Disposal of largest asset

Ground Rents Income Fund PLC

19 November 2024

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014 (WHICH FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("EUWA")) ("UK MAR"). UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, SUCH INSIDE INFORMATION (AS DEFINED IN UK MAR) IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

19 November 2024

Ground Rents Income Fund plc ('GRIO' or the 'Company')

DISPOSAL OF LARGEST ASSET

Ground Rents Income Fund plc announces the sale of its largest asset, a freehold ground rent interest at Lawrence Street in York, for a price of £7.9 million.  This price is in line with the unaudited independent portfolio valuation as at 30 September 2024 and reflects a net initial yield of 4.2% based on the current annual rent of £356,455.  The asset is operated by Vita Student as purpose built student accommodation, and has been acquired by the long leaseholder.  The disposal is in line with the Company's new Investment Policy to sell assets where possible to optimise the net realisation value of the Company's investments.

The asset formed part of the security for the Company's loan from Santander UK plc ('Santander').  The new loan terms, agreed as part of a refinancing in March 2024, require all proceeds from charged asset disposals to be used to repay debt.  Following the loan repayment and based on the unaudited independent portfolio valuation as at 30 September 2024, the value of the remaining assets charged to Santander total £31.1 million and the bank Loan to Value ('LTV') will be approximately 38.6% compared with a LTV covenant ratio of 50%.  The consolidated group LTV following the repayment will be approximately 18.9%.

On the same basis, the Interest Cover Ratio ('ICR') will be approximately 495% compared with a ICR ratio covenant of 200%.  As set out in the circular issued on 24 October relating to the continuation of the Company (https://schro.link/griocircular), the current preferential interest rate hedging expires in January 2025, prior to the loan maturing in July 2026.  Following expiry of the hedging, and assuming the current SONIA rate of 4.7%, the ICR would be approximately 238% compared with a reduced covenant level, effective from January 2025, of 160%.

Further assets are being marketed for disposal and a full update on progress implementing the new Investment Policy will be included in the forthcoming year-end results that the Company aims to release in December.

-----------------

Enquiries:

Schroder Real Estate Investment Management Limited

Matthew Riley / Chris Leek

020 7658 6000

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

FTI Consulting

Richard Gotla / Oliver Parsons

0203 727 1000

------------------

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.

In July 2024, the new Government set out its legislative priorities in the King's Speech, including a draft Leasehold and Commonhold Reform Bill.  Largely based on the Labour Party's manifesto commitments, the new Government will seek to implement the provisions within the Act and further reform the leasehold system, including enacting the remaining Law Commission recommendations relating to enfranchisement and Right to Manage, regulate existing ground rents and ban the sale of new leasehold flats so a reinvigorated commonhold legal framework becomes the default tenure.

The potential outcome and timing of legislative changes remains uncertain, and the Board and Manager are working closely with the Company's advisers and other institutional owners to better understand the Act and the King's Speech, and are engaging positively with the new Government to advocate for reform that fairly balances the interests of the Company's shareholders and leaseholders.

The new Continuation Vote mechanism requires the Company to hold a Continuation Resolution before 31 December 2024, and at three-year intervals thereafter.  At each Vote, the Resolution proposed will need a simple majority of votes cast to pass.  

As set out in the recent Extraordinary General Meeting ('EGM') notice and Circular, an EGM took place on 18 November 2024 where the Continuation Resolution was passed, with 92% of voting shareholders voting 'For' the continuation of the Company. The next Continuation Vote will need to be held on or before 17 November 2027.

Preparation for, and the audit of, the Company's full year accounts for the year to 30 September 2024, has been running in parallel with the Continuation Vote process, with an aim to release the year-end results during December.

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.

 

END