TIDMGRIO
RNS Number : 9333Q
Ground Rents Income Fund PLC
03 March 2021
3 March 2021
Ground Rents Income Fund plc
("GRIO"/ the "Company" / the "Group")
Full year results for the year ended 30 september 2020
Resilient income collection UNDERPINNED DIVIDS WITH strong focus
on delivering best-in-class residential asset management
Ground Rents Income Fund plc (the 'Company'), the REIT investing
in long-term, income generating real estate assets across the
United Kingdom, announces its audited full year results for the
year ended 30 September 2020.
Key financial highlights
-- Net Asset Value ('NAV') as at 30 September 2020 of GBP102.6
million or 105.7 pence per share ("pps"), a decline of 5.6 pps, or
5.1%, compared with 30 September 2019 (GBP108.0 million or 111.3
pps). NAV reflects a one-off accounting adjustment relating to the
Beetham Tower litigation which is expected to be reversed during
the current financial year.
-- Stable independent portfolio valuation of GBP124.2 million as
at 30 September 2020 (30 September 2019: GBP122.9 million).
-- 91% of rents due collected over the financial year, which
compares favourably with 90% over the equivalent financial year to
30 September 2019.
-- Dividend paid in line with the full year target and unchanged from pre-Covid level.
-- Significant headroom to debt and interest cover ratio
covenants with a consolidated, portfolio level loan to value of
15.7%.
-- Enhanced operational flexibility with a new five-year, GBP25
million facility with Santander UK plc comprising a GBP12.5 million
term loan and a GBP12.5 million revolving credit facility ("RCF"),
extending the loan term to January 2025.
Key operational highlights
-- Acquisition in September 2020 of Brentford Lock, a 157 unit
development in West London, producing GBP65,700 per annum of RPI
linked ground rent income, for GBP1.64 million (excluding costs),
reflecting a net initial yield of 3.7%.
-- Increased operational efficiency by restructuring six
purpose-built student accommodation headleases, delivering
GBP300,000 in additional revenues within the financial year (GBP1
million over three years).
-- Renegotiation of key supplier agreements generating
additional net income of approximately GBP115,000 per annum.
-- Appointment of Barry Gilbertson since the financial year end
as a new independent non-executive director and Chairman-elect.
Sector reform
-- Leaseholders continue to be offered the opportunity to
convert 'doubling' ground rents to the lower of doubling or RPI, in
line with the Government's June 2019 Public Pledge for
leaseholders.
-- The Company remains actively engaged with Government to
ensure all stakeholders interests are carefully considered in any
legislation following the January 2021 announcement of leasehold
reform proposals.
-- The Hackitt Review and ongoing Grenfell Tower enquiry have
provided a basis for the implementation of a revised health and
safety policy to enhance risk and governance processes and deliver
best-in-class residential asset management.
-- The Manager continues to work closely with managing agents
and delivery partners to mitigate the impacts of the Covid-19
pandemic, to ensure the safety and wellbeing of our residents,
suppliers and other stakeholders, while protecting shareholders'
long-term interests.
Malcolm Naish, Chairman of the Board, commented:
"There continues to be strong demand in other parts of the real
estate market for investments offering similar annuity-style cash
flows, which has continued during the pandemic and which we expect
to endure. However, the Company is operating in a challenging
environment and the outlook will principally be influenced by
resolution of the litigation at Beetham Tower and the outcome of
leasehold reform.
"The Board and Manager continue to support leasehold reform
which achieves a better balance between the interests of ground
rent investors and leaseholders, and we are both advocates for a
fair and transparent leasehold system which takes account of all
stakeholders and supports the appropriate value of the Group's
portfolio."
James Agar, Fund Manager, added:
" The portfolio performance has been encouraging, with strong
rent collection figures and a stable portfolio valuation over the
financial year.
Our strong focus is therefore on bringing final resolution to
the litigation at Beetham Tower, which will have a positive impact
on NAV, and working with Government and other stakeholders to
deliver fair leasehold reform. We will also continue to focus on
delivering sustainable net income growth and developing our risk
and governance processes to demonstrate 'Best-in-Class' residential
asset management."
The Company's annual report and financial statements for the
year ended 30 September 2020 are also being published in hard copy
format and an electronic copy will shortly be available to download
from the Company's webpages www.groundrentsincomefund.com. Please
click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/9333Q_1-2021-3-2.pdf
Contacts
Schroder Real Estate Investment Management Limited
James Agar / Matthew Riley
020 7658 6000
N+1 Singer (Broker)
James Maxwell / Ben Farrow
020 7496 3000
FTI Consulting
Dido Laurimore / Richard Gotla / Methuselah Tanyanyiwa
020 3727 1000
Appleby Securities (Channel Islands) Limited (Sponsor)
Andrew Weaver
01534 888 777
Chairman's Statement
Overview
Since the onset of the Covid-19 pandemic, our focus has been on
the safety and wellbeing of our leaseholders and managing agents,
maintaining the Company's income and delivering our strategic
objectives. The Company's response to the pandemic is consistent
with the Board's and the Manager's commitment to 'Best-in-Class'
residential asset management, underpinned by strong and effective
Health & Safety procedures.
Significant work has been carried out over the year to address
the headwinds and regulatory change impacting the Company and the
residential ground rents sector more generally. Our priority has
been to ensure our leaseholders are safe in their homes and that
they are receiving a professional, transparent and fair service.
The scale and complexity of the ongoing building safety crisis,
compounded by challenges relating to the cost of building
insurance, clearly illustrates the need for well-resourced,
professional risk and governance oversight of large-scale
residential buildings.
In the face of these challenges, and whilst supporting fair
reform of the leasehold system, the Government's package of reforms
announced in January 2021 could have severe consequences for both
leaseholders and investors. The proposed legislative changes could
facilitate a one-time transfer of wealth from one consumer group to
another, alongside a mandated system of building management which
is potentially unable to manage the complex challenges facing the
sector. The Board and Manager will be urging Government to engage
with industry to ensure these concerns are heard.
During the financial year ending 30 September 2020, the
defensive qualities of the portfolio's underlying cash flows
resulted in a small decline of 0.1% in the like-for-like value of
the underlying portfolio. Despite this resilient performance, the
long running litigation at Beetham Tower and the uncovered element
of the dividend contributed to a GBP5.5 million or -5.1% decline in
Net Asset Value ("NAV") to GBP102.6 million or 105.7 pence per
share ("pps"), which compares with GBP108.0 million or 111.3 pps at
the start of the financial year. GBP2.9 million of the NAV decline
is an accounting adjustment relating to Beetham Tower that we
expect to be reversed on a sale or liquidation of the asset owning
subsidiary, although approximately GBP0.3 million of further sale
or liquidation costs are expected to be incurred.
Dividend cover over the year was negatively impacted by the
costs associated with the litigation at Beetham Tower. Dividend
cover, excluding Beetham Tower, was 81% which was supported by
robust ground rent collection.
Investment objective
The Company's investment objective is to provide secure,
long-term, inflation protected returns through investment in
long-dated UK ground rents, which historically have had lower
correlation to returns in mainstream real estate sectors.
Approximately 71% of the underlying ground rent income is
index-linked, with a weighted average unexpired lease term of 343
years. There continues to be strong demand in other parts of the
real estate market for investments offering similar annuity-style
cash flows, which has continued during the pandemic and which we
expect to endure. We continue to believe that the catalyst for
increased demand for our shares will be resolution of the Beetham
Tower litigation and greater visibility on the outcome of leasehold
reform.
Given the uncertainty surrounding the residential ground rents
sector the Board and Manager continue to investigate other
complementary real estate assets which provide similar defensive,
secure, counter-cyclical, index-linked income characteristics.
Strategy
Following Schroders' appointment as Manager in May 2019, the
Board and Manager carried out a strategic review to maximise
sustainable shareholder total returns, including a review of the
dividend policy.
Good initial progress was made delivering on the objectives,
including demonstrating Best-in-Class asset management,
implementing a formal Health & Safety policy which takes into
account the Hackitt Review and Grenfell Tower Inquiry findings, and
early adoption of the forthcoming Building Safety Bill. The Company
also completed the headlease restructuring of six purpose-built
student accommodation ground rent assets generating staged payments
totalling GBP1 million over a three year period and an important
refinancing which extended the debt maturity profile and provides
operational flexibility via the revolving credit facility ("RCF")
at a reduced interest cost.
However, as noted above, recent progress has been impacted by
the significant work required to address the headwinds affecting
the sector and the litigation at Beetham Tower. The Board and
Manager are focussed on managing and reducing these risks, which
are key to delivering a re-rating of the Company's share price.
Beetham Tower, Manchester
In 2014, routine maintenance to Beetham Tower in Manchester
identified that the structural bond used to fix certain glass
cladding panels to the frame was failing. Following proceedings
brought by the hotel long leaseholder in March 2018, North West
Ground Rents Limited ("NWGR"), the Company's wholly owned
subsidiary which owns Beetham Tower, commenced proceedings in July
2018 against parties including the original main contractor
Carillion Construction Limited ("Carillion"), which had entered
liquidation on 15 January 2018, its insurers, façade
sub-contractors Bug-Alutechnik GmbH and architects
SimpsonHaugh.
In January 2019, the High Court ordered NWGR to carry out
specific repairs to the building, Following a tender process NWGR
has been advised that the total cost of these works is
approximately GBP8.9 million, prior to any potential recovery from
the parties listed above and from residential leaseholders.
Following extensive engagement with Manchester City Council and
with the support of the Beetham Tower Residents Association
("BTRA"), in May 2020 planning permission was secured for an
alternative repair scheme, which NWGR believes is more deliverable,
at a cost of approximately GBP4.1 million. In October 2020, the
High Court found against NWGR's application to vary the remedial
work to the alternative repair scheme, but extended the time to
complete the scheme until 31 July 2022.
In conjunction with its advisers, the Board has formed the view
that, in the current circumstances, it is in the best interests of
the Company to pursue a sale of NWGR for a nominal amount as soon
as practicably possible, or to withdraw support for NWGR which is
likely to lead to the director of NWGR placing it into
liquidation.
Leasehold Reform
In January 2020, the Law Commission ("LC") published its report
on enfranchisement, setting out three primary options which aim to
reduce enfranchisement costs payable by leaseholders, whilst
ensuring sufficient compensation is paid to landlords. The options
principally focused on the component parts of the premium
calculation, including the abolition of Marriage Value for
short-dated or reversionary ground rents (sub 80 years unexpired
term) which the Company does not invest in. The LC's
recommendations were therefore generally positive for the Company
and were designed to promote a simplified system for leaseholders,
whilst considering the legitimate property interests of wider
stakeholder investors.
In January 2021 the Government set out high level proposals
based on the LC's recommendations. Although much is in line with
previous guidance, important areas of detail remain unclear,
specifically the methodology for an online premium calculator and
the proposed 0.1% of market value cap on the quantum of ground rent
that can be capitalised in the premium calculation.
Steps to remove genuinely onerous ground rents and efforts to
simplify the enfranchisement process are welcome. However, as
drafted, the proposals will create a one-time transfer of wealth
from one group of stakeholders to another, creating significant
economic consequences for both private and pension fund investors
with legitimate interests in this sector.
The Manager continues to engage actively with Government in
order to ensure that all stakeholders are carefully considered in
any proposed legislation, whilst emphasising the peaceful enjoyment
requirements of Article 1 of Protocol No. 1 of the European
Convention on Human Rights to give appropriate compensation to
asset owners.
Competition and Markets Authority
In June 2019, the Competition and Markets Authority ("CMA")
launched an investigation into potential breaches of consumer law
in the leasehold housing market. The Company has engaged with the
CMA during its investigation and responded in detail to a formal
information request in December 2019.
On 4 September 2020, the CMA announced its intention to bring
enforcement action against four leading housing developers as part
of its investigation into possible instances of mis-selling and
potential breaches of consumer protection law. The CMA has also
confirmed that, at this time and in line with their prioritisation
principles, it was not taking action against the Company.
In line with the findings of the investigation, the Company has
reviewed its leases and procedures to ensure that they are
compliant with consumer law. The Company will also be implementing
changes including providing clearer and more readily available
information for leaseholders on rent review calculations and the
updating of processes surrounding forfeiture under the Housing Act
1988.
Building Safety Reform
In July 2020, the Government published the draft Building Safety
Bill, which aims to improve safety in high rise buildings. The Bill
applies to all multi-occupied residential buildings higher than 18
metres and implements the recommendations of the Grenfell Tower
Inquiry Phase 1 report. It also introduces the concept of an
'Accountable Person' responsible for building safety, and a
requirement to maintain a 'Golden Thread' of building
information.
Against the backdrop of a rapidly developing regulatory
environment, the Board and Manager believe that institutional
ground rent investors have the necessary financial incentive,
expertise and resource to perform these complex duty-holder
obligations in order to protect leaseholders and assist Government
in implementing its proposed building safety reforms.
Dividend policy
Despite the onset of Covid-19 and the material impact the
pandemic has had on rent collection within the wider commercial
real estate market, the Company's strong income collection
performance enabled total dividends of GBP3.9 million to be paid
during the year, in line with its stated target. Quarterly
dividends of 0.99 pence per share have continued to be paid since
the financial year end.
Future dividends will be reviewed in light of leasehold reform,
increasing non-recurring property management and related costs and
any pandemic related impact.
Board composition
In February 2021, Barry Gilbertson joined the Board as an
independent non-executive director and will replace me as Chairman
when I retire at the Annual General Meeting in March 2021.
Barry has more than 45 years of experience within real estate,
strategy and risk, including as an adviser to the Bank of England,
the UK Government, and as a Past President of the Royal Institution
of Chartered Surveyors. Barry's extensive investment trust and
wider real estate experience will be a valuable addition to the
Board.
Outlook
The Company is operating in a challenging environment and the
outlook will principally be influenced by resolution of the
litigation at Beetham Tower and the outcome of leasehold
reform.
The Board and Manager continue to support leasehold reform which
achieves a better balance between the interests of ground rent
investors and leaseholders, and we are advocates for a fair and
transparent leasehold system which takes account of all
stakeholders and supports the appropriate value of the Group's
portfolio.
Malcolm Naish
Chairman
2 March 2021
Investment Manager's Review
Resilient income collection and strong focus on delivering
Best-in-Class residential asset management
Managing challenges associated with leasehold reform and
building safety.
Performance
The Group's Net Asset Value ("NAV") was GBP102.6 million or
105.7 pence per share ("pps") as at 30 September 2020, which
compares with GBP108.0 million or 111.3 pps at the start of the
financial year. This reflected a decline in NAV of 5.6 pps or 5.1%,
and a NAV total return, including total dividends paid over the
financial year of GBP3.9 million, of -1.6%. The movement in NAV is
set out in the table below:
Pence per
GBP million share ("pps")
----------------------------------- ----------- --------------
NAV as at 30 September 2019 108.0 111.3
----------------------------------- ----------- --------------
Portfolio valuation -0.5 -0.6
----------------------------------- ----------- --------------
Realised gains on disposal 0.3 0.3
----------------------------------- ----------- --------------
Net revenue (excluding NWGR costs) 3.1 3.2
----------------------------------- ----------- --------------
Litigation expenses -1.5 -1.5
----------------------------------- ----------- --------------
Provision for NWGR remedial works -2.9 -3.0
----------------------------------- ----------- --------------
Dividends paid -3.9 -4.0
----------------------------------- ----------- --------------
NAV as at 30 September 2020 102.6 105.7
----------------------------------- ----------- --------------
Although the portfolio value was stable over the financial year
at GBP124.2 million, the NAV was adversely impacted by litigation
expenses and an accounting adjustment relating to Beetham Tower in
Manchester, that is owned by the Company's wholly owned subsidiary,
North West Ground Rents Limited ('NWGR'). As outlined in more
detail below, the Company is seeking resolution to the long-running
litigation which will result in a sale for nominal consideration or
the withdrawal of support for NWGR.
The GBP2.9 million provision is an accounting adjustment under
International Accounting Standard ("IAS") 37 which reflects an
estimate of the cost NWGR would incur, were it to proceed with the
remedial works required to Beetham Tower, after recovery. This
provision is expected to be reversed in the event of either a sale
or liquidation of NWGR.
Income Collection
Since the onset of Covid-19, we have implemented more
accommodative revenue collection practices by extending the arrears
process, temporarily suspending late payment fees, accepting
extended payment terms where appropriate and encouraging
leaseholders experiencing genuine financial hardship to engage with
our external advisors.
Despite these amended collection processes, and the restrictions
of the Coronavirus Act 2020, rental collection rates show a slight
improvement compared with the previous financial year. Our active
oversight of credit control has seen a strong start to 2021, with
over 70% of the GBP2.4 million total ground rent income due on 1
January collected, which compares positively against the same point
last year. These strong income collection results enabled the
pre-Covid dividend level to be maintained during the financial
year.
Market overview
Ground Rents Investment Market
The Covid-19 pandemic has impacted global financial markets,
including many sectors of the real estate market. During the
financial year the ground rent investment market saw a steady, if
reduced, number of transactions taking place at broadly stable
pricing which was reflected in the portfolio valuation.
Investor sentiment towards the ground rents sector and market
liquidity is, not unsurprisingly, being affected by the ongoing
leasehold reform process. The generally well received announcement
from the Law Commission ("LC") in January 2020 triggered a number
of transactions, on assets comparable to those owned by the
Company, that provided evidence to support valuations at the end of
the year.
More recently, the Government's announcement of reform proposals
in January 2021 has increased uncertainty which, together with
ongoing building safety reform, has led to greater caution amongst
institutional investors. This is expected to persist until there is
clarity on the Government's reform proposals and specifically the
detail related to the 0.1% market value cap as part of the
enfranchisement premium calculation.
Whilst our focus remains on the current strategy, we continue to
explore diversifying the Company into commercial ground rents and
expanding the current investment mandate to include other assets
offering complementary defensive, predictable, index-linked income
such as shared ownership and social housing. Comparable asset
classes with index-linked, annuity-style income characteristics
have seen strong appetite from investors, and we expect this to
continue.
Inflation & Retail Price Index ("RPI") Reform
Annual Consumer Prices Index ("CPI") inflation for December 2020
surprised consensus by rising from 0.3% to 0.6% against
expectations of 0.5%. The Retail Price Index ('RPI'), a more
relevant measure for the Company due to approximately 71% of cash
flows being linked to this measure of inflation, rose to 1.2% year
on year.
There is increasing debate as to whether the expansion in the
money supply arising from the Bank of England's GBP150 billion
quantitative easing programme, will lead to higher inflation. We
would expect higher expected and actual inflation to lead to
greater demand for long dated cash flows such as those offered by
the ground rents sector.
In 2019, the then Chancellor pledged to bring RPI in line with
the Consumer Prices Index including occupiers housing costs, a
measure called CPIH. HM Treasury have subsequently announced that
in 2030 RPI will be brought in line with CPIH. Whilst this could
lead to reduced income in the future, this could be off-set by
increased demand for defensive assets offering inflation-proofed
cash flows.
Portfolio activity
Following Schroders' appointment in May 2019, the Board and
Manager undertook a strategy review to determine the best course of
action to maximise sustainable shareholder total returns. The key
strategic objectives were to sustainably grow recurring income to
accelerate dividend coverage, whilst enhancing risk management and
operational efficiency as we implement Best-in-Class residential
asset management. Progress has been made delivering on these
strategic objectives whilst also dealing with the increased
headwinds and work streams relating to leasehold and building
safety reform. Examples of this activity are set out below:
Growing Recurring Income
Restructure of six purpose-built student accommodation
head-leases
- Six new long headleases completed, removing day-to-day management responsibilities, and consolidating 812 rental demands into eight.
- The restructuring delivered GBP300,000 within the financial
year (GBP1 million over three years) and, following a rent review,
increased rent received from GBP305,000 to GBP320,000 per
annum.
Loan refinancing
- A new five-year, GBP25 million facility with Santander UK plc
comprising a GBP12.5 million term loan and a GBP12.5 million
revolving credit facility ("RCF"), extending the loan term to
January 2025.
- The term loan is at a fixed cost of 2.68% and the RCF is at a
margin of 1.85% per annum above 3-month LIBOR (the London Interbank
Offered Rate), a reduction of 45 basis points compared to the
previous margin of 2.30%.
- The margin reduction generates an approximate interest rate
saving of GBP150,000 per annum (based on the total drawn amount of
GBP19.5 million and 3-month LIBOR rate as at 30 September
2020).
Review of key supplier agreements and auxiliary income
- Renegotiated the agreement between the Company and its
principal property manager to generate additional net income of
approximately GBP115,000 per annum.
- Reducing the dividend's reliance on non-core, ancillary income.
Operational Efficiency & Risk Management
During the year and since the year end, further steps have been
taken to enhance risk and governance processes and deliver
Best-in-Class residential asset management. This includes the
implementation of a formal Health & Safety policy taking into
account the Hackitt Review and Grenfell Tower Inquiry Phase 1
Report, together with the following more detailed actions;
- Compartmentalisation audit of fire doors, riser cupboards and automatic opening vents.
- Digitisation of documentation as early adopters of the
anticipated Building Safety Bill.
- External Wall Surveys ("EWS1") instructed for all buildings over 18 metres.
- Regular engagement with residents' management company
directors and agents in the non-managed estate.
- Type 4 Fire risk assessments instructed across the managed estate.
- Acceleration of 2021 and 2022 Fire Reinstatement Valuations.
- Registration of all the Company's qualifying managed assets
for the Government's Building Safety Fund.
- 2021 Insurance renewal completed under challenging market
conditions with focus on external walls.
- Updated Property Management Agreements to enhance governance
and risk management and expand environmental, social and governance
("ESG") obligations.
- Membership of the British Property Federation ("BPF")
Residential Safety Committee to improve best practice.
Leasehold & Building Safety Reform
Leasehold Reform
Progress on reform slowed during Covid-19, with Government
resources reallocated to the pandemic. However, in January 2021 the
Government re-confirmed their commitment to meaningful sector
reform and announced:
- The abolition of "Marriage Value".
- Setting all future ground rents to GBPzero.
- 990 years lease extensions at GBPzero rent in return for a
premium payment to the freeholder.
- The establishment of an online calculator to make it easier
for leaseholders to ascertain the level of premium payable to the
freeholder.
- 0.1% market value cap on the quantum of ground rent that can
be capitalised in the term valuation.
Marriage Value does not form part of the valuation of long-dated
ground rents and therefore the potential impact on the Company's
portfolio is likely to be minimal. Conversely, if enacted, the 0.1%
cap on the level of ground rent that can be capitalised in the term
valuation would be dilutive to investors and would represent
radical Government intervention in a functioning real estate
market.
We therefore welcome the creation of a RICS working group, which
has been established with Government to consider important
outstanding detail relating to the January 2021 announcement,
together with the implications of the enfranchisement premium
calculation methodology and proposed 0.1% of market value cap.
We are actively engaged with Government via the RICS and BPF in
order to ensure that all stakeholders are carefully considered in
any proposed legislation. This includes emphasising the
requirements of Article 1 of Protocol No. 1 of the European
Convention on Human Rights to provide appropriate compensation to
investors in this sector.
Legislation setting future ground rents to zero is expected
during 2021, with legislation relating to new lease extension and
enfranchisement premiums expected by the end of the current
parliament in 2024.
Building Safety Reform
In January 2020, Government announced new measures to improve
building safety standards. The proposed legislation will strengthen
the regulatory system for building safety, ensuring greater
accountability and responsibility throughout the lifecycle of a
building, and will implement many of the recommendations from the
Grenfell Tower Inquiry Phase 1 report.
Under the proposals, Landlord and Tenant legislation will be
updated to include a new Building Safety Charge, which applies to
all buildings and sits outside of the confines of a development's
leases. This new charge will be separate to the service charge but
will create a mechanism to recover the costs of fire safety related
works such as cladding replacement, fire related façade works or
installing enhanced fire detection measures.
We believe these proposals are an important milestone in
delivering the enhanced safety standards the industry needs to
ensure leaseholders are safe in their homes. As we have articulated
throughout our engagement with policy makers, we strongly believe
professional investors with an economic interest in fair,
transparent ground rents have a clear incentive to participate in
the underlying management of their portfolios.
In March 2020, the Government announced a further GBP1 billion
Building Safety Fund ("BSF"') to remove defective cladding from
private sector sites above 18 metres. This was followed by a
further announcement in February 2021 which included:
- GBP3.5 billion of additional funding (GBP5 billion in total)
for the BSF for buildings over 18 metres high.
- For buildings under 18 metres high a long-term loan scheme
will be created with a cap of GBP50 a month for repayments by any
leaseholder.
- A developer levy will be applied to new-build high-rise
buildings and reflects the application fee described in the
proposed Building Safety Bill.
- A new residential development tax, which is expected to raise
GBP2 billion over 10 years.
The Government is also addressing the issue of professional
indemnity insurance for External Wall Survey Review ("EWS1") and
BSF works. The Government has stated that they will work towards a
state-backed indemnity scheme for qualified professionals, which
should accelerate the remediation of buildings at risk.
Whilst we again support the Government's steps to address the
industry wide cladding issues and limit the financial impact on
leaseholders, the BSF still does not cover works to replace fire
breaks, flammable insulation, or other types of combustible
cladding. We welcome the appointment of Lord Stephen Greenhalgh as
Building Safety and Fire Minister and continue to engage with
Government to develop policy makers' implementation strategy.
Competition and Market Authority
In June 2019, the Competition and Market Authority ("CMA")
launched a sector-wide investigation into potential mis-selling and
other possible breaches of consumer protection law in the leasehold
housing sector. In February 2020, the CMA published an Update
Report, setting out the main areas of concern in relation to its
investigation. These areas were:
- The mis-selling of leasehold houses by housing developers.
- Lease terms under which ground rents, which may initially be
high already, increase over time.
- High or escalating ground rents that either mean that a
tenancy is, or raise the prospect of a lease becoming, an 'assured
short hold tenancy' under the Housing Act 1988.
- The use of RPI to adjust the levels of ground rent under rent review.
- Landlords or their managing agents charging high and
unjustified permission fees and service charges.
- The effectiveness of the current system of checks and balances
intended to protect homeowners from potentially harmful terms and
practices.
On 4 September 2020, the CMA announced its intention to bring
enforcement action against four leading housing developers. The CMA
also confirmed that, at this time and in line with their
prioritisation principles, it was not taking enforcement action
against the Company. In line with the findings of the sector-wide
investigation, the Company continues to review the terms of its
leases and its procedures to ensure that they are compliant with
consumer law.
We will be closely monitoring the enforcement cases being
brought by the CMA and will review the Company's position in the
light of any further developments.
Real estate portfolio
As at 30 September 2020 the portfolio comprised approximately
19,000 units across 400 assets valued at GBP124.2 million. The
portfolio produces a ground rent income of GBP4.92 million per
annum, reflecting an average Years Purchase ("YP") of 25.2 or a
gross income yield of 3.97%.
The median annual ground rent charge is GBP110 for houses and
GBP250 for apartments (excluding student assets). During the year,
the Group acquired Brentford Lock for GBP1.64 million (excluding
costs), which represented a net initial yield of 3.7%. This
acquisition generates free cash of approximately GBP45,000 (taking
into account the net costs of financing), which improves dividend
cover and adds to the portfolio of RPI-linked assets.
The portfolio's weighted-average lease term as at 30 September
2020 was 343 years, with 93% of the ground rent income subject to
indexed or fixed increase review mechanisms. This is set out in the
table below.
Review type Ground Rent Income (%)
------------- ----------------------
Index linked 71.2
------------- ----------------------
Doubling 15.4
------------- ----------------------
Fixed 6.7
------------- ----------------------
Flat 6.7
------------- ----------------------
Total 100.0
------------- ----------------------
The rent review profile is shown in the table below, with 41.3%
of the ground rent income due for review over the next five
years:
Years to next review Ground rent income (%)
-------------------- ----------------------
0-5 41.3
-------------------- ----------------------
5-10 25.6
-------------------- ----------------------
10-15 20.3
-------------------- ----------------------
15-20 3.7
-------------------- ----------------------
Over 20 2.4
-------------------- ----------------------
Flat (no review) 6.7
-------------------- ----------------------
Total 100.0
-------------------- ----------------------
The chart on page 7 of the 2020 Annual Report and Financial
Statements demonstrates the forecast income performance based on
various levels of RPI. RPI inflation over the five years to and
including September 2020 was 2.5% per annum.
Assuming future RPI inflation (for which the calculation is
expected to be adjusted to CPIH with effect from 2030) of 2.5% per
annum, ground rent income should increase c.16% over the next five
years or an annualised figure of 2.6%; slightly ahead of the RPI
inflation assumption.
The top 10 assets by value represent 28.6% of the total
portfolio valuation as at 30 September 2020.
Valuation
September
2020 GBP Valuation
Property Location million (%)
-------------------------- ------------ ---------- ---------
Vita Student Village York 7.9 6.4
-------------------------- ------------ ---------- ---------
The Gateway Leeds 3.7 3.0
-------------------------- ------------ ---------- ---------
Masshouse Plaza Birmingham 3.6 2.9
-------------------------- ------------ ---------- ---------
One Park West Liverpool 3.4 2.8
-------------------------- ------------ ---------- ---------
Wiltshire Leisure Village Wiltshire 3.4 2.7
-------------------------- ------------ ---------- ---------
Ladywell Point Manchester 3.3 2.7
-------------------------- ------------ ---------- ---------
Rathbone Market London 3.1 2.5
-------------------------- ------------ ---------- ---------
First Street Manchester 2.7 2.2
-------------------------- ------------ ---------- ---------
Richmond House Southampton 2.4 1.9
-------------------------- ------------ ---------- ---------
Bezier Apartments London 1.9 1.5
-------------------------- ------------ ---------- ---------
Total 35.4 28.6
---------------------------------------- ---------- ---------
The geographic spread of the portfolio as at 30 September 2020
is shown in the chart below:
% of valuation
% of Ground at September
Location Rent Income 2020
----------- ------------ --------------
North West 29.9 28.2
----------- ------------ --------------
North East 29.1 29.4
----------- ------------ --------------
London 12.1 11.8
----------- ------------ --------------
Midlands 11.8 12.6
----------- ------------ --------------
South West 10.3 11.2
----------- ------------ --------------
South East 5.4 5.4
----------- ------------ --------------
Wales 1.4 1.4
----------- ------------ --------------
Total 100.0 100.0
----------- ------------ --------------
North West Ground Rents Limited - Beetham Tower, Manchester
The Company purchased North West Ground Rents Ltd ("NWGR") as
part of its IPO in 2012. NWGR is a wholly owned subsidiary of the
Company and its only asset is the freehold title of Beetham Tower,
a mixed use, 47 story building in Manchester with 219 apartments
and a Hilton branded hotel. The asset generates total ground rent
income of GBP64,152 per annum comprising GBP33,250 from the 219
residential leases and GBP30,902 from the hotel lease.
In 2014 routine maintenance identified that the structural bond
used to fix certain glass cladding panels to the frame was failing.
NWGR notified the main contractor, Carillion Construction Limited
("Carillion"), who subsequently installed fixings to secure the
glazing. This was intended to be a temporary solution whilst
Carillion and their specialist cladding subcontractors, BUG
Alutechnik GmbH ("BUG"), developed a permanent solution. Despite
repeated reassurances that Carillion and BUG were working on a
solution, progress was limited, and Carillion fell into liquidation
in 2018.
Following proceedings brought by the hotel long leaseholder in
March 2018, NWGR commenced proceedings in July 2018 against parties
including Carillion (now in liquidation), its insurers, and façade
sub-contractors BUG Alutechnik GmbH and architects SimpsonHaugh,
who it believes have a responsibility to remedy the defects in the
cladding. In September 2018 due to litigation and uncertainty the
value of NWGR's total investment in Beetham Tower was written down
to GBPnil.
In January 2019, the hotel long leaseholder, Blue Manchester
Limited ("BML"), obtained a Court ruling which required NWGR to
implement a specific permanent solution ("Option B") and complete
the works by July 2020. The works directed by the Court include
removing affected glazing units from the frames, removing the
defective structural bond and then re-fixing them to the building.
NWGR is advised that this solution is technically challenging to
deliver, with significant risk from working at height and potential
weather-related delays. The total cost of these works have been
tendered resulting in potential total costs of approximately GBP8.9
million, before any recovery from the abovementioned third parties
and from residential leaseholders.
Given this significant cost of Option B for NWGR and the
residential leaseholders, NWGR explored alternative options to
achieve a satisfactory repair solution. Following extensive
engagement with Manchester City Council and with the support of the
Beetham Tower Residents Association ("BTRA"), in May 2020 planning
permission was secured for an alternative repair scheme that the
board of NWGR and its professional advisors believe is more
deliverable and at a total cost of approximately GBP4.1 million
prior to any recovery under the terms of the residential
leases.
In June 2020, an application was made to the Court to approve
the alternative scheme which was challenged by BML. On 20 October
2020, the Court found against NWGR's application to vary the
remedial work to the alternative repair scheme but extended the
time to complete the original ordered scheme until 31 July
2022.
Since the 2019 High Court judgement, following requests from
NWGR, the Company has provided loans to NWGR totalling
approximately GBP2.7 million to facilitate its working capital
requirements, including its exploration of the alternative repair
solution. NWGR has no external loans, other than the shareholder
loans advanced by the Company. The Company has not provided any
guarantees in respect of NWGR's obligations.
In conjunction with its advisers, the Company has formed the
view that, in the current circumstances, it is in the Company's
best interests to pursue a sale of NWGR for nominal value, whilst
also contingency planning for the scenario where this is not
achievable and NWGR enters into a formal insolvency process.
Under either a sale of NWGR for a nominal value or a formal
insolvency process, the GBP2.9 million remedial works provision
included at the financial year end in line with requirements under
IAS 37 will be reversed.
The Company stated in October 2020 that, based on expenses
incurred since the 31 March 2020 and a provision for costs, the
further negative financial impact for the Company, were NWGR to
enter liquidation or be sold for a nominal sum, was expected to be
in the region of GBP1.3 million. GBP1 million of this is reflected
in the Company's 30 September 2020 NAV and the remaining
approximate GBP0.3 million is expected to be incurred after the
year end to conclude either the sale or liquidation process.
Responsible investing with impact
Responsible investment is integral to how Schroder Real Estate
manages its investments. Together with the Board, we believe that
by understanding and managing the impact of Environmental, Social
and Governance ("ESG") considerations we can generate better
long-term returns for our clients, contribute to our tenants'
business performance and create tangible benefits to the
communities in which they are located.
SREIM's sustainability programme is continually evolving,
reflecting progression with industry sustainability targets,
available technologies and the regulatory environment. Our approach
looks to consistently improve the sustainability credentials of the
Company's portfolio.
There will be an unrelenting focus on sustainability in the next
financial year with our investment and asset management teams
incorporating sustainability and impact credentials into all
activities. This is evident in our consumer focussed response to
the Covid-19 pandemic, where our focus has been on the safety and
wellbeing of our leaseholders and managing agents, maintaining the
Company's income and delivering our strategic objectives.
In relation to the environment, positive action is needed as the
built environment is generally accepted to be responsible for 40%
of global carbon emissions. In recognition of the role and
responsibilities of the real estate industry and property owners,
in December 2020 Schroder Real Estate published its pathway to
achieving net zero carbon across all assets by 2050. The
publication of this pathway follows Schroders becoming a founding
signatory to the Net Zero Asset Managers Initiative in December
2020, as well as the Net Zero Commitment Schroder Real Estate made
in September 2019 as part of the UK Better Buildings Partnership
Climate Commitment. This commitment is an extension of SREIM's
sustainability programme which includes targets to reduce energy
consumption and greenhouse gas emissions.
Finance
In January 2020, the Company refinanced its previous GBP19.5
million loan with Santander UK plc with a new five-year, GBP25
million facility comprising a GBP12.5 million term loan and a
GBP12.5 million revolving credit facility ("RCF"). This removed
refinancing risk in 2021 and provides important operational
flexibility.
The interest payable on the term facility is fixed at 2.68% per
annum, while the RCF attracts a rate of 1.85% above 3-month LIBOR
per annum subject to a cap of 1.0% on GBP5.5 million of the total
GBP12.5 million. The total 'all-in' interest rate has therefore
reduced from 3.37% to approximately 2.62% per annum, generating an
interest rate saving of approximately GBP150,000 per annum (based
on the total drawn amount of GBP19.5 million and 3-month LIBOR rate
as at 30 September 2020 and including the non-utilisation fee on
the undrawn RCF).
The table below sets out the loan terms:
Loan to Forward
Value Forward looking
Interest ("LTV") LTV ratio Interest ICR ratio looking ICR ratio
cover ICR
rate(1) ratio(2) covenant ratio(3) covenant ratio(4) covenant
Lender Facility Facillity Maturity (%) (%) (%) (%) (%) (%) (%)
---------- ---------- --------- -------- -------- -------- --------- --------- --------- --------- ---------
Santander Term loan 12.5 Jan 2025 2.62 30.6 50.0 403.1 270 420.6 270
GBP12.5
million
RCF 7.0
--------------------- --------- -------- -------- -------- --------- --------- --------- --------- ---------
(1) Total 'all in' interest rate based on the LIBOR rate
applicable to the RCF as at 30 September 2020, inclusive of
non-utilisation fee.
(2) Loan balance divided by Santander secured portfolio bank valuation as at 31 March 2020.
(3) For the quarter preceding the Interest Payment Date ('IPD'),
((rental income received - void rates, void service charge and void
insurance)/interest paid).
(4) For the four quarters following the IPD, ((rental income to
be received - void rates, void service charge and void
insurance)/interest payable).
At 30 September 2020, GBP19.5 million was drawn on the Company's
revolving credit facility and term loan combined. The Loan to Value
("LTV") on the charged pool of assets is 30.6% versus a covenant of
50%, and GBP5.5 million of the facility remains undrawn.
The Company has GBP68.5 million of uncharged assets as per the
independent portfolio valuation and the Group level LTV based on
gross assets is 15.7% against a restriction of 25%.
Summary
Investor sentiment towards the Company and performance continues
to be affected by uncertainty related leasehold reform and the
litigation surrounding Beetham Tower.
Our strong focus is therefore on addressing these risks by
bringing final resolution to Beetham Tower and working with
Government and other stakeholders to deliver fair leasehold reform.
We will also continue to focus on delivering sustainable net income
growth and developing our risk and governance processes to
demonstrate 'Best-in-Class' residential asset management.
James Agar
Fund Manager
Schroder Real Estate Investment Management Limited
2 March 2021
ss
Principal risks and uncertainties
The Board is responsible for the Group's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Group's business as a REIT and has established
associated policies and processes designed to manage and, where
possible, mitigate those risks, which are monitored by the Audit
Committee on an ongoing basis. This system assists the Board in
determining the nature and extent of the risks it is willing to
take in achieving the Group's strategic objectives. The principal
risks, emerging risks and the monitoring system are also subject to
robust assessment at least annually. The last assessment took place
in December 2020.
Although the Board believes that it has a robust framework of
internal control in place this can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk. Actions taken by
the Board and, where appropriate, its committees, to manage and
mitigate the Group's principal risks and uncertainties are set out
in the table below.
Emerging risks and uncertainties
During the year, the Board also discussed and monitored risks
that could potentially impact the Group's ability to meet its
strategic objectives. The main emerging risk monitored was
political risk, specifically leasehold reform, which could
adversely impact the value of the Group's portfolio. Political risk
also includes Brexit and the Board continues to monitor
developments from the UK's departure from the European Union and to
assess the potential consequences for the Group's future
activities, but believes that the Group's business model's lack of
exposure to foreign exchange currency rates, positions the Group to
be suitably insulated from Brexit related risks.
Climate change risk includes how climate change could affect the
Company's investments, and potentially shareholder returns or the
safety of residents. The Board notes the Manager has integrated ESG
considerations, including climate change, into the investment
process. The Board will continue to monitor the status of climate
change as an emerging risk.
The Board also reviewed the risks arising from the Covid-19
pandemic and how it impacted the Company's principal risks and
uncertainties. The Board considers that the pandemic has not
affected the Company's cash flows to date, although it continues to
monitor this. The Board notes the Manager's investment process is
unaffected by the pandemic. Covid-19 also affected the Company's
service providers, who implemented business continuity plans in
line with government guidelines. All service providers continue to
operate on a business as usual basis. The "change" column below
highlights at a glance the Board's assessment of any increases or
decreases in risk during the year after mitigation and management.
The arrows show the risks as increased or decreased, and dashes
show risks as stable.
Change
(post mitigation
Risk Mitigation and management and management)
Strategic The Board seeks to mitigate these risks é
by:
An inappropriate investment
strategy, or failure - Diversification of its ground rents
to implement the strategy, portfolio through its investment restrictions
could lead to underperformance and guidelines which are monitored and
and the share price reported on by the Investment Manager;
being at a larger
discount, or smaller - Determining borrowing policy, and ensuring
premium, to NAV. This the Investment Manager operates within
fall in values would borrowing restrictions and guidelines;
be amplified by the
Group's external borrowings. - Receiving from the Investment Manager
timely and accurate management information
including performance data, attribution
analysis, business plans and financial
projections;
- Monitoring the implementation and results
of the investment process with the Investment
Manager; and
- Reviewing marketing and distribution
activity and considering the use of a
discount control mechanism as necessary.
Regulatory The Company is actively engaged with é
Government via the Royal Institution
Leasehold reform legislation of Chartered Surveyors ("RICS") and the
is proposed by the British Property Federation ("BPF") in
UK Government that, order to ensure that all stakeholders
amongst other things, are carefully considered in any proposed
enables leaseholders legislation. This includes emphasising
to enfranchise based the requirements of Article 1 of Protocol
on a calculation that No. 1 of the European Convention on Human
is dilutive to investors. Rights to provide appropriate compensation
to investors in this sector.
Valuation/liquidity The Group does not seek to actively trade é
its assets, instead focusing on managing
The market for the them responsibly and effectively.
onward sale of the
Group's freeholds External valuers provide independent
is small and this valuation of all assets at least half-yearly.
may result in volatility
in the price achieved Members of the Audit Committee will meet
when selling or valuing with the external valuers to discuss
assets. the basis of their valuations and their
quality control processes on at least
an annual basis.
Asset The Manager reviewed and updated fire -
strategy decisions in the managed estate.
In light of recommendations
from Dame Judith Hackitt's Fire safety management policies and procedures,
Independent Review risk assessments, and fire records were
of Building Regulations improved in keeping with the "Golden
and Fire Safety, and Thread" principle of the Hackitt Review.
the Government's recent
consultation 'Building Maintenance regimes have been improved
a safer future: proposals to increase testing and planned preventative
for reform of the maintenance.
building safety regulatory
system" (the 'Hackitt The Manager continues to work closely
Review'), heightened with The Ministry of Housing, Communities
regulatory requirements and Local Government, local fire authorities
are recommended to and fire safety experts to ensure fire
protect the Company safety and address any remedial actions
and consumers. following Grenfell Tower learnings.
The Manager engages in regular correspondence
with the directors of resident's management
companies and their managing agents,
in the non-managed estate. The Company
has entered into a partnership with the
Hampshire Fire and Rescue Service to
provide high-level advice and assistance
in formulating and implementing policy.
Asset Insurance is maintained to cover against -
certain events. The Manager has a monitoring
The properties ultimately programme in place to mitigate against
owned by the Group certain types of asset risk. Other than
are unable to be used in exceptional circumstances, leaseholders
or deteriorate in are responsible for the costs of repair
value as a result of issues with the fabric of buildings.
of structural defects
or other unforeseen
events.
Service provider Service providers are appointed subject -
to due diligence processes and with clearly-documented
The Group has no employees contractual arrangements detailing service
and has delegated expectations.
certain functions
to a number of service Regular reports are provided by key service
providers. providers and the quality of services
provided are monitored.
Failure of controls
and poor performance Review of annual audited internal controls
of any service provider reports from key service providers, including
could lead to disruption, confirmation of business continuity arrangements.
reputational damage
or loss.
Custody The depositary reports on the safe custody -
of the Group's assets, including cash
Assets are not safely and portfolio holdings, which are independently
held or are lost through reconciled with the Manager's records.
exposure to Depositary,
or other counterparty, Review of audited internal controls reports
or through cyber hacking. covering custodial arrangements is undertaken.
An annual report from the depositary
on its activities, including matters
arising from custody operations is reviewed.
Cyber Service providers report on cyber risk -
mitigation and management at least annually,
The Group's service which includes confirmation of business
providers are all continuity capability in the event of
exposed to the risk a cyber attack.
of cyber attacks.
Cyber attacks could
lead to loss of personal
or confidential information
or disrupt operations.
Accounting, legal REIT arrangements reviewed each year -
and regulatory by tax advisors.
In order to continue Confirmation of compliance with relevant
to qualify as a REIT, laws and regulations by key service providers.
the Group must comply
with the requirements Shareholder documents and announcements,
of the REIT regime. including the Group's published annual
report are subject to stringent review
Breaches of the TISE processes. Procedures have been established
Listing Rules, the to safeguard against disclosure of inside
Companies Act or other information.
regulations with which
the Group is required
to comply, could lead
to a number of detrimental
outcomes.
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit Committee, including the
incidence of significant control failings or weaknesses that have
been identified at any time and the extent to which they have
resulted in unforeseen outcomes or contingencies that may have a
material impact on the Group's performance or condition. No
significant control failings or weaknesses were identified from the
Audit Committee's ongoing risk assessment which has been in place
throughout the financial year and up to the date of this
report.
Viability statement
The Directors have assessed the viability of the Company over a
five year period, taking into account the Company's position at 30
September 2020 and the potential impact of the principal risks and
uncertainties it faces for the review period. A period of five
years has been chosen as the Board believes that this reflects a
suitable time horizon for strategic planning, taking into account
the investment policy, liquidity of investments, potential impact
of economic cycles, nature of operating costs and dividends.
In their assessment the Directors have considered each of the
Group's principal risks and uncertainties detailed on pages 12 to
14 of the 2020 Annual Report and Financial Statements and in
particular the impact of a significant fall in the value of the
Group's investment portfolio. The Directors have also considered
the Group's income and expenditure projections and the GBP12.5
million term loan repayable on 10 January 2025, and the GBP12.5
million revolving credit facility which expires on the same date.
The Directors know of no reason that an equivalent facility will
not be in place by the expiry of this credit facility.
Based on the Group's processes for monitoring operating costs,
the share price discount, the Investment Manager's compliance with
the investment objective, asset allocation, the portfolio risk
profile, gearing, counterparty exposure, liquidity risk and
financial controls, the Directors have concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the five
year period to 30 September 2025. In reaching this decision, the
Board has taken into account the Company's next continuation vote,
to be put forward at the AGM in 2023. The Directors have no reason
to believe that such a resolution will not result in the
continuation of the Company.
Going concern
The Directors have examined significant areas of possible
financial risk and have reviewed cash flow forecasts and compliance
with the debt covenants, in particular the LTV covenant and
interest cover ratio. They have not identified any material
uncertainties which would cast significant doubt on the Group's
ability to continue as a going concern for a period of not less
than 12 months from the date of the approval of the financial
statements. The Directors have satisfied themselves that the Group
has adequate resources to continue in operational existence for the
foreseeable future.
After due consideration, the Board believes it is appropriate to
adopt the going concern basis in preparing the financial
statements.
By order of the Board
Schroder Investment Management Limited
Company Secretary
2 March 2021
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and Company financial
statements in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006. Under
company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Company and of the profit or
loss of the Group for that period. In preparing the financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable International Accounting Standards in
conformity with the requirements of the Companies Act 2006 have
been followed for the Group financial statements and International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 have been followed for the Company financial
statements, subject to any material departures disclosed and
explained in the financial statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group and Company's position and performance, business model
and strategy.
Each of the Directors, whose names and functions are listed on
pages 15 and 16 of the Directors' Report in the 2020 Annual Report
and Financial Statements confirm that, to the best of their
knowledge:
- the Group financial statements, which have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006, give a true and
fair view of the assets, liabilities, financial position and loss
of the Group;
- the Company financial statements, which have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006, give a true and
fair view of the assets, liabilities, financial position and loss
of the Company; and
- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
Group and Company, together with a description of the principal
risks and uncertainties that it faces.
In the case of each Director in office at the date the
Directors' Report is approved:
- So far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware. Relevant
information is defined as "information needed by the Company's
auditor in connection with preparing their report".
- Each Director has taken all the steps that they ought to have
taken in their duty as a Director in order to make themselves aware
of any relevant audit information and to establish that the
Company's auditor is aware of that information.
- Steps that a Director ought to have taken would include making
inquiries of other Directors and the auditor and any other steps
required by the Director's duty to exercise due care, skill and
diligence.
By order of the Board
Malcolm Naish
Chair
2 March 2021
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2020
Restated*
2020 2019
Note GBP GBP
---------------------------------------------- ---- ----------- -----------
Continuing operations
Revenue 2 6,066,125 5,638,348
Operating expenses 3 (6,775,027) (2,809,134)
Profit on sale of investment properties 315,270 485,145
Net revaluation loss on investment properties 8 (537,301) (4,876,845)
---------------------------------------------- ---- ----------- -----------
Operating loss (930,933) (1,562,486)
---------------------------------------------- ---- ----------- -----------
Analysed as
Operating profit/(loss) before exceptional
items 3,520,937 (299,972)
Litigation costs 3 (1,551,870) (1,262,514)
Provision for remedial works 3 (2,900,000) -
---------------------------------------------- ---- ----------- -----------
Operating loss (930,933) (1,562,486)
---------------------------------------------- ---- ----------- -----------
Finance income 5 16,469 25,903
Finance expenses 6 (671,739) (752,539)
---------------------------------------------- ---- ----------- -----------
Net finance expense (655,270) (726,636)
---------------------------------------------- ---- ----------- -----------
Loss before tax (1,586,203) (2,289,122)
Taxation 7 - -
---------------------------------------------- ---- ----------- -----------
Loss after tax and total comprehensive loss (1,586,203) (2,289,122)
---------------------------------------------- ---- ----------- -----------
Loss per share
Basic 13 (1.64p) (2.36p)
Diluted 13 (1.64p) (2.36p)
---------------------------------------------- ---- ----------- -----------
* See note 1 Exceptional items
Consolidated Statement of Financial Position
As at 30 September 2020
2020 2019
Note GBP GBP
-------------------------------------------- ---- ------------ ------------
Assets
Non-current assets
Investment properties 8 124,190,000 122,893,000
-------------------------------------------- ---- ------------ ------------
124,190,000 122,893,000
Current assets
Trade and other receivables 9 1,852,415 1,110,402
Interest rate derivative contracts 14,158 -
Cash and cash equivalents 2,435,758 6,136,854
-------------------------------------------- ---- ------------ ------------
4,302,331 7,247,256
-------------------------------------------- ---- ------------ ------------
Total assets 128,492,331 130,140,256
-------------------------------------------- ---- ------------ ------------
Liabilities
Non-current liabilities
Financial liabilities measured at amortised
cost 11 (18,991,454) (19,304,928)
Provision for liabilities 22 (2,900,000) -
-------------------------------------------- ---- ------------ ------------
(21,891,454) (19,304,928)
Current liabilities
Trade and other payables 10 (4,042,765) (2,820,454)
-------------------------------------------- ---- ------------ ------------
Total liabilities (25,934,219) (22,125,382)
-------------------------------------------- ---- ------------ ------------
Net assets 102,558,112 108,014,874
-------------------------------------------- ---- ------------ ------------
Equity
Share capital 15 48,503,248 48,503,248
Share premium account 16 - 45,884,305
Retained earnings 17 55,641,067 15,916,443
Loss for the financial year 17 (1,586,203) (2,289,122)
-------------------------------------------- ---- ------------ ------------
Total equity 102,558,112 108,014,874
-------------------------------------------- ---- ------------ ------------
Net asset value per ordinary share
Basic 14 105.7p 111.3p
Diluted 14 105.5p 110.9p
-------------------------------------------- ---- ------------ ------------
Consolidated Statement of Cash Flows
For the year ended 30 September 2020
2020 2019
Note GBP GBP
------------------------------------------------ ---- ----------- -----------
Cash flows from operating activities
Cash generated from operations 19 2,671,395 3,830,532
Interest paid on bank loan and bank charges (536,077) (659,304)
------------------------------------------------ ---- ----------- -----------
Net cash generated from operating activities 2,135,318 3,171,228
------------------------------------------------ ---- ----------- -----------
Cash flows from investing activities
Interest received 16,445 25,903
Receipts from the sale of investment properties 347,203 513,221
Purchase of investment properties 8 (1,861,466) (288,121)
------------------------------------------------ ---- ----------- -----------
Net cash (used in)/generated from investing
activities (1,497,818) 251,003
------------------------------------------------ ---- ----------- -----------
Cash flows from financing activities
Net proceeds from issuance of shares 19 - 50
Bank loan receipts 4,000,000 -
Bank loan payments (4,000,000) -
Debt issue costs (417,387) -
Purchase of interest rate cap (50,650) -
Dividends paid to shareholders 18 (3,870,559) (2,851,988)
------------------------------------------------ ---- ----------- -----------
Net cash used in financing activities (4,338,596) (2,851,938)
------------------------------------------------ ---- ----------- -----------
Net (decrease)/increase in cash and cash
equivalents 20 (3,701,096) 570,293
------------------------------------------------ ---- ----------- -----------
Net cash and cash equivalents at the beginning
of the year 6,136,854 5,566,561
------------------------------------------------ ---- ----------- -----------
Net cash and cash equivalents at the end
of the year 2,435,758 6,136,854
------------------------------------------------ ---- ----------- -----------
Consolidated Statement of Changes in Equity
For the year ended 30 September 2020
Share
Share premium Retained
capital account earnings Total equity
GBP GBP GBP GBP
-------------------------------- ---------- ------------ ----------- ------------
At 1 October 2018 48,503,198 45,884,305 18,768,431 113,155,934
Comprehensive loss
Loss for the year - - (2,289,122) (2,289,122)
-------------------------------- ---------- ------------ ----------- ------------
Total comprehensive loss - - (2,289,122) (2,289,122)
Transactions with owners
Issue of share capital (note
15) 50 50 - 100
Share issue costs (note 16) - (50) - (50)
Dividends paid (note 18) - - (2,851,988) (2,851,988)
-------------------------------- ---------- ------------ ----------- ------------
At 30 September 2019 48,503,248 45,884,305 13,627,321 108,014,874
-------------------------------- ---------- ------------ ----------- ------------
Comprehensive loss
Loss for the year - - (1,586,203) (1,586,203)
-------------------------------- ---------- ------------ ----------- ------------
Total comprehensive loss - - (1,586,203) (1,586,203)
Transactions with owners
Share premium account reduction
(note 16) - (45,884,305) 45,884,305 -
Dividends paid (note 18) - - (3,870,559) (3,870,559)
-------------------------------- ---------- ------------ ----------- ------------
At 30 September 2020 48,503,248 - 54,054,864 102,558,112
-------------------------------- ---------- ------------ ----------- ------------
Notes to the Consolidated Financial Statements
For the year ended 30 September 2020
1 Accounting policies
Ground Rents Income Fund plc (the "Company") is a closed-ended
investment company registered in England and Wales as a public
company limited by shares. The Company's registered address is 1
London Wall Place, London, EC2Y 5AU. The consolidated financial
statements of the Company comprise the Company and its subsidiaries
(together referred to as the "Group").
Statement of compliance
The consolidated financial statements of the Group have been
prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 ("IFRS")
and applicable legal requirements of the Companies Act 2006.
Basis of preparation
The consolidated financial statements have been prepared under
the historical cost convention, as modified by the revaluation of
investment properties and derivative financial instruments, which
have been measured at fair value. The functional and presentational
currency is sterling.
The accounting policies applied to the results, assets,
liabilities and cash flows of the entities included in the
consolidated financial statements are consistent with those of the
previous year other than as set out below.
Going concern
In March 2020 the World Health Organisation declared the
outbreak of the Novel Coronavirus ("Covid-19") a global pandemic.
Subsequently, the Directors have examined significant areas of
possible financial risk including: the non-collection of rent as a
result of the Covid-19 pandemic and potential resulting falls in
property valuations; and the future implications of potential
leasehold reform. The Manager has prepared detailed forward-looking
cash flow forecasts and third party debt covenant calculations, in
particular the Loan to Value covenant and interest cover
ratios.
The Board and Manager are closely monitoring the potential
ongoing impact the Covid-19 pandemic may have on the Company's
rental collection, which has remained strong during the year and to
the date of this report, and the requirement to distribute
dividends in accordance with REIT regulations. The Company's
dividend policy will be kept under constant review to ensure the
Company's liquid resources will be sufficient to cover any working
capital requirements. Further details can be found within the
Chairman's statement on page 3 and the Directors' Report on page 17
of the 2020 Annual Report and Financial Statements.
In January 2020 the Group completed a refinancing of the
facility held with Santander. Half of the facility is a GBP12.5
million fixed rate loan attracting a total interest rate of 2.68%
per annum, compared to a previous rate of 3.37%. The Group also
arranged a GBP12.5 million revolving credit facility ("RCF") with
Santander. As at the year end, the undrawn capacity was GBP5.5
million. The RCF is an efficient and flexible source of funding at
an interest rate of 1.85% per annum plus three month LIBOR which
can be repaid and redrawn as often as required.
The Directors have not identified any material uncertainties
which would cast significant doubt on the Group's ability to
continue as a going concern for a period of not less than twelve
months from the date of the approval of the consolidated financial
statements.
In addition to the matters described above, in arriving at their
conclusion the Directors have also considered:
-- The current cash balance at 26 February 2021 of approximately GBP2.2 million;
-- The nature and timing of the Group's income and expenses;
-- Obligations for remedial works within the Group; and
-- That the Manager continues to implement its business
continuity plans to help ensure the safety and well-being of its
staff thereby retaining the ability to maintain the Group's
business operations.
The Directors have satisfied themselves that the Group has
adequate resources to continue in operational existence for the
foreseeable future.
After due consideration, the Board considers it is appropriate
to adopt the going concern basis in preparing the Group
consolidated financial statements.
Adoption of new and revised standards
During the year, the Group adopted the following standards:
IFRS 16 - Leases
The new standard requires recognition on the balance sheet for
the head rent payable by a lessee over the lease term. For lessees,
it will result in almost all leases being recognised on the balance
sheet, as the distinction between operating and finance leases will
be removed. The accounting for lessors has not significantly
changed.
The Group adopted IFRS 16 Leases on 1 October 2019. This
standard does not impact the Group's financial position since it is
a lessor of investment properties and has no other operating
leases.
New standards and interpretations not yet adopted by the
Group
IFRS 3 - Business Combinations
Amendments to IFRS 3 Business Combinations, effective for
financial years commencing on or after 1 January 2020 provides a
revised framework for evaluating a business and introduces an
optional 'concentration test'. The amendment will impact the
assessment and judgements used in determining whether future
property transactions represent an asset acquisition or business
combination. As a result of the amendment it is expected that
future transactions are more likely to be treated as an asset
acquisition.
There are no other standards or interpretations yet to be
effective that would be expected to have a material impact on the
financial statements of the Group.
Use of estimates and judgements
The preparation of financial statements in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006, requires management to make
judgements, estimates and assumptions that affect the application
of policies and the reported amounts of assets and liabilities,
income and expenses. These estimates and associated assumptions are
based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis of making judgements about the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
The most significant estimates made in preparing the
consolidated financial statements relate to the carrying value of
investment properties, as disclosed in note 8, which are stated at
fair value. Fair value is inherently subjective because the valuer
makes assumptions which may not prove to be accurate. The Group
uses external professional valuers to determine the relevant
amounts.
A further significant estimate is the provision for the
liability for the works required to repair investment properties,
which represents a shortfall between future payments and future
receipts. The evaluation included analysis of inputs and outputs
such as: estimates for repair works, and the probability and sum of
expenditure recovery under leasehold agreements and from other
third parties. Further details can be found in note 22 Provisions
for liabilities.
Another significant estimate is the IFRS 9 expected credit loss.
IFRS 9 requires an impairment review to be made for certain
financial assets held on a Group's balance sheet using a
forward-looking expected credit loss model. Where any impairment is
required to be made, appropriate recognition is required in the
Consolidated Statement of Comprehensive Income together with
appropriate disclosure in the notes to the consolidated financial
statements. Within the Company financial statements, all
intercompany loans are considered to be such financial assets and
must therefore be assessed at each reporting period for potential
impairment, with appropriate disclosures.
Basis of consolidation
The Group's financial statements comprise a consolidation of the
financial statements of the parent company (Ground Rents Income
Fund plc) and its subsidiaries. The financial statements of the
subsidiaries are prepared using consistent accounting policies.
Subsidiaries are entities controlled by the Group and control
exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefit from its
activities. The financial statements of the subsidiaries are
included from the date on which control is transferred to the
Group. Financial statements of subsidiaries are deconsolidated from
the date on which control ceases.
All intra-group transactions and balances are eliminated on
consolidation.
Revenue
Revenue represents the value of ground rent income due in the
year together with any supplementary income earned in the year,
including insurance income, tenant fees, lease restructure premiums
and other income. The policy is in line with IFRS 15 - Revenue from
contracts with customers.
Rental income, including fixed rental uplifts, from investment
property leased out under operating leases is recognised as revenue
on a straight-line basis over the lease term, apart from:
- Any rent adjustments based on open market estimated rental
values or indexed-linked rent reviews which are recognised, based
on management estimates, from the rent review date in relation to
unsettled rent reviews; and
- Contingent rents, being those lease payments that are not
fixed at the inception of the lease, which are recognised in the
period they are earned and as defined by the lease.
Finance income and expenses
Finance income comprises interest receivable on bank deposits.
Finance expenses comprise interest payable and transaction costs
incurred in connection with the borrowing of funds of the
facilities. Finance income and expenses are recognised in the
Consolidated Statement of Comprehensive Income on an accruals basis
in the period to which they relate.
Taxation
Tax on the profit for the year comprises current tax. Current
tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the year end
date.
Deferred tax
Generally, the Group is not exposed to deferred tax because it
is a REIT. REITs do not pay tax on property income and gains.
Exceptional items
The Group's Consolidated Statement of Comprehensive Income
separately identifies exceptional items. Such items are those that
in the Directors' judgement are one-off in nature and need to be
disclosed separately by virtue of their size or incidence. In
determining whether an item should be disclosed as an exceptional
item, the Directors consider quantitative as well as qualitative
factors such as frequency, predictability of occurrence and
significance. This is consistent with the way the financial
performance is managed by the Manager and reported to the
Directors. Disclosing exceptional items separately provides
additional understanding of the performance of the Group.
The Directors have retrospectively applied the policy to the
year ended 30 September 2019 (as presented within the restated
Consolidated Statement of Comprehensive Income and note 3 Operating
expenses) and reclassified the GBP1.3 million of prior year costs
from operating expenses to exceptional items. This enables the
reader to identify the costs incurred in both financial years in
connection with the litigation at Beetham Tower, Manchester, a
mixed use residential and hotel asset owned by the Group
subsidiary, NWGR. This follows the High Court finding in October
2020 against NWGR in its application to vary the remedial work to
the building and subsequent requirement to recognise the future
liability for the remedial solution. Apart from this
reclassification of exceptional costs within the Consolidated
Statement of Comprehensive Income, there is no other impact on the
comparative consolidated financial statements of the Group. Further
details can be found in note 3 Operating expenses and note 22
Provisions for liabilities.
Investment properties
Investment properties are carried in the Consolidated Statement
of Financial Position at their open market value. The Directors
have applied the fair-value model in IAS 40 - Investment Property.
Investment properties are revalued at the Consolidated Statement of
Financial Position date by an independent valuer. The fair value
also reflects estimated future cash flows. Expenses that are
directly attributable to the acquisition of an investment property
are capitalised into the cost of investment. Gains and losses on
changes in fair value of investment properties are recognised in
the Consolidated Statement of Comprehensive Income. The Directors
instruct the independent valuers biannually and, in addition, on
acquisition of investment properties as the need arises. Gains and
losses on changes in fair value are recognised at the time of each
valuation.
Cash and cash equivalents
Cash comprises call deposits held with banks.
Capital management
The capital managed by the Group consists of cash held across
different bank accounts in several banking institutions. The
Group's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maximise the interest return on funds which have yet to be invested
while ensuring there is enough free cash to meet day-to-day
liabilities. In order to maintain or adjust the capital structure
the Directors have the option to adjust the dividends paid to
shareholders, return cash to shareholders, sell assets or delay
purchase of individual assets. The Group monitors capital through
cash and dividend forecasts which are prepared and reviewed on a
quarterly basis. Following the Santander loan refinancing in
January 2020, the Group has a fully drawn down GBP12.5 million
fixed rate debt facility and a GBP12.5 million RCF facility, of
which GBP7 million is drawn down, which both expire in January
2025. See note 12 - Financial Instruments for further information
on the loan. Associated costs are capitalised and amortised over
the duration of the loan.
Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise an interest
rate cap for hedging purposes, as an economic hedge. This has been
initially recognised at cost and subsequently revalued to fair
value, with the revaluation gains or losses recognised in the
Consolidated Statement of Comprehensive Income.
Financial assets and liabilities
Non-derivative financial assets and liabilities comprise trade
and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables. These are initially
recognised at fair value and subsequently measured at amortised
cost and discounted as appropriate. On initial recognition and at
each period end the Group calculates the expected credit loss for
non-derivative assets based on lifetime expected credit losses
under the IFRS 9 simplified approach.
Deferred income
Deferred income arises because ground rents are usually billed
annually in advance. Deferred income is held in the deferred income
account within payables and released to the Consolidated Statement
of Comprehensive Income over the period to which it relates.
Amortisation of loan arrangement fees
Loan arrangement fees are capitalised and deducted from the
amount outstanding on the loan. They are expensed to the
Consolidated Statement of Comprehensive Income over the period of
the loan facility. This loan amortisation is included within
finance expenses in the consolidated financial statements.
Provisions
A provision is recognised in the Consolidated Statement of
Financial Position when the Group has a legal or constructive
obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the
obligation.
Ordinary share capital
Ordinary share capital is classed as equity. Incremental costs
directly attributable to the issue of new ordinary shares are shown
in equity as a deduction from the share premium account.
Warrants
Warrants were issued on a one for five basis with the issue of
the ordinary share capital in August 2012. Each warrant gives the
holder the right to subscribe for an ordinary share for GBP1 on the
anniversary of their issue for a period of ten years.
Dividend distribution
Dividend distribution to the Company's shareholders is
recognised as a liability in the Group's financial statements in
the period in which the dividends are approved by the Company's
Directors.
2 Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being the collection of ground rent
from its investment properties. The Group receives some ancillary
income to which it is entitled as a result of its position as
property freeholder or head leaseholder. Schroders acts as adviser
to the Board of Directors, who then make management decisions
following its recommendations. As such, the Board is considered to
be the chief operating decision maker. A set of consolidated IFRS
information is provided to the Board on a quarterly basis.
2020 2019
GBP GBP
------------------- --------- ---------
By activity
Ground rent income 4,855,924 4,796,641
Other income 1,210,201 841,707
------------------- --------- ---------
6,066,125 5,638,348
------------------- --------- ---------
All income of the Group is derived from activities carried out
within the United Kingdom. The Group is not reliant on any one
property or group of connected properties for the generation of its
revenues.
3 Operating expenses
Restated*
2020 2019
GBP GBP
---------------------------------------------- --------- ---------
Directors' salaries (note 4) 93,772 71,697
Auditors' remuneration - see below 145,000 88,935
Management fees 1,112,582 562,234
Professional fees excluding exceptional items 600,398 467,775
Insurance 49,517 24,083
Sponsor fees 65,014 55,170
Valuation fees 47,262 95,559
Registrar fees 72,216 27,207
Listing fees 19,168 30,559
Public relations and printing costs 29,020 29,548
Other operating expenses 89,208 93,853
---------------------------------------------- --------- ---------
Operating expenses before exceptional items 2,323,157 1,546,620
---------------------------------------------- --------- ---------
Litigation costs 1,551,870 1,262,514
Provision for remedial works 2,900,000 -
---------------------------------------------- --------- ---------
Total operating expenses 6,775,027 2,809,134
---------------------------------------------- --------- ---------
*See note 1 Exceptional items. Litigation costs have been
incurred in connection with the ongoing litigation within a wholly
owned subsidiary NWGR. The provision for remedial works is a
provision under IAS 37 "Provisions, Contingent Liabilities and
Contingent Assets" (see note 22), again in connection with
NWGR.
No direct operating expenses were incurred in relation to
investment property in the year (2019: GBPnil).
Services provided by the Company's auditors:
2020 2019
GBP GBP
----------------------------------------------------- ------- ------
Fees payable to the auditors for the audit of parent
company and consolidated financial statements 76,500 32,000
Fees payable to the auditors for other services:
- The audit of the Group's subsidiaries 68,500 56,935
----------------------------------------------------- ------- ------
145,000 88,935
----------------------------------------------------- ------- ------
4 Directors' emoluments
The Directors are the only officers of the Company and there are
no other key personnel. The average number of Directors during the
year was 3 (2019: 3). The Directors' annual remuneration for
services is set out in the Directors' Remuneration Report on pages
24 and 25 of the 2020 Annual Report and Financial Statements. The
total charge for Directors' fees is shown in note 3 and is
inclusive of employer's National Insurance Contributions. There
were no post-employment benefits, other long-term benefits,
termination benefits or share-based payments accrued or paid out in
the year (2019: none).
5 Finance income
2020 2019
GBP GBP
-------------------------- ------ ------
Interest on bank deposits 16,469 25,903
-------------------------- ------ ------
6 Finance expenses
2020 2019
GBP GBP
------------------------------------------------------- ------- -------
Loan interest 498,437 655,099
Amortisation of loan arrangement fees and bank charges 136,810 97,440
Net change in fair value of financial instruments 36,492 -
------------------------------------------------------- ------- -------
671,739 752,539
------------------------------------------------------- ------- -------
Following the modification to the loan facility during the year,
additional loan arrangement and associated professional fees of
GBP0.25 million have been capitalised and deducted from the total
loan amount outstanding. Total capitalised fees of GBP0.5 million
at the year end date are to be amortised over the period to January
2025. See note 11 for further details.
7 Taxation
The Company applied to HMRC to join the REIT taxation regime on
14 August 2012. The REIT regime affords the Company a number of
potential efficiencies in its tax affairs including exemption from
UK corporation tax on profits and gains from its UK property rental
business. The Company is compliant with the rules of the REIT
regime in order to achieve these potential benefits. No tax charge
arose in the year (2019: GBPnil). For the current year ended 30
September 2020, the Group did not have any non-qualifying profits
and accordingly there is no tax charge in the year. If there were
any non-qualifying profits and gains, these would be subject to
corporation tax.
2020 2019
GBP GBP
----------------------------------------------------- ----------- -----------
Loss before taxation (1,586,203) (2,289,122)
----------------------------------------------------- ----------- -----------
Standard rate of corporation tax in the UK 19% 19%
----------------------------------------------------- ----------- -----------
GBP GBP
----------------------------------------------------- ----------- -----------
Loss before taxation multiplied by the standard rate
of corporation tax (301,379) (434,933)
Effects of:
Unrealised revaluation loss not tax deductible 109,397 926,601
Property loss/(profit) not tax deductible under the
REIT regime 191,982 (491,668)
----------------------------------------------------- ----------- -----------
Total tax charge for year - -
----------------------------------------------------- ----------- -----------
Deferred tax
No deferred tax arises on revaluation of investment properties
due to the REIT status of the Company. UK REITs are exempt from
Capital Gains Tax on property sales.
Factors affecting current and future tax charges
The Government has announced that the corporation tax standard
rate will also be set at 19% for the financial year beginning 1
April 2021.
8 Investment properties
GBP
---------------------------------------------- -----------
Fair value
At 30 September 2018 127,509,800
---------------------------------------------- -----------
Additions 288,121
Disposals (28,076)
Net loss recognised in Consolidated Statement
of Comprehensive Income (4,876,845)
---------------------------------------------- -----------
At 30 September 2019 122,893,000
---------------------------------------------- -----------
Additions 1,861,466
Disposals (27,165)
Net loss recognised in Consolidated Statement
of Comprehensive Income (537,301)
---------------------------------------------- -----------
At 30 September 2020 124,190,000
---------------------------------------------- -----------
Fair value hierarchy
Non-financial assets carried at fair value, as is the case for
investment property held by the Group, are required to be analysed
by level depending on the valuation method adopted under IFRS 13
'Fair Value Measurement'.
The fair value hierarchy has the following levels:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets and liabilities.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from
prices).
Level 3: Inputs for the asset or liability that are not based on
observable market data (that is unobservable inputs).
All investment property held by the Group is classified as Level
3.
There have been no transfers between levels of the fair value
hierarchy during the year.
Key assumptions within the basis of fair value are:
The value of each of the properties has been assessed in
accordance with the relevant parts of the Royal Institution of
Chartered Surveyors Valuation - Global Standards 2020,
incorporating the IVSC International Valuations Standards (the "Red
Book Global Standards"), which is consistent with IFRS 13
measurement requirements. The RICS Red Book provides two
definitions of fair value. The one appropriate for the IFRS basis
of accounting is as follows:
"The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date".
The commentary under VPS 4 (1.5.3) of the Red Book states that,
for most practical purposes, fair value is consistent with the
concept of market value and there is no difference between the
two.
The Group's investment property was revalued at 30 September
2020 by Savills. The valuer has confirmed to the Directors that the
fair value as set out in the valuation report has been primarily
derived using comparable recent market transactions on an arm's
length basis.
The valuer within Savills is a RICS Registered Valuer. The
valuation of ground rent investment properties takes into account
external factors such as interest rates and the availability of
other fixed rate investments in the market.
The valuation of a ground rent investment property is
principally dependent on the aggregate income generated, and the
potential for this to increase in future through rent reviews. The
most valuable ground rent investment property assets are those
which are RPI linked with reviews every 10 years or less. Other
types of ground rents are 'doubling' where the rent doubles at a
fixed time interval and 'fixed increases' where the uplifts are
fixed and detailed in the lease. The least attractive ground rents
are those which are flat with no future rental increases which
attract the lowest Years Purchase (YP) multiple and the highest
yield.
Information about fair value measurement using significant
unobservable inputs (Level 3):
Valuation Category - type of rent review
Fixed
30 September 2020 Indexed Doubling increases Flat
------------------------------- ---------- ---------- ---------- ---------
Cost (GBP) 76,894,000 13,289,000 6,464,000 5,756,000
Fair value (GBP) 92,174,000 18,841,000 7,589,000 5,586,000
Gross rent roll (GBP) 3,506,000 757,000 330,000 327,000
Rental yield on purchase price 4.6% 5.7% 5.1% 5.7%
Rental yield on fair value 3.8% 4.0% 4.3% 5.9%
------------------------------- ---------- ---------- ---------- ---------
Fixed
30 September 2019 Indexed Doubling increases Flat
------------------------------- ---------- ---------- ---------- ---------
Cost (GBP) 74,324,000 13,867,000 6,708,000 5,759,000
Fair value (GBP) 89,240,000 19,389,000 8,306,000 5,958,000
Gross rent roll (GBP) 3,366,000 776,000 343,000 335,000
Rental yield on purchase price 4.5% 5.6% 5.1% 5.8%
Rental yield on fair value 3.8% 4.0% 4.1% 5.6%
------------------------------- ---------- ---------- ---------- ---------
All categories of ground rent investment properties have been
valued by independent valuers using available market comparisons.
During the year, some assets held with doubling rent reviews
transitioned to a flat review profile.
The table below shows the principal sensitivity to the key
valuation metrics and the resultant change to the valuation.
Fixed
+/- effect on valuation Indexed Doubling increases Flat
-------------------------- --------- -------- ---------- -------
Impact on fair value of 1
YP change (GBP) 3,506,000 757,000 330,000 327,000
-------------------------- --------- -------- ---------- -------
The average YP across the portfolio is 25.2 (2019: 25.5).
Included within the Group portfolio valuation is a GBPnil (2019:
GBPnil) value for the investment property Beetham Tower,
Manchester, held within the NWGR subsidiary undertaking. The
Directors have introduced a provision under IAS37 "Provisions,
Contingent Liabilities and Contingent Assets" to reflect the costs
for remedial works (see note 22) in connection with the remediation
of the asset.
9 Trade and other receivables
2020 2019
GBP GBP
------------------------------- --------- ---------
Trade receivables 654,035 679,576
Other receivables 1,130,606 381,847
Prepayments and accrued income 67,774 48,979
------------------------------- --------- ---------
1,852,415 1,110,402
------------------------------- --------- ---------
The fair value of trade and other receivables is equal to the
book value.
The ageing analysis of trade receivables is as follows:
2020 2019
GBP GBP
--------------- ------- -------
Up to 3 months 208,989 383,263
Over 3 months 445,046 296,313
--------------- ------- -------
654,035 679,576
--------------- ------- -------
Management consider the trade receivables to be fully
collectable due to the secure nature of the receipts. The Directors
believe all financial assets that are neither past due nor impaired
to be fully recoverable as the amounts are represented by either
cash held at a secure client account at the Company's solicitors or
other trading amounts which are considered fully recoverable and of
good quality. Therefore no expected credit loss by ageing is
presented above. Accordingly, the provision for doubtful debts at
30 September 2020 was nil (2019: GBPnil).
10 Trade and other payables
2020 2019
GBP GBP
-------------------------------------- --------- ---------
Trade payables 245,770 16,163
Other taxes and social security costs 193,856 14,106
Other payables 45,992 124,764
Accruals 1,636,701 1,267,706
Deferred income 1,920,446 1,397,715
-------------------------------------- --------- ---------
4,042,765 2,820,454
-------------------------------------- --------- ---------
Trade payables and Other taxes and social security amounts fall
due within the next three months.
11 Financial liabilities measured at amortised cost
2020 2019
GBP GBP
------------------------------------------------------ ---------- ----------
Bank loans repayable over one year 19,500,000 19,500,000
Capitalised loan arrangement fees net of amortisation (508,546) (195,072)
------------------------------------------------------ ---------- ----------
18,991,454 19,304,928
------------------------------------------------------ ---------- ----------
On 10 January 2020, the existing loan facility with Santander UK
plc was amended and split into two facilities totalling GBP25
million. Of the total amount drawn, GBP12.5 million is held as a
term loan and matures on 10 January 2025 and carries a fixed
interest rate of approximately 2.68% per annum, payable quarterly.
The remaining GBP7 million is held within a coterminous GBP12.5
million Revolving Credit Facility ("RCF"), which carries an
interest rate per annum of 1.85% plus three month LIBOR, payable
quarterly.
An additional fixed fee of 0.74% per annum is payable on amounts
undrawn under the RCF. The facility was subject to a GBP0.25
million arrangement fee which is being amortised over the period of
the loan.
The lender has charges over investment property owned by the
Group with a value of GBP63.6 million. A pledge of all shares in
the borrowing Group company and loan obligor companies is in
place.
As at the year end date, the loan facility was secured over
assets held in the following Group companies: Admiral Ground Rents
Limited, Clapham One Ground Rents Limited, GRIF040 Limited, GRIF041
Limited, GRIF044 Limited, GRIF048 Limited, Masshouse Block HI
Limited, Masshouse Residential Block HI Limited, OPW Ground Rents
Limited, The Manchester Ground Rent Company Limited and Wiltshire
Ground Rents Limited.
No security or guarantee exists in relation to the facility over
any other Group assets or assets within the parent company.
The combined amended facility has a loan-to-value ("LTV")
covenant of 50% and interest cover covenant of 270%. The Group was
in full compliance with the covenants throughout the year. As at
the year end the actual LTV over secured assets was 30.6% with
headroom of GBP24.6 million and interest cover was 403.1% with
headroom of GBP0.6 million.
Group borrowings
At 30 September 2020, Group borrowings were 15.7% (30 September
2019: 15.9%) of non-current assets.
Leverage ratio
For the purposes of the AIFMD, leverage is any method which
increases the Company's exposure, including the borrowing of cash
and the use of derivatives.
It is expressed as a ratio between the Group's gross assets and
its NAV and is calculated under the gross and commitment methods,
in accordance with the AIFMD. This differs to the Group's borrowing
restriction which is expressed as an absolute measure as quoted
above.
The Group is required to state its maximum and actual leverage
levels, calculated as prescribed by the AIFMD as at 30 September
2020, and are as follows:
Leverage exposure Maximum limit Actual exposure
------------------ ------------- ---------------
Gross method 175% 120%
Commitment method 175% 122%
The gross method represents the sum of the Group's positions
(total assets) after deducting cash balances. The commitment method
represents the sum of the Group's positions without deducting cash
balances.
12 Financial instruments
The Group's financial instruments comprise cash and various
items such as trade and other receivables and trade and other
payables which arise from its operations.
Financial assets carried at amortised cost
The book value and fair value profile of the Group's financial
assets, were as follows:
2020 2019
Book value Fair value Book value Fair value
GBP GBP GBP GBP
------------------------- ---------- ---------- ---------- ----------
Trade receivables 654,035 654,035 679,576 679,576
Other receivables 1,130,606 1,130,606 381,847 381,847
Cash at bank and in hand 2,435,758 2,435,758 6,136,854 6,136,854
------------------------- ---------- ---------- ---------- ----------
As of 30 September 2020 no trade receivables (2019: GBPnil) were
impaired or provided for as detailed in note 9.
Financial liabilities carried at amortised cost
The book value and fair value profile of the Group's financial
liabilities, were as follows:
2020 2019
Book value Fair value Book value Fair value
GBP GBP GBP GBP
---------------------------- ---------- ---------- ---------- ----------
Trade payables 245,770 245,770 16,163 16,163
Other payables and accruals 1,876,549 1,876,549 1,406,576 1,406,576
Bank loans 18,991,454 18,991,454 19,304,928 19,304,928
---------------------------- ---------- ---------- ---------- ----------
Financial risk management
The Group has identified the risks arising from its activities
and has established policies and procedures as part of a formal
structure of managing risk.
Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maximise the interest return on funds which
have yet to be invested while ensuring there is enough free cash to
meet day to day liabilities. In order to maintain or adjust the
capital structure the Directors have the option to adjust the
dividends paid to shareholders, return cash to shareholders, sell
assets or delay purchase of additional assets. The Group monitors
capital through cash and dividend forecasts which are prepared and
reviewed on a quarterly basis.
A gearing ratio measures the proportion of a Group's borrowed
funds to its equity. The Group's gearing ratio at the year end date
was as follows:
2020 2019
GBP GBP
--------------------------- ------------ ------------
Cash and cash equivalents 2,435,758 6,136,854
Total borrowings (note 11) (18,991,454) (19,304,928)
--------------------------- ------------ ------------
Net debt (16,555,696) (13,168,074)
Total equity 102,558,112 108,014,874
--------------------------- ------------ ------------
Total capital 86,002,416 94,846,800
--------------------------- ------------ ------------
Gearing ratio 18.5% 17.9%
--------------------------- ------------ ------------
Credit risk
Cash deposits are placed with a number of financial institutions
whose financial strength and credit quality have been considered by
the Directors based on advice received from the AIFM. The panel of
suitable counterparties is subject to regular review by the
Board.
Interest rate risk
The Company places excess cash of the Group on deposit in
interest-bearing accounts to maximise returns.
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its
payment obligations associated with its financial liabilities when
they fall due. The Directors, based on advice received from the
AIFM, manage and monitor short-term liquidity requirements to
ensure that the Group maintains a surplus of immediately realisable
assets over its liabilities, such that all known and potential cash
obligations can be met.
13 Loss per share
Basic loss per share
Losses used to calculate loss per share in the financial
statements were:
2020 2019
GBP GBP
-------------------------------------------------------- ---------- ----------
Loss attributable to equity shareholders of the Company 1,586,203 2,289,122
Basic Loss per share has been calculated by dividing
losses by the weighted average number of ordinary
shares in issue throughout the year
Weighted average number of shares in issue in the
year 97,006,497 97,006,402
Basic loss per share (1.64p) (2.36p)
-------------------------------------------------------- ---------- ----------
Diluted loss per share
Diluted loss per share is the basic loss per share, adjusted for
the effect of contingently issuable warrants in issue during the
year, weighted for the relevant periods. There was no potential
dilutive impact of warrants at the beginning nor the end of the
year.
Diluted losses per share (1.64p) (2.36p)
------------------------- ------- -------
14 Net asset value per ordinary share
The NAV calculates the net asset value per share in the
financial statements. The diluted NAV per ordinary share is
calculated after assuming the exercise of all outstanding warrants
at GBP1, which would increase the aggregated NAV by
GBP4,423,876.
2020 2019
GBP GBP
----------------------------------- ----------- -----------
Net assets 102,558,112 108,014,874
----------------------------------- ----------- -----------
Number Number
----------------------------------- ----------- -----------
Number of ordinary shares in issue 97,006,497 97,006,497
Outstanding warrants in issue 4,423,876 4,423,876
----------------------------------- ----------- -----------
Diluted number of shares in issue 101,430,373 101,430,373
----------------------------------- ----------- -----------
NAV per ordinary share - basic 105.7p 111.3p
NAV per ordinary share - dilutive 105.5p 110.9p
----------------------------------- ----------- -----------
15 Share capital
2020 2020 2019 2019
Number GBP Number GBP
------------------------------- ---------- ---------- ---------- ----------
Allotted, called up and fully
paid:
Ordinary shares of GBP0.50
each 97,006,497 48,503,248 97,006,497 48,503,248
------------------------------- ---------- ---------- ---------- ----------
2020 2020 2019 2019
Number GBP Number GBP
------------------------------- ---------- ---------- ---------- ----------
Shares issued during the year:
Ordinary shares of GBP0.50
each - - 100 50
------------------------------- ---------- ---------- ---------- ----------
Warrants were issued for GBPnil consideration on the basis of
one warrant for every five subscription shares in August 2012.
Warrant-holders have the right to subscribe GBP1 per share for the
number of ordinary shares to which they are entitled on 31 August
in each year following admission up to and including 31 August
2022. 100 warrants were exercised and ordinary shares issued in
September 2019. No warrants were exercised and thus no ordinary
shares issued in the year to September 2020. At 30 September 2020
there were 4,423,876 warrants in issue.
16 Share premium account
2020 2019
GBP GBP
----------------------------------------------- ------------ ----------
At the beginning of the year 45,884,305 45,884,305
Shares issued - 50
Expenses of issue - (50)
Conversion of share premium into distributable
reserves (45,884,305) -
----------------------------------------------- ------------ ----------
At the end of the year - 45,884,305
----------------------------------------------- ------------ ----------
General meetings of the ordinary shareholders and warrantholders
were held in November 2019 to approve the conversion of the
Company's share premium account into distributable reserves. Both
resolutions passed and the related court process to permit the
reduction of the share premium account was completed during the
year.
17 Retained earnings
2020 2019
GBP GBP
----------------------------------------------- ----------- -----------
At the beginning of the year 13,627,321 18,768,431
Conversion of share premium into distributable
reserves 45,884,305 -
Dividends paid (3,870,559) (2,851,988)
----------------------------------------------- ----------- -----------
Retained earnings 55,641,067 15,916,443
Loss for the financial year (1,586,203) (2,289,122)
----------------------------------------------- ----------- -----------
At the end of the year 54,054,864 13,627,321
----------------------------------------------- ----------- -----------
18 Dividends
It is the policy of the Group to pay quarterly interim dividends
to ordinary shareholders. The interim dividend relating to the
fourth quarter of the year was paid in November 2020.
2020 2019
GBP GBP
-------------------------------------------------- --------- ---------
Dividends declared and paid by the Company during
the year 3,870,559 2,851,988
-------------------------------------------------- --------- ---------
Analysis of dividends by type:
Interim PID dividend of 0.98p per share - 950,663
Interim PID dividend of 0.98p per share - 950,662
Interim PID dividend of 0.98p per share - 950,663
Interim PID dividend of 1.02p per share 989,467 -
Interim PID dividend of 0.99p per share 960,364 -
Interim PID dividend of 0.99p per share 960,364 -
Interim PID dividend of 0.99p per share 960,364 -
-------------------------------------------------- --------- ---------
3,870,559 2,851,988
Since the year end, the following dividends have
been announced and paid:
Interim PID dividend of 0.99p per share 960,364
Interim PID dividend of 0.99p per share 960,364
-------------------------------------------------- --------- ---------
19 Cash generated from operations
Reconciliation of operating loss to net cash inflow from
operating activities
2020 2019
GBP GBP
--------------------------------------------------- ----------- -----------
Loss before tax (1,586,203) (2,289,122)
Adjustments for:
Net revaluation loss on investment properties 537,301 4,876,845
Profit on sale of ground rent assets and leasehold
property (315,270) (485,145)
Net finance expense 655,270 726,636
Exceptional items - provision for remedial works 2,900,000 -
--------------------------------------------------- ----------- -----------
Operating cash flows before movements in working
capital 2,191,098 2,829,214
--------------------------------------------------- ----------- -----------
Movements in working capital:
(Increase)/decrease in trade and other receivables (742,013) 784,869
Increase in trade and other payables 1,222,310 216,449
--------------------------------------------------- ----------- -----------
Net cash generated from operations 2,671,395 3,830,532
--------------------------------------------------- ----------- -----------
Proceeds of share issue
The proceeds from issue of shares is as follows:
2020 2019
GBP GBP
---------------------------------------------------- ---- ----
Warrants converted on 13 September 2019 - 100
Share issue costs associated with issue of ordinary
shares - (50)
---------------------------------------------------- ---- ----
- 50
---------------------------------------------------- ---- ----
20 Analysis of changes in net debt
At
Capitalisation Amortisation
At 1 October Cash of of 30 September
2019 flows finance costs finance costs 2020
GBP GBP GBP GBP GBP
-------------------------- ------------ ----------- -------------- ------------- ------------
Cash and cash equivalents 6,136,854 (3,701,096) - - 2,435,758
Bank loans (19,304,928) - 417,387 (103,913) (18,991,454)
-------------------------- ------------ ----------- -------------- ------------- ------------
Total (13,168,074) (16,555,696)
-------------------------- ------------ ----------- -------------- ------------- ------------
21 Related party transactions
The Company's balances with fellow group companies at 30
September 2020 are set out in note 14 to the Company's financial
statements.
Brooks Macdonald Funds Limited ("BMF") provided investment
management and administration services to the Company up until 12
May 2019, the fees for which were 0.55% per annum of the market
capitalisation of the Company. In addition, BMF was entitled to an
agency fee of 2% of the purchase price of any property acquired by
the Company, where no other agency fee was payable. Where a third
party agency fee was less than 2% of the purchase price, BMF was
entitled to an agency fee of 50% of the difference between 2% of
the purchase price and the third party agency fee. BMF also
received a share of event fees from an unrelated party Braemar
Estates Limited.
Schroder Real Estate Investment Management Limited ("Schroders")
acted as the Manager from 13 May 2019 and is also deemed to be a
related party. Schroders is paid a simplified, tiered annual fee
comprising 1% of NAV up to GBP200 million; 0.9% of NAV between
GBP200 million and GBP400 million; and 0.8% of NAV above GBP400
million.
Transactions between Schroders, BMF and Ground Rents Income Fund
plc were as follows:
2020 2019
GBP GBP
-------------------------------------------- --------- -------
Investment management fee paid to BMF - 208,039
Other amounts paid to BMF - 42,165
Directors fees paid to BMF - 14,000
Investment management fee paid to Schroders 1,112,582 132,726
-------------------------------------------- --------- -------
1,112,582 396,930
-------------------------------------------- --------- -------
No amounts were due from the Company to Schroders at the year
end date (2019: GBPnil).
No amounts were due from the Company to BMF at the year end date
(2019: GBPnil).
22 Provisions for liabilities
In October 2020, NWGR lost its application to vary an order
handed down by the High Court, for restoring its investment
property to its original condition (see note 24). Subsequently, the
Directors have increased the estimate of the cost of remedial works
to be met by NWGR by GBP2.9 million at the year end date.
The provision of GBP2.9 million reflects tendered costs for the
remedial works ordered by the Court of approximately GBP8.9
million, reduced by amounts that will be payable by leaseholders
and recoveries from third parties.
The provision of costs at the year end date reflects the best
estimate of the net cost to NWGR of fulfilling the contract,
reflecting all estimated costs and recoveries. The Directors have
estimated the future recovery of costs from leaseholders and third
parties based on legal advice received and obligations under
leasehold contracts.
23 Other financial commitments and contingencies
Damages associated with the judgement against NWGR are still to
be determined by the High Court at a future date. In line with
IAS37 - Provisions, Contingent Liabilities and Contingent Assets,
no provision has been made in the Group for the possible
obligations of these damages as these are, as yet, not reliably
measurable.
24 Events after the year end date
In October 2020 the High Court found against NWGR's application
to vary the remedial work to the alternative repair scheme at
Beetham Tower, Manchester. An adjusting Post Balance Sheet Event
("PBSE") has been made to provide for the costs associated with the
remedial solution (see note 22).
Company Statement of Financial Position
As at 30 September 2020
2020 2019
Note GBP GBP
--------------------------------------- ---- ----------- -----------
Assets
Non-current assets
Investments 5 1,305,755 1,340,116
--------------------------------------- ---- ----------- -----------
1,305,755 1,340,116
Current assets
Trade and other receivables 6 83,510,034 84,473,423
Cash and cash equivalents 2,435,758 6,136,854
--------------------------------------- ---- ----------- -----------
85,945,792 90,610,277
--------------------------------------- ---- ----------- -----------
Total assets 87,251,547 91,950,393
--------------------------------------- ---- ----------- -----------
Liabilities
Current liabilities
Trade and other payables 7 (2,149,719) (834,925)
--------------------------------------- ---- ----------- -----------
Total liabilities (2,149,719) (834,925)
--------------------------------------- ---- ----------- -----------
Net assets 85,101,828 91,115,468
--------------------------------------- ---- ----------- -----------
Equity
Share capital 9 48,503,248 48,503,248
Share premium account 9 - 45,884,305
Retained earnings/(accumulated losses) 10 38,741,661 (1,958,139)
Loss for the financial year 10 (2,143,081) (1,313,946)
--------------------------------------- ---- ----------- -----------
Total equity 85,101,828 91,115,468
--------------------------------------- ---- ----------- -----------
Company Statement of Cash Flows
For the year ended 30 September 2020
2020 2019
Note GBP GBP
----------------------------------------------- ---- ----------- -----------
Cash flows from operating activities
Cash generated from operations 12 155,521 3,396,979
----------------------------------------------- ---- ----------- -----------
Net cash generated from operating activities 155,521 3,396,979
----------------------------------------------- ---- ----------- -----------
Cash flow from investing activities
Interest received 13,942 25,252
----------------------------------------------- ---- ----------- -----------
Net cash generated from investing activities 13,942 25,252
----------------------------------------------- ---- ----------- -----------
Cash flows from financing activities
Proceeds from issuance of shares 12 - 50
Dividends paid to shareholders 11 (3,870,559) (2,851,988)
----------------------------------------------- ---- ----------- -----------
Net cash used in financing activities (3,870,559) (2,851,938)
----------------------------------------------- ---- ----------- -----------
Net (decrease)/increase in cash and cash
equivalents 13 (3,701,096) 570,293
----------------------------------------------- ---- ----------- -----------
Net cash and cash equivalents at the beginning
of the year 6,136,854 5,566,561
----------------------------------------------- ---- ----------- -----------
Net cash and cash equivalents at the end
of the year 2,435,758 6,136,854
----------------------------------------------- ---- ----------- -----------
Company Statement of Changes in Equity
For the year ended 30 September 2020
Retained
Share earnings/
Share premium (accumulated Total
capital account losses) equity
Note GBP GBP GBP GBP
------------------------- ---- ---------- ------------ ------------ -----------
At 1 October 2018 48,503,198 45,884,305 893,849 95,281,352
Comprehensive loss
Loss for the year - - (1,313,946) (1,313,946)
------------------------- ---- ---------- ------------ ------------ -----------
Total comprehensive loss - - (1,313,946) (1,313,946)
Transactions with owners
Issue of share capital 9 50 50 - 100
Share issue costs 9 - (50) - (50)
Dividends paid 11 - - (2,851,988) (2,851,988)
------------------------- ---- ---------- ------------ ------------ -----------
At 30 September 2019 48,503,248 45,884,305 (3,272,085) 91,115,468
------------------------- ---- ---------- ------------ ------------ -----------
Comprehensive loss
Loss for the year - - (2,143,081) (2,143,081)
------------------------- ---- ---------- ------------ ------------ -----------
Total comprehensive loss - - (2,143,081) (2,143,081)
Transactions with owners
Share premium account
reduction 9 - (45,884,305) 45,884,305 -
Dividends paid 11 - - (3,870,559) (3,870,559)
------------------------- ---- ---------- ------------ ------------ -----------
At 30 September 2020 48,503,248 - 36,598,580 85,101,828
------------------------- ---- ---------- ------------ ------------ -----------
Notes to the Company Financial Statements
For the year ended 30 September 2020
1 General information
The Company is a public company limited by shares, incorporated,
registered and domiciled in England in the United Kingdom. The
address of its registered office is 1 London Wall Place, London,
EC2Y 5AU.
The Company's principal activity during the year was to operate
as a holding company for a group operating a property rental and
investment business.
2 Accounting policies
The financial statements of the Company are separate to those of
the Group.
The accounting policies of the Company are consistent with those
of the Group, which can be found in note 1 to the Group financial
statements. As with the Group, during the year the Company adopted
IFRS 16 - Leases.
The adoption of IFRS 16 has not had a quantitative impact upon
the Company's financial statements.
Accounting policies specific to the Company are set out
below.
Statement of compliance
The financial statements of the Company have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 ("IFRS") and the
applicable legal requirements of the Companies Act 2006.
Basis of preparation
These financial statements are prepared on the going concern
basis, under the historical cost convention and in accordance with
the Companies Act 2006 and applicable accounting standards in the
United Kingdom. The functional and presentational currency is
sterling.
Investments in subsidiary companies
Investments in subsidiary companies are carried at cost less any
provision for impairment, which is reviewed on an annual basis.
Capital management
The capital managed by the Company consists of cash held across
different bank accounts in several banking institutions. The
Company's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maximise the interest return on funds which have yet to be invested
while ensuring there is enough free cash to meet day-to-day
liabilities. In order to maintain or adjust the capital structure
the Directors have the option to adjust the dividends paid to
shareholders, return cash to shareholders, sell assets or delay
purchase of individual assets. The Company monitors capital through
cash and dividend forecasts which are prepared and reviewed on a
quarterly basis. The Company had GBP2,435,758 of cash at the year
end. The Directors intend to retain an amount for working capital
at least equal to the next quarter's dividend payment.
Dividend distributions
Dividend distributions to the Company's shareholders is
recognised as a liability in the Company's financial statements in
the period in which the dividends are approved by the Company's
Directors.
3 Results for the year
As permitted by Section 408 of the Companies Act 2006 the
Company has elected not to present its own profit and loss account
for the financial year. Ground Rents Income Fund plc reported a
loss after tax for the financial year of GBP2,143,081 (2019: loss
GBP1,313,946). Auditors' remuneration and the average number of
Directors and their remuneration are set out in notes 3 and 4 of
the Group financial statements.
4 Dividends
Details of the Company's dividends paid and proposed are set out
in note 18 of the Group financial statements.
5 Investments in subsidiary companies
Investments in
subsidiary
companies
Cost GBP
--------------------- --------------
At 1 October 2019 1,340,116
Impairments (34,361)
--------------------- --------------
At 30 September 2020 1,305,755
--------------------- --------------
During the year, an impairment assessment of the investments
held by the Company led to an impairment charge of GBP34,361 (2019:
GBP324,894) being recorded.
The Directors consider that the carrying value of the
investments is supported by their underlying net assets.
Details of the subsidiary undertakings of the Company at 30
September 2020, all of which are wholly owned and included in the
financial statements, are given below.
The subsidiaries below are registered at the Company's
registered office address, being 1 London Wall Place, London, EC2Y
5AU:
Nature Country of
Company Type of share of business incorporation
---------------------------------- ------------- ------------------ -------------
Admiral Ground Rents Limited Ordinary GBP1 Ground rents UK
Azure House Ground Rents Limited Ordinary GBP1 Ground rents UK
Banbury Ground Rents Limited Ordinary GBP1 Ground rents UK
BH Ground Rents Limited Ordinary GBP1 Ground rents UK
Clapham One Ground Rents Limited Ordinary GBP1 Ground rents UK
DG Ground Rents Limited Ordinary GBP1 Ground rents UK
East Anglia Ground Rents Limited Ordinary GBP1 Ground rents UK
Ebony House Ground Rents Limited Ordinary GBP1 Ground rents UK
Enclave Court Ground Rents Limited Ordinary GBP1 Ground rents UK
Greenhouse Ground Rents Limited Ordinary GBP1 Ground rents UK
GRIF Cosec Limited Ordinary GBP1 Corporate director UK
GRIF Student Ground Rents Limited Ordinary GBP1 Ground rents UK
GRIF027 Limited Ordinary GBP1 Ground rents UK
GRIF028 Limited Ordinary GBP1 Ground rents UK
GRIF033 Limited Ordinary GBP1 Ground rents UK
GRIF034 Limited Ordinary GBP1 Ground rents UK
GRIF036 Limited Ordinary GBP1 Ground rents UK
GRIF037 Limited Ordinary GBP1 Ground rents UK
GRIF038 Limited Ordinary GBP1 Ground rents UK
GRIF039 Limited Ordinary GBP1 Ground rents UK
GRIF040 Limited Ordinary GBP1 Ground rents UK
GRIF041 Limited Ordinary GBP1 Ground rents UK
GRIF042 Limited Ordinary GBP1 Ground rents UK
GRIF043 Limited Ordinary GBP1 Ground rents UK
GRIF044 Limited Ordinary GBP1 Ground rents UK
GRIF045 Limited Ordinary GBP1 Ground rents UK
GRIF046 Limited Ordinary GBP1 Ground rents UK
GRIF047 Limited Ordinary GBP1 Ground rents UK
GRIF048 Limited Ordinary GBP1 Ground rents UK
GRIF049 Limited Ordinary GBP1 Ground rents UK
GRIF051 Limited Ordinary GBP1 Ground rents UK
GRIF052 Limited Ordinary GBP1 Ground rents UK
GRIF053 Limited Ordinary GBP1 Ground rents UK
Halcyon Wharf Ground Rents Limited Ordinary GBP1 Ground rents UK
Hill Ground Rents Limited Ordinary GBP1 Ground rents UK
Invest Ground Rents Limited Ordinary GBP1 Ground rents UK
Masshouse Block HI Limited Ordinary GBP1 Ground rents UK
Masshouse Residential Block
HI Limited Ordinary GBP1 Ground rents UK
Metropolitan Ground Rents Limited Ordinary GBP1 Ground rents UK
Nikal Humber Quay Residential
Limited Ordinary GBP1 Ground rents UK
Northwest Houses Ground Rents
Limited Ordinary GBP1 Ground rents UK
OPW Ground Rents Limited Ordinary GBP1 Ground rents UK
The Manchester Ground Rent Company
Limited Ordinary GBP1 Ground rents UK
Trinity Land & Investments No.2
Limited Ordinary GBP1 Ground rents UK
Wiltshire Ground Rents Limited Ordinary GBP1 Ground rents UK
XQ7 Ground Rents Limited Ordinary GBP1 Ground rents UK
---------------------------------- ------------- ------------------ -------------
The subsidiary below is registered at the following address:
Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 2HT:
Nature Country of
Company Type of share of business incorporation
------------------------------- ------------- ------------ -------------
North West Ground Rents Limited Ordinary GBP1 Ground rents Guernsey
------------------------------- ------------- ------------ -------------
6 Trade and other receivables
2020 2019
GBP GBP
---------------------------------------- ---------- ----------
Amounts owed by subsidiary undertakings 82,405,907 84,384,145
Other taxes and social security costs - 12,158
Other receivables 1,045,134 28,938
Prepayments and accrued income 58,993 48,182
---------------------------------------- ---------- ----------
83,510,034 84,473,423
---------------------------------------- ---------- ----------
Amounts owed by subsidiary undertakings are unsecured, interest
free, have no fixed date of repayment and are repayable on
demand.
An impairment assessment of the amounts owed by subsidiaries to
the Company led to an impairment charge of GBP0.8 million (2019:
GBP4.7 million) being recorded, which was determined by reference
to the net assets of subsidiaries. The net assets are driven by the
investment property valuations and sensitivities in respect of
property valuations. Level 3 unobservable input disclosures in
connection with the investment property valuations are provided in
note 8 to the Group financial statements.
2020 2019
GBP GBP
---------------------------------------- ----------- -----------
Amounts owed by subsidiary undertakings 87,949,196 89,151,983
Impairments (5,543,289) (4,767,838)
---------------------------------------- ----------- -----------
82,405,907 84,384,145
---------------------------------------- ----------- -----------
7 Trade and other payables
2020 2019
GBP GBP
---------------------------------------- --------- -------
Amounts owed to subsidiary undertakings 1,054,127 -
Trade payables 46,006 11,436
Other taxes and social security costs 47,337 -
Other payables 45,992 123,005
Accruals and deferred income 956,257 700,484
---------------------------------------- --------- -------
2,149,719 834,925
---------------------------------------- --------- -------
Amounts owed to subsidiary undertakings are unsecured, interest
free, have no fixed date of repayment and are repayable on
demand.
8 Financial instruments
The Company's financial instruments comprise cash and various
items such as trade and other receivables and trade and other
payables which arise from its operations, which include amounts
owed to and by subsidiary undertakings.
Financial assets carried at amortised cost
The book value and fair value of the Company's financial assets,
were as follows:
2020 2019
Book value Fair value Book value Fair value
GBP GBP GBP GBP
-------------------------------- ---------- ---------- ---------- ----------
Amounts owed by subsidiary
undertakings 82,405,907 82,405,907 84,384,145 84,384,145
Other taxes and social security
costs - - 12,158 12,158
Other receivables 211,948 211,948 28,938 28,938
Prepayments and accrued income 58,993 58,993 48,182 48,182
Cash at bank and in hand 2,435,758 2,435,758 6,136,854 6,136,854
-------------------------------- ---------- ---------- ---------- ----------
As at 30 September 2020 no trade or other receivables (2019:
GBPnil) were impaired or provided for.
Financial liabilities carried at amortised cost
The book value and fair value of the Company's financial
liabilities, were as follows:
2020 2019
Book value Fair value Book value Fair value
GBP GBP GBP GBP
-------------------------------- ---------- ---------- ---------- ----------
Amounts owed to subsidiary
undertakings 1,054,127 1,054,127 - -
Trade payables 46,006 46,006 11,436 11,436
Other taxes and social security
costs 47,337 47,337 - -
Other payables and accruals 1,002,249 1,002,249 823,489 823,489
-------------------------------- ---------- ---------- ---------- ----------
Financial risk management
The financial risk management objectives and policies applied by
the Company are in line with those of the Group as disclosed in
note 12 to the Group financial statements.
9 Share capital and share premium account
The movements in share capital and share premium during the year
were as follows:
Share
Number of Share premium
shares capital account
GBP GBP
----------------------------------------------- ---------- ---------- ------------
At 1 October 2018 97,006,397 48,503,198 45,884,305
Shares issued 100 50 50
Expenses of issue - - (50)
----------------------------------------------- ---------- ---------- ------------
At 30 September 2019 97,006,497 48,503,248 45,884,305
----------------------------------------------- ---------- ---------- ------------
Conversion of share premium into distributable
reserves - - (45,884,305)
Dividends paid - - -
----------------------------------------------- ---------- ---------- ------------
At 30 September 2020 97,006,497 48,503,248 -
----------------------------------------------- ---------- ---------- ------------
The total number of ordinary shares, issued and fully paid at 30
September 2020 was 97,006,497 with a par value of GBP0.50 per
share. Details of the shares issued are given in notes 15 and 16 of
the consolidated financial statements.
Following the approval by shareholders and warrantholders at a
General Meeting in November 2019, the Company cancelled its share
premium account in order to create distributable reserves to better
facilitate the payment of future dividends.
10 Retained earnings
2020 2019
GBP GBP
--------------------------------------------------- ----------- -----------
At the beginning of the year (3,272,085) 893,849
Conversion of share premium into distributable
reserves 45,884,305 -
Dividends paid in the year (note 18 - consolidated
financial statements) (3,870,559) (2,851,988)
--------------------------------------------------- ----------- -----------
Retained earnings/(accumulated losses) 38,741,661 (1,958,139)
Loss for the financial year (2,143,081) (1,313,946)
--------------------------------------------------- ----------- -----------
At the end of the year 36,598,580 (3,272,085)
--------------------------------------------------- ----------- -----------
11 Reconciliation of movements in total equity
2020 2019
GBP GBP
--------------------------------------------------- ----------- -----------
At the beginning of the year 91,115,468 95,281,352
Dividends paid in the year (note 18 - consolidated
financial statements) (3,870,559) (2,851,988)
Loss for the financial year (2,143,081) (1,313,946)
Shares issued - 50
--------------------------------------------------- ----------- -----------
At the end of the year 85,101,828 91,115,468
--------------------------------------------------- ----------- -----------
12 Cash generated from operations
Reconciliation of loss before income tax to net cash inflow from
operating activities
2020 2019
GBP GBP
---------------------------------------------------- ----------- -----------
Loss before tax (2,143,081) (1,313,946)
Adjustments for:
Impairment of investment in subsidiary undertakings 34,361 324,894
Net finance income (13,942) (25,252)
---------------------------------------------------- ----------- -----------
Operating cash flows before movements in working
capital (2,122,662) (1,014,304)
---------------------------------------------------- ----------- -----------
Movements in working capital:
(Increase)/decrease in trade and other receivables (1,014,850) 179,753
Decrease in amounts owed by subsidiary undertakings 1,978,238 3,786,295
Increase in amounts owed to subsidiary undertakings 1,054,127 -
Increase in trade and other payables 260,668 445,235
---------------------------------------------------- ----------- -----------
Net cash generated from operations 155,521 3,396,979
---------------------------------------------------- ----------- -----------
Proceeds of share issue
The proceeds from issue of shares can be analysed as
follows:
2020 2019
GBP GBP
------------------------------------------------------ ---- ----
Shares issued on exercise of warrants on 13 September
2019 - 100
Share issue costs associated with issue of ordinary
shares - (50)
------------------------------------------------------ ---- ----
- 50
------------------------------------------------------ ---- ----
13 Analysis of changes in net cash
At At
1 October Non-cash 30 September
2019 Cash flows changes 2020
GBP GBP GBP GBP
------------------------- --------- ----------- -------- ------------
Cash at bank and in hand 6,136,854 (3,701,096) - 2,435,758
------------------------- --------- ----------- -------- ------------
Total 6,136,854 (3,701,096) - 2,435, 758
------------------------- --------- ----------- -------- ------------
14 Related party transactions
Transactions between the Company and its subsidiaries which are
related parties, are eliminated on consolidation. The Company's
individual financial statements include the amounts attributable to
subsidiaries. All transactions with fellow group companies are
carried out at arm's length and all outstanding balances are to be
settled in cash. All amounts due to or from subsidiary companies
are interest free and repayable on demand. These amounts are
disclosed in aggregate in the relevant Company financial statements
and in detail in the following tables:
Amounts owed by related Amounts owed to related
parties parties
2020 2019 2020 2019
Company GBP GBP GBP GBP
--------------------------------- ------------ ----------- ------------- ----------
Admiral Ground Rents Limited 5,742,276 6,058,890 - -
Azure House Ground Rents Limited 101,608 106,178 - -
Banbury Ground Rents Limited 121,369 130,499 - -
BH Ground Rents Limited 1,380,830 1,425,128 - -
Clapham One Ground Rents Limited 2,791,214 2,897,576 - -
D G Ground Rents Limited 1,557,674 1,648,515 - -
East Anglia Ground Rents Limited 464,388 493,408 - -
Ebony House Ground Rents Limited 175,889 183,408 - -
Enclave Court Ground Rents
Limited 124,425 132,486 - -
Greenhouse Ground Rents Limited 560,333 579,413 - -
GRIF Student Ground Rents
Limited 919,672 976,026 - -
GRIF033 Limited 654,816 691,497 - -
GRIF038 Limited 41,422 104,835 - -
GRIF039 Limited 740,417 785,712 - -
GRIF040 Limited 14,885,488 13,837,803 - -
GRIF041 Limited 2,756,423 2,892,455 - -
GRIF042 Limited 636,612 681,389 - -
GRIF043 Limited 985,909 1,030,697 - -
GRIF044 Limited 1,496,342 1,544,162 - -
GRIF045 Limited 944,605 1,034,390 - -
GRIF046 Limited 2,238,366 2,321,754 - -
GRIF047 Limited 142,005 150,282 - -
GRIF048 Limited - - 1,054,127 529,765
GRIF051 Limited 17,991,643 18,564,080 - -
GRIF052 Limited 1,745,641 1,818,356 - -
Halcyon Wharf Ground Rents
Limited 327,134 343,264 - -
Hill Ground Rents Limited 4,848,706 5,121,942 - -
Invest Ground Rents Limited 221,009 233,777 - -
Masshouse Block HI Limited 2,901,501 2,935,917 - -
Masshouse Residential Block
HI Limited 400,861 15,637 - -
Metropolitan Ground Rents
Limited 2,755,410 2,949,178 - -
Nikal Humber Quay Residential
Limited 198,916 - - 11,455
Northwest Houses Ground Rents
Limited 987,529 1,058,356 - -
OPW Ground Rents Limited 3,912,524 4,123,021 - -
The Manchester Ground Rent
Company Limited 3,896,587 4,093,358 - -
Trinity Land & Investments
No.2 Limited 2,393,746 2,525,652 - -
Wiltshire Ground Rents Limited 2,426,759 2,469,932 - -
XQ7 Ground Rents Limited 621,459 654,734 - -
--------------------------------- ------------ ----------- ------------- ----------
All the above subsidiaries are registered at the Company's
registered office, being 1 London Wall Place, London, EC2Y 5AU.
Amounts owed by related Amounts owed to related
parties parties
2020 2019 2020 2019
Company GBP GBP GBP GBP
-------------------------------- ------------ ----------- ------------ -----------
Midlands Ground Rents Limited - 864,533 - -
North West Ground Rents Limited 2,857,690 1,961,966 - -
-------------------------------- ------------ ----------- ------------ -----------
The above subsidiaries are registered at the same Guernsey
address, being Dorey Court, Admiral Park, St Peter Port, Guernsey,
GY1 2HT.
15 Events after the year end date
In October 2020 the High Court found against NWGR's application
to vary the remedial work to the alternative repair scheme at
Beetham Tower, Manchester. An adjusting Post Balance Sheet Event
("PBSE") has been made to provide for the costs associated with the
remedial solution (see note 22 of the Group financial
statements).
16. Status of announcement
2019 Financial Information
The figures and financial information for 2019 are extracted
from the published annual report and financial statements for the
year ended 30 September 2019 (except where restated) and do not
constitute the statutory accounts for that year. The 2019 annual
report and accounts have been delivered to the Registrar of
Companies and included the Report of the Independent Auditors which
was unqualified and did not contain a statement under either
section 498(2) or section 498(3) of the Companies Act 2006.
2020 Financial Information
The figures and financial information for 2020 are extracted
from the annual report and accounts for the year ended 30 September
2020 and do not constitute the statutory accounts for the year. The
2020 annual report and accounts include the Report of the
Independent Auditors which is unqualified and does not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2020 Annual Report and Financial Statements
will be delivered to the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS, the news service of the
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END
FR FLFVAVEIFIIL
(END) Dow Jones Newswires
March 03, 2021 02:00 ET (07:00 GMT)
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