BULL POINTS:
■ Cavernous discount to net asset value
■ Refinancing soon to be completed
■ Impressive investment deals
■ Still paying a dividend
BEAR POINTS:
■ Refinancing terms
■ Property market weak
Shares in Aim (Alternative Investment Market)-traded property developer Terrace Hill currently trade at a vast 58 per cent discount to net asset value (NAV) - a gap which Oriel Securities real estate analyst Charlie Foster believes is the largest in the property sector. This is in stark contrast to many peers, whose share prices have bounced back to trade at a small premium to NAV. The valuation anomaly at Terrace Hill is mainly due to the uncertainty caused by an ongoing £344m refinancing process. However, this has now been "agreed in principle"and there is every reason to believe that it will be formally concluded by Christmas.
Finance director Jon Austen confirms that refinancing terms have now been formally documented on loans totalling £82.5m. Terms on a further £38.5m have been agreed by credit committees, and should conclude within two weeks. This leaves a £208m loan within the group's residential joint venture with Skye Investments, a company controlled by Terrace Hill's chairman Robert Adair.
| TERRACE HILL (THG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 17p | MARKET VALUE: | £36m | |
| TOUCH: | 16.5-17.5p | 12-MONTH HIGH: | 26p | LOW: 13p |
| DIVIDEND YIELD: | 5% | TRADING STOCK: | nil | |
| DISCOUNT TO NAV: | 58% | |||
| INVEST PROPERTIES: | £45.8m | NET DEBT: | 133% | |
| Year to 30 Oct | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 42.0 | 4.24 | 1.86 | 1.00 |
| 2006 | 57.0 | 25.8 | 13.0 | 1.40 |
| 2007 | 65.0 | 18.1 | 7.33 | 1.90 |
| 2008 | 49.0 | -31.6 | -12.9 | 1.34 |
| 2009* | 40.0 | na | na | 0.90 |
| % change | -18 | - | - | -33 |
Normal market size: 15,000 Market makers: 4 Beta: 0.58 *Forecast from broker Oriel Securities | ||||
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Terms were agreed in July, but the group is currently investigating restructuring the debt further, possibly by bringing in another lender. "We feel it would be short-sighted not to explore this option. Either way we hope to get it nailed by the end of this year," says Mr Austen.
While there is every indication that the refinancing will complete, higher margins on loans are a certainty. So far, combined arrangement fees and exit fees on completed deals are typically 1 per cent of the loan value, but the lion's share will be payable as an exit fee. "This way, the pain comes later, and will hopefully be associated with a successful exit from the investments the loans are financing," adds Mr Austen. So it's worth noting that the group's development activities are progressing well despite the property slump. Last week, Terrace Hill secured £28m of forward funding from Aviva to develop a retail scheme pre-let to Sainsbury's.
