Britain’s biggest listed residential landlord has agreed to buy out a Dutch pension fund from a joint venture in a big expansion of its property portfolio.
Grainger, which has more than 8,000 rental properties, will take full ownership of Grip Reit, which owns 1,700 homes in 35 properties across London and the South East, from APG. The FTSE 250 group has agreed to pay £396 million to acquire the 75.1 per cent of the real estate investment trustthat it does not already own.
The purchase, which is subject to shareholder approval, will be funded by a £346.7 million rights issue fully underwritten by JP Morgan Cazenove and Numis. The issue is at a 39 per cent discount to Tuesday’s closing price of 291p.
Grainger, founded in Newcastle in 1912, previously specialised in buying regulated tenancies – usually at a 30 per cent discount to the marker value – collecting rent and then selling at a profit when the occupants left or died. Deregulation of the rental market in 1989 brought an end to new regulated tenancies and forced the company to diversify. The deal will accelerate Grainger’s transition to an owner of market-rate rented homes.
Helen Gordon, its chief executive, said: “It’s a business that we have managed for APG for seven years, so we know it intimately and that makes it a much lower-risk acquisition … It’s expensive to build [in the current market] and we’ve got a portfolio of 1,700 units where the average rent on the properties is 8 per cent below average market rent for London.”
The private rented sector is worth £1.5 trillion, 21 per cent of total British housing value, according to Savills, the property adviser. Faced with lower house price growth, investors are showing interest in the long-dated income streams that residential portfolios can deliver, Savills says.
Grainger reported a 17 per cent rise in pre-tax profit to £100.7 million in the year to September on the back of an 8 per cent increase in net rental income to 43.8 million. It proposed an 8 per cent rise in the first-half dividend to 5 1/4p. Its shares fell 131/4p to 277 3/4p.
By Louisa Clarence-Smith | November 15