Ground Rents Income Fund plc

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:
  • 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.
  • 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.

 

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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.