Grainger at yawning NAV discount

In the 12-month period, £63m-worth of residential acquisitions were made (including the £17m purchase of a portfolio in Devon), compared with just £12m in 2009. Tenanted properties were acquired at an average 30 per cent discount to vacant possession value.

Its takeover of Aim-traded equity release specialist in August was a shrewd deal, netting the company £68m of home reversion assets for a buyout price of £34m, or around 11 per cent below NAV. Now the clear market leader in shared equity solutions, as the portfolio turns over and sales come through, a 50 per cent stake sale to Moorfield ensures Grainger's cash reserves are being effectively deployed.

Sales of maturing UK properties netted £150m in total and, although volumes were lower than last year, values were 6.6 per cent ahead, easily outperforming average house price rises. Moreover, the margin achieved was 38.5 per cent above historical cost, up from 27.8 per cent a year ago, boosting operating profits by 19.5 per cent to £94.2m. However, a near £40m charge for marking property derivative contracts to market resulted in the reported pre-tax loss.

Overall, the UK residential investment portfolio booked a valuation gain of 4.8 per cent, although Germany saw a decline of less than 1 per cent. Selling down a €50m-€100m equity stake in the growing German portfolio is the target for next year.

However, analysts fear that 2011 will be a shocking year for UK house prices. Analyst Keith Crawford at broker KBC Peel Hunt anticipates house price falls of 15 per cent next year, and has reduced his adjusted 2011 NAV forecasts from 190p to 150p a share. He notes, though, that property values would have to fall by a third before Grainger's banking covenants are in danger of being breached.

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