Grantchester Holdings

Citation

Temple, P. (1998), "Grantchester Holdings", Journal of Property Valuation and Investment, Vol. 16 No. 1. https://doi.org/10.1108/jpvi.1998.11216aad.003

Grantchester Holdings

Grantchester Holdings

Accounts for Year to September 1997

By any yardstick, the past year has been a remarkable one for the company, which has a very short history and only listed in November 1996. NAV on listing was 81p compared to the current share price of 160p. NAV since listing has increased by 80 per cent to end the year at 131p. Moreover the group tapped into the City's enthusiasm by launching a rights issue in February and a highly successful £100m debenture in September, notable for the lack of a loan-to-value to covenant.

Grantchester's main speciality is in retail warehouses and some £200m worth of this type of property was acquired during the year, amounting to around 1.5m sq. ft. The advantage of starting from scratch in this way is that the properties so far acquired all have long unexpired lease terms ­ the average for the portfolio is 23 years. Covenants are very sound indeed and retail warehouse rents have been one of the most consistent areas of rental growth in the property sector, growing at close to 5 per cent per annum over the last five years. ERV growth in this area for the industry was 9.6 per cent in the year to September: in the case of the group's properties the figure was some 16 per cent, although some of this is acknowledged to be exceptional.

The group purchased 18 schemes in the course of the year on an average yield in the region of 7.5 per cent, and rental levels of around £9 per sq. ft. According to research quoted by the company in the accounts, most occupiers "could afford" rents of £15, suggesting a sharp uplift in value for the portfolio. The company also has options over land relating a further potential 1m sq. ft of space, compared to the present let area of 1.4m spread over 70 sites.

Current annualised rental income is in the region of £18m (£12.2m during the year), compared with interest costs of around £11m, which looks sound enough.

However, the company's growth is predicated to a degree on a continuing buoyant demand for space. This may prove to be the case, but it is probably worth being aware that retailers spending plans could shift dramatically in the event of a more difficult economic environment for the consumer, while the planning regime for new out-of-town developments is unquestionably getting tougher. Against that, potential for expanding additional space is there ­ the group managed to gains consents last year covering 134,000 sq. ft of space and close to another 200,000 is currently being pursued.

One interesting aspect of the accounts is the incorporation of a DCF valuation in addition to the more normal one based on RICS guidelines. This is particularly suitable given the security and stability of the group's income and its long lease periods. On the basis of assumptions of retail price inflation of 3 per cent per annum, land inflation of 3 per cent and rental growth of 3.5 per cent (a conservative figure by recent standards), the DCF valuation on a discount rate of 9 per cent works out £238m compared with a RICS value of £209m.

This suggests considerable underpinning for a property portfolio which is in any event expected to grow substantially again this year. The shares have been something of a roller-coaster ride for investors this year, falling during the summer but rising following the bond issue in September only to fall back a little more recently. They remain at a premium to historic NAV and have very solid institutional backing.