Ground Rents Income Fund PLC Company Update (6478P)
04 September 2017 - 4:00PM
UK Regulatory
TIDMGRIO
RNS Number : 6478P
Ground Rents Income Fund PLC
04 September 2017
4 September 2017
Ground Rents Income Fund plc
("GRIF" or the "Company")
Corporate update
On 2 August 2017, Ground Rents Income Fund plc (LSE: GRIO), a
real estate investment trust (REIT) investing in UK ground rents,
issued a Corporate Update in light of media attention on ground
rents and the launch by the Communities Secretary, Sajid Javid, of
a consultation on proposals to amend leasehold legislation. The
announcement advised that the Board, in conjunction with the
Investment Manager, was considering options for certain ground
rents within the portfolio, reflecting concerns expressed by the
Government. These concerns were focused on leasehold houses, which
account for 11% by income of the Company's portfolio, and, in
particular, leasehold houses with ground rents that double every 10
years, in perpetuity, of which the Company has none.
Further to the Corporate Update, the Company announces that its
Board has determined to pursue an asset management plan as further
set out below.
Asset Management Plan
During the remainder of this year, the Company will contact all
of its residential leaseholders with doubling ground rents,
regardless of whether they have a 10, 25, 33, 35 or 50-year review
cycle, and offer them the opportunity to convert their existing
review mechanism to the lesser of inflation, as measured by the
Retail Prices Index (RPI), or doubling, while retaining their
existing review cycle. This offer, which will be without
obligation, will remain open to leaseholders for a period of 12
months, in order to give them, and in many cases their mortgage
lenders, the opportunity to fully assess the proposal and conclude
the required legal processes.
Background
GRIF was launched in 2012 and has acquired a diversified
portfolio of ground rents, valued at GBP143 million at 31 March
2017, which provide a secure and consistent stream of income to
investors.
Most of the Company's portfolio (69.8% by income) is invested in
ground rents which increase in line with indices, particularly RPI.
Of the remainder, 18% by value and 17% by ground rent income is
attributed to doubling ground rents, of which 4% of the ground rent
income is derived from three 10-year doubling assets. None of these
three assets with 10-year doubling ground rents do so in perpetuity
- they double a maximum of three times before reverting to having
either no further review or an index-linked review cycle.
The remainder of the doubling assets in the portfolio are 25,
33, 35 and 50-year doubling assets, which equate to compound
increases in ground rent of 2.8%, 2.1%, 2.0% and 1.4% per annum
respectively.
Of the total number of units in the portfolio, 15% are houses,
which generate 11% of total ground rent income. The average ground
rent on the leasehold houses is approximately GBP110 per annum and
none are subject to 10-year doubling review patterns.
The ground rents on 66.7% by income of the leasehold houses
adjust in line with indices, with only 2.7% containing doubling
reviews on a 25-year review pattern. The balance of 30.6% is split
between leaseholds with fixed adjustments (3.6%) and those which do
not increase (27.0%).
Financial Impact
In the Corporate Update issued on 2 August, the Board reiterated
its belief, previously stated in the Company's 31 March 2017
unaudited NAV announcement on 12 June 2017, that as a result of
changes in market sentiment the value of the doubling assets within
the portfolio may now be worth approximately GBP5.5 to GBP6.0
million less than as at 31 March 2017. This would lead to an NAV
per share of approximately 132 pence (31 March 2017: 135.31
pence)
It is not possible for the Board to estimate the number of
leaseholders who will take up the opportunity to convert, during
the Asset Management Plan process. It has however reviewed a number
of scenarios which indicate that the likely impact on the Directors
view of the NAV on the 2(nd) August is unchanged. In addition, the
Board estimates that the one-off administrative costs of this
exercise will be in the order of GBP200,000 before VAT.
The Company will provide a further update once it has received
the next scheduled valuation of the portfolio by Savills, its
external valuer, as at 30 September 2017.
The Company will be writing to eligible residential lessees in
the coming weeks to begin the Asset Management Plan process.
Contacts:
Ground Rents Income Fund
plc
020 7499
Simon Wombwell (Director) 6424
Brooks Macdonald Funds Limited
020 7659
James Agar (Director) 3454
N+1 Singer (Broker)
020 7496
James Maxwell / Liz Yong 3000
Tavistock (Media)
020 7920
Jeremy Carey / James Whitmore 3150
Appleby Securities (Channel
Islands) Limited
Kate Storey / Danielle Machon 01481 755600
This information is provided by RNS
The company news service from the London Stock Exchange
END
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