First Day of Dealings

RNS Number : 8550J

Ground Rents Income Fund PLC

13 August 2012

 

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE RELEVANT LAWS OF SUCH JURISDICTION.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS OR OFFERING MEMORANDUM OR AN OFFER IN RESPECT OF ANY SECURITIES.  IT IS NOT AND NOR IS IT INTENDED TO PROVIDE THE BASIS FOR ANY DECISION IN RESPECT OF GROUND RENTS INCOME FUND PLC ("GRIF" OR THE "COMPANY") OR OTHER EVALUATION OF ANY SECURITIES OF GRIF OR ANY OTHER ENTITY AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION THAT ANY INVESTOR SHOULD SUBSCRIBE FOR, PURCHASE OR OTHERWISE DEAL IN ANY SUCH SECURITIES. NEITHER THE ISSUE OF THIS ANNOUNCEMENT NOR ANY PART OF ITS CONTENTS CONSTITUTES AN OFFER TO SELL OR INVITATION TO PURCHASE ANY SECURITIES OF GRIF OR ANY OTHER ENTITY OR ANY PERSONS HOLDING SECURITIES OF GRIF.

13 August 2012

Launch and Listing of

Ground Rents Income Fund plc

Ground Rents Income Fund plc ("GRIF" or "the Company"), a newly formed, closed-ended company incorporated and tax resident in the United Kingdom, today announces its admission to trading on the Official List of the Channel Islands Stock Exchange ("CISX") and on the SETSqx platform of the London Stock Exchange ("SETSqx"). 

Following a successful placing to institutional investors by Singer Capital Markets Limited, GBP9.6 million acquisition of an initial portfolio of assets from Braemar Group PCC Limited ("Braemar PCC") and subscription offer of new GRIF shares to existing shareholders in Braemar PCC, the Company is expected to be capitalised on second admission (as defined below) at no less than GBP48.2million and no more than GBP50.0 million.

For every five ordinary shares (ticker: GRIO), investors also received one warrant (ticker: GRIW) in the Company. The placing and subscription price of each ordinary share (with warrants attached) was 100 pence. GRIF has appointed Singer Capital Markets Limited as its Financial Adviser and Broker and Appleby Securities (Channel Islands) Limited as CISX Sponsor.  

Admission will become effective and dealings in 23,290,900 placing shares and warrants relating thereto will commence on the CISX and SETSqx at 8.00 a.m. (London time) today ("First Admission"). It is expected that admission will become effective and that dealings in the remaining 14,250,000 placing shares, the subscription shares and warrants relating thereto will commence at 8.00 a.m. (London time) on 24 August 2012 ("Second Admission"). A further announcement confirming the total number of subscription shares to be admitted will be made on or before Second Admission.

The Company's portfolio will be managed by Braemar Estates (Residential) Limited ("Braemar Estates" or the "Adviser"), the property manager and investment adviser, which is a wholly owned subsidiary of Brooks Macdonald Group plc.

Company Highlights

·      GRIF is a newly formed, closed-ended company, incorporated to acquire a portfolio of freeholds and head leases, offering:

-      the potential for income generation from ground rents that is both secure and hedged against inflation

-      the potential for capital growth from active asset management

·      Long dated UK ground rents have historically had little correlation to traditional property asset classes and have seen their value remain consistent regardless of the underlying state of the economy

·      Experienced Board appointed combining real estate and fund management expertise:

-      Malcolm Naish, former director of Real Estate at Scottish Widows Investment Partnership and has over 40 years' experience of working in the real estate industry;

-      Simon Wombwell, Chief Executive Officer of Brooks Macdonald Funds and a director of Brooks Macdonald Group plc;

-      Paul Craig, a Director of Multi-Manager at Henderson Global Investors.

·      GRIF's portfolio will be managed by Braemar Estates which has extensive experience, expertise and a long-term track record in ground rents and asset management;

·      It is the intention of the Company to distribute at least 90 per cent. of its income profits by way of quarterly dividends. 

 Malcolm Naish, Non-executive Chairman of GRIF, commented: 

"GRIF is a publicly traded investment company that offers onshore exposure to the ground rents sector, which we believe is one of the most predictable sources of real estate income which is both secure and partly inflation hedged."

"The Company has a well regarded property advisory team in the shape of Braemar Estates and a strong pipeline of opportunities, and we are extremely excited about its potential for income generation and capital growth."

James Agar, Investment Director at Braemar, added:

"Ground rents are rare within real estate in their ability to offer high yields relative to the level of risk. The current economic climate makes the defensive, secure and predictable characteristics of long dated ground rents very attractive to investors, particularly when looked at in the context of negative gross redemption yields on the sovereign debt of what are considered to be lower risk nations."

"We are confident that our strong track record in acquisition and asset management in the sector will produce both attractive yields and long term capital growth."

Contacts:

Braemar Estates (Residential) Limited Simon Wombwell / James Agar / Jonathan Murphy	020 7499 6424
Singer Capital Markets Limited James Maxwell / Samantha New - Corporate Finance Alan Geeves / Sam Greatrex - Sales	020 3205 7500
Appleby Securities (Channel Islands) Limited Barney Lee / Gemma Campbell	01481 755600
MHP Communications Reg Hoare / Barnaby Fry / Simon Hockridge / Giles Robinson	0203 128 8100

ISIN, SEDOL and Ticker for the Shares and Warrants

Share ISIN	GB00B715WG26
Warrant ISIN	GB00B8N43P05
Share SEDOL (CISX)	B715WG2
Warrant SEDOL (CISX)	B8N43P0
Share SEDOL (SETSqx)	B8K0LM4
Warrant SEDOL (SETSqx)	B8K0RP9
Share Ticker	GRIO
Warrant Ticker	GRIW

Further information will be available shortly: www.groundrentsincomefund.com

Further information

Introduction

The directors believe that an opportunity exists within the United Kingdom real estate market to acquire a portfolio of freeholds and head leases, with the potential for income generation from ground rents and capital growth.

The Company has been established to provide secure long-term performance through investment in long dated United Kingdom ground rents, which have historically had little correlation to traditional property asset classes and have seen their value remain consistent regardless of the underlying state of the economy.

The Company's focus will be acquiring freeholds and head leases of residential, retail and commercial properties in the United Kingdom to generate consistent income returns from ground rents and will seek to benefit from the ground rents' long-term cash flows, rental income from each freehold and head leases and additional income from the obligation to arrange the insurance of the building and, further, the ability to charge for permissions under the lease when the leasehold ownership changes hands.

The Company will not invest in non-ground rent instruments, listed securities or other forms of commercial or residential property.

Investment strategy

The Company will invest the majority of the monies received pursuant to the placing and the subscription, net of any costs and expenses, in freeholds and head leases in the United Kingdom. The Company intends to purchase ground rents where the leasehold interests are long dated although shorter opportunities will be considered if the directors believe it is in the best interest of the Company to do so.

The group does not intend to make use of structural or long-term debt facilities for investment purposes, although if a portfolio of assets was available to be acquired in a corporate structure which had some existing borrowings within its corporate vehicles, these may be retained. The Company will have the ability to gear up to 25 per cent. loan to value in order to invest in ground rents once the Company is fully invested before raising further equity.

The Company may reinvest both realised invested capital and any profits that have not been distributed, subject to the Company's dividend policy.

Initial portfolio being acquired

The Company has acquired an initial portfolio of income producing properties from Braemar Group PCC.  The initial portfolio includes Beetham Tower in Manchester which, at over 168m high, is the highest building in Manchester and one of the tallest residential blocks in Europe. It will also include the Gatehaus in Bradford and phases one and two of the Masshouse development in Birmingham.

Pipeline

In advance of admission, Braemar has been in active dialogue with a number of operators/vendors of ground rents and it is expected that the Adviser will source investment opportunities through its network of relationships with property investors and developers. It is anticipated that the Company's investments will be sourced through:

(i) off market transactions through a combination of approaches to or from existing investors

looking to dispose of their interests;

(ii) open market purchases; and

(iii) the creation of ground rents through the insertion of head leaseholds into existing lease structures.

In addition to the initial portfolio, the Adviser has identified a strong pipeline of over £20 million ground rent assets for the Company to potentially acquire, including large ground rent portfolios in London, Leeds, Nottingham and Liverpool.

Dividend policy

It is the intention of the Company to distribute at least 90 per cent. of its income profits by way of dividend at least quarterly to shareholders. It is intended that the first distribution will be in December 2012, subject to a capital reduction being carried out. In determining the amount to be distributed by way of dividend to shareholders, the Board shall have regard to the requirement for the Company, as a REIT, to distribute to shareholders at least 90 per cent. of the income profits arising from the group's qualifying property rental business.

Overview of ground rents

A ground rent is the rent paid by the lessee of a property to the freeholder or head leaseholder of the property. It represents the underlying freehold or head leasehold interest in a property, which is subject to a lease for a period of time usually between 99 and 999 years. Individual amounts payable as ground rents are usually nominal annual sums of, for example, between £50 and £250 for an apartment. Ground rents produce a secure, stable, low risk and long term income. Although the market is relatively small in size it provides an attractive investment opportunity relative to the level of risk involved. Despite there being little published data Savills plc estimates that the English house building industry is currently generating new ground rents worth approximately £180 million a year and they expect this to grow to £230 million by 2016 but the size of the total market will be larger than this as assets will be traded on a secondary market and some developers may not yet have sold their ground rent portfolio. Savills plc estimate that the value of ground rents created from new house building in the period 2000 to 2010 was in the order of £2.75 billion.

Ground rents are typically fixed for a period of time, with pre-determined periodic increases linked to inflation for the period since the previous review or a pre-determined multiplier, such as doubling every 10 years (the equivalent of an annual increase of 7.2 per cent. compounded). The majority of the initial portfolio are subject to inflation linked review or doubling at intervals of between 10 and 25 years.

These periodic increases in ground rents lead to a stepped increase in their values linked to the timing of the implementation of the periodic increases. As the size of a ground rents portfolio grows, and on the assumption that the periodic increases in ground rents are evenly distributed throughout the portfolio, the impact of periodic increases in ground rents is smoothed.

The Company intends to acquire ground rents which have pre-determined, long-term income streams,

inflation linked to RPI or with set rental increases.

The Adviser

GRIF will be managed by Braemar - a wholly owned subsidiary of Brooks Macdonald Group plc with £865m of real estate assets under administration - which has:

·      a long-term track record in asset management;

·      expertise in investing in the real estate sector including ground rents;

·      a deep understanding of the ground rent market given its current management of the assets of Braemar PCC ground rents; and

·      experience of acquiring and managing ground rent investment.

The Board

The Board comprises of three non-executive Directors: Malcolm Naish (Chairman), Simon Wombwell and Paul Craig. Malcolm Naish and Paul Craig are independent of the Adviser and Simon Wombwell is a Director of Brooks Macdonald, the ultimate holding company of the Adviser. The Directors have been selected to give shareholders the benefit of their real estate, fund management, financial services and business experience.

Malcolm Naish was a director of Real Estate at Scottish Widows Investment Partnership until June 2012 and was responsible for overseeing its portfolio of commercial property assets across the UK, Europe and North America. Prior to joining SWIP, he was director and head of DTZ Investment Management. He was also a founding partner of Jones Lang Wootton Fund Management, and UK managing director of LaSalle Investment Management. In 2002, he co-founded Fountain Capital Partners, a pan-European real estate investment manager and adviser. Mr. Naish qualified as a chartered surveyor in 1976. He is currently Chairman of the Scottish Property Federation.

Simon Wombwell is Chief Executive Officer of Brooks Macdonald Funds and a director of Brooks Macdonald Group plc. He joined Brooks Macdonald as an executive director in a full time capacity in February 2011 having been a non executive director since 2002. Mr. Wombwell has spent his entire career in the financial services industry and previous roles include, Head of Sales and Marketing at Scottish Widows Investment Partnership, Managing Director of Newton Fund Managers Limited and Managing Director of Royal Bank of Scotland Unit Trust Managers. Mr. Wombwell is an Associate of the Society of Investment Professionals.

Paul Craig is a Director of Multi-Manager at Henderson Global Investors. He has over 20 years of investment experience, including 10 years at Exeter Investment Group and 6 years at New Star Asset Management, where Mr. Craig was a Director of the asset management subsidiary. During the past 18 years, his focus has been multi-manager products with an emphasis on closed-end funds. Paul is an Associate of the UK Society of Investment Professionals.

Proposed Real Estate Investment Trust structure

The Company will give notice to join the REIT regime (subject to meeting the required conditions) a structure that should afford the Company a number of competitive tax advantages. As a REIT:

·      the group will not pay UK corporation tax on profits and gains from its UK qualifying property rental business; and

·      the Company will be required to distribute to shareholders at least 90 per cent. of the income profits arising from the group's qualifying property rental business.

 

END

 

 

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