Grainger (GRI) has had a good year. The shares are up from 70p to 253p, and the Investors Chronicle has it down as a buy.
It fits with a couple of major themes this year. First, it's one of the 'performing dogs' - like Enterprise Inns, £PUBS , and a lot of the smaller property stocks, it had uncomfortably high debt (partly as a result of downwards asset revaluations which destroyed its collateral). Having managed to refinance, has become much more attractive than it was earlier this year. Secondly, it's a residential property stock, and as recent months have shown the housing market perhaps not hotting up exactly, but certainly thawing, it's benefited just as much as housebuilders like Taylor Wimpey Plc
Grainger is a rather unusual beast as its basic business is renting residential property. And it's not just any old buy-to-let investor; it specialises in regulated tenancies and home reversions. These are naturally longer term lets, more akin to commercial tenancies than to the usual assured shorthold tenancy with its six-month break point. Grainger claims to be the UK's largest specialist residential property owner, and it is also involved in the German market. It's certainlya major player in the home reversions market with a 34% share [1] .
Within the UK, it is geographically diverse; 54% of the portfolio is in London and the South East. The core traditional business, regulated tenancies, accounts for almost half the total market value. Retirement solutions - that is, reversion plans (home equity) account for a further 22%, and the German business is at about the same level. The remainder is split between property fund management and development; that's really quite a low exposure to development
These are all rather specialised markets and that may mean the assets aren't as liquid as more conventional residential properties. For instance, the home reversion plans are regulated, so while the tenants are still living in the properties, they can only be sold to a limited number of buyers [2] . Regulated tenancies are more sought after; since no new ones have been created since the law on tenancies changed in 1989, the asset class is getting smaller every year. (Of course, that means Grainger is having to change its business model to survive - otherwise it would just have to become a run-off investment, and that would…
