Grainger plc (GRI) Earnings Call Transcript & Summary

So good morning, everyone, and welcome to Grainger's Full Year Results. 2023 was an outstanding year of record delivery, delivering significant growth in our income and in our occupancy. And importantly, this has been driven from a sound financial foundation that we put in place 18 months ago. This year so far, we have added over 1,200 new homes, and that's a real step-up in our net rental income, and we'll be delivering 400 more towards the end of the year. So despite the financial shocks of the last 12 months, the outperformance plan that we put in place and the pipeline we have secured, will ensure continued growth. . So the agenda this morning is that I'll take you through the highlights of the strong financial and operational performance, driven by the quality of our new openings. The resilience in our valuations where rental growth has largely offset outward yield movement. Our pipeline is continuing to grow, and I'll explain how that growth will be sustained, leading to an excellent outlook in earnings. Rob Hudson, our CFO, will take you through our financial review, the strength of our balance sheet, the growth in our earnings and how our pipeline is funded to ensure growth in earnings in the future, and he'll also cover our progress towards REIT conversion and our progress to ESG. And then I'll give you more information on the market, why it's proving so resilient and why Grainger is well positioned to take advantage of this strong market. And I'll also give you an update on how our new schemes are doing. And finally, we'll get an opportunity for Q&A with senior members of the Grainger leadership team. We have delivered an excellent performance. We have a strong balance sheet and a confident outlook. Our rental income is up 12%. Our like-for-like rental growth in our PRS homes is 8%, and our occupancy is a record 98.6%. Importantly, our customer satisfaction score is up. Our Net Promoter Score is up 26% to positive 43. Retention is at 63.2%, and our stabilized gross to net is at 25.5%. And despite outward yield movement, rental growth has ensured our NTA has remained resilient at 305p per share. Our LTV is at 36.8%, and our debt is secured in the mid-3s for the next 5 years. Furthermore, with 1,640 new homes delivering in calendar year 2023 generating a rent roll when leased of circa GBP 17 million and around 1,200 of these are already launched, our committed pipeline and remaining lease-up will ensure that there's a further GBP 43 million of income on top of our current passing rent of GBP 101 million. This is a doubling of our EPRA earnings from full year '22. So in September '22, in the wake of the mini budget, we put in place an outperformance plan, and this resulted in our income growth and our accelerated sales plan. Our net rental income is up 12%, and our dividend is up 11%. Our overall rental growth is 7.7%, of which PRS is 8%. Our adjusted earnings are up 4%. And in addition, we have a strong sales performance. We did GBP 194 million of asset recycling, and that was a mixture of our regulated tenancies, older style PRS and strategic land. So this year is a record year of delivery. Our new homes will significantly enhance our income and our dividend. And this pipeline of exciting new schemes is delivering into a market where there's a lack of good quality rental homes. The PRS market is stronger than ever. The importance of the sector is being acknowledged politically across both major parties and both major parties are acknowledging the destructive nature of rent control on supply. Our strong leasing performance has supported our valuations with leasing and rental growth offsetting outward yield movement, leading to only a small reduction of 4% in our NTA. And PRS is now 77% of our portfolio. I'm proud of the progress that we've made on our green agenda, particularly with our Scope 3 emissions. Our customer program, Living a Greener Life, has led us to being awarded EPRA's Outstanding Contribution to Society Award. Grainger has a proven track record of executing on our strategy, which means that we have a solid basis for our confident outlook. At the start of our strategy, our net rental income was GBP 32 million. And in this year, we have delivered 3x this amount. We've delivered a compound annual growth rate of 13%, and we now have a passing rent of over GBP 100 million. Since the 2016 strategy, the shape of our portfolio has changed dramatically. It was 81% regulated tenancies. It's now only 23% regulated and PRS is 77%. And we've shown resilient like-for-like growth throughout this period. We have remained in positive rental growth territory even through the COVID lockdowns with rents accelerating afterwards. And we've managed to execute this strategic change whilst rewarding shareholders. And overall, a dividend growth of 18% per annum. Through some very challenging times, we have delivered growth in earnings and resilience, and we expect this growth and resilience to continue. And so to our pipeline. Our regulated and assured tenancies are now GBP 760 million, and vacancies in our regulated portfolio slightly increased this year and we have sold well. They are prudently valued and in high demand, but they are a diminishing part of our business. We've also engaged in recycling to drive efficiencies within this portfolio. Now our record year of delivery has meant that our PRS portfolio is now GBP 2.5 billion. Our 1,200 new homes are leasing ahead of expectations. And furthermore, we have a pipeline of GBP 1.6 billion, GBP 721 million of which is committed. These schemes are on site with construction costs fixed. And then we have a further GBP 541 million secured and GBP 316 million in planning and legals. So this is an exciting new pipeline of 5,634 new homes. Grainger is a highly cash-generative business. We continue to recycle capital from lower-yielding assets into high-yielding modern purpose-built rental homes. And this slide shows that our pipeline can be delivered through our sales and through our asset recycling. We have a consistent cash flow from our vacant sales, and we have a significant asset recycling program. On average, we generate between GBP 150 million and GBP 200 million of operational cash flow per annum. And as we've evidenced again this year, we have got that proven ability to sell well. If we look at the charts on the far right of this slide, against our pipeline, we have GBP 1.2 billion of legacy assets, including regulated properties and their reversion and some legacy assets such as strategic land. And this, together with the GBP 590 million of existing headroom, gives us plenty of capacity. Around GBP 300 million is the cost to complete our committed pipeline, together with optionality and flexibility on the timing of when we start our secured pipeline of around GBP 500 million. In addition to that, we have an outer pipeline with over GBP 300 million of schemes in planning and legals. And whilst we have GBP 590 million of existing headroom in our facilities, we envisage the majority of our pipeline can be delivered through operational cash flow and asset recycling. Now whilst many real estate sectors have proven to have a high degree of volatility, the residential rental sector has proven itself to be resilient. The wider economic weaknesses that affect others have not affected us. And this is because of the supply and demand imbalance in residential rentals and the fact that residential is a needs-based real estate sector. We're a B2C business not dependent on the general business community with a structural undersupply and good levels of demand. So during the last year, U.K. GDP growth has remained muted at 0.6%, and the commercial rental index shows only moderate growth at 3.6%. The ONS residential shows 5.7%, and that's for all residential property, reflecting the wider rental market and including some build-to-rent. Grainger's like-for-like rental growth is around 8%, and that's tracking wage inflation of 7.7% and therefore, remaining affordable for our customers. The structural need for good quality rental homes will endure despite the wider economic weakness. So this has been an outstanding year for Grainger, our biggest year of delivery so far, and we have further growth to come as we deliver on our GBP 1.6 billion pipeline. And this is going to create greater efficiencies and margin improvement. And we have that clear trajectory to double post-tax EPRA earnings in the next 3 years from 2022 levels. Our balance sheet is strong with debt fixed at low levels in the mid-3s for the next 5 years. And importantly, the fundamentals for good quality mid-market rental homes continues to grow, and this is giving us underlying structural support to our business. So I'm now going to hand over to Rob, who will take you through the details of our financial performance.

Thank you, Helen, and good morning, everybody. So today I'm going to cover off the key financial highlights for the period and also provide you with some further detail as to how we've delivered this strong performance. I'll also outline how the building blocks are in place for us to continue to deliver these strong levels for the years to come. And with a solid balance sheet, a fully funded pipeline with costs fixed and debt costs hedged, we're convictional that we can deliver in spite of any current economic uncertainty. FY '23 has been another year of excellent operational performance. Net rents increased by 12%, and that's reflecting the strong contribution from our recent pipeline deliveries along with the continued acceleration of our like-for-like rental growth to 7.7% and a record levels of occupancy. Adjusted earnings continue to grow. They're up 4% with our sales proving resilient despite wider market uncertainty. Strong EPRA earnings growth, up 41%, demonstrates the operating leverage in our business, which is built for scale. Our dividend per share is also up 11%, reflecting our strong underlying performance. Valuations remained robust despite the challenging macro backdrop, down 2.4% overall, with 8% ERV growth on the PRS portfolio, largely offsetting the 40 basis points of outward yield shift. Turning to the balance sheet. Net debt rose to GBP 1.4 billion, in line with planned investments, and it was an increase of only GBP 22 million on the half year, reflecting increased sales activity. LTV increased to 36.8% in line with plan and was only marginally up from the half year level of 36.1%. Debt costs increased marginally to 3.3%, in line with our previous guidance. Turning now to the income statement in more detail. Our like-for-like rental growth accelerated to 7.7%, reflecting the strength of our platform and demand for our mid-market product. And it was split between regs growth at 5.9% and PRS at 8%, with new lets delivering 9.2% and renewals 7.2%. Stabilized gross to net was consistent with prior years at 25.5%. Revenue from sales accelerated with overall disposal proceeds growing to GBP 194 million. However, profits themselves were slightly lower. That reflects the mix impact of higher investment sales compared to trading asset sales. Sales pricing remained robust with sales in the period only 1.9% below prior year valuations. Overheads increased by 5%, largely driven by a 5% pay rise across the workforce. EPRA earnings were up 41%, and they continue to make an increasing component of our adjusted earnings. IFRS profits were down, that reflects the combination of valuation movements and also the prior year valuation gain reflecting the one-off transfers to investment property in preparation for REIT. Looking at the moving parts of the 12% increase in our net rent for the year. The leasing of our pipeline launches over the last 12 months added GBP 4.3 million. Strong like-for-like rental growth of 7.7% was broadly in line with national wage growth and combined with strong occupancy, added a further GBP 8.7 million. Renewals at 7.2% have helped preserve our affordability ratio, and that remains healthy at 28% of gross income and also rewards loyalty. Our asset recycling program offset this growth by GBP 2.8 million. And for FY '24, we'd expect to see a similar growth in the absolute level of net rental income. Looking now at the valuation. The correlation between residential rents, wage growth and inflation provides a good natural hedge in times of inflation and interest rate uncertainty. Whilst the higher inflation puts pressure on both interest rates and real estate yields, for us, it also drives stronger rental growth. This dynamic was evident in our valuation, where 12-month ERV growth of 8.1% was enough to largely offset the 40 basis points of outward yield shift that we saw across the portfolio. Looking across the portfolio, we saw a stronger performance in regional PRS, which experienced less yield shift of 30 basis points compared to 50 basis points in the London and the Southeast portfolio. A reminder that the PRS sector has continued to remain attractive to investors, and yields reflect some GBP 2.7 billion of transactional evidence in the year. Ongoing sales mean our regulated tenancies now represents only 23% of our overall portfolio. Valuations of our regs have remained resilient, reflecting their attractiveness, given the highly equitized nature of their buyers and their unique nature. And we're constantly are testing these valuations through our ongoing disposals of regs as they vacate. Our EPRA NTA has held up well and now stands at 305p per share. While not included in our NTA, the mark-to-market assets of our fixed rate debt currently stands at 23p per share, demonstrating the benefits of our strong level of hedging for the next 5 years. As a reminder, NTA also excludes our reversionary surplus, which amounts to 29p per share, as well as our investments in technology and the value of our scalable operating platform, which will bring significant operating leverage and margin improvement as our pipeline delivers. This chart shows the key movements in NTA over the year. There was a modest decline of NTA of 4% to 305p per share. The valuation decline of 2.4% was the primary driver, having a 13p impact on NTA. Compared to the half year, NTA was down only 1.6% or 5p per share. This once again demonstrates the resilience of our assets at times of economic uncertainty. Turning now to movements in net debt. Net debt increased to GBP 1.4 billion in the year. A strong year of delivery saw a CapEx of GBP 312 million in our committed pipeline in line with plan. And this was partially offset by an increased level of sales of GBP 191 million after fees. Compared to the half year position, this represents an increase in net debt of only GBP 22 million as the second half saw operational cash flows broadly in line with CapEx spend. Going forwards, we expect investments to be broadly funded out of our operational cash flows, including asset recycling. Turning to our balance sheet. We continue to demonstrate the focus on maintaining a solid platform from which the business can flourish. With LTV at 36.8%, no material refinancing requirements until 2028 and the hedging profile that will maintain our debt costs in the mid-3s for the next 5 years, we're in great shape. We also have a very strong liquidity position with headroom of over GBP 0.5 billion. Given the strong growth in recurring rent and EPRA earnings, combined with resilient and accelerating sales, we've grown our operational cash flows and recycling over the last 3 years. Having delivered a significant amount of our pipeline, we now have lower levels of committed CapEx at GBP 289 million. That's comparing against GBP 479 million a year ago, and that's phased largely over the next couple of years. So for FY '24 onwards, we'd expect to see investments to be funded out of our operational cash flows and recycling as we continue to deliver higher levels of sales. Pipeline completions are driving significant year-on-year increases in our net rent, and there is a lot more to come. Net rents will increase by 70% to GBP 144 million compared with FY '22, as we continue to deliver our committed pipeline. As previously mentioned, our committed pipeline is all the funding already in place with interest rates locked in and construction costs fixed. Our CONNECT technology platform continues to drive meaningful margin accretion as demonstrated by a 41% growth in EPRA earnings this year. We're well on track to deliver the doubling of our FY '22 earnings in the next 3 years. And a reminder, this is from our committed pipeline alone and is, therefore, derisked. The opportunities in the secured planning and pipeline and planning and legals give us the potential to increase net rents by a further GBP 38 million. As net rental income grows, so will the dividend as our policy is to distribute 50% of our net rents. As we said at the half year, our pipeline delivers a sizable growth in net rent over time, and it's a natural progression for our business to convert into a REIT. And this is going to remove any corporation tax in our PRS income and grow our returns by 50 basis points per annum. Whilst we've already met the 75% REIT asset test, it's the 75% of profits test, which is our focus, given the large profitability of our regulated tenancy sales. We remain on track for conversion in 2 years' time, and we're well underway in positioning the business to deliver this transition. We continue to progress and develop our ESG reporting and financial integration, adopting a data-driven approach, which informs our strategy and our business planning. We're focusing on measurements and reporting with our full Scope 3 baseline measures and independently verified following the successful rollout of our customer emission measurement strategy earlier in this year. And we regard this as quite an achievement. As Helen said earlier, we're a B2C business with over 10,000 homes, and they're all individually metered. So this helps promote environmental responsibility across our customers, but it does make the measurement task quite a challenge. As part of this, we've also established a baseline for embodied carbon in our development, which enables us to drive performance in this area. Our net 0 reduction plans are being integrated into business planning and target setting, and we've updated and published our net 0 pathway. We're delighted to have been recognized by the EPRA Outstanding Contribution to Society Award, and this was for our Living a Greener Life customer educational and engagement program, helping our Scope 3 performance. And we've established an ambitious new target to reduce embodied carbon in development by 40% by 2030, and this reduction is excluding any offsetting. So to summarize, we've continued to deliver a very strong operational performance, and we've seen our momentum further strengthen in the year with rental growth increasing to 12%. With this, our dividend per share is up 11%. Our liquidity and our balance sheet is strong, giving us the flexibility through disposals to manage our debt as we reinvest into our committed pipeline. We're on track to deliver a transformation to our rents and our earnings with a doubling of our EPRA earnings underpinned by our committed pipeline, our above-average rental growth and our low fixed debt costs. This earnings growth is a major component of our medium-term total return target of 8%, which remains unchanged. And with that, I'll now hand you back to Helen.

Thanks, Rob. In this section, I'll talk about Grainger's key competitive advantages based around our market, our research approach, our portfolio and our commitment to customer service enhanced through technology. Now there are 4 key differentiators, Grainger from the generalist investor in build-to-rent. And these are researched approach to our cities we invest in, the quality of our assets, our customers and our level of service. So firstly, our places. We are in the right place. We undertake proprietary research to consider not only the locations, but also the -- with the strongest fundamentals, but also the submarkets, concentrating on access to transport and other amenities. In terms of our assets, our homes are places where people want to live. Our homes are customer-led on their design with strong ESG credentials. We have an in-house development team who work closely with our asset management team and take feedback from the Grainger team working in our buildings and talking to our customers. And in our service we have a market-leading in-house platform, which is enabled through our CONNECT technology, leading to high levels of customer satisfaction as evidenced by our strong Net Promoter Score. And our customers, we're focused on a growing demographic with healthy affordability and our customer insight program informs our leasing and our service proposition. So there continues to be a positive market outlook for our sector. There is growing demand and reducing supply. There is a growing number of renters fueled by economic migration and people delaying home purchases, and this is assisting the faster lease-up of our new homes. And while rental growth has been high, it has been tracking wage inflation. Meanwhile, supply is reducing as small landlords leave the sector and we've seen the declines in approval for new homes and for start, making residential rents more resilient. So just some facts around that. As a reminder, the build-to-rent sector represents a small proportion. It's only 1.7% of the 5.5 million rental homes. The government's 300,000 home target has never been met, and planning permissions continue to decline and small landlords are exiting the market. At the same time, there is a strong momentum in the rental market with wage growth feeding rental growth, growing economic migration fueling demand for rental homes, and demand is 51% higher than the 5-year average, while supply is 30% lower than the 5-year average. And it's important to point out that the cost of home ownership, even excluding the depreciation, building insurance and lost return on deposit equity, is significantly higher than renting, leading many to pause on homeownership. And whilst at Grainger we have a range of customers, our core demographic is 20 to 34. This Grainger customer group are spending 28% of their income on rent below the widely accepted ONS threshold of 30%. Also, the overall cost of occupation has become a focus, and 91% of Grainger homes have an EPC rating of A to C, making them economic to run. Savills predict U.K. rental growth of 26.8% from 2023 to 2027. Knight Frank, predict 22.2%, but both are predicting strong rental growth. Now Grainger is committed to improving the experience of renters, and we take a proactive approach with engaging with political parties to help inform policy affecting housing and renting. And during the last 12 months, the understanding by politicians of the benefits of build-to-rent and the importance of the rented sector in housing supply has dramatically improved. And I'm pleased that both the conservative government and the labor party, both have publicly ruled out rent controls in England, recognizing the damage that they would do to supply and ultimately, to renters. So here are just some of the things that they have been saying. And whilst in the King's speech, we -- they introduced some bolstering of good practices for landlords, this is something that aligns with Grainger's responsible business model and which we support. Now you've seen this slide before. It remains our foundation of our investment decisions. Our research-led approach to investing continues with concentration on areas of high growth potential as supply and demand fundamentals. And as we've grown our portfolio from the 1 new build asset we had at the start of the strategy to the 22 assets and the further 8 to be delivered, this is giving us the benefits of clustering and driving operational efficiencies and leveraging our brand nationally. Now earlier, I talked about our new openings, and these are leasing well. As I say this they are probably -- the numbers are probably getting bigger. The Mint at Guildford, it's 98 new homes. It was launched in July. It's immediately next to the station. It's 79% let. The Condor in Derby, it's a city center scheme, 259 new homes launched in August. It's 67% let. Nautilus, adjacent to Argo so that's across from Canning Town Tube that was launched in September. It's 146 homes and it's 71% let. And Weavers Yard, a phased scheme next to the station at Newbury, which is leasing well. It's -- the latest phase is 74% let. The Tilt Works in Sheffield, our second building in the city launched late September, 284 homes, 29% let. And The Barnum in Nottingham, part of our successful scheme with Bloc and Network Rail, 348 homes launched less than a month ago, and it's 23% let. And finally, the Copper Works is scheduled to complete in the next month at the very end of the year. And in full year '24, we have 3 major launches at Bristol, Birmingham and London Tottenham Hale, all building on our existing clusters in these locations, and that's another GBP 9 million of rent roll. We have a great track record of working with public and private sector partners to source land for new homes. And here are 5 of our key public sector partners, starting with Connected Living London, our JV with Transport for London and the Canal & Rivers Trust on Hale Wharf, where we've just signed an additional phase of that scheme. Today, we announced an exciting new partnership with Network Rail and Bloc Group, building on the successful partnership of the Barnum in Nottingham. This partnership has the potential to deliver 2,000 homes across 6 sites in key Grainger target cities. So our investment in our CONNECT technology platform has dramatically changed the way we operate. We have a fully digitalized leasing journey now. We are capturing data on age, occupation and earnings as we lease. And we have a dedicated data and analytics team providing us with insights which inform all of our operational decisions and improve our customer experience and lifetime value. This focus on customer experience is driving value to our residents and to us. 9 out of 10 customers tell us they really like their Grainger home. We have a market-leading NPS, and it's up 26% to positive 43. Everyone who works at Grainger is trained in customer service, even if they are unlikely to be customer-facing. So as you can see, we've had an outstanding year, but there's more to come. There are 8 fundamentals which make Grainger's future success assured. The doubling of our earnings in the near term, the strong balance sheet with long-term low fixed debt in the mid-3s for the next 5 years. Our valuations are proving resilient as rental growth is protecting our NAV. And we've got strong inflation linking income streams, healthy customer affordability and healthy customer satisfaction. There is a huge demand for good quality rental homes. We have the platform. We have the balance sheet. We have the team to maximize this vast opportunity in front of us. Thank you.

So I'm now going to invite you to ask us some questions, and I'll be joined by Rob Hudson, our CFO; Mike Keaveney, our Director of Land and Development; and Eliza Pattinson, our Director of Operations. What we're going to do is take questions from the room first for anyone listening in, and we're taking questions via the webcast or if not, you can e-mail Kurt or I, and we'll get back to you. Chris. Sorry. Got like pending case is a 3-parter.

The first one is just on rental growth. Obviously, Savills shows a slight slowdown in that rate of growth next year. I mean, have you seen any evidence of that post your period end and have you broadly conformed with them?

No, we haven't, but then we're leasing up some great new product at the moment. It isn't slowing. But the long-term rental growth for this sector is between 3% and 3.5%. It is very linked to inflation. So we expect that as inflation comes down, wage growth will come down and rental growth will come down to a more sustainable but good long-term average.

That's helpful. Next one is just on valuer rhetoric. We've seen quite a big shift down in the forward curve over the last month or so. Do you feel they're thinking a more supportive backdrop as they're looking out at the moment?

Got a valuer in the room here, so I'm going to be very careful. But the -- I think the good thing about our sector is that we have seen a high level of transactions. So it's transaction-based. The appetite, we know because we survey the market. Generally, there's a strong appetite to come into the market. But I think it's less influenced than some of the other sectors on debt-driven investors. And so actually, the impact of the forward curve is not necessarily -- it's been one of the things that saved us. But equally, it means that there won't be the same sharp recovery.

And the last one is just about the average 32 months of occupancy you mentioned. Is that optimal for the business? Would you like to tweak it anyway?

We like -- I'm going to ask of Eliza to sort of talk about this, but we like long occupancy because it builds sustainable communities and 32 months -- actually, when you think of the age group, 32 months is a good amount of time. They're changing jobs. They're changing relationships. So Eliza, do you want to add to that one?

Yes. Obviously, we do want stabilized communities, and that's where we deliver our NPS results from and -- but we also -- we need a little bit of churn in there as well. And that's a really fine balance looking at the cost of a void compared to the increase of rent that you might get on a new let. So it's something that we're looking at. But it is also around encouraging loyalty and stabilized communities as well.

[ Sam Noc from CoLet-X ]. First one, just on debt levels. So -- and you're currently, you say some 30% LTV. And I'm not sure if you gave a debt-to-EBITDA. But it's, I think, well into the double digits, which is, I mean, higher than some of your peers. When you're looking at the sort of optimal level there, what scenarios are you looking at? What's the main driver you're considering? Sort of debt covenants, I think they're all very high? Or is it more the equity market? Or are you caring more about the possible impact on the income statement, bottom line earnings?

Rob, do you want to take that?

Yes, so we look at it from a number of different levels. Our historic target range of 40% to 45% was set -- we stand at 50% for all in, in values and still be within our covenants. So you're quite right. We do have plenty of headroom with respect to all of our financial covenants. In this environment, we have said, I think, very consistently that we would expect to operate very much at the lower end or underneath that range given the financial environment. The strength of our position is that we refinanced the business 18 months ago, and we also took the opportunity to lock in for the medium term in terms of fixed rate debt costs in the mid-3s. So we are very well protected for the next 5 years. And that buys us valuable optionality. So we have the time to adjust our levels of debt and gearing according to whatever scenario we're in over time. And the strength of our balance sheet with -- as Helen's outlined, with over GBP 1 billion of assets that we will trade through over time means that we've got plenty of optionality in terms of being able to manage our debt accordingly.

A bit on values, and I know you touched on the yields there. How -- so you've been relatively unaffected by yield movement, I think, since -- in the last 2 years, I mean, the interest rates come out by 300 basis points, and you're growing still a sort of net initial yield even on the PRS segment of sort of less than 4%. So mechanically, how do you get to a decent return at that level if your -- the sort of hurdle rate has gone up by 300 basis points and the yield has only moved maybe 50? Are you forecasting much higher growth into the long run? Or are you just accepting a lower sort of risk-adjusted return at that level? .

You want to take?

Yes. So in terms of our returns, I think there's a couple of different factors. So firstly, in terms of what we're investing into the blended yield on the PRS portfolio has grown now to 4.1%. In terms of the projects we're reinvesting into, they are typically in yields in the mid to high 4s. So we do have a higher yield on cost in terms of those projects. And then the long-run rental growth that we assume is 3% to 3.5%. I think it's also important to note as well, as we've indicated today, our intention is to finance our future projects with respect to recycling. And what we're trading out of is very low-yielding assets. So these are regulated tenancies where the blended yield is 1.9%. So we have a gross yield pickup as we reinvest into the higher-yielding PRS assets. So it is accretive. And there is also great value in terms of scaling the business as well because we have an enhancement through our increased EBITDA margins as the business scales. And that's because of the investment that we've made in our CONNECT technology platform.

And last one, if I can. Just because sort of on that, you mentioned that there are sort of buy-to-let landlords leaving the market because, obviously, rates have gone up and it's harder for smaller landlords. Is that a net positive for you in that there's more demand? Or is it more of a net negative as that sort of increases supply in terms of possibly itself pushing yields up, if that's sort of a lagged effect that you'd expect to come through?

So perhaps I'll take that, and then Rob, if you want to add to it. The small buy-to-let landlords leaving the market is obviously, they don't have the quality of the financing structure that we have. But also, they don't have the operational structure. So many of them manage through third parties, et cetera. So they don't have the quality of our platform and technology. I think it would be bad for the U.K. generally if we had an exodus. We're 1.7% of the -- as a sector, professional landlords. So an exodus of small landlords would actually be quite detrimental, I think, for the U.K. economy. But do I think that this sector -- I think, I ended by saying we have a vast market opportunity ahead of us to professionalize the sector. And I think what we deliver is completely different to what a small landlord delivers, and there's room for both in the market. Do you want to add to that, Rob? .

Can't say anything more than that, yes.

James or Sarim?

Sarim Chaudhry, Jefferies. Two questions for me. The first one is in terms of the investment pipeline. You already have a very strong and significant pipeline. But in terms of new acquisitions, are you just being a little bit more selective in terms of new sites or have the quality of sites not come across the market? I think you mentioned before, Helen, that you are seeing transactions. So some color on that would be good.

Yes. There's undoubtedly been a slowdown in transactions, but still a really healthy market from which our valuers can value from. Where we've been concentrating in the last year or so is actually building on our clusters because of that operational efficiencies. So that's really where we've got the main focus. This year, we're moving into a few new cities, for example, and we look to build on those. But the scale of our pipeline is GBP 1.6 billion on a company that's GBP 3.3 billion. So I think we've got a really healthy pipeline that we can actually bring forward at a time that suits us. And today, when we were talking about the partnership with Bloc and the public sector partnerships that we have, we're also building on the outer pipeline as well.

Okay. Just the second question. This is slightly broader, but just on the TfL portfolio. Just any color on development progress?

Yes. On -- I'm going to hand over to Mike. But generally, on TfL, we -- just for those that don't know, we've got 1,000 -- just over 1,500 units now gone through the planning process with TfL. We started enabling works on site. And then perhaps, Mike, you want to say what else has happened?

Yes. So we've actually completed enabling work on 4 of the sites. We are waiting for [ Delek ] to clarify the latest Means of Escape regulations, which we would want to comply with. Once that's announced, which we hear is probably next year, we'll redesign as we need to. It won't be major. And then we'll enter into the construction market at the optimum time. So I would hope next year, end of next year.

It's James from Peel Hunt. It's a slight follow on actually from the previous question, just in terms of acquisitions. And I appreciate you obviously have a very large and good pipeline in that. But in terms of funding that, it looks like it's going to -- or the disposals you've outlined in terms of the regulated funds, most of that pipeline. And if indeed you do see kind of additional acquisition opportunities, so I'm just wondering how they would be funded? I mean, clearly, you've got the headroom on the debt, but that would increase LTV. Or would you consider kind of third-party capital or other uses for that?

Yes. We from -- I think there's a number of options available to us in terms of joint venturing and third-party capital. But actually, our shareholders have said to us, if you see something that's extremely accretive that you want to do, that they would support that as well. So I think there are a number of routes open to us. I think the important thing is the significant pipeline that we've got, we can already have clear visibility on how we can fund that. Celine.

Celine Huynh from Barclays. I'd like to go back to your guidance. So the previous guidance was a doubling of full year '22 EPRA earnings in 4 years. And now you're saying it's a doubling of EPRA earnings post tax in 3 years. I was under the impression the previous guidance was excluding taxes. But now it seems like you're guiding to post taxes, which will benefit from a reduction of taxes post when you become a REIT in 2 years' time. So can you confirm which EPRA earnings you're trying to double? And can you commit to a number? So I'm getting to either GBP 56 million or GBP 46 million.

It is -- it has consistently been the post-tax number, Celine. So it's that factor. So if you look back at FY '22 on a post-tax basis, we were just under GBP 25 million, and we're committing to doubling that. And we've gone a very long way towards derisking that with the 41% growth in EPRA earnings that we've delivered this year.

So that's GBP 50 million full year '26?

Yes. That would be based on doubling those earnings post taxes, yes. Yes. Yes.

Any other questions? Do we have any on the webcast? Kurt?

We do. Is this working? Yes. We have, at the moment, 3 I can see. The first is from [ John Wong at Kempen ]. On the new partnership announced today, what is the timeline to develop the 2,000 homes? What returns are you targeting? And how do you plan to fund developments?

Okay. So I think it's important to note that the business model that we've always run at Grainger is to fill the outer pipeline to fill the hopper, if you like, to make sure that we've always got a good and consistent pipeline coming through. These are sites that are, a, in the rail environment and b, require planning consent. So they're very much on the outer pipeline. And that gives us a substantial amount of time to work out the funding of those. But if we took the immediate market and judged our pipeline by that in view of how long it takes for houses to get developed in this country, we'd never have had the success that we have.

The second question is from Dan Thornton from Davy. Are you seeing increased competition from the likes of Citra Living, Lloyds Bank and other private equity-backed new entrants into the build-to-rent sector?

I think one of the ways to look at this is we welcome the competition and the understanding of the sector. It's a very, very -- at 1.7% of the whole rental market, it's a very small sector. So at the moment, there's more collaboration than competition between the new entrants to the market. The Citra one in particular, has tended to concentrate more on single-family housing from house builders, which isn't necessarily our model. But I think there's room for all of us as we -- as I said, it's a vast market opportunity. And we actually welcome and we work closely with our competitors.

The third question is from Cameron Footer from Bluecastle Capital. Given the demand for sites suitable for build-to-rent developments, are you seeing it harder to secure sites in good locations?

I think it's actually got a little bit easier this year because we've seen less competition from the house builders that traditionally built in city centers and also because the more debt-driven developers, so the sort of middle man, if you like, have not been in there. So in the short term, we found it easier. And in the long term, our strategy of working well with the public sector is a good way of actually securing sites.

The final question that I can see on the dashboard here is from Andres Toome from Green Street. And it's a 3-part question, Helen. The first is performance of newly launched schemes. How are they performing in terms of rents, yields on costs, et cetera, versus underwriting? The second question, profit margin underwriting for Network Rail JV. You may have slightly covered that previously. And the third question is the pace and pricing of the regulated tenancy disposals in FY '24?

Right. I'm going to come to, Rob, on the facts on that final one, on the regulated tenancy because we can give you some real detail behind that. Renting and underwriting. I think as I was going through in the presentation, the 7 schemes, you can see that they're all leasing up really well. Generally, on a large scheme, we'll allow 12 months to lease up. So the fact that some are sort of 71% let within a matter of weeks, they're doing well. And the rents are doing well as well. So I think that sort of -- I couldn't think of it -- to have a record year of delivery and to deliver in one of the strongest leasing markets has been great. I think our leasing team would wish they hadn't all arrived in the summer, but it's not a bad time for them to arrive. So they're ahead on rent, and they're ahead on timing. In terms of profitability, all of our metrics, all of our underwriting is consistent with our main portfolio for the Network Rail JV. So we've got the same levels of return on that one. Sorry, Kurt, what was the third I...?

It was regulated tenancy expectations for FY '24.

Yes, so, yes.

So we've provided more detail actually on the portfolio movements in Appendix 44. So during the year, we completed GBP 108 million of regulated disposals. GBP 70 million were vacant sales, so as the properties vacated over time. And then the rest, we always do around sort of GBP 25 million to GBP 50 million, that kind of order of tenancy sales as well. So we've made some investment sales, too. We'd expect broadly similar levels, I think, going into next year. There is always I suppose like a natural reduction built into the vacant sales as we tend to see to 7% to 8% vacate and return back to us as we dispose of those. There is a natural reduction in that, but not a huge difference overall. And in terms of pricing, the pricing on regs has held up very well. If we look at the disposals last year, we sold within 1.9% of the prior year book. The valuations have also held up well. And I think what's really driving the resilience of this is a couple of factors. Firstly, the fact that nature of the buyers, these are not first time buyers that have high LTVs and dependency and high sensitivity, therefore, to interest rates. We actually have quite a high degree of cash buyers within the nature of this portfolio and their unique nature. So as these properties come up and they're highly desirable streets, people are almost talking the property is ready to purchase. And we often do see best and final offers on these assets. So that does provide resilience.

One more question has just come in. Again from Dan Thornton of Davy. Why don't you sell the regulated tenancy portfolio to make the business a pure-play PRS operator?

Well, I think at 77%, we're getting there. But actually to -- when you've got -- when we've got our fixed debt for 5 years, we've got enough capacity. Actually, it works really well. We designed this from the start of the strategy. It's not as if we're going out and buying completed buildings because there aren't enough of them out there. We're actually developing these buildings. And so the cash flow running off the regs is actually funding over the long term the new build pipeline. But it will accelerate. And we're virtually there in terms of that pure play.

No further questions from online.

Right. Any more questions in the room? Well, in which case, I'd like to thank you very much, everyone, for getting up so early and listening to this. If anything occurs to you afterwards, do please reach out to Rob, Kurt or I, and we'll answer your questions. Thank you again.