TIDMGRIO
RNS Number : 7269B
Ground Rents Income Fund PLC
06 June 2023
6 June 2023
Ground Rents Income Fund plc
FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2022
Ground Rents Income Fund plc (the 'Company') announces its
audited full year results for the year ended 30 September 2022,
which are available on the Company's website,
www.groundrentsincomefund.com .
The Company's Annual Report and Accounts for the year ended 30
September 2022 are also being published in hard copy format and an
electronic copy is also available using the following link:
http://www.rns-pdf.londonstockexchange.com/rns/7269B_1-2023-6-5.pdf.
A shareholder circular for an Extraordinary General Meeting to be
held on 29 June 2023 at 9.30 a.m. has also been published.
Barry Gilbertson, the Company's Chair, commented:
" We continue to operate in a challenging and complex regulatory
environment, reflected in the Material Valuation Uncertainty Clause
('MUC') impacting our independent portfolio valuation and the
Modified Auditors Report relating to these accounts. Encouragingly,
the impact of the Government's legally binding Pledge signed by 48
of the UK's largest residential developers under the 'Polluter
Pays' principle, combined with our extensive due diligence and
related activity across the portfolio, has reduced the risk of the
Company incurring the full Building Safety remediation costs
assumed in the independent valuation.
"The strong support from shareholders for the important changes
to the Company's 'Continuation Vote' and new Investment Policy
approved at an EGM held on 24 April 2023 means the Board and
Manager are now well positioned to execute the strategy of
improving the liquidity of the underlying portfolio, continuing to
support our leaseholders by delivering best-in-class residential
asset management, and ultimately optimising value for our
shareholders through a controlled, orderly and timely realisation
of assets."
Key highlights:
-- The financial year to 30 September 2022 was a challenging
period due to the complex issues arising from the introduction of
the Building Safety Act 2022 (the 'BSA'), the most significant
regulatory reform to the UK's built environment in almost 40 years.
Understanding the practical and the financial impact of the BSA,
including secondary legislation from July 2022, delayed preparation
of the accounts, which include a Modified Auditors Report.
-- Under the so-called 'Polluter Pays' principle, the Government
has introduced a legally binding pledge ('Pledge') that obliges
residential developers to remediate, at their own cost, all
life-critical fire-safety defects of buildings 11 metres and over
in height that they developed or refurbished in England over the
last 30 years. This includes reimbursing public funds where
relevant. To-date, 48 developers, including the top ten largest
house builders in the UK, have signed the Pledge. At the financial
year end, seven of these developers are relevant to the Company's
portfolio across 13 assets. The Government has also enhanced
protections available to landlords who did not develop their
assets, such as the Company, from defective building practices.
-- Independent portfolio valuation of GBP109.0 million, a
decline of GBP10.4 million, or 8.7% (30 September 2021: GBP119.4
million), reflecting a negative valuation adjustment of GBP11.4
million relating to 30 assets or 21% of portfolio value subject to
a building safety Material Valuation Uncertainty Clause ('MUC') (30
September 2021: GBP6.1 million or 11% of portfolio value), and an
additional negative valuation adjustment for residential leasehold
regulatory reform risk of GBP3.8 million (30 September 2021: GBP1.1
million).
-- The Modified Auditors Report is caused by the Auditors being
unable to adequately verify the independent valuer's assumptions
relating to the negative valuation adjustment of GBP11.4 million.
This is principally due to the short period from the BSA's
introduction to the financial year end, and extensive due diligence
is ongoing across the portfolio to better understand the BSA's
impact, with good progress made over the subsequent half year
period to 31 March 2023 (see below).
-- Net Asset Value ('NAV') of GBP88.5 million, or 92.5 pence per
share ('pps') (30 September 2021: GBP99.7 million, or 103.1 pps).
This reflected a NAV decline of 10.6 pps, or -10.3%
-- Earnings (excluding property revaluations and exceptional
items) decreased by GBP332,000, or 10.2%, to GBP2.8 million (30
September 2021: GBP3.2 million), reflecting lower ancillary income
and higher expenses.
-- Dividends paid totalling GBP2.9 million or 3.0 pps (30
September 2021: GBP3.8 million or 3.96 pps), resulting in a
negative NAV total return of 7.4% (year to 30 September 2021:
1.3%).
-- Group Loan to Value ('LTV') of 18.8% with GBP21 million of
drawn debt, an effective interest rate of 2.8%.
-- Ground rent income increased by approximately GBP200,000, or
4.1%, to GBP5.1 million as at year end, supported by
inflation-linked rent reviews affecting 14.8% of the Company's
portfolio by value.
Following extensive corporate and other due diligence undertaken
and related activity across the portfolio, the Company provides an
update on progress and activity since the financial year end,
including the interim period to 31 March 2023:
-- MUC now applies to 26 assets representing 16% of the
portfolio by value (30 September 2022: 30 assets and 21% of
portfolio value) with a lower total negative valuation adjustment
for building safety regulatory reform of GBP9.3 million, compared
to GBP11.4 million at the financial year end.
-- Together with other valuation adjustments, including negative
GBP4.0 million (30 September 2022 : GBP3.8m) for leasehold reform
risk, the result is an unaudited independent valuation as at 31
March 2023 of GBP110.9 million, an increase of GBP1.9 million, or
1.7%, compared with the 2022 financial year end.
-- Unaudited NAV of GBP90.2 million, or 94.3 pps, an increase of
GBP1.7 million, or 1.8 pps, compared with the 2022 financial year
end.
-- Following the launch of a consultation in December 2022, an
EGM was held in April 2023, with all proposals passed including a
Continuation Vote in December 2024 and a new Investment Policy
focussed on optimising value through a controlled and orderly asset
realisation, together with a continued focus on delivering
best-in-class residential asset management.
-- Proposal to move to semi-annual dividend payments, with a
potential risk that future payments will be withheld until the
Modified Auditors Report is removed.
Enquiries:
Schroder Real Estate Investment Management Limited
Nick Montgomery / Matthew Riley / Chris Leek
020 7658 6000
FTI Consulting
Richard Gotla / Dido Laurimore
0203 727 1000 / Schroderrealestate@fticonsulting.com
Singer Capital Markets (Broker)
James Maxwell / Alaina Wong (Investment Banking)
Sam Greatrex (Sales)
020 7496 3000
Appleby Securities (Channel Islands) Limited (Sponsor)
Andrew Weaver / Michael Davies
01534 888 777
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