Half-year Report

Ground Rents Income Fund PLC

24 July 2024

 

24 July 2024

Ground Rents Income Fund plc

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2024

Ground Rents Income Fund plc (the 'Company') announces its unaudited half year results for the six months ended 31 March 2024, which are available on the Company's website www.groundrentsincomefund.com and can be viewed at https://schro.link/griohyr2024.  

Barry Gilbertson, the Company's Chair, commented:

"The Board and Manager remain committed to the strategic priorities of delivering the new Investment Policy, advocating for fair leasehold reform, and delivering best-in-class asset management.

Our efforts, and those of the wider ground rent market sector, combined with the change of Government, have arguably led to a better leasehold reform outcome for the Company than contemplated by the previous Government in the November 2023 Consultation. However, greater clarity is awaited on the new Government's leasehold reform agenda, both in terms of detail and priority of timing."

Key highlights:

·      As previously announced with the delayed Annual Report to 30 September 2023 (the '2023 Annual Report'), the independent portfolio valuation as at 31 March 2024 was £81.5 million, reflecting a like-for-like reduction (net of disposals) of £21.3 million, or -20.7%, over the period (30 September 2023 of £106.1 million).  97% of the portfolio valuation was subject to the industry-wide Material Valuation Uncertainty Clause ('MUC').  The 2023 Annual Report is available at the following link https://schro.link/grio24.

·      NAV of £66.2 million, or 69.2 pence per share ('pps') (30 September 2023: £86.2 million or 90.1 pps). Since June 2023 the Company has been unable to pay further dividends due to a Modified Auditors Report relating to uncertainty regarding determining building remediation costs and a lack of market transactional evidence.

·    Refinanced the existing £25 million loan facility with Santander UK plc in March 2024, which was due to expire in January 2025. The new £19.5 million facility extends the loan term from January 2025 to July 2026 and has a margin of 2.75% per annum. 

·      Group loan to value, net of cash, of 17.9%, based on the independent portfolio valuation as at 31 March 2024 and an effective interest rate of 3.6% per annum.

·      Completed disposal of freehold ground rent interests in Bristol and Exeter, for a combined price of £3.45 million, achieving a 4% premium to the 30 September 2023 independent valuation of £3.30 million and reflecting a net initial yield of 3.1%.  Further disposals are planned and in progress.

·      The half year and since was characterised by uncertainty relating to leasehold reform, notably the November 2023 Consultation from the previous Government regarding restricting existing residential ground rents payable, without compensation to freeholders.  This represented a significant shift in the Government's approach to leasehold reform and led Savills, in conjunction with other valuers and the Royal Institution of Chartered Surveyors, to adopt the MUC across the entire residential ground rent market.

·      Since November 2023 the Company worked extensively with industry peers and advisors to prepare a comprehensive response to the Consultation, submitted in January 2024.  Political upheaval resulted in an accelerated Leasehold and Freehold Reform Act 2024, enacted in May, which may represent a better outcome than the worst-case scenarios contemplated in the Consultation.

·      The Company is reviewing the new Government's manifesto commitments and proposals for a Leasehold and Commonhold Reform Bill and will engage positively with the new Government to advocate for reform that fairly balances the interests of our shareholders and leaseholders.

·      During the quarter ending 31 December 2024, the Company will convene an Extraordinary General Meeting to hold a Continuation Vote, where the Board and the Manager will provide an update to progress on delivering the new Investment Policy.

Enquiries:

Schroder Real Estate Investment Management Limited

Nick Montgomery / Chris Leek / Matthew Riley

020 7658 6000

FTI Consulting

Richard Gotla / Dido Laurimore

0203 727 1000 / [e-mail]

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

Notes to editors:

Ground Rents Income Fund plc is a closed-ended real estate investment trust, listed on The International Stock Exchange ('TISE') 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 Savills, in conjunction with other valuers and the Royal Institution of Chartered Surveyors, to adopt the 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.

On 17 July, 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, following consultation, 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 look forward to 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. During the quarter ending 31 December 2024, the Company therefore expects to convene a further EGM to hold a Continuation Vote, where the Board and the Manager will provide an update to progress on delivering the new Investment Policy.

See the Company's website for more information:

www.groundrentsincomefund.com

 

END