A fall in the value of UK commercial and residential properties has dented the performance of developer Terrace Hill during the first six months of its financial year.

With rental growth stalling across the country and valuations falling, Terrace Hill’s standard business of achieving new lettings and planning permissions has provided only a mitigating effect. Including a drop of more than 3% in its UK residential values, the group’s triple net asset value, which includes work in progress and subtracts theoretical tax and goodwill, shrank by 9.4% to 75.8p per share in the half-year to April.

This was a stronger performance than the market has given most property companies credit for, and the company’s entrepreneurial leaders, chairman Robert Adair and chief executive Philip Leech, have maintained a pretty steady ship. They have been helped, in the case of their residential portfolio, by mostly focusing on west Scotland and South East England, where values have only fallen by around 1%.

Although the depressed market is putting a damper on their usual relentlessly entrepreneurial spirit, Adair expects banks to ‘get nasty’ later this year, creating ‘a number of opportunities – corporate as well as site purchases’. Although he thinks ‘prime’ property is ‘not far off the bottom’, ‘secondary’ real estate, the type generally bought by property investors and hence more dependent on bank funding, ‘has further to fall’.

With gearing a modest 34%, Adair and Leech can currently call on over £60m of cash and unused debt facilities and will look to be ‘pretty aggressive’. But the best that the team can hope for in the short term is to outperform the sector. Speculators might dip in when they feel a bottom has been touched, but as all property shares are likely to be erratic performers, Terrace Hill is perhaps best avoided for now.

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