Grainger to buy out GRIP portfolio via massive rights issue

The FTSE 250 firm described GRIP as a joint venture between Grainger and APG, currently owned 75.1% by APG and 24.9% by Grainger, which comprised 35 private rented sector assets consisting of around 1,700 units, with a gross asset value of £696m.

Following the acquisition, Grainger would become the 100% owner of GRIP.

It came at the same time as Grainger reported a set of “strong” full-year results on Wednesday, with its adjusted earnings rising 26% to £94.0m.

The company said GRIP's large, high quality residential property portfolio at mid-market rental price points were already well known to Grainger, which had managed the portfolio directly since 2013.

The acquisition was expected to be accretive to EPRA triple net asset value in the medium term, due to additional value from asset management initiatives on the GRIP portfolio and future development profits from the expanded pipeline, which were expected to “more than offset” any immediate dilution from the rights Issue and acquisition.

Grainger said the acquisition would deliver £32.5m of gross rents per annum, generate a gross yield of 4.9% with “strong” rental growth prospects, and contained assets located in “strong” rental growth locations in London and the South East of England.

It also pointed to the portfolio’s mid-market pricing, with the average weekly rent in the GRIP portfolio 8% lower in London and 24% lower in the South East than the market averages, which supported high occupancy of 95% and strong rental growth of 3.0% for the year ended 30 June.

Grainger also said it was a portfolio with a “strong track record” of performance, outperforming the MSCI UK Residential Universe by 4.2% over the last three years, and winning the ‘Sector Leader’ award for previous two years in the Global Real Estate Sustainability Benchmark.

The company said it was targeting £17m of additional profit from value-add opportunities within the GRIP portfolio.

It said the alignment of operational and portfolio strategies would also deliver improvements on occupancy levels, and gross to net from 32% to 26%, in line with Grainger's overall operational performance.

Grainger said the acquisition would be supported by a rights issue, which would enable the firm to expand its private rented sector pipeline utilising operating cash flow, gearing on the pipeline as schemes complete, and the company's “well-established” asset recycling programme.

It would also give it the ability to increase its private rented sector pipeline by a further £382m currently in the planning or legals stage, with targeted gross yields on cost of between 5.5% and 8%.

Grainger said its private rented sector investment pipeline would total £1.37bn, comprising £943m secured, an additional £45m secured via GRIP, and the further £382m it had referred to.

The acquisition would be funded by a £346.7m rights issue, fully underwritten by J.P. Morgan Cazenove and Numis.

Grainger said the rights issue would result in the issue of up to 194,748,913 new ordinary shares, representing around 47% of the existing issued share capital of Grainger and 32% of the enlarged issued share capital immediately following completion of the rights issue.

The issue would be on the basis of a seven-for-15 rights issue at 178p per new ordinary share.

“I am pleased to announce today the acceleration of our growth strategy in the UK private rented sector with the proposed acquisition of GRIP REIT, our £696m PRS co-investment vehicle with APG, the expansion of our PRS investment pipeline to £1.37bn, and a strong set of financial results for the year,” said chief executive Helen Gordon.

“The GRIP portfolio, which we have managed since 2013 and therefore know very well, is an exceptional acquisition.

“It will provide a step change in our investment in the PRS market and generate increased net rental income growth, which in turn will deliver enhanced shareholder returns.”

Gordon said Grainger had a “well-established” strategy for growth, supported by an “excellent” operational platform to manage the enlarged private rented sector portfolio, ensuring that the company could deliver strong returns and “great homes” for customers.

“These actions will reinforce Grainger's position as the UK market leader in the private rented sector and will deliver enhanced shareholder returns going forward as we deliver our pipeline of PRS investments.

“Today's announcements, highlighting our acceleration of our PRS strategy, coupled with our consistently strong financial performance gives us confidence in the continued future success of the group.”