Muscle Maker, Inc.GRI.LNASDAQ
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Helen Gordon: So good morning, everyone, and welcome to Grainger's full-year results. Once again, we have delivered an excellent performance as we continue to deliver strong growth in our earnings, in our income and in our margin with high occupancy and a Grainger product, which continues to deliver for customers and shareholders. So the agenda this morning is that I will take you through the highlights, Rob will take you through the financial results, including our compelling growth to come and our conversion to REIT status. And then, I'll go through our investment case, the strength of our market and give you a quick insight into one of our new openings. And I will explain how we're well positioned for the changes to renting that are due to come in from next May and how we are driving shareholder value. We'll then have time for Q&A with members of the senior leadership team. So I'm pleased to tell you that Grainger is now the U.K.'s leading residential REIT. It feels quite good to say that. We are a build-to-rent investor operator with a sector-leading portfolio of high-quality homes in the best location. Our fully integrated operational platform, enhanced by technology, is capable of scaling. And this operational platform gives us a real competitive advantage in a sector with high customer interface and where operational excellence is a barrier to entry. Our investment case of a real estate asset class that delivers inflation linking returns is proven. As you can see here, consistently tracking wage growth and as is our proven strategy, we continue to deliver earnings growth to our shareholders and great homes to our customers. So looking at our earnings growth, we continue to target GBP 60 million of earnings in full year '26 and GBP 72 million by full year '29 and that's a 50% growth from full year '24. There are 2 simple reasons. We have sustainable rental growth outlook, and we have strong underlying fundamentals. And our strong earnings growth will be delivered after absorbing higher interest rates. We're expecting rental growth to continue at 3% to 3.5%. And we have a resilient customer base to support this. We have strong underlying market fundamentals with regulatory certainty and no rent controls and growing demand and constrained supply. We're reducing debt, which Rob will cover later, and we have topline growth, and we are improving margin. So turning now to the highlights of our results. We've delivered another outstanding performance. Our net rental income is up 12%. Our like-for-like rental growth is up 3.6%, and we've delivered 12% earnings growth and 10% dividend growth. And our NTA, our asset value, has remained resilient at 298p per share. We continue to deliver operational excellence. We've delivered high occupancy at 98.1%, and we've secured strong customer retention at 61%. And we have good customer affordability. On average, our customers are paying 28% of their income on rent, which is below the market average. And we are delivering a sector-leading gross to net at 25%. That's a 75% rental margin. So overall, an excellent set of financial and operational results. We continue to optimize our portfolio through sales of older or non-core assets and our investment in our new products. We have recycled GBP 1.9 billion of assets since the start of our strategy, and we've sold GBP 640 million since September '22. We've been selling in line with valuations and proving the accuracy of valuations. And importantly, we have over GBP 900 million in non-core assets to fund our future growth and our deleveraging. We are a highly cash-generative business with over GBP 200 million in operational cash flows each year. And as we recycle out of this low-yielding non-core assets, we secure attractive income accretion. We have a very clear capital allocation strategy. We are always focused on maximizing returns for shareholders. Our current priority is to fund our committed pipeline of GBP 343 million, and there's just GBP 130 million remaining to invest. And it is this committed pipeline, which will deliver our earnings growth to GBP 72 million by full year '29, a 35% increase from today. And as a reminder, a 50% increase from full year '24. Then, we are deleveraging in line with plan. Our debt is fixed at low rates to full year '29. So this deleveraging will support our earnings growth and ensure an optimal capital structure. And as we continue to recycle, we can look at stabilized acquisitions, and we have also our secured and highly attractive, forward-funded and direct development opportunities. So we have further opportunities in our planning and legals pipeline. We have all these opportunities for future growth. And of course, we will assess these against other opportunities to return capital to shareholders. We have a capital allocation strategy delivering for shareholders in the short, in the medium and in the long term. So turning to our portfolio and pipeline, GBP 3.5 billion, that's over 11,000 homes. And our portfolio of regulated tenancies is just over GBP 0.5 billion, and our future pipeline is GBP 1.3 billion. Our committed pipeline is immediate. Of the GBP 343 million, there was only GBP 130 million to invest. And indeed, last week, we completed on 374 homes in Bristol, one of our strongest cities and with more homes being delivered in our pipeline in London and Guildford. We have a highly attractive secured pipeline for further growth, including our strategic JVs, and we have a portfolio of sites going through the planning process. So we have optionality for the future. And we have clear visibility on our earnings growth and our EBITDA margin expansion. Our growth story is compelling. Yes, this is my favorite side. We've delivered extraordinary growth over the last 10 years. We've been consistent in our delivery, growing our net rental income on average 14% per annum. Our EPRA earnings have grown dramatically through the development of our platform and the efficiency it delivers. Our EBITDA margin has improved from 19% to 56%, with more to come. So this momentum is continuing with strong growth in our income, in our earnings and with further EBITDA margin expansion. So in summary, we've delivered a strong performance. Our operational highlights are our conversion to a REIT, 98.1% occupancy achieved, robust rental growth secured at 3.6%. And now, we have the Renters' Rights Bill passed. We have real clarity on our future regulatory environment and no rent controls. We've delivered a strong financial performance, a 12% growth in our net rental income, 12% earnings growth and a strong sales performance and a 10% dividend increase. We have a very clear focus on how to drive returns for our shareholders. We're focused on maintaining occupancy and rental growth. We're focused on delivering strong compounding earnings growth. We're focused on cost efficiency and reducing net debt, and of course, continuing to deliver high-quality homes and great customer service. And I'll now hand over to Rob to take you through the detail.
Robert Hudson: Thank you, Helen, and good morning, everybody. Today, I'm going to run through the financial performance for the year and outline the very strong earnings growth that we have to come. FY '25 has been another period of excellent growth, demonstrating Grainger's resilience and our market-leading position. We've continued to deliver a strong operational performance with like-for-like rental growth of 3.6% and occupancy at 98%. Overall, total net rents continued their strong growth, up 12%. This resulted in strong earnings growth with EPRA earnings up 12%, and we're still targeting our GBP 60 million guidance for the coming year and a 35% increase to GBP 72 million by FY '29. Adjusted earnings were broadly flat at GBP 91 million, as the sales profits from our reducing regulated tenancy business are replaced with rental income from our pipeline. Our dividend per share increased by 10% to 8.3p, and EPRA NTA was resilient in the period at 298p. Now, looking at the income statements in more detail. Our overall like-for-like rental growth was strong at 3.6%. Stabilized gross to net was again flat at 25%, demonstrating our ongoing focus on cost efficiency. Overhead costs were up 4% in the year, in line with wage inflation. And looking forward, we're targeting GBP 2 million of cost savings with a GBP 1 million benefit in FY '26. So overall, this will mean that overheads will not grow for the next 2 years. Interest costs increased largely due to lower levels of capitalized interest and a slightly higher average interest rate during the year. EPRA earnings continued their strong growth trajectory, up 12%. And as a reminder, now, we're a REIT, this will be our key earnings metric going forward. As expected, sales profits were lower at GBP 37 million, in line with the reduction in the regulated portfolio size, and our sales are performing well and in line with book. Other adjustments include derivative valuation movements and a fire safety provision, which reflects a revision of cost estimates. Now, looking at the moving parts of our 12% increase in our net rent for the period. Strong occupancy and like-for-like rental growth of 3.6% contributed GBP 2 million. And this was driven by strong performances in both PRS at 3.4%, which is stabilizing back at long-run averages of 3% to 3.5% and our regulated portfolio of 6.6%. The strong lease-up performance of our recent pipeline deliveries has contributed an additional GBP 18 million of net rent. Our asset recycling program offset this growth by GBP 6 million. Looking forward, we'd expect rental growth to continue in line with the long-term average of 3% to 3.5% in FY '26. With the occupational markets back to normalized levels, we expect to see some seasonality in rental growth return with half 2 stronger than half 1 growth. This chart shows the key movements in NTA over the course of the year. Our EPRA NTA was maintained at 298p per share. Net rents and fees added 18p, with overheads and finance costs offsetting this by 11p. Overall, our portfolio valuation for the period was up 0.7%. And the PRS portfolio saw 1.1% valuation growth with ERV growth of 3.2% and a modest outward yield shift on some assets. Valuations on the regs portfolio were down 0.6%, demonstrating their resilience, and further details of the valuation can be seen on Page 45 in the appendices of this presentation. Now, turning to net debt. Net debt was broadly flat during the year at GBP 1.46 billion, in line with our plans. Operational cash flows remained strong with GBP 205 million generated and with disposals contributing GBP 169 million net of fees. The investments in our build-to-rent portfolio has now started to moderate, as we work our way through the committed pipeline, and there was GBP 133 million invested during the year, with a further GBP 130 million spent on the pipeline, and the majority of that being in FY '26. In line with our previously discussed capital allocation strategy, we'll continue to generate sales at current levels. These proceeds will be used to fund the committed pipeline and then go towards lowering leverage by GBP 300 million to GBP 350 million. Going forward, we, therefore, expect net debt to remain broadly flat for the coming year before starting to delever from FY '27. And our balance sheet remains in great shape. Both net debt at GBP 1.46 billion and LTV at 38% were broadly flat over the year, in line with our plans. We maintained strong liquidity and a robust hedging profile with rates fixed in the mid-3% range. As previously highlighted, we plan to reduce our net debt by GBP 300 million to GBP 350 million over the next 4 years, as we continue to sell through our lower-yielding non-core assets. We regard this as very deliverable given our continued strong performance on sales. This will see our net debt, it's around GBP 1.1 billion, and that will equate to around an 8x net debt-to-EBITDA and an LTV of 30%, which we see as the right capital structure in this current interest rate environment. As net debt is brought down over the medium term, this will help mitigate the impact of rising finance costs, as our low rate hedging rolls off, and that ensures continued strong earnings growth. REIT status has been a long-term ambition since the start of our strategy, and I'm pleased to say we successfully converted to a REIT back in September. The benefits to the business of being a REIT are substantial, as we no longer have to pay corporation tax on the profits of our build-to-rent business. And in the first year of FY '26 alone, this is expected to generate GBP 15 million of savings with this increasing as we deliver further growth. We see the resilient growth that our residential business delivers is arguably the perfect fit for the REIT structure with no impact on our business model or our strategy. And we're firmly committed to delivering a strong progressive dividend. Now, we're a REIT, our dividend policy will be to distribute at least 80% of EPRA earnings. In FY '26 and FY '27, we'll have a reg profits top up. Beyond that, we'd expect the dividend to be fully covered by our EPRA earnings. This will see a mid-single-digit growth over the next 4 years, as we absorb the full impact of interest rate increases. As a reminder, beyond the higher interest rate headwind, we're a business that will deliver strong organic earnings and dividend growth of around 5%, simply as a result of our 3% to 3.5% rental growth and operating leverage, and that's even without any further growth in scale. It's been a strong year of earnings growth in FY '25, but there is a lot more to come. The lease-up of our recent deliveries as well as the remaining committed pipeline will deliver an additional GBP 24 million of rent over the next 4 years. As a reminder, this pipeline only requires a further GBP 130 million of CapEx to deliver. This strong top line growth will ensure we continue to deliver very strong earnings growth, and we're targeting EPRA earnings guidance of GBP 60 million next year and a 50% increase in 5 years from FY '24 to GBP 72 million in FY '29. We see this growth as exceptionally strong, particularly as it's delivered through a period in which we'll absorb the full rebasing of our interest cost to market levels, which we currently assume to be 5.5%. The bridge on this slide breaks down the key drivers, including the benefits of like-for-like rental growth assumed at 3% to 3.5%. The yield pickup from recycling out of our lower-yielding reg's assets into our build-to-rent portfolio, scale efficiencies with EBITDA margins growing to over 60% and the mitigating impacts of reducing debt on higher interest rates. This growth is locked in with upside from delivery of further pipeline schemes or stabilized acquisitions. So to summarize, we've continued to deliver a very strong operational performance with rental income increasing by 12% and EPRA earnings also up by 12%. This growth is being delivered from a position of real financial strength. Our liquidity and our balance sheet are strong, giving us the flexibility through disposals to reduce our debt by GBP 300 million to GBP 350 million over the medium term, as we reinvest into our committed pipeline. We maintain our EPRA earnings guidance of GBP 60 million by FY '26 and GBP 72 million by FY '29 from the delivery of just our committed pipeline alone, whilst also fully absorbing the headwind of higher interest rates. This earnings growth is a major component of our medium-term total returns target of 8%, which we see as a low volatility return and which remains unchanged, assuming constant yields. And at the current share price, this would equate to a 12% return. With that, I'll now hand you back to Helen.
Helen Gordon: Thank you, Rob. In this section, I'm going to go through the 5 fundamentals of our investment case, and then, look at the performance of one of our new openings and also the Renters' Rights Act and our shareholder value creation model. Our investment case is compelling. We invest in a low-risk, low-volatility asset class with resilient and proven growth. We're in a market with exceptional fundamentals of housing supply shortages and growing demand. Our customer base is strong with a positive outlook for rental growth. And we now have certainty around our regulation following Royal Assent of the Renters' Rights Act. We have a sector-leading operational platform supported by technology, and this gives us great data and insights, and I'll now look at each of these in a little more detail. So residential is a low-risk investment with sustainable growth. Yes, it's lower yielding than some asset classes, but that is because it's lower risk. It has consistent year-on-year rental growth, and it has delivered above inflation rental growth. And residential rents and capital values have outperformed commercial real estate. This is underpinned by a supply shortage of homes. Our market fundamentals are strong, a shortage of supply and a growing population. We have in this country an estimated shortage of 4.3 million homes. And of the 5.6 million private rental homes, still only 2.5% are owned by professional build-to-rent landlords. Private landlords continue to exit the market, reducing supply, and fewer homes are being built. Recent revisions of the household growth show a 10% increase in household in the 10 years to 2032 and rental demand is set to grow by 20% in the 10 years to 2031. The structural supply and demand imbalance that underpins our sector has never been more acute. Our customer base is strong. On average, a Grainger customer earns around GBP 38,000 per annum. And the average Grainger household income is GBP 62,000 per annum. Our core demographic is in the 20 to 48 range, which tends to see the fastest earnings growth. Our customer base is very diverse. And as a reminder, we cap our student numbers. This diverse customer base and healthy affordability gives us confidence on future rental growth and occupancy. Now, last month, the Renters' Rights Bill achieved Royal Assent. This means we now have certainty on the regulatory outlook, and importantly, it rules out rent control. We contributed our insights to government throughout the process. The act is designed to raise standards, and we at Grainger are already delivering high standards. The proposed standards are consistent with our business model and our operational platform. And our customer-centric approach is embedded in Grainger's business. So the 5 key changes here are the abolition of no fault evictions, annual market rent reviews, pet-friendly policies, open-ended tenancies and decent home standards. And these align with our business model or current practices. The changes in our processes to comply with the act are already well advanced. We know the main measures will be introduced from the 1st of May 2026, and we're ready. So importantly, we now have certainty that rent controls do not form part of this important act. The final piece of our compelling investment case is our operational platform and how we deliver operational excellence. We've grown our offer supported by technology, and this gives us great insights into what our customers want. In our operational excellence, we have moved from instinct to insight. We use AI-driven sentiment analysis to inform our operations. And the data tells us what's important to our customers and what they want from a home. Now, this strengthens both our leasing and our customer retention. Our intuitive customer app as well as our friendly on-site residence team drive our excellent engagement and performance scores, and we sit ahead of many big brands in customer satisfaction and Net Promoter Scores. Building trust is no small feat for a landlord. Now turning to a recent case study, our latest opening in London is Seraphina at Fortunes Dock and it's opposite Canning Town transport interchange. Now, our commitment to this scheme was some time ago. However, even with outward yield movement, rental growth has more than compensated. It's a high-quality scheme, and it was delivered into our best letting season, which is late summer. And we allowed 12 months to lease up in our underwriting. But the lease up here in the first couple of months takes it to 88% let. Rental growth is ahead of underwriting, and the scheme forms part of 3 buildings: Argo, which was launched in 2017; Nautilus, which was launched in 2023; and Seraphina. And whilst there is a slight rental difference, our cluster strategy delivers consistent service. What I'm so proud of is that the rent differential between Argo and Seraphina is only GBP 60 a month. And that is evidence of the low depreciation and resilience of our product. Unlike other real estate asset classes, residential has lower depreciation and greater resilience. As a reminder, Argo is 8 years old, all refresh costs have gone through the gross to net, showing its resilience and lack of depreciation. Residential investment run well offers a true net yield. Grainger's shareholder value creation model is simple and clear. We're investing in high-quality rental homes in great locations with strong demand, and this investment is low risk. We have inflation linking rental growth and the efficiency of a sector-leading operational platform. We are expanding our EBITDA margin, and we have strong growth opportunities secured for now and the future. Our growth is funded. We have demonstrated our track record of disposals. We have a strong balance sheet, and we are lowering leverage. So what this means is that this proven model is built to deliver shareholders' excellent risk-adjusted returns. Thank you. I now invite you to ask questions, and I'll be joined by Rob Hudson, our Chief Financial Officer; Mike Keaveney, our Director of Land and Development; and Eliza Pattinson, our Director of Operations and Asset Management; and other senior leaders in the room. So anyone listening in, you can submit questions through the webcast, but we're going to take questions in the room first.
Helen Gordon: Chris, I've got my notepad because I know it will be a 3-parter.
Christopher Millington: I've learned the lesson there. Chris Millington at Deutsche. First one I'd like to ask is about this deleveraging and kind of how the strategy is working. So if we don't -- let's say, we don't get such a ramp-up in finance costs going forward, would you still look to delever to that extent? Or should we think it more you're managing the finance cost within the mix of earnings? I'll stop there and go again in a minute.
Robert Hudson: Yes, I think we'd always retain some level of flexibility, Chris. So if indeed, the outlook improves and interest rates start to fall a bit, we've modeled on current forward curves of 5.5%, then we'd obviously always aim to have a little bit of flexibility because we are thinking principally around preserving strong earnings growth in the business.
Christopher Millington: Very clear. Assuming your assumptions on the 5.5% are correct in the GBP 300 million, can you just talk about what capacity you've got to invest? What -- how should we think about the secured pipeline coming through and beyond and maybe stabilized acquisitions which you mentioned?
Helen Gordon: Yes. So you saw the slide, Chris, which actually had over GBP 900 million of capacity. And obviously, that sort of will grow over time. The main components of that are our regulated tenancy portfolio that we're working through strategic land portfolio and other older, non-core assets. So even with deleveraging, completing the pipeline because of our strong operational cash flow, we've got capacity to do our secured pipeline.
Christopher Millington: And when do you think we should start seeing that get committed to?
Helen Gordon: I think, as I mentioned, we'd look at that commitment in relation to all other options within the portfolios that deleveraging and also the investments in our existing pipeline. But obviously, as the Seraphina example shows, we make a commitment a couple of years out.
Christopher Millington: And then I just wanted to explore the valuation backdrop. Perhaps just a little bit of detail as to kind of what assets, regions drove the slight outward yield shift? And just what you're hearing from the value as in what you feel about the outlook for yields?
Helen Gordon: Yes. I mean, the interesting thing is how strong the investment market has been maintained for residential assets. We've seen some significant transactions. It was a few outward yield movements on some of our more regional portfolio, but it was literally 10 basis points outward yield movement there. And there were a couple of asset-specific movements. But overall, yields have been stable for the last couple of years, if you look at the valuers' charts.
Eleanor Frew: Eleanor Frew from Barclays. So occupancy levels are high, rental growth slowing a little. Can you talk about how you're thinking about balancing the 2 moving forwards? You're likely to prioritize keeping occupancy. And then maybe any comment on incentives used over the year and any planned?
Helen Gordon: Yes. Great question. I would -- that occupancy figure is exceptional at 98.1%. We model our business on a lower occupancy. What I always say is important is getting real estate income producing. It's probably one of the most important things you can do. That's sort of rather than keeping occupancy to drive topline rental growth. The new lets' figure that you saw in the numbers reflected the fact that in order -- because we got some late deliveries, if you like, into the year, we wanted to make sure that we went into the winter season with a really high level of occupancy. And so we did offer some incentives. So that blended rental growth just recognizes some small incentives that we made there, but occupancy and rental growth is something that the senior leadership team look at every single Monday morning in a lot of detail. So it's a really careful balance, and I think that anyone that's not looking at both might miss the picture.
Eleanor Frew: Great. Then, we understand the market participants that students are increasingly turning to BTR instead of PBSA. Is that something you've seen? And have you seen any pressure on your cap?
Helen Gordon: Students have obviously liked build-to-rent for a very long time. Our business model is to build long-term communities, which are most resilient, and therefore, have higher retention rate since students obviously churn more readily. So we've kept our buildings to make sure that students are only a small proportion and that means that we don't get that big summer churn when they finish their courses. But there's another reason for it as well, which is just that mix of young professionals and students doesn't always mix too many parties, I think. But we have -- there are certain cities where obviously, we've come under pressure to let more to students, and it's just really keeping very, very disciplined in order to ensure that we keep that balance of the community and prevent a high level of churn.
Thomas Musson: It's Tom Musson at Berenberg. You just mentioned on rent growth for the year ahead, I think to expect some sort of normal seasonality and growth higher in the second half. Can you just remind me what sort of dispersion is in terms of rent growth first half versus the second half?
Helen Gordon: I'm going to ask Rob to answer this in more detail in a moment. But one of the things I would say is that we've had quite an unusual market for the last few years. So -- this company is over 100 years old, and we always know that our best leasing season is the sort of late summer into the autumn. What happened during the pandemic and post pandemic is that, that changed with the way that the market went into fluctuation. And now, we're actually seeing it return to normal. But Rob, why don't you give some more detail on that?
Robert Hudson: Yes, absolutely. So the first point is we continue to guide for our long run rate of 3% to 3.5% for the year ahead. And that's because we're sitting with very healthy levels of affordability at 28%, which has been constant at that level for quite some time. And, of course, the fundamentals of demand and supply with supply shrinking and demand remaining strong. So, as Helen said, the market obviously has been quite exceptional for the past few years coming out of COVID. But we could expect something in the order of anything up to 100 basis points spread between the first and the second half, but still very much guiding towards the long run rate for the year ahead.
Thomas Musson: I just had a second one. You mentioned Bristol launched last week. Can you say -- I don't know if you have any early insight into how that's going? Any early demand there? Any chance that can be a successful lease-up as Seraphina?
Helen Gordon: We haven't actually launched it yet, but we -- there's a good buildup, and it sits within a really good cluster. And so we've got good insight into it being a very, very strong rental city and good sort of indication of demand. Eliza, do you want to say anything on that?
Eliza Pattinson: Yes. I guess, just going back to seasonality, we've done extremely well in all of our lease-ups in Bristol, but we are launching this building into the low seasonality of lettings. So we'll be doing prelaunches, pre-lets, and we have got good interest at the moment.
Helen Gordon: Neil?
Neil Green: Neil Green from JPMorgan. Just one, please. There were some initiatives announced in London, I think, last month around speeding up housebuilding activity, focus on the affordable element, but interested to get your take on whether you think this is the catalyst and also whether there's changed anything for Grainger when it comes to the future pipeline, please?
Helen Gordon: Yes. I'm going to turn to Mike to talk about this because he's pulled all over the guidance on it. But -- I mean, I think it's a really strong signal of how difficult people are finding it to actually build in London. And just to give you an idea, I think the stat that was out was -- new homes delivered in May was 19. That's total new homes. So you can imagine they do need to stimulate housebuilding in London, but Mike, why don't you talk about the detail?
Michael Keaveney: Sure. Thanks, Helen. So what was announced really were emergency measures around the fast track process for getting consents. And obviously, they dropped the amount of affordable housing that they expect from sites and also within that announced grant levels for the affordable housing. But it's really a signal that the GLA are listening to the fact that the housebuilding sector in London is under pressure from a viability perspective. And it's still going to be consulted through in the next 6 weeks or so. But I think it's a really welcome step that they realize, and it's not just build-to-rent, obviously, it's the house builders generally, that their viability models are struggling. And the right lever is affordable housing and grant. And so we welcome that.
Helen Gordon: Alastair?
Alastair Stewart: Alastair Stewart from Progressive. A couple of questions related to that. Recently, have you -- I know you -- your performance with the building safety regulator has been better than most. But what's your reading of the overall [Audio Gap].
Michael Keaveney: Definitely made a difference, and the big difference is engagement. So now developers in that process have someone they can speak to and talk about the process they're going through. And that's made a massive difference, I'd say. We recently achieved Gateway 2 approval with our partner in Guildford, and that was delivered in 22 weeks, which is much closer to the 12 weeks they originally started with. So we do see -- again, they are listening. They are trying to solve the problem and solve the problem without compromising safety. So yes, the direction of travel is good for that. In terms of the second question, the principle behind that is that there will be a dearth -- there's a backlog of residential development that needs to be -- that will get released through Gateway 2, and suddenly, it will all arrive at once. I think the emergency measures tell you something about that likelihood. The reality is you have Gateway 2 as a barrier, which is now being traversed. But after that, you have a viability issue on certain schemes around London, mainly with the house builders. So I -- and you'll see that the RPs are pulling back from development. So we don't see a massive increase in house building driving inflation. We see a steady progression of house building.
Helen Gordon: James?
James Carswell: James Carswell from Peel Hunt. Maybe a slight follow on from Chris's question. But just in terms of credit spreads and margins, it feels like they've probably come in looking at what some of the other REITs have done recently. I mean, where do you think -- if you were refinancing today, I appreciate you're not, where do you think your kind of marginal credit spread would be?
Robert Hudson: Yes. So based on our internal forecast and current rates, the all-in rate would be around 5.5%. So I think it's obviously true to say as obviously gilt yields have moved, then we've seen a country movement on credit spreads, but the all-in remains around 5.5%.
James Carswell: And then maybe just in terms of bigger picture, I mean, funding the kind of the next, I guess, phase of Grainger in terms of opportunities you're seeing, acquisitions, yes, how should we think about funding those? Because the non-core assets are kind of being used for the current pipeline and deleveraging. And is now a good time to maybe think about third-party capital? Is that under consideration?
Helen Gordon: We do look at third party, and the Board discuss it, the pros and cons of doing that. But James, we've got a lot of capacity and a big pipeline to go at that we can actually fund ourselves. And so it's obviously -- but we talk to partners all the time. And if there is a right opportunity. And, of course, we do have a joint venture with TfL on our strategic joint venture. So we are known as being good partners. So I wouldn't rule it out. But -- I mean, the great thing is we have clear visibility on how we can fund that secured pipeline. Any other questions? Kurt, you are going to fire some from the webcast.
Kurt Mueller: There are a few that have come in online. The first is from John Vuong, Van Lanschot Kempen. The #2 key positive drivers for NPS is the quality of the property. But at the same time, you mentioned that your assets have low depreciation and require minimal CapEx. How can you reconcile these 2 statements?
Helen Gordon: It's because we're constantly on top of them, and meaning, that we're refreshing all the time, and we're doing that through the 25% gross to net. So it's very different from, say, our European counterparts that do put their refresh costs -- capitalize their refresh costs. And just as a reminder to John, the majority of our portfolio has been built since 2017. So it is actually a very, very new portfolio. And when we designed it in our specification, we looked very, very carefully at the long-term use of finishes, which is why we invest in high-quality finishes to make sure it doesn't deteriorate as quickly.
Kurt Mueller: Next question is from Andres Toome of Green Street. What is the impact to yield on cost for schemes benefiting from lower affordability housing quota and the community infrastructure levy in London? We partly answered that, I think, before. And do you see any opportunities emerging from these changes?
Helen Gordon: Yes. So -- I mean, most of our schemes have been through the planning process. But, Mike, why don't you answer this?
Michael Keaveney: Yes. I think what lies behind the question is whether lower affordable housing and say, increased grant and that kind of combination would lead to greater returns, which is not quite the point of what the emergency measures are trying to do. The emergency measures are trying to bring back viability to housebuilders so that they make their returns. If you created a scenario where super normal returns were delivered through that, they would pull back. And so really, the benefit is that the housebuilders, the general housebuilders should be able to hit their viability returns, not make supernormal profits.
Kurt Mueller: One final question from online. Dr. Francis Jardine, I believe, a private shareholder. "I have investments in over 20 REITs, who pay quarterly dividends, does the Board of Grainger intend to consider paying quarterly dividends going forward? Doing so is only a question of managing cash flow".
Helen Gordon: We pay -- obviously, we pay half yearly dividends, as a reminder. I will make sure that the Board discussed it at the next meeting.
Kurt Mueller: That's it from online.
Helen Gordon: Any other questions in the room? Chris, another one?
Christopher Millington: It's as I was getting through to the appendix on the presentation. But I notice now we've got London and Southeast net initial yields, quite tight versus the rest of the country, actually, a little bit below where you're holding in the Southwest. I think it's 4.3%, place 4.1%. What do you think of the relative attractiveness of London now you've seen that sort of convergence?
Helen Gordon: Yes. I think it comes from the fundamentals of our sector, which is you've got a shortage of supply across the whole country. So you've got occupancy, and therefore, sort of they have converged the biggest -- I haven't put it in this year, but it is in the appendices. It is my chart where I show where is the best rental city. And the best rental city for obvious reasons is London. So I would argue -- I have to be careful, I think, we've got the values in the room, but I would argue that the London yields are too cautious. For most of my career, London yields have been significantly lower than where they sit today. No more questions. Thank you very much for getting up early and coming and joining us this morning. Any other questions, we will be around for a little while before I think another property company comes in here. So thank you.