Grainger plc (GRI) Earnings Call Transcript & Summary

So good afternoon or good morning to our U.S. and Canadian shareholders, and welcome to Grainger's Investor Update. I hope that everyone is well, and thank you for joining us. At this time of year, we normally update you on our progress and meet with you at one of our new build-to-rent projects. And we had planned to hold this event to Pontoon Dock, our new scheme, Millet Place. However, as we cannot be together, we thought we would take this opportunity to give you a little more detail around the key questions that investors have been asking us about our business over the summer. So the agenda is, I'll introduce what's been happening in the business, particularly addressing our activities during the pandemic. Vanessa, our CFO, will then give us a brief performance update. A number of investors have been asking about our focus on our product and its impact on health and wellbeing, so I'll take you through our initiatives that we have been working on long before COVID, that have helped us keep our customers safe and healthy at this time. You'll be aware that Grainger has always had a keen interest in making sure our investment is founded in good data-driven research. And our new Head of Research, Thomas Grounds, who joined us earlier this year, will talk about the trends of urbanization, reflecting on the question that investors asked about where will people want to live in the future. Our Director of Forward Funded Delivery, Robin Keates, will take us through how resilient our product is and how our product has been informed by trends in modern living to make it more resilient. And then finally, we'll have an opportunity for a live Q&A session. But first, ordinarily, at this moment, we would be showing you around. So what I'm going to do now is show you a brief fly-through of where we might have been had we been able to meet at Millet Place at Pontoon Dock. [Presentation]

A little about Millet Place. It's a joint venture between local authority Pension Scheme, the GLA who own the land, and this is owned in joint venture with Grainger, also receiving fees from management. The main apartments are owned 80% by the pension partnership and the Poppy Apartments, which are the lower-priced rental apartments are 100% owned by Grainger through our vehicle, Grainger Trust. Now this is the last piece sort of joint ventures. It illustrates our credentials, but all our subsequent partnerships are 50-50 or majority Grainger-owned. But this gives you some idea as to the way in which we've evolved in terms of acquiring sites. This site was acquired around 5 years ago at the start of our strategy. Grainger is in good shape. We went into the pandemic well capitalized and as soon as we were aware of the problem, we've created a strategy for dealing with it, which I'm going to talk about in a moment. We know that as a B2C business, our people are essential. We did not furlough anyone, indeed, we invested in our people in their training and development. We have a great team at Grainger, and they are motivated by delivering great homes and enriching lives. Grainger's focus on our corporate culture and our values has been essential to navigating our way through the crisis. And just as a reminder of the purpose that drives our organization, renting homes and enriching lives and our values. Every home matters. People are at the heart, leading the way and exceeding expectations. So turning now to our approach to the pandemic. I'm pleased to say that Grainger's team maintained performance throughout lockdown. We returned to the office in July, and most of our offices were open from the end of May. We had a very strategic approach to the pandemic. We said we will go to use this time to innovate, communicate and improve the business. Innovation is at the heart of what Grainger does. I am clear that the resilience of our business has been largely as a result of having a full operational model of investment, development and operations, which does not rely on third parties. Meaning that we were able to continue to serve our customers during this time and importantly, continuing to lease our properties and continuing to sell our properties when many agents were furloughed. In a moment, I'm going to ask Vanessa to give you an update on what this approach has meant in terms of our performance. In our innovation, it has enabled us to continue selling even during the time that real estate agents were closed. We have looked at ways in which we can improve our communities within the building. We've had a strong attention to health and safety initiatives, enabling our customers to use our spaces safely. We've continued to invest in our CONNECT technology platform integrating new modules through remote testing and design. In our communications, we've stepped up our communications with our customers, undertaking our usual customer survey, but driving forward of Google and Trustpilot scores, and creating moments when our customers can connect with each other. We've communicated with our employees and have had high levels of engagement, during this time we refreshed our great values. And at this time when people are thinking about what really motivates them, we thought this was an essential thing to do to work with our employees on. Our communications with government have increased. And as they have thought about how they will support our sector and our residents during this time, including consultation regarding the planning white paper, the lifting of the ban on evictions, antisocial behavior and housing delivery generally. I'm particularly proud that the Housing Minister and the Secretary of State has singled out Grainger for its work in leading the way on building design in relation to fire safety. We've kept extremely close to our suppliers to enable them to be supported during this time and to ensure that they, in turn, can support our customers. On our sites, we did know that our development partners and contractors were finding that the safe distancing rules at the start of lockdown were slowing down their progress on site. But we have been working with them and innovating and reprogramming to minimize the impact of the delays on our development pipeline. We focus all the time on continuous improvement, but we've ensured that if people had any spare capacity, we've invested in training with the launch of Grainger Academy of Bespoke Resident Services Manager Training, the launch of our community engagement plans and the second phase upon this safe program. All of this has ensured that the Grainger business is in a strong position as we approach our September year-end. So turning now to our pipeline, which is in a strong position to support our growth. Our existing portfolio at the half year was GBP 2.8 billion. We've got an exciting pipeline of around GBP 2 billion which we are delivering. We are the leading provider, and we've got a great pipeline for growth. And this year, we raised equity to concentrate on our regional investment. And this was then performed by the backdrop of the government's view on leveling up and the strengthening of the regions. And I'm pleased to say that combination of London and regional schemes, we've secured 6 schemes during this period, 1,475 units representing over GBP 400 million of additional pipeline investments. We've made good progress on our schemes in planning. We've received committee approval for planning at Besson Street, our joint venture with the London Borough of Lewisham which will provide 324 homes. And we've also made good progress on our partnership with Transport for London. We have a resolution to grant planning at Southall for 460 new homes, and we've got 3 other schemes currently in the planning process. And together, they will deliver 1,200 homes. So the schemes to look at this year, at the start of lockdown, we had Solstice Apartments and towards the end of it, Millet Place, which is the scheme you saw earlier. But our exciting pipeline coming forward includes schemes at Apex Gardens in Seven Sisters, Gore Street in Manchester, Southampton and the Headline in Leeds. From this point, Grainger's pipeline is so strong that we are regularly delivering on our new product each year, and I'm pleased to say that despite COVID-19, our stabilization rates at our new schemes, for example, Bristol and Sheffield, are now fully stabilized and we have good letting progress on our Clipper's Quay in Manchester. And now I'll hand over to Vanessa to talk about our performance update.

Thank you, Helen. This morning, we issued our pre-close statement, so I will provide a brief update on our key performance indicators over the recent months and highlight the impact of the COVID lockdown on our performance. We have continued to perform well, and our strategic transition to PRS has delivered a strong performance in the recent months. Our rental income has remained resilient throughout the COVID lockdown delivering rental growth of 3% across our portfolio, we have collected over 95% of our rental income on time and our occupancy is over 95% year-to-date. And as Helen mentioned, the COVID lockdown has led to delays on-site with our developments, which will result in a delay in our net rental income progression. Our sales performance has remained resilient despite the impact on the wider housing market this financial year from Brexit, the general election and the COVID lockdown. We have taken action to maintain sales and we expect our sales profit this financial year to be broadly in line with the prior year. And so far throughout the 2020 financial year, we have sold vacant properties at 1.7% above the September '19 vacant possession values. And the actions that we took in March to enable the sales process to continue has supported our performance and resulted in stable sales velocity ratio. And our balance sheet is in a strong position. The successful equity raise in February and the bond issue this summer have provided further investment capacity through our PRS investment pipeline. Our weighted average debt maturity is now 6.7 years with no near-term debt maturities and we have GBP 622 million of headroom to fund our secured pipeline. 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. This diversity, alongside the strength of our in-house operations and relationship with our customers, has resulted in a consistently high level of rent collections. And we have collected over 95% of our rents on time in the recent months. We have experienced a slight reduction in our occupancy from 97% to 95% on average over the year. And our like-for-like rental growth has remained strong at 3%. Our PRS assets have delivered a like-for-like growth of 2.5% with new lets at 2.6% and renewals at 2.5%. And the reviews in our regulated portfolio have boosted overall growth to 3%. Our PRS rental growth is now a key driver of our asset valuations, with around 60% of our portfolio valuations now aligned to rental growth. Our net rental income progression reflects the updated position of our pipeline and the placing has enabled us to bring forward our growth and increase our net rental income. We have also revised the timing of our secured pipeline to reflect our current view with expected delays as a result of the lockdown. In part, these reflect our decision to delay the start on-site during the COVID lockdown and therefore, delayed around GBP 5 million of net rental income over the next 2 years. Our passing net rent is GBP 74 million and we now expect this to increase by GBP 7 million next financial year and GBP 12 million in the financial year '22, with our secured net rental income increasing to GBP 132 million when our secured pipeline is completed and stabilized. And it is also worth noting in this slide is based on passing net rental income, and our reported net rental income reflects the buildup of income over the asset stabilization and, therefore, tends to lag the passing net rent by around 6 months. And 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 with the TfL Partnership illustrates the potential for our net rental income to further increase to GBP 172 million. And this growth will be aligned with our dividend progression as our policy is to distribute 50% of our net rental income as a dividend. Thank you. I'll hand back to Helen.

Thank you, Vanessa. I could say that in response to the COVID pandemic that Grainger has increased its focus on health and wellbeing of residents, but that would be wrong because in the last 5 years since the start of the build-to-rent strategy, Grainger has adapted its product and has always had a focus on health and wellbeing. We did not just build houses. We build homes and we build communities. And there's a very good business reason for doing that. And that is that residents that enjoy living in one of our properties are likely to stay long about and therefore, provide less churn. During lockdown, one of the things that we did see particularly in the early stages was a high level of renewals of people wanting to stay in places that they have set. We've always had a commitment to respond to the experiences and demands of our residents in terms of how our designs were formed, and Robin is going to talk more about this later. Health and wellbeing have been integral to our design philosophy. It is discussed at our investment committee in terms of what amenities we're putting into the building, but also the physical location of our homes, the proximity to green spaces and areas where people can exercise. Our adaptation of our stock at our pipeline to ensure that even the smallest of schemes has a small fitness suite or gym and a program of activities for residents that enable them to feel safe and healthy. In terms of our resident amenities, the access to indoor and outdoor space serves as an adjunct to people's homes. They provide places to relax, to entertain, to work, to socialize, both inside and out. Recent launches provided multiple and extensive outdoor terraces, gardens and courtyards for people to enjoy. Many of our homes have balconies. And in the case of the recent launches at Solstice Apartments in Millet Place, the residents have fabulous communal terraces with different things to enable people to socialize outdoor. The Sunset Terrace at Solstice Apartments is a very special place. The new schemes have the additional benefit of parks on the doorstep. And in the case of Solstice Apartments, that is Campbell Park leading to the Grand Union Canal. And in the case of Millet Place, that's Barrier Park leading to the Thames. And one of the biggest things that people have been talking to me about during this time is whether our product and product design has been resilient during lockdown. And I think these particular features have been at the forefront of people's minds when their lease expires. When we launched our strategy almost 5 years ago, we also looked quite carefully at what was successful within our buildings and decided to rearrange the amenity space of our new offering to make sure that we have gym or fitness areas within the building. So these shed spaces we've managed well during COVID, and it gives our residents an opportunity to interact together. But these shed spaces are also where we organize classes. You got yoga classes, and in some cases, these are virtual. In the case of ARCO, we have 250 online exercise classes. And as an example, as part of our lockdown at Clippers Quay, we had a weekly virtual yoga session with a trained instructor, which was later rolled out to residents in our other buildings. We should not underestimate the impact that a good environment can have on people's health and wellbeing that is challenging to measure. At Grainger, we use various measures to analyze this including Walk Scores, Fitwel and The Home Quality Mark. But one of the things I'm particularly pleased about is the level of engagement from our investment committee, which contains people from investment, development and operations and our asset managers and, of course, our finance team in challenging the nature of location and quality of our buildings and their amenities. This actually feeds into our investment committee approvals, and I'm pleased to say that our future development pipeline has an average Walk Score of 89 out of a 100, making it very walkable and therefore, providing high levels of access for all our residents' needs. One of the things that we heard our residents giving as feedback call when we have regular conversations through our budding system and through our Resident Services Team is that some people miss getting out of their apartments to work. Increasingly, as people are expected to work from home, they are expecting to have co-working spaces. All of our operational pipeline of build-to-rent has some form of co-working space. As standard, superfast broadband directly into the apartment is included within the rent and this means that residents are up and running from day one. But it also means that they can move around the building while still being connected to their network, and we again believe that this is going to make our buildings resilient. These things we have been talking about for 4.5 years. I'm pleased that during the challenges of COVID-19, the structural changes that we anticipated people would make within their lives in terms of the way they rent, the way that they work, the way that they protect their health and wellbeing were put to the test and held up well. As a distinct Grainger's product resilience, our future pipeline is not just a future pipeline of growth, but a future pipeline that is resilient and able to be differentiated from our competitors. In a moment, I'm going to hand over to Thomas to address another question, which was asked of us during this time. The newspapers have been full of people moving to the country. At Grainger, we've always prided ourselves honest [ city ] strategy, which is based on intensive geographical research of the regions in the U.K., where we believe we can provide the best product and our shareholders the best returns. We've also prided ourselves on having great research, which is why I'm pleased that Thomas Grounds has joined us recently as Head of Research, and one of his first pieces of work was on urbanization and the long-term trends, answering shareholders' questions about whether or not we should be looking at suburban or urban product. And just as a reminder, Grainger invested in both, but predominantly our new pipeline has a greater weighting towards urban product. So over to Tom.

Thank you, Helen. As Helen mentioned, our capital allocation at Grainger is research-led. We are long-term investors and focus on the long-term trends that drive rental demand. We look at investable locations across the country and alongside our city strategy, we also have a suburban strategy. However, typically, the investment fundamentals are most supportive in cities. One of these key long-term fundamentals is continuing urbanization. I'm going to talk briefly about what has driven it and why we and others believe it is not something likely to be reversed by COVID-19. Looking at urbanization, we believe it to be a long-term structural trend that will continue for the foreseeable future. The majority of the global population now live in urban areas, a number that is still growing. Whilst population forecasts from the United Nations Population division suggests that the urban population will go from 4.2 billion now to 6.7 billion in 2050 versus a decline in rural areas from 3.4 billion to 3.1 billion. Although the U.K. is already heavily urbanized, with 83% of its population living in urban areas, that proportion is expected to reach 90% by 2050. One of the key drivers of urbanization is the higher productivity stemming from population or worker density in cities as to high productivity drives higher wages and then further population growth. If we look at ONS data on GVA per hour worked by local authority, e.g., economic productivity, first is the density and overall size of the workplace population, we can see that productivity is generally linked to higher workplace entities. It is this virtuous circle of increased urbanization driving increased productivity that has been at the heart of the urbanization trend. And we do not see this long-term structural trend as something likely to be changed by COVID-19. It is important, however, to remember that cities are not just about work. There are centers of culture and entertainment and provide these 2 factors at a scale that can't be replicated in non-urban areas. Surveys show that the city center residents' proximity to restaurants, leisure, culture and public transport are fundamental to the attractiveness of cities. With, for example, urban areas able to sustain a far higher density of cultural and leisure amenities than other areas, providing unparallel choice for their residents and businesses. A lot of the recent focus has been on people in their late 30s and 40s, deciding to move out of London to suburban locations. But the emigration of the late 30s from London or other cities is nothing new. If we look at data from the ONS on London for the last decade, we can see that young British people moved to London en masse in their 20s to live, work and play before emigrating in their late 30s to start families and access larger housing whilst the main long-term drivers of net population growth in London have been net migration from abroad and births within the city itself. The impact of the COVID pandemic on the lifestyle choice of these young people who drive urbanization will be much less impacted. Now looking at the workplace, city centers also serve a vital role as hubs to human capital. This slide shows a heat map of those commuting to the city of London and demonstrates the extent to which a city center HQ is able to pull workers from a wide catchment area, giving companies a huge talent pool to choose from. Notably, these locations allow companies to appeal to both young professionals who prefer dense urban areas with lots of amenities, culture and public transport as well as older professionals from a commuting belt. Finally, and perhaps most importantly, dense urban areas can be drivers of more sustainable living. Looking at research from the C40 Cities Climate Leadership Group, we can see that there is a strong correlation between how dense cities are and their level of transport emissions, e.g., higher density living leads to shorter journeys, more public transport and a lower impact on the environment. So to summarize some of our thoughts on the organization topic, the higher productivity in urban areas will remain a key driver of urbanization. Cities' large-scale culture and leisure offering is fundamental to their attractiveness, particularly amongst the young for whom cities offer a unique environment for living, working and playing. Whilst from an environmental standpoint, urban density also offers us the chance to limit our impact on the environment. From my own perspective, having joined Grainger from a sovereign wealth fund looking at multiple real estate sectors across Europe, there are many ongoing structural changes across economic and real estate markets to look out for. For example, online retail and sustainability, many of which have been given added impetus by COVID-19. However, urbanization remains a well-established trend whose underlying fundamentals remain robust. Grainger capital allocation target areas of long-term rental demand, and there will still be some suburban locations that offer attractive opportunities and some cities that do not. However, the overarching trend of urbanization looks set to continue. Now let me hand over to Robin, who will talk about the resilience of our offering to customers.

Thank you, Tom. As Helen mentioned, I had the delivery of our forward funded development pipeline. Before joining Grainger, I worked in architecture and project management and with this background, it's been really great to be involved in such an exciting pipeline, working for a business which places real emphasis on the quality of our products and services, placing people at the heart of what we do. The pandemic has brought uncertain times, but as has already been mentioned, Grainger's business has remained resilient. In addition to strong underlying fundamentals, we truly believe that the way that we design and operate our assets further improves our resilience in difficult times. As has been reflected in the media, the lockdown, social distancing, and other safety measures have created new concerns amongst our customers. In the short term, the focus has been on feelings of isolation, the impacts of remote working, reduced social outings and travel, and the need to reduce contact to enhance safety. As we move through the lockdown, it's becoming clear that these temporary focus points are developing into a longer-term behavioral effects. Our customers want to remain connected both physically and digitally. They want to use Grainger's buildings to sleep, work and relax more so than ever. And they want to know that their landlord will be available and attentive through difficult times. Above all, they want to feel safe and secure when at home with Grainger. I'll now explain why we strongly believe how the design and management of our assets meets these longer-term demands. From our customers' perspective, Grainger operates as a single point of contact for services, enabling us to maintain full control over the customer experience. This fully integrated, seamless customer offering means that customers only deal with Grainger as their point of contact from initial leasing and moving to ongoing customer service, building management, community engagement and maintenance. Residents know that as the owner and manager of their home and wider development, Grainger has a level of accountability they won't find elsewhere. This direct approach also empowers Grainger to have direct control over the quality of our communications and responsiveness. On-site Resident Services Managers give residents comfort that problems can be dealt with quickly and professionally whilst 24-hour security ensures customers always feel safe and secure in their homes. The MyGrainger customer portal, which is part of our CONNECT program, provides a fully integrated digital connection for all residents' needs, including repair requests, amenity bookings, account queries and connecting with neighbors. Our customers want to know that they can not only sleep at home but also work, exercise, relax and socialize. Our mandatory offerings have always been designed with flexibility and safety in mind. And this has allowed us to continue to provide these crucial services throughout the lockdown. Our building-wide, high-speed Internet and shared workplaces continue to enable those who cannot work in their offices to remain productive. Our outdoor space, residents' lounges and in-house gyms provide our residents with additional space to exercise, relax and socialize, and these spaces are especially important for those who are sharing apartments. As members of local communities have pulled together to support each other during the lockdown, the social aspect of build-to-rent has provided great examples of how our customers benefit from the community spirit of living in a Grainger property with their neighbors. In our build-to-rent developments, Grainger Resident Services Managers play a proactive role in driving community engagement and organizing events to bring our residents together. Social distancing has made things difficult this year, but our teams have continued to arrange community events with a growing focus on wellbeing and fundraising as well as online events such as virtual book clubs and fitness challenges. We help our residents to feel that they are renting more than just a home from Grainger. Our push to lead the way in the build-to-rent sector extends beyond our built infrastructure into the services we provide. We know that staying connected is really important for our customers. This has been especially true during lockdown with the increase in homeworking and video calling. Fortunately, for residents in our new build-to-rent developments, fiber broadband with speeds of up to 100 megabytes is provided free of charge from the day they move in. Through the use of smart lockers and our on-site Resident Services Teams, Grainger continued to provide parcel management services. This has been really important for our residents as our dependence on online shopping has accelerated during lockdown. Another great example of meeting our customers' demands are our pet-friendly developments which ensure that our tenants are able to benefit from the companionship which their animals provide. Our company values serve to guide the decisions, which my team and I make on a daily basis. Whether at a site meeting or reviewing plans with our interior designers, we keep in mind that every home matters, and we place people at the heart of our decisions. Grainger strives to lead the way as the U.K.'s largest listed landlord with our ultimate goal being to continually exceed the expectations of our customers and investors alike. On a personal level, it's been over 2 years since I last presented at one of our Capital Markets days. And in that time, it's been amazing to see the quality and quantity of new homes delivered. Over 1,500 homes which represents over GBP 250 million of total investment value and will be delivering approximately GBP 14 million in additional annual rents once stabilized. To me, this really shows that not only do we have an ambitious pipeline ahead, but we also now have an indisputable track record of delivery. Looking ahead, our ability to deliver a well-designed, class-leading product with a focus on creating homes and communities, which genuinely support our customers, will ensure that Grainger maintain their resilient position in the market. Thank you. I will now hand back to Helen.

Thank you, Robin. So in summary, we are in good shape, our residential strategy is resilient, we reacted swiftly and successfully to the challenges of COVID-19. Our performance update is a testament to the strategy and quality of the execution by a dedicated Grainger team. We are leading in this sector and our commitment to investing in locations and buildings which are resilient to the future remains strong. Our investment is growing and with it, our portfolio of great homes and growing sustainable income stream for our shareholders. Thank you. Now we'll be going to a live Q&A to answer your questions. We have the senior Grainger team on the line, including Andrew Saunderson, our Director of Investments; and Mike Keaveney, our Director of Land and Development, along with your speakers this afternoon.

And we can take our first question from Max Nimmo of Kempen.

Just -- a lot has been written about kind of the softness in the London rental market. And I was just wondering if this is something that you've seen at all? So if you were to break down that 2.5% like-for-like rental growth in the PRS portfolio with London versus the rest, what would that look like? And I guess second question for me, if I can. The sales rate has been surprisingly strong as well. And maybe perhaps this has been somewhat helped by government policy. I was just wondering are there any particular reasons why you think this can continue to be strong even when those policies burn off.

Okay. So your first question was about the rental growth. And the rental growth hasn't been as strong in Central London on new lets as it has been on the out-London suburb. So I'll give you the figures. On new lets, it's just under 1% in Central London whereas in inner London, which are the sort of Zones 2/3 and outer London, it's been 3.7% and 2.6%, and that compares with 2.2% and 2.8% for renewals. And the reason behind this has largely been the amount of Airbnb stock that came onto the market as a result of tourism dipping in London. But just as a reminder, Grainger doesn't have very much Central London, our offering is mid-market. So we don't have a lot of high-value Central London properties. Back to your second question, with the -- was regarding the sales rate and it remaining strong. It's -- at the start of the pandemic, we thought we were going to see a real dip in the sales rate, and we tried to put in actions to make sure that, that didn't happen, and that was part of the innovation. So we were selling for 2 or 3 months before the estate agents came back. A couple of things that have added momentum to the market. So there was a lot of pent-up demand from people pausing while uncertainty about Brexit and the general election. And that actually meant that there was a lot of pent-up demand in the market. But also that's been further accelerated by the stamp duty holiday that's been given until March next year. In terms of the level of inquiries and we're selling up and down the country, at the moment, we're seeing very good momentum within the market. But I should say that the Grainger sales have always been sales of the old regulated properties and even during the global financial crisis, we continue to sell well. So although there may be a slowing in the market, our stock is quite unusual and has good resilience. And I'm just going to ask Andrew Saunderson, whether he wants to add anything to that. Andrew, who is our Director of Investment, leads our sales team.

Yes. Thank you, Helen. No, I agree with your comments about sort of the location of our assets, the locations where our assets are situated are generally always popular, and as Helen said, even during the global financial crisis. And then there's also the condition of our assets. The unmodernized nature of those assets does present people with an opportunity to do things with them, to cast them in exactly the fashion that they want to live. Clearly, the initiatives that the government have put in place have helped. The stamp duty holiday that was announced in the middle of July has definitely helped, and we saw a boost in our own sales during -- or since that was put into practice. But I'd say, we still believe that the underlying fundamentals are strong. And who knows what the government will do going forward to help support the market further.

[Operator Instructions] We have no further questions over the phone. I would now like to turn it over to the management team for any web questions.

Thank you. So I've had a few questions online. John at Highclere Investor, has had a question regarding cash collection rates and 1.8% arrears in gross rents. That's 95% cash collection rate and the 1.8% arrears in gross rent. And the question was, am I correct in assuming gross rents not collected and not classified as arrears are deferred? I'm going to hand over to Vanessa to answer that one, John.

Thanks, Helen. So just -- first just confirming that the 95% of cash that's collected within the month is the percentage of the renters due that's collected on time. So we then go on to collect rent during the month, past the due date. And at the month end, the arrears number is the amount that's outstanding at that month end. So it includes all the rent outstanding, which totals 1.8%.

Hopefully, John, that answers the question. I've got Chris Millington. This is very greedy. I've got 4 questions from you. We'll take them in order. So can you remind us of the mix of tenants across the portfolio, most notably, what proportion is students? To -- reminder to investors, in our half year pack, Page 15, we give a breakdown of our customer profile. And that hasn't changed very much from the half year. And at that time, we had about 6% students and the others, we had a large carryover because of our regs, 27% retired, 8% MOD-backed and 5% self-employed and the remainder were in employment or in non-direct let. So that's the -- it hasn't changed, including students. Your second question was how much time has been added to the development pipeline given the lockdown and subsequent ramp-up in construction and how can you recover this lost time going forward? So the headline on that one was most of our sites carried in -- in fact, all of our sites carried on going through the lockdown, but at reduced capacity. And we anticipate that safe distancing working methods will add between 5 and 6 months to the average program. But I'm going to ask Mike Keaveney, who is our Director of Land and Development to talk about anything that can be done to bring that back. Mike?

Thank you, Helen. Yes. So just picking up on our current sites, the ones on site. They've been affected by a month or 2, in some cases, 3. And what we saw was fantastic innovation from the contractors as they grapple with the new site procedures to get themselves back to full productivity. And so although we have made estimates for an extended duration of our future pipeline, the reality is the construction industry is now operating much more efficiently around these rules. And one would expect them to get even better at it. So we think we've been pretty robust in that underwriting.

Thanks, Mike. Chris, your next question was, can you talk a little more about the dip in occupancy in August and how the forward-looking indicators are progressing? So our biggest churn months are usually around August, September time, that relates to historic trends. This year, we saw less inquiries, as you might imagine, in June and July. And so our seasonal churn has come later. And the figure that we've put out there today is a snapshot from the end -- at the end of August. And we do see that the level of inquiries that are coming through at the moment show that what we've got is a delayed seasonal period. In other words, people that went looking for new lets in June and July are coming through in August and September. So we expect that figure to stabilize before we get into the peak winter months. And then there's a fourth question from Chris, which says, "How do the economics of renewals versus new lets in PRS compare higher rent on one hand but low voids on the others?" So I'm going to ask Vanessa to address that one.

Yes, certainly. So in terms of new lets and renewals, usually, we would see new lets generate a higher rental growth than renewals. And we quite often publish these numbers. The one thing that we have seen different in the recent months is these are broadly similar. So our new lets were at 2.6% rental growth, our renewals were at 2.5% rental growth. And I think the other dynamic that we've seen different in the recent months since the COVID lockdown is a lot higher proportion of renewal activity taking place. Now the benefit to us from an economic perspective of renewal activity is that it's lower, we don't suffer the cost of churn. So that's any void period or any refresh costs in the property. So they're actually more beneficial to us from an economic perspective to have a higher proportion of renewal activity. So hopefully, that helps to answer that question.

Thanks, Chris, for your questions. I've got Chris [indiscernible] on. Chris, you've put 2 questions in, but I'll -- I think I'll take the first one. I think I've spoken about the 91% occupancy in August. But you've said, where do we expect it to trend? Just to repeat, we expect that number to improve in terms of, just as a reminder, we were running on over 97% occupancy. And our year-to-date is a 95% figure. So I'd expect it to move back towards our normalized rate, particularly as people return to the cities. And your second question, which I'm going to ask Vanessa to answer was really about our secured pipeline and can it be funded from existing resources? And what do you expect your LTV to be at the end of the building of the secured pipeline?