Grainger Trust Results for Meeting 7 Dec 2004

1
Preliminary Announcement ofResults for the year
ended 30 September 20047 December 2004
2
Contents

• Corporate Introduction
• Business Highlights
• Financial Highlights
• Financial
• Summary Profit and Loss Account
• Market Value Balance Sheet
• NAV Movements
• Diluted NAV
• Cashflow
• Debt Refinancing
• Debt Cost
• Debt Maturity
• Dividend Policy and Share Structure
• Divisional Highlights
• Tenanted Residential
• Highlights
• View of the Housing Market
• Portfolio Characteristics
• Key Performance Facts

3
Corporate Introduction

• Grainger is the UKs largest quoted residential
  property investor and trader.
• Grainger specialises in regulated and life
  tenancies and owns a residential portfolio of
  circa 12,000 units.
• Total market value of property owned is 1.4
  billion.
• Grainger has two further divisions-
• development and trading
• fund and property management

4
Business Highlights

• Continued focus on long term residential
  activities.
• First year to include full results of Bromley.
• Commercial investment portfolio successfully
  rationalised.
• Successful refinancing to give greater
  flexibility and firepower.
• Good progress made on recent business initiatives
  life tenancy and Europe.

5
Financial Highlights

• Profit before tax and exceptional items
• Earnings per share pre exceptional items
• Dividend per share (full year)
• Net asset value per share
• Reversionary surplus in tenanted residential
  portfolio

• 59.6m
• 149.7p
• 23.24p
• 27.34
• 536m

• 23
• 25
• 42
• 25
• 11

6
Summary Profit and Loss Account
30 September 2004
30 September 2003
m
m
Tenanted residential
81.9
39.3
Development and trading
25.3
14.6
Joint venture contribution
-
27.7


107.2
81.6
Administrative expenses
(7.5)
(4.7)
Interest payable
normal
(40.1)
(11.5)
exceptional
(5.4)
-
joint venture
-
(16.9)
(45.5)
(28.4)


Profit before tax
54.2
48.5
7
Market Value Balance Sheet
30 September 2004
30 September 2003
m
m
Properties
1,329
1,164
Tenanted residential
109
130
Development and trading




1,438
1,294
Total properties
70
93
Cash, investments, other



1,508
1,387
Total assets

(750)
(761)
Debt
(80)
(83)
Net current liabilities and deferred tax
(830)
(844)




678
543
Net assets

8
NAV Movements
/Share
m
Opening 1 October 2003
21.94
543
Retained earnings
0.80
20
Valuation movements
4.81
120
Goodwill/other movements
(0.21)
(5)
Closing NAV 30 September 2004
27.34
678
9
Diluted NAV
/Share
m
NAV
27.34
678
FRS 13
(0.01)
-
Contingent tax
(8.71)
(216)


NNNAV
18.62
462
Discounted, taxed reversionary surplus
5.38
133


Grainger NAV at 30 September 2004
24.00
595


Grainger NAV at 1 October 2003
18.00
446

Note NNNAV at 1 October 2003
13.91
10
Cashflow
11
Debt Refinancing

• All existing facilities (except loan notes and
  ring fenced debt) paid off.
• Replaced with 900m facility.
• Fewer, simpler, more relevant covenants.
• No repayment before fifth year.
• Cheaper cost of funds.
• Headroom at 30 September 220m.

12
Debt Cost
30 September 2004
30 September 2003
45m 6.3
81m 8.1
153m 4.7
256m 5.6
223m 6.4
298m 6.6
235m 5.0
233m 6.0
Variable/fixed under one year
Hedged by financial caps
Hedged by swap contracts
Fixed to termination
Gross Debt
757m
767m
Hedging Level (on net debt)
71
90
Blended Interest Rate
6.0
5.9
Gearing Level
103
125
LTV
48.9
52.9
13
Debt Maturity
30 September 2004
30 September 2003
32m 4.2
77m 10.0
45m 6.0
70m 9.2
47m 6.1
150m 4.9
200m 26.4
361m 47.1
480m 63.4
212m 27.6
One year or less
Between 1 and 2 years
Between 2 and 5 years
Between 5 and 10 years
Over 10 years
Gross Debt
757m
767m
Cash
54m
82m
Net Debt
703m
685m
Average maturity
6.4 years
6.0 years
14
Dividend Policy and Share Structure

• For last five years dividend growth at 15 pa.
• Growth in profits and market cap has resulted in
  high dividend cover and low yield.
• Step up increase for 2004 final to give 23.24p
  per share.(would have been 18.76p per share
  under old policy)
• Future intention to grow at 10 per annum.
• Current share price over 17- proposal at AGM to
  split on five for one basis.

15
Divisional Highlights

• Tenanted Residential - Strong sales
• - Good level of acquisitions
• Development and Trading - Kennel Farm sales
• - Disposal of Commercial
• - New divisional structure
• Fund Management - Integration
• - Systems and reporting
• - REIT consultation

16
Tenanted Residential - Highlights

• Average sales price on vacancy of 143K.
• Average increase over Sept. 2003 VP values of
  11.2 (normal sales).
• High sales margin of 44.1.
• Current portfolio stands at VP value of
  approximately 1.9 billion.
• Life tenancies - regulation.
• First serviced apartments purchase.

17
Tenanted Residential - View of the Housing Market

• Levels of HPI growth in the short term will be
  low or flat.
• In some areas there may be falls - in London and
  the South East correction already.
• Long term demand will remain strong
• - increasing number of household units
• - low levels of new house build
• - affordability assisted by relatively low
  interest rates
• - use of home ownership as form of
  investment.

18
Tenanted Residential - Portfolio Characteristics

• Portfolio is largely un-modernised and at or
  below UK average value.
• Vacant properties tend to be in high demand.
• High margins give price flexibility.
• Only approximately 8.5 of portfolio sold in any
  one year.
• Geographically widespread, relatively low
  exposure to top-end, more volatile markets.

19
Tenanted Residential - Key Performance Facts
30 September 2004
30 September 2003
No. of sales in period
1,031
1,414
Average sales price on vacancy
143K
110K
Total sales
135m
139m
Trading Profits and fixed assets
disposals(excluding goodwill release)
55m
46m
Net valuation uplift
121m
103m
Net rents and other income
20m
16m
Total Return (profits, net rents, valuation
uplift)
196m
165m
Acquisitions
118m
112m
20
Tenanted Residential - Commentary

• Good sales performance, September 2003 VPs
  exceeded by 11.2
• Acquisitions analysis
• Total reversionary surplus on residential
  portfolio 536m

No

m
VP m
as VP
Regulated
486
68.4
91.3
75
Life Tenancies
374
22.5
38.6
58
AST, others
182
26.6
29.8
89
1,042
117.5
159.7
74
21
Tenanted Residential - Portfolio Analysis by
Investment Value
30 September 2004
30 September 2003
Other 32m 2.4
Other 23m 2.0
Vacant 49m 3.7
Vacant 51m 4.4
Life Tenancies
167m 12.6
Life Tenancies
134m 11.5
Assured
87m 7.5
Assured
92m 6.9
Regulated 939m 70.7
APT
27m 2.3
44m 3.3
APT
Regulated 842m 72.3
Hoteling complex serviced apartments 6m 0.4
12,030
Total units
12,041
1,648m
Total VP
1,865m
Investment value
1,329m
1,164m
484m
Reversionary surplus
536m
Reversionary surplus per share
21.61
19.55
22
Tenanted Residential - Portfolio Analysis by VP
value
30 September 2004
30 September 2003
0-50K 63m 3.9
500K 32m 2.0
0-50K 23m 1.3
500K 38m 2.0
50-100K
250-500K
50-100K
233m 12. 7
246m 15.2
250-500K
320m 17.5
241m 14.9
100K-175K
676m 37.0
540m 29.5
175-250K
613m 37.9
423m 26.1
100K-175K
175-250K
Total VP 1,618m
Total VP 1,830m
(other interests of 30m omitted)
(other interests of 35m omitted)
2
rds of portfolio in range 100 - 250K
3
23
Tenanted Residential - Portfolio Analysis By
Number of Units
30 September 2004
30 September 2003
500K 50 0.4
500K 58 0.5
250- 500K
250- 500K
0-50K
0-50K
589 4.9
963 8.0
756 6.3
1,639 13.6
2,045 17.0
175- 250K
2,971 24.7
2,593 21.5
50- 100K
175- 250K
3,106 25.8
50- 100K
4,434 36.9
100K- 175K
4,867 40.4
100K- 175K
Total units 12,030
Total units 12,041
24
Tenanted Residential Regional Analysis
Number
IV
VP
of units
m
m


01
Central London
616
148
199
11.1
10.7
01
Inner London
1,234
222
297
16.7
15.9
12
01
Outer London
1,383
181
250
13.6
13.4
02
South East
1,963
224
324
16.9
17.4
03
South West
863
79
120
6.0
6.4
04
East
1,006
91
136
6.9
7.3
05
East Midlands
47
71
3.5
3.8
709
06
West Midlands
1,208
129
172
9.7
9.2
07
Wales
103
8
12
0.6
0.6
08
Yorkshire
751
47
68
3.5
3.7
09
North West
1,733
124
175
9.3
9.4
10
North East
260
20
28
1.5
1.5
11
Scotland
181
8
11
0.6
0.6
31
12
Northern Ireland
1
2
0.1
0.1
12,041
1,329
1,865
100.0
100.0

• 8.0 of our properties are valued above 350K
  (vacant possession)
• 36.6 of our properties are valued below 150K
  (vacant possession)

25
Development and Trading - Commentary

• Operating profit up to 25.3m from 14.6m.
• 12.4 acres of land at Kennel Farm sold for
  14.2m.
• 25m of commercial investment property sold at
  3.5m above 30 September 2003 values.
• Focus on residential and mixed use developments
• - land regeneration
• - housebuilding
• - residential development.

26
Commentary on Major Sites
Project Description Status Income expected from
West Waterlooville Option over 640 acres MDA Masterplan approved by Winchester Havant and Hampshire 2007 on
Macaulay Road, Clapham, SW4 110,000 sq. ft. mixed use scheme Application submitted, decision awaited 2007 on
South London Hospital, SW4 77 residential units above new Tesco foodstore Construction commenced 2006/07
Hornsey Road and Barnsbury Complex, Islington Public/private partnership mixed use scheme, 350 residential units, 43,000 sq.ft. council office and community use Contracts exchanged 2007 on
27
Development Sites
South London Hospital, Clapham
Macaulay Road, Clapham
Hornsey Road Baths - Proposed
Omega, Pitmaston, Birmingham
28
Way Forward

• Focus on core regulated tenancy market.
• Expand life tenancy business - to be regulated in
  due course
• - discussions with financial
  institutions.
• Ensure maximum advantage taken of any REIT
  structure.
• Look at opportunities in Europe - controlled risk
  approach.
• Development and trading business focus on
  residential or mixed use.

29
Appendices

• Summary of Tenancy Types.
• Detailed Profit and Loss Account.
• Tenanted Residential - Stock Analysis.
• Tenanted Residential - Return by Region.
• Glossary of Terms.

30
Summary of Tenancy Types
Regulated
Assured Periodic
Assured
Life Tenancies
Assured Shorthold
Rent Act 1977
Housing Act 1988
Housing Act 1988
-
Housing Act 1988
Regulated by
Security of tenure
Yes - with succession rights
Yes
Yes
Yes
No
Set by rent officer every two years. Increases
capped at RPI 2.5 per annum.
Rent
Market rent
Market rent
Market rent
Usually no rent
Other characteristics
Since 1988 no new regulated therefore declining
stock
Tenants transfer ownership in return for
rent-free occupation and lump sum
Landlord may get possession if appropriate
notice is served
Tenancy arises as a result of succession from
regulated
Tenant has the right to renew tenancy
31
Detailed Profit and Loss Account
32
Tenanted Residential - Stock Analysis
33
Tenanted Residential - Return By Region
Trading
Opening Investment Value
As Opening IV
(excluding Negative Goodwill)
Valuation
Total
Net Rents
Total PL
m
m
m
m
Uplift
Return
Value
133
01
Central London
1.6
4.0
6.2
4.9
11.1
8.3
195
01
Inner London
3.0
6.9
11.1
9.2
20.3
10.4
173
01
Outer London
3.2
9.5
13.9
9.6
23.5
13.6
214
02
South East
3.8
7.7
13.0
12.8
25.8
12.0
67
03
South West
0.8
4.6
5.7
6.2
11.9
17.8
87
04
East
1.1
3.9
5.4
6.6
12.0
14.0
34
05
East Midlands
0.6
2.4
3.2
8.4
11.6
34.2
112
06
West Midlands
1.8
4.1
6.6
16.6
23.2
20.5
5
07
Wales
0.1
0.3
0.4
1.0
1.4
27.5
37
08
Yorkshire
1.0
2.6
4.0
11.0
15.0
40.9
86
09
North West
2.4
6.5
9.8
30.8
40.6
47.2
14
10
North East
0.2
1.6
1.8
2.7
4.5
32.4
7
11
Scotland
0.1
0.6
0.8
1.3
2.1
30.4







1,164
19.7
54.7
81.9
121.1
203
17.4







34
Glossary of Terms
35
Glossary of Terms
36
Preliminary Announcement ofResults for the year
ended 30 September 20047 December 2004