Grainger plc Regulatory News (GRI)

11 February 2016

Grainger plc

Trading Update

Strong trading performance and significant strategic progress

Grainger plc, the UK's largest listed residential landlord today provides an update on trading for the four months to 31 January 2016 for continuing operations.*

Rents - Strong demand and continued growth

Continued high demand for our wholly owned and managed UK private rented sector homes (PRS) and positive growth in regulated tenancy rents.

Rental increases in the year for owned and managed PRS averaging 7.8% on new lets (excluding refurbishments) and 3.6% on renewals (2015: 6.3% and 2.6%). Including refurbishments, new lets increased on average by 10.0% (2015: 14.3%). Increases for regulated tenancy assets, where biennial rent reviews have been completed in the period, averaged 6.3% (2015: 9.6%).

Sales - Encouraging start to the year

£39m of revenue from sales of vacant properties, at an average of 4.2% above the September 2015 year end vacant possession value (31 January 2015: £26m and 3.0% respectively).

Sales pipeline (completed/exchanged/with solicitors) of £83m (31 January 2015: £81m).

Strategy - To capitalise on the compelling private rented sector (PRS) market opportunity in the UK

On 28 January 2016 we set out our updated strategy to capitalise on the substantial PRS market opportunity and be the UK's leading private landlord.

Our immediate priority will be to transition to one highly focused business that will deliver improved and sustainable, rental asset led shareholder returns. As we look forward to 2020, the following PRS-led strategic targets have been set out:

▪ Invest over £850m into PRS assets to drive rental income growth;

▪ Net rents and other income^ to more than cover overheads, expenses and finance costs;

▪ Net rental income to exceed profit from sales;

▪ Dividend to increase, reflecting the greater proportion of rental income.

To deliver our plan, there are three themes around which action will be taken and against which encouraging year to date progress has been made:

1) Grow rents

We will continue to increase and accelerate investment into existing and newly built rental homes, through re-allocating development team resources to deliver new PRS assets and by refocusing the acquisitions team to improve access to, and conversion of, opportunities.

▪ £124m of direct PRS investment committed since the start of the year, comprising:

▪ Tenanted PRS - c.£25m for 272 units (completed) that will deliver an initial gross yield on average of c.7.3%.

▪ Build to rent PRS - As announced on 1 February 2016, contracts have been exchanged to acquire Clippers Quay, a c.£99m PRS development scheme in Salford Quays, which will deliver over 600 new private rented homes, along with commercial and amenity space. Once fully let, it should deliver over £7.5m of gross rent per annum (>7.6% initial gross yield on cost).

▪ Further £57m PRS investment by GRIP - Grainger and APG's London and South East PRS Fund, in which Grainger has a 25% equity holding, to acquire the freehold interest in Kew Bridge Court (London, W4), a predominantly private rented residential estate.

2) Simplify and focus

Our resources will be concentrated on two core assets: PRS and regulated tenancies. To support this transition, we are taking swift and decisive action to exit non-core businesses and assets; to improve our operational efficiency through reducing overheads and transitioning to a simpler, streamlined structure; to prioritise direct investment (no new funds, no more focus on fee generation); and to reduce our cost of financing (4% cost of debt target).

▪ Sale of Equity Release division - Contracts exchanged (announced 4 January 2016) to sell the business to Turbo Group Holdings limited (FCA approval pending) for gross consideration of c.£325m. £55m estimated profit on sale, c.£19m (4.6p/share) expected accretion to NNNAV.

▪ Germany exit - Heitman JV sold (announced 19 November 2015), contracts exchanged for the sale of Grainger's largest wholly owned German portfolio and German business platform (announced 5 February 2016). These disposals combined will deliver gross consideration of c.£128m and will be achieved with modest accretion to NNNAV. The sale of Grainger's remaining German assets is underway (c.1,100 residential units).

▪ Development disposals - Projects are being reviewed and we will look to exit non-core schemes/assets.

▪ Overheads - An initial c.10% reduction will be delivered following the Equity Release and Germany disposals. An operational review is underway to target further savings and an update will be provided at the half year results (19 May).

▪ Cost of debt - Following the refinance of the syndicated bank facility (£580m) in August 2015 reducing the margin by 50 bps, further significant progress has been made this year, including the renewal in October of a £150m specific property portfolio debt facility with a reduced margin of 85 bps. The Equity Release disposal will remove c.£150m of debt with an average cost of 6.9%. Further options are being considered as we look to reduce our cost of debt further toward the 4% target.

3) Build on our heritage

We will retain our high quality, regulated tenancy portfolio, which delivers excellent total returns and cash generation to support our growth in PRS. We will continue to maximise the opportunities and competitive advantage that our market leading residential platform provides.

Board Changes

As announced previously Vanessa Simms joined the Group from Unite Group plc as Finance Director on Thursday 4 February 2016.

*Continuing operations, excludes Equity Release and Germany which will be disclosed as discontinued activities.

^Including other recurring income, but excludes trading profit.

-ENDS-

For further information:

Grainger plc

Helen Gordon/Vanessa Simms/David Smith/Kurt Mueller

London Office Tel: +44 (0) 207 940 9500

Newcastle Office Tel: +44 (0) 191 261 1819

Camarco

Ginny Pulbrook / Geoffrey Pelham-Lane

+44 (0) 3757 4992/4985

This information is provided by RNS

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