Grainger plc Regulatory News (GRI)

14 May 2015

Grainger plc

("Grainger", the "Group" or the "Company")

HALF YEAR RESULTS FOR THE SIX MONTHS TO 31 MARCH 2015

STRONG UNDERLYING ASSET PERFORMANCE, SIGNIFICANT INVESTMENT IN UK REGIONS & BUILD TO RENT MARKET

Grainger plc, the UK's largest listed residential property owner and manager, today announces its half year results for the six months to 31 March 2015.

Highlights - strong underlying performance

· Growth in value - Continued outperformance of our UK residential assets with growth in value of 3.8% since the year end, compared to the combined Nationwide and Halifax indices which showed 1.9% growth for the comparative period;

· Higher margins - Vacant sales achieved, on average, at 6.6% above September 2014 values; margins on normal trading sales increased to 52.6% (March 2014: 48.4%);

· Underlying strength - Underlying1Gross NAV and NNNAV up by 3.7% and 1.7%, respectively since September 2014;

· Building for the future - £87m investment (acquired or contracts exchanged) into regional residential assets that will add c.£6m to annualised rents and provide reversionary and value adding opportunities; £33m build to rent scheme acquired in Canning Town, London by our GRIP joint venture; two planning consents achieved for build to rent phases at two of our strategic land development sites; completed the £14m acquisition of our build to rent scheme in Barking ahead of schedule with lettings beginning this summer; we currently have a Secured Pipeline of c.1,070 market rented units that we expect to deliver over the next two years.

Andrew Cunningham, Chief Executive of Grainger plc, said:

"The fundamental drivers supporting housing remain positive with labour market conditions set to continue to improve and mortgage interest rates remaining, at least in the short term, at current low levels. After two years of very strong valuation increases, we are pleased to report that the value of our UK portfolios continue to rise steadily and has again performed better than the general housing market, demonstrating the strength of our assets and quality of our management.

"Our focus, over the last few years, has been on growing our market rented residential business, where we can draw on our proven track record to manage properties and generate good shareholder returns. We have been successful in doing so, having acquired over 400 properties in the period and with c.1,070 new market rented homes in our current pipeline expected to complete over the next two years. Our attention going forward will remain on growing this part of the business and continuing to seek out attractive investment opportunities in regulated tenancy portfolios."

1 Gross NAV before legacy swap breaks and the one-off impairment associated with the previously announced Equity Release (Increments) Limited (ERIL) transaction which completed on 2 April. NNNAV before the impact of the ERIL transaction and the impact of adverse derivative movements.

Baroness Ford, Chairman of Grainger, said:

"As announced on 31 March 2015, Andrew Cunningham will retire from Grainger at the next AGM (February 2016). Andrew's commitment and contribution to the company over the last twenty years has helped build the very strong position it is in today. Whilst of course we are sorry to see Andrew go, the search for his successor is already well underway and there is sufficient time to ensure an orderly handover."

Financial performance

· Gross net asset value (NAV) per share of 293p, up 2p since September 2014 (291p) despite the impact of non-recurring items and legacy swap break costs (totalling 9p) and up 21p (7.7%) year-on-year (March 2014: 272p);

· NNNAV per share of 240p, 2p lower than September 2014 (242p) having been impacted by 7p from non-recurring items and negative movements on derivatives, although up 12p or 5.3% year-on-year (March 2014: 228p);

· Recurring profit before tax of £26.2m (March 2014: £23.1m) with a strong performance from vacant sales and contribution from Development (Macaulay Walk) more than offsetting the reduction relating to investment sales;

· Gross cash generated of £128m (March 2014: £167m);

· Loan to value of 46.0% (September 2014: 46.5%);

· Net debt of £1,042m (September 2014: £1,044m);

· Profit before tax of £9.1m (March 2014: £49.8m); impacted by one-off costs associated with the impairment of the receivables due from ERIL (£18.2m), lower valuation gains (£12.7m reduction to £11.5m, March 2014: £24.2m), and a £13.9m negative movement on derivatives (March 2015: £(9.0)m; March 2014: £4.9m);

· Reversionary surplus of £500m2, which is supplementary to our reported net assets, equivalent to 120p per share at 31 March 2015 (September 2014: £527m, 127p).

Robust income streams - sales, rents, fees

· Strong sales performance with profit from sales up to £45.1m (March 2014: £42.8m);

· Net rents of £19.0m (March 2014: £19.5m);

· Gross fee income of £4.2m (March 2014: £5.1m);

· Encouraging sales pipeline3 of £151m at 8 May 2015, up from £131m at 31 March 2015.

Dividend

· Interim dividend increased by 5% to 0.64p per ordinary share (March 2014: 0.61p).

2 Reversionary surplus is the uplift from the reported market value of our properties to the vacant possession value and includes our share of investment in joint ventures/associates. It is not included in our net asset calculations and therefore highlights the latent value in our reversionary portfolio.

3 Completed Sales, contracts exchanged and properties in solicitors' hands.

Post period end transactions

· Further to our announcement on 10 March, the re-acquisition of ERIL completed on 2 April; gross asset value on acquisition was £96.5m; net asset value £19.3m (refer to financial review section on page 13 for further disclosure and impact on March 15 results);

· Sale of 50% stake in Sovereign Reversions joint venture, expected to complete on 29 May for a cash consideration of c.£18.5m, generating an estimated pre-tax profit of £4.5m;

· Pro forma LTV and net debt post ERIL and Sovereign transactions of 47.2% and £1,089m respectively.

Interim results presentation

Grainger plc will be holding a presentation for analysts and investors at 11.00a.m. (GMT), Thursday 14 May 2015 at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.

The presentation will also be available live via webcast and a telephone dial-in facility. In addition, a copy of the presentation slides will be available on Grainger's website, www.graingerplc.co.uk.

Webcast details:

To view the webcast, please go to the following URL link. Registration is required.

http://www.axisto-live.com/investis/clients/grainger-plc/presentations/552d1934cc4145440b474cc0/ir15

The webcast will be available for six months from the date of the presentation.

Conference call details:

A replay of the call will be available after the event until 21 May 2015, 12pm GMT. Dial-in details for the archive call are:

Chief Executive's Review

Overview

In the first six months of our financial year we have continued to see strong margins on sales of our assets and encouraging levels of activity in both the transactional and rental markets. Our portfolios have again outperformed the general market for the fifth year, demonstrating the quality of our assets and our management capabilities.

We have successfully undertaken a considerable amount of business development activity in the first half of this financial year; we have committed £87m of on-balance sheet investment primarily into market rented properties, predominantly located in the UK regions; the GRIP fund acquired a sizeable build to rent scheme (£33m investment) in London; we achieved two further planning consents for build to rent schemes on our strategic land development sites; completed the acquisition of our build to rent scheme in Barking ahead of schedule with lettings beginning this summer; and we continue to have an active pipeline of potential acquisition opportunities.

Current investment focus

Grainger's traditional reversionary business, based predominantly on regulated tenancies, provides the Group with good exposure to capital appreciation in the UK residential market as well as rental growth. It provides substantial, high quality, predictable and resilient cash flows that support our business planning and investment activities. These reversionary assets generate a significant amount of cash through property cycles. At current levels we estimate that our reversionary portfolio will generate over £120m of gross cash each year until 2030.

We recycle capital into both replacement reversionary assets and market rented assets based on the total returns expected from each opportunity.

Our reversionary assets are predominantly located in England and the portfolio can be broken down as follows:

The embedded, locked-in value (or what we refer to as reversionary surplus) across our residential UK portfolios, including our share of ventures, amounted to £500m, or 120p per share at 31 March 2015 (September 2014: £527m, 127p per share). This is the difference between today's market value of our portfolio, compared to the higher value if all properties were vacant at today's prices. It therefore does not reflect any potential future benefit from house price inflation. It is supplementary to our net asset calculations and highlights the additional latent value in Grainger's reversionary portfolio.

Market rented assets 

Our managed market rented portfolio is valued at over £1.1bn and comprises 8,369 units. This can be broken down accordingly:

Further to our existing market rented portfolio as outlined above which includes c.420 units that were acquired in the first half, the Company will continue to source assets through various channels.

We currently have a Secured Pipeline of c.1,070 market rented units, which includes the acquisition of standing investment stock of c.570 units in the UK regions, with contracts exchanged. We also have c.500 units from build to rent projects within our control and with planning consent. We expect this pipeline to come through over the next two years. This Secured Pipeline will deliver nearly 40% growth in the total number of market rented units we manage in the UK.

In addition to our Secured Pipeline, we have a number of projects in advanced stages which would significantly add to our market rented portfolio in the UK. Of these projects, Grainger is either a selected preferred bidder, in detailed appraisals, or in advanced discussions. These total an additional c.950 market rented units.

Grainger's total pipeline of market rented assets, including the above Secured Pipeline and Pipeline of Projects in Advanced Stages, amounts to c.2,020 units, which would broadly double our current portfolio of market rented assets managed in the UK.

To provide further clarity, we set out below a breakdown of the key projects which contribute to our pipeline.

As mentioned above, our Secured Pipeline consists of c.1,070 market rented units, which includes:

§ Acquisition of standing investment stock, c.570 units in the UK regions

§ Build to rent projects, via partnerships and phases within large schemes (c.500 units), including:

§ Abbeville Apartments, London Road, Barking (100 units) will be launched early this summer and is anticipated to generate an annualised rent of c£1.4m.

§ Berewood, Waterlooville and Wellesley, Aldershot, our two major out-of-London strategic land development sites, have each received planning consent for build to rent phases, totalling c.210 units, and both have been granted low cost government-backed funding through the Homes and Communities Agency's Build to Rent Fund totalling £26m.

§ Young Street and Hortensia Road, our two development sites in partnership with the Royal Borough of Kensington and Chelsea, have entered into the construction phase, with completion expected in 2017. These sites will deliver c.60 market rented units. Grainger will receive management fees and a proportion of the long term rental income from the completed schemes.

§ Our co-investment vehicle GRIP has acquired a site in Canning Town from Bouygues Development, which is part of the larger Hallsville Quarter regeneration project, and which will comprise c.130 market rented units. Construction is expected to complete in 2017.

Our Pipeline of Projects in Advances Stages could deliver a further c.950 market rented units. These projects are not yet secured and a number of them are in final stages of negotiation. We will provide further detail of these in due course. Two projects within this pipeline, which have been previously disclosed, are:

§ Our partnership with Sigma Capital Group, where they provide procurement and development management expertise, is exploring regional build to rent opportunities; a number of sites are being reviewed and we are in advanced talks on an opportunity in the North West which would deliver c.150 units.

§ A Bouygues led consortium with Grainger and the London Pensions Fund Authority was chosen as preferred bidder for a build to rent scheme at Pontoon Dock, London. Work is ongoing to secure the opportunity which would deliver c.140 units. 

As a leader in the housing market, we are well placed to help shape and drive its evolution, both through Grainger led initiatives and through the significant number of market opportunities that are available to us. In addition to the secured units and projects in detailed appraisal or preferred bidder stage (referred to above), we have an exciting range of other opportunities that we are also actively looking to progress. 

In building our pipeline, we work closely with a select number of key partners: JVs, co-investment vehicles or partnership structures. This can enable us to reduce the cost of capital, spread geographical concentration risk, and provide the Group with improved access to the benefits of scale. In addition this approach provides Grainger with a source of recurring fee income, through leveraging our strong asset management skills and operational platform. This can help enhance our overall returns.

Our development skills and activities provide Grainger with good cash flows and profits. The Development team within Grainger will also be an important contributor to building our private rented sector business through sourcing build to rent opportunities and managing their delivery.

The UK housing market and our asset performance

Our strategy, geographical positioning and asset type has served us well in recent periods, which were supported by good housing market conditions. For the two year period to September 2014, NNNAV and NAV grew by 54% and 30% respectively.

Conditions have been more balanced in the first six months of this year, although we have continued to see growth and have outperformed the general market. The market value of our UK assets rose by 3.8% (or £63m) and we saw further outperformance vs. the combined average of the Nationwide and Halifax house prices indices (1.9% increase).

Apart from recent moderation in house price inflation in isolated areas, the general housing market remains healthy in our view. Many areas within London continue to command high levels of buyer demand with subsequent positive house price movements. Outside of London, the story continues to be positive, especially in certain core regional cities where we are situated. In the South of England, viewing numbers and offer levels have been very positive, with us frequently receiving offers within the first few days of marketing a property. In the North, we have seen market sentiment remaining strong and our properties continue to generate good levels of interest.

Both the Nationwide and Halifax have reported positive house price inflation (HPI) in the month of April on a monthly (1.6% and 1.0% respectively) and three-monthly basis (2.2% and 0.3%). In particular the Halifax house price index indicated an acceleration of HPI between March and April from 0.6% to 1.6%.

We anticipate a positive market reaction to the outcome of the General Election, which will likely translate into continued momentum in the house prices.

We have successfully committed £87m of investment into the regions, through a number of portfolio acquisitions of predominantly market rented assets located in Cambridgeshire, Greater Manchester, Lancashire, Cheshire, Derbyshire, Merseyside and Nottinghamshire. These portfolios provide significant asset management opportunities and attractive long term returns.

Group Performance

NAV per share of 293p is 2p higher than September 2014 (291p) despite the impact of non-recurring items (primarily relating to the impairment of receivables due from ERIL) and legacy swap break costs and is 21p, 7.7% higher year-on-year (March 2014: 272p). NNNAV of 240p is 2p lower than September 2014 (242p), having been impacted by 7p from non-recurring items and negative movements on derivatives, although up 12p, 5.3% year-on-year (March 2014: 228p).

Sales

*Unit count excludes leasehold interest sales

In the six months to 31 March 2015 we have generated profit from vacant sales of £34.5m (March 2014: £27.9m) at a significantly higher average margin of 52.6% (March 2014: 48.4%). Prices achieved have been 6.6% above the September 2014 vacant possession value, demonstrating the robust valuation of our assets.

Sales from our Development business increased materially, with £8.6m of profit (March 2014: £1.0m), primarily from our Macaulay Walk scheme (Clapham, London).

In line with expectations, sales of tenanted properties reduced materially; £1.9m of profit was generated from tenanted and other sales in the first half (March 2014: £14.2m).

In December 2014, the stamp duty land tax regime was reformed from a 'slab' system to a progressive 'slice' system. Broadly, the effect was to shift the tax burden away from lower value properties to higher value ones, particularly those worth over £1.125m. As the bulk of Grainger's UK assets are well below this price level, we saw an indirect benefit from this change as it meant a reduced tax charge to the purchasers of the majority of assets we sold over the period, thereby supporting our sales revenue.

Total sales in the period were £97.1m (March 2014: £173.8m), generating profit of £45.1m (March 2014: £42.8m). At 31 March 2015, our total pipeline of sales, which includes completed transactions, contracts exchanged and those in solicitors' hands, amounted to £131m (March 2014: £240m). This had increased to £151.3m by 8 May 2015 (12 May 2014: £267.1m).

Rents

Gross rents for the six months were £28.3m (March 2014: £28.4m). Underlying demand and rent levels remain strong.

Across our UK regulated tenancy portfolio where rents are set every two years, rents have risen by 4.75% on an annualised basis on those assets that had rent reviews during the six month period. These rents are set by third party, local rent officers from the Valuation Office Agency.

On our total managed market rented portfolio in the UK, rent increases on renewals averaged c.2.4% and increases on a like-for-like basis on new lets averaged c.6.2% in the six months to 31 March 2015.

Fees

Fee income for the six months from our asset and property management activities was £4.2m (March 2014: £5.1m). This has reduced as expected due to lower levels of RAMP activity which relates to the successful workout of the bulk of the portfolios we have been managing.

Debt

Group net debt stood at £1,042m at 31 March 2015 (September 2014: £1,044m) and consolidated loan to value (LTV) at 46.0% (September 2014: 46.5%). 

The Group syndicate debt matures in summer 2016. Work is progressing on refinancing which will conclude in the second half of the year.

Available headroom (undrawn facilities and cash) amounted to £242m (September 2014: £297m).

The average interest rate (including costs but excluding commitment fees) at 31 March 2015 is 5.1% (September 2014: 5.4%). The interest rate has benefited from new interest rate swaps entered into at current low rates, the breaking of a legacy swap and the drawdown of £26m of low cost Government funding via the Homes and Communities Agency's Build to Rent Fund.

General Election and housing policy

Over the election campaign, housing was a key topic for debate. Despite recent headlines, there is cross-party consensus on the most important aspect of the housing debate: the need for an increase in housing supply. In addition, there is cross-party support for an increase in institutional investment in the market rented sector, particularly through build-to-rent.

Grainger's political engagement activity is focused on ensuring housing policy supports an increase in housing supply and greater institutional investment in the market rented sector and build to rent. In addition, we are strongly against general anti-landlord rhetoric, which will only undermine prospective investment in new housing supply, and excessive and poorly designed regulations that disadvantage better landlords and do not effectively address the problems that they are intended to solve.

Specifically, we believe the recent reforms to the planning system were positive for the build to rent sector and that more can be done to encourage greater use among local authorities of covenants, thereby securing development specifically for the market rented sector for a period of time.

We support initiatives to improve standards in the market rented sector which attract more customers and do not deter, but rather encourage professional, large scale investors into the sector. To this end, we believe we can provide better value for money to our customers while enhancing returns by offering longer term tenancies with inflation linked annual rental increases during tenancy terms on some of our build to rent sites. This will provide tenants with greater certainty and stability and it will provide us, the landlord, with greater security of income.

In the run up to the election, Grainger was a key driving force behind the establishment of the Better Renting for Britain campaign, which seeks to secure on-going political support for the sector. The campaign issued an open letter to all main political parties, signed by 41 organisations including a number of listed property companies, housing associations and pension funds, which sets out the benefits that the build to rent sector will bring to the UK.

We believe the market requires flexibility to innovate and advance on its own, without overly burdensome regulations and we will continue to engage with the UK Government and all political parties to seek support for the private rented sector and build to rent.

Outlook

The fundamentals driving activity in the housing market remain supportive, particularly the positive improvements in the labour market, continued low mortgage interest rates and recent changes to stamp duty.

Our focus is firmly set on growing our market rented residential business (predominantly through build to rent opportunities) and acquiring attractive regulated tenancy portfolios.

Andrew R. Cunningham

Chief Executive

14 May 2015

Financial Review

Growth in the value of our property assets in the first half and good underlying profitability has been offset by one-off costs associated with the impairment of receivables due from ERIL as announced on 10 March 2015, negative movements in interest rate linked derivatives and legacy interest rate swap break costs.

ERIL re-acquisition

In January 2014, Grainger sold Equity Release (Increments) Limited ('ERIL'), a subsidiary owning a home reversions portfolio, to Clifden Holdings Limited ('CHL') on terms which included a deferred consideration of £35m (40% of the total consideration) to be paid no later than January 2015. CHL intended to fund the payment of the deferred consideration from the proceeds of a securitisation which they failed to execute and accordingly CHL failed to pay the deferred consideration when due.

As a result of CHL's failure to pay, Grainger took the decision to exercise its rights to appoint administrators of CHL and to re-acquire ERIL (subject to FCA consent) for nominal value.

At 31 March 2015 the group has impaired its receivables due from ERIL to the estimated recoverable value which is equal to the net assets acquired on 2 April of £19.3m. This has resulted in the impairment of £18.2m shown as a non-recurring item at the half year.

On 2 April 2015, following the period end, Grainger completed the re-acquisition of ERIL having received consent from the FCA. Gross assets acquired after the period end were £96.5m; net assets acquired were £26.1m before mark to market movements related to the £65.2m of loans acquired. Net assets acquired after mark to market adjustments were £19.3m. The net impact before the mark to market fair value loan adjustment of £6.8m is therefore £11.4m (2.7p/share). This fair value adjustment will gradually be released to the income statement generating an offsetting benefit over the life of the loan.

In the prior year we recognised a £9.9m trading profit and £0.7m non-recurring gain on sale of the ERIL subsidiary. Over the two years the total loss on transaction amounts to £7.6m, or £0.8m before reversing mark to market adjustments. 

Grainger, in conjunction with the administrators of CHL, continue to investigate the affairs of both ERIL and CHL and Grainger is considering its options to recover additional value. 

Legacy swap breaks

Mandatory break costs associated with legacy swaps reduced Gross NAV by £18m or 4p/share.

Derivatives

Interest rate linked derivative movements led to a £9.0m charge over the period to the income statement and impacted NNNAV by 2p/share.

* Comparatives shown are 30 September

The table below summarises our OPBVM, recurring profit and profit before tax for the six months to 31 March.

We have three income streams within OPBVM. These are sales of residential properties, rental income and management fees/ other income. Within OPBVM we also include income from our CHARM asset, property expenses, overheads and other expenses. A summary of OPBVM by division and of the main movements in the year is set out below:

Divisional analysis of OPBVM

The major movements within OPBVM are:

· Sales across the Group have resulted in a reduction in gross rents of £1.6m. This has been offset by £0.8m of additional rents from acquisitions including our regional acquisitions completed in the year and the impact of the Chelsea Houses Portfolio acquired in the second half of FY2014, in addition to £1.1m of rental increases and adverse foreign exchange movements of £0.4m. 

· An increase of £7.0m in relation to profit on sale of vacant residential property assets, as sales proceeds have increased by £8.1m and margins improved from 48.4% to 52.6%. This has been offset by a £12.2m reduction in profits from tenanted sales, of which £9.9m related to the original ERIL home reversion transaction in 2014.

· An increase of £7.6m in relation to profit on sale of assets from our Development division primarily relating to the Macaulay Walk site. 

Interest income and expense

The net recurring interest charge totals £30.6m (March 2014: £30.2m). Despite an increase in debt which was (on a daily average) £1,130m in the six months ending 31 March 2015 (March 2014: £1,002m), costs have remained flat due to the positive impact of cost reduction measures, resulting in an average interest rate at the period end including costs but excluding commitment fees of 5.1% (March 2014: 5.7%). 

Joint ventures and associates

Joint ventures and associates contributed a profit of £1.3m to recurring profit in the year (March 2014: loss of £1.3m).

Valuation and non-recurring items

Valuation and non-recurring items in 2015 compared with 2014 is analysed as follows:

Investment property valuation gain

The net valuation uplift in 2015 totals £4.3m (March 2014: £3.9m). Our UK portfolios showed a total uplift of £4.4m, of which £2.4m (March 2014: £4.1m) originates from the UK Residential division and £2.0m (March 2014: £nil) from the Retirement Solutions division, which has benefited from its regional diversity. In Germany, the portfolio has remained broadly flat, showing a reduction of £0.1m (March 2014: reduction of £0.2m) after the impact of increases to real estate transfer tax in two German states which had a £0.7m adverse impact.

Derivative movements

Fair value movements on derivatives is a charge of £9.2m relating to the Group's derivative contracts, and a £0.2m credit relating to our share of derivatives within joint ventures and associates (March 14: £4.9m credit) 

The fair value of swaps at 31 March 2015 is a net liability of £37.9m compared to £48.0m at 30 September 2014.

Valuation gains in joint ventures/ associates

Valuation gains within joint venture and associates amounted to £8.2m before deferred tax (March 2014: £20.9m) comprising gains from our joint venture and associate operations with Heitman, Dorrington and APG.

Non-Recurring

As previously described, the group has recognised a £18.2m loss on the one-off impairment associated with the ERIL transaction.

Profit before tax

Having taken account of all of the above movements, profit before tax was £9.1m compared to a profit before tax of £49.8m in 2014. The most significant movements which contributed to the £40.7m decrease were the £18.2m impairment of receivables due from ERIL and a £13.9m adverse variance on derivatives. Valuation gains within our joint ventures reduced by £12.7m having benefited from the significant growth in the London markets to March 2014. This was offset by a £7.6m increase in profit from Development sales and a £7.0m increase in profits from residential sales. 

Tax

The Group has an overall tax charge of £2.7m for the period, which relates to UK tax only. 

The net increase of £0.8m, from the expected charge of £1.9m, results from a prior period credit of £2.4m, a £0.9m reduction as tax on associates and joint ventures profit is included above the tax line in the Income Statement offset by non-deductible impairment charges and expenditure totalling £4.1m.

The Group works in an open and transparent manner with the tax authorities. HM Revenue & Customs has graded the Group as a 'low risk' taxpayer. The Group is committed to maintaining this status.

The Group made net corporation tax payments totalling £1.7m in the period. 

Earnings per share

Basic earnings per share is a profit of 1.6p (March 2014: a profit of 11.0p). A year-on-year comparison is shown below:

Dividend for the year

After considering the investment and working capital needs of the business, the directors have recommended a 5% increase in the interim dividend to 0.64p per ordinary share (March 2014: 0.61p) which equates to £2.6m (March 2014: £2.5m). Earnings cover dividends by 2.4 times (March 2014: 18.0 times).

Net asset values

We set out below the two measurements to enable shareholders to compare our performance year on year.

The European Public Real Estate Association (EPRA) Best Practices Committee has recommended the calculation and use of an EPRA NAV and an EPRA NNNAV. The definitions of these measures are consistent with Gross NAV and NNNAV as described and shown in this document.

A reconciliation between the statutory balance sheet and the market value balance sheets for both Gross NAV and NNNAV is set out in Note 3 to the accounts in this announcement.

Reconciliation of Gross NAV to NNNAV

The major movements in Gross NAV in the period are:- 

The major movements in NNNAV in the period are:

An analysis of the sources of valuation growth split between the gain shown in the income statement and the pre tax gain included within our Gross NAV and NNNAV movements is shown below:

*Includes Grainger share of assets held within joint ventures and associates

An increase in market value of 1% across the Group's residential property including our share of joint ventures and associates leads to an increase in value of £22.9m before deferred and contingent tax and £18.1m after tax. This is equivalent to 5p per share on NAV and 4p per share on NNNAV.

Financial resources, interest cost and derivative movements

* Including costs but excluding commitment fees

As at 31 March 2015 net debt was £1,042m7, in line with the 30 September 2014 level of £1,044m. Our consolidated loan to value was 46.0%8 (September 2014: 46.5%). LTV on the core facility was 42.4% (September 2014: 42.0%) compared to a maximum allowable LTV covenant under that facility of 75%. The interest cover ratio on the core facility stood at 2.8 times (September 2014: 3.7 times) compared to a minimum interest cover covenant of 1.35 times.

As at 31 March 2015, the average maturity of the Group's drawn debt was 4.0 years (September 2014: 4.8 years). 

The business has produced £128m of cash from gross rents, property sales net of fees and fee and other income. 

Headroom totals £242m as at 31 March 2015 (September 2014: £297m). There are no further significant repayments until March 2016.

At 31 March 2015, gross debt was 78% hedged (September 2014: 68%) of which 12% was subject to caps (September 2014: 4%).

The Group's average interest rate at the period end, including costs but excluding commitment fees, was 5.1%9 (September 2014: 5.4%).

Having fully considered the Group's current trading, cash flow generation and debt maturity, the directors have concluded that it is appropriate to prepare the Group financial statements on a going concern basis.

Mark Greenwood

Finance Director

14 May 2015

_______________

Consolidated income statement

Consolidated statement of comprehensive income

Included within other comprehensive income is a charge of £0.5m (2014: charge of £0.2m) relating to associates and joint ventures accounted for under the equity method.

Consolidated statement of financial position

Consolidated statement of cash flows

Consolidated statement of cash flows continued

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 consolidated interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 (IAS 34) 'Interim Financial Reporting' as adopted by the European Union. The interim condensed financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2014 which have been prepared in accordance with International Financial Reporting Standards (IFRSs') as adopted by the European Union.

The accounting policies used are consistent with those contained in the Group's last annual report and accounts for the year ended 30 September 2014 which are available on the group's website (www.graingerplc.co.uk).

The financial information included in this preliminary announcement has been prepared in accordance with EU endorsed International Financial Reporting Standards ('IFRS'), IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

All property assets are subject to a Directors' valuation at the half year end, supported by independent verification. The Group's financial derivatives were valued as at 31 March 2015 by external consultants, using a discounted cash flow model and quoted market information.

Taxation is calculated based upon the best estimate of the weighted average corporation tax rate expected for the full year.

1b Adoption of new and revised International Financial Reporting Standards

New standards and interpretations in the year

New standards, amendments and interpretations that have been published and are therefore mandatory for the Group's accounting periods beginning on or after 1 October 2014 and later periods are disclosed on pages 102 and 103 of the Annual Report and Accounts for the year ended 30 September 2014.

There is no material impact from the adoption of these IFRS's, IFRIC interpretations and amendments in this condensed consolidated interim financial information.

1c Group risk factors

Following review, the directors consider that the principal risks and uncertainties facing the Group remain as set out in the Risk Management report of the 2014 Annual Report and Accounts.

1d Forward-looking statements

Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.

Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Notes to the unaudited interim financial results

2. Analysis of profit after tax

The results for the periods ended 31 March 2015 and 2014 respectively have been affected by valuation movements and non-recurring items. The table below provides further analysis of the consolidated income statement showing the results of trading activities separately from these other items.

The non-recurring items in 2015 include a £18.2m impairment of receivables due from Equity Release (Increments) Limited (ERIL) and a £0.4m loan impairment charge relating to our Prague investment.

Notes to the unaudited interim financial results

3. Segmental information 

IFRS 8 'Operating Segments' (IFRS 8) 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 is the Chief Executive Officer.

The Group has identified five segments and is treating all of these as reportable segments. The segments are: UK Residential; Retirement Solutions; Fund and third party management; UK and European development and German Residential. The Group has a segment director responsible for the performance of each of these five segments and the Group reports key financial information to the CODM on the basis of these five segments. Each of these five segments operate within a different part of the overall residential market.

The key operating performance measure of profit or loss used by the CODM is the trading profit or loss before valuation gains or deficits on investment property and excluding all revaluation and non-recurring items (OPBVM) as set out in note 2. The CODM reviews by segment two key balance sheet measures of net asset value. These are Gross Net Asset Value and Triple Net Asset Value.

Information relating to the Group's operating profit or loss by segments is set out below.

The title "Other" has been included in the tables below to reconcile the segments to the figures reviewed by the CODM.

2015 Income Statement

Notes to the unaudited interim financial results

3. Segmental information

2014 Income Statement