Good morning, everyone, and welcome to Grainger's half year results. Rob and I are here this morning to tell you about another strong performance. These are our results for the period September 2022 to March 2023. A period of economic uncertainty in which, once again, Grainger has proved to be resilient and is poised to deliver exceptional growth. We're in a strong position, we have an excellent portfolio, and we're in a position to take advantage of the increasing demand for renting in the U.K. The agenda this morning is that I will take you through the highlights, the strong growth driven by letting momentum, and why our business has an excellent outlook.
Our CFO, Robert Hudson, will take you through our financial results, the strength of our balance sheet, the resilience in our valuations, how we've secured and de-risked the funding of our committed pipeline, and how this will translate into the doubling of our earnings. At this time, Rob is also going to cover our progress on REIT conversion and ESG financial integration, how this is going to give more clarity about the progress we're making. Then I'll give you some insights into why our market is different from many real estate sectors and is outperforming. I'm also going to cover our portfolio, our new launches, how we are leveraging technology with data analytics to drive our customer brand. Then we'll have an opportunity for Q&A with members of the Grainger senior leadership team here this morning.
In this first half, we've delivered a strong performance. Our net rental income is up 12%. Our like-for-like Rental Growth is 6.8%, and that's broadly in line with wage inflation. Our occupancy is high across our portfolio between 98% and 99%. Despite rising costs, we have maintained our stabilized gross to net at 25.5%. Our retention is high at 62.3%. These strong results have been driven by the quality of our operating platform, including our leasing and property management teams, enabled by the investment we made in our CONNECT technology, allowing us to serve our customers better, driving Rental Growth, retention, and occupancy. We have 9,737 operational rental homes. We have 5,406 homes in our secured pipeline.
Let me start by drawing your attention to the last box on this slide. EPRA NTA is at 310 pence per share. It is up around 2% from this time last year, and only 2% down on September 2022. The continuing strong performance in our operations has offset the majority of the outward yield movement in our valuations, and net rental income is up 12% to GBP 48 million in the first six months. Dividend per share is up 10%, reflecting strong rental income performance, and our adjusted earnings are up 2%. Despite all of the commentary about the market, we've delivered GBP 25.2 million in sales profits. We have a strong balance sheet, and we've refinanced all of our debt this time last year, and we fixed it for six years, so we have no significant refinancings.
We have four years of growth de-risked, funded, and locked in. We have a record number of homes being delivered in the remainder of this calendar year, this is gonna add up to a significant step up in our rental income in 2024. In addition, we now have a critical mass, which is developing a strong consumer brand across our portfolio, and it's leading to customer retention of 62%. Throughout the pandemic, I said this is a resilient business in a resilient sector. During this economic turmoil, we've evidenced, once again, that this is the case. It's also a growth business. The investment case for U.K. residential is strong, and we've delivered exceptional leasing. New lets are up 8.2%, whilst renewals are at 6.1% as we reward customer loyalty.
We have a good pipeline in progress, that's seven schemes completing in the second half of this year, and four sites secured and land acquired within our TfL joint venture. We've maintained our sales momentum despite the vagaries of the housing market with GBP 74 million of sales in H1, and we've continued with our asset recycling program, accelerating the disposal of our non-core assets. Our business is underpinned by strong structural drivers and a strong balance sheet. The structural drivers are the increasing demand for renting at a time when supply is shrinking. The market for good quality rental homes has rarely been stronger, Grainger is in a good position to benefit. This is leading to accelerated rental growth. As a reminder, this sector has always exhibited lower volatility than most commercial real estate sectors.
We're in a strong financial position. Rob will talk more about this in a moment. Our debt costs are fixed in the mid-threes for the next six years. Costs are also fixed for our committed pipeline, which is just under GBP 1 billion. We have strong operational cash flows to fund our future pipeline. Let's have a look at that pipeline. Our operational portfolio is GBP 835 million in regulated properties and GBP 2.3 billion in PRS. Our committed pipeline on site is 3,397 new homes. We've also secured a further 2,000 homes in London, Sheffield and Exeter. We have 624 new homes in planning and legal.
In the first half, we started on site at just over 1,000 homes in Bristol, Oxford and Southall, and that's adjacent to the new Elizabeth Line tube station. We commenced enabling works on a further 1,470 of our 2,000 homes that are in our secured but not committed pipeline. We will maintain our growth in income for 2024 and beyond, and Rob will describe the impact that this has and how we are going to double our earnings. We have an excellent outlook, and the reason for this is not just the strength of demand in our sector, but that the risks facing many areas of real estate globally are risks that we are managing well. Let's just look at these. Rising interest rates.
We fixed our debts at low levels for six years, and as we scale, our credit rating will improve over time. Rental growth. Our rental growth is sustainable. We're aligned to wage inflation and our homes are mid-market, and we understand our customers' affordability. Pipeline delivery. It's certain, funded, and our construction costs are fixed. Our pipeline gives us scale, and that's going to make us even more efficient. Political backdrop. We live in a nation without rent control, and yet we still have supply shortages. We have worked with this Government in their plans to improve the rental experience and help shape rent reform, which we are well-placed to respond to. Our reputation as a landlord of scale is giving us strong political access and engagement across all political parties. The supply side of new rental homes is important to the U.K. economy.
Our balance sheet. We have significant headroom in our financial covenants, and we're currently operating below our target range at 36% LTV. Valuations. We have seen 35-40 basis point outward yield movement over nine months, and we've delivered relatively low valuation volatility. This is backed by strong investor demand and good rental growth and cost management offsetting outward yield movement. We have a great pipeline delivering just at the right time. We're a growth business in a resilient sector. I'll just summarize the highlights. We've delivered a strong operational performance with 12% income growth and 10% growth in dividend. We have a strong balance sheet with an LTV at 36%. Our cost of debt is fixed for 6 years. Our committed pipeline is fully funded.
We've delivered resilience in our valuations backed by transactional evidence, strong rental growth offsetting outward yield movement. There is a positive outlook for the sector in which Grainger is the market leader. The structural imbalance in the market for good quality rental homes will drive further performance. Our earnings are set to double as we deliver our pipeline. This is why we have an excellent outlook. I'm now going to hand over to Rob, who will take you through the financials.
Thank you, Helen. Good morning, everybody. Today, I'm going to cover off the key financial highlights for the period, and I'll also provide you with some color over the results which remain strong. I'll also outline how, despite the changing environment, we have strong growth locked in over the medium term in both our net rents and our earnings, which are set to double. Our committed pipeline is funded, our development costs are fixed, and our debt costs are hedged. Our balance sheet and liquidity remain in a strong position, and we've got the flexibility to manage our debt through disposals as we reinvest into our pipeline. Turning to the financial highlights, we've continued to deliver an excellent operational performance over the period.
Net rents increased by 12%, reflecting the strong lease up of our launches over the last 12 months, an acceleration of like-for-like rental growth to 6.8%, and our record levels of occupancy. Adjusted earnings are up 2%, with our sales proving resilient despite wider market uncertainty. The interim dividend per share is also up 10% reflecting our strong underlying performance. This has proven to be a resilient sector, and valuations have remained robust despite the challenging macro backdrop, down 1.3% overall, with 4.1% ERV growth on the PRS portfolio, largely offsetting the 25 basis points of outward yield shift. As a result, our IFRS profit before tax dipped to GBP 5.7 million. However, due to the scale of our portfolio, our NTA of GBP 3.10 was down only 2%.
Net debt rose to GBP 1.4 billion in line with planned investments into our committed pipeline schemes, seven of which will complete later this year. This saw LTV increase to 36%, with cost of debt remaining low at 3.2%, given our strong hedging profile. Turning now to the income statement in more detail. Our like-for-like rental growth of 6.8% was split between regs growth at 5.8% and PRS at 6.9%, with new lets delivering 8.2% and renewals at 6.1%. Stabilized gross to net remained flat at 25.5% as we continue to focus on cost efficiency. Revenue from sales remained in line with the prior year proceeds at GBP 74 million. Profits were lower, reflecting the mix of vacants and investment sales.
Sales pricing remained robust, with sales in the period only 2.2% below September valuations, outperforming the wider housing market indices. With an 8.5% regs reversion rate, our vacant sales pipeline looks in good shape for the second half. Overheads increased by 5%, largely driven by a 5% pay increase across our workforce. This was in addition to the cost of living payment that we made last year. EPRA earnings are becoming of increased focus as our rents become a larger component of total income. We've delivered good growth. Focusing on the moving parts of our net rental income, the primary drivers of our 12% growth were the leasing of our pipeline launches over the last 12 months, which added GBP two and a half million in the half.
Like-for-like rental growth accelerated to a record 6.8%, closely following the national average wage growth of 6.6% and adding a further GBP 3.9 million. We have a record number of deliveries in the remainder of 2023, with seven schemes completing. Given the timing of these launches, the lease that will largely benefit FY 2024 and FY 2025. With this, I'd expect a similar level of net rent in the second half. The correlation between residential rents, wage growth, and inflation provides a good natural hedge in times of inflation and interest rate uncertainty. While higher inflation puts pressure on both interest rates and real estate yields, for us, this also drives stronger rental growth.
This dynamic was evident in our half-year valuation, where six-month ERV growth of 4.1% was enough to largely offset the around 25 basis points of outward yield shift that we saw across our portfolio. Looking across our portfolio, we saw a stronger performance in regional PRS, which experienced less yield shift of 20 basis points. That compares to 30 basis points in the London and the Southeast portfolio. Our EPRA NTA has held up well and now stands at GBP 3.10 per share. While not included in our NTA, the mark-to-market asset of our fixed rate debt currently stands at GBP 0.15 per share, demonstrating the benefits of our strong level of hedging for the next six years.
As a reminder, NTA also excludes our reversionary surplus, which amounts to GBP 0.29 per share, as well as our investments in technology and the value of our scalable operating platform. This will bring significant operating leverage and net margin improvements as our pipeline continues to deliver. This chart shows the key movements in NTA over the year. The valuation decline of 1.3% equated to a GBP 0.06 NTA impact in the six-month period. This saw NTA decline by a modest 2% to GBP 3.10 per share. However, this still represents 2% growth in NTA over the last 12 months, demonstrating the resilient growth characteristics of our portfolio. Net debt increased to GBP 1.4 billion in the half as we invested GBP 187 million into our committed pipeline in line with plan.
This investment was partly offset by GBP 74 million of sales proceeds, split GBP 30 million from vacant sales and GBP 44 million from asset recycling. We expect half two investment to be broadly in line with the first half. From FY 2024, we expect to see the current committed pipeline investment to be largely offset by the operational cash flows and disposals, resulting in a broadly stable level of net debt. We're always very focused on delivering our growth strategy from a foundation of real financial strength, and I'm pleased to say our balance sheet remains in great shape with LTV at 36%. We have very strong liquidity with over half a billion of headroom from cash and available facilities.
Our exposure to interest rates is minimized through our 96% hedge position with a maturity of six years, with rates locked in to the mid 3% over the medium term. This gives us near full protection against rising rates over the period. Refinancing risk is also minimal, with no significant debt maturities until 2027. We also don't need to raise any new debt. It's our policy that we never commit to any of our pipeline schemes without the funding already in place. Our current headroom of GBP 527 million more than covers our committed pipeline CapEx of GBP 343 million. With GBP 140 million to be invested in the second half, we'd expect our current committed CapEx to drop significantly by the end of this year.
We expect our LTV to operate at the lower end of our stated 40%-45% target range over time. A reminder, our target range is prudently set because at that level, we can withstand a major fall of nearly 50% in values and still operate within our covenants. We're very mindful of the volatility in interest rates and debt markets, but our low-risk approach to balance sheet management and the liquidity of our asset base means we retain the ability to flex our capital structure as we see fit. It's also worth noting that LTV excludes the reversionary surplus of GBP 217 million, and that reduces LTV by 2% to 34%. All of the hard work of recent years of securing our investment pipeline will be transformative to our net rent and earnings over the next few years.
Net rents will increase by 1.7x over to GBP 142 million as we deliver our committed pipeline. Our committed pipeline has all the funding already in place, with interest rates locked in and construction costs fixed. Given the investment in our CONNECT technology and the high degree of operating leverage and net margin improvement this delivers, our business continues to benefit from scale. This will see our EPRA earnings more than double over the same period. The opportunities in secured not committed and planning and legals give us the potential to increase net rents by a further GBP 32 million, which would double our rents. Our medium-term outlook of an 8% total return post the delivery of the committed pipeline remains unchanged, assuming constant yields.
As net rental income grows, so will the dividend as our policy is to distribute 50% of our net rents. As our pipeline delivers our sizable growth in net rent, it's a natural progression for our business to convert into a REIT. This will remove any corporation tax on the PRS income and grow our returns by over 50 basis points per annum. Just a reminder, there's no conversion charge to become a REIT, and most of our preparation work is being done in-house at minimal cost. There are a number of moving parts to balance when assessing the optimal timing of conversion. This includes the level of corporation tax and also capital allowances, which currently reduce the tax burden.
Whilst we're already very close to meeting 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 see the optimal current timing for conversion as two and a half years, and we're well underway in positioning the business to deliver this transition. Our strategy will remain unchanged as a REIT. We will continue to be able to sell our remaining regs, and our ability to develop build-to-rent assets will be unaffected. Whilst as a REIT, we'll be required to distribute 90% of our property income, in practice, this will align with our current projected dividend levels at conversion, as our dividend policy was always designed with becoming a REIT in mind.
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 Scope three baseline measurement well underway and the successful rollout of our customer emission measurement strategy earlier this year. We've established a baseline for embodied carbon in our development activities. This enables us to drive performance in this area. Our net zero reduction plans are being integrated into business planning and target setting. As part of this, we're establishing an ambitious new target to reduce embodied carbon in development by 40% by 2030. It's important to note this reduction is before any further benefits of offsetting.
To summarize, our liquidity and our balance sheets are strong, giving us the flexibility through disposals to manage our debt as we reinvest into our committed pipeline. We've continued to deliver a very strong operational performance, and we've seen our momentum further strengthen in the period with Rental Growth increasing to 12%. With this, our dividend per share is up 10%.
Our valuation has proven to be resilient, demonstrating the strong demand for and low volatility of our asset class, combined with strong ERV growth. We're on track to deliver a transformation to our rent and to 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 returns target of 8%, which remains unchanged, assuming constant yields. With that, I'll now hand you back to Helen.
Thank you, Rob. Let me move on to our market and the data supporting the resilience of our sector. I'll also give you some insights into our short-term and long-term pipeline, including our joint venture with TfL, and how technology and data insights are helping us build the Grainger brand. Grainger leads in a resilient sector with an excellent market outlook, and we're well positioned to take advantage of this because of our high-quality portfolio and our pipeline. In a moment, I'm going to give you a few key data sets to support this. It's worthwhile saying that the long-term structural supply constraints in our housing market are endemic. The demand for good homes is non-cyclical. Demand for good rental homes is consistent. The main competition for Build to Rent is the smaller landlords, and they have a less attractive business case than us.
This is reducing the supply of the small private landlord. This acute supply and demand imbalance is stretched further by very strong occupational markets which have grown stronger as people have deferred home ownership. We've also seen an increase in migration into the U.K., significantly post COVID, and there is a strong indication and prediction of good rental growth for the next five years. We've positioned our portfolio in the mid-market pricing, which is affordable to many of our core demographic, and we've selected locations where the strong investment fundamentals give high potential for rental growth. We've also aimed the majority of our homes in urban locations, appealing to young professional demographic. This is the demographic with the greatest affordability. The underlying housing shortage is across all tenures. Here's a few statistics.
On the top left of this slide, the number of major residential developments being granted planning permission has been trending down for many years, and in 2022 it hit the lowest number on record. This is likely to act as a brake on housing development for a number of years, even if all these houses get built. Demand for our rental products comes from people rather than business, and the number of people in employment in the U.K. has been sticky compared to volatile business investment. This has supported customer demand and their ability to pay. This also differentiates us from many B2B real estate sectors. Data from ONS and CBRE demonstrates that the extent to which employment resilience translates into rental growth, and this non-cyclical rental growth differentiates us from commercial rental values.
This occupational strength also converts into a resilience on the value side of our investment returns, That's as we've seen in the first half. What are the reasons to believe that this positive market outlook will continue? Well, according to Zoopla, which is top left data, private rental demand is running at 50% above the five-year average, while the stock of homes to rent is tracking 33% below the five-year average. Now, this is a fact many will recognize. As small landlords leave the sector, supply is falling. Although total pay and inflation have risen strongly in the pandemic, during the pandemic, there was a pause in rental growth, Rents do have some way to go and remain affordable. Net long-term migration into the UK has bounced back strongly since the pandemic, It's helping to drive demand for renting, most notably in London.
All of this suggests that rental growth will be strong in the coming years. Knight Frank is estimating growth of 20% in London over the next five years and 18% growth in the U.K. as a whole. We have positioned Grainger to benefit from this growing and resilient sector. Our strategy is to focus on well-connected urban locations. This means that our customer base is dominated by the 25- to 34-year-old. Data from the English Housing Survey shows that this segment has the strongest affordability profile across all age groups. This is reflected in the fact that on average, our customers typically spend 29% of their household income on rent. Our customers benefit from the fact that we deliver highly energy-efficient homes, meaning that their total cost of occupation is significantly lower.
Our successful performance and our success in sourcing has come from our commitment to a research-led approach to investing. We use data and insights to understand where we want to build and what we want to build. This is our usual slide, and London is still remaining our strongest city. I'm pleased to say that in the first half, we started another London scheme at Southall, adjacent to the Crossrail station. We have two new schemes on site beside Argo in Canning Town, and that's reinforcing our East London cluster. In a moment, I'll tell you about the progress that we've been making on our TfL portfolio.
In the regions, we started on site in Bristol and Oxford. These are two very strong key target cities for us. We continue to build scale in these cities. This cluster strategy enables us to create different homes within a city and also drives operational efficiencies, which enables us to leverage our brand locally and nationally. Those schemes outlined in boxes are on site right now. That's 13 schemes, 3,339 homes. To our TfL partnership. We've made strong progress this year in our partnership, which we call Connected Living London. As a reminder, the structure is a long-term partnership. It's 51% Grainger and 49% TfL, and it's got an initial ambition to build 3,000 rental homes at well-located transport interchange nodes, primarily around tube stations.
They'll be high-quality, affordable homes, and around 40% of them will be truly affordable. In this first half, we've acquired the land for four of the schemes, and we've commenced enabling works on site whilst we finalize design and procurement. This portfolio adds to an already exciting new pipeline of opportunities on site. These must be some of the best-connected sites in London. Despite the commentary around the challenges of securing planning permissions in London, over the last 12 months or so, we've secured six major planning consents totaling 1,915 homes, including in our other joint venture with the London Borough of Lewisham. This represents a good proportion of all the planning consents achieved in London and demonstrates our expertise at bringing forward complex sites, and also it demonstrates our ability to work well in partnership.
Altogether, we've secured 20 high-quality Build to Rent schemes, 13 of which are well on the way to construction and seven of which complete this year. We're always looking to the future to understand how people want to live and to drive efficiency of performance. A few years ago, we spoke a lot about the investment we were making in technology. Alongside this was our decision to invest in data and our growing portfolio, which as our portfolio grows, it provides us a lot more data and therefore gives us greater data-backed insights to drive our decision-making. Our data and analytics team and the work they've been doing enabled Grainger to be the finalist in the British Data Awards across all sectors in the U.K. That's alongside companies such as Specsavers and Tata Steel.
The awards ceremony is this evening, we've got our fingers crossed, particularly as last night, we were voted as residential landlord of the year. They've got to come home with another award. Data is incredibly valuable in our leadership of the sector. Just four examples here of how we use it. With our customers, we're looking to maximize customer lifetime value, what sort of customers we target, revenue generation, lead management, marketing, and rental growth. In our product, our ambition is to deliver the best customer-centric designed homes and service, and we're focusing on gathering data to inform building specification and PropTech. We ask our customers to give us feedback at key moments in their journey, and we collect this data to inform our product and service design, and this reduces our costs and increases our satisfaction.
We use data analytics in our procurement and supply chain, and that's to maximize procurement benefits and supply chain efficiency. It also collects data right down to the granular level at the component level of buildings, for example, which white goods perform the best. In our commitment to net zero, we're using data to inform, drive, and accelerate our net zero ambitions. Utilizing net zero in dashboards, in decision-making, and performance tracking, all of this demonstrates our integrated decision-making approach. We are now growing scale within our business, and that scale is enabling us to brand Grainger Lifestyle and to engage more with residents through that. We're building longer-term communities which strengthens customer loyalty and retention and attracts customers through our brand and reputation. We're supporting our residents in living sustainably and minimizing their environmental impact and reducing their costs.
We're celebrating our people and the great work they do. Everyone in Grainger is trained in customer service and in supporting the Grainger brand, this benefits customer attraction, occupancy, rental growth, and importantly, customer satisfaction. I've spoken about how we're a resilient business, but we're also a responsible business. Our people tell us that they enjoy working for a leading responsible business. At Grainger, there is a strong emphasis on people, the environment, and the social impact that we make. We're creating a supply of homes in a country with a housing shortage. We're improving housing standards and making sure they're safe and secure and investing well beyond the legislative requirements of building safety. We're supporting their affordability by building energy efficient mid-market homes, and we're targeting high levels of customer satisfaction and achieving it. We're creating communities with a high level of retention.
On average, our customers stay with us for almost three years. We're supporting them in giving back locally with our community engagement schemes. We have our Grainger Trust portfolio, which is providing around 1,000 affordable homes to lower income and key workers. These are fully integrated into our PRS and Build to Rent communities. This is supporting both local communities and our development pipeline. In summary, Grainger is in a strong position. Here are just eight reasons we feel confident for the future. Our growth is secured. Our balance sheet is strong. Our valuations and our investment market is strong. We benefit from rental growth, and our pricing is closely linked to wage inflation. We operate in a market with good supply and demand dynamics, and our product is affordable, and the regulatory landscape is favoring us over smaller landlords.
The opportunity to increase our market share is vast, we have the platform to deliver. The outlook for Grainger is excellent, as we continue to deliver for customers and our shareholders. Thank you. I'd now like to invite you to ask questions. I'm gonna be joined by Robert Hudson, our CFO, Michael Keaveney, our Director of Land & Development, and Eliza Pattinson, our Director of Operations and Asset Management. Of course, we've got other senior members of the Grainger team in the room. Anyone listening in, you can submit questions through the webcast. While people are getting up, I'll just point out that this is a picture of our latest scheme, Enigma Square in Milton Keynes, and we're holding a capital markets day next month there. Do let Kurt know if you're able to join us on that.
Who's gonna ask the first question? Miranda.
Miranda Cockburn from Panmure Gordon. Just a quick question on acquisitions. You've obviously got plenty going on in the existing pipeline. Are you seeing any acquisition opportunities at the moment?
Yeah, great question. I think one of the things that I've said about the sector is resilient. One of the sort of, downsides of that is we're not seeing any distress in the sector. You know, we're not seeing any sort of, people offloading. I think people, recognize that this sector has been so resilient, this is the bit of their portfolio they hold on to. That's stabilized acquisitions. One of the opportunities we do see coming forward is that some of the house builders are bringing forward, a component of Build to Rent alongside their normal, housing numbers. Of course, we do have a suburban portfolio, we're keeping an eye on that as well.
At the moment, it still remains a really tight acquisition market. Thanks. Matt.
Sorry. Thank you. Morning, it's Matthew Saperia from Peel Hunt. I think Rob talked about investment sales. I was just wondering if you could elaborate on what it is you've sold and looking forward to how much of the operational portfolio you perhaps don't want to own into the medium term.
We've sold some of our smaller assets, I think people have been quite surprised. These are the smaller, you know, 12 to 20 units sort of style assets. They're usually sub GBP 5 million scale. I always reflect on the fact people say to me, "Why is that market proven to be resilient?" I guess if you were a small investor looking to invest in real estate, would you take a small block of flats over a shop or a small office building? That's why they've proven to be resilient. We have a process every year where we rank all of our... We do it twice a year actually.
We rank all of our portfolio in terms of investment returns, and then we cut off the tail so that we're always improving our portfolio. It tends to be the smaller assets. There was one component in there that we did sell, which was the remaining land that we owned at Seven Sisters. We sold that, and that's exiting from that particular development. That was quite a significant sale, but unusual. Do you want to add anything, Rob?
No, I think you've summarized it well. It's been an equal mix of recycling through the tenanted sales of regs, some older PRS and the exit of that development.
Morning, Helen.
Hi.
Céline Soo-Huynh from Barclays. First question on the valuation of your portfolio. There was a 25 yield expansion in H1, you always kind of soft guided to 50 bps . Does that mean there's 25 to come in H2? Do you think that's enough given current financing rate and how base rates have evolved? The second question, probably this one more for Rob, on your LTV target of 40%-45%, I understand that by year-end you should be closer to 40%. Do you think that this target is still fit for where we are in the property cycle? Thank you.
Okay. I'm glad you asked that question because it will clarify. The number that I used was 35 bps-40 bps, which is the movement we've already seen. The portfolio before this valuation that we've just seen in March, was valued in September, within days of the sort of Kwasi Kwarteng and, you know, fiscal event. So what we've so we did take about a 10 bps outward yield movement at in September, so I'm bunching the two, the 35-40 together. I think one of the things that's, you know, perhaps forgotten about this sector is that we all get quite obsessed with tagging real estate values to, you know, five years swap rates or whatever.
Actually, the segment that we work in at you can look over the longer term, has always been lower yielding even if in, even in areas of high inflation in terms of the yields have always stayed low. There is one key issue that will protect this, and that is the level of demand for the sector is very, very high, and the rental growth that we're seeing in the sector, and the sort of people that own residential Build to Rent means that I don't think we're going to see the same degree of yield movement as you would see in other sectors. If we as we've seen in the first half, the ability for rental growth to compensate for outward yield movements is strong.
I'd encourage you to look over the longer term, which is actually that residential yields exhibit a lot less volatility, even in times of volatile interest rates.
Shall I just pick up the point about.
Yes. Thank you, Rob.
About the LTV. Our target range of 40%-45%, we're very comfortable with, and that's because it's been designed to withstand a near 50% fall in value and still remain within our covenant. We've got a huge amount of headroom, even with LTV operating in that range. Clearly to today, we're at 36%, and we expect over the medium term to be certainly at the lower end of that range, albeit at the moment, we are of course, tracking underneath that. We are and do continue to be comfortable with that range. But clearly over the longer term, if the environment were to change, then we would always keep these things under review.
I think the final thing to say is that we've got plenty of flexibility in our capital structure 'cause we've got lots of liquidity in our asset base, so we've got the ability to manage our debt levels accordingly.
Thanks. Charlotte.
Thank you. Charlotte, Panmure Gordon. On the kind of customer data that you monitor, you mentioned kind of the, there's strong demand from people deferring homeownership. Do you track kind of the people that do leave, whether they're leaving to buy or rent somewhere else, and whether you've noticed kind of people staying longer over the past couple of years?
Yeah. At the moment, I'm gonna look at Eliza in a second, but we do track the reason people go. We want to keep people with us, but at the moment, it's about 5.6%, Eliza. 5.6% is the attrition for homeownership. If you think about our demographic, there's lots of You know, it's a really exciting time in people's life. That 25 to 34, so creating relationships, building their first home or whatever. One of the things that we do is we look at how they leave. Don't know whether you want to give any more color to that.
No. We've definitely seen higher retention and a part of that is with homeownership, and people staying in rental for longer. As Helen said, we're currently tracking that at 5.6%. Was a little bit high a few years ago. We sort of see that that's probably going to continue, which is, you know, a good thing for the sector.
Neil.
Hey, good morning. Just one question from me, please. Just get your take on the potential for any kind of regulatory change on the rent side, rent controls, and any discussions you might be having, please.
Very useful written statement to the House of Commons, I think it was last week, from the Housing Minister, being very strong in this government. I mean, they have been throughout, that there's no appetite for rent controls. What we were expecting this week, I suppose I have to be thankful it didn't happen right the way as I was speaking. We were expecting the Renters' Rights Act, which will give tenants more security of tenure, the abolition of no-fault evictions. That is something that we've worked closely with the government on. We're very supportive of the fact, if you think about how we target ourselves, it's very much on customer retention, so that's aligned with, very much aligned with our business philosophy.
The one thing that we have been lobbying quite hard about is to ensure that alongside the eradication of poor landlords, that landlords get powers if there are poor tenants in their building, creating antisocial behavior and improving the housing court. We're hoping that will come through. Obviously, we're all looking at the potential for a change in Government within the next couple of years. We are of course talking across all political parties, and I think most of them acknowledge the essential nature of the delivery of good rental homes and how it sort of fits into the mix. I think the one thing that they will continue to do.
We have heard statements, I don't think they're official, from Labour suggesting that they won't introduce rent controls. Probably the best thing that happened to our sector was what happened in Scotland, which is that in Scotland where they introduced rent caps, there was GBP 2.3 billion of investment was turned off. Rents went up and housing supply went down. I think that's a really good example of what happens if you'd put knee-jerk rent controls in. I think all parties are very mindful of that. Any other questions in the room? Kurt, do we have any on the screen?
We do. Okay, one question from the webcast. This is from Paul Gorrie at Columbia Threadneedle. It might be for Rob, but to confirm, is the target to double EPRA earnings over the four years on a per share basis or absolute basis? Is this on a pre-tax or post-tax basis? Accepting REIT conversion is gonna take place.
In terms of that guidance, it is on an absolute basis, we do have all the funding in place to deliver that. There's no presumption of an equity raise within that. It is on a post-tax basis because we do visit REIT conversion in the next two and a half years, that is part of our pickup as well. We do have very substantial growth in earnings being delivered, not only by the 70% growth in rents, but also the doubling. The profits. We do have quite an expansion in terms of the improvements in margins which we're delivering, and that's because we've got a very scalable operating platform with the technology that we have.
We're not having to add a lot of significant central cost to deliver that very substantial growth in the top line.
That's all we have through from the webcast.
Any other questions in the room? Yeah. Well, thank you all very much for coming out this morning and seeing us and, I do hope we'll see a number of you, all of you potentially, at our... I think It's best part of a morning, Kurt, isn't it? It's sort of... It's not a whole day. Even I can't stretch Milton Keynes to a whole day. That's on the June 27th. Thank you once again.