PRS: Delivering homes and returns

July 2013

Kurt Mueller, Director of Corporate Affairs

Agenda

1. Introduction to Grainger plc

2. Our view of the housing market

3. Investing in the private rented sector

A trader, investor and manager of

residential properties.

The UK’s largest listed residential

property owner and manager, with

over £3bn of residential assets under

management across the UK and

Germany.

Introduction to Grainger

We own.

We manage.

We develop.

And we offer our skills and expertise to

select third party clients.

Introduction to Grainger

Our view of the housing market

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1990 2000 2009-10

Owner occupiers

Private renters

Social renters

PRS is growing

Regional variations

London PRS is strongest

• Strong future growth prospects

for rental sector

• Economic conditions adding to

renting demand

• Constrained mortgages

• High deposits

• Growing cultural acceptance of

renting

Why invest in PRS?

6.2 6.6

2.8

6.1

2.8 4.5

-4.1

3.5

-7.9

8.5

-2.1

1.5

10.3

3.8 5.5

3.7

-10

-5

0

5

10

15

2011 3 Years 5 Years 10 Years

Inflation adjusted investment performance by asset class 10 years to end 2011

Residential MarketLets

All commercialproperty

Equities

Gilts

3.33 4.4 4.8 4.5

2.9

7.83

-0.4

0.8

-5.6

8.2

5.7

1.8 0.7 0.1

4.5

11.36

3.9 5.6

-1.3

11.3

-8-6-4-202468

101214

London South Eastern Sout West Midlands &Wales

Northern England &Scotland

All residential

Regional residential investment performance: 2011

Incomereturn

Capitalgrowth

Rental valuegrowth

Total return

Source: Office of National Statistics RPI Inflation, IPD residential index, FTSE All-Share Index, UK Gilts Index 5 - 15

Market opportunity

Historically has depended upon capital appreciation and

trading: now an opportunity for a yield driven model

Growing market with attractive rental performance prospects

Long term out performance: total returns

Fundamental supply and demand imbalance in the UK, particularly

London

Very limited number of specialists: requirement/opportunity for a large

scale professional operator

Diversification opportunity with a new institutional asset class

Investing in PRS

Key considerations

• What is your appetite for

development risk?

• What is your appetite for

lettings risk?

• How can you reduce

upfront costs to increase

yields?

• Making an investment

decision based on a long-

term rental income return

(investment value)

• Ensure you consider your

long term management

strategy early on (whole

life costings)

What are we looking for?

• Net yields ~5+%

• Rental growth

• Scale

• Blocks/ concentrations

• Good quality

• Capital value growth

The sweet spot

Challenges to

investing in PRS

• Limited acquisition opportunities, scale is challenging

• High capital values based on vacant possession value

mean low yields

• Competition on land with house-building for sale (vacant

possession value vs. investment value)

• Long term management

The sore spot

Case study – Barking

Investment outline

• 100 units

• Investment value: £13.7m

• Gross yield: +9%

• Cost of management: ~30%

• Net yield: ~6%

• Wholly owned

Product

• Designed with the

customer and

management efficiencies

in mind

• Wifi enabled

• Durable finishes and

appliances

• Larger lifts for moving in

and out

• Concierge

• Well connected location

• Equal bedroom sizes

• Studios – 3 beds

• Possibility of longer term

tenancies

Customer profile

• City workers

• Young professionals

• Young families

• £25k to £60k+ income

• Customer service oriented

• Discerning

Rents starting at approximately £900/pcm

Canary

Wharf –

20 min

Olympic

Park –

20 min

Case study - GRIP

INVESTMENT OUTLINE

• £350m market value

• 75:25 owned, APG and

Grainger

• Target IRR: 9%

• Leverage of 40%

• Rental and capital value growth

• Grainger provides fund, asset

and property management

PORTFOLIO OUTLINE

• UK’s largest PRS fund

• ~1,300 units (Assured Shorthold Tenancies)

• Blocks and clusters

• London and South East focused

• Very high levels of occupancy

• Sustainability a key focus area

• Asset performance

• High quality tenant management

Europe’s largest pension fund asset

manager

Final thoughts

• Government support

• £1bn Build to rent funding

• £10bn Housing Guarantees

• Making it stack up

• Land cost

• Section 106

• Build cost

• Management cost

Front of house

– driving gross

yield

Back of

house –

driving net

yield

PRS: Delivering homes and returns

July 2013

Kurt Mueller, Director of Corporate Affairs