GRIO Ground Rents Income Fund Plc

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE. THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL BE MADE EVEN IF THE PRE-CONDITIONS ARE SATISFIED OR WAIVED

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

8 January 2025

POSSIBLE CASH OFFER

by

VICTORIA PROPERTY HOLDINGS LIMITED

for

GROUND RENTS INCOME FUND PLC

Victoria Property Holdings Limited ("Victoria Property", "we") has closely followed Ground Rents Income Fund plc ("GRIO" or the "Company"), its public disclosures, and its interaction with shareholders and the market over the last year. We see a mature business which has been navigating wider residential market uncertainty, which we expect to continue into the medium-term.

Victoria Property is part of the Martin Property Group ("MPG"); the name attributed to a family run, sophisticated real estate investment and development group of companies. MPG is focused on the acquisition and strategic repositioning of commercial, residential, retail and industrial assets across the UK and Ireland. MPG has built a substantial UK real estate portfolio over a forty-five-year period and pride themselves on completing complex projects whilst working with multiple stakeholders.  

Victoria Property announces that it submitted three non-binding indicative offers to the Board of GRIO in November and December 2024, for the entire issued and to be issued share capital of GRIO (the "Prior Offers"). Despite increasing our indicative offers on two occasions, the Board has declined to engage with Victoria Property and rejected each of the Prior Offers.

Victoria Property is today announcing a possible cash offer for GRIO, including the principal terms and conditions pursuant to which Victoria Property would propose to acquire the entire issued and to be issued share capital of GRIO (the "Possible Offer"). The Possible Offer price is the same price put to the Board of GRIO in the third of the Prior Offers.

1.   THE POSSIBLE OFFER

Under the terms of the Possible Offer (the "Possible Offer Terms"), GRIO shareholders would be entitled to receive:

34.00 pence in cash for each GRIO share

The Board of Victoria Property firmly believes that this is a highly attractive price, which represents:

·    a 48.5% premium to the GRIO closing share price of 22.90 pence as at close of business on 7 January 2025, being the latest practicable date prior to the date of this announcement;

·    a 56.1% premium to the volume-weighted average price of 21.78 pence for the one-month period up to 7 January 2025;

·    a 57.1% premium to the volume-weighted average price of 21.64 pence for the three-month period up to 7 January 2025; and

·    a price in excess of the Company's highest closing share price at any point over the last 12 months.

The Possible Offer implies a valuation of approximately £32.5 million for the entire issued and to be issued share capital of GRIO.

It is proposed that the cash consideration payable by Victoria Property pursuant to the Possible Offer Terms would be funded from Victoria Property's available cash resources.

The Board of Victoria Property firmly believes that GRIO shareholders would want to assess the Possible Offer Terms and the opportunity to realise a cash exit, and we therefore encourage GRIO shareholders to urge the Board of GRIO to engage with Victoria Property, to deliver what we consider to be a highly attractive outcome for GRIO shareholders.

2.   BACKGROUND

On 24 April 2023, the Company secured support from GRIO shareholders for a revised Investment Policy, the primary focus of which was to liquidate the Company's portfolio in a controlled, orderly and timely manner, and return capital to its shareholders. Since the time of adoption over 20 months ago, the Company has announced the sale of only three assets representing a cumulative ~£11m of the portfolio, all in the more resilient student sector⁽¹⁾.

We believe the Company's current Investment Policy will entail a prolonged exit period of many years with elevated operating costs, without certainty on the terms or timing of a full exit.

Victoria Property has submitted three non-binding indicative offers to the Board of GRIO for the entire issued and to be issued share capital of GRIO. The Board of GRIO has declined to engage with Victoria Property and rejected each of the Prior Offers. We consider the brief responses received to be wholly unsatisfactory. All three of the Prior Offers were at premiums to the GRIO share price at the time made and we believe they would have provided an attractive exit opportunity for all GRIO shareholders. The third of the Prior Offers was also of 34.00 pence. Each of the Prior Offers were for all-cash consideration.

On 18 November 2024, GRIO shareholders approved the continuation of the Company at an Extraordinary General Meeting. Based on this, we understand the Board of GRIO believes that GRIO shareholders expect that any sale of the Company's portfolio in its entirety should be made via an open market process. The EGM Circular only presented two options to shareholders and, as expected, GRIO shareholders supported what we believe was the least unfavourable of those options. However, our Prior Offers provided, and the Possible Offer now provides, a highly attractive third option that, if a firm offer were made, would provide GRIO shareholders with a full, all-cash exit, without what we believe to be the execution risk and elevated operating expense associated with the current Investment Policy, that we believe could take several years to implement.

3.   STRATEGIC RATIONALE: THE POSSIBLE OFFER IS AN ATTRACTIVE ALTERNATIVE TO THE COMPANY'S CURRENT INVESTMENT POLICY

Exit option at a premium to the recent share price and above the Company's highest closing share price over the last 12 months

The all-cash Possible Offer is at a price in excess of the Company's highest closing share price at any point over the last 12 months and would provide a liquidity event for all GRIO shareholders.

We believe the current Investment Policy is expected to entail a prolonged exit period of many years with elevated operating costs

We firmly believe that there is a potential opportunity cost to GRIO shareholders, compared to the Possible Offer, to realise value through the Company's Investment Policy over several years. The Board of Victoria Property believes that the timescale within which the Company's Investment Policy can be fully implemented is likely to be significant, given our experience of the current investor market for residential freehold assets (which comprise the majority of the Company's assets). The Company may continue to incur elevated operating costs, with fund management fees currently in excess of base fee levels, for the life of a prolonged realisation programme.

The current Investment Policy carries risk, and we believe does not provide a certain exit of the entire portfolio for GRIO shareholders

Since the Company's revised Investment Policy was first approved in April 2023, it has announced the sale of three assets (for a cumulative ~£11m), all in the more resilient student sector⁽¹⁾. We believe there is a scenario where the Company continues to sell its better-quality assets, where there is market demand, but is left with a portfolio of less desirable assets that will be difficult to exit.

In the latest annual accounts (year to September 2023), uncertainty relating to the extent of leasehold reform and building safety costs and related matters led to the Board and GRIO's Manager to note there are factors which may materially affect the Company's status as a going concern in the future. This resulted in an Emphasis of Matter audit opinion relating to Going Concern.

We firmly believe the recent asset sale of ~10% of portfolio value has not materially improved sentiment around GRIO's shares and has not improved shareholder value

The Company's announcement on 19 November 2024 of the disposal of the Company's largest asset, both in-line with the current Investment Policy and in-line with the asset's recent valuation, did not have a material positive impact on the share price in our view. We believe there remains a continued lack of marginal investors in the equity markets for this sector.

4.   PRE-CONDITIONS TO THE MAKING OF ANY FIRM OFFER

The announcement of any firm intention to make an offer for GRIO by Victoria Property under Rule 2.7 of the Code is subject to the satisfaction or waiver of a number of customary pre-conditions, including, amongst other things (the "Pre-Conditions"):

·    the unanimous and unqualified recommendation of the transaction by the Board of GRIO, having been advised by an independent financial adviser for the purposes of Rule 3 of the Code;

·    receipt of irrevocable undertakings from the Directors of GRIO, to vote in favour of or accept the offer in respect of their legal and/or beneficial share holdings, such undertakings, as is customary, to be binding in the event of a higher competing offer and otherwise in a form acceptable to Victoria Property;

·    satisfactory completion of a customary focused confirmatory due diligence exercise on GRIO; and

·    final approval of the Board of Victoria Property.

All Pre-Conditions are waivable in whole or in part at Victoria Property's discretion. Any offer would be subject to terms and conditions customary for a recommended takeover regulated by the Code, including receipt of all applicable regulatory clearances and authorisations. There can be no certainty that any firm offer will be made, even if the pre-conditions are satisfied or waived.

5.   OTHER INFORMATION

For the purposes of Rule 2.5(a) of the Code, Victoria Property reserves the right to vary the terms of the Possible Offer, including making a firm offer for GRIO on less favourable terms than the Possible Offer Terms:

·    with the agreement of the GRIO Board; or

·    if a third party announces (after the date of this announcement) a firm intention to make an offer under Rule 2.7 of the Code or a possible offer under Rule 2.4 of the Code for GRIO which, at that date, is of a value less than the value implied by the Possible Offer Terms; or

·    following the announcement of a Rule 9 waiver transaction pursuant to the Code, or a reverse takeover (as defined in the Code).

In addition, Victoria Property reserves the right to introduce other forms of consideration and/or vary the mix or composition of consideration of any firm offer, if made.

In accordance with the Code, Victoria Property reserves the right to reduce the Possible Offer Terms by the aggregate amount of any dividend (or other distribution or return of capital), which is announced, declared, paid or becomes payable by GRIO after the date of this announcement.

In accordance with Rule 2.6(a) of the Code, Victoria Property is required, by not later than 5.00 p.m. (UK time) on 5 February 2025, either to announce a firm intention to make an offer for GRIO in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for GRIO, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. In accordance with Rule 2.6(c) of the Code, the above deadline may be extended at the request of the GRIO Board and with the consent of the Panel on Takeovers and Mergers (the "Panel").

THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CODE AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE AND THERE CAN BE NO CERTAINTY THAT ANY FIRM OFFER WILL BE MADE EVEN IF THE PRE-CONDITIONS ARE SATISFIED OR WAIVED.

This announcement does not constitute an offer for sale of any securities or an invitation to purchase or subscribe for any securities.

A further announcement will be made if and when appropriate.

This announcement has been made without the consent of GRIO.

Enquiries:

Notes

1.   Three announced asset disposals representing a cumulative ~£11m. The Company announced two assets for a combined price of £3.45m on 23 February 2024 and a third asset for a price of £7.9m on 19 November 2024. Total price of £11.35m.

Important notices

Ernst & Young LLP ("EY"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Victoria Property and for no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Victoria Property for providing the protections afforded to clients of EY, or for providing advice in connection with the matters described in this announcement or any matter referred to herein.

Publication on a website

In accordance with Rule 26.1 of the Code, a copy of this announcement will be made available, on the Martin Property Group's (of which Victoria Property is a part of) website at https://martin-group.co.uk by no later than 12 noon (London time) on the business day following the date of this announcement. The content of this website is not incorporated into and does not form part of this announcement.

Additional information

This announcement is not intended to, and does not, constitute, represent or form part of any offer, invitation or solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law or regulation and therefore any person who comes into possession of this announcement should inform themselves about, and comply with, such restrictions. Any failure to comply with such restrictions may constitute a violation of the securities laws or regulations of any such relevant jurisdiction.

Rule 2.4 information

In accordance with Rule 2.4(c)(iii) of the Code, Victoria Property confirms that it is not aware of any dealings in GRIO shares that would require it to offer a minimum level, or a particular form, of consideration under Rule 6 or Rule 11 of the Code. However, it has not been practicable for Victoria Property to make enquiries of all persons acting in concert with it prior to the date of this announcement in order to confirm whether any details are required to be disclosed under Rule 2.4(c)(iii) of the Code. To the extent that any such details are identified following such enquiries, Victoria Property will make an announcement disclosing such details as soon as practicable, and in any event by no later than the time it is required to make its Opening Position Disclosure under Rule 8.1 of the Code.

Rounding

Certain figures included in this announcement have been subjected to rounding adjustments. Accordingly, figures shown for the same category may vary slightly and figures shown as totals may not be an arithmetic aggregation of the figures that precede them.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Forward-looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Possible Offer, and other information published by Victoria Property contain statements about Victoria Property and GRIO that are or may be deemed to be forward-looking statements. All statements other than statements of historical facts included in this announcement may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "should", "would", "could", "anticipates", "estimates", "projects" or "strategy" or words or terms of similar substance or the negative thereof. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, profits, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; and (ii) business and management strategies and the expansion and growth of Victoria Property or GRIO operations.

These forward-looking statements are not guarantees of future performance. Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this announcement. All subsequent oral or written forward-looking statements attributable to Victoria Property or GRIO or any of their respective members, directors, officers or employees or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statement above. Victoria Property disclaims any obligation to update any forward-looking or other statements contained in this announcement, except as required by applicable law.

No profit forecasts, profit estimates or quantified financial benefits statements

No statement in this announcement, or incorporated by reference in this announcement, is intended as a profit forecast, profit estimate or quantified financial benefits statement for any period.

Sources of information

In this announcement, unless otherwise stated or the context otherwise requires, the following sources of information have been used:

·    GRIO's issued and to be issued share capital being no greater than 95,667,627 ordinary shares of 50 pence each, in line with the latest public disclosure in GRIO's half-year report dated 24 July 2024; and

·    the volume-weighted average prices have been derived from Bloomberg.