S2 - Episode 7: The Business Case: Interview with Helen Gordon, CEO of Grainger PLC

Join hosts Mark Wharrier and Phil Clark for an engaging conversation with Helen Gordon, Chief Executive Officer of Grainger plc. In this episode, Helen discusses Grainger’s position as the UK’s largest listed residential landlord, specialising in the ownership, development and management of high-quality rental homes across the country. She shares insights into the growing build-to-rent sector, the changing needs of renters, and how Grainger is creating professionally managed communities designed for long-term living.

The conversation explores Grainger’s strategy for delivering sustainable growth through investment in new developments, disciplined capital allocation, and operational excellence. Helen also reflects on the evolving UK housing market, the opportunities and challenges facing the residential rental sector, the importance of customer experience, and how Grainger is balancing growth, sustainability and long-term value creation for residents and shareholders alike.

Transcript

SPEAKER_04 0:15

Welcome to the Business Case in partnership with the leading investor presentation hub Engage Investor. This is the podcast where we dive deep into the stories behind the UK's leading companies. I'm Mark Morrier.

SPEAKER_03 0:29

And I'm Phil Clark. And in each episode, we'll be sitting down with top business leaders to uncover their career journeys, the challenges they faced, and the insights that have shaped their success.

SPEAKER_04 0:43

We have spent our careers analysing and investing in UK companies, meeting managements to understand the business case. And now we want to share those insights with you. We will hear about the companies our guests lead and how they are positioned for the future.

SPEAKER_03 0:58

But we also want to find out what makes these business leaders tick, the highs and the lows that they have experienced, and the lessons of management that might apply to your life.

SPEAKER_04 1:10

Please remember that this podcast is not investment advice and it's for informational and educational purposes only.

SPEAKER_03 1:17

Today's podcast guest is Helen Gordon, the CEO of Granger. She's been a CEO there at 10 years and she's led a quite remarkable transformation of the business. Helen gets into a lot of detail about how she's evolved Granger and we think this is a great podcast. Hope you enjoy it. Today we're delighted to welcome Helen Gordon, Chief Executive of Granger, a leading UK residential REIT and a company that's on the FTSE 250. As we're going to discuss today with Helen, Granger has a slightly different business model operating a build-to-rent platform. Helen has been the CEO of Granger for 10 years, and over the last five years, the group has almost doubled its rental income and delivered a material increase in its dividend to shareholders. But as we'll discover, that's not the end of the story. And as we're going to hear today, as Granger has stated an objective of 50% earnings growth over the next five years to taking it to 2029. Helen, welcome to the Business Case Podcast.

SPEAKER_01 2:22

Thank you for having me.

SPEAKER_03 2:23

Great. Well, to get things uh kicked off, could you maybe briefly give us a description of what Granger does and in particular give our listeners, many of whom would have heard us talking to other property companies and other asset-specific property companies. We've had student logistics retail on, you know, how the build-to-rent model is different.

SPEAKER_01 2:43

Well, Granger is the UK's largest listed residential landlord, and we have uh 27,000 customers. So, unlike a lot of other property companies, we are a B2C business. We're very focused on our customers. And also our customers have choices. Um, the built-rent sector in the UK is still only around 2% of the whole rented sector. So many people rent from small landlords, and our real purpose is to get people renting well because we believe that people rent well, they live well, and it's good for um, it's good for them, it's good for us, it's good for society. So and I think that the probably the growth that we've got coming through at the moment is uh stronger than it's ever ever been. Um we have actually since the start of our strategy almost tripled um our net rental income and our dividends.

SPEAKER_03 3:46

Great. Well I well I've obviously undersold you there slightly by just saying doubling your rental income when you've actually tripled, so uh outperforming already. So thanks thanks very much. Um so maybe just to kick off and to start, Helen, you you've been chief executive since 2015, so more than 10 years now. The business looked quite different when you started. Um, what are some of the core insights that uh convinced you that the company needed to pivot?

SPEAKER_01 4:10

So, probably the the largest one, which most people would recognise, is the fact that the point at which people buy their homes is being delayed, and that is not necessarily because of the cost of borrowing, which is high at the moment, but also because of deposits. And so we have people, younger people who uh leave university with a larger amount of debt, they also have um you know, they don't necessarily have savings, and so the point at which they choose to buy a home is becoming increasingly later, but they want a good place to live in in the meantime. So Granger back 10 years ago was a really eclectic mix of um residential real estate. So we did building for sale, we had an equity release business, we had a German business, we had uh regulated tenancies, and really I felt that we were missing out on a really big opportunity, which is purpose-built, built-to-rent buildings, run efficiently, which people would be proud to live in until they made that commitment to buy their own home.

SPEAKER_03 5:16

Right. And was there a particular um company that you looked at internationally or overseas that had that model that you sort of thought actually that's a really great sort of benchmark for us to think about as we kind of go through this journey?

SPEAKER_01 5:30

Well, that's a really interesting question because the job that I'd done immediately before was a global role. And what was surprising to me is virtually every country had a really strong uh professional rented sector, and yet in the UK it's still uh, you know, mama and pop landlords. And so, you know, the US is the obvious example, and in fact, the world's biggest REITs really, um, you know, the collection that sit at the top of the REITs table, if you like, uh, the majority of them are residential REITs and uh their shareholders, um, people invest that way rather than investing directly in buy-to-elect property as we do in the UK. And so the American model uh was obviously something we looked at because they've been doing it for years, but we also saw another opportunity, which is because we were starting from scratch, that we could actually support a lot of what we do with technology and for the generation that we're aiming at, which is the sort of early 20s to the uh late 30s, you know, that is very definitely their world.

SPEAKER_03 6:37

Okay, interesting, thank you. And if we think about your kind of um your tenure to date, you you've you've dealt with quite a lot, uh, as has many UK-facing businesses. You know, we've had Brexit, we've had COVID, we've had huge rates in inflation, we've had a lot of volatility and interest rates. Not a great environment for um, you know, long long lead time assets and sort of lifestyle assets, um, sorry, lifecycle assets. What are some of the key learnings that you've had as a sort of leader going through some of this um disruption?

SPEAKER_01 7:09

Yeah, and as you say for Brexit, uh one of the interesting things about Brexit was we did all the work to say how could we get our supply chain more domestically based, um, which I think is is is great news. It's also supporting UK companies, and uh um so that was the probably the first thing. Um before we went into COVID, when we did all of our customer research, um, one of the things that we had two things we'd identified. One was that this is a generation more committed to health and well-being, so we made sure that we put a gym and outdoor space in virtually all of our apartments. So they have balconies or terraces and um and and gyms. And the other thing was that not everybody, particularly in London, where about half our portfolio is, not everybody had a desk every day of the week in their office. So we put a lot of um thought into how people could work from home. So when COVID happened, lots of young people went home went home to live with mum and dad. But we our residents stayed with us because they had open space, they had they had um they had brilliant super fast broadband into every apartment, and they had all the facilities, and we had Zoom. Uh we were one of the largest users of Zoom before we went into um uh COVID because obviously um dispersed. So actually, things that we'd made about um decisions we'd made on specification um before uh really supported us. Probably in terms of share price, probably the biggest impact has been actually um the uh change of government. Although it was Michael Gove who started the uh renters' rights, I think that's been a much bigger overhang um uh in perception than reality. Um because when the Labour government came in, I think um certain people put us in a basket of businesses not likely to do well uh during that um time. But the reality is what's coming in on the Renters' Rights Act is um is actually how you would want to be a good landlord. And so we already we we adhere to all of those high standards, etc., that the government want. So actually its impact will not be as I think strong as people feared.

SPEAKER_03 9:49

I mean, you you talked a lot about some of the strategic decisions that you made as a business, but just thinking about you as a leader and as a CEO of the of the group, you know, lots of employees, how how have you sort of navigated those pain points, those pressure points, any kind of key learnings or takeaways from the other?

SPEAKER_01 10:05

I think I think uh very fortunate that I'm running a 114-year-old business. And so actually, one of the things you can point to, and it must be much harder for people running startups, etc., you can I I can point to you know the second world war and you know, sort of things like that. Some other challenges, yes. And so, I mean the um in terms of leadership style, it has always been uh we will we will get through this. And um, you know, certainly in the early days of COVID, the board, and I was very fortunate with my chairman and board, um, the board said we were one of the strongest uh companies they were working with in terms of just organizing, and at the end of the day, um people still needed somewhere to live. Yeah, and so you know we were core. And one of the um one of the rating agencies tried to um downgrade us on the basis of there was still a large part of our business that was selling off our older properties and woods and wood sales happened during that period, and we just found ways, uh, ways through it, and we actually convinced them that we would keep the same sales figures and and we did. And I don't know if you remember during COVID, but actually it was a really busy time for people moving house because they all of a sudden decided their own home wasn't big enough, or I want to go to the house.

SPEAKER_03 11:32

Yeah, yeah, yeah.

SPEAKER_04 11:33

Great. Well, listen, um, if we sort of unpick the business model a little bit, you've got several dynamics here in terms of how the the business works. You've got occupancy, rental growth, cost efficiency, some development. Um, you know, what what do you see as the most important drivers of value over time within Granger?

SPEAKER_01 11:52

Well, I think that probably the is is the fact that we have that really lovely linkage between uh wage inflation and rental growth. And that has been consistent over decades, and so you're getting that inflation linking uh growth coming through. Um, in terms of occupancy, we're in a country with a housing shortage, um, so there's always high demand. We always, and even just talking about COVID, we were um we operated in you know in the sort of 90% sort of um and above, we normally have 95 to 97 um occupancy. Um, and so that those are the really um important things. And then the other thing is obviously cost efficiency of making sure growing our e-bit down margins, so making sure that as much of that top line rent falls to the to the bottom line and to our shareholders.

SPEAKER_04 12:50

Now you're you're often described as a landlord, but I guess you're also a developer, an operator, brand builder, and capital allocator. You know, which of those hats matters the most?

SPEAKER_01 13:01

This is probably the operational side. Um, I think we've talked a lot about the um specification and getting that right, getting the buildings uh that we um the homes uh right for people to live in. And then after that, it's about customer service because that will drive retention and rental growth, and people really value a Granger home. And so that's uh the operational side is is probably the most important, and it's our key differentiator. Very few people um have that really deep insight into how buildings work and therefore how they should be um how the specification should be affected by them because a lot of uh of our competitors use third-party managers, and so you don't get that real day-to-day understanding of what your consumers are thinking about.

SPEAKER_04 13:54

And of course, you know, thinking about the private rental market, a lot of these are people who own one or two assets and just don't have the same capacity to give any sort of service.

SPEAKER_01 14:02

A lot of um uh you're right, a lot of our competitors are probably doing it on the the side of the desk, and you know, some of them are really uh really good landlords or putting it through um, you know, letting agents. But um, although you will, you know, the data that we have, and this is going to be really important for the future, um, you know, the data we have on what washing machine to put in an apartment because which ones have the biggest failure rate or whatever. We have we have data on so many things. And when I talk to the house builders, they often look at our specification and say, Why do you why do you do that? I remember the late great Tony Pidgley said to me, you know, why do you put Antico flooring down? And I said, You have to make one sale. Yes, but actually in 30 years' time this floor will look good.

SPEAKER_04 14:54

Yeah, absolutely. Well, you clearly mentioned that the UK has a housing shortage. You know, we clearly have a a national problem, it's not new. You know, what do you think the government can do to encourage more residential supply, you know, given all the constraints, bill costs, planning bottlenecks. You know, we could have a podcast talking about this, but you know, what would be the kind of easy series? What would be the easy measures or measures that you think are are realistic to uh to increase that supply?

SPEAKER_01 15:20

Well, look, the the obviously the one that everybody talks about is planning, um, and they have you know the government have made an attempt at planning. I think one of the things that's quite um you know, planning is a very, very broad um title for this. I mean, one of the things, for example, is um there's so many aspects of the planning system that are not actually in the democratic system, so is that they're decided by people that are not necessarily um interested in providing homes. So, you know, the obvious one would be something like highways networks, and actually you will only move on planning as um fast as you're as the sort of the last cog in the wheel to get something through the planning system. So it's a very broad and um uh complex thing to really um drive efficiency through. Um in terms of in terms of the build-to-rent sector, probably the best thing that the government can do is um give certainty to investment. So by by that, one of the things that we've been um going through is the Renters Rights Act and making people realise that they can actually function as we believe you can under these new new regimes. But the money for build to rent is coming from um it's coming from Australia, from Canada, from the US, as well as uh domestic pension funds. And it's like any investment, you've got to give that certainty. It's a really I would say that housing is almost tantamount to infrastructure, and you know how much appetite there is for infrastructure investment. It is a brilliant long-term investment to protect wealth, and government has to be very sensitive as to how it sort of um ensures that it gives consistency of messages. And then if you're talking about the for sales sector, um the probably we've got to acknowledge that the um the model which expected the uh for sales sector to support so many um things from social housing, highway infrastructure, um, SIL, which is community infrastructure levies. And you know, we we seem to pile so much on, and they're not viable at the moment. I mean, the the stats for London are terrifying in terms of how many new homes are being built. So we really need to look at the um economics of that because we are depriving um you know a generation really of good quality homes.

SPEAKER_04 18:02

Well, I was just reading um again your annual report last night, and it really sort of struck me how you know as a company you are an enabler of UK prosperity in terms of what you do, right? And it's it's hard work, it involves you know removing lots of barriers, lots of risks that you take as a business. But if I was sitting in government, I would think, my God, we need more companies like Garanja. What can we do to help them?

SPEAKER_01 18:28

Yeah, and I I think I think that's right. And um I recently chaired um a growth commission which was run by business, and uh one of the things that we decided that a cross-cutting issue around um the whole of the UK's competitiveness is have we got good housing? If a talented graduate can go to um the US or Madrid or whatever and get and live a really nice lifestyle and have a nice apartment, why would they come to the UK where people are finding it very, very difficult to get a to get a home? Um, and you know, if we want our life sciences sectors and our financial services and everything else to thrive, we have got to make sure that we could we're a country that can accommodate its people.

SPEAKER_04 19:19

Yeah, absolutely. Um so as as Phil said, the um the bill to rent sector is still relatively immature in the UK, two, three percent of the of the stock, and particularly compared to the US, right? It's very immature. How how large do you think it could be in the UK over time?

SPEAKER_01 19:38

Well, I mean, the whole rent the whole rented sector um is close, it's over 40%. So you can actually see that that you know um it could be significantly it could be significantly bigger. Um and I think actually that there's a real um opportunity here for for um all sorts of capital to come into the sector. Overall, um I think it has gone through a tricky time with the change of government. We now have certainty, which of course is what all investors want. And so therefore, I think it could grow significantly. I think the barrier to stopping it is some of the things we've just talked about, for example, planning, viability, etc., what we expect to um burden new housing schemes with. So I think but the um uh there was a recent CBRE conference, and one of the presentations was asking global capital where they wanted to invest in the world outside their own country, and uh top was the UK.

SPEAKER_03 20:45

Despite everything, despite everything goes against what most media stories reread, as well.

SPEAKER_01 20:49

Yeah, and but top in terms of um this is real estate, of course. Yeah, so uh top in terms of sector was the living sector. So I think people acknowledge it's a a great investment. It's just how do they get access to it at scale?

SPEAKER_03 21:07

Yeah, sorry, which maybe just uh one extra question. What's funding like? So if I was um if Mark and I decided to start a professional build-to-rent business on the back of this very interesting uh ball case you're putting forward here, Helen, like what how easy would we find it to get funding? Like, uh are the are there specialist lenders out there that are going to be supporting this market? I mean, like is there is there a kind of infrastructure that sits behind supporting build-to-rent?

SPEAKER_01 21:34

Yeah, I think the interesting um side of it, obviously we're a listed company, so our funding comes uh primarily from our shareholders. But if you were looking at debt funding, it's one of the sectors that actually the banks really, really like because it's a it has that those market fundamentals of supply and demand, and you know, m demand outstripping supply, and therefore it's not like an office building. Maybe a shopping centre or whatever that's much harder to get bank debt for. There are specialists, but the main, you know, the main banks do. And in fact, actually, Lloyd's is doing build-to-rent itself. So yeah, it's acknowledging that.

SPEAKER_04 22:17

Just in terms of rental inflation, I suppose some critics may argue as the sector gets bigger, its power becomes bigger, its ability to push rents becomes greater. How would you respond to that?

SPEAKER_01 22:30

Well, I think I think the um you have to be very careful in terms of rent uh in terms of rental growth. Um at the moment, Granger operates at 28% affordability, so that's 28% of gross rents. And we hear of gross income on rent, and we hear uh you know horrific stories of people paying as much as half their salary on rent. And I think you have to be quite careful. We do a huge amount of research in um what do people earn in the local area so that you don't end up with a rent that outstrips local wages. And then, of course, um, if you're getting sort of even if we're in the sort of 2% inflation environment, we're normally inflation plus 1%. So we we run our business assuming three to three and a half percent rental growth, but actually um we have seen significantly higher. So so over the 10-year period, our average is about 4.1% annual rental growth. So you can see that fantastic compounding effect of that, but always ensuring, because we're tracking wage inflation, that you're not getting too far ahead and therefore you will lose customers.

SPEAKER_04 23:46

Yeah, no, absolutely. It's it's clearly a challenging time for individual private landlords. You know, we've had the uh uh the renters reform bill this year, and I guess the stock is under pressure, means there's going to be more competition for what's available, that could lead to you know accelerated rental growth. So the the argument then goes, well, we need to have rent control. And you know, we again we could have a podcast talking about where rent control has been tried and why it doesn't work. But you know, how how would you make the case against rent control?

SPEAKER_01 24:20

Well, wherever it has been tried, it's had the opposite effect. And I think um this government, uh, before they came to power um privately in conversations, said to me that it had watched quite carefully what had happened in Scotland, where they did have the ability to cap rents. They introduced a cap, um, they introduced it within weeks. You had news at 10 headlines of young people sleeping in gymnasiums because people had just taken properties off the um off the market. And uh so you um you have to be very careful, and when it happens on your own doorstep. So this government's always been consistent. In fact, yesterday, number 10 said we've got no um you know no desire to introduce rent control. It would require primary legislation. The government have just navigated uh one of its main bills in its first sort of year and a half, or almost two years now, of course. Um it they've just navigated um the Renters Rights Act, it comes in on the first of May. They had plenty of opportunity during that process to consider rent controls and they didn't introduce them. And I think it's because they do realise that the introduction will have the opposite the opposite effect as it did in Berlin, San Francisco, Scotland, the obvious one. So wherever they've done it.

SPEAKER_04 25:43

Like a lot of bad policies, you get a you know, an adrenaline hit from a one-day newspaper headline, but as you say, over time just kills investment and has the reverse effect.

SPEAKER_01 25:52

So it's interesting you say that because I remember speaking to the business editor of the Evening Standard, and he said, Helen, I've we've you know heard about potential rent control. This is going back a few couple of years, and he said, and you know, I asked around the office, and the young people thought it was quite a good idea, and I said, Until they can't find anywhere to live. And he went, Oh yeah, that's a point.

SPEAKER_03 26:13

You know, there's sort of yes, plenty of my friends in New York absolutely uh I mean it's a nightmare. Yeah. If you live in London, you you just can't get your head around how how difficult I think it is. Um turning to opportunities more broadly for the business. Um this may be not how you think about it, but look looking from outside in, it looks like you've kind of gone from being an asset owner to to almost like operating a platform. I I know that's sort of a bit of a buzzword today, but but it it feels like you know that there are other opportunities for you know using the expertise, the skills that you've got, and the assets that sit within the group. How do you think about Granger as a platform? Is that is that something that you would sort of characterize recognise?

SPEAKER_01 26:54

So in our sort of first iteration of the the strategy, the first 10 years, we were quite clear that we wanted to refine and refine our platform and in terms of that competition for growth, not share it, because we recognized it was a it was unique, yeah, and particularly our Kinect technology platform, which um um you know it's a very granular business and it's got lots of rich data, and we wanted to make sure that we got that right. Going forward, could I see that we would share it? I think either through um co-investment um potentially there isn't a desire right now to do third party management per se. Okay, but uh having said that, um when we get the efficiency to the level that we want to get it to, I think that could be an opportunity for the future because others do it so badly that and what what's sort of held you back thus far of doing third party management? Simply that we wanted to make sure that we really refined our own processes and technology, and um, you know, at the moment you've got lots of um estate agents, etc., doing it as third party, third party management, and we have to be quite careful because you at the moment we curate the Granger brand, but then when you end up also doing it on behalf of pension funds and people with really trusted reputations, um you know, you you really need to know. I'm not saying that we've um we're not we're not good at what we do, but actually we're so good we don't want to share it right now until we get to a certain scale.

SPEAKER_03 28:39

The secret source staying in the cupboard. The um and just thinking about scaling more broadly, I mean uh you you said in your opening comments that you know you've tripled your your um your rental um income over the over your tenure. As you think about scale and the benefits of scale, how do you think about I don't know, cost efficiency on the product on the development side, the ability to sort of get to full lease in a scheme, you know, quicker in terms of some of the lifetime value of your customers, some of the rental opportunities, sort of how how how how important is is scale to to the city?

SPEAKER_01 29:15

It's fantastic in terms of what we're doing to our eBITDAR margin because uh of course um when you've got the platform and the technology, each home that you put on it, a greater proportion drops through to the bottom line. So these sort of eBITDAR margins improved from, believe it or not, at the start from 19%. Um we've put out that will be within six sixty percent in the next couple of years. And in fact, what's interesting about that is that um the group the big American um that have thousands of um thousands of units operate in the sort of sixties. And remember, what we're doing is we're pushing everything through that gross to net margin. So every refresh, every uh you know, everything goes through. We don't capex things as the German residential um um companies do. We put everything through, so we're keeping it at that really high standard.

SPEAKER_03 30:18

So it all goes through the PL. Okay, yeah, interesting. And then just thinking about development opportunities, you you've done a number of schemes with MOD, I think TFL, network rail. As you look across the UK, I mean obviously we we read all the time about local local government authorities, you know, strap for cash. Is that does that open up opportunities for you? Are there other big bodies that you can you can sort of partner up with? Yeah, I don't think opportunities.

SPEAKER_01 30:46

I think the you know one of the things that we've got to acknowledge in the UK is that so many so much of our land is owned by the public sector. And I would say one of the key ingredients is access to land in the right places. Um many of our customers do not have a car. Um one of the big things that we always look for is a walk score. So, how close are they to all the amenities, including public transport? And that's why our joint venture partnership with um TFL, adjacent to tube stations, and network rail adjacent to train stations, um, has been so um so important to our strategy. But there are other um, you know, we have a lot of people that live with us who are in the medical sector, for example. The NHS is a big owner of land. It happens to be very fragmented, but I can see the NHS. We have done joint ventures, we've got a joint venture at the moment with the London Borough of Lewish, and we had a large joint venture with Kensington and and Chelsea, and they have all sorts of things from old car parks and things like that, which again are really well connected town centre schemes, and we most of our homes are located in the town centre.

SPEAKER_03 32:05

Is the shopping is sort of disused shopping mall, shopping centres? Are they is that an opportunity for thinking about one of our other guests in uh retail?

SPEAKER_01 32:13

Yeah, and we have um and we do speak to uh the um major retail um uh retailers about um about this. I mean uh we did see of course John Lewis try to come in to build to rent and which I always thought was um slightly um slightly odd, but undoubtedly they've got the they've got the well-located assets.

SPEAKER_03 32:36

Yeah, yeah, yeah, yeah, yeah. Yeah, no, that this that again I think that could John Lewis could be another book, guys. We're creating a lot of opportunity.

SPEAKER_04 32:44

But just sort of probably a bit more, the TFL, that that seems like a match made in heaven in terms of where their sites are, they need cash, right? There's a but I I look at the progress that's been made since you start that, John Bencher, and it it seems quite modest. You know, it could have been much faster.

SPEAKER_01 33:00

Yes, I mean I think that's I think that's a fair point, and I think um the one thing about TFL is how much change we've seen in London in planning and in building regulation. And so, you know, every time we think we've got to the end and we're about to start on site, you know, something's introduced by the mayor or whatever. So that's it it it that has been a challenge. But I'm really pleased to say in um last month uh we started on um a scheme at um uh um in uh Chiswick with uh TFL, and so uh they're now they're now up and running, so they are um good, and they have so many sites. I mean, they've got the best located uh located sites, and we've got planning consent for more.

SPEAKER_03 33:45

So and just thinking about uh one other opportunity is just around data and technology. I mean, I I was actually originally going to frame this question around cost efficiency, but actually, so I'd like you to answer it from that point of view. But when you were talking about we know everything about people's dishwashers and washing machines, I I just wondered about the data opportunity in terms of revenue streams or or partnership. So can you just talk about two sides of the the data?

SPEAKER_01 34:09

So the data um the the data gives us real insight into all of our customers, and um I suppose I'm you know one of the things that we've you been using. I'm very fortunate my uh CFO comes actually from a data background. So we'd started this joint uh journey before he um joined the organisation, but he really has a great view on um you know how we can use that data more efficiently. And um, and now we're using uh machine learning, so we're using AI to look at the data. We get screened back through things like, for example, who who leaves us and why, and we can now start um looking at customers through that lens of whether they're likely to leave us or not, and what do we have to do to keep them, or in the case of you know, recruiting them in in the first place, and that's all through machine learning. So we can now um we're now sort of I think it's 89% accuracy, we can predict whether someone's likely to leave us, and actually they probably don't even know that, but you know they don't know.

SPEAKER_03 35:21

Yes, it's funny. We had uh Paul Whitehead on from Zupla, and he talked about a number of trigger points that he sees in their jer in their customer data that will again be much more predictive than you don't really realise that you're doing it, but you'll be looking at something, and he said with high degree of confidence that he can know when someone is gonna either try and buy a house, sell a house. Yeah, based on a lot of predictive yes, interesting.

SPEAKER_01 35:44

It's quite it's quite terrifying, but I think it's really helpful. And like most um uh companies adopting sort of AI, for example, at the moment, we actually have um we f feed a lot of our um inquiries through our website and we triage them. We have a we have a sort of team that will uh deal with the leasing, but we also have um an AI leasing person as well that can sort of triage the call and work out who should speak to them and and how.

SPEAKER_03 36:16

And has this had much of an impact on how you forward plan around what a scheme looks like and some of the amenities that sit within it?

SPEAKER_01 36:23

Or absolutely um we're taking uh because we've got our app, we have um people are feeding back to us information all the time on what they like and what they don't um what they don't like. And uh I I I find it fascinating that new entrants to the market and they will do really odd things in terms of immunity because they'll put things in that they assume people might want. But actually, if you've got an existing customer base, you know what customers really you know really want. You can spot the trends coming, you know, coming through.

SPEAKER_03 36:59

And have you got to a point where sort of customer lifetime value is a metric that you think about as a business? Absolutely, yeah. Okay, interesting.

unknown 37:06

Yeah.

SPEAKER_04 37:07

Um if we sort of um think about the investment proposition, I know a lot of UK fund managers in particular um sort of anchor and focus on NAV, but clearly there's a lot more to it than that in terms of quality of earnings, um, the ability for the terminal value to grow outside. How would you think um investors should think about value and granular?

SPEAKER_01 37:28

Yeah, so I I think it is around that earnings growth. And um Paul said at the start that you know we we have fantastic earnings growth coming through. I think the interesting thing is people are uh you know perhaps uh dispassionate about um NAV and you know saying it's a historic metric. I would argue that actually in the residential sector, it's probably one of the most accurate because um the depth of market to value a shopping centre or logistic warehouse, even a data centre, is very different from the huge volume of data that we have on what a what a home is worth. So actually, I'm not too worried about, or I'm not worried at all about our valuations, but the metric that we concentrate on is earnings because obviously that will drive as a re that will drive returns for shareholders.

SPEAKER_04 38:23

And present, you know, thinking about you know, we're in the city of London here, you know, the buildings seem to sort of become obsolete after you know 30 years, right?

SPEAKER_01 38:34

But you know, given that you're investing in the assets constantly, actually there's a terminal value there that then has the ability to and it grows as a you know, sort of we might not have seen so much uh capital value growth over recent times. Um I I thought it was quite interesting if you look at our NAV compared to a lot of the commercial property companies, it's held up, and the reason it's held up is not necessarily because of um you know have prices fallen, probably not very much actually in the residential sector, but actually because our rents have maintained that that growth. And so although the cap yield has moved out, actually the rental growth has been phenomenal and it's made up for it, and so that's kept the sort of the nav high. But the um so I think that's um that earnings growth will um you know will continue to come through even a sort of base base business case.

SPEAKER_04 39:29

And you've recently moved to REIT status. Is that a reflection of you know where you are on the journey in terms of the maturity of the model that you set out a decade ago?

SPEAKER_01 39:38

Yeah, well, I think the world's um REITs have really some very positive attributes for um certainly for retail investors and uh and also for certain um institutions and pension funds as well. And it I think it was a natural progression to um for us. Um people have actually said to me that the um, you know, why be a read, why not hold on to your dividend? But actually, if part of the market is to switch from being a uh buy to let investor to being an owner of Granger shares, actually, you'll want your dividend. So, you know, so so actually um and uh and we've always from the start of the journey tried to um even before we were REIT, trying to tag that dividend. Our dividend growth has been phenomenal. It has matched our rental growth over that period.

SPEAKER_03 40:33

Have you seen much of a change in your shareholder structure since you've moved into the the REIT status? I mean, has that brought a bit a few more American Americans in just because they recognize the asset class?

SPEAKER_01 40:43

It uh we were very we were very fortunate that actually our American shareholders um you know we told them about that journey and some of them were able to invest before beforehand. So it hasn't really meant a fundamental shift, but obviously we are optimistic that over time uh we only converted last September, so over time we expect it, expect it to grow.

SPEAKER_04 41:09

We've had a couple of property companies on the podcast and they they've talked about you know their NAV actually understating the value because the replacement cost of the assets would actually be higher than the NAV. Where would Granger be in there? Because presumably the complexity of recreating what you built over the last, well, over generations, but particularly the last 10 years, um that would be quite a challenge.

SPEAKER_01 41:31

Yeah, I think I think that's uh I think that's right. The um our values have have kept up. And you know, going back to the question you asked earlier, really, about um uh depreciation, um our rents have kept up as well. So that so so actually the replacement costs, it gets increasingly hard, as we know, to develop new new housing. But um and we couldn't recreate some of our schemes, certainly some of our central London schemes we couldn't create at the same uh quality and value. Um but I think that's probably um a function of the fact that more about the planning system and the cost of delivery than it is actually about you know, sort of where we are in the in the value journey.

SPEAKER_03 42:25

And how how much of an asset manager are you? I mean, how much how much um businesses um how how much of the portfolio are you looking at churning and disposing of it?

SPEAKER_01 42:34

Yeah, so that's a good question because we have um we've executed nearly two billion and of um recycling um since the start of the strategy and we've got another 900 million to go. Right. So that's our older stock that we recycle out of. But we do that classic um asset management thing where we rank the performance of every single one of our buildings and we also look at the potential for it to grow. And if something we think is not right for the platform and we can't drive it any further, we will we will sell it.

SPEAKER_04 43:10

And you talked about um sort of an aspiration investment return of about 8%, which I guess is kind of closer to 12% than current share price, yes, it's a shareholder today. So it's clearly a disconnect there. Um, you know, how do you think about that in terms of capital allocation buybacks versus new developments?

SPEAKER_01 43:29

Yeah, I mean it's a it's a it's a really interesting point. I think one of the things that has probably been misunderstood about Granger is that um obviously, like all real estate companies, we move with the guilt yield. So I think that's sort of that's been an overhang, really. It's really probably not given us credit for the fact that at the outbreak of the Ukraine war we fixed our debt for seven years in the mid three's so actually that's Is you know probably that overhang of debt costs hasn't hasn't been the same. But we've got a really clear capital allocation strategy. We put it out there about over a year ago now. And the first one is the obviously completing our pipeline that we've got on site. We need to use our recycling funds to do that. The second one for us is deleveraging. And then the third one has to include share buybacks if we're still trading at this sort of uh um business and it's at this level. But for me, to shrink the business is quite a tricky thing to do when everything I've spoken to you about is actually really about how having a bigger business is more efficient. Um, but it cannot be um ignored if it's um you know at the share price.

SPEAKER_03 44:52

Uh so Helen, just picking up on uh what you said about your share price tracking the guilt yield, um Mark and I have both worked in fund management. That seems like a kind of shorthand to thinking about real estate. Uh how how would you challenge that as a thematic?

SPEAKER_01 45:06

Yeah, and so the you obviously you've got the 10-year guilt, which is probably the biggest biggest influence on real estate. But I would argue for Granger, what you're actually we're delivering is an uh an inflationary linked. So what you shouldn't be looking at is the 10-year guilt. You should be looking at the index link guilt. And if you look at that, there's a huge margin of difference because you are getting that annual uplift, which is so um goes back a long, long way, linked to inflation.

SPEAKER_03 45:38

And just to challenge you there, maybe Helen, what what's the logic of that order being deleveraging second and then buy back third? I mean, if the discount to nav is sufficiently robust.

SPEAKER_01 45:49

It it because it is still, bearing in mind seven years rolling off of debt, right? It will still be more efficient to pay down our debt rather than take it on at the higher rate. Right, right.

SPEAKER_04 46:01

Fair enough. Yeah, like undervaluation is not uncommon for UK shares and it's been a sort of a constant topic on the conversations that we've had. But what do you think could be done to make the London equity market a little bit more vibrant and have a bit more life?

SPEAKER_01 46:17

Oh my goodness, that's another podcast series, isn't it? Um Well, there's there's a lot that um the UK needs to do to make it aim more investable. Uh, but one of the things that I think is uh I'm always saddened by is how um few uh retail investors we have in the UK by comparison, and we're missing um we're missing huge chunks of the market. Obviously, you know, because of the um uh the the sort of obsession with fixed income. We've lost a lot through that. We've lost um uh a lot through this, or we haven't gained the market share that maybe the US has in terms of personal investing in in shares. And I think you know it's things like this that actually make it more accessible to people. I don't think we make it easy for people to sort of invest personally.

SPEAKER_03 47:14

Yeah, there's certainly a lack of uh financial education in school affairs.

SPEAKER_01 47:18

Oh my goodness, yes, absolutely.

SPEAKER_03 47:21

Well, Helen, we're coming, we're coming to uh the wrap-up phase, the the time has flown by. Um, so I really kind of got two two questions for you, and if I can. Uh you've gone through, you you've talked about with us this morning, you know, the the tremendous evolution that that the business has seen over the last decade in terms of your portfolio from you know, if we were being a bit mean, maybe sort of slightly pedestrian, revisionary, you know, trade on the assets to being a much more of a growth platform, you know, you're creating building modern, high-quality rental assets, but you're still underappreciated by the market, as as Mark was asking you just then. So when we when we sit down with you in 10 years' time and we look back over the the previous or the next decade, what do you think are going to be some of the biggest changes that Granger will have gone through in the next 10 years?

SPEAKER_01 48:11

Well, I think uh I think obviously the the the growth story is so exciting because our market share of the overall rental market is quite is quite small. I think our operating platform is going to be the leverage uh to build in more third party capital. So we'll be probably working um with uh more sort of longer-term uh patient patient capital. And I think we're already got great regional uh representation, but you know, we I come back to that fundamental, which is we're a country with a a shortage of really high quality housing. And I think if there's one thing on sort of um, you know, 10 years' time, I think more people will be saying something I hear from our existing customers is I'm in a Granger building. And you know that the brand will be recognised as as uh really a signal for an exemplar place to live.

SPEAKER_03 49:12

And and just uh maybe a final one, what what do you think the market is really misunderstanding the most about about the business today?

SPEAKER_01 49:21

I think I think the um really that overhang of um the politics around housing, and that's uh I think that's uh one of the key things. I don't think people realise that we've got that strong growth in earnings, even from just what we're on site with at the moment. And I think the probably the third thing that people are are missing is that we've got uh nearly a billion of non-core assets to fund our growth. So the growth isn't reliant on us raising equity from the equity markets. We can keep going and delever, and if we want to buy back shares just from our recycling.

SPEAKER_03 50:02

Helen, that's very clear. Thank you very much for coming on the business case.

SPEAKER_01 50:06

Oh, thank you. It's great. Thanks, Helen.

SPEAKER_04 50:08

Thanks a lot. So, Phil, uh Helen at Granger, that was a great conversation. Um, you know, what were your main takeaways?

SPEAKER_03 50:15

Yeah, the um build to rent model is obviously a slightly different proposition from a couple of our other guests that we've had on real estate. I think um in a very understated way, you know, Helen has really driven significant change in this business. And um, you know, I think she made a quite compelling argument around the growth opportunities, the the benefits of scale. They she seems to have um you know the fact that they're selling on off some non-core assets to then drive the growth. But I think what what really struck me was was that she really focused on being an operator, and that was for her a really key part of the difference. And we we sort of touched on that a little bit, but that that was that was really interesting. What were some of your takeaways, Mark? You obviously knew the business from your uh former life.

SPEAKER_04 51:03

Well, I remember it when it was uh a much drier collection of reversionary um property assets, and I always admire companies that go through a transformation because if you do that in private markets, quite easy. If you're doing it in public markets, you're kind of replacing the engine of a car while still trying to drive it. Yeah, you know, that's what she's done over the last 10 years, and you've got a great portfolio of assets there and some some interesting relationships with people like TFL, which you know we get the the planning um working, and there's definitely upside there. So uh look a lot has been achieved, but it's still probably relatively early days in terms of seeing the benefit of that platform and as the business scales from here and now reach status. Um, you should start to see some of that operational gearing coming through.

SPEAKER_03 51:49

Yeah, well, I mean, um Helen was I think uh maybe being a little bit guarded when she was thinking about some of the upside opportunity on her EBITDA margins. So there seem to be several drivers or levers that they're pulling to for that. They've got this public target of 50% earnings growth um over the next five years. And it that all seemed to be predicated on the sort of existing operating model. And and as we touched on in the discussion, you know, this third-party joint venture opportunity, third-party asset management, which is a big deal for a number of other estate um real estate businesses. That that felt to me like maybe that was some upside that people hadn't necessarily appreciated. And I think she made quite an interesting argument at the end around why just looking at 10-year guilt yield isn't the right way of thinking about this business, you know, being index-linked. Residential for all of its faults, it is a it is a very stable performing asset class. And I think that that rental growth consistency is quite an attractive characteristic as of for an investment opportunity.

SPEAKER_04 52:49

And like a few companies we've had on the podcast, um, you know, this is a driver of our national prosperity. And sometimes you wish you could just kind of shake the government and sort of say, look, actually, companies like this, you really need to be making their lives easier and allowing them to accelerate their business model, which we'll all benefit from.

SPEAKER_03 53:07

Yeah, one topic I didn't I didn't feel we really sort of nailed with her was around the brand and how how important the brand is. I mean, obviously, Helen talked a bit about that, and and she's obviously very proud of people wanting to be in Granger properties. But yeah, but it'd be interesting to explore that and maybe in a future future discussion.

SPEAKER_04 53:25

Yeah, I think that just takes a long time. Um I think Barclay Group is probably the one company that's managed to do it in construction. But I mean, that took decades to get that sort of uh resonance.

SPEAKER_03 53:35

Great. Well, there we go. Another another uh hopefully very interesting uh discussion here on the business case podcast. We uh we're uh flying through season two. We've got some great guests lined up, but if you've got any feedback, please uh get in touch with us through uh social media channels.