Grainger Trust plc Preliminary Announcement of Results for the year ended 30 September 2005 6 December 2005 Page 1
Contents Highlights Summary Profit and Loss Account Market Value Balance Sheet NAV Movements Diluted NAV Measures Cashflow Debt Cost Debt Maturity Overall returns Divisional Highlights Portfolio characteristics Key Performance Facts Commentary Acquisitions in the Year Tenanted Residential Portfolio Analysis by Investment Value Home Reversion Market Rented, Property Management View of housing market Development and Trading Commentary Major Sites Grainger Europe Outlook Appendices Page 2
Highlights Core business contribution up by 7.6% NNNAV up by 3.5% to 385p per share Dividend increase of 10% to 5.11 pence per share Total property market value now 1.6 billion Major acquisitions/achievements City North Group Norwich Union Church Commissioners Continental Europe Page 3
Summary Profit and Loss Account 30 September 2005 30 September 2004 m m Tenanted residential activities 88.2 81.9 Development and trading 12.8 25.3 101.0 107.2 Administrative expenses (9.4) (7.5) Interest payable: Normal/Joint ventures (49.5) (40.1) Exceptional - (5.4) 42.1 54.2 Core business contribution increased by 7.6% Development and trading division reverting to more normal levels Page 4
Market Value Balance Sheet 30 September 2005 30 September 2004 m m Properties Tenanted residential 1,473 1,329 Development and trading 124 109 Total properties 1,597 1,438 Cash, investments, other 95 70 Total assets 1,692 1,508 Debt (922) (750) Net current liabilities, deferred tax (48) (80) Value of property holdings increased by 11% to 1.6 billion (970) (830) Net assets 722 678 Page 5
NAV Movements m Pence/share Opening 1 October 2004 678 547 Retained earnings 20 Valuation movements 9 Share issue 20 Goodwill/other movements (5) Closing 30 September 2005 722 558 NAV per share increased by 2% Page 6
Diluted NAV Measures Pence per share m % Movement NAV 558 722 +2% FRS 13 (8) (11) Contingent tax (165) (213) NNNAV 30 September 2005 385 498 +3.5% NNNAV 1st October 2004 372 462 Grainger NAV - 30 September 2005 492 637 +2.5% - 1 October 2004 480 595 Grainger NAV assumes no future house price inflation. Sensitivity at various levels of HPI (per annum):- Page 7 Grainger NAV HPI (per annum) (Pence per share) 1% 510 4% 562
Cashflow Page 8 30 September 2005 30 September 2004 m m Income Net rents, other income 23 20 Property sales 188 198 Working capital movements (37) (7) 174 211 Interest, tax, dividends (71) (72) Net operating income 103 139 Loan movements 118 (18) Available for property spend 221 121 Tenanted residential acquisitions (105) (118) Development and trading (56) (26) Purchase of subsidiaries, joint ventures and associates (53) (2) Other (8) (3) Net operating income 102m (222) (149) Cash movement (1) (28)
Debt Cost 30 September 2005 30 September 2004 265m 5.6% 233m 6.0% 264m 5.4% 45m 6.3% 347m 6.3% 256m 5.6% 45m 6.3% 223m 6.4% Variable/under one year Hedged by financial caps Between 5 and 10 years Over 10 years 921m Gross Debt 757m 861m Net debt after cash and costs 696m 76% Hedging level (net debt) 71% 5.9% Blended interest rate 6.0% 53.9% LTV 48.5% 120% Gearing Level 103% 1.9 Interest cover 2.5 Page 9
Debt Maturity 30 September 2005 30 September 2004 650m 70.5% 480m 63.4% 202m 21.9% 200m 26.4% 26m 2.9% 43m 4.7% 32m 4.2% 45m 6.0% Over year or less Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years 921m Gross Debt 757m 53m Cash 54m 868m Net Debt 703m 5.1 years Average maturity 6.4 years 450m Available headroom 220m Page 10
Overall returns 30 September 2005 30 September 2004 m m Net rental income 30.9 27.3 Trading profits including goodwill release 77.3 74.8 Profit on fixed asset sales 2.1 6.5 Other income 2.8 9.8 Divisional administrative costs (12.1) (11.2) Total operating return 101.0 107.2 As % age of opening investment value 7.0% 8.3% Net valuation movement 3.8 117.5 Overall return 104.8 224.7 As % age of opening investment value 7.3% 17.4% Page 11
Divisional Highlights Tenanted Residential - progressive performance - 61m acquisition of City North Group - 70m JV with Genesis Housing Group - Norwich Union equity release agreement Development and trading - acquisition of 520 acres West Waterlooville land - continued rationalisation of commercial properties Grainger Europe - first acquisitions announced Page 12
Tenanted Residential Portfolio characteristics Valued at 1,507m - 73% of VP - reversion of 560m. Low initial yield Approximately 10% sold in one year High margins give price flexibility Un-modernised units generally in high demand Geographically wide spread with low exposure to top end Page 13
Tenanted Residential Key Performance Facts 30 September 2005 30 September 2004 m m VP Value of portfolio 2,067 1,865 Investment value of portfolio 1,507 1,329 No. of sales in period 913 1,031 Total sales 133m 135m Trading profits and fixed assets disposals (including goodwill release) 67m 64m Net rents and other income 21m 18m Trading return 88m 82m Net valuation uplift 16m 121m Total Return (profits, net rents, valuation uplift) 104m 203m Acquisitions (including City North Group) 184m 118m Page 14
Tenanted Residential - Commentary Good sales performance, September 2004 VP s exceeded by 2.9% Acquisitions analysis No Cost m VP m % as VP Regulated (including APT) 480 51 73 70% Equity Release 156 18 36 50% AST, Others 618 115 133 86% 1,254 184 242 76% AST acquisitions include City North Group (cost 89m; VP 99m) Excludes JV with Genesis Housing Group Page 15
Acquisitions in the Year City North Group ( CNG ) 61m Acquisition of CNG providing Central London portfolio of some 350 market rented properties. These will act as the cornerstone of any market rented residential fund that we establish Page 16
Acquisitions in the Year Hulcote and Easton Neston In two separate transactions we bought approximately 1,500 acres, a range of barns and farm buildings and the 17 cottages that make up the village of Hulcote. Total spend on Easton Neston and Hulcote was 10m Church Commissioners Joint venture with Genesis Housing Group to acquire 476 properties (200 regulated) on 3 unbroken estates in Maida Vale, Stoke Newington and Waterloo. Total portfolio value 70m Page 17
Tenanted Residential Portfolio Analysis by Investment Value 30 September 2005 30 September 2004 935m 63.5% 939m 70.7% 196m 13.3% 42m 2.9% 5m 0.3% 58m 3.9% 188m 12.8% 49m 3.3% 32m 2.4% 6m 0.4% 49m 3.7% 92m 6.9% 44m 3.3% 167m 12.6% Total investment value 1,473m Total investment value 1,329m Regulated Equity Release APT Assured Vacant Hotel Complex Other 12,382 Total units 12,041 2,024m Total VP 1,865m 1,473m Investment value 1,329m 560m Reversionary surplus incl. Share of JV's 536m 433p Reversionary surplus pence per share 432p Page 18
Home Reversion Portfolio value 191m Agreement with Norwich Union signed April 2005 18m of equity release assets acquired Equity release market slower than expected, but recent levels of activity are encouraging Optimistic about long term growth potential Page 19
Market Rented, Property Management Market rented portfolio now valued at 188m, following City North acquisition Critical mass will enable fund structure to be introduced Fund will make use of property and asset management skills Further 8.4m invested in Schroders ResPUT to give stake of 19.5% Including GT properties, total of 13,567 properties under management (1,185 managed for other parties) Well placed to create and manage residential REITS Page 20
Tenanted Residential View of housing market Levels of HPI growth in short term will be low or flat Conflicting evidence underlines market fragility Long term demand will remain strong Low levels of new housebuild Affordability sustained by relatively low interest rates Increased number of household units Use of home ownership as a form of investment Page 21
Development and Trading Commentary Focus on residential mixed use developments Urban and rural regeneration Residential development London flats Housebuilding Grainger Homes Operating profit 12.8m Prior years sales at Kennel Farm, Pimlico and commercial portfolio not replicated Total of 56m invested in this division in the year Page 22
Development and Trading Major Sites Smiths Dock, North Shields West Waterlooville Page 23 South London Hospital, Clapham Barnsbury
Grainger Europe Focus on long term reversionary portfolios in Western Europe and opportunistic residential developments in Central Europe First investments made in Tallinn and Prague Shortly after year end, announced first portfolio acquisition in Germany Pursuing several other portfolio opportunities Page 24
Grainger Europe Preussag Acquisition Recklinghausen Herten Oer- Erckenschwick Hamm Gelsenkirchen Düsseldorf Hamburg Hannover Herne Frankfurt Stuttgart München Berlin Dresden Portfolio Overview 1,406 units (plus 6 commercial units and 3 acres of land) 94,785 sq. metres 76m cost (including fees) Approximate owner occupied value 102m 4.5m gross rent 3.2m net rent 17% under market rent 27m subsidised loan at 0.5% per annum 35m senior debt 14m GT equity Page 25
Grainger Europe Tallinn Acquisition price: 5.96m No of units to be built : 800 Total development Costs: 36.5m GT share of JV 45% ( 2.7m investment) Business plan is to develop apartments over 4-5 years Return expectation 22-25% pa Zizkov, Prague Acquisition of 4.2 hectare site for 6.5m (our share 5.3m). Business plan is to develop retail/residential scheme over 3-4 years Page 26
Outlook Focus on long term residential market Expand home reversion business Market rented fund to be established Build on European acquisitions Development and trading business focus on: residential development Urban and rural regeneration Page 27
Appendices Summary of Tenancy Types Detailed Profit and Loss Account Tenanted Residential: Portfolio Analysis Portfolio Analysis by VP Value Portfolio Analysis By Number of Units Regional Analysis Reversionary Surplus IFRS Glossary of Terms Page 28
Summary of Tenancy Types Regulated Assured Periodic Assured Assured Shorthold Home Reversion Regulated by Rent Act 1977 Housing Act 1988 Housing Act 1988 Housing Act 1988 - Security of tenure Yes - with succession rights Yes Yes No Yes Rent Set by rent officer every two years. Increases capped at RPI + 2.5% per annum. Market rent Market rent Market rent Usually no rent Other characteristics Since 1988 no new regulated therefore declining stock Tenancy arises as a result of succession from regulated Tenant has the right to renew tenancy Landlord may get possession if appropriate notice is served Tenants transfer ownership in return for rent-free occupation and lump sum Page 29
Detailed Profit and Loss Account 30 September 2005 30 September 2004 Tenanted Residential Dev't Tenanted Residential Dev't Property Sales & and Property Sales & and Mgmt Acq'ns Trading Total Mgmt Acq'ns Trading Total m m m m m m m m Turnover 45.0 126.7 55.2 226.9 39.4 118.2 59.8 217.4 Gross rents and other income 45.0-3.4 48.4 39.4-11.4 50.8 Property expenses (13.5) - (1.2) (14.7) (12.1) - (1.6) (13.7) Net rents and other income 31.5-2.2 33.7 27.3-9.8 37.1 Trading profits - 60.3 11.7 72.0-55.2 13.5 68.7 Release of negative goodwill - 5.3-5.3-6.1-6.1 31.5 65.6 13.9 111.0 27.3 61.3 23.3 111.9 Division Admin. Costs (8.1) (2.4) (1.6) (12.1) (7.5) (2.2) (1.5) (11.2) Group Admin. costs - - - (9.4) - - - (7.5) Operating profits 23.4 63.2 12.3 89.5 19.8 59.1 21.8 93.2 Capital profits 1.5 5.0 Release of negative goodwill 0.6 1.5 Operating contribution 91.6 99.7 Interest payable (52.0) (43.3) Interest receivable 2.5 3.2 Total interest 49.5 (40.1) Net profit before tax and exceptional items 42.1 59.6 Exceptional interest - (5.4) Net profit before tax 42.1 54.2 Page 30
Tenanted Residential Portfolio Analysis Current No. of Market VP IV Gross Resid. Cost Value Value Value Rent Units m m m % m Regulated 7,713 658 935 1,290 72 31 Assured periodic 448 31 49 59 83 2 Assured shorthold 1,102 167 188 210 90 10 Hoteling complex - serviced apartments 33 5 5 5 100 - Equity Release 2,663 146 196 354 55 - Vacant 423 41 58 65 89-12,382 1,048 1,431 1,983 72 43 Other interests - 18 42 41 97 1 Total 12,382 1,066 1,473 2,024 73 44 Share of joint ventures 34 34 43 1 Total 30 September 2005 12,382 1,100 1,507 2,067 73 45 Total 30 September 2004 12,041 940 1,329 1,865 71 38 Page 31
Tenanted Residential Portfolio Analysis by VP Value 30 September 2005 30 September 2004 690m 34.9% 587m 29.7% 676m 37.0% 540m 29.5% 240m 12.2% 17m 0.9% 56m 2.8% 385m 19.5% 233m 12.7% 23m 1.3% 38m 2.0% 320m 17.5% Total VP = 1,975m (other interests of 49m omitted) Total VP = 1,830m (other interests of 35m omitted) 0-50K 50-100K 100K- 175K 175K- 250K 250K- 500K 500K+ 78% of portfolio below 250K Page 32
Tenanted Residential Portfolio Analysis By Number of Units 30 September 2005 30 September 2004 4,943 39.9% 4,867 40.4% 2,989 24.1% 403 3.3% 71 0.6% 1,167 9.4% 2,809 22.7% 2,971 24.7% 589 4.9% 58 0.5% 963 8.0% Total Units = 12,382 Total Units = 12,041 2,593 21.5% Vacant possession value 0-50K 50-100K 100K- 175K 175K- 250K 250K- 500K 500K+ Page 33
Tenanted Residential Regional Analysis 12 Number IV VP of units m % m % 01 Central London 971 232 15.8 291 14.4 01 Inner London 1,159 215 14.6 284 14.0 01 Outer London 1,359 189 12.8 257 12.7 02 South East 1,994 237 16.1 338 16.7 03 South West 848 83 5.6 124 6.1 04 East 999 94 6.4 140 6.9 05 East Midlands 764 60 4.1 89 4.4 06 West Midlands 1,166 134 9.1 178 8.8 07 Wales 125 11 0.7 16 0.8 08 Yorkshire 802 56 3.8 79 3.9 09 North West 1,697 127 8.6 180 8.9 10 North East 285 23 1.6 32 1.6 11 Scotland 212 12 0.8 16 0.8 12 Northern Ireland 1 - - - - 12,382 1,473 100.0% 2,024 100.0% 59% of properties by value in London and South East Page 34
Tenanted Residential Reversionary Surplus 1600 1400 1200 Property value m 1000 800 600 400 200 0 Regulated Home reversion Assured All Other Interests Share of Joint Venture m Home All Other Share of Regulated Reversion Assured Interests Joint Venture Total VP 1,349 354 210 111 43 2,067 IV 984 196 188 105 34 1,507 Cost 689 146 167 64 34 1,100 Total reversionary surplus 560m VP surplus above cost 967m Page 35
IFRS Will affect Grainger results in 2006 Prior years figures will be restated in advance of half year results Main impact will be on negative goodwill provision for contingent tax Fixed asset revaluation surpluses Mark to market adjustments for debt and derivatives Page 36
Glossary of Terms Property Assured periodic tenancy ( APT ) Assured shorthold tenancy ( AST ) Assured tenancy ( AT) Investment value ( IV ) Home reversion Regulated tenancy Tenanted residential ( TR ) Vacant possession value ( VP ) Financial Cap Contingent tax Dividend cover Earnings per share ( EPS ) FRS 13 Market rented tenancy arising from succession from regulated. Tenant has security of tenure. Market rented tenancy where landlord may obtain possession if appropriate notice served. Market rented tenancy where tenant has right to renew. Open market value of a property subject to relevant tenancy in place. Rent free tenancy where tenant has right of occupation until possession is forfeited (usually on death). If tenant retains an equity interest in the property this is a partial life tenancy. Tenancy regulated under 1977 Rent Act, rent (usually sub market) set by rent officer and tenant has security of tenure. Activity covering the acquisition, renting out and subsequent sale (usually on vacancy) of residential units subject to a tenancy agreement. Open market value of a property free from any tenancy. Financial instrument which, in return for a fee, guarantees an upper limit for the interest rate on a loan. The amount of tax that would be payable should assets be sold at the market value shown in the accounts. Earnings per share divided by dividends per share. Profit after tax attributable to shareholders divided by the weighted average number of shares in issue in the year. Accounting standard requiring the disclosure of the market value of long term debt and financial instruments. Page 37
Glossary of Terms Financial (continued) FRS 19 Gearing Hedging Interest cover Negative goodwill Net asset value ( NAV ) Net net asset value (triple net or NNNAV ) Swap Total shareholder return ( TSR ) Weighted average cost of capital ( WACC ) Accounting standard prohibiting the provision of deferred tax on stock revaluation surpluses when companies are acquired. The ratio of borrowings, net of cash, to market net asset value. The use of financial instruments to protect against interest rate movements. Profit on ordinary activities before interest and tax divided by net interest payable On acquisition of a company, the surplus of the value of the statutory net assets acquired over the purchase price paid. Shareholders funds adjusted for the market value of property assets held as stock. NAV adjusted for contingent tax liabilities which would accrue if assets sold at market value and for the market value of long term debt and derivatives Financial instrument to protect against interest rate movements. Return attributable to shareholders on basis of share price growth with dividends reinvested. The weighted average cost of funding the group s activities through a combination of shareholders' funds and debt. Page 38
Preliminary Announcement of Results for the year ended 30 September 2005 6 December 2005 Page 39