Thank you. Good morning, everybody, and welcome to Grainger's half-year results. I'm pleased to be able to tell you that we've delivered another excellent set of results as we continue to accelerate our growth. We're adding to recent years of record delivery with another strong year. This is a resilient business in a structurally supported sector, and it's delivering growth immediately. Of course, this is a significant year for Grainger as we plan to convert to a REIT before we present the next set of results, delivering on our long-term promise to shareholders ahead of time. The agenda this morning is I'll take you through the highlights, Rob will talk you through the financial results, and then I'll come back and talk about Grainger's shareholder value creation model, the market, and the drivers of growth.
Before I get to the results, I want to take a moment to remind people of just how resilient this business has been over this period of financial volatility and also how we're in a period of accelerated growth. We have delivered an outstanding performance in a structurally supported sector, and we're continuing to deliver growth. Now, it's an outstanding performance because our performance has been sector-beating. We've delivered top-line growth in our income through portfolio expansion, excellent like-for-like rental growth, and growing valuations. There is a strong investment market in build-to-rent. Our sector is one that is structurally supported. We have a growing population, a growing demand for rental homes, and supply is highly constrained, and small landlords are leaving the market, and there is an opportunity for us to increase our market share. We're delivering growth now and into the future.
We've once again generated strong year-on-year earnings growth, and we're leveraging our central costs and overheads to deliver compounded earnings growth from what is a sector-leading operational platform, which has the capacity to deliver further efficiencies as we grow further. Our accelerated earnings growth will deliver 50% growth in our EPRA earnings by financial year 2029. Turning to the headlines of our performance, it's been an excellent 15% growth in our net rental income, in part supported by continued strong like-for-like rental growth at 4.4%. We've achieved 23% growth in our EPRA earnings as we leverage our sector-leading operational platform, and we're delivering for shareholders a 12% dividend growth. Our valuations are continuing to grow with an EPRA NTA at GBP 3 per share.
Now, these financial results and our record growth in earnings have been delivered by our strong operational platform, delivering 96% occupancy, which we consider to be full, maintaining efficient gross to net at 25% despite rising costs, and securing customer retention high at 62% and a customer affordability remaining healthy at 28% of income spent on rent. Now, the resilience and performance of this asset class has been recognized by numerous investors, and it is attracting capital. In Q1 2025, GBP 1.1 billion was invested into the sector, and advisors predict that 2025 will be a record year of GBP 6 billion of investment. In 2024, residential was 10% of all real estate investment sales, and this is up from 3% in 2017. This is evidence of a maturing mainstream asset class, which is attracting strong investment interest. We have a significant portfolio growth to come. We have over 11,000 operational homes.
Our regulated tenants is just over 1,300. We have grown our build-to-rent portfolio to over GBP 2.8 billion, and that's 9,689 homes. We have a healthy pipeline of 4,565 homes, which will deliver a significant step up in our earnings. Our committed pipeline alone will see us deliver 50% growth in our EPRA earnings, even after absorbing an increase in interest rates. We will deliver 25% growth by full year 2026. The growth in our portfolio will leverage our central costs and will drive EBITDA margin expansion, and the outer pipeline will deliver a further GBP 40 million of potential net rental income. We have secured significant growth to come. How do we fund it? Our committed, secured, and planning and legals pipeline is funded by our asset recycling. This has been a constant driver of the growth in our portfolio.
We're a highly cash-generative business with over GBP 200 million in operational cash flows each year. We have around GBP 1 billion of lower-yielding non-core assets, which we are recycling to invest in higher-yielding build-to-rent. We have a great track record on asset recycling, delivering GBP 549 million over the last two and a half years. We're efficient at matching cash flow with CapEx. Now, this is a slide I showed in November, and I said it was my favorite, so I'm showing it to you again, but it's a slide I like so much because it tells you a lot about Grainger. It demonstrates our track record of delivering. That's delivering our growth in our income, delivering our growth in our earnings, and delivering a vast improvement in margin from our operational leverage.
Now, this growth is set to accelerate with a doubling of our net rental income from our pipeline, a 50% growth in our earnings by full year 2029, and that's just from our committed pipeline, and much more EBITDA margin expansion to come as we drive operational leverage from our sector-leading platform. We have a track record on building a bigger and more valuable business, and there is a lot more to come. I am now going to hand over to Rob, who'll take you through the details of our excellent results.
Thank you, Helen, and good morning, everybody. Today, I'm going to run through the financial performance for the half year and illustrate the exciting phase of growth that we have ahead of us. The first half has been another period of accelerating growth, demonstrating Grainger's resilience and our market-leading position. Like-for-like rental growth across our stabilized portfolio was 4.4%. Overall, total net rental income continued to grow strongly, up 15% in the half. This top-line growth drove even stronger EPRA earnings growth, which was up 23%, demonstrating the operational leverage in our business that delivers strong compounding earnings growth. Adjusted earnings were up 13% to GBP 50.1 million, with strong sales profits as we continue our success in disposing of our regulated portfolio. Our dividend per share increased by 12%, reinforcing our commitment to delivering robust, sustainable returns to our shareholders.
EPRA NTA grew by 1% to GBP 3, continuing valuation growth and underscoring the quality of our portfolio. Now, looking at the income statement in more detail, our overall like-for-like rental growth of 4.4% was driven by strong performances in both BTR, which was 4.2%, and our regulated portfolio of 7%. Stabilized gross to net was in line with the full year at 25%, demonstrating our ongoing focus on cost efficiency. Overhead costs were up 4% in the half year, in line with wage inflation, with costs continuing to be tightly controlled as a result of the benefits of our Connect platform. Interest costs increased due to slightly higher average levels of debt in the first half. EPRA earnings saw very strong growth of 23%, demonstrating the strong compounding earnings growth that we're delivering. Sales profits were in line with prior years, with appetite and pricing for our sales remaining strong.
Other adjustments included a derivative valuation movement of GBP 2.9 million and an additional GBP 1.9 million fire safety provision. Now, looking at the moving parts of the 15% increase in our net rent for the period, strong like-for-like rental growth of 4.4% contributed GBP 1 million of this growth. The successful lease-up of our recent pipeline deliveries has been a large contributor, adding GBP 10 million of net rent. Our asset recycling program offset this growth by GBP 3 million. Looking forward, we'd expect rental growth to continue to remain above long-term averages in FY2025, with second half net rent to be slightly higher than the first half due to pipeline lease-up. This chart shows the key movements in NTA over the course of the year, and our EPRA NTA came in at GBP 3 per share, which was up 1% for the half, which saw continued valuation growth.
Net rents and fees added 9p, with overheads and finance costs offsetting this by 5p, and overall, our portfolio valuation for the period was up 0.8%. The BTR portfolio saw 1% valuation growth in the half, with ERV growth of 1.7% and largely flat yields. Valuations on the regs portfolio were up 0.4%, demonstrating their resilience. Further details of the valuation can be seen in the appendices of this presentation. As a reminder, there are many elements of our business not captured in our NTA, as we outline on this slide. Now, turning to net debt. Net debt was broadly flat in the half, with just a modest increase of GBP 22 million to GBP 1.475 billion. Operational cash flows remained very strong, with GBP 95 million generated, and that was ahead of the GBP 84 million generated in the first half of the prior year.
We continue to invest in our build-to-rent pipeline, with GBP 64 million invested in the period. Our self-funded growth, where we recycle out of our lower-yielding and returning assets into our pipeline, enables us to continue to drive growth while managing our balance sheet in line with our plans. Going forwards, we would expect net debt to remain broadly flat in the near term, with a modest leveraging to occur as we near the end of our remaining three and a half year low-rate fixed hedge maturity. Our balance sheet remains in excellent shape, providing a solid foundation for future growth. We maintain strong liquidity and a robust hedging profile, with rates fixed in the mid 3% range for the next three and a half years and no material refinancing requirements until 2029.
Both net debt at GBP 1.475 billion and LTV at 38.5% are broadly in line with last year's end, demonstrating our ability to manage our capital structure by flexing sales of our highly liquid asset base. As previously highlighted, we plan to reduce our debt and LTV over the medium term. This LTV reduction will be managed with reference to our three and a half year hedge maturity. As LTV is brought down over the medium term, this will help mitigate the impact of rising finance costs as our low-rate hedging rolls off. We'll manage the quantum of this deleveraging to ensure we continue to deliver the 50% earnings growth whilst fully absorbing the impact of the higher interest rate environment.
REIT conversion has been a long-term ambition since the start of our strategy, and I'm pleased to say we're now very close, with conversion set for early September and preparations are largely complete. The benefits to the business of being a REIT are substantial, as we'll no longer have to pay corporation tax on the profits of our build-to-rent business. In the first year alone, this is expected to generate GBP 15 million of savings, with this increasing as we deliver further growth. We see the resilient growth that our residential business is delivering as arguably the perfect fit for the REIT structure, with no impact on our business model or our strategy. The dividend distribution requirements of paying 90% of REITable profits will also have no impact on our dividend-giving existing payout levels.
We believe that the dividend income stream we give to our shareholders should mirror that of our underlying asset class, which means long-term compounding resilient growth. Post-REIT conversion, we will move from our current dividend policy of distributing 50% of net rents to a policy of distributing at least 80% of EPRA earnings as a dividend. We are firmly committed to delivering a strong, progressive dividend across the short, medium, and long-term time horizons, and we therefore expect continued growth in 2026 and 2027, with a top-up of Reg's profits in these years. Beyond that, we would expect the dividend to be fully covered by EPRA earnings. The first half was a period of strong net rental income growth, and we have very clear visibility of the substantial growth to come with pipeline completions, and that is going to drive significant year-on-year increases in our net rent.
Net rents will increase by GBP 43 million to GBP 153 million compared with FY 2024 as we deliver our committed pipeline. Beyond that, our secured and planning and legal schemes will deliver a further GBP 40 million of net rent. Combined, the entire pipeline will see our net rents continue to accelerate to GBP 193 million. This strong top-line growth delivers even stronger earnings growth as the operating leverage from our business model and our Connect technology platform continues to drive meaningful margin improvements. Near term, we're on track to deliver our guidance of GBP 60 million of EPRA earnings by FY 2026. That's an increase of 25% when compared with FY 2024. We've also the potential to grow our EPRA earnings by 50% by FY 2029, and that's from the delivery of our committed pipeline alone, whilst also fully absorbing the impact of higher interest costs.
The bridge on the slide breaks down the key drivers, and that includes the benefits of like-for-like rental growth assumed at our long-run average of 3.5%, the yield pickup from recycling out of our lower-yielding regulated assets into our growing build-to-rent portfolio, scale efficiencies with EBITDA margins growing to over 60%, and the mitigating impacts of reducing debt on higher interest rates, which are currently assumed to have fully rebased to 5.5% by the end of the period. We see this as conservative as it excludes any further accretive opportunities, as outlined by Helen, and it's based only on the delivery of our committed pipeline. We see Grainger is delivering a medium-term sustainable return of at least 8% with stable yields, and this comprises two components: our recurring earnings yield of 3.5% plus 4.5% capital growth that's based off the long-run rental growth assumption of 3.5% whilst adjusted for leverage.
This total return is extremely robust, given the predictable income element and rental growth assumption that's been backed up by decades of evidence. It is also based on an NTA of GBP 3. Given the discount we're trading at today, this return would be over 11%. I've provided further details for you in the appendix. To summarize, we've continued to deliver a very strong operational performance, with rental income increasing by 15% and even stronger earnings growth, with EPRA earnings up 23%. This growth is being delivered from a position of real financial strength. Our liquidity and our balance sheet are strong, and that gives us the flexibility through disposals to manage our debt as we reinvest into our committed pipeline. We're on track to deliver our FY2026 EPRA earnings guidance of GBP 60 million.
The delivery of just our committed pipeline alone gives us the potential to grow earnings by 50% from FY2024 levels, whilst also fully absorbing the headwind of higher interest rates. This earnings growth is a major component of our medium-term total returns target of 8%, and we see that as a low volatility return, and that remains unchanged, assuming constant yields. With that, I'll now hand you back to Helen.
Thank you, Rob. In this section, I'm going to cover the fundamentals of our sector, our business model, and our operating platform, which is driving shareholder value. Now, Grainger is focused on driving shareholder value. Our model is simple. We are investing in a great sector with structural market tailwinds. Our investment model has shown a strong correlation between inflation and particularly wage growth and rental growth.
Our operating platform is accelerating EBITDA margin growth, and our growth is set to continue with a substantial pipeline of GBP 1.3 billion. Our growth is funded from our asset recycling. Our regs and our non-core assets are Grainger's growth funding engine. As we recycle, we capture the reversionary potential. All of this is based on a strong balance sheet, and all of this is focused on driving shareholder value. Looking first at the structural market tailwinds, in the U.K., there is a demand for housing of all types, but there is a particular growing demand for rental housing. The English National Housing Survey and Savills predict rental demand is set to grow by 20% over the 10 years to 2031.
Now, this is driven by the growth in population, but people renting for longer, and the growth is strongest in Grainger's core demographic of 25-34-year-olds. In addition, there is a tremendous opportunity to gain market share. Although Grainger is the market leader, build-to-rent still only represents 2.3% of the U.K. private rented market. As renters rent for longer, they are increasingly looking for the quality, convenience, and professionalism that Grainger delivers. At the same time as demand is growing, supply remains constrained. The U.K. faces a severe undersupply of housing, an estimated 4.3 million shortfall across all tenures. Planning consents and housing starts have fallen. Just as an example, in the U.K., London, the U.K.'s largest rental city, 33 boroughs, 23 of them have recorded zero housing starts this year. This undersupply is exacerbated by small landlords exiting the sector.
There has been a net reduction in small landlords since 2016, as small landlords have faced rising regulation and finance costs. Despite government policy to stimulate housing supply, we see housing shortages will continue. Now, residential is a strong and attractive asset class. Residential yields, particularly in London, are the highest they've been since the early 2000s, and they're higher than most European cities. In an unregulated environment, residential will deliver highly attractive inflation-linked returns. Whilst real estate is often compared to the 10-year gilt, it's more appropriate to compare residential investment to the 10-year inflation-linked gilt, which is currently 1.4%. Our build-to-rent portfolio at 4.5% delivers a very healthy spread. Residential has outperformed CPI with more than double the rental growth of commercial real estate, and rental growth is underpinned by wage growth. It is this quality of the risk-adjusted returns that's sometimes missed.
We have a strong rental growth outlook. We have excellent customer demographics with our customers' wages growing faster than average. 89% of our customers are aged between 20 to 44. I hate to break it to the over 45s, but the 20 to 44-year-old is the group where pay increases fastest as people develop their careers. We know our customers' affordability is strong, and it is further supported by the fact that our buildings are energy efficient. They include gyms and Wi-Fi in the rent. Rental growth is expected to stay above the long-term historic average for full year 2025. Our research and carefully selected investment locations inform our capital allocations. London remains the best rental city, and in the first half, we added to the London portfolio with the second phase of Windlass Apartments in North London.
We also launched in February in Oxford, another strong rental city. Our cluster strategy, which drives our gross to net with operational efficiencies, buying power, and customer retention, is developing further. We have reinforced our clusters and committed to secured acquisitions in key locations by investing in strategic adjacent site acquisitions to reinforce these clusters, for example, at Guildford, Sheffield, and Cardiff. Another driver of performance is our leading operating platform delivering excellent customer service. We have invested in technology, and we are leveraging our data, and we are using AI to drive customer experience, and we are using sentiment analysis to drive actionable insights. In the first half, we upgraded our app to provide better customer service and more immediate responses. All of this is delivering great service to customers and great insights and value to shareholders.
What people sometimes do not realize is how supportive the regulatory and political backdrop is for Grainger. The new government were quick to condemn rent controls and to support the growth in the build-to-rent sector. We now have visibility on the renters' rights bill, and we have clarity of what the government expects of the sector. Their requirements of improved rental standards are easily achieved by Grainger. We have a high-quality, modern, energy-efficient portfolio. Now, there will be operational changes, but we are adapting our policies and processes, training our people to the new requirements, which in a customer-centric business like Grainger is business as usual. We at Grainger see renters' rights as a positive evolution of our business model and essential to maintain the positive support that the build-to-rent sector has achieved from this government.
Now, Grainger's growth has been achieved primarily by developing our own stock, and our routes to growth are widening with stabilised acquisitions becoming increasingly available. There are also opportunities for asset repositioning, and these exist in our portfolio, but our deep understanding and experience and customer insights tell us what customer wants. We also bring that skill to stabilised acquisitions. We continue to see development opportunities by developing out our pipeline of sites, and particularly efficient are the adjacent land ownerships where we already have a deep understanding of the market and the sub-market. We continue sourcing opportunities, particularly sourcing opportunities through our strategic joint ventures and partnerships. Returning to our shareholder value creation model, in summary, we're in a great sector. We've got strong structural market tailwinds, and we're in a sector that delivers real rental growth and offers great inflation-linking characteristics.
Our leading operating platform is delivering for customers and shareholders, and our EBITDA margin is accelerating. We have an enviable pipeline for growth, and that is funded from our lower-yielding historic assets. All of this is creating shareholder value: 50% earnings growth by 2029, 25% by 2026, and 8% plus a total accounting return with low volatility, and that is 8% off our GBP 3 NTA, and at current prices, that represents over 11%. A progressive dividend, which we are committed to maintaining, and we see this business as delivering excellent risk-adjusted returns. Grainger's shareholder value creation model is delivering for shareholders. Thank you.
Now, I'm going to invite you to ask us some questions, and I'm going to be joined by Rob Hudson, our Chief Financial Officer, Mike Keaveney, our Director of Land and Development, Eliza Pattinson, our Director of Operations and Asset Management, and I've got other senior leaders in the room. Anyone listening in, you can submit questions through the webcast, but I'll take questions in the room first.
Thanks for the presentation. This is Sam Knott from Kolytics. If I can just dig into the 8% TAR that you quote, and particularly how you get to the 3.5% income return, because just doing some sort of back-of-the-envelope, your adjusted net initial yield is 4.1%. After costs, you're probably already coming down below that 3.5. Then the effect of leverage is going to further impact that negatively. Just how do you get to that number?
Yeah, so it's based off our five-year earnings bridge. Clearly, we've got 50% growth in our earnings locked in. That's after rebasing to higher interest costs, but we do have some modest leveraging, which is effectively then offsetting that impact of finance costs or certainly a very large impact of that. The key reason that our earnings yield has been driven up so much is because the compounding benefits of scale on our platform. We've got our committed pipeline, which is locked in and delivering. Our central costs are being tightly controlled. We have this very beneficial operating leverage coming through. Really, it's an effect of that compounding impact on the earnings coming through.
That makes sense. Thanks. Then just one extra point on that.
Does that 8% include sort of maintenance CapEx that you're expecting to spend, or should that be taken off that 8%?
Yeah, that's a great question, Sam, because for us, we actually do fully expense our ongoing maintenance and refreshment costs as we go. That's factored into our 25% gross to net that we have today. We are a truly fully expensed net yield.
Brilliant. Thank you.
Chris. Good morning. Thanks for taking my question. Can I just ask about, you're obviously talking about quite a lot of investment activity in the space at the moment. Are we seeing any change in the sources of capital there? Perhaps you could just talk around that subject. I'll go one at a time because I've been told off for doing this in the past.
Yeah, we are seeing new entrants into the market, and that's obviously what's driving up the investment demand. Wide range. We've always seen the institutions and sovereign wealth because of the nice protective characteristics of our returns. But we are seeing a mixture of private equity and a whole range of people entering the market. There's been about eight major transactions this year, and it's a very broad area. I think people are looking at how residential investment has delivered, particularly in times of volatility, and have seen that compared to all other real estate asset classes, it has actually maintained its value.
Thank you for that. You've obviously done some work around the index linked gilt, which I think is quite a good point you made. How's that looked historically, that spread? I mean, it's running a while.
Yeah, it's the widest it's been.
I think I was sort of alluding to that in the slide about the market. It's probably the widest it's been for some time. Obviously, we almost got to negative rates, didn't we, at one point? But equally, sort of we've been as low as 3%. So we're up 50%, if you like, on yield. Yeah, it's a long way.
They were slightly leading questions into this one here about what you're thinking about the outlook for yields. Obviously, I have conversations regularly with the valuers. You're seeing the transactions better than others. I mean, do you think we've hit a period of stabilisation now with lower rates kicking through?
Be careful. My valuers are here, I think. The one thing I would say is we're off very, very historic high values.
If you look at world cities, Paris, Berlin, New York, London, at sort of 4% plus 4, 4.25%, 4.5% is way off beam, especially as some of those cities have regulation in them. Actually, I think what's happened is we've been very much grouped with other real estate asset yields of moving out. I think they have been incredibly stable now for a good couple of years.
That's helpful. Thanks, Helen. I did have one last one if I can read my own writing. I'm sorry. It was, oh, it's just about when the secured pipeline is going to fall into the committed pipeline. You've put in a lot of focus on committed and perhaps a little less on secured. Just thinking about times and milestones to get us there.
Yeah, I think you make a good point, Chris.
We do the committed because I think everybody wants certainty, certainty that things are going to be delivered. Just as a reminder of what committed means, committed means it's actually on site at the moment. We've only got about GBP 166 million of CapEx to go on that GBP 400 million. It's delivering immediately. The secured pipeline has got planning consent, and we control the land. In some cases, we're taking it through to improve in the improved planning environment. We're taking it through to improve consents and obviously taking it through all the necessary regulation to make a start on site. It's a very, very healthy pipeline.
Thank you.
Any other questions?
Alistair Stewart from Progressive Equity Research. Two, three questions based really around the same subject, mainly London.
Are you seeing any increased urgency to start to get development in general and BTR in particular going? How's the planning landscape moving? It's interesting you've avoided some of the building safety regulator carnage that's been seen among other developers. Could you go through why that's been the case?
Yeah, I think it's a huge distress that it's an engine for our country. It's so annoying that we don't have more housing supply coming through in London. As I say, 23 of the 33 boroughs had seen no starts at all. I think the mayor obviously wants it to happen. The boroughs are sometimes a little bit more difficult to deal with. We have been incredibly successful at getting consents in London. One of the things I should say is that housing for sale versus housing for rent, housing for rent can deliver a lot quicker.
Just as one example, not a London example, but we did eight and a half years' supply in one of our schemes in Manchester against sort of a normal private for sale house builder because the decision people make to rent rather than buy is very, very different. You can lease up much quicker than you can go through a sales process. We are seeing a positive reception for build-to-rent in London and in London planning. That is quite important. Alistair, I'd like to say we probably threaded the needle with the building safety regulation. I'm going to ask Mike to explain why that is.
I'd like to say it because we're brilliant. The reality is, yeah, the building safety regulator, it's all bedding in.
It just so happens that because of our timeline, when we redesigned schemes for the latest fire safety regulations, went back into planning, got more density, they do not land on the regulator's desk for a while. I guess that was timely. We fully expect by the time we are in front of them with our applications that things will have changed. They are already changing. There is an awful lot of work going on within the industry and with the MHCLG, sorry, to try and deal with that bottleneck. By the time we get there, I suspect it will be a lot easier.
We have got one side.
Yeah, thank you. Neil. Thank you.
Hey, good morning. Neil Green from JP Morgan. Just one question really. Given your ongoing development activity, can I just ask what you are seeing and hearing around construction cost inflation, please?
I'm going to go back to Mike on that one.
Yes, thank you. Obviously, our schemes on site, we have fixed price contracts, so it does not really affect us. We have a couple of schemes starting in the next six to nine months, again, fixed price contracts. That does not really affect that part. There is a lot of news about inflation generally comes from the house builders because they do not use fixed price contracts, and therefore they experience inflation as they build. We sign up fixed price contracts when we develop. In terms of the levels of inflation, we rebase our cost plans a lot very regularly to make sure that we are not caught out. We are actually seeing tenders coming in at or below the estimates at the moment.
I would not say it is massively below, but it certainly has moderated, and it is in and around where we expect it to be. Thank you.
Other questions?
Kurt.
I have a few from the webcast. The first one is from Aakanksha Anand from Citi. It is a two-parter. The first one is, given the positive trends in transaction markets, what can we expect as an approximate timeline for the GBP 1.1 billion of firepower that you have to materialize?
It is a great question. I mean, we have, just to put this in context, we have done over GBP 2 billion of asset recycling from our old portfolio into our new portfolio, and we have done nearly GBP 550 million over the last two and a half years. We have not found it difficult to asset recycle, which is very different from other asset classes where people have had to take a haircut.
We have been actually recycling, maintaining values, not having to write down values on sales, etc. I think I alluded to it in my commentary that what we do is we match CapEx with the recycling program. It will not mean necessarily that we will look to accelerate that. We will consistently sell to match our CapEx.
Second part of the question, I think you may have probably just answered it. How do you think about the decision to allocate the firepower between the pipeline and stabilised acquisitions? Is there a yield threshold for acquisitions?
Yeah, obviously we look at, we are watching the market all the time. I would like to think that our acquisitions team are stalking every asset and know every asset in case the owner wants to sell it.
The benefit of stabilised acquisitions is an immediate rental uplift rather than having to take the wait for the development. The benefit of the development is you get exactly the product that you want, and you do get some development return. We look at the returns in relation to that on an IRR basis. I'm not going to reveal my thresholds for my competition.
Andres Toome from Green Street had a few questions. He's next. Cost inflation is running high, is his comment. How do you expect to mitigate this as rent growth momentum is decelerating? Are you able to keep NOI margins flat?
I think we've done a pretty good job. I mean, if you think at everything that's been thrown at us from energy costs and construction costs historically, wage inflation, NI, we're absorbing all of that in our overheads and in our 25% gross net.
I'm going to ask Eliza just to talk about the ways that you do approach costs within the buildings.
Yeah, so definitely it's our full in-house operational platform means that we can deliver and manage our NOI. That's around we're able to have our cluster efficiencies, procurement, really strong void management, and all of that feeds into making sure that we can manage our gross to net.
Andre's second question, I think you sort of answered it with the Aakanksha's, but I wondered if you had any more comments because it's specific around the yield levels we're negotiating on forward funding projects when we're looking to replenish a pipeline. Are there any changes there, or are they similar to the past?
I mean, all the way through the presentation, I talk about risk-adjusted returns, and that's exactly how we look at our capital allocation.
What risks are we taking on, either counterparty risks or new location risks, etc.? Obviously, stabilised acquisitions, we've got more visibility on how it's run at present, but we can add value to it. It will depend very much on a project-by-project basis. Some of the projects we've done over recent years, we've been pioneering in a location, and they've come through very well. That's driven really impressive returns, being the first build-to-rent in a location, for example. I don't know if anyone wants to add to that.
We highlight Darby even not in them. We tend to be first in. Because of the quality of our research, and we're prudent, they tend to overperform.
Final question from Andres Toome. His final question is, EPRA earnings, the run rate for this first half, HY2025, seems to be going at FY2026 guided pace.
Is the guidance super conservative, or is there a cliffhanger that you are budgeting for in the next 18 months that will drag on EPRA earnings?
Let Rob do that one.
Yeah, sure. I guess the first point to make in the context of our guidance is that we have got strong growth over the short and medium term coming through. 50% growth in our EPRA earnings by FY2029, 25% by FY2026. That growth is happening now and also in the future. There is no change to that guidance. When we look at the first half, there are a couple of factors that you cannot just annualize the first half number to get to the full year. We are maintaining our guidance on that basis. That is because we have had some within our management fees, some liquidated damages where we are fully compensated for project delays.
There is always a little bit of lumpiness in that. Our costs are naturally seasonally weighted towards the second half of the year. In terms of my guidance, it is based on what is locked in. It is just the committed pipeline alone. Of course, after fully rebasing interest rates. We have substantial growth ambitions, and we are always looking at ways that we can grow further. It is a really exciting time for the business, but no changes in the trends there and continuing to grow over short and medium term horizons.
Any more questions? Any questions, Dan?
I have one final question from online. It is from a Mr. Mike Whittles.
He has asked a question about the optimistic commentary in today's statement and if management could comment on how this can be squared with net asset values, which have grown less than 10% over the last six years and 1% in this period.
Not in our slide deck, but I think I started off by reminding people how resilient this business has been in any other real estate asset class, whether you are talking about retail being down over 40%, offices, high 20s, industrial logistics, very, very low. Grainger, if you look at that chart, is up 1%. Now, 1% does not sound fantastic, but bearing in mind what has been thrown at the sector over the last few years, I think this is actually a very, very good result.
No further questions from the webcast.
Any more in the room? Great. Thank you very much for joining us this morning.
If you think of anything afterwards, contact me, Rob, Kurt, and we'll get back to you. Yeah, thanks for getting up early and spending some time with us. Thanks.