- Rental income growth rockets 15% in four months to end of January
- Grainger selling down regulated tenancy portfolio to fund private sector growth
- The group will convert into a real estate investment trust later this year
Grainger saw rental income rocket 15 per cent over the last four months as Britain’s biggest private landlord forecast a strong outlook for the build-to-rent (BTR) sector.
The group, which is also the country’s biggest BTR developer, is in the process of winding down its regulated tenancy portfolio in favour of higher-yielding private sector lettings.
Grainger has seen regulated tenancy rental growth of 7.5 per cent since the start of the year, with private rental sector (PTR) growth of 4.4 per cent bringing total gains to 4.7 per cent.
Boss Helen Gordon said recent growth reflects ‘the strength in our leasing’ and a ‘supportive BTR market with excellent fundamentals’.
The group said PRS rental growth has been boosted by ‘very strong demand’ for ‘mid-market’ homes, with high levels of occupancy.
Looking ahead, Grainger said the ‘fundamentals’ of the UK residential rental market are ‘exceptionally supportive’, as demand continues to grow and the supply of homes remains constrained.
It added: ‘The regulatory backdrop is accelerating this trend, whilst we also have seen an increasing number of positive statements in support for BTR from the UK Government.’
Grainger is the UK’s leading provider of private rental homes, but also owns and manages regulated tenancy homes and provides ‘affordable’ homes through the Grainger Trust
Grainger told investors it would continue selling ‘low yielding tenanted properties, portfolios and land’ to reinvest into its BTR pipeline and ‘new higher-yielding BTR opportunities’.
It said: ‘Sales generated from our regulated tenancy portfolio as it unwinds continue to provide a reliable source of capital for our continued growth and accelerating earnings.
‘We will deliver significant earnings growth as we deliver our pipeline, leveraging our operating platform.’
Grainger shares were up 3.1 per cent to 215.5p in early trading. They are down 15 and 30 per cent over one and five years respectively.
REIT conversion creates ‘total return business’
It comes as Grainger prepares to convert into a pure-play real estate investment trust (REIT) at the end of 2025.
Gordon said the conversion ‘marks Grainger’s transformation away from a trading business to a total returns focused investment business underpinned by reliable, recurring income’.
She added: ‘We expect earnings to grow by 50 per cent in the medium term through the delivery of our committed BTR investment pipeline.
‘Today’s announcement of 15 per cent net rental income growth demonstrates the progress in the delivery of this.’
But analysts at Peel Hunt recently downgraded its Grainger rating from ‘add’ to ‘hold’, lowering its target share price from 270p to 220p, on dividend concerns.
The broker said purpose-built student accommodation – or PBSA – REITs ‘offer similar structural tailwinds’ but with a ‘much higher starting yield’.
Peel Hunt said: ‘We rate management highly, and the company benefits from significant structural tailwinds and an attractive development pipeline.
‘But dividend growth over the coming years looks set to moderate, and peers such as Unite Group and Empiric Student Property [are] offering higher starting dividend yields.’
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Saxo
Saxo
Get £200 back in trading fees
Trading 212
Trading 212
Free dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.