Grainger plc (GRI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Grainger's half year results. This first half, we have delivered a good performance. We have a strong business in a resilient sector, and we have secured some good opportunities to grow the business and deliver our shareholders further growth and our customers and communities exceptional homes with exceptional service. The format for this morning is that I'll take you through the highlights and, in particular, I'll cover the impact of COVID-19 on the business. I'll cover our progress on our pipeline and delivering on our strategy. Our CFO, Vanessa Simms, will review our performance in more detail, dealing with the strength of our balance sheet, the resilience of our income and the funding of our growth agenda. I'll then update you on the investment case for our sector and why we believe it remains resilient. I'll update you on our exciting future pipeline and our recent successes enabled by the equity raise we implemented in February. We'll then have an opportunity for Q&A, and I'll ask Andrew Saunderson, our Director of Investments; and Mike Keaveney, our Director of Land and Development, to join Vanessa and me in answering your questions. The difference between a good and a bad home has never been more important than at a time when the government had been encouraging us to stay at home. People are spending a long period of time in their homes. The homes need to be a safe haven, a protective space, a workplace, a temporary school and a social space. As landlords, we have a responsibility to our customers that goes beyond bricks and mortar. Our aim is to always have the highest levels of safety and security, but we are doing more to ensure hygiene standards, building protocols and customer relations are improved during this period. At Grainger, we have a real window into our customers' lives. It is an important and deeply personal relationship when you are providing somebody's home. And we build those relationships because we want our customers to have a great experience. The difference between a good and a bad home and a good and a bad landlord has never been more apparent. But first, let me explain how we are dealing with COVID-19. Grainger's approach has been to innovate, to communicate and to improve our business. Our investment in technology has meant that with the exception of key frontline security and cleaning staff, as a business, we went to 100% homeworking in 3 days. We took the decision not to furlough any of the Grainger team, but to redeploy those with spare capacity to communicate with our residents and to invest time in training and developments and general improvement. In our innovation, we found new ways of working, virtual viewings for lettings, virtual viewings for sales. And I'm pleased to say that both lettings and sales have continued right away through the restriction. It's worth mentioning, of course, our sales and lettings have both been mainly on vacant unit. Some of our residents have chosen to renew their leases even if they have given notice rather than leave at the current time. In our communications, we include communications with our employees, with our customers and, particularly, our older customers. We have communicated with our suppliers, and we've kept close to those developers, reducing our schemes and their contractors. And with those suppliers that maintain our properties, we kept our purchase ledger team active, ensuring speedy payment to small suppliers who may be experiencing difficulty during this time. And in our improvement, we have launched Live.Safe 2.0, our desire to lead the sector in terms of health and safety. Never has this been more relevant. We have launched a revised and enhanced resident service team training program, a comprehensive program that the business has invested in over the last few months. And we've developed further modules for the Grainger Academy. Through this period, our income has been resilient, our relationships with suppliers have improved and our relationship with government and particularly MHCLG, has been intent but we have also continued to progress on new pipeline. As I started by saying this is a strong business. Our balance sheet is strong. It's in the best position it has been in for around 6 years. We have exceptional liquidity with headroom of GBP 527 million. The demand for our homes and for rental homes generally is increasing. The supply and demand imbalance of good quality homes still acts in our favor. Our occupancy is high at 97.2%. Our rent collection is high at 94%, and we're seeing rental growth at 3.4%. Our homes are both high-quality and at affordable prices. Our sales are a smaller part of our business, but they have continued in April, at similar level to last April. And we are achieving prices in line or slightly ahead of valuation, and our pipeline is strong. I'm pleased to report that in construction of our new pipeline of build-to-rent assets, all of our new schemes are on site. On this slide, I have just given a few examples of what we've been doing. For our customers, just as a reminder, Grainger's operational model means that we keep our customers close to us, but we have increased customer contacts, including in our build-to-rent portfolio, creating a customer buddy scheme with the team that would normally operate on our front desk. Our historic investment in technology has enabled us to continue to work with our customers remotely, and we have been in regular contact with older customers. This close relationship has enabled us to talk to our customers who are experiencing difficulties, including providing them with directions for where they can find support and where necessary, albeit that this is quite limited, in giving them access to payment plans. We have been supporting our employees with well-being, mental health and regular communications, but we've also been investing in our employees during this period. None have been furloughed, and we've been investing in their development and, as I mentioned earlier, in the Grainger Academy. In our communities, we've increased our engagement. We have encouraged our residents to do more in their immediate community by facilitating local community groups as well as providing our employees with opportunities to volunteer in their local communities. We have also been offering support to members of the NHS and have offered accommodation to the NHS close to the Nightingale Hospital in London, which thankfully has not needed to be used. We've also been staying close to our charitable partners, Age UK and LandAid. We want our team to be proud of their contribution during this time. And so onto our highlights for the first half of the year, which, of course, only takes in a few weeks of COVID-19. Our rental growth was strong at 3.4%. Our net rental income was up 27% at GBP 37 million. Our adjusted earnings were down 12% on the previous year as a result of a higher level of asset recycling in the same period last year from the GRIP portfolio. Our dividend per share is 1.83p, up 6%. Our EPRA net tangible asset value is 281p per share, up 1%. We have achieved significant growth in our rental income, both underlying growth and through our investment in new schemes. And it's for this reason that we continue to pay our dividend in line with our policy of distributing 50% of net rental income as a dividend. One of the key highlights for the first half was our GBP 187 million equity raise in February. This is to accelerate our growth into strong regional cities that were likely to benefit from the new government agenda for regional investment and leveling up. The growth in our pipeline and on new buildings is now delivering. And I am pleased to say that we are making strong progress with our TfL partnership, as we have submitted 3 projects for planning, a total of 761 homes. We also secured planning consent during the period on our scheme at Waterloo, and we continue to invest in our business through our health and safety focus and the launch of Live.Safe 2.0, our in-house leading health and safety program. We have a resilient rental income stream with high levels of rent collection. We continue to pursue our schemes through planning. I'm pleased to say that we achieved consent for 215 new homes during the period, and we submitted 4 planning applications, including 3 for TfL and one in the London borough of Lewisham. We have new openings. Brook Place in Sheffield was launched just before the start of the financial year and has been leasing up well ahead of schedule. Solstice Apartments in Milton Keynes was launched in the weeks before lockdown and continues to lease through this period, albeit at a slower pace than the initial leasing might have indicated. We have new openings coming up: Millet Place at Pontoon Dock, which we will launch this month; and Apex Gardens in London, which we intend to launch in the autumn; and Gore Street in Manchester towards the end of the year. Our city investment strategy on targeted cities has ensured that we have successfully achieved new schemes in our secured pipeline in Cardiff, Nottingham, Birmingham and London. We continue to work in partnership with local authorities and landowners, such as TfL, to develop our pipeline. These are all high-quality assets that are well connected with good Walk Score and good investment in technology. These will prove resilient for Grainger's future pipeline. And turning to that pipeline, we have a strong pipeline for growth. Our operational portfolio now stands at around GBP 2.8 billion, and our pipeline of secured schemes is now over GBP 1 billion. And those in planning and legals, including our share of TfL, is almost another GBP 1 billion. Over 60% of our assets are long-term PRS assets. Our dependence on sales income is reducing. This pipeline sets us apart from the competition. In the recent Savills and BPF research into future pipeline in the PRS built-to-rent sector, Grainger was a clear leader in terms of the number of secured units coming forward. And this, with our pipeline in planning and legals, is likely to be maintained. So looking ahead briefly to H2, we have adapted well to the challenges of COVID-19 by innovating, communicating and improving our business. We are committed to continuing to serve our customers better than we have done before, to manage our properties well, to continue to collect rent and execute renewals, to continue to develop our pipeline, whilst all the time taking learnings and opportunities from this period to find new ways of working, doing things to improve the business. This is a strong business, but we are determined that it will emerge stronger. And with that, I'll hand over to Vanessa to go through our financial results in detail.

Thank you, Helen, and good morning. This morning, I will review our performance for the first 6 months of the financial year and share some of our leading performance indicators since the half year close. I am pleased to report that we have delivered a good performance over the first 6 months of the financial year, and our balance sheet is in a strong position. We achieved 3.4% like-for-like rental growth, and our net rental income increased by 27% as a result of our investment activity. This has continued to enhance the resilience of our earnings profile with a higher proportion of income from net rents. And today, we confirm our dividend policy to distribute 50% of net rental income will be maintained and, therefore, our interim dividend will increase to 1.83p per share. Our first half adjusted earnings are 12% behind the prior year due to the timing of asset recycling. And our EPRA earnings for the first half are up 9%, which reflects our growth in net rental income. Our balance sheet and liquidity is in a strong position, and we have further improved this through the refinancing activity and the equity raising in February this year. Our tangible net asset value has increased by 1% to 281p per share. And our NNNAV at the half year close is up 3% at 280p per share. Our LTV has reduced in the first half to 32.9%, which reflects the proceeds from the placing and recent valuation growth. And our average cost of debt has further reduced to 3%. The composition of our earnings has continued to improve, with net rental income the most significant contributor. This transition is a key component of our strategy and will grow further as our pipeline continues to deliver. Net rents have delivered over 60% of our income in the first half, and we have continued to manage our cost base to improve our returns. Our gross to net operating cost ratio at 26% reflects the higher cost ratios for the new PRS assets during the early lease-up and stabilization period, factoring in the void and letting costs. Our operating efficiency improved further with our stabilized portfolio gross to net at 24.9%. Sales profits from our vacant properties remain robust and in line with our first half performance last year. The reduction in overall sales profits reflects the lower levels of asset recycling than in the first half of last year. We have continued to sell vacant properties throughout April. Since the lockdown, we have received new offers in exchange on new vacancies. Our pricing has remained ahead of valuation, and our sales pipeline is slightly ahead of the same period last year. As a result of the timing of our asset recycling, our adjusted earnings were 12% below the first half performance last year, while our EPRA earnings have increased by 9% as a result of the growth in our net rental income. We have continued to see significant growth in net rental income. Our net rental income increased by 27% as a result of our investment activity, achieving strong rental growth and maintaining strong operating margins. Our investment activity added GBP 8.7 million of net rental income. And our like-for-like rental growth of 3.4% is again ahead of the market. We saw 3% like-for-like growth in our PRS assets, reflecting the quality of our offering and operations. Rental income from our regulated tenancies are RPI linked and have continued to perform well with 4.5% annualized growth, highlighting the quality and resilience of this portfolio. Rental growth across our PRS portfolio has performed consistently across all regions. Our renewals have delivered 2.7% growth and new lets, 3.5%. Since our half year close, we have experienced a higher level of renewal activity as our customers choose to stay with us for longer. Whilst renewals do not necessarily drive higher like-for-like rental growth, they are more valuable to the business as they reduce the cost of churn. Our portfolio is positioned in the mid-market which, combined with the diversity of our customer base, has proven resilient and will continue to differentiate our performance. Our homes are occupied by a diverse range of residents. 27% of our residents are retired, 9% receive benefits to pay their rents and 8% are MoD backed. This diversity, alongside the strength of our operations and relationship with our customers, has resulted in a consistently high occupancy with levels of rent collections. Our collection rates have remained high with 94% to 95% of our rents being collected on time in recent months. We have also seen that our customers value the quality of the homes that we provide. And we have continued to maintain occupancy above 97% and rental growth over recent weeks. April rental growth has remained strong at 3.3% with new lets of 3.1%, renewals at 2.9% and the reviews of the regulated portfolio boosting overall growth to 3.3%. Our rental income translates into our balance sheet as rental growth is a key driver of our asset valuations, with around 60% of our portfolio valuations now aligned to rental growth. So moving to our net asset values. This slide provides the components of the existing and revised EPRA NAV measures. We consider EPRA net tangible asset value the most relevant measure for Grainger, and this stands at 281p per share. This measure reflects the tax that were crystalized in relation to the trading portfolio, whilst excluding the volatility of mark-to-market movements on fixed rate debt and derivatives. The reversionary surplus in our portfolio is excluded from our NAV metrics and stands at GBP 306 million, which equates to an additional 0.45p per share before tax. Our rental income and corresponding valuation gains continue to be the key driver of NAV growth. Our property valuations have increased by 1.6% in the first half of the year, with our stabilized PRS assets increasing by 1.5% and the regulated portfolio increasing by 1.8%. And we have an exceptional pipeline of PRS assets. The valuation of our development pipeline has remained broadly flat over the first half of the year, reflecting uncertainty around progress on site at the 31st of March. Our net debt has reduced by around GBP 100 million in the first 6 months of the year. The successful equity placing in February provided GBP 183 million of net proceeds to further increase our PRS investment pipeline. And our operations delivered cash of GBP 56 million, which reflects the timing of our sales. Over the first half of the year, we have invested over GBP 100 million into our PRS development pipeline, and we have actioned a lower level of asset recycling, but remain committed to continually refine our portfolio and recycle our assets. In February, we successfully raised 10% of equity via placing at a price of 305p and ahead of our net asset value. With the addition of gearing, this provides around GBP 305 million of additional investment capacity. The proceeds have enabled us to accelerate growth in our PRS pipeline and increase our earnings by bringing forward schemes. Our prudence in the way that we manage the business meant that we sought commitment for the equity ahead of the commitment to start on sites. This has enabled us to increase the pace of our pipeline delivery whilst maintaining a strong balance sheet. As the proceeds will be invested into new forward funding schemes, we expect marginal dilution to earnings per share in the near term. On stabilization, we expect EPRA earnings per share to increase by 30% and adjusted earnings per share to increase by 5%, and that is excluding the benefits of operational leverage. Dividend accretion will also occur when the assets are income-producing. And it is worth noting, in the current year, we expect continued EPS growth despite the increased shares initially. Our net rental income progression reflects an updated position on our pipeline, and the placing has enabled us to bring forward our growth and increase net rental income. Our passing net rent is now GBP 74 million, and we expect this to increase by an average of GBP 13 million per annum over the coming years, increasing our secured net rental income to GBP 131 million when our pipeline has completed and stabilized. We have also revised the timing of our secured pipeline to reflect our current view of expected delays as a result of the coronavirus lockdown. We continue to make good progress with securing the schemes in our asset pipeline. The schemes in the planning and legal process and our share of the TfL partnership illustrates the potential for our net rental income to further increase to GBP 172 million. And this acceleration will be aligned with our dividend progression as our policy is to distribute 50% of our net rental income as a dividend. We are in a good position to manage through this period of uncertainty. Our balance sheet is in strongest position it has been in for a number of years with our LTV below 33% and significant cash headwind. Our average cost of debt reduced to 3%. With the incremental cost of debt at 1.7%, our fully drawn position is now 2.8%. Following the refinancing of our near-term maturities earlier this year, our average debt maturity was 5.7 years and our next maturity is March '22. Our funding strategy to diversify our sources of funding and secure a lower cost of debt for longer is well advanced. As our PRS portfolio grows, we will continue our funding strategy to secure longer-term debt and further align our debt structure with the growth of our investment assets. We are in a strong liquidity position with GBP 527 million of headroom to fund our commitments. We have GBP 198 million of cash and GBP 329 million of undrawn debt available. And our committed capital expenditure for the next 12 months is around GBP 165 million. And on this slide, I have included the expected phasing of our committed capital expenditure for the schemes that we have secured to date. And based on our planned investments, we expect our LTV to remain below our 40% to 45% target range in the near term. And it is also worth noting that our reported LTV calculation excludes the reversionary surplus, which provides additional comfort, and if included, would further reduce our LTV by around 300 basis points. To summarize, we have delivered a good performance over the first half of this financial year, and our performance has continued to prove resilience. We have a strong business model that has continued to deliver good results during the lockdown period. And our business is over 60% PRS, which is now a predominant driver of returns. We have delivered strong rental growth during the first half of the year, and this has continued since the March close with April at 3.3%. We have collected 94% to 95% of our March and April rents on time, and this success is due to the diversity of our customer base, our mid-market positioning and the strength of our customer relationships. Our sales momentum has also continued in the recent weeks, and our pipeline is slightly ahead at the same time period last year. Our liquidity is in a strong position and more than covers our near-term capital commitments as we continue to grow our PRS portfolio. And we are in a good position to navigate the near-term uncertainty, given the strength of our balance sheet and resilience of our business model. Thank you. I'll hand back to Helen.

Thank you, Vanessa. In this section, I'll update you on our case for investments, the opportunities we've secured and why we're looking to secure more homes as well as touching on our operational platform and the improvements that we've been making there. The professionalism of the residential rental sector in the U.K. is growing. The last few weeks have shown us that returns are resilient, underpinned by the structural supply and demand dynamics. There is demand for 7.2 million rental homes by 2025. However, recent experience has shown that the buy-to-let landlord without the operational platform and reliant on letting and managing agents may not have been as resilient during this time, and this is likely to widen that supply and demand imbalance. Whilst the market has got more attractive and particularly so following the letter from the Secretary of State to the Mayor of London, indicating this government's dislike and lack of support for rent regulation, this is likely to make the U.K. rental market more attractive for investors. However, at the moment, competition is limited, and Grainger continues to lead in this sector with a pipeline of over GBP 2 billion to come. We are a fully integrated business, which makes us more resilient as we do not rely on third parties to deliver our customer service. That leadership is increasing through the depth of our experience and through our selection as partner of choice for the public and private sectors. Now this slide shows in graphical terms some of the themes I was talking about. The housebuilder slowdown in that pipeline is likely to lead to a further reduction in housing supply of new builds this year, but rental demand is set to increase, and it's increasing across all age groups. Residential has consistently delivered resilient return and good rental growth. The decline in the buy-to-let landlord was already significant, as represented by the decline in buy-to-let mortgages. And whilst residential for rent still provides a good yield ahead of savings for many landlords, the most recent experience, together with lenders' reluctance to lend at higher loan to value, may accelerate this decline. Now this slide, you'll be familiar with. It's how we drive our performance through our research-backed capital allocation to various cities. We refresh this each year, but as you can see, we are increasing our exposure to prime rental cities within the U.K., particularly in areas where the government have indicated infrastructure and other investments. Our investment strategy is delivering with returns ahead of the rental market. We're looking for cities with strong demographics, a strong economy and particularly now where we see a good investment and investment in an infrastructure and with a good employer base. Within those cities, we look to cluster our developments in areas with good proximity to public transport and commuter lines and good local services and safe neighborhoods as well as strong Walk Scores. We're committed to developing the best properties, designed as the best homes, enabled by technology and created as part of a community that's efficient to run, well-designed, highly desirable with positive ESG credentials. Alongside that selection of the best properties in the best locations, we are committed to operational excellence through our on-site teams and their continuous training through the careful selection and operation of our amenity offer and by enabling our operations to work more efficiently through our investment in technology. The delivery of our pipeline continues at pace. We launched Solstice Apartments a week or so ahead of the lockdown, but continue to lease through the period at rents ahead of underwriting and, in some instances, to members of the NHS. We launched Millet Place at Pontoon Dock at the end of May, slightly delayed in its final fit-out, but we are expecting good levels of interest. We'll be leasing Apex Gardens in London and The Filaments in Manchester later this year. Vanessa described our equity raise, and I'm pleased to say that we executed that in February and immediately committed to our next collection of secured schemes. Capital Quarter, Cardiff immediately commenced on site. And because of the ability of the contractor to social distance while doing groundworks, they were able to continue on site. Exchange Square, we will start on site later this year, as indeed we will at Canning Town and Queens Road, Nottingham. That's GBP 246 million of a compelling pipeline in strong regional cities. Turning now to our joint venture with Transport for London, where we've been making significant progress. TfL have undoubtedly been stretched during the time of COVID-19. However, their commitment to utilizing their land for good homes to rent and generating income has been unwavering during this time. The progress we have made with the joint partnership is to submit 3 planning applications in Southall, Kennington and Enfield, all well-connected, high-quality schemes immediately adjacent to the transport network, and in the case of Southall, to the new Elizabeth line. We are continuing to make progress on the other steep site within the portfolio, and we hope to be able to announce other planning applications shortly. I talked earlier about the importance of operational excellence and of the Grainger in-house model. This year, we decided to refresh that model and looked at how we could do things to enhance our customer satisfaction and truly differentiate ourselves from the competition. We revised our standard operating procedures, and there are about 320 tasks that our resident service managers and their teams undertake in the Grainger property to ensure that the customer experience is common across our build-to-rent portfolio. A detailed time and motion study and the investment in training is something that we'll talk more about to our shareholders at our Capital Markets Day later in the year. We continue to roll out our CONNECT operating platform, which enables us to increase our scalability, and we are entering the testing phase of new elements of the CONNECT platform. We are also improving our operational efficiencies through looking at our procurement across the whole portfolio. And finally, but most importantly, Grainger's ambition to be the safest landlord, to lead in best practice in our health and safety program and that we launched Live.Safe 2.0 to ensure that we're at the leading edge of new development in safety and home. And I'm pleased to say that our presentation to the Industry Safety Steering Group, chaired by Dame Judith Hackitt, was complimented on by the Housing Minister. Our commitment to lead in this sector has been a commitment to our operational strength and our investment strength. Our experienced operational team are managing our properties and supporting our customers, enabled by technology and the quality of our homes, which we are continually improving by refining our specification and our management. Our investment strength comes from the strength of our balance sheet, the quality of our investment underwriting, the resilience of our mid-market offering as well as having a geographically diverse portfolio and investing in areas of deepest demand, all this is in a sector that has the right fundamentals in terms of demand and has a diverse customer base and, therefore, a diverse income. So in summary, we are growing our rental income, and this is delivering consistent long-term returns, and it enables us to support an interim dividend that is up 6%. Our growth momentum means we have secured a pipeline of over GBP 1 billion of new assets that will generate more income in the future. With our strong balance sheet, LTV at a 6-year low and our liquidity headroom at a 6-year high, we have a business that can deliver in challenging markets. The market opportunity for the U.K. private rental sector is driven by demand, and this is forecast to grow, and Grainger has the competitive advantage. We are the market leader. We have the scale and operational strength and a track record to maximize on this opportunity. Thank you. Now we'd like to answer your questions. We have the senior team at Grainger on the line. Andrew Saunderson, our Director of Investments; and Mike Keaveney, our Director of Land and Development, will join Vanessa and me. Operator, can I hand over to you now, please?

[Operator Instructions] We will now take our first question over the phone from Chris from Numis.

A few. Apologies if these have been covered. I was struggling to get on to the call first thing this morning. But the first question I wanted to ask really was just about your expectations on H2 rental growth. The April numbers seem quite good. I think previously, as an expectation, maybe rents could dip maybe to pre or a bit below. I'm just wondering kind of where your expectation stands at the moment. So that's number one. Second one is just really about intentions on asset recycling in the second half of this year. What scale that can be and what it's going to consist of? And then the final one is just on the rent collection point. Now clearly, very good numbers through March and April. I'm just wondering how much of that outstanding rents has maybe being collected in the corresponding period? Now that probably only applies to March, not April, but just some feel of kind of how you've knocked up that residual amount?

Okay. Thank you, Chris. In terms of the -- your first question, in terms of our rental growth. Traditionally, we get greater rental growth for new lets. One of the characteristics we're seeing is that more people are renewing, but they're renewing at rents around 2.9% higher. This is the data from the half year. And we're getting people as far out as August who are asking if they can renew. So we're actually in quite a strong position. So I do expect our rental growth to hold up around that, we always say, between 3% and 3.5%. And remember, we still got part of our portfolio that's linked to HPI as well. So the regulated portfolio is HPI plus 5% every 2 years.

Sorry, is that RPI or HPI? Sorry.

Sorry, it's RPI. Thank you. It's RPI. Your second question was about asset recycling. The third question, I'm going to ask Vanessa to answer, which is about rent collection. Asset recycling, we review our portfolio every year and go through an asset hierarchy process. We will be doing some asset recycling in the second half. And one of the things about the resilience of this sector is we expect good levels of demand for those assets. So yes, we will be doing some asset recycling, as we always do each year. We normally say it's between GBP 50 million and GBP 75 million. Vanessa, do you want to take the rent collection?

Yes, sure. So the rent collection statistics that we've given is the rents that we collect on time. And of course, most people pay monthly in the residential sector, some weekly, but we have all different sort of timing. And then during the month, we're actively then collecting any outstanding rent. And our view are below 2%. They've consistently been below 2% this year. So we're in a very similar position with only about, I think as at the end of April, we had about 1.7% of the rent outstanding at that point. So there's pretty low [ re-letting ] in our rents.

Understood. Can I just have one quick follow-up with Helen? And just regarding the asset recycling talent. Are you seeing demand for those talented assets comparable to where we were pre-CV-19?

Yes. I think just the sector for those wishing to invest in the real estate sector, we are seeing demand. And in fact, on the 31st of March, after lockdown, we sold a small asset, a multi-let asset ahead of valuation. So we are seeing demand for that. I think one of the points that I made was the fact that people still like it because with interest rates being so low, it is -- quite a lot of people have asked smaller assets. It's a good access into an investment class that they feel that they can manage.

[Operator Instructions] Our next question comes from Sander Bunck from Barclays.

I have 2. One is also a bit of rental growth into H2 and just a bit more clarity on that. We've seen some peers in other jurisdictions kind of refraining rental growth or rent increases during this period of uncertainty. Is this something that you have been doing or will be doing as well? Or will you just carry on as usual because, contractually, you could be entitled to it and actually demand for your properties remains extremely strong? And could that -- if we ever did that, have a bit of impact on your like-for-like rental growth assumptions going forward? And the second one is a bit on the investment/development market. I mean you've obviously picked up quite a lot of development projects over the last couple of years. Does the current environment put you in a stronger position potentially to acquire further development projects, given that your cost of thing is relatively low, your -- you have ample liquidity and maybe some developers that were previously looking to pull the trigger on some development projects, suddenly have to pull out and as a result, you can and definitely you will be able to pull the trigger on some of those projects. So does it actually create some opportunities for you as well in the current environment?

Okay. So Sander, in a moment, I'm going to ask Andrew Saunderson, who's our Head of Investment, to answer that second question regarding our investment appetite and discipline during this period. But in terms of your first question on rent, some of our rent, as you know, some of our leases are long leases. They are 3-year leases with fixed uplift. We normally have a conversation with people at the time. I think one of the things that Vanessa has explained is that people are very happy with the product and have been continuing to be happy to pay those fixed uplift. But where we are talking to our residents, if they are in any form of financial distress, we have been allowing people to stay on longer than their leases if they feel they don't want to move. And in those instances, we haven't necessarily been -- haven't been getting the -- putting the rents up. But I think it's each case and that the point I was trying to make is a very personal relationship and very bespoke almost, and it's credit really to the tune that we have that have these conversations. I think our mid-market offer means that I think people do see us as being good value for money, which is why perhaps when they look around and think where they might move to, and they are quite happy to pay a modest rent increase. So the early signs, and they're only early indicators, is that we will be within that target range of 3% to 3.5%. What I'd like to do is hand over to Andrew just to talk about the investment -- your investment question.

Thank you, Helen. To answer your question, I hope so, we do think that we are in a very strong financial position, as Vanessa has said this morning. And I do think that there are going to be opportunities that come up. We have, over the last few years, clearly have defined a very clear strategy. That strategy has been very well communicated to the market. So the market knows what we're looking for. We built a very strong reputation as a company that does what it says it will do. And I do hope that we will see an increase in the number of opportunities that are coming to us, so yes.

And have you seen any of those opportunities already? Or is it something that has to be seen kind of in the future?

I think it's probably fair to say we've seen a small increase than what we would usually anticipate. But we are still very early days. Most people are still sort of locked out of their offices, working from home. But as we return to normality, albeit I suspect that will be fairly slow, and I do anticipate seeing an increase in the number of opportunities that are coming to us.

Simon, have we got any more questions?

No, ma'am, there are no further questions over the phone at this time. I would like to turn the call back over to yourself maybe to take some questions over the web.

Yes. So we have one from [ Evelo ] from Ranger Capital, which is asking a question that a couple of people have asked me, which is whether or not the reduction in Airbnb will lead to more units on the market and, therefore, more competition? I think the one thing to say is that the Airbnb product tends to be in the more touristy zone, so Zone 1 and 2, and we have less products there. We probably have a little bit in shortage, but to date, we haven't seen competition. Also, their aspirations on rent are considerably higher than Grainger would normally charge. So I think it's been a feature of the prime Central London market, but not necessarily in Grainger's market. There's another question from Robin Arnold that's come in on the web, and I'm going to give this one to Vanessa. And Robin's question is, given the capital raising and the strength of the operations, do you anticipate a change in your public credit rating? Vanessa, we've been doing lots of services actually recently. So...

Yes. So following the trading update we gave at the beginning of April, S&P has reviewed our business and our credit rating. And one of the things that they have reiterated is they confirmed our rating and they have -- continued to have Grainger on a stable outlook for the future as well. So they've made a firm on both our issuer rating and our corporate rating.

Okay. We have another question in from Philip Harden of [ Telecom Growth ]. Could you give a little more detail on -- it's another one for Vanessa, actually. Could you go into a little more detail on your covenants, please? So that presumably the covenants in relation to our debt. Vanessa, would you like to take that one as well?

Yes, sure. We have actually gotten quite considerable headroom within our debt covenants. We have 2 main covenants across all of our facilities: one around the loan-to-value metric, and the second around our interest cover. And basically, we would expect -- we would need to see a fall in valuation of probably 60% from where they are today before we saw the breach of our LTV covenants. And to breach the ICR covenant, we would need to see a fall in our revenue of at least 45% to get close to that covenant. So we have got actually plenty of headroom within our debt covenants.

Okay. And there is another question that's coming from Daniela of First State Investments, and it's relating to where we see house prices in the light of Bank of England estimate. We get new estimates every day, but Daniela has pointed to one that was talking about a stress test point, I think, for a fall of 16% this year. And I'm going to ask Andrew Saunderson, our Director of Investment who also heads our sales team, to just answer Daniela's question.

Thank you, Helen. I think it's very difficult for me to predict where house prices are going. I think all I'm able to do is comment on what we're seeing in the market today. And as both Helen and Vanessa said in their presentations, we are continuing to sell, and we are continuing to sell in line with valuation. In the RNS, we said that we transacted on 6 sales in April. And so far, this month, and bearing in mind, we're only halfway through the month, we've transacted on a further 6, again, broadly in line with valuation, if not slightly ahead. We've also placed 4 properties under offer as well this month. So we are seeing some resilience in the market. And it also needs to be borne in mind, I think, when it comes to Grainger sales that 60% of our sales are to cash purchases and over 90% of our sales are chain-free. So we are in a very strong position to sell. But as it stands at the minute, we are selling broadly in line with valuation. And I expect that to continue at least for the short term.

Yes. Thanks, Andrew, on that one. I think Daniela, it's also worth pointing out that of our portfolio, 60% of our portfolio is valued on a rent and yield basis. So the value is looking at the rental income stream and capitalizing it rather than actually relating it back necessarily to house prices. And also, our stock tends to be very unusual. Past history has shown that it's been very resilient during downturns. I've now got a really interesting question, there's been a lot about, from [ Max Luis ], he's a private investor. And he says that his perception is that because of the virus, increased working from home, we might see people moving out of London and coming in from time to time. I think this is -- I guess this is a degree of speculation. But we -- and the question really is the viability of our projects in central urban areas. We have a mixture, I suppose, is the answer to that. We have some suburban, and we have central and urban products because we like things like good Walk Scores and good amenities nearby. And I think although we're experiencing lockdown or relaxed lockdown at the moment, I do think that over time, that ability of our schemes to people to be able to walk to work, et cetera, will become increasingly attractive. So we -- I think good homes are going to be the key to what continues to let in the future. And there was also another question from [ Andrew Parsons ] that was linked to that as well, which is really about, are we looking at our products? And the answer to that is, very definitely, very definitely in terms of -- particularly in terms of our amenity and anticipating that this will bring a degree of flexibility of people working from homes and number of bedrooms, et cetera. So that's something that we're thinking about as a business. Another one for Vanessa is coming in because she's got all the details on the rent collections, and it's from Oliver Jones at AEW. And Oliver's question is, are collection rates the same at PRS as they are for regulated tenancies? Vanessa, do you want to answer that one?

Yes. Yes, happy to. Yes, effectively, the collection rates are the same across the 2 different portfolios. And once -- there are slightly different ways in which people pay. So if it's PRS, the majority of our customers are on direct debit. And with the regulated portfolio, there has been a little bit more challenge at the beginning because a number of our residents in our regulated portfolio still actually pay by checks. But as we have been and going back into the office, we've been able to compare those fully the understanding of cost of both portfolios.

Thank you. Simon, I assume that there's no more questions on the line. And if that's the case, we have no more questions on the screen. So thank you, everybody, for joining us this morning, and we look forward to speaking to some of you over the coming weeks. So thank you very much, and stay safe.