023
Consistent strong performance and excellent outlook: planned doubling of EPRA
earnings over next 4 years
§ Net rental income +12%
§ Dividend per share +10%
§ Like-for-like rental growth +6.8%
§ EPRA NTA robust at 310pps
§ Occupancy 98.5%
§ Low cost of debt fixed for c.6 years
Grainger plc, the UK's largest listed residential landlord and leader in the
build-to-rent sector, today announces a continuing strong performance for the
six months ended 31 March 2023. Grainger's £3.1bn operational portfolio
totals c.10,000 homes with a further c.6,000 homes in our £1.6bn build to
rent investment pipeline.
Helen Gordon, Chief Executive, said:
"We continue to deliver strong consistent performance across the business. For
the first half of our financial year, we have delivered an increase in net
rental income of +12%, supporting a 10% increase in our dividend. Rental
growth momentum has continued to accelerate which has broadly offset yield
movements and the net asset value of our portfolio was resilient.
"Our balance sheet is in a strong position with a low cost of debt fixed for
six years, enabling us to deliver on our committed investment pipeline with
returns protected. These plans will see us deliver a doubling of EPRA earnings
over the next four years, with our build to rent projects secured, financing
in place, and both construction and debt costs fixed over that period.
"Aligned to wage inflation we achieved a like-for-like rental growth of +6.8%,
up from 3.5% this time last year. This has mostly offset valuation yield
movements with EPRA NTA broadly stable at 310pps (2% down in the six months
since FY22 of 317pps, but +2% up in the twelve months since HY22 of 305p).
Strong investor appetite and robust transactional evidence from a number of
completed deals in recent months provide us with further confidence in the
relative low volatility of our sector.
"We are confident in the outlook for our business. With positive expectations
for the occupational market and rental growth, resilience in valuations backed
by strong active investor demand, and an institutional-landlord-friendly
investment landscape, the outlook for Grainger remains strong as we continue
to lead the sector."
Key highlights
§ 2% growth in Adjusted Earnings(1) to £47.1m (HY22: £46.3m)
§ 12% growth in Net Rental Income(2) to £48.0m (HY22: £42.8m)
§ 49% growth in EPRA Earnings to £21.9m (HY22: £14.7m)
§ EPRA Net Tangible Assets (EPRA NTA) robust at 310pps (FY22: 317pps; HY22:
305pps), reflecting strong ERV growth of 4.1% offsetting c.25bps yield
expansion in the period
§ IFRS profit before tax of £5.7m reflecting a 1.3% valuation decline (HY22:
£98.8m, reflected a 2.3% valuation increase)
§ Dividend(3) increased 10% to 2.28p per share (HY22: 2.08pps)
§ 6.8% like-for-like rental growth(4) in H1 across our total portfolio (FY22:
4.7%; HY22: 3.5%)
o 6.9% like-for-like PRS rental growth (FY22: 4.8%; HY22: 3.5%)
§ 8.2% like-for-like PRS rental growth on new lets (FY22: 5.6%; HY22: 4.4%)
§ 6.1% like-for-like PRS rental growth on renewals (FY22: 4.1%; HY22: 2.7%)
o 5.8% like-for-like rental growth in our regulated tenancy portfolio (FY22:
4.6%; HY22: 3.7%)
§ 98.5% occupancy in our PRS portfolio at the end of March (HY22: 98.1%)
§ Sales performance resilient with £25.2m profit (HY22: £31.6m), reflecting
mix, and sales pricing also robust with average sales price within -2.2% of
vacant possession value, reflecting continuing strong demand for these
attractive properties
§ £74m of sales in H1, including the sales of vacant regulated tenancies and
£44m of asset recycling
§ Remain on track to deliver seven new schemes this calendar year, totalling
1,640 new, purpose-built, energy-efficient, mid-market rental homes
Key financial metrics
Income returns HY22 HY23 Change
Rental growth (like-for-like) 3.5% 6.8% +322 bps
- PRS 3.5% 6.9% +341 bps
- New lets 4.4% 8.2% +373 bps
- Renewals 2.7% 6.1% +341 bps
- Regulated tenancies (annualised) 3.7% 5.8% +210 bps
Net rental income (Note 5) £42.8m £48.0m +12%
Adjusted earnings (Note 2) £46.3m £47.1m +2%
IFRS profit before tax (Note 2) £98.8m £5.7m (94)%
Earnings per share (diluted, after tax) (Note 9) 10.2p 0.6p (94)%
Dividend per share (Note 10) 2.08p 2.28p +10%
Capital returns HY22 HY23 Change
Total Property Return(5) 3.8% 0.1% (366) bps
Total Accounting Return (Note 3) 3.2% (1.6)% (483) bps
FY22 HY23 Change
EPRA NTA per share (Note 3) 317p 310p (2)%
Net debt £1,262m £1,394m +10%
Group LTV 33.4% 36.1% +265bps
Cost of debt (average) 3.1% 3.2% +7bps
Secured and committed pipeline
Investment value £890m
Homes 3,397
Secured but not yet committed pipeline
Investment value £541m
Homes 2,009
Total secured pipeline
Investment value £1,431m
Homes 5,406
Excellent outlook
We have delivered a strong performance in the period, and this is testament to
the Grainger team, who have focused on ensuring that we are delivering high
quality homes and service, and a sense of community and belonging, all of
which supports our success in leasing, high retention and occupancy levels.
Our committed pipeline of build to rent schemes will deliver a doubling of
EPRA earnings within the next four years. The majority of our £1.4bn secured
pipeline is committed (£890m) and under construction, with construction costs
fixed and funding in place. This will enable us to convert to a REIT in 2.5
years. Alongside the opportunities with our partnerships, such as Transport
for London (TfL), we have good visibility over a solid supply of future build
to rent developments.
With positive expectations for the occupational market and rental growth,
resilience in valuations backed by strong active investor demand, and an
institutional-landlord-friendly investment landscape, the outlook for Grainger
remains strong as we continue to lead the sector.
( )
( )
(1) Refer to Note 2 for IFRS profit before tax and adjusted earnings
reconciliation.
(2) Refer to Note 5 for net rental income calculation.
(3) Dividend - The dividend of 2.28p per share (gross) amounting to £16.9m
will be paid on 3 July 2023 to shareholders on the register at the close of
business on 26 May 2023. Shareholders will again be offered the option to
participate in a dividend re-investment plan and the last day for election is
9 June 2023 - refer also to Note 10.
(4) Rental growth is the average increase in rent charged across our portfolio
on a like-for-like basis.
(5) 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 - 27 June 2023
§ Trading Update - September 2023
§ Full year results - 22 November 2023
Half year results presentation
Grainger plc will be holding a presentation of the results at 9:00am (UK time)
today, 11 May 2023, which can be accessed via webcast and a telephone dial-in
facility (details below), which will be followed by a live Q&A session for
sell side analysts and shareholders.
Webcast details:
To view the webcast, please go to the following URL link. Registration is
required.
https://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
*Please note that Live Questions can be submitted by analysts and investors
via the webcast, but not via the conference call facility.
Presentation material:
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 54-57 of the 2022
Annual Report and Accounts, and there has been no change.
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 in our 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 is continuing and inflationary pressures are proving to be
persistent. The macro-economic outlook is unclear. The risk analysis
undertaken in our Annual Report and Accounts factors in these considerations.
The risks to Grainger will continue to be monitored closely.
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 representation 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 - continuing strong performance
Our strategic focus on the mid-market in the UK private rented, build-to-rent
sector continues to deliver strong results. We have delivered a 12% increase
in net rental income, supported by strong like-for-like rental growth of 6.8%,
aligned to wage growth, maintaining healthy affordability levels amongst our
customers. EPRA earnings over the period have increased by 49% and we expect
them to double with the delivery of our committed pipeline of 3,397 homes. We
have a high degree of certainty over this significant growth with the
necessary permissions in place, construction costs fixed for the majority of
projects, financing in place, and debt costs fixed.
Residential valuations have held up exceptionally well compared to the wider
real estate sector, and in our portfolio in particular, supported by strong
ERV growth of 4.1%. Our EPRA NTA stands at 310p per share, compared to 305pps
a year ago, and 317pps six months ago.
We are increasing our dividend by 10%, reflecting the strong growth in net
rental income, in line with our policy to distribute 50% of net rental income
(with a one third, two third split between interim and full dividend
payments).
Growing rental demand and constrained supply continue to move in our favour,
particularly due to our mid-market pricing, energy efficient properties and
value-add services to our customers, supporting them through the
cost-of-living challenges they face. Our investment focus and cluster strategy
in the top regional towns and cities in England and Wales has proven to be the
right focus. These markets remain one of the most investment friendly
residential rental markets globally with no rent controls, and there is a
strong political consensus on the need for more housing supply and investment.
The long-term market opportunity in the 5m household UK rental market is
significant, as the shift in favour of large-scale, institutional professional
landlords accelerates.
Grainger is strongly positioned:
· Secured growth - Our growth, a doubling of EPRA earnings from
FY22, is locked-in, with permissions in place, funding in place and
construction costs fixed.
· Strong balance sheet - LTV below our target range and debt costs
fixed in the mid 3%'s for the next six years.
· Inflation beneficiary - Our net rental income is strongly linked
to wage inflation, and therefore benefits from a high inflationary
environment.
· Resilient valuations - On a relative basis valuations remain
robust with strong rental growth offsetting yield expansion materially, and
strong investor appetite and transactional evidence providing a high degree of
confidence in valuations.
· Strong demand-side characteristics - The demand for our product
is growing and will continue to increase. And this demand is economically
defensive, growing through cycles. We see a high degree of price inelasticity
at our mid-market price point. Our market positioning provides a strong level
of occupational demand resilience, with housing at this price point an
essential expenditure item for consumers.
· Healthy customer affordability - Our customers benefit from
healthy levels of affordability (c.29% of income spent on rent), well below
the recognised affordability ceiling of 33-35% of gross income national
average of 33% 1 (#_ftn1) .
· Positive regulatory landscape and politically aligned - The need
for more, better quality homes is widely acknowledged across all major
political parties in Westminster. Grainger, and the build-to-rent sector, are
directly addressing this, and benefit from political support. The UK market is
one of the most institutional-landlord friendly markets globally, with
regulations focused on driving out poor-quality landlords from the market,
affecting smaller landlords more acutely, and therefore expected to benefit
Grainger and the build-to-rent sector on balance.
· Vast opportunity set - With only approximately 1.5% of the 5m
addressable private rented market represented by institutional, build-to-rent
landlords today, the opportunity for increasing our market share is vast, with
structural changes working in our favour as the shift toward institutional
landlords accelerates.
Trading performance highlights
Exceptional leasing performance
We continue to achieve record levels of occupancy in our PRS portfolio of
98.5% and continue to drive like-for-like rental growth at 6.8%.
Good pipeline progress
Delivery of our pipeline continues at pace. We are on track to deliver seven
schemes in the second half of this year, totalling 1,640 new homes.
Our pipeline of committed build-to-rent schemes will deliver a doubling of
EPRA earnings. The majority of our £1.4bn secured pipeline is committed
(£890m) and under construction with construction costs fixed and funding in
place.
Our partnership with Transport for London (TfL) is progressing at pace with
five planning permissions secured (1,240 homes) within three years of Grainger
being selected by TfL as their partner. The joint venture, Connected Living
London, has now acquired the land for four of these five schemes from TfL and
enabling works have commenced.
Maintaining sales momentum
We continue to sell down our regulated tenancy portfolio, both on vacancy and
tenanted as investment sales through our asset recycling programme. This
provides us with a continual source of funding for our build-to-rent
investment pipeline.
In contrast to some wider market data and commentary, we continue to see
strong pricing in our portfolio, having achieved average sales prices within
-2.2% of vacant possession value.
A growth business in a resilient sector
Our £890m committed pipeline will deliver a doubling in EPRA earnings.
We are well positioned to navigate the current macro environment with a strong
balance sheet. Our debt costs are fixed in the mid 3%'s for the next six
years, and this includes projected drawn facilities which we have aligned with
our capital expenditure plans. We have built in a significant amount of
headroom to our financial covenants within our plans to enable us to continue
on our growth trajectory.
The UK private rented sector and build-to-rent sector in particular are highly
resilient through cycles. Rental growth is underpinned by inflation,
specifically wage inflation, offsetting the downward pressure on valuations
from a higher interest rate environment. Demand for renting equally remains
resilient. It demonstrates defensive qualities, as more people choose to rent
for longer as borrowing costs rise and economic uncertainty remains. Rental
demand is expected to continue to grow over the long term as modern living
patterns change with more fluid labour markets. More and more people are
choosing to rent for longer as it provides the flexibility they require,
offers good value, and a place to put down roots and call home, something
Grainger and the wider build-to-rent sector is committed to.
The opportunity in front of us is large. There are 5m households in the UK
renting privately, representing 25% of all households. Yet only c.1.5% of
these households live in purpose built, build-to-rent properties owned by
large scale institutional landlords such as ourselves. The vast majority of
the rental market is made up of small individual private landlords whose
overall exit from the market is accelerating. This presents a significant
opportunity for Grainger to increase market share.
The investment case for the UK build-to-rent sector is underpinned by the
severe housing shortage which characterises the UK housing market. Centre for
Cities, a think tank, estimate that the UK requires 4.3m additional homes to
plug the current gap, while official figures show supply of new homes
continuing to reduce.
A leading operating platform, delivering value
Our technology-enabled platform continues to deliver value, both to our
customers and shareholders with high satisfaction levels, high occupancy, high
retention and strong rental growth. Our deep and growing data insight enables
us to continue to improve our value proposition and optimise performance. Our
PRS portfolio is mainly modern, energy-efficient homes, with 89% already
achieving top energy ratings of A-C, and we are making good progress on our
net zero carbon ambitions. And as we achieve critical mass in our target
markets through our cluster strategy, we continue to build our consumer-facing
brand to further drive customer acquisition and retention.
Excellent outlook
We have delivered a strong performance in the period, and this is testament to
the Grainger team, who have focused on ensuring that we are delivering high
quality homes and service, and a sense of community and belonging, all of
which supports our success in leasing, high retention and occupancy levels.
Our committed pipeline of build to rent schemes will deliver a doubling of
EPRA earnings within the next four years. The majority of our £1.4bn secured
pipeline is committed (£890m) and under construction, with construction costs
fixed and funding in place. This will enable us to convert to a REIT in 2.5
years. Alongside the opportunities with our partnerships, such as Transport
for London (TfL), we have good visibility over a solid supply of future build
to rent developments.
With positive expectations for the occupational market and rental growth,
resilience in valuations backed by strong active investor demand, and an
institutional-landlord-friendly investment landscape, the outlook for Grainger
remains strong as we continue to lead the sector.
Helen Gordon
Chief Executive
11 May 2023
Financial review
Despite the challenging macro environment arising in the Autumn, the first six
months of FY23 has seen a continuation in the strong performance of our
business. Our operational performance has been excellent with record occupancy
levels at 98.5% and strong like for like rental growth at 6.8% demonstrating
the strong demand for our homes and value of our operating platform. Our
strong overall lettings performance combined with the continued lease up of
our pipeline schemes has driven significant growth in net rental income at
12%. With a strong pipeline of schemes to deliver in H2 we expect to see
strong growth continue as these schemes lease up.
Valuations proved resilient in the period with strong ERV growth of 4.1%
offsetting c.25bps of outward yield movement, underlining the strong
fundamentals and low volatility of our sector. Our residential sales have also
proved resilient with £74.6m of sales in H1 generating £25.2m of sales
profit and within -2.2% of previous vacant possession valuations.
Our balance sheet remains strong with a low LTV and strong liquidity. Our
secured pipeline is fully funded with very high levels of hedging in line with
our policy giving us minimal exposure to interest rate rises for six years.
Given the strong performance and positive outlook, we are increasing our
interim dividend by 10% to 2.28p on a per share basis (HY22: 2.08p) in line
with our policy to distribute 50% of annual net rental income as a dividend,
with a one-third payment at the interim stage.
Our portfolio has proved to be highly resilient through both the pandemic and
the period of economic uncertainty in the Autumn, rental growth has closely
tracked wage inflation and supported robust valuations. While some challenges
for consumers remain, most notably with the continued cost-of-living squeeze,
our mid-market offering and customer demographic have demonstrated, and
continue to ensure, our resilience.
Highlights
Income returns HY22 HY23 Change
Rental growth (like-for-like) 3.5% 6.8% +322 bps
- PRS 3.5% 6.9% +341 bps
- Regulated tenancies (annualised) 3.7% 5.8% +210 bps
Net rental income (Note 5) £42.8m £48.0m +12%
Adjusted earnings (Note 2) £46.3m £47.1m +2%
EPRA earnings (Note 3) £14.7m £21.9m +49%
IFRS profit before tax (Note 2) £98.8m £5.7m (94)%
Earnings per share (diluted, after tax) (Note 9) 10.2p 0.6p (94)%
Dividend per share (Note 10) 2.08p 2.28p +10%
Capital returns HY22 HY23 Change
Total Property Return 3.8% 0.1% (366) bps
Total Accounting Return 3.2% (1.6)% (483) bps
FY22 HY23 Change
EPRA NTA per share (Note 3) 317p 310p (2)%
Net debt (Note 19) £1,262m £1,394m +10%
Group LTV (Note 19) 33.4% 36.1% +265 bps
Cost of debt (average) 3.1% 3.2% +7 bps
Reversionary surplus £248m £217m (13)%
Income statement
Adjusted earnings increased by 2% to £47.1m (HY22: £46.3m) with the strong
£5.2m increase in net rental income the primary driver offset by lower
profits from sales. As our pipeline continues to deliver over the coming
years, we will continue to see significant growth in net rents. The operating
leverage inherent in our business model, and the margin improvement this
delivers, results in an even larger growth in earnings.
Income statement (£m) HY22 HY23 Change
Net rental income 42.8 48.0 +12%
Profit from sales 31.6 25.2 (20)%
Mortgage income (CHARM) (Note 15) 2.4 2.4 -
Management fees 2.8 2.8 -
Overheads (14.6) (15.4) +5%
Pre-contract costs (0.3) (0.7) +133%
Net finance costs (17.0) (15.2) (11)%
Joint ventures and associates (1.4) - (100)%
Adjusted earnings 46.3 47.1 +2%
Valuation movements 61.7 (41.4) (167)%
Other adjustments(1) (9.2) - (100)%
IFRS profit before tax 98.8 5.7 (94)%
(1) HY22 other adjustments comprise fire safety remedial works provisions in
respect of legacy assets.
Rental income
Net rental income increased by 12% to £48.0m (HY22: £42.8m). This increase
of £5.2m was driven by continued strong demand resulting in high levels of
occupancy at 98.5%, continued strong lettings of new launches and strong
rental growth.
Like for like rental growth across the portfolio was +6.8%, with rental growth
in our PRS portfolio continuing to accelerate at +6.9% (HY22: +3.5%), with
rental growth on renewals of +6.1% and +8.2% on new lets. Our regulated
tenancy portfolio delivered 5.8% rental growth. Gross to net for the period on
our stabilised portfolio is 25.5% consistent with previous periods.
£m
HY22 Net rental income 42.8
Disposals (1.2)
PRS investment 2.5
Rental growth(1) 3.9
HY23 Net rental income 48.0
YoY growth +12%
(1) Includes £0.1m from an increase in occupancy in the period.
Sales
Our sales performance continued to be resilient throughout the period with
overall sales revenue of £74.6m in line the prior period (HY22: £75.3m).
Sales profits were lower at £25.2m (HY22: £31.6m) due to the mix of asset
recycling and sales of vacant regulated tenancies.
Residential sales
Vacant property sales in the period were down 18%, delivering £13.2m of
profit (HY22: £16.0m) due to the natural run off of the regulated properties
resulting in a smaller portfolio along with the timing of sales. The profit
margins were broadly flat year on year reflecting a similar sales mix to prior
year. Vacancy rates were up to 8.5% (HY22: 6.5%), and pricing achieved
remained robust with sales values 2.2% below previous vacant possession
values.
Sales of tenanted and other properties delivered £8.5m of profit (HY22:
£15.6m) from £29.1m of revenue (HY22: £36.3m) given higher levels of PRS
recycling which have much lower margins. The development profits in the period
were a result of exiting our remaining interests at Seven Sisters.
We have good visibility on our sales pipeline for the second half and we
expect total sales revenue to be broadly in line with FY22 for the full year.
Sales
HY22 HY23
Units sold Revenue Profit Units sold Revenue Profit
£m £m £m £m
Residential sales on vacancy 64 37.2 16.0 57 30.0 13.2
Tenanted and other sales 123 36.3 15.6 165 29.1 8.5
Residential sales total 187 73.5 31.6 222 59.1 21.7
Development activity 1.8 0.0 15.5 3.5
Overall sales 187 75.3 31.6 222 74.6 25.2
Overheads
Overheads increased by 5% in the period to £15.4m (HY22: £14.6m) reflecting
wage growth across the business, investment in our platform and supporting the
growth of our pipeline.
Balance sheet
We are committed to delivering our growth strategy from a position of real
financial strength and our balance sheet remains in great shape. Our LTV is
36.1% (FY22: 33.4%) and liquidity is strong with cash and available facilities
of £527m. Our committed pipeline is already fully funded and our debt costs
are almost fully hedged meaning we have minimal exposure to potential interest
rate rises.
Market value balance sheet (£m) FY22 HY23
Residential - PRS 2,189 2,227
Residential - regulated tenancies 812 767
Residential - mortgages (CHARM) 69 68
Forward Funded - PRS work in progress 466 539
Development work in progress 182 172
Investment in JVs/associates 55 89
Total investments 3,773 3,862
Net debt (1,262) (1,394)
Other liabilities (41) (59)
EPRA NRV 2,470 2,409
Deferred and contingent tax - trading assets (111) (104)
EPRA NTA 2,359 2,305
Deferred and contingent tax - investment assets (116) (108)
Fair value of fixed rate debt and derivatives 240 113
EPRA NDV 2,483 2,310
EPRA net asset values (pence per share)
EPRA NRV pence per share 333 324
EPRA NTA pence per share 317 310
EPRA NDV pence per share 334 311
EPRA NTA remained robust, decreasing by 2% from the year end to 310p per share
(FY22: 317p per share, HY22: 305p per share) with a 6p reduction coming from
valuation decreases being the main driver alongside a 6p contribution from
adjusted earnings. This was offset by the payment of our final dividend (4)p
and disposal of trading assets (3)p. EPRA NTA excludes the value of our
reversionary surplus of £217m or 29p per share (FY22: £248m).
EPRA NTA movement
£m Pence per share
EPRA NTA at 30 September 2022 2,359 317
Adjusted earnings 47 +6
Valuations (trading & investment property) (47) (6)
Disposals (trading assets) (22) (3)
Tax (current, deferred and contingent) (3) -
Dividends (29) (4)
EPRA NTA at 31 March 2023 2,305 310
Property portfolio valuations
The £3.7bn market value of our overall portfolio proved resilient with a fall
of only 1.3% (HY22: +2.3%) over the six-month period. Our PRS portfolio saw
strong ERV growth of 4.1% which offset c.25bps outward yield movement in the
period. Our regional PRS portfolio outperformed London marginally with c.20bps
outward yield movement compared with c.30bps in London. The regulated
portfolio again proved its resilience at £767m and 0.5% fall in the six month
period.
Portfolio Region Capital Value Total Valuation movement
(£m) £m %
PRS London & SE 1,231 (32) (2.6)%
Regions 996 (5) (0.4)%
PRS Total 2,227 (37) (1.6)%
Regulated Tenancies London & SE 648 (5) (0.7)%
Regions 119 1 0.3%
Regulated Total 767 (4) (0.5)%
Operational Portfolio 2,994 (41) (1.4)%
Development 711 (6) (0.8)%
Total Portfolio(1) 3,705 (47) (1.3)%
(1) Excluding CHARM and Vesta.
Financing and capital structure
Net debt increased to £1,394m (FY22: £1,262m) in line with plan as we
invested £187m into our pipeline. This was partly offset by £74m of sales
split between £30m of vacant sales and asset recycling of £44m. From FY24 we
expect to see committed pipeline investment largely offset by operating
cashflows resulting in broadly stable net debt.
Our policy of having a fully funded secured pipeline ensures that our headroom
of £527m covers our committed pipeline capex of £343m.
We have an average debt maturity of 6 years including extension options and
refinancing risk is minimal with no significant maturities until 2027. Our
average cost of debt remained relatively flat compared to the full year at
3.2% (FY22: 3.1%).
FY22 HY23
Net debt £1,262m £1,394m
Loan to value 33.4% 36.1%
Cost of debt (average) 3.1% 3.2%
Headroom £663m £527m
Weighted average facility maturity 6.5 6.0
Hedging 97% 96%
Summary and outlook
We have continued to deliver a very strong operational performance in the half
having seen momentum strengthen further in the period. Valuations proved
resilient and demonstrated the strong demand for and low volatility of our
asset class and our balance sheet is strong giving us the foundation and
flexibility to deliver our strategy.
We are on track to deliver a transformation to our net rents and earnings as
our pipeline delivers , supported by our leading operating platform, and this
will enable us to convert to a REIT in 2.5 years. Despite the uncertain macro
economic backdrop we are confident our business will continue to deliver
strong growth as the strong demand for our quality homes at mid-market prices
endures.
Rob Hudson
Chief Financial Officer
11 May 2023
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
11 May 2023
11 May 2023
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 2023 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 2023 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) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
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 annual financial statements of the group are
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.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
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. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
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
11 May 2023
Consolidated income statement
Unaudited
For the 6 months ended 31 March Notes 2023 2022
£m
£m
Group revenue 4 110.5 126.6
Net rental income 5 48.0 42.8
Profit on disposal of trading property 6 21.5 31.0
Profit on disposal of investment property 7 4.0 0.6
Income from financial interest in property assets 15 1.5 3.4
Fees and other income 8 2.8 2.8
Administrative expenses (15.4) (14.6)
Other expenses (0.7) (9.5)
Goodwill impairment (0.1) -
(Impairment)/reversal of impairment of inventories to net realisable value 12 (0.5) 1.2
Operating profit 61.1 57.7
Net valuation (loss)/gains on investment property 11 (40.2) 59.3
Finance costs (16.0) (17.0)
Finance income 0.8 -
Share of profit of associates after tax 13 0.1 0.4
Share of loss of joint ventures after tax 14 (0.1) (1.6)
Profit before tax 2 5.7 98.8
Tax charge for the period 20 (1.0) (23.2)
Profit for the period attributable to the owners of the Company 4.7 75.6
Basic earnings per share 9 0.6p 10.2p
Diluted earnings per share 9 0.6p 10.2p
Consolidated statement of comprehensive income
Unaudited
For the 6 months ended 31 March Notes 2023 2022
£m
£m
Profit for the period 2 4.7 75.6
Items that will not be transferred to the consolidated income statement:
Actuarial (loss)/gain on BPT Limited defined benefit pension scheme 21 (1.1) 1.6
Items that may be or are reclassified to the consolidated income statement:
Changes in fair value of cash flow hedges (25.7) 9.9
Other comprehensive income and expense for the period before tax (26.8) 11.5
Tax relating to components of other comprehensive income:
Tax relating to items that will not be transferred to the consolidated income 20 0.3 (0.4)
statement
Tax relating to items that may be or are reclassified to the consolidated 20 6.4 (2.5)
income statement
Total tax relating to components of other comprehensive income 6.7 (2.9)
Other comprehensive income and expense for the period after tax (20.1) 8.6
Total comprehensive income and expense for the period attributable to the (15.4) 84.2
owners of the Company
Consolidated statement of financial position
Unaudited Audited
31 March 2023 30 Sept
2022
As at Notes £m £m
ASSETS
Non-current assets
Investment property 11 2,874.7 2,775.9
Property, plant and equipment 4.0 4.2
Investment in associates 13 16.3 16.7
Investment in joint ventures 14 73.1 38.5
Financial interest in property assets 15 67.7 69.1
Retirement benefits 21 9.3 9.8
Deferred tax assets 20 1.1 1.2
Intangible assets 0.4 0.5
3,046.6 2,915.9
Current assets
Inventories - trading property 12 440.6 453.8
Trade and other receivables 16 51.7 40.5
Derivative financial instruments 19 30.8 56.5
Current tax assets 3.5 16.5
Cash and cash equivalents 70.5 95.9
597.1 663.2
Total assets 3,643.7 3,579.1
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 19 1,473.5 1,317.6
Trade and other payables 17 2.1 2.2
Provisions for other liabilities and charges 18 1.1 1.1
Deferred tax liabilities 20 121.8 136.9
1,598.5 1,457.8
Current liabilities
Interest-bearing loans and borrowings 19 - 40.0
Trade and other payables 17 112.8 105.9
Provisions for other liabilities and charges 18 8.6 8.6
121.4 154.5
Total liabilities 1,719.9 1,612.3
NET ASSETS 1,923.8 1,966.8
EQUITY
Issued share capital 37.1 37.1
Share premium account 817.8 817.6
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve 12.8 32.1
Retained earnings 1,035.7 1,059.6
TOTAL EQUITY 1,923.8 1,966.8
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 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 - - - - - 0.8 0.8
Dividends paid - - - - - (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
Profit for the period - - - - - 153.8 153.8
Other comprehensive income for the period - - - - 28.0 3.1 31.1
Total comprehensive income - - - - 28.0 156.9 184.9
Award of SAYE shares - 0.3 - - - - 0.3
Purchase of own shares - - - - - (0.1) (0.1)
Share-based payments charge - - - - - 0.9 0.9
Dividends paid - - - - - (15.4) (15.4)
Total transactions with owners recorded directly in equity - 0.3 - - - (14.6) (14.3)
Balance as at 30 September 2022 37.1 817.6 20.1 0.3 32.1 1,059.6 1,966.8
Profit for the period 2 - - - - - 4.7 4.7
Other comprehensive expense for the period - - - - (19.3) (0.8) (20.1)
Total comprehensive expense - - - - (19.3) 3.9 (15.4)
Award of SAYE shares - 0.2 - - - - 0.2
Purchase of own shares - - - - - (0.1) (0.1)
Share-based payments charge 22 - - - - - 1.1 1.1
Dividends paid 10 - - - - - (28.8) (28.8)
Total transactions with owners recorded directly in equity - 0.2 - - - (27.8) (27.6)
Balance as at 31 March 2023 37.1 817.8 20.1 0.3 12.8 1,035.7 1,923.8
Consolidated statement of cash flows
Unaudited
For the 6 months ended 31 March Notes 2023 2022
£m
£m
Cash flow from operating activities
Profit for the period 2 4.7 75.6
Depreciation and amortisation 0.5 0.4
Goodwill impairment 0.1 -
Net valuation loss/(gains) on investment property 11 40.2 (59.3)
Net finance costs 15.2 17.0
Share of loss of associates and joint ventures 13, 14 - 1.2
Profit on disposal of investment property 7 (4.0) (0.6)
Share-based payment charge 22 1.1 0.8
Income from financial interest in property assets 15 (1.5) (3.4)
Tax 20 1.0 23.2
Cash generated from operating activities before changes in working capital 57.3 54.9
(Increase)/decrease in trade and other receivables (9.2) 8.9
Increase in trade and other payables 13.6 12.0
Increase in provisions for liabilities and charges - 8.2
Decrease/(increase) in inventories 13.2 (18.8)
Cash generated from operating activities 74.9 65.2
Interest paid (22.6) (22.5)
Tax credit/(paid) 3.7 (2.5)
Payments to defined benefit pension scheme 21 (0.3) (0.2)
Net cash inflow from operating activities 55.7 40.0
Cash flow from investing activities
Proceeds from sale of investment property 7 32.0 10.3
Proceeds from financial interest in property assets 15 2.9 4.0
Dividends received from associates 13 0.5 -
Investment in joint ventures 14 (32.9) (2.9)
Loans advanced to joint ventures 14 (1.8) (0.2)
Acquisition of investment property 11 (167.0) (105.9)
Acquisition of property, plant and equipment and intangible assets (0.3) (2.8)
Net cash outflow from investing activities (166.6) (97.5)
Cash flow from financing activities
Award of SAYE shares 0.2 -
Purchase of own shares (0.1) (3.2)
Proceeds from new borrowings 145.0 -
Payment of loan costs (0.8) -
Repayment of borrowings (30.0) -
Dividends paid 10 (28.8) (24.6)
Net cash inflow/(outflow) from financing activities 85.5 (27.8)
Net decrease in cash and cash equivalents (25.4) (85.3)
Cash and cash equivalents at the beginning of the period 95.9 317.6
Cash and cash equivalents at the end of the period 70.5 232.3
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. 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 2022
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 2023 Consolidated Income Statement are the six month period ended 31
March 2022 Consolidated Income Statement. It is therefore not necessary to
disclose the Consolidated Income Statement for the full year ended 30
September 2022 (available in the last annual report).
The comparative figures for the financial year ended 30 September 2022 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. The valuation process is consistent with the approach set out on
pages 123-124 of the 2022 Annual Report and Accounts, with the exception being
the Group's Residential portfolio valued by Allsop LLP. At the half year,
Allsop LLP inspected 14.2% 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, Nationwide and Acadata indices (16.67% weighting each),
applied on a regional IPD basis.
The Group's financial derivatives were valued as at 31 March 2023 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:
· Reference to the Conceptual Framework (amendments to IFRS 3);
· Onerous Contracts-Cost of Fulfilling a Contract (amendments to
IAS 37);
· Annual improvements to IFRS Standards 2018-2020;
· Property, Plant and Equipment: Proceeds Before Intended Use
(amendments to IAS 16)
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.
Notes to the unaudited interim financial results continued
1c Significant judgements and estimates
Full details of critical accounting estimates are given on pages 122-125 of
the 2022 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 54-57 of the 2022 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 52-53 of the 2022
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. There have been no significant
updates to risk, or failures of control, within the reporting 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. Given market
volatility and the impact on the macro-economic conditions in which the Group
is operating, the Directors have placed a particular focus on the
appropriateness of adopting the going concern basis in preparing the interim
financial statements for the period ended 31 March 2023.
The Directors have assessed the future funding commitments of the Group and
compared these to the level of committed loan facilities and cash resources
over the medium term. In making this assessment, consideration has been given
to compliance with borrowing covenants along with the uncertainty inherent in
future financial forecasts and, where applicable, severe sensitivities have
been applied to the key factors affecting financial performance for the Group.
The going concern assessment is based on the first 18 months of the Group's
viability model, covering the period from 1 April 2023 to 30 September 2024,
and is based on a severe downside scenario, reflecting the following key
assumptions:
· Reducing property valuations by 15% per annum, driven by either
yield expansion or house price deflation
· Reducing PRS occupancy to 80% by 30 September 2023, to 75% by 31
March 2024 and to 70% by 30 September 2024
· 20% development cost inflation
· Operating cost inflation of 20% per annum
· An increase in SONIA rate of 200bps from 1 October 2023
· Credit rating downgrade to increase coupon rates on corporate
bonds by 1.25% from 1 April 2023
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.
Notes to the unaudited interim financial results continued
No new financing is assumed in the assessment period, but existing facilities
are assumed to remain available subject to the terms of those facilities. Even
in this severe downside scenario, the Group has sufficient cash reserves, with
the loan-to-value covenant remaining no higher than 55% (facility maximum
covenant ranges between 70% - 75%) and interest cover above 3.2x (facility
minimum covenant ranges between 1.35x - 1.75x) for the 18 months to September
2024, 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 2023.
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.
Notes to the unaudited interim financial results continued
For the 6 months ended 2023 2022
31 March (unaudited)
£m Statutory Valuation Other adjustments Adjusted earnings Statutory Valuation Other adjustments Adjusted earnings
Group revenue 110.5 - - 110.5 126.6 - - 126.6
Net rental income 48.0 - - 48.0 42.8 - - 42.8
Profit on disposal of trading property 21.5 (0.3) - 21.2 31.0 - - 31.0
Profit on disposal of investment property 4.0 - - 4.0 0.6 - - 0.6
Income from financial interest in property assets 1.5 0.9 - 2.4 3.4 (1.0) - 2.4
Fees and other income 2.8 - - 2.8 2.8 - - 2.8
Administrative expenses (15.4) - - (15.4) (14.6) - - (14.6)
Other expenses (0.7) - - (0.7) (9.5) - 9.2 (0.3)
Goodwill impairment (0.1) 0.1 - - - - - -
(Impairment)/reversal of impairment of inventories to net realisable value (0.5) 0.5 - - 1.2 (1.2) - -
Operating profit 61.1 1.2 - 62.3 57.7 (2.2) 9.2 64.7
Net valuation (loss)/gains on investment property (40.2) 40.2 - - 59.3 (59.3) - -
Finance costs (16.0) - - (16.0) (17.0) - - (17.0)
Finance income 0.8 - - 0.8 - - - -
Share of profit of associates after tax 0.1 - - 0.1 0.4 (0.2) - 0.2
Share of loss of joint ventures after tax (0.1) - - (0.1) (1.6) - - (1.6)
Profit before tax 5.7 41.4 - 47.1 98.8 (61.7) 9.2 46.3
Tax charge for the period (1.0) (23.2)
Profit for the period attributable to the owners of the Company 4.7 75.6
Basic adjusted earnings per share 5.0p 5.1p
Diluted adjusted earnings per share 4.9p 5.0p
Profit before tax in the adjusted columns above of £47.1m (2022: £46.3m) is
the adjusted earnings of the Group. Adjusted earnings per share assumes tax of
£10.4m (2022: £8.8m) in line with the standard rate of UK Corporation Tax of
22.0% (2022: 19.0%), divided by the weighted average number of shares as shown
in Note 9. The Group's IFRS statutory earnings per share is also detailed in
Note 9.
The classification of amounts as other adjustments is a judgement made by
management and is a matter referred to the Audit Committee for approval prior
to issuing the financial statements. The £9.2m cost within other adjustments
in 2022 comprises fire safety remedial works provisions in respect of legacy
assets. 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.
Notes to the unaudited interim financial results continued
3. Segmental Information
IFRS 8, Operating Segments requires operating segments to be identified based
upon the Group's internal reporting to the Chief Operating Decision Maker
('CODM') so that the CODM can make decisions about resources to be allocated
to segments and assess their performance. The Group's CODM are the Executive
Directors.
The two significant segments for the Group are PRS and Reversionary. The PRS
segment includes stabilised PRS assets as well as PRS under construction due
to direct development and forward funding arrangements, both for wholly-owned
assets and the Group's interest in joint ventures and associates as relevant.
The Reversionary segment includes regulated tenancies, as well as CHARM. The
Other segment includes legacy strategic land and development arrangements,
along with administrative expenses.
The key operating performance measure of profit or loss used by the CODM is
adjusted earnings before tax, valuation and other adjustments.
The principal net asset value (NAV) measure reviewed by the CODM is EPRA NTA
which is considered to be 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 2023 Income statement (unaudited)
For the 6 months ended 31 March 2023 PRS Reversionary Other Total
£m
Group revenue 59.0 50.8 0.7 110.5
Segment revenue - external
Net rental income 40.7 6.9 0.4 48.0
Profit on disposal of trading property (0.4) 21.6 - 21.2
Profit on disposal of investment property 4.1 (0.1) - 4.0
Income from financial interest in property assets - 2.4 - 2.4
Fees and other income 2.7 - 0.1 2.8
Administrative expenses - - (15.4) (15.4)
Other expenses (0.7) - - (0.7)
Net finance costs (11.5) (3.3) (0.4) (15.2)
Adjusted earnings 34.9 27.5 (15.3) 47.1
Valuation movements (41.4)
Other adjustments -
Profit before tax 5.7
A reconciliation from adjusted earnings to EPRA earnings is detailed in the
table below, with further details shown in the EPRA performance measures
section at the end of this document:
For the 6 months ended 31 March 2023 PRS Reversionary Other Total
£m
Adjusted earnings 34.9 27.5 (15.3) 47.1
Profit on disposal of trading property 0.4 (21.6) - (21.2)
Profit on disposal of investment property (4.1) 0.1 - (4.0)
EPRA earnings 31.2 6.0 (15.3) 21.9
Notes to the unaudited interim financial results continued
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 EPRA earnings is detailed in the
table below:
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 trading property - (31.0) - (31.0)
Profit on disposal of investment property (0.6) - - (0.6)
EPRA earnings 23.5 5.7 (14.5) 14.7
Segmental assets
The principal net asset value measures reviewed by the CODM are EPRA NRV, EPRA
NTA and EPRA NDV. These measures reflect the current market value of trading
property owned by the Group rather than the lower of historical cost and net
realisable value. These measures are considered to be a more relevant
reflection of the value of the assets owned by the Group.
EPRA NRV is the Group's statutory net assets plus the adjustment required to
increase the value of trading stock from its statutory accounts value of the
lower of cost and net realisable value to its market value. In addition, the
statutory statement of financial position amounts for both deferred tax on
property revaluations and derivative financial instruments net of deferred
tax, including those in joint ventures and associates, are added back to
statutory net assets. Finally, the market value of Grainger plc shares owned
by the Group are added back to statutory net assets.
EPRA NTA assumes that entities buy and sell assets, thereby crystallising
certain levels of deferred tax liabilities. For the Group, deferred tax in
relation to revaluations of its trading portfolio is taken into account by
applying the expected rate of tax to the adjustment that increases the value
of trading stock from its statutory accounts value of the lower of cost and
net realisable value, to its market value. The measure also excludes all
intangible assets on the statutory balance sheet, including goodwill.
Notes to the unaudited interim financial results continued
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 -1.6% is calculated from the closing EPRA NTA of
310.2p per share plus the dividend of 2.28p per share for the half year,
divided by the opening EPRA NTA of 317.6p per share.
These measures are set out below by segment along with a reconciliation to the
summarised statutory statement of financial position:
March 2023 Segment net assets (unaudited)
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,716.9 170.9 36.0 1,923.8 259p
Total segment net assets (EPRA NRV) 1,828.6 537.9 42.3 2,408.8 324p
Total segment net assets (EPRA NTA) 1,823.7 445.5 35.8 2,305.0 310p
Total segment net assets (EPRA NDV) 1,716.2 445.5 147.9 2,309.6 311p
March 2023 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 2,874.7 - 2,874.7 - 2,874.7 - 2,874.7
Investment in joint ventures and associates 89.4 - 89.4 - 89.4 - 89.4
Financial interest in property assets 67.7 - 67.7 - 67.7 - 67.7
Inventories - trading property 440.6 389.8 830.4 - 830.4 - 830.4
Cash and cash equivalents 70.5 - 70.5 - 70.5 - 70.5
Other assets 100.8 (26.0) 74.8 (0.4) 74.4 30.8 105.2
Total assets 3,643.7 363.8 4,007.5 (0.4) 4,007.1 30.8 4,037.9
Interest-bearing loans and borrowings (1,473.5) - (1,473.5) - (1,473.5) 118.6 (1,354.9)
Deferred and contingent tax liabilities (121.8) 121.2 (0.6) (103.4) (104.0) (144.8) (248.8)
Other liabilities (124.6) - (124.6) - (124.6) - (124.6)
Total liabilities (1,719.9) 121.2 (1,598.7) (103.4) (1,702.1) (26.2) (1,728.3)
Net assets 1,923.8 485.0 2,408.8 (103.8) 2,305.0 4.6 2,309.6
Notes to the unaudited interim financial results continued
September 2022 Segment net assets (audited)
£m PRS Reversionary Other Total Pence per share
Total segment net assets (statutory) 1,711.7 190.7 64.4 1,966.8 265p
Total segment net assets (EPRA NRV) 1,833.0 584.9 52.7 2,470.6 333p
Total segment net assets (EPRA NTA) 1,827.6 485.6 45.8 2,359.0 317p
Total segment net assets (EPRA NDV) 1,712.0 485.6 285.4 2,483.0 334p
September 2022 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 2,775.9 - 2,775.9 - 2,775.9 - 2,775.9
Investment in joint ventures and associates 55.2 - 55.2 - 55.2 - 55.2
Financial interest in property assets 69.1 - 69.1 - 69.1 - 69.1
Inventories - trading property 453.8 419.2 873.0 - 873.0 - 873.0
Cash and cash equivalents 95.9 - 95.9 - 95.9 - 95.9
Other assets 129.2 (51.4) 77.8 (0.5) 77.3 56.5 133.8
Total assets 3,579.1 367.8 3,946.9 (0.5) 3,946.4 56.5 4,002.9
Interest-bearing loans and borrowings (1,357.6) - (1,357.6) - (1,357.6) 263.0 (1,094.6)
Deferred and contingent tax liabilities (136.9) 136.0 (0.9) (111.1) (112.0) (195.5) (307.5)
Other liabilities (117.8) - (117.8) - (117.8) - (117.8)
Total liabilities (1,612.3) 136.0 (1,476.3) (111.1) (1,587.4) 67.5 (1,519.9)
Net assets 1,966.8 503.8 2,470.6 (111.6) 2,359.0 124.0 2,483.0
4. Group revenue
Unaudited
2023 2022
£m
£m
Gross rental income (Note 5) 65.4 59.1
Gross proceeds from disposal of trading property (Note 6) 42.3 64.7
Fees and other income (Note 8) 2.8 2.8
110.5 126.6
5. Net rental income
Unaudited
2023 2022
£m
£m
Gross rental income 65.4 59.1
Property operating expenses (17.4) (16.3)
48.0 42.8
Notes to the unaudited interim financial results continued
6. Profit on disposal of trading property
Unaudited
2023 2022
£m
£m
Gross proceeds from disposal of trading property 42.3 64.7
Selling costs (1.2) (1.8)
Net proceeds from disposal of trading property 41.1 62.9
Carrying value of trading property sold (Note 12) (19.6) (31.9)
21.5 31.0
7. Profit on disposal of investment property
Unaudited
2023 2022
£m
£m
Gross proceeds from disposal of investment property 32.3 10.6
Selling costs (0.3) (0.3)
Net proceeds from disposal of investment property 32.0 10.3
Carrying value of investment property sold (Note 11) (28.0) (9.7)
4.0 0.6
8. Fees and other income
Unaudited
2023 2022
£m
£m
Property and asset management fee income 1.9 1.7
Other sundry income 0.9 1.1
2.8 2.8
Included within other sundry income in the current period is £0.9m (2022:
£1.1m) liquidated and ascertained damages (LADs) recorded to compensate the
Group for lost rental income resulting from the delayed completion of
construction contracts.
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit or loss
attributable to the owners of the Company by the weighted average number of
ordinary shares in issue during the 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 2023 was the end of the contingency
period. Where the effect of the above adjustments is antidilutive, they are
excluded from the calculation of diluted earnings per share.
Notes to the unaudited interim financial results continued
Unaudited
31 March 2023 31 March 2022
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 4.7 740.8 0.6 75.6 740.3 10.2
Effect of potentially dilutive securities
Share options and contingent shares - 3.0 - - 2.8 -
Diluted earnings per share
Profit attributable to equity holders 4.7 743.8 0.6 75.6 743.1 10.2
10. Dividends
The Company has announced an interim dividend of 2.28p (March 2022: 2.08p) per
share which will return £16.9m (March 2022: £15.4m) of cash to shareholders.
In the six months ended 31 March 2023, the final dividend for the year ended
30 September 2022 which amounted to £28.8m has been paid.
11. Investment property
Unaudited 31 March Audited
30 Sept
2023 2022
£m
£m
Opening balance 2,775.9 2,179.2
Acquisitions 5.8 14.4
Capital expenditure - completed assets 9.4 9.2
Capital expenditure - assets under construction 151.8 265.6
Total additions 167.0 289.2
Transfer from inventories - 116.5
Disposals (Note 7) (28.0) (19.2)
Net valuation (loss)/gains on investment properties (40.2) 129.0
Net valuation gains on investment property reclassifications - 81.2
Closing balance 2,874.7 2,775.9
During the prior year, four property portfolios were reclassified from trading
property to investment property where changes in use had been identified.
Trading property with a cost of £116.5m and market value of £197.7m had been
reclassified as investment property, resulting in valuation gains of £81.2m
on reclassification.
12. Inventories - trading property
Unaudited 31 March Audited
30 Sept
2023 2022
£m
£m
Opening balance 453.8 595.2
Additions 6.9 58.6
Transfer to investment property - (116.5)
Disposals (Note 6) (19.6) (85.0)
(Impairment)/reversal of impairment of inventories to net realisable value (0.5) 1.5
Closing balance 440.6 453.8
Notes to the unaudited interim financial results continued
13. Investment in associates
Unaudited 31 March Audited
30 Sept
2023 2022
£m
£m
Opening balance 16.7 15.5
Share of profit for the period 0.1 1.2
Dividends received (0.5) -
Closing balance 16.3 16.7
The closing balance comprises share of net assets of £1.7m (September 2022:
£2.1m) and net loans due from associates of £14.6m (September 2022:
£14.6m). At the balance sheet date, there is no expectation of any material
credit losses on loans due.
As at 31 March 2023, 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 Audited
30 Sept
31 March
2023 2022
£m
£m
Opening balance 38.5 29.4
Share of loss for the period (0.1) (1.7)
Further investment(1) 32.9 6.4
Loans advanced to joint ventures 1.8 4.4
Closing balance 73.1 38.5
(1) Grainger invested £32.9m into Connected Living London (BTR) Limited in
the period (September 2022: £6.4m).
The closing balance comprises share of net assets of £46.0m (September 2022:
£13.2m) and net loans due from joint ventures of £27.1m (September 2022:
£25.3m). At the balance date, there is no expectation of any material credit
losses on loans due.
At 31 March 2023, the Group's interest in active joint ventures was as
follows:
% of ordinary share capital held Country of incorporation Accounting
period end
Connected Living London (BTR) Limited 51 UK 30 September
Curzon Park Limited 50 UK 31 March
Lewisham Grainger Holdings LLP 50 UK 30 September
15. Financial interest in property assets ('CHARM' portfolio)
Unaudited Audited
30 Sept
31 March
2023 2022
£m
£m
Opening balance 69.1 71.7
Cash received from the instrument (2.9) (8.6)
Amounts taken to income statement 1.5 6.0
Closing balance 67.7 69.1
Notes to the unaudited interim financial results continued
The CHARM portfolio is a financial interest in equity mortgages held by the
Church of England Pensions Board as mortgagee. It is accounted for under IFRS
9 and is measured at fair value through profit and loss.
It is considered to be a Level 3 financial asset as defined by IFRS 13. The
financial asset is included in the fair value hierarchy within Note 19.
16. Trade and other receivables
Unaudited Audited
30 Sept
31 March
2023 2022
£m
£m
Rent and other tenant receivables 4.2 4.7
Deduct: Provision for impairment (1.7) (1.5)
Rent and other tenant receivables - net 2.5 3.2
Contract assets - 1.9
Restricted deposits 21.9 14.3
Other receivables 24.2 17.1
Prepayments 3.1 4.0
Closing balance 51.7 40.5
The Group's assessment of expected credit losses involves estimation given its
forward-looking nature. This is not considered to be an area of significant
judgement or estimation due to the balance of gross rent and other tenant
receivables of £4.2m (September 2022: £4.7m). 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.
Restricted deposits arise from contracts with third parties that place
restrictions on use of funds and cannot be accessed. These deposits are held
in connection with facility arrangements and are released by the lender on a
quarterly basis once covenant compliance has been met.
Other receivables includes £nil (September 2022: £5.9m) due from land sales,
with amounts outstanding at September 2022 now received.
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
2023 2022
£m
£m
Current liabilities
Deposits received 10.2 10.1
Trade payables 23.8 22.8
Lease liabilities 0.5 0.8
Tax and social security costs 0.8 0.7
Accruals 70.2 63.8
Deferred income 7.3 7.7
112.8 105.9
Non-current liabilities
Lease liabilities 2.1 2.2
2.1 2.2
Total trade and other payables 114.9 108.1
Within accruals, £50.9m comprises accrued expenditure in respect of ongoing
construction activities (September 2022: £43.0m).
Notes to the unaudited interim financial results continued
18. Provisions for other liabilities and charges
Unaudited Audited
30 Sept
31 March
2022
2023
£m
£m
Current provisions for other liabilities and charges
Opening balance 8.6 0.2
Additions 0.2 8.7
Utilisation (0.2) (0.3)
8.6 8.6
Non-current provisions for other liabilities and charges
Opening balance 1.1 1.1
Utilisation - -
1.1 1.1
Total provisions for other liabilities and charges 9.7 9.7
Within current provisions, £8.6m (2022: £8.6m) has been provided for
potential fire safety remediation costs relating to a small number of legacy
properties that Grainger historically had an involvement in developing and may
require fire safety related remediation works. Where appropriate, the Group is
seeking recoveries from contractors and insurers which may reduce the overall
liability over time.
19. Interest-bearing loans and borrowings and financial risk management
Unaudited Audited
30 Sept
31 March
2023 2022
£m
£m
Current liabilities
Bank loans - Pounds sterling - 40.0
- 40.0
Non-current liabilities
Bank loans - Pounds sterling 430.5 275.2
Bank loans - Euro 0.9 0.9
Non-bank financial institution 347.4 347.2
Corporate bonds 694.7 694.3
1,473.5 1,317.6
Closing balance 1,473.5 1,357.6
The above analyses of loans and borrowings are net of unamortised loan issue
costs and the discount on issuance of the corporate bonds. As at 31 March
2023, unamortised costs totalled £13.6m (September 2022: £14.4m) and the
outstanding discount was £2.1m (September 2022: £2.2m).
Categories of financial instrument
The Group holds financial instruments such as a 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 2023 and as at 30 September 2022.
As at 31 March 2023, the fair value of interest-bearing loans is lower than
the book value by £118.6m (September 2022: £263.0m lower than book value),
but there is no requirement under IFRS 9 to adjust the carrying value of
loans, all of which are stated at unamortised cost in the consolidated
statement of financial position.
Notes to the unaudited interim financial results continued
Market risk
The Group is exposed to market risk through interest rates, the availability
of credit and house price movements relating to the Tricomm Housing portfolio
and the CHARM portfolio. The Group is not significantly exposed to equity
price risk or to commodity price risk.
Fair values
IFRS 13 sets out a three-tier hierarchy for financial assets and liabilities
valued at fair value. These are as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets
and liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly; and
Level 3 - unobservable inputs for the asset or liability.
The following table presents the Group's assets and liabilities that are
measured at fair value:
Unaudited Audited
31 March 2023 30 September 2022
Assets Liabilities Assets Liabilities
£m
£m
£m
£m
Level 3
CHARM 67.7 - 69.1 -
Investment property 2,874.7 - 2,775.9 -
2,942.4 - 2,845.0 -
Level 2
Interest rate swaps - in cash flow hedge accounting relationships 30.8 - 56.5 -
30.8 - 56.5 -
The significant unobservable inputs affecting the carrying value of the CHARM
portfolio are house price inflation and discount rates. A reconciliation of
movements and amounts recognised in the consolidated income statement are
detailed in Note 15.
The investment valuations provided by Allsop LLP and CBRE Limited are based on
RIC's Professional Valuation Standards, but include a number of unobservable
inputs and other valuation assumptions.
The fair value of swaps and caps were valued in-house by a specialised
treasury management system, using 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
30 Sept
31 March
Assets - Level 3 2023 2022
£m
£m
Opening balance 2,845.0 2,250.9
Amounts taken to income statement (38.7) 216.2
Other movements 136.1 377.9
Closing balance 2,942.4 2,845.0
Notes to the unaudited interim financial results continued
20. Tax
The tax charge for the period of £1.0m (2022: £23.2m) recognised in the
consolidated income statement comprises:
Unaudited
2023 2022
£m
£m
Current tax
Corporation tax on profit 9.4 10.1
9.4 10.1
Deferred tax
Origination and reversal of temporary differences (8.2) 12.3
Adjustments relating to prior periods (0.2) 0.8
(8.4) 13.1
Total tax charge for the period 1.0 23.2
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 taxable results for this period are taxed at the standard rate of
22.0% (September 2022: 19.0%).
In addition to the above, a deferred tax credit of £6.7m (2022: charge
£2.9m) was recognised within other comprehensive income comprising:
Unaudited
2023 2022
£m
£m
Remeasurement of BPT Limited defined benefit pension scheme (0.3) 0.4
Fair value movement in cash flow hedges (6.4) 2.5
Amounts recognised in other comprehensive income (6.7) 2.9
Deferred tax balances comprise temporary differences attributable to:
Unaudited 31 March 2023 Audited
£m
30 Sept
2022
£m
Deferred tax assets
Short-term temporary differences 1.1 1.2
1.1 1.2
Deferred tax liabilities
Trading property uplift to fair value on business combinations (6.0) (6.3)
Investment property revaluation (100.1) (108.9)
Actuarial surplus on BPT Limited pension scheme (0.9) (1.2)
Short-term temporary differences (9.3) (8.6)
Fair value movement in financial interest in property assets (1.2) (1.2)
Fair value movement in derivative financial instruments (4.3) (10.7)
(121.8) (136.9)
Total deferred tax (120.7) (135.7)
Deferred tax has been calculated at a rate of 25.0% (September 2022: 25.0%) in
line with the enacted main rate of corporation tax applicable from 1 April
2023.
Notes to the unaudited interim financial results continued
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 £97.5m, calculated at 25.0% (September 2022: £104.8m, calculated
at 25.0%) and will be realised as the properties are sold.
21. Retirement benefits
The Group retirement benefit asset decreased by £0.5m to £9.3m in the six
months ended 31 March 2023. This movement has arisen from a £1.4m gain on
plan assets, as well as £0.3m company contributions and £0.3m net interest
income, offset by losses due to changes in assumptions of £2.5m (primarily
market observable discount rates and inflationary expectations). The principal
actuarial assumptions used to reflect market conditions as at 31 March 2023
are as follows:
Unaudited Audited
31 March 2023 30 Sept 2022
% %
Discount rate 4.70 5.00
Retail Price Index (RPI) inflation 3.35 3.80
Consumer Price Index (CPI) inflation 2.65 3.00
Salary increases 3.85 4.30
Rate of increase of pensions in payment 5.00 5.00
Rate of increase for deferred pensioners 2.65 3.00
22. Share-based payments
The Group operates a number of equity-settled, share-based compensation plans
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 £1.1m (2022: £0.8m).
23. Related party transactions
During the period ended 31 March 2023, the Group transacted with its
associates and joint ventures (details of which are set out in Notes 13 and
14). The Group provides a number of services to its associates and joint
ventures. These include property and asset management services for which the
Group receives fee income. The related party transactions recognised in the
consolidated income statement and consolidated statement of financial position
are as follows:
Unaudited
31 March 2023 31 March 2022
Fees Period end Fees Period end
recognised
balance
recognised
balance
£'000
£'000
£'000
£'000
Connected Living London (BTR) Limited 974 1,237 432 497
Lewisham Grainger Holdings LLP 144 169 159 1,089
Vesta Limited Partnership 416 191 349 304
1,534 1,597 940 1,890
Notes to the unaudited interim financial results continued
Unaudited Audited
31 March 2023 31 March 2023 31 March 2023 31 March 2022 30 Sept 2022 30 Sept 2022
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 360 9.0 9.1 - 7.2 6.9
Vesta LP - 14.6 Nil - 14.6 Nil
360 41.7 - 39.9
EPRA Performance Measures - Unaudited
The European Public Real Estate Association (EPRA) is the body that represents
Europe's listed property companies. The association sets out guidelines and
recommendations to facilitate consistency in listed real estate reporting, in
turn allowing stakeholders to compare companies on a like-for-like basis. As a
member of EPRA, the Group is supportive of EPRA's initiatives and discloses
measures in relation to the EPRA Best Practices Recommendations ('EPRA BPR')
guidelines. The most recent guidelines, updated in February 2022, have been
adopted by the Group.
EPRA Earnings
31 March 2023 31 March 2022
Earnings Shares Pence per Earnings Shares Pence per share
£m millions share £m millions
Earnings per IFRS income statement 5.7 743.8 0.8 98.8 743.1 13.3
Adjustments to calculate EPRA Earnings, exclude:
i) Changes in value of investment properties, development properties held for 41.1 - 5.5 (60.3) - (8.1)
investment and other interests
ii) Profits or losses on disposal of investment properties, development (4.0) - (0.5) (0.6) - (0.1)
properties held for investment and other interests
iii) Profits or losses on sales of trading properties including impairment (21.0) - (2.8) (32.2) - (4.2)
charges in respect of trading properties
iv) Tax on profits or losses on disposals - - - - - -
v) Negative goodwill/goodwill impairment 0.1 - - - - -
vi) Changes in fair value of financial instruments and associated close-out - - - - - -
costs
vii) Acquisition costs on share deals and non-controlling joint venture - - - - - -
interests
viii) Deferred tax in respect of EPRA adjustments - - - - - -
ix) Adjustments i) to viii) in respect of joint ventures - - - (0.2) - -
x) Non-controlling interests in respect of the above - - - - - -
xi) Other adjustments in respect of adjusted earnings - - - 9.2 - 1.2
EPRA Earnings/Earnings per share 21.9 743.8 3.0 14.7 743.1 2.1
EPRA Earnings per share after tax 2.3 1.7
EPRA Earnings have been divided by the average number of shares shown in Note
9 to these financial statements to calculate earnings per share. EPRA Earnings
per share after tax is calculated using the standard rate of UK Corporation
Tax of 22.0% (2022: 19.0%).
EPRA Performance Measures - Unaudited (continued)
EPRA NRV, EPRA NTA and EPRA NDV
31 March 2023 30 Sept 2022
EPRA NRV EPRA NTA EPRA NDV EPRA NRV EPRA NTA EPRA NDV
£m £m £m £m £m £m
IFRS Equity attributable to shareholders 1,923.8 1,923.8 1,923.8 1,966.8 1,966.8 1,966.8
Include/Exclude:
i) Hybrid Instruments - - - - - -
Diluted NAV 1,923.8 1,923.8 1,923.8 1,966.8 1,966.8 1,966.8
Include:
ii.a) Revaluation of IP (if IAS 40 cost option is used) - - - - - -
ii.b) Revaluation of IPUC (if IAS 40 cost option is used) - - - - - -
ii.c) Revaluation of other non-current investments 4.8 4.8 4.8 5.1 5.1 5.1
iii) Revaluation of tenant leases held as finance leases - - - - - -
iv) Revaluation of trading properties 395.9 292.5 292.5 425.5 314.4 314.4
Diluted NAV at Fair Value 2,324.5 2,221.1 2,221.1 2,397.4 2,286.3 2,286.3
Exclude:
v) Deferred tax in relation to fair value gains of IP 107.5 107.5 - 115.6 115.6 -
vi) Fair value of financial instruments (23.2) (23.2) - (42.4) (42.4) -
vii) Goodwill as a result of deferred tax - - - - - -
viii.a) Goodwill as per the IFRS balance sheet - (0.4) (0.4) - (0.5) (0.5)
viii.b) Intangible as per the IFRS balance sheet - - - - - -
Include:
ix) Fair value of fixed interest rate debt - - 88.9 - - 197.2
x) Revalue of intangibles to fair value - - - - - -
xi) Real estate transfer tax - - - - - -
NAV 2,408.8 2,305.0 2,309.6 2,470.6 2,359.0 2,483.0
Fully diluted number of shares 743.0 743.0 743.0 742.9 742.9 742.9
NAV
NAV pence per share 324 310 311 333 317 334
EPRA Performance Measures - Unaudited (continued)
EPRA NIY
31 March 30 Sept
2023 2022
£m
£m
Investment property - wholly-owned 2,874.7 2,775.9
Investment property - share of JVs/Funds 61.3 32.4
Trading property (including share of JVs) 830.4 873.0
Less: developments (756.8) (664.8)
Completed property portfolio 3,009.6 3,016.5
Allowance for estimated purchasers' costs 120.7 121.9
Gross up completed property portfolio valuation B 3,130.3 3,138.4
Annualised cash passing rental income 132.6 124.8
Property outgoings (35.2) (33.9)
Annualised net rents A 97.4 90.9
EPRA NIY A/B 3.1% 2.9%
Gross up completed property portfolio valuation 3,130.3 3,138.4
Adjustments to completed property portfolio in respect of regulated tenancies (802.0) (847.9)
Adjusted gross up completed property portfolio valuation b 2,328.3 2,290.5
Annualised net rents 97.4 90.9
Adjustments to annualised cash passing rental income in respect of newly 6.3 6.6
completed developments and refurbishment activity
Adjustments to property outgoings in respect of newly completed developments (1.7) (1.9)
and refurbishment activity
Adjustments to annualised cash passing rental income in respect of regulated (18.0) (18.9)
tenancies
Adjustments to property outgoings in respect of regulated tenancies 4.9 5.1
Adjusted annualised net rents a 88.9 81.8
Adjusted EPRA NIY a/b 3.8% 3.6%
EPRA Vacancy Rate
31 March 30 Sept
2023 2022
£m
£m
Estimated rental value of vacant space A 1.5 2.0
Estimated rental value of the whole portfolio B 102.5 95.7
EPRA Vacancy Rate A/B 1.5% 2.1%
The vacancy rate reflects estimated rental values of the Group's stabilised
habitable PRS units as at the reporting date.
EPRA Performance Measures - Unaudited (continued)
EPRA Cost Ratio
For the 6 months ended 31 March 2023 2022
£m
£m
Administrative expenses 15.4 14.6
Property operating expenses 17.4 16.3
Share of joint ventures expenses 0.2 1.4
Management fees (1.9) (1.7)
Other operating income/recharges intended to cover overhead expenses (0.9) (1.1)
Exclude:
Investment property depreciation - -
Ground rent costs (0.1) (0.1)
Costs (including direct vacancy costs) A 30.1 29.4
Direct vacancy costs (1.0) (1.3)
Costs (excluding direct vacancy costs) B 29.1 28.1
Gross rental income 65.4 59.1
Less: ground rent income (0.3) (0.3)
Add: share of joint ventures (gross rental income less ground rents) 0.4 0.3
Add: adjustment in respect of profits or losses on sales of properties 25.5 31.6
Gross Rental Income and Trading Profits C 91.0 90.7
Adjusted EPRA Cost Ratio (including direct vacancy costs) A/C 33.1% 32.4%
Adjusted EPRA Cost Ratio (excluding direct vacancy costs) B/C 32.0% 31.0%
EPRA LTV
31 March 2023
£m Group Share of Joint Ventures Share of Associates Combined
Borrowings from Financial Institutions 789.3 - - 789.3
Bond loans 699.9 - - 699.9
Net payables 63.2 4.4 14.8 82.4
Exclude:
Cash and cash equivalents (70.5) (5.0) (0.6) (76.1)
Net debt A 1,481.9 (0.6) 14.2 1,495.5
Investment properties at fair value 2,237.2 - 15.9 2,253.1
Investment properties under development 637.5 45.4 - 682.9
Properties held for sale 830.4 - - 830.4
Financial assets 109.4 - - 109.4
Total property value B 3,814.5 45.4 15.9 3,875.8
EPRA LTV % A/B 38.8% (1.3)% 89.3% 38.6%
EPRA Performance Measures - Unaudited (continued)
30 Sept 2022
£m Group Share of Joint Ventures Share of Associates Combined
Borrowings from Financial Institutions 674.2 - - 674.2
Bond loans 700.0 - - 700.0
Net payables 67.6 6.0 14.9 88.5
Exclude:
Cash and cash equivalents (95.4) (2.7) (1.1) (99.2)
Net debt A 1,346.4 3.3 13.8 1,363.5
Investment properties at fair value 2,197.7 - 15.9 2,213.6
Investment properties under development 578.2 16.5 - 594.7
Properties held for sale 873.0 - - 873.0
Financial assets 109.0 - - 109.0
Total property value B 3,757.9 16.5 15.9 3,790.3
EPRA LTV % A/B 35.8% 20.0% 86.8% 36.0%
EPRA Capital Expenditure
31 March 2023
£m Trading Properties Investment Properties Group (excl Joint Ventures) Share of Joint Ventures Combined
Acquisitions - 5.8 5.8 - 5.8
Development 3.6 144.7 148.3 28.7 177.0
Completed assets 2.0 9.4 11.4 - 11.4
Capitalised interest 1.3 7.1 8.4 0.2 8.6
Total capital expenditure 6.9 167.0 173.9 28.9 202.8
30 Sept 2022
£m Trading Properties Investment Properties Group (excl Joint Ventures) Share of Joint Ventures Combined
Acquisitions 0.1 14.4 14.5 - 14.5
Development 49.5 253.8 303.3 5.4 308.7
Completed assets 8.8 9.2 18.0 - 18.0
Capitalised interest 0.2 11.8 12.0 0.3 12.3
Total capital expenditure 58.6 289.2 347.8 5.7 353.5
1 (#_ftnref1) English Housing Survey (2021/22)
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