15 January 2025
Ground
Rents Income Fund plc ('GRIO', or the
'Company')
FULL YEAR
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2024
Ground Rents Income Fund plc
announces its audited full year results for the year ended 30
September 2024. The Company's Annual Report and Accounts
for the year ended 30 September 2024 are being published in hard
copy format and are also available at the following
link: https://schro.link/grioara24,
or on the Company's website www.groundrentsincomefund.com.
Barry Gilbertson, the Company's
Chair, commented:
"The Company continues to
satisfactorily manage the challenges presented by leasehold reform
legislation and building safety legislation. Combined, these
challenges have engendered negative market sentiment towards the
residential ground rent sector generally, resulting in low levels
of market liquidity. Although the outlook remains uncertain, we
have a clear strategy to manage these challenges, which recently
received strong support from shareholders, and are encouraged by
the progress being made delivering our Investment
Policy."
Key highlights:
· The
independent portfolio valuation prepared by Savills Advisory
Services Limited as at 30 September 2024 was £71.5 million,
representing a like-for-like reduction (net of disposals in the
year) of £31.3 million, or 30.5%, over the financial year (30
September 2023: £106.1 million or £102.8 million on a like-for-like
basis. The valuation reflects a net initial yield of 7.0% and a
Years Purchase ('YP') multiplier of 13.4 (30 September 2023: 4.6%
and 20.4 YP). 97% of the portfolio valuation is subject to the
industry-wide Material Uncertainty Clause.
· Net
Asset Value ('NAV') of £56.5 million, or 59.0 pence per share
('pps') (30 September 2023: £86.2 million or 90.1 pps).
No dividends were paid during the year, resulting
in a NAV total return of -34.5% (year to 30 September 2023:
-1.3%).
· The
Annual Report retains the disclaimer of opinion within the
Auditors' report ('Modified Auditors' Report') first applied in
September 2022 due to uncertainty regarding
leasehold reform and outstanding building safety remediation
projects. Although non-recoverable remediation costs borne by the
Company to-date have been limited, the scale of ultimate liability
for costs not yet incurred remains unclear. The low levels of
transactional evidence across the residential ground rent market is
also a valuation factor. The Company is currently prohibited
by law from distributing further profits until the Modified
Auditors' Report is removed.
· Following strong support from voting shareholders to the
revised Investment Policy in April 2023, progress continues to be
made optimising the net realisation of the Company's
investments:
o Two
freehold ground rent interests in Bristol and Exeter sold in
February 2024 for £3.45 million to a special purchaser, at a 4%
premium to the latest independent valuation.
o Post
year-end, the sale of the Company's largest asset, a freehold
ground rent interest in York, also to a special purchaser, for a
price of £7.9 million, in line with the latest independent
portfolio valuation. Further disposals have either completed or are
in progress post year end.
· Refinanced existing £25 million loan facility with Santander
UK plc in March 2024, which was due to expire in January 2025. The
refinanced £19.5 million facility extended the loan term from
January 2025 to July 2026 and has a margin of 2.75% per
annum.
· Since
year-end, the sale of the York asset enabled the Company to repay a
further £7.5 million of debt, giving a current loan balance of
£12.0 million. Following this repayment, and adopting the Company's
independent remaining portfolio valuation as at 30 September 2024,
results in a Loan to Value ('LTV') of 38.6% compared with an LTV
covenant ratio of 50%.
· Revenue increased by 6.7% to £6.1 million (30 September 2023:
£5.7 million), primarily driven by a 4.6% increase in rental values
across the portfolio (on a like-for-like-basis, net of disposals),
which compares favourably to the Retail Price Index ('RPI')
inflation rate of 2.7% over the same period. 51% of the Company's
ground rent income is due for review in the next five
years.
· As a
result of increased operating expenses, including one-off costs
associated with the leasehold reform process, increased frictional
costs from complying with building safety legislation and higher
financing expenses due to the higher interest rates environment,
the Company experienced an 11.8% overall decline in earnings to
£1.5 million (year to 30 September 2023: £1.7 million), excluding
property revaluation and profit/loss on sales.
· Building safety work executed over the year has reduced the
number of properties requiring remediation to 23, and the
associated negative valuation adjustment has reduced to £6.1
million (30 September 2023: 24 properties and negative valuation
adjustment of £9.1 million). Significant progress has also been
achieved on the remaining 23, including having secured third-party
funding and/or commenced works where relevant.
· Leasehold reform uncertainty continues, but the new Government
has emphasised (via a Ministerial Statement on 21 November 2024) a
more measured approach to reforming, what it acknowledges to be,
'an incredibly complicated area of property law'.
· The
Company, working with industry peers and advisers, continues to
advocate for leasehold reform that fairly balances the legitimate
interests of responsible landlords with the interests of
leaseholders. This work includes positive engagement with the
Government alongside formal legal action to safeguard shareholder
interests against provisions within new legislation that are
potentially unlawful.
· Post
year-end, at the General Meeting of the
Company held on 18 November 2024 over 72% of total voting capital
was voted of which shareholders representing approximately 92% of
the votes cast supported the strategy to deliver the Company's
Investment Policy. The next Continuation Vote is to be held on or
before 17 November 2027.
Possible offer for the Company
On 8 January 2025, the Company
published a response announcement (the 'Response Announcement') to
the announcement released earlier on the same day by Victoria
Property Holdings Limited ('Victoria Property'), part of Martin
Property Group, in accordance with Rule 2.4 of the City Code on
Takeovers and Mergers (the 'Code'), in which Victoria Property
announced a possible offer for the entire issued and to be issued
share capital of the Company (the 'Possible Offer'). In the
Response Announcement, the Company confirmed that it had recently
received three unsolicited approaches from Victoria Property, each
containing a non-binding indicative cash offer by Victoria Property
for the share capital of GRIO.
In the Response Announcement, the
Board of Directors of GRIO (the 'Board') confirmed that it had
unanimously rejected all three previous approaches, on the basis
that each of the three non-binding indicative offer prices wholly
undervalued the Company. The third non-binding offer was at the
same price of 34 pence per GRIO share as the Possible Offer
announced on 8 January 2025.
The Possible Offer price of 34 pence
per GRIO share announced on 8 January 2025 is at a significant
discount of 42.4 per cent to the 30 September 2024 NAV per share of
59.0 pence. As such, the Board continues to believe that the
Possible Offer price wholly undervalues the Company.
The Response Announcement is
available on the Company's website: www.groundrentsincomefund.com
This announcement contains a
valuation for the purposes of Rule 29 of the Code. The Takeover
Panel has consented to a delay in the publication of a valuation
report in accordance with the requirements of Rule 29 of the Code,
on the basis that GRIO will publish such a valuation report when
required by the Takeover Panel and by no later than the date of the
offer document or offeree board circular, should an offer be made
for GRIO.
A further announcement in relation
to the Possible Offer will be made when appropriate. There can be
no certainty that a formal offer will be made.
-----------------
Enquiries:
Schroder Real Estate Investment
Management Limited
Matthew Riley / Chris
Leek
020 7658 6000
FTI Consulting
Richard Gotla / Oliver
Parsons
0203 727 1000 /
Schroderrealestate@fticonsulting.com
Singer Capital Markets
(Broker)
James Maxwell / Alaina Wong
(Investment Banking)
Sam Greatrex (Sales)
020 7496 3000
Appleby Securities (Channel Islands)
Limited (Sponsor)
Andrew Weaver / Michael
Davies
01534 888 777
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Notes to editors:
Ground Rents Income Fund plc is a
closed-ended real estate investment trust, listed on The
International Stock Exchange and traded on the SETSqx platform of
the London Stock Exchange.
Schroder Real Estate Investment
Management Limited (the 'Manager') was appointed as the Company's
Alternative Investment Fund Manager in May 2019 to support the
Company's Board with the headwinds related to building safety and
leasehold reform.
During the first half of 2023 the
Board and Manager carried out an extensive shareholder consultation
on proposals to change the Continuation Vote mechanism included in
the Articles dating from 2012, as well as proposed changes to the
Investment Policy. These proposals received strong support from
shareholders and resulted in a new Continuation Resolution and
Investment Policy. The new Investment Policy adopts a strategy of
realising the Company's assets in a controlled, orderly and timely
manner for shareholders, whilst continuing to deliver best-in-class
residential asset management including fairness, transparency, and
affordability for leaseholders.
In November 2023 the previous
Government published a consultation on restricting existing
residential ground rents payable, without compensation to
freeholders (the 'Consultation'). This represented a significant
shift in the Government's approach to leasehold reform and led the
Company's independent valuer, Savills, in conjunction with other
valuers and the Royal Institution of Chartered Surveyors, to adopt
a Material Valuation Uncertainty Clause ('MUC') across the entire
residential ground rent market. The Company submitted a
comprehensive response to the Consultation in January 2024 and has
kept shareholders informed of the Government's leasehold reform
agenda, including various regulatory announcements, which can be
found at: www.groundrentsincomefund.com
Since November 2023, political
upheaval resulted in an accelerated Leasehold and Freehold Reform
Act 2024 (the 'Act'), enacted in May, which may represent a better
outcome than the worst-case scenarios contemplated in the
Consultation.
The new Government has emphasised a
more measured approach to reforming, what it acknowledges to be 'an
incredibly complicated area of property law'. Consequently, it
intends to take the necessary time to ensure that reforms are 'fit
for purpose'. It remains committed to implementing the Act and
intends to introduce further reform to provide homeowners with
greater rights and protections. This includes addressing
'unregulated and unaffordable' existing ground rents payable and to
make commonhold the default tenure for new apartments in the
future.
The Company is taking legal action
to safeguard shareholder interests against what it understands to
be unlawful provisions in the Act, particularly to do with
enfranchisement, and is engaging positively with the new Government
to advocate for reform that fairly balances the interests of the
Company's shareholders and leaseholders.
Post year-end, at the General
Meeting of the Company held on 18 November 2024 over 72% of total
voting capital was voted of which shareholders representing
approximately 92% of the votes cast supported the strategy to
deliver the Company's Investment Policy. The next Continuation Vote
is to be held on or before 17 November 2027.
Please see the Company's website for
more information: www.groundrentsincomefund.com
The person responsible for arranging
the release of this announcement on behalf of the Company is
Matthew Riley, a member of Company Secretarial team of the
Company.
Ends.
