REG - Ground Rents Inc Fnd - Final Results

Ground Rents Income FundAnnouncement

06/06/2023 07:00

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RNS Number : 7269B  Ground Rents Income Fund PLC  06 June 2023

6 June 2023

 

Ground Rents Income Fund plc

 

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2022

 

Ground Rents Income Fund plc (the 'Company') announces its audited full year
results for the year ended 30 September 2022, which are available on the
Company's website, www.groundrentsincomefund.com
(https://www.schroders.com/en-gb/uk/individual/funds-and-strategies/investment-trusts/ground-rents-income-fund-plc/)
.

 

The Company's Annual Report and Accounts for the year ended 30 September 2022
are also being published in hard copy format and an electronic copy is also
available using the following link:
http://www.rns-pdf.londonstockexchange.com/rns/7269B_1-2023-6-5.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7269B_1-2023-6-5.pdf) . A
shareholder circular for an Extraordinary General Meeting to be held on 29
June 2023 at 9.30 a.m. has also been published.

 

Barry Gilbertson, the Company's Chair, commented:

 

"We continue to operate in a challenging and complex regulatory environment,
reflected in the Material Valuation Uncertainty Clause ('MUC') impacting our
independent portfolio valuation and the Modified Auditors Report relating to
these accounts. Encouragingly, the impact of the Government's legally binding
Pledge signed by 48 of the UK's largest residential developers under the
'Polluter Pays' principle, combined with our extensive due diligence and
related activity across the portfolio, has reduced the risk of the Company
incurring the full Building Safety remediation costs assumed in the
independent valuation.

 

"The strong support from shareholders for the important changes to the
Company's 'Continuation Vote' and new Investment Policy approved at an EGM
held on 24 April 2023 means the Board and Manager are now well positioned to
execute the strategy of improving the liquidity of the underlying portfolio,
continuing to support our leaseholders by delivering best-in-class residential
asset management, and ultimately optimising value for our shareholders through
a controlled, orderly and timely realisation of assets."

 

 

Key highlights:

 

·      The financial year to 30 September 2022 was a challenging period
due to the complex issues arising from the introduction of the Building Safety
Act 2022 (the 'BSA'), the most significant regulatory reform to the UK's built
environment in almost 40 years. Understanding the practical and the financial
impact of the BSA, including secondary legislation from July 2022, delayed
preparation of the accounts, which include a Modified Auditors Report.

 

·      Under the so-called 'Polluter Pays' principle, the Government has
introduced a legally binding pledge ('Pledge') that obliges residential
developers to remediate, at their own cost, all life-critical fire-safety
defects of buildings 11 metres and over in height that they developed or
refurbished in England over the last 30 years. This includes reimbursing
public funds where relevant. To-date, 48 developers, including the top ten
largest house builders in the UK, have signed the Pledge. At the financial
year end, seven of these developers are relevant to the Company's portfolio
across 13 assets. The Government has also enhanced protections available to
landlords who did not develop their assets, such as the Company, from
defective building practices.

 

·      Independent portfolio valuation of £109.0 million, a decline of
£10.4 million, or 8.7% (30 September 2021: £119.4 million), reflecting a
negative valuation adjustment of £11.4 million relating to 30 assets or 21%
of portfolio value subject to a building safety Material Valuation Uncertainty
Clause ('MUC') (30 September 2021: £6.1 million or 11% of portfolio value),
and an additional negative valuation adjustment for residential leasehold
regulatory reform risk of £3.8 million (30 September 2021: £1.1 million).

 

·      The Modified Auditors Report is caused by the Auditors being
unable to adequately verify the independent valuer's assumptions relating to
the negative valuation adjustment of £11.4 million. This is principally due
to the short period from the BSA's introduction to the financial year end, and
extensive due diligence is ongoing across the portfolio to better understand
the BSA's impact, with good progress made over the subsequent half year period
to 31 March 2023 (see below).

 

·      Net Asset Value ('NAV')  of £88.5 million, or 92.5 pence per
share ('pps') (30 September 2021: £99.7 million, or 103.1 pps). This
reflected a NAV decline of 10.6 pps, or -10.3%

 

·      Earnings (excluding property revaluations and exceptional items)
decreased by £332,000, or 10.2%, to £2.8 million (30 September 2021: £3.2
million), reflecting lower ancillary income and higher expenses.

 

·      Dividends paid totalling £2.9 million or 3.0 pps (30 September
2021: £3.8 million or 3.96 pps), resulting in a negative NAV total return of
7.4% (year to 30 September 2021: 1.3%).

 

·      Group Loan to Value ('LTV') of 18.8% with £21 million of drawn
debt, an effective interest rate of 2.8%.

 

·      Ground rent income increased by approximately £200,000, or 4.1%,
to £5.1 million as at year end, supported by inflation-linked rent reviews
affecting 14.8% of the Company's portfolio by value.

 

Following extensive corporate and other due diligence undertaken and related
activity across the portfolio, the Company provides an update on progress and
activity since the financial year end, including the interim period to 31
March 2023:

 

·      MUC now applies to 26 assets representing 16% of the portfolio by
value (30 September 2022: 30 assets and 21% of portfolio value) with a lower
total negative valuation adjustment for building safety regulatory reform of
£9.3 million, compared to £11.4 million at the financial year end.

 

·      Together with other valuation adjustments, including negative
£4.0 million (30 September 2022 : £3.8m) for leasehold reform risk, the
result is an unaudited independent valuation as at 31 March 2023 of £110.9
million, an increase of £1.9 million, or 1.7%, compared with the 2022
financial year end.

 

·      Unaudited NAV of £90.2 million, or 94.3 pps, an increase of
£1.7 million, or 1.8 pps, compared with the 2022 financial year end.

 

·      Following the launch of a consultation in December 2022, an EGM
was held in April 2023, with all proposals passed including a Continuation
Vote in December 2024 and a new Investment Policy focussed on optimising value
through a controlled and orderly asset realisation, together with a continued
focus on delivering best-in-class residential asset management.

 

·      Proposal to move to semi-annual dividend payments, with a
potential risk that future payments will be withheld until the Modified
Auditors Report is removed.

 

 

Enquiries:

 

Schroder Real Estate Investment Management Limited

Nick Montgomery / Matthew Riley / Chris Leek

020 7658 6000

 

FTI Consulting

Richard Gotla / Dido Laurimore

0203 727 1000 / Schroderrealestate@fticonsulting.com
(mailto: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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