Net Asset Values
As Grainger is currently predominantly asset based, measurements of net asset value are key performance indicators for the group.
There are three particular net asset calculations we present, which facilitate comparison with our peers, while reflecting the somewhat unique nature of our business.
Briefly, these are
- Gross Net Asset Value (NAV)
- Triple Net Asset Value (NNNAV)
- Grainger Net Asset value (GNAV)
And how each of these is calculated is explained in detail below.
These are presented in the order in which they are naturally calculated, however we believe that Grainger Net Asset Value is the most meaningful KPI, especially when sensitised for varying assumptions.
Gross Net Assets Per Share
What it means:
This measure gives the market value net assets per share before any deductions for deferred
tax this is tax which is effectively accruing because the values of the properties are
rising - tax will be eventually payable on the gain on revaluation gains and adding back any
IAS 39 adjustments these are adjustments required to reflect the market value of our fixed
rate debt and other financial instruments within our balance sheet. We use the EPRA European Public Real Estate Association definition.
How it is calculated:
Starting with our statutory balance sheet the balance sheet drawn up under IFRS,
the assets we hold as stock are uplifted from cost to open market value – we refer to this
value as the investment value (IV) the open market value of property subject to the
particular type of tenancy in place. Similarly, where we hold any investments in companies (eg joint ventures),
where a stock uplift (or similar) is necessary, then this is likewise adjusted.
Next, any goodwill an accounting adjustment which reflects the excess of consideration paid
for a company over the fair value of the assets acquired in the balance sheet is eliminated.
After that, add or subtract back any adjustments made for IAS 39 the financial reporting standard governing financial instruments. (The adjustments made to mark to market and
interest rate hedges etc).
Finally add back the deferred tax this is tax which is effectively accruing because the
values of the properties are rising – tax will be eventually payable on the gain already
provided on revaluation gains in the statutory balance sheet.
The resultant NAV balance sheet therefore fundamentally contains properties (whether held
directly or indirectly) at IV, cash, debt at historic cost, and any other net
assets/liabilities (eg tenant arrears, accruals).
To obtain the NAV per share, the total balance sheet value is then divided by the number of
shares in issue.
Sensitive to:
Gross NAV is particularly sensitive to house price inflation.
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Triple Net Asset Value Per Share (NNNAV)
What it means:
This measure gives the market value net assets per share after deducting all deferred tax this is tax which is effectively accruing because the values of the properties are rising – tax will be eventually payable on the gain
and contingent tax similarly to deferred tax, this is tax which is accruing because of an increase in the value of the properties – we refer to contingent tax rather than deferred tax when it is tax that is not required to be provided in the statutory balance sheet – there is no other difference
on revaluation gains and after applying any IAS 39 adjustments these are adjustments required to reflect the market value of our fixed rate debt and other financial instruments within our balance sheet.
How it is calculated:
Starting with the gross NAV balance sheet as described above, all contingent and deferred tax
should be deducted. The tax is calculated as 30% of the difference between the IV and the
tax base costs of the properties. This therefore represents the tax that would crystalise
if every property was sold individually today, and thus the tax is immediately payable.
The IAS 39 adjustments these are adjustments required to reflect the market value of our
fixed rate debt and other financial instruments within our balance sheet are then returned to the balance sheet,
back to the IFRS position.
The resultant NNNAV balance sheet therefore effectively represents an inefficient break up
value, with all assets and liabilities marked to market, and all tax on property gains fully
provided.
To obtain the NNNAV per share, the total NNNAV balance sheet value is then divided by the
number of shares in issue.
As noted above, the deduction for deferred and contingent tax assumes that all of the tax
on the revaluation gains in our portfolio is payable immediately. With our long term
reversionary portfolios (regulated and equity release) the assets will only be sold when
vacancy arises and this will be some time in the future. As we know the average age of our
tenants we can estimate the timing of the vacancy and therefore also the timing of the
crystallisation of the tax liability. It is therefore reasonable to discount this liability.
Sensitive to:
NNNAV is also particularly sensitive to house price inflation.
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Grainger NAV (GNAV)
What it means:
Grainger’s business model is to purchase assets subject to tenancies at a discount to vacant
possession value, hold the asset until it falls vacant, then sell at full vacant possession
value. GNAV recognises that there is value in this
reversionary surplus this is the difference between the vacant possession value of the
property and the investment value – ie the value subject to the tenancy embedded in the
portfolio and attempts to measure this.
How it is calculated:
We can estimate the average age of our tenants, therefore we can estimate the expected numbers of years until we achieve vacancy.
The reversionary surplus existing on the regulated and equity release portfolios is
discounted over that number of years using a rate of WACC plus 3%, and tax is deducted at 28% (30% for March 07 and prior). This taxed, discounted
reversionary surplus is divided by the number of shares in issue to get the surplus per share.
The taxed, discounted surplus per share is added to the NNNAV per share as described above.
The result is a prudent measure of the value of the reversionary surplus added to NNNAV,
since no hpi is assumed, and the discount rate is relatively high.
Variations:
We present a sensitised GNAV, by applying hpi just to the
reversionary surplus this is the difference between the vacant possession value of the
property and the investment value – ie the value subject to the tenancy, and by altering
the discount rate this is the percentage rate used to value future cash flows in today’s
worth, bearing in mind the time value of money and the inherent risks in the cashflowsused to calculate the present value.
Further, GNAV is based on NNNAV, and as noted above, this assumes that the contingent and
deferred tax in that measure is payable immediately. A further sensitivity is introduced
as to the preferred stance on this issue.
We appreciate that there are many different combinations of the above sensitivities that
will interest different people. We have therefore provided a Grainger NAV Calculator, which
calculates GNAV based on the choices for each of the above key assumptions input by the user.
The calculator can be used based on any 6 month period end on or after 30 September 2006. We have also provided a
Grainger NAV Scenario Tester, to allow ease of comparison of several different sets of
assumptions.
As we do not have complete information on the ages of our regulated tenants, we can only
estimate their average age. In addition, we estimate their expected life expectancy. A change
in this assumption would further increase the sensitivities.
Sensitive to:
GNAV is sensitive to house price inflation and the discount rate this is the percentage
rate used to value future cash flows in today's worth, bearing in mind the time value of
money and the inherent risks in the cashflows applied, as well as the decision whether or not
to discount the deferred and contingent tax included within NNNAV.
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Use the Grainger NAV Calculator >
Use the Grainger NAV Scenario Tester >
If you have any further questions, you may find these in our FAQs.
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