Good morning, everyone, and welcome to Grainger's full year results. 2023 was an outstanding year of record delivery, delivering significant growth in our income and in our occupancy. Importantly, this has been driven from a sound financial foundation that we put in place 18 months ago. This year, so far, we have added over 1,200 new homes, and that's a real step up in our net rental income, and we'll be delivering 400 more towards the end of the year. Despite the financial shocks of the last 12 months, the outperformance plan that we put in place and the pipeline we have secured will ensure continued growth. The agenda this morning is that I'll take you through the highlights of the strong financial and operational performance, driven by the quality of our new openings.
The resilience in our valuations, where rental growth has largely offset outward yield movement. Our pipeline is continuing to grow, and I'll explain how that growth will be sustained, leading to an excellent outlook in earnings. Rob Hudson, our CFO, will take you through our financial review, the strength of our balance sheet, the growth in our earnings, and how our pipeline is funded to ensure growth in earnings in the future. He'll also cover our progress toward REIT conversion and our progress to ESG. Then I'll give you more information on the market, why it's proving so resilient, and why Grainger is well-positioned to take advantage of this strong market. I'll also give you an update on how our new schemes are doing, and finally, we'll get an opportunity for Q&A with senior members of the Grainger leadership team. We have delivered an excellent performance.
We have a strong balance sheet and a confident outlook. Our rental income is up 12%, our like-for-like rental growth on our PRS homes is 8%, and our occupancy is a record 98.6%. Importantly, our customer satisfaction score is up. Our Net Promoter Score is up 26% to +43. Retention is at 63.2%, and our stabilized gross-to-net is at 25.5%. Despite outward yield movement, rental growth has ensured our NTA has remained resilient at 305 pence per share. Our LTV is at 36.8%, and our debt is secured in the mid-3s for the next five years.
Furthermore, with 1,640 new homes delivering in calendar year 2023, generating a rent roll when leased of circa GBP 17 million, and around 1,200 of these are already launched, our committed pipeline and remaining lease up will ensure that there's a further GBP 43 million of income on top of our current passing rent of GBP 101 million. This is a doubling of our EPRA earnings from full year 2022. So in September 2022, in the wake of the mini budget, we put in place an outperformance plan, and this resulted in our income growth and our accelerated sales plan. Our net rental income is up 12% and our dividend is up 11%. Our overall rental growth is 7.7%, of which PRS is 8%.
Our Adjusted Earnings are up 4%, and in addition, we have a strong sales performance. We did GBP 194 million of asset recycling, and that was a mixture of our Regulated Tenancies, older style PRS, and strategic land. So this year is a record year of delivery. Our new homes will significantly enhance our income and our dividend, and this pipeline of exciting new schemes is delivering into a market where there's a lack of good quality rental homes. The PRS market is stronger than ever. The importance of the sector is being acknowledged politically across both major parties, and both major parties are acknowledging the destructive nature of rent control on supply. Our strong leasing performance has supported our valuations, with leasing and rental growth offsetting outward yield movement, leading to only a small reduction of 4% in our NTA.
PRS is now 77% of our portfolio. I'm proud of the progress that we've made on our green agenda, particularly with our Scope 3 emissions. Our customer program, Living a Greener Life, has led us to being awarded EPRA's Outstanding Contribution to Society award. Grainger has a proven track record of executing on our strategy, which means that we have a solid basis for our confident outlook. At the start of our strategy, our net rental income was GBP 32 million, and in this year, we have delivered three times this amount. We've delivered a compound annual growth rate of 13%, and we now have a passing rent of over GBP 100 million.... Since the 2016 strategy, the shape of our portfolio has changed dramatically. It was 81% regulated tenancies. It's now only 23% regulated, and PRS is 77%.
And we've shown resilient, like-for-like growth throughout this period. We have remained in positive rental growth territory, even through the COVID lockdowns, with rents accelerating afterwards. And we've managed to execute this strategic change while rewarding shareholders, and overall, our dividend growth of 18% per annum. Through some very challenging times, we have delivered growth in earnings and resilience, and we expect this growth and resilience to continue. And so to our pipeline. Our regulated and assured tenancies are now GBP 760 million, and vacancies in our regulated portfolio slightly increased this year, and we have sold well. They are prudently valued and in high demand, but they are a diminishing part of our business. We've also engaged in recycling to drive efficiencies within this portfolio. Now, our record year of delivery has meant that our PRS portfolio is now GBP 2.5 billion.
Our 1,200 new homes are leasing ahead of expectations, and furthermore, we have a pipeline of GBP 1.6 billion, GBP 721 million of which is committed. These schemes are on site with construction costs fixed, and then we have a further GBP 541 million secured and GBP 316 million in planning and legals. So this is an exciting new pipeline of 5,634 new homes. Grainger is a highly cash-generative business. We continue to recycle capital from lower-yielding assets into high-yielding, modern, purpose-built rental homes. And this slide shows that our pipeline can be delivered through our sales and through our asset recycling. We have a consistent cash flow from our vacant sales, and we have a significant asset recycling program.
On average, we generate between GBP 150 million and GBP 200 million of operational cash flow per annum, and as we've evidenced again this year, we have got that proven ability to sell well. If we look at the charts on the far right of this slide, against our pipeline, we have GBP 1.2 billion of legacy assets, including regulated properties and their reversion, and some legacy assets, such as strategic land. And this, together with the GBP 590 million of existing headroom, gives us plenty of capacity. Around GBP 300 million is the cost to complete our committed pipeline, together with optionality and flexibility on the timing of when we start our secured pipeline of around GBP 500 million.
In addition to that, we have an outer pipeline with over GBP 300 million of schemes in planning and legals, and while we have GBP 590 million of existing headroom in our facilities, we envisage the majority of our pipeline can be delivered through operational cash flow and asset recycling. Now, while many real estate sectors have proven to have a high degree of volatility, the residential rental sector has proven itself to be resilient. The wider economic weaknesses that affect others have not affected us, and this is because of the supply and demand imbalance in residential rentals, and the fact that residential is a needs-based real estate sector. We're a B2C business, not dependent on the general business community, with a structural undersupply and good levels of demand.
During the last year, UK GDP growth has remained muted at 0.6%, and the commercial rental index shows only moderate growth at 3.6%. The ONS residential shows 5.7%, and that's for all residential property, reflecting the wider rental market and including some build to rent. Grainger's like-for-like rental growth is around 8%, and that's tracking wage inflation of 7.7%, and therefore remaining affordable for our customers. The structural need for good quality rental homes will endure despite the wider economic weakness. So this has been an outstanding year for Grainger, our biggest year of delivery so far, and we have further growth to come as we deliver on our GBP 1.6 billion pipeline, and this is going to create greater efficiencies and margin improvement.
And we have that clear trajectory to double post-tax EPRA earnings in the next three years from 2022 levels. Our balance sheet is strong, with debt fixed at low levels in the mid-threes for the next five years, and importantly, the fundamentals for good quality, mid-market rental homes continues to grow. And this is giving us underlying structural support to our business. So I'm now going to hand over to Rob, who'll take you through the details of our financial performance.
Thank you, Helen, and good morning, everybody. So today, I'm going to cover off the key financial highlights for the period and also provide you with some further detail as to how we've delivered this strong performance. I'll also outline how the building blocks are in place for us to continue to deliver these strong levels for the years to come... and with a solid balance sheet, a fully funded pipeline with costs fixed and debt costs hedged, we're confident that we can deliver, in spite of any current economic uncertainty. FY 2023 has been another year of excellent operational performance. Net rents increased by 12%, and that's reflecting the strong contribution from our recent pipeline deliveries, along with the continued acceleration of our like-for-like rental growth to 7.7%, and our record levels of occupancy. Adjusted earnings continue to grow.
They're up 4%, with our sales proving resilient despite wider market uncertainty. Strong EPRA earnings growth, up 41%, demonstrates the operating leverage in our business, which is built for scale. Our dividend per share is also up 11%, reflecting our strong underlying performance. Valuations remained robust despite the challenging macro backdrop, down 2.4% overall, with 8% ERV growth on the PRS portfolio, largely offsetting the 40 basis points of outward yield shift. Turning to the balance sheet, net debt rose to GBP 1.4 billion, in line with planned investment, and there was an increase of only GBP 22 million on the half year, reflecting increased sales activity. LTV increased to 36.8% in line with plan, and was only marginally up from the half year level of 36.1%.
Debt costs increased marginally to 3.3%, in line with our previous guidance. Turning now to the income statement in more detail, our like-for-like rental growth accelerated to 7.7%, reflecting the strength of our platform and demand for our mid-market product, and it was split between regs growth at 5.9% and PRS at 8%, with new lets delivering 9.2% and renewals, 7.2%. Stabilized gross net was consistent with prior years at 25.5%. Revenue from sales accelerated, with overall disposal proceeds growing to GBP 194 million. However, profits from sales were slightly lower. That reflects the mix impact of higher investment sales compared to trading asset sales. Sales pricing remained robust, with sales in the period only 1.9% below prior year valuations.
Overheads increased by 5%, largely driven by a 5% pay rise across the workforce. EPRA earnings are up 41%, and they continue to make an increasing component of our adjusted earnings. IFRS profits were down. That reflects the combination of valuation movements and also the prior year valuation gain, reflecting the one-off transfers to investment property in preparation for REIT. Looking at the moving parts of the 12% increase in our net rent for the year, the leasing of our pipeline launches over the last 12 months added GBP 4.3 million. Strong like-for-like rental growth of 7.7% was broadly in line with national wage growth, and combined with strong occupancy, added a further GBP 8.7 million.
Renewals at 7.2% have helped preserve our affordability ratio, and that remains healthy at 28% of gross income, and also rewards loyalty. Our asset recycling program offset this growth by GBP 2.8 million, and for FY 2024, we'd expect to see a similar growth in the absolute level of net rental income. Looking now at the valuation, 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, it also drives stronger rental growth. This dynamic was evident in our valuation, where a 12-month ERV growth of 8.1% was enough to largely offset the 40 basis points of outward yield shift that we saw across the portfolio.
Looking across the portfolio, we saw a stronger performance in regional PRS, which experienced less yield shift of 30 basis points, compared to 50 basis points in the London and the Southeast portfolio. A reminder that the PRS sector has continued to remain attractive to investors, and yields reflect some GBP 2.7 billion of transactional evidence in the year. Ongoing sales mean our regulated tenancies now represent only 23% of our overall portfolio. Valuations of our regs have remained resilient, reflecting their attractiveness, given the highly equitized nature of their buyers and their unique nature. We're constantly market-testing these valuations through our ongoing disposals of regs as they vacate. Our NTA has held up well and now stands at 305p per share.
While not included in our NTA, the mark to market asset of our fixed rate debt currently stands at 23 pence per share, demonstrating the benefits of our strong level of hedging for the next five years. As a reminder, NTA also excludes our reversionary surplus, which amounts to 29 pence per share, as well as our investments in technology and the value of our scalable operating platform, which will bring significant operating leverage and margin improvement as our pipeline delivers. This chart shows the key movements in NTA over the year. There was a modest decline of NTA of 4% to 305p per share. The valuation decline of 2.4% was the primary driver, having a 13 pence impact on NTA. Compared to the half year, NTA was down only 1.6% or 5p per share....
This once again demonstrates the resilience of our assets at times of economic uncertainty. Turning now to movements in net debt. Net debt increased to GBP 1.4 billion in the year. A strong year of delivery saw CapEx of GBP 312 million in our committed pipeline, in line with plan, and this was partially offset by an increased level of sales of GBP 191 million after fees. Compared to the half year position, this represents an increase in net debt of only GBP 22 million, as the second half saw operational cash flows broadly in line with CapEx spend. Going forward, we expect investment to be broadly funded out of our operational cash flows, including asset recycling. Turning to our balance sheet, we continue to demonstrate the focus on maintaining a solid platform from which the business can flourish.
With LTV at 36.8%, no material refinancing requirements until 2028, and a hedging profile that will maintain our debt costs in the mid-threes for the next 5 years, we're in great shape. We also have a very strong liquidity position, with headroom of over GBP 500 million. Given the strong growth in recurring rents and EPRA earnings, combined with resilient and accelerating sales, we've grown our operational cash flows and recycling over the last three years. Having delivered a significant amount of our pipeline, we now have lower levels of committed CapEx at GBP 289 million. That's comparing against GBP 479 million a year ago, and that's phased largely over the next couple of years.
So for FY 2024 onwards, we'd expect to see investments be funded out of our operational cash flows and recycling as we continue to deliver higher levels of sales. Pipeline completions are driving significant year-on-year increases in our net rent, and there is a lot more to come. Net rents will increase by 70% to GBP 144 million, compared with FY 2022, as we continue to deliver our committed pipeline. As previously mentioned, our committed pipeline has all the funding already in place, with interest rates locked in and construction costs fixed. Our Connect technology platform continues to drive meaningful margin accretion, as demonstrated by our 41% growth in EPRA earnings this year. We're well on track to deliver the doubling of our FY 2022 earnings in the next three years, and a reminder, this is from our committed pipeline alone and is therefore de-risked.
The opportunities in the secure planning, and pipeline, and planning and legals give us the potential to increase net rents by a further GBP 38 million. As net rental income grows, so will the dividend, as our policy is to distribute 50% of our net rents. As we said at the half year, our pipeline delivers a sizable growth in net rent over time, and it's a natural progression for our business to convert into a REIT. This is going to remove any corporation tax on our PRS income and grow our returns by 50 basis points per annum. While we've already met 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 remain on track for conversion in two years' time, and we're well underway in positioning the business to deliver this transition. 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 full Scope 3 baseline measured and independently verified, following the successful rollout of our customer emission measurement strategy earlier in this year. And we regard this as quite an achievement. As Helen said earlier, we're a B2C business with over 10,000 homes, and they're all individually metered. So this helps promote environmental responsibility across our customers, but it does make the measurement task quite a challenge. As part of this, we've also established a baseline for embodied carbon in our developments, which enables us to drive performance in this area.
Our net zero reduction plans are being integrated into business planning and target setting, and we've updated and published our net zero pathway. We're delighted to have been recognized by the EPRA Outstanding Contribution to Society Award, and this was for our Living a Greener Life customer educational and engagement program, helping our Scope 3 performance. And we've established an ambitious new target to reduce embodied carbon in development by 40% by 2030, and this reduction is excluding any offsetting. So to summarize, we've continued to deliver a very strong operational performance, and we've seen our momentum further strengthen in the year, with rental growth increasing to 12%. With this, our dividend per share is up 11%. Our liquidity and our balance sheet are strong, giving us the flexibility through disposals to manage our debt as we reinvest into our committed pipeline.
We're on track to deliver a transformation to our rents and 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. With that, I'll now hand you back to Helen.
Thanks, Rob. In this section, I'll talk about Grainger's key competitive advantages based around our market, our research approach, our portfolio, and our commitment to customer service enhanced through technology.... Now, there are four key differentiators Grainger from the generalist investor in build to rent, and these are our researched approach to our cities we invest in, the quality of our assets, our customers, and our level of service. So firstly, our places. We are in the right place. We undertake proprietary research to consider not only the locations, but also with the strongest fundamentals, but also the submarkets, concentrating on access to transport and other amenities. In terms of our assets, our homes are places where people want to live. Our homes are customer-led on their design, with strong ESG credentials.
We have an in-house development team who work closely with our asset management team and take feedback from the Grainger team working in our buildings and talking to our customers. In our service, we have a market-leading in-house platform, which is enabled through our Connect technology, leading to high levels of customer satisfaction, as evidenced by our strong Net Promoter Score. Our customers, we're focused on a growing demographic with healthy affordability, and our customer insight program informs our leasing and our service proposition. There continues to be a positive market outlook for our sector. There is growing demand and reducing supply. There is a growing number of renters, fueled by economic migration and people delaying home purchases, and this is assisting the faster lease-up of our new homes. While rental growth has been high, it has been tracking wage inflation.
Meanwhile, supply is reducing as small landlords leave the sector, and we've seen the declines in approval for new homes and for stock, making residential rents more resilient. So just some facts around that. As a reminder, the Build-to-Rent sector represents a small proportion. It's only 1.7% of the 5.5 million rental homes. The government's 300,000 home target has never been met, and planning permissions continue to decline, and small landlords are exiting the market. At the same time, there is a strong momentum in the rental market, with wage growth feeding rental growth, growing economic migration fueling demand for rental homes, and demand is 51% higher than the five-year average, while supply is 30% lower than the five-year average.
And it's important to point out that the cost of homeownership, even excluding the depreciation, building insurance, and lost return on deposit equity, is significantly higher than renting, leading many to pause on homeownership. While at Grainger, we have a range of customers, our core demographic is 20-34. This Grainger customer group are spending 28% of their income on rent below the widely accepted ONS threshold of 30%. Also, the overall cost of occupation has become a focus, and 91% of Grainger homes have an EPC rating of A to C, making them economic to run. Savills predict UK rental growth of 26.8% from 2023 to 2027. Knight Frank predict 22.2%, but both are predicting strong rental growth.
Now, Grainger is committed to improving the experience of renters, and we take a proactive approach with engaging with political parties to help inform policy affecting housing and renting. During the last twelve months, the understanding by politicians of the benefits of build to rent and the importance of the rented sector in housing supply has dramatically improved, and I'm pleased that both the Conservative government and the Labour Party both have publicly ruled out rent controls in England, recognizing the damage that they would do to supply and ultimately to renters. Here are just some of the things that they have been saying. While in the King's Speech, they introduced some bolstering of good practices for landlords, this is something that aligns with Grainger's responsible business model and which we support. Now, you've seen this slide before. It remains our foundation of our investment decisions.
Our research-led approach to investing continues, with concentration on areas of high growth potential and supply and demand fundamentals. As we've grown our portfolio from the one new build asset we had at the start of the strategy to the 22 assets and the further eight to be delivered, this is giving us the benefits of clustering and driving operational efficiencies and leveraging our brand nationally. Now, earlier I talked about our new openings, and these are leasing well. As I say this, they're probably the numbers are probably getting bigger. The Mint at Guildford, it's 98 new homes. It was launched in July. It's immediately next to the station. It's 79% let. The Condor in Derby, it's a city center scheme, 259 new homes. Launched in August, it's 67% let. Nautilus, adjacent to Argo, so that's across from Canning Town tube.
That was launched in September. It's 146 homes, and it's 71% let. And Weaver's Yard, a phased scheme next to the station at Newbury, which is leasing well. It's the latest phase is 74% let. The Steelworks in Sheffield, our second building in the city, launched late September, 284 homes, 29% let. And The Barnum in Nottingham, part of our successful scheme with Bloc and Network Rail, 348 homes, launched less than a month ago, and it's 23% let. And finally, The Copper Works is scheduled to complete in the next month, at the very end of the year. And in full year 2024, we have three major launches at Bristol, Birmingham, and London, Tottenham Hale, all building on our existing clusters in these locations, and that's another GBP 9 million of rent roll.
We have a great track record of working with public and private sector partners to source land for new homes, and here are five of our key public sector partners. Starting with Connected Living London JV with Transport for London, and the Canal & River Trust on Hale Wharf, where we've just signed an additional phase of that scheme. Today, we announced an exciting new partnership with Network Rail and Bloc Group, building on the successful partnership of The Barnham in Nottingham. This partnership has the potential to deliver 2,000 homes across six sites in key Grainger target cities. So our investment in our Connect technology platform has dramatically changed the way we operate. We have a fully digitalized leasing journey now.
We're capturing data on age, occupation, and earnings as we lease, and we have a dedicated data and analytics team, providing us with insights which inform all of our operational decisions and improve our customer experience and lifetime value. This focus on customer experience is driving value to our residents and to us. Nine out of ten customers tell us they really like their Grainger home. We have a market-leading NPS, and it's up 26% to positive 43. Everyone who works at Grainger is trained in customer service, even if they are unlikely to be customer-facing. So as you can see, we've had an outstanding year, but there's more to come. There are eight fundamentals which make Grainger's future success assured. The doubling of our earnings in the near term. The strong balance sheet with long-term, low fixed debt in the mid-threes for the next five years.
Our valuations are proving resilient as rental growth is protecting our NAV. We've got strong inflation-linking income streams, healthy customer affordability, and healthy customer satisfaction. There is a huge demand for good quality rental homes. We have the platform, we have the balance sheet, we have the team to maximize this vast opportunity in front of us. Thank you. I'm now going to invite you to ask us some questions, and I'll be joined by Rob Hudson, our CFO, Mike Keaveney, our Director of Land and Development, and Eliza Pattinson, our Director of Operations. What we're going to do is take questions from the room first. For anyone listening in, and we're taking questions via the webcast, or if not, you can email Kurt Mueller, and we'll get back to you. Chris? Sorry. Got my pen in case it's a three parter.
First one's just on rental growth. Obviously, Savills shows a slight slowdown in that rate of growth next year. I mean, have you seen any evidence of that post your period end, and do you broadly, you know-
No, no, we haven't-
Conform with the-
But then we're leasing up some great new product at the moment. It is, it isn't slowing, but, you know, the long-term rental growth for this sector is between 3% and 3.5%. It is very linked to inflation, so we expect that as inflation comes down, wage growth will come down, and rental growth will come down to a more sustainable, but good long-term average.
That's helpful. Thank you. Next one's just on value, valuer rhetoric. You know, we've seen quite a big shift down in the forward curve over the last month or so. Do you feel they're thinking a more supportive backdrop as they're looking out at the moment?
Got a valuer in the room here, so I'm going to be very careful. But I think the good thing about our sector is that we have seen a high level of transactions, so it's transaction based. The appetite, we know because we survey the market generally, there's a strong appetite to come into the market. But I think it's less influenced than some of the other sectors on debt-driven investors, and so actually, the impact of the forward curve is not necessarily... It's been one of the things that's sustained us, but equally, it means that there won't be the same sharp recovery.
The last one is just about that average 32 months of occupancy you mentioned. Is that optimal for the business? You know, would you like to tweak it any way?
... We like. I'm gonna ask Eliza to sort of talk about this, but we like long occupancy because it builds sustainable communities. And 32 months, actually, when you think of the age group, 32 months is a good amount of time. They're changing jobs, they're changing relationships. So, Eliza, do you want to add to that one?
Yes. We obviously do want stabilized communities, and that's where we deliver our NPS results from. But we also, you know, we need a little bit of churn in there as well. And that's a really fine balance, looking at the cost of a void, compared to the increase of rent that you might get on a new let. So it's something that we're always looking at. But it is also around, you know, encouraging loyalty and stabilized communities as well.
That's right. Thank you.
Thank you.
Hi, Sam Sheringham from Colliers. First one, just on debt levels. So I think you're currently at, you said 30% LTV, and I'm not sure if you give a debt to EBITDA, but it's, I think, well into the double digits, which is, I mean, higher than some of your peers. When you're looking at the sort of optimal level there, what scenarios are you looking at? What's the main driver you considering? Sort of debt covenants, I think they're all very high, or is it more the equity market, or are you caring more about the possible impact on the income statement, bottom line earnings?
Rob?
Yeah. So, we look at it from a number of different levels. Our historic target range of 40%-45% was set to withstand a 50% fall in values and still be within our covenant. So you're quite right, we do have plenty of headroom with respect to all of our financial covenants. In this environment, we have said, I think very consistently, that we would expect to operate very much at the lower end or underneath that range, given the financial environment. The strength of our position is that we refinanced the business eighteen months ago, and we also took the opportunity to lock in, for the medium term in terms of fixed rate debt costs in the mid threes.
So we are very well protected for the next five years, and that buys us valuable optionality. So we have the time to adjust our levels of debt and gearing according to whatever scenario we're in over time. And the strength of our balance sheet, as Helen's outlined, with over GBP 1 billion of assets that we will trade through over time, means that we've got plenty of optionality in terms of being able to manage our debt accordingly.
A bit on values, and I know you touched on the yields there. How... So you've been relatively unaffected by yield movement, I think, since... In the last two years, I mean, the interest rates have gone up by 300 basis points, and you're quoting still a sort of net initial yield, even on the PRS segment, of sort of less than 4%. So mechanically, how do you get to a decent return at that level if your, the sort of hurdle rate has gone up by 300 basis points, and the yield has only moved maybe 50? Are you forecasting much higher growth into the long run, or are you just accepting a lower sort of risk-adjusted return at that level?
Want to say?
Yeah. So in terms of our returns, I think there's a couple of different factors. So firstly, in terms of what we're investing into, the blended yield on the PRS portfolio is growing now to 4.1%. In terms of the projects we're reinvesting into, they are typically in yields in the mid- to high 4s. So we do have a higher yield and cost in terms of those projects. And then, the long run rental growth that we assume is 3%-3.5%. I think it's also important to note as well, as we've indicated today, our intention is to finance our future projects with respect to recycling. And what we're trading out of is very low-yielding assets.
So these are regulated tenancies where the blended yield is 1.9%. So we have a gross yield pickup as we reinvest into the higher-yielding PRS assets. So it is accretive. And there is also great value in terms of scaling the business as well, 'cause we have an enhancement through our increased EBITDA margins as the business scales, and that's because of the investment that we've made in our Connect technology platform.
Last one, if I can. Just 'cause sort of on that, you mentioned that there are sort of buy-to-let landlords leaving the market, because, you know, obviously rates have gone up, and it's harder for smaller landlords. Is that a net positive for you in that there's more demand, or is it more of a net negative as that sort of increases supply in terms of purchases, possibly itself pushing yields up? Is that sort of a lagged effect that you'd expect to come through?
So perhaps I'll take that, and then, Rob, if you want to add to it. The small buy-to-let landlords leaving the market is obviously they don't have the quality of the financing structure that we have, but also they don't have the operational structure, so many of them manage through third parties, et cetera. So they don't have the quality of our platform, and technology. I think it would be bad for the UK generally if we had an exodus. You know, we're 1.7% of the, as a sector, professional landlords, so, you know, an exodus of small landlords would actually be quite detrimental, I think, for the UK economy. But do I think that this sector...
I think I ended by saying we have a vast market opportunity ahead of us to professionalize the sector, and I think, what we deliver, is completely different to what a small landlord delivers, and there's room for both in the, in the market. Do you want to add to that, Rob?
No, I don't think so.
... James or Sam?
Sam Crullun Raymond James . Two questions for me. The first one is, in terms of the investment pipeline, you already have a very strong and significant pipeline, but in terms of new acquisitions, are you just being a little bit more selective in terms of new sites, or have the quality of sites not come across the market? I think you mentioned before, Helen, that you are seeing transactions, so some color on that would be-
Yeah
would be good.
There's undoubtedly been a slowdown in transactions, but still a really healthy market from which our valuers can value from. Where we've been concentrating in the last year or so is actually building on our clusters because of that-
Mm-hmm
... operational efficiencies. So that's really where we've got the main focus. This year we're moving into a few new cities, for example, and we look to build on those. But, you know, the scale of our pipeline is GBP 1.6 billion on a company that's GBP 3.3 billion. So I think we've got a really healthy pipeline that we can actually bring forward at a time that suits us. And today, when we were talking about the partnership with Block and the public sector partnerships that we have, we're also building on the outer pipeline as well.
Okay. Just the second question, this is slightly broader, but just on the TfL portfolio, just any color on development progress would be good.
Yeah. So, on... I'm gonna hand over to Mike, but generally, on, on TfL, we just for those that don't know, we've got 1,000, just over 1,500 units now gone through the planning process with TfL. We started enabling works on site, and then perhaps, Mike, you want to say what else has happened?
Yeah. So we've actually completed enabling works on, four of the sites. We are waiting for DLUHC to clarify the latest means of escape regulations, which we would want to comply with. Once that's announced, which we hear is probably next year, we'll redesign as we need to. It won't be major, and then we'll enter into the construction market at the optimum time. So I would hope next year, end of next year.
Okay. Thank you.
So morning, it's James from Berenberg. It's a slight follow-on, actually, from the previous question, just in terms of acquisitions, and I appreciate you. You obviously have a very large and good pipeline in there. But in terms of funding that, it looks like it's gonna. Well, the disposals you've outlined in terms of the regulated funds, most of that pipeline, if indeed you do see kind of additional acquisition opportunities, I'm just wondering how they would be funded. I mean, clearly, you've got the headroom on the debt, but that would increase LTV, or would you consider kind of third-party capital or other uses for that?
Yeah, we've, I think there's a number of options available to us in terms of joint venturing and third-party capital, but actually, our shareholders have said to us, you know, if we, if you see something that's extremely creative that you want to do, that they would support that as well. So I think there are a number of routes open to us. I think the important thing is the significant pipeline that we've got. We can already have clear visibility on how we can fund that.
Okay. Thanks.
Celine.
Good morning, Helen. Celine Huynh from Barclays. I'd like to go back to your guidance. So the previous guidance was a doubling of full year 2022 EPRA earnings in 4 years, and now you're saying it's a doubling of EPRA earnings post-tax in 3 years. I was under the impression the previous guidance was excluding taxes, but now it seems like you're guiding to post-taxes, which will benefit from a reduction of taxes post when you become a REIT, in 2 years' time. So can you confirm which EPRA earnings you're trying to double? And can you commit to a number? So I'm getting to either GBP 56 million or GBP 46 million.
It is, it has consistently been the post-tax number, Celine. So, it is that factor. So if you look back at FY 2022 on a post-tax basis, we were just under GBP 25 million. And we're committing to doubling that. And we've gone a very long way towards de-risking that with the 41% growth in EPRA earnings that we've delivered this year.
Thank you, Rob. So that's GBP 50 million, full year 2026?
Yeah, that would be based on doubling those earnings post-tax, yes. Yeah.
Thank you.
Yeah.
Any other questions? Do we have any on the webcast? Kurt.
We do. Is this working? Yes. We have, at the moment, three I can see. The first is from John Vuong at Kempen: On the new partnership announced today, what is the timeline to develop the 2,000 homes? What returns are you targeting, and how do you plan to fund the developments?
Okay, so I think it's important to note that the business model that we've always run at Grainger is to fill the outer pipeline, to fill the hopper, if you like, to make sure that we've always got a good and consistent pipeline coming through. These are sites that are, A, in the rail environment and, B, require planning consent, so they're very much on the outer pipeline, and that gives us a substantial amount of time to work out the funding of those. But if we took the immediate market and judged our pipeline by that, in view of how long it takes for houses to get developed in this country, we'd never have had the success that we have.
The second question is from Dan Thornton, from Davy. Are you seeing increased competition from the likes of Citra Living, Lloyds Bank, and other private equity-backed new entrants into the Build to Rent sector?
I think one of the ways to look at this is we welcome the competition and the understanding of the sector. It's a very. At 1.7% of the whole rental market, it's a very small sector. So at the moment, there's more collaboration than competition between the new entrants to the market. The Citra one, in particular, has tended to concentrate more on single-family housing from house builders, which isn't necessarily our model. But I think there's room for all of us, as you know, as I said, it's a vast market opportunity. And we actually welcome, and we work closely with our competitors.
The third question is from Cameron Foster from Blue Coast Capital. Given the demand for sites suitable for build to rent developments, are you seeing it harder to secure sites in good locations?
I think, it's actually got a little bit easier this year because we've seen less competition from the house builders that traditionally built in city centers, and also because the more debt-driven developers, so the sort of middlemen, if you like, have not been in there. So in the short term, we found it easier, and in the long term, our strategy of working well with the public sector is a good way of actually securing sites.
The final question that I can see on the dashboard here is from Andreas Struwe, from Green Street, and it's a three-part question, Helen. The first is: performance of newly launched schemes, how are they performing in terms of rents, yields on costs, et cetera, versus underwriting? The second question: profit margin underwriting for Network Rail JV. You may have slightly covered that previously. And the third question is the pace and pricing of the regulated tenancy disposals in FY 2024.
All right. I'm gonna come to Rob on the facts on that final one on the regulated tenancy, 'cause we can give you some real detail behind that. Renting and underwriting, I think as I was going through in the presentation, the seven schemes, you can see that they're all leasing up really well. Generally, on a large scheme, we'll allow 12 months to lease up. So the fact that some are sort of 71% let within a matter of weeks, they're doing well, and the rents are doing well as well. So I think that sort of... I couldn't think of a, you know, to have a record year of delivery and to deliver in one of the strongest leasing markets has been great.
I think our leasing team would wish they hadn't all arrived in the summer, but it's not a bad time for them to arrive. So, they're ahead on rent, and they're ahead on timing. In terms of profitability, all of our metrics, all of our underwriting, is consistent with our main portfolio for the Network Rail JV, so we've got the same levels of a return on that one. Sorry, Kurt, what was the third aspect?
The Regulated Tenancy expectations for FY 2024.
Yes. It was... Yeah.
So we've provided more detail, actually, on the portfolio movements in Appendix 44. So during the year, we completed GBP 108 million of regulated disposals. GBP 70 million were vacant sales, so as the properties vacate, over time, and then the rest, we always do, around sort of, you know, GBP 25-50 million, that kind of order of, tenanted sales as well. So we made some investment sales, too. We'd expect broadly similar levels, I think, going into next year. There is always, I suppose, like a natural reduction built into the vacant sales, as we tend to see, you know, 7%-8% vacate and return back to us as we dispose of those.
There is a natural reduction in that, but you know, not a huge difference overall. In terms of pricing, the pricing on regs has held up very well. If we look at the disposals last year, we sold within 1.9% of the prior year book. The valuations have also held up well. And I think what's really driving the resilience of this is a couple of factors. Firstly, the fact that the nature of the buyers, these are not first-time buyers that have high LTVs and dependency and a high sensitivity, therefore, to interest rates. We actually have quite a high degree of cash buyers within the nature of this portfolio and their unique nature.
So as these properties come up, and they're highly desirable streets, people are, you know, almost stalking the properties, ready to purchase. We often do see best and final offers on these assets. That does provide resilience.
One more question has just come in, again, from Dan Thornton of Davy. Why don't you sell the regulated tenancy portfolio to make the business a pure play PRS operator?
Well, I think at 77%, we're getting there. But actually, when we've got our fixed debt for five years, we've got enough capacity. Actually, it works really well. We designed this from the start of the strategy. It's not as if we're going out and buying completed buildings because there aren't enough of them out there. We're actually developing these buildings, and so the cash flow rolling off the regs is actually funding, over the long term, the new build, the new build pipeline. But it will accelerate, and you know, we're virtually there in terms of that pure play.
No further questions from online.
All right, any more questions in the room? Well, in which case, I'd like to thank you very much, everyone, for getting up so early and listening to this. If anything occurs to you afterwards, do please reach out to Rob, Kurt, or I, and we'll answer your questions. Thank you again.