Grainger trims sails but stays on course

Oct 9 2008 by Peter McCusker, The Journal

THE country’s largest housing landlord, Newcastle company Grainger, has seen sales rise by 17% in a year, but the fall in property prices has cut its asset base by £300m to £2.2bn.

In a trading update before full-year results next month, the FTSE-listed company said it had cut purchases by 70% to £122m, which would help ensure it kept within banking limits.

For the year to last September 30, Grainger expects sales to be up 17.5% at £168m. Coupled with rents, this will bring revenues in at more than £200m. Margins have decreased because of the house-price fall and a greater proportion of investment sales, but a volume rise will give trading profits in line with 2007 at £72m.

Finance director Andrew Cunningham said: “We are very pleased with the sales levels in what is a difficult market.”

He welcomed yesterday’s bank rescues and the cut in interest rates as catalysts to stimulate the market.

“I do not believe there is a lack of demand, just a lack of money to fulfil that demand.

“Hopefully the banks will start to lend to each other once more and that will be passed on to bank customers,” he said. Grainger’s portfolio includes 14,000 properties in the UK and others in Germany, Estonia and the Czech Republic. Its UK properties range from homes in former pit rows to properties in upmarket London streets.

The company says the value of its portfolio has fallen by more than 10%, putting it in region of £2.2bn.

The statement said: “Although the market remains challenging, profitable sales continue to be made and management is focusing on improving liquidity.”

To this end the company saw acquisitions in the region of £122m compared with £403m in 2007. The statement continued: “The levels of sales will ensure we comfortably meet our interest cover covenant at September 30. The next testing date for this covenant is March 31, 2009.

“We already have sold sufficient properties in the first six months to be confident that, in the absence of unforeseen circumstances, the covenant requirements will be met at that date also.”

James Dickinson, of Brewin Dolphin stockbrokers in Newcastle, said the important thing for the company in the current climate was to ensure it kept within its banking covenants and its actions this year had allowed it “headroom” to achieve that.

He said: “Grainger has managed its business very well, given the current difficulties in the housing and banking sectors.”