TIDMGRIO
RNS Number : 1650L
Ground Rents Income Fund PLC
20 December 2018
20 December 2018
Ground Rents Income Fund plc
("GRIF" or the "Company)
FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2018
Ground Rents Income Fund plc (LSE: GRIO), a listed Real Estate
Investment Trust (REIT) investing in UK ground rents, announces its
audited results for the year ended 30 September 2018.
Highlights
-- Portfolio value of GBP127.5 million (30 September 2017: GBP139.1 million)
-- Net assets of GBP113.2 million (30 September 2017: GBP127.4 million)
-- NAV per ordinary share of 116.65p (30 September 2017: 131.72 pence)
-- Diluted NAV per ordinary share of 115.92p (30 September 2017: 130.24 pence)
-- Loss before tax (including GBP14.2 million decrease in
valuation) of GBP10.7 million (FY 2017: profit of GBP4.7 million,
including GBP1.3 million valuation gain)
-- Basic loss per share of 11.05 pence (FY 2017: earnings of 4.98 pence)
-- Diluted loss per share of 11.05 pence (FY 2017: earnings of 4.90 pence)
-- Dividends paid of 3.96 pence per share, reflecting a gross
yield (based on weighted average issue price) of 3.96%. (FY 2017:
3.96 pence; 3.96%)
-- Acquired GBP2.4 million of ground rent assets
Malcolm Naish, Chairman of GRIF, said: "We strive to continue to
maintain returns for our shareholders, while ensuring we operate in
an open and socially-responsible manner.
"Our portfolio is defensively positioned with regards to Brexit,
as all investment property is held within the UK. Furthermore, any
legislative reform that may impact the future growth of the Group
is not forecast to become law before 2020/21.
"As a Board we are focused on ensuring that the income of the
portfolio remains robust and attractive to shareholders while,
subject to market conditions, seeking new acquisitions to generate
further revenue."
A copy of the Annual Report and financial statements for the
year ended 30 September 2018 can be accessed at the Company's
website, www.groundrentsincomefund.com and via the link:
http://www.rns.com
For further information:
Ground Rents Income Fund plc
Simon Wombwell (Director) 020 7499 6424
Brooks Macdonald Funds Limited
James Agar (Director) 020 7659 3454
N+1 Singer (Broker)
James Maxwell / Ben Farrow 020 7496 3000
Tavistock (Media/Analysts)
James Whitmore / Jeremy Carey 020 7920 3150
Appleby Securities (Channel Islands) Limited (Sponsor)
Andrew Harding / Danielle Machon 01481 755 600
Registered number
8041022
Ground Rents Income Fund plc
Annual Report and Financial Statements
for the year ended 30 September 2018
Consolidated Financial Statements
Contents
Page
Company Information 1
Chairman's Statement 2
Strategic Report 5
Directors' Report 12
Independent Auditors' Report to the members of Ground Rents Income Fund plc 16
Consolidated Statement of Comprehensive Income 21
Consolidated Statement of Financial Position 22
Consolidated Statement of Cash Flows
23
Consolidated Statement of Changes in Equity 24
Notes to the Consolidated Financial Statements 25
Company Statement of Financial Position 40
Company Statement of Cash Flows 41
Company Statement of Changes in Equity 42
Notes to the Company Financial Statements 43
Company Information
Directors
Robert Malcolm Naish - Chairman
Paul Anthony Craig
Simon Paul Wombwell
Company Secretary
William Martin Robinson
Alternative Investment Fund Manager Depositary
Brooks Macdonald Funds Limited INDOS Financial Limited
72 Welbeck Street St Clements House
London 27 Clements Lane
W1G 0AY London
EC4N 7AE
Independent Auditors Registrars
PricewaterhouseCoopers LLP Link Market Services Limited
Chartered Accountants and Statutory Auditors The Registry
No 1 Spinningfields 34 Beckenham Road
Hardman Square Kent
Manchester BR3 4TU
M3 3EB
Principal Bankers Solicitors
Royal Bank of Scotland plc CMS Cameron McKenna Nabarro Olswang
LLP
Southern Corporate Office 1 The Avenue
PO Box 391 Manchester
40 Islington High Street M3 3AP
London
N1 8JX
TISE Listing Sponsor Corporate Broker
Appleby Securities (Channel Islands) Limited N+1 Singer Capital Markets Limited
PO Box 207 13-14 Esplanade One Bartholomew Lane
St Helier London
Jersey EC2N 2AX
JE1 1BD
Registered office
72 Welbeck Street
London
W1G 0AY
Registered number
8041022
Chairman's Statement
Overview
I am pleased to present the annual audited results of Ground
Rents Income Fund plc ('GRIF' or the 'Group') for the year ended 30
September 2018.
Against a backdrop of continued Brexit uncertainty and
legislative scrutiny of the ground rent sector, the portfolio's
resilient income profile has allowed the Group to maintain the
dividend at 3.96 pence per share per annum.
During the financial year, Brooks Macdonald Funds Limited, the
Investment Manager, has remained focused on sourcing assets which
can deliver sustainable income streams to support this dividend.
Companies within the Group completed ground rent asset purchases
for a total cost of GBP2.4 million. These mainly resulted from the
exercise of options to acquire freehold and/or long-leasehold
interests following the completion of developments and were agreed
historically at attractive levels of pricing.
The Group funded the current year acquisitions by utilising
funds drawn from its GBP19.5 million loan facility with Santander
UK plc and still has sufficient cash resources available to
complete agreed acquisitions during the new financial year.
To supplement the stable, asset-backed income of the portfolio,
the Investment Manager continues to add value through active asset
management. During the year, the Group pursued the forfeiture of a
head lease interest of a property located in Hull. In August 2018,
the Group completed the sale of this interest, in addition to
benefitting from an uplift in the overall annual ground rent
receivable from the property.
Finally, from a capital perspective, the Group raised a further
GBP0.3 million in September 2018 through the issuance of new
Ordinary Shares, converted from Warrants held by existing Warrant
holders.
Portfolio valuation
Continued uncertainty in the ground rent market prevails due to
the current government consultation being led by the Ministry for
Housing, Communities and Local Government (the 'MHCLG'). This, in
turn, has led to reduced market activity and some downward pressure
on prices.
This has been reflected in the independent valuation of the
Group's property portfolio undertaken by Savills Advisory Services
Limited ('Savills') in accordance with the Royal Institution of
Chartered Surveyors ('RICS') Valuation - Global Standards 2017
incorporating the IVSC International Valuation Standards (the 'RICS
Red Book').
As at 30 September 2018, in the opinion of Savills the portfolio
had a fair value of GBP127.5 million, compared with GBP139.1
million as at 30 September 2017 (excluding purchase costs), a
decrease of GBP11.6 million or 8.3%. While the Board considers a
more cautious stance towards property valuation to be justified, it
is important to note that income from the portfolio remains robust,
with the overall ground rent yield of 3.7% for the year.
Financial results
The financial results reflect our defensive investment policy
during this period of continued uncertain political and economic
conditions, for both the UK generally and the ground rents sector
in particular.
Under International Financial Reporting Standards ('IFRS') our
operating loss for the year to 30 September 2018 was GBP9.96
million (30 September 2017: profit of GBP5.3 million), with total
comprehensive expense of GBP10.7 million (30 September 2017: income
of GBP4.7 million), which reflects the drop in the Group's
investment portfolio valuation. Revenue for the year to 30
September 2018 was GBP5.4 million (30 September 2017: GBP5.1
million). Basic losses per share ('EPS') for the year were 11.05
pence (30 September 2017: earnings of 4.98 pence).
The net asset value ('NAV') per share as at 30 September 2018
was 116.65 pence (30 September 2017: 131.72 pence).
Dividends
The Group was able to maintain the dividend per Ordinary Share
and during the financial year, declared and paid four Property
Income Distribution ('PID') dividends, totalling 3.96 pence per
share.
The Board has also declared the first interim quarterly dividend
for 2018/19 of 0.98 pence per Ordinary Share, payable wholly as a
PID (net of withholding tax, where appropriate), in respect of the
period from 1 October to 31 December 2018.
Please see note 18 Dividends for further details.
Board and governance
The Board continues to promote strong internal governance and
control, both within the Investment Manager's operational
activities and at Board level. Our annual report describes in
detail our approach to corporate governance within the Directors'
report, on pages 13 to 16.
Brooks Macdonald Funds Limited, the Investment Manager, is a
full-scope Alternative Investment Fund Manager ('AIFM') under the
AIFM Directive ('AIFMD') and continues to ensure that the Group
complies with the requirements of the directive.
Shareholder engagement
During the year, the Investment Manager continued its strong
communication and relations with our investors.
James Agar, the Head of Specialist Funds for the AIFM, met with
the majority of institutional shareholders during July 2018 as part
of the Investment Manager's annual roadshow. This annual programme
is an important part of our corporate governance initiatives, which
we hope will encourage and continue a transparent and mutually
beneficial communication with our shareholders.
The Board has also adopted an 'e-communication' strategy in
partnership with our corporate registrar Link Market Services
Limited, which we hope will further improve shareholder
engagement.
Leaseholder initiatives
In May 2018, the Investment Manager contacted all residential
leaseholders with doubling ground rents and offered them the
opportunity to convert their existing review mechanism to the
lesser of inflation, as measured by the Retail Prices Index
('RPI'), or doubling, while retaining their existing review cycle.
The "lesser of" element of the offer ensures that consumers are
protected from excessive rental increases which are ahead of
inflation. To date, there has been around an 8% take up for this
offer, rising to 15% for the 2% of our leaseholders with 10-year
doubling ground rents, and we will continue to interact proactively
with consumers in this regard.
Leasehold reform
The Investment Manager continues to engage with the MHCLG on the
Group's behalf regarding the ongoing consultation on leasehold
reform. The Board is keen to ensure that a transparent, open and
productive dialogue is maintained with MHCLG so that the views of
institutional investors are fully and appropriately represented in
any legislative discussions.
The Board fully supports leasehold sector reform that aims to
prevent the abuses and poor practices faced by some consumers and
is in favour of many of the Government's policy proposals,
including:
l Improving the buying and selling process of residential
properties and providing consumers with better information.
Contractual information should be in plain English, whilst legal
advisers must be fully independent;
l Prospective homebuyers should not be offered a leasehold house
when there is no overriding reason the house should not be sold
under freehold ownership;
l The elimination of onerous ground rents, which we believe are
those that double every 10 and 15 years. (As indicated above, the
Investment Manager is doing this for the Group's own portfolio
through an asset management programme that provides an
unconditional offer to all homeowners with a doubling ground rent);
and
l Compulsory regulation of managing agents in order to improve
management practices and drive up standards to safeguard
homeowners.
The Board agrees with the proposal in the recent consultation
calling for the banning of the sale of new leasehold houses in
England, where the sale of the freehold is an option and supports
considered reforms that will reduce costs and strengthen the
sustainable management of England's residential developments.
The Board again asks the Government to take powers already
provided to establish a Code of Conduct - with regulatory backing -
for housebuilders, developers, freehold investors and managing
agents to protect all stakeholders in the sector, and to make a
clear statement that poor practice will be driven out of our
industry.
However, the Board believes that the suggested annual GBP10
ground rent cap is ill-conceived and inconsistent with what would
be required to uphold a Code of Conduct. This is because the level
of ground rent is simply too low for large-scale professional
investors to invest in the sector, as it does not recognise the
level of genuine management, oversight and support that a
responsible investor - the recent Independent Review of Building
Regulations and Fire Safety, led by Dame Judith Hackitt, called for
such responsibilities to be carried out by a 'Dutyholder' - will
provide to a managing agent, residents' management companies and
leaseholders.
Outlook
The Board and the Investment Manager strive to continue to
maintain returns for our shareholders, while ensuring we operate in
an open and socially-responsible manner.
In the wider economic environment, prospects continue to be
dominated by Brexit negotiations and leasehold sector reform. The
ultimate outcomes remain unknown, and it is therefore difficult to
assess their future impact on the UK economy and the ground rent
investment market. Our portfolio is defensively positioned with
regard to Brexit, as all investment property is held within the UK.
Furthermore, any legislative reform that may impact the future
growth of the Group is not forecast to become law before
2020/21.
As a Board we are focused on ensuring that the income of the
portfolio remains robust and attractive to shareholders while,
subject to market conditions, seeking new acquisitions to generate
further revenue.
Malcolm Naish Date 20 December 2018
Chairman
Strategic Report
The Directors present their Strategic Report on the Group for
the year ended 30 September 2018.
Our business
Ground Rents Income Fund plc is a closed-ended real estate
investment trust ('REIT') incorporated in England and Wales on 23
April 2012 and tax resident in the United Kingdom. Its ordinary
shares and warrants were admitted to the Official List of The
International Stock Exchange ('TISE') and to trading on the SETSqx
platform of the London Stock Exchange in August 2012.
Ground Rents Income Fund plc, together with its subsidiaries,
operates a property investment and rental business. The Group
invests in a diversified portfolio of ground rents.
A ground rent is the rent paid by the lessee of a property to
the freeholder or a head leaseholder of the property. It represents
the underlying interest in property, which is subject to a lease
for a period of time usually between 99 and 999 years. Individual
amounts payable as ground rents are usually modest annual sums.
Ground rents produce a secure, stable, low-risk and long-term
income.
The Group's portfolio of ground rents includes freeholds and
head leaseholds of well-located residential, retail and commercial
properties located in the United Kingdom. The Group generates
income primarily from the collection of such ground rents. It
generates additional income from sources such as commissions on
insurance policies.
Investment objective
The Group has been established to provide secure, long-term
performance through investment in long-dated UK ground rents, which
have historically had little correlation to traditional property
asset classes regardless of the underlying state of the
economy.
The Group gives investors the opportunity to invest in a
portfolio of ground rents. The Group owns a portfolio of assets
with the income generated from the collection of ground rents.
These investments also have the potential for capital growth,
linked to contractual increases in ground rents over the long
term.
The Group seeks to generate consistent income returns for
Shareholders by investing in a diversified portfolio of ground
rents, including freeholds and head leases of residential, retail
and commercial properties located in the United Kingdom.
Investment restrictions
The Group intends that no single ground rent property should
represent more than 25 per cent of the gross asset value of the
Group at the time of investment.
The Group does not expect to engage in any hedging transactions,
although, at the sole discretion of the Directors, the Group may
utilise hedging, financial and money market instruments in the
management of its assets and risk.
The Group may reinvest both realised invested capital and any
profits that have not been distributed, subject to distributing 90
per cent of distributable income profits arising from the Group's
Qualifying Property Rental Business in each accounting year in
order to comply with the Group's REIT obligations.
The Group may make use of structural or long-term debt
facilities for investment purposes, and, if a portfolio of assets
was available to be acquired in a corporate structure which had
some existing borrowings within its corporate vehicles, these may
be retained.
In all cases the borrowing anticipated would be limited in scale
to no more than 25 per cent of the gross assets of the Group.
Our strategy
The Group has acquired and intends to continue to acquire
portfolios of ground rents. These interests have and will have a
pre-determined long-term income stream from the lease and,
ultimately, when the lease comes to an end, a reversionary
value.
The Group may also exploit other investment opportunities which
provide the Group with ground rent income, but may not have the
right to a reversionary value such as long-dated head leases.
Collection of ground rents, as well as income from additional
sources such as commissions on insurance premiums, is expected to
provide predictable income streams.
The freehold interest in a ground rent is usually valued on a
multiple of the ground rent receivable; the lower the multiple, the
higher the yield. The multiples paid vary according to a number of
factors, including the amount and timing of any contractual future
increases in the ground rent, market sentiment, and the unexpired
period of any leases.
Ground rents acquired
Since IPO in 2012 the Group has built up a highly-diversified
portfolio of freehold and long-leasehold properties to provide
secure, inflation-hedged ground rent of GBP4.7 million. This income
profile is scaled up from approximately 19,000 units across 400
addresses and a median per unit ground rent of GBP250 per
annum.
Values of the investment properties reflect the quality of the
income and the rent review profile. Ground rents that are flat and,
therefore, have no reviews are the least desirable and produce the
highest yields. At the other end of the scale are ground rents that
are subject to frequent rent reviews that provide regular uplifts
in the income stream. The most attractive of those investments are
currently those linked to the Retail Prices Index ('RPI'), or those
that have imminent rent reviews.
Most ground rents are subject to pre-determined rent reviews,
which are documented in each lease granted by the freeholder or
head leaseholder. Increases are linked to a variety of measures:
they may be indexed to factors such as RPI, they may be subject to
a periodic doubling or subject to fixed-sum increases. The review
cycles vary between annual and 50 years, although 91% of the
Group's ground rents are 20 years or less. The driver of movements
in the valuation of a ground rent investment tends to be variations
in yields, until the final few years before a review date.
As at 30 September 2018, the total net assets of the Group were
GBP113.2 million (2017: GBP127.4 million), of which GBP127.5
million (2017: GBP139.1 million) was represented by investments in
ground rents.
Current year activity
The Group completed three acquisitions in the year ended 30
September 2018, which increased the ground rent roll by GBP0.1
million at a cost of GBP2.4 million, giving a gross initial ground
rent yield of 4.31%. These transactions were executed despite the
prevailing uncertainty due to the transactions being negotiated
historically at prices accretive to the NAV and income profile of
the portfolio.
Beetham Tower Birmingham
In November 2017, the 999 year residential head lease interest
of Beetham Tower Birmingham was purchased by the Group. The
39-floor mixed-use building, designed by SimpsonHaugh, was built in
2006. The 152 apartments generate GBP25,950 of total ground rent
linked to 21-year RPI, although a non-peppercorn rent linked to
five-year RPI is payable to the freeholder, which brings net ground
rent to GBP13,288 for the year.
The Group paid GBP0.2 million for the asset, giving a gross
initial ground rent yield of 8.74%, which should provide an
excellent income return on capital deployed, partly due to the
unusual ground rent review pattern secured against one of
Birmingham's most recognisable buildings.
Lewisham Gateway
In December 2017, the Group purchased the 250 year
long-leasehold interest for the first residential phase of the
Lewisham Gateway scheme, having exchanged contracts in September
2015. The acquisition of phase one consists of a 68-unit Private
Rented Sector ('PRS') block operated by Fizzy Living as well as a
block of private sale units consisting of 125 apartments. In total,
the 193 units generate GBP64,000 of ground rent linked to 20-year
RPI at a cost of GBP1.5 million, giving a gross initial ground rent
yield of 4.30%.
Rathbone Market
Also in December 2017, the third and final phase of the Rathbone
Market development, located in Canning Town, London, was acquired
for GBP0.7 million. The 150 year long-leasehold acquisition
consists of 75 ground rent-paying private residential apartments,
as well as an 87-unit PRS block and 54 affordable units.
Total ground rent of GBP22,500 is linked to 20-year RPI, which
gives a gross initial ground rent yield of 3.33%. The Group has now
secured the entire long-leasehold interest in the site, having
previously purchased the first two phases. The acquisition should
therefore protect the Group's interest in the wider scheme. The
high reversionary values of the sites should provide the Group with
excellent secure, long-term, inflation-hedged income.
Asset management project
In conjunction with the Investment Manager, the Board of
Directors agreed to contact all residential leaseholders with
doubling ground rents and offer them the opportunity to convert
their existing review mechanism to the lesser of inflation, as
measured by RPI, or doubling, while retaining their existing review
cycle. The process is ongoing and is expected to conclude in early
2019. This small but important variation ensures that consumers are
protected from excessive rental increases which are ahead of
inflation.
Asset focus
The five most valuable assets and their respective locations as
at 30 September 2018 are as follows:
Building name Location Value
Vita York York GBP8.2 million
Gateway Leeds GBP3.9 million
One Park West Liverpool GBP3.6 million
Wiltshire Leisure Village Wiltshire GBP3.3 million
Vita First Street Manchester GBP2.9 million
The largest asset represents 6.1% of the total portfolio.
The Group has limited exposure to leasehold houses. Of the total
number of units in the portfolio 15% are houses, which generate
only 11% of total ground rent income since the median ground rent
on the houses is GBP110 per annum. None are subject to perpetual
10-year doubling review patterns, which have attracted some recent
focus in the media. Furthermore, the Group has no exposure to
perpetual doubling ground rents and de minimis exposure to 10-year
doubling assets, which account for only 4% of total ground rent
income. These three assets double a maximum of three times before
reverting to having either no further review or an indexed linked
review cycle.
Portfolio characteristics
The chart below shows the period of time before the next review
date for the ground rents in the portfolio at 30
September 2018:
The chart demonstrates that 35% of the portfolio will be subject
to a rent review within the next five years. Typically, the impact
of a forthcoming rent review is recognised in the valuation over
the three years leading up to the review date.
The chart below shows the type of rent review in the portfolio
at 30 September 2018:
69% of the portfolio's income or gross rent roll is directly
linked to inflation-based indices. The doubling and fixed rate
increases also provide an inflation hedge for the portfolio but
over different review cycles to index-linked assets.
The geographic spread of the portfolio at 30 September 2018 is
shown in the chart below:
31% of the Group's portfolio is located in the North West and
30% in the North East, based on ground rents income.
Key Performance Indicators
Many of the Key Performance Indicators ('KPIs') are linked to
the appraisal of acquisition opportunities and the amount of cash
available for investment.
In order to ensure that the Group has identified investments
which are appropriate for the Group and which will allow the
Directors to achieve the strategic aims of the Group, the
Investment Manager considers the following factors when reviewing
acquisition opportunities:
-- Acquisition cost as a multiple of ground rent income, from which gross yield is imputed
-- Potential for additional income streams
-- Type of rent review
-- Rent review cycle
-- Number of years before next rent review
-- Location
-- Value relative to total portfolio
These factors are considered on an ad hoc basis at meetings of
the AIFM Investment Committee when acquisition opportunities are
considered for approval.
In order to monitor the performance of the Group against its
stated income and capital growth objectives and its tax status, the
Directors consider the following KPIs reported on and considered at
the quarterly Directors' meetings.
l Dividend yield
The dividend reflects the Group's ability to deliver a
sustainable income stream from its portfolio.
In the year ended 30 September 2018, the dividend yield on the
ordinary shares was 3.96% (year ended 30 September 2017: 3.96%) on
the weighted average issue price.
l Ongoing charges
The ongoing charges measure is the ratio of Group administration
and operating costs expressed as a percentage of average net asset
value throughout the year. It represents a measure of costs
associated with managing and operating the Group, which includes
the management fees due to the Investment Manager. It provides
investors with a clear picture of operational costs involved in
running the Group.
For the year ended 30 September 2018, the ratio was 0.72% (30
September 2017: 0.67%).
l NAV
Net asset value (NAV) is the value of an entity's assets minus
the value of its liabilities. It reflects the Group's ability to
grow the portfolio and add value to it through its assets.
As at 30 September 2018 the NAV was GBP113.2 million (30
September 2017: GBP127.4 million).
l Portfolio valuation
The Directors review analysis of the portfolio valuation and
composition with reference to geographical location and timing of
rent reviews.
The Directors cannot set a target figure for the portfolio
valuation as it is influenced by external factors which are not
under the control of the Directors. However, the AIFM Investment
Committee prepare forecasts and consider the characteristics of
each investment opportunity carefully before deciding on an
appropriate offer as well as seeking independent confirmation of
the value prior to purchase.
l Compliance with REIT rules
The Directors review each of the REIT criteria and monitor
compliance on a quarterly basis. If there were any indicators that
the Group would cease to comply with the REIT regime, the Directors
would ensure that appropriate steps were taken to ensure
compliance. There has been no non-compliance noted during these
reviews.
Alternative Investment Fund Manager ('AIFM')
Brooks Macdonald Funds Limited (the 'Investment Manager') is
authorised and regulated by the Financial
Conduct Authority ('FCA') as a full-scope AIFM and provides its
services to the Group.
INDOS Financial Limited ('INDOS') act as the depositary to the
Group, responsible for cash monitoring, asset verification and
oversight on behalf of shareholders.
Under the AIFM Directive, the Group is required to make
disclosures in relation to its leverage under the prescribed
methodology of the Directive. These are set out in Note 11 of the
notes to the Group consolidated financial statements.
During the year the parent company of the AIFM, Brooks Macdonald
Group plc, disposed their property management business Braemar
Estates (Residential) Limited ('Braemar Estates'). The ownership of
Braemar Estates, who the AIFM delegates the majority of the Group's
property management services to, passed to Rendall & Rittner
Limited on completion of the disposal.
Social, community and employee responsibility
The Group has no direct social, community or employee
responsibilities. The Group has no employees other than three
Directors and accordingly no requirement to separately report in
this area, as the management of the portfolio is the responsibility
of the Investment Manager.
The Investment Manager is an equal opportunities employer, who
encourages employee involvement in its financial performance,
considers that regular employee training is extremely important and
recognises the need for employees to have an appropriate work-life
balance.
The Group is not within the scope of the Modern Slavery Act 2015
because it has not exceeded the turnover threshold and is therefore
not obliged to make a slavery and human trafficking statement. The
Directors are satisfied that, to the best of their knowledge, the
Group's principal suppliers comply with the provisions of the UK
Modern Slavery Act 2015.
Principal risks and uncertainties
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. The key risks and how these are managed
are considered below:
l Investment objective
The Directors are conscious that new investments must achieve
the target return of the portfolio. An investment with a lower
return profile would be detrimental to the performance of the
portfolio as a whole. The AIFM Investment Committee reviews each
transaction to ensure that any ground rents purchased will generate
returns which are in line with the desired return level for the
portfolio.
l Compliance with laws and regulations
The Group must remain compliant with the REIT rules in order to
take advantage of the potential efficiencies in its tax affairs,
including exemption from UK corporation tax on profits and gains
from its UK property rental business. The Group must also remain
compliant with the prescribed requirements of the Listing Rules of
the International Stock Exchange, Market Abuse Regulations ('MAR'),
the Companies Act and other statutory requirements. The AIFM must
also comply with the requirements of the AIFM Directive.
The Directors receive a quarterly report on the Group's
compliance with the REIT rules and take independent advice on the
conduct of its business to ensure that it remains compliant with
the REIT regime. The Group Company Secretary monitors compliance
and reports to the Directors on a quarterly basis. The Group's
Depositary, responsible for cash monitoring, asset verification and
oversight of the Group reports to the Directors also on a quarterly
basis.
l Dependence on the investment advice, key individuals and
relationships
The Group's ability to achieve its investment objective is
substantively dependent on the performance of the AIFM and its
identification of suitable acquisitions and disposals and the
management of such investments. Failure by these people to provide
appropriate advice and support to the Group could have a materially
adverse effect on the Group.
The Directors monitor the AIFM and review the Group performance
on a quarterly basis. The Management Engagement Committee reviews
the AIFM's performance on an annual basis. The Group engages with
reputable advisers following appropriate due diligence undertaken
by the AIFM and Directors.
l Availability of equity and/or debt
The Group has forward commitments to complete transactions for
which it has exchanged contracts and may in future take an option
to acquire ground rents on property which has yet to be
constructed. If insufficient cash exists, the Group will need to
seek additional equity and/or debt within its self-imposed
borrowing restrictions.
The Directors monitor liquidity and projected cash flows at each
quarterly board meeting. The pipeline of acquisitions identifies
capital requirements in good time for the Directors to consider the
financing options available to them.
l Investment market conditions
A systematic fall in the valuation of ground rent assets could
lead to a fall in the Group's NAV. Valuations are linked to
multiples of the ground rent payable and ground rents payable are
subject to pre-determined, contractual review dates and amounts.
The multiples vary according to market sentiment, the nature of the
rent review and the time until the next rent review.
The AIFM looks to invest in assets with pre-determined uplifts
in ground rent receivable with pre-determined review cycles over
the long-term.
l Leaseholder payment of ground rents
Ground rent receivables form part of the Group's cash flow
receipts and are managed tightly to ensure they do not become large
enough to inhibit the Group's ability to manage its cash flows. The
AIFM employs agreed collection procedures and timelines and, at the
last resort, the right of forfeiture for non-payment of ground rent
can be implemented.
l Insurance cover
Insurances and the adequacy of insurance cover is monitored by
the AIFM and the Group's insurance broker, using risk and insurance
information collated by the AIFM, its managing agents and
surveyors. Property reinstatement values are independently assessed
every three years, in accordance with the underwriter's
requirements. Health & Safety reporting is reviewed by the
Directors on a quarterly basis.
If a property were to suffer an uninsured loss, due to a failure
to insure the building or if a building was insured for an
inadequate reinstatement value, the Group would incur costs to
reinstate the property where no coverage is provided under the
scope of the Group insurance policy wording or schedule of
endorsements.
l Working capital liquidity
Sufficient working capital liquidity is required to service
payables including dividend distributions and committed property
transactions when they fall due. The AIFM manages and monitors
short-term liquidity requirements to ensure the Group maintains a
surplus of immediately realisable assets over its liabilities, such
that all known and potential cash obligations can be met.
Future developments
The Group will continue to seek suitable ground rent
acquisitions and employ its existing cash resources, while
intending to maintain the dividend yield for the year ahead. The
Directors intend to be highly selective in making any acquisitions.
They may also consider the disposal of certain assets should
suitable opportunities arise for sale and re-investment which would
enhance shareholder value.
While the media and political focus on the ground rent market
has dampened transactional volumes, any further movements in
valuation will be reflected in the next independent valuation,
which will be performed by Savills as at 31 March 2019.
On behalf of the board:
Simon Paul Wombwell Date 20 December 2018
Director
Directors' Report
The Directors present herewith their report in accordance with
the requirements of the Companies Act 2006, together with the
audited consolidated financial statements for the Group and Company
for the year ended 30 September 2018.
Results and dividends
A summary of the Group's performance during the year is set out
in the Chairman's Statement on pages 2 to 4.
The stated policy of the Group is to pay quarterly interim
dividends and details of the interim dividends paid during the year
are set out in Note 18 of the notes to the Group consolidated
financial statements.
Total dividends of 3.96p per ordinary share were paid for the
year ended 30 September 2018 (2017: 3.96p). These dividends amount
to GBP3,829,799 (2017: GBP3,702,456). In accordance with the
Directors' policy of paying all dividends as interim dividends, the
Directors do not recommend payment of a final dividend.
Listing requirements
Throughout the accounting year ended 30 September 2018, the
Group complied with the conditions set out in the TISE Rules for
Companies. The Directors monitor the compliance at board meetings
and take advice from the Group's TISE Listing sponsor where
required.
Board of Directors
The following persons served as Directors during the year and up
to the date of signing the financial statements:
Robert Malcolm Naish Paul Anthony Craig Simon Paul Wombwell
Third party indemnity provisions
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors. These provisions were in force
during the year and these remain in force at the date of this
report.
Substantial shareholdings
At the quarterly board meetings, the Directors review the report
of composition of shareholders to ensure compliance with the REIT
rules (not be a close company).
As at 18 December 2018, the Group had been informed of the
following notifiable interests in the voting rights of the Group,
in accordance with DTR5:
30 September 18 December
2018 2018
% of total % of total
voting rights voting rights
Schroders plc 18.88 no change
Transact (EO) 11.48 12.79
CG Asset Management 7.98 no change
Brooks Macdonald 7.05 no change
NW Brown 6.19 no change
Ruffer 6.13 no change
Quilter Investors 6.13 no change
------------------------- --------------- ---------------
Political donations
Neither the Company nor its subsidiaries has made any political
donation or incurred political expenditure during the year.
Financial instruments
Details of the Group's use of financial instruments, together
with information on policies and exposure to risk, can be found
within the Strategic Report on pages 5 to 12 and in note 12 of the
notes to the Group consolidated financial statements. This
information is incorporated into this Directors' Report by
reference and is deemed to form part of this Directors' Report.
Events after the reporting year
There are no events after the reporting year of note.
Going concern
At the year end date, the Group had a debt facility of GBP19.5
million, expiring on 15 November 2021, which was fully drawn down.
The Directors have prepared cash forecasts in excess of two years
and have concluded that sufficient cash reserves exist that enable
them to continue to prepare the financial statements on a going
concern basis.
Future developments
An indication of likely future developments in the Group can be
found within the Strategic Report on pages 5 to 12. This
information is incorporated into this Directors' Report by
reference and is deemed to form part of this Directors' Report.
Statement of Directors' responsibilities in respect of the
financial statements
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 and parent company financial statements in
accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union. 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 the parent company and of the profit or
loss of the Group and parent company for that period. In preparing
these financial statements, the Directors are required to:
l select suitable accounting policies and then apply them
consistently;
l state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements;
l make judgements and accounting estimates that are reasonable
and prudent; and
l prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and parent
company will continue in business.
The Directors are also responsible for safeguarding the assets
of the Group and parent 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
parent company's transactions and disclose with reasonable accuracy
at any time the financial position of the Group and parent company
and enable them to ensure that the financial statements comply with
the Companies Act 2006.
The Directors of the ultimate parent company are responsible for
the maintenance and integrity of the ultimate parent company's
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Disclosure of information to auditors
PricewaterhouseCoopers LLP have expressed their willingness to
continue in office as auditors and this will be considered at the
next Annual General Meeting.
Each person who was a director at the time this report was
approved confirms that:
l so far as he is aware, there is no relevant audit information
of which the Company's auditors are unaware; and
l he has taken all the steps that he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the Company's auditors are aware
of that information.
Corporate Governance
The Board is committed to the highest standards of corporate
governance, which meet the statutory and regulatory requirements
for companies listed in Guernsey on the International Stock
Exchange.
Leadership and governance
Although the Group does not fully comply with or is required to
adhere to the UK Corporate Governance Code, the Directors place a
great deal of importance on ensuring that high standards of
corporate governance are maintained and, wherever possible, are
committed to the principles of corporate governance contained in
the UK Corporate Governance Code issued by the Financial Reporting
Council ('the Code') in 2016.
Independent non-executive Directors
In reference to smaller companies, the Code recommends that at
least two non-executive members of the Board (excluding the
Chairman) should be independent in character and judgement and free
from relationships or circumstances which are likely to affect, or
could appear to affect, their judgement.
The Board continues to be composed of three non-executive
Directors. The Board has carefully considered the Directors'
independence and has determined that the Directors will discharge
their duties in an independent manner.
The independence of each Director is considered on a continuing
basis. The Board is satisfied that there is a balance of skills and
experience, independence and knowledge of both the Group and the
wider investment company sector, to enable it to discharge its
respective duties and responsibilities effectively and that no
individual or group of individuals is, or has been, in a position
to dominate decision-making.
Board committees
The Board has established the Audit Committee and the Management
Engagement Committee.
The Audit Committee meets at least once a year and reviews the
financial reporting process and system of internal control and
management of financial risks. The Audit Committee is responsible
for overseeing the Group's relationship with the external auditors,
including making recommendations to the Board on the appointment of
the external auditors and their remuneration. The Audit Committee
considers the nature, scope and results of the auditors' work and
reviews. The Audit Committee primarily focuses on compliance with
legal requirements, accounting standards and the TISE Listing Rules
and ensures that an effective system of internal financial and
non-financial controls is maintained. The ultimate responsibility
for reviewing and approving the annual report and financial
statements remains with the Board.
The Management Engagement Committee comprises Malcolm Naish, who
chairs the committee, and Paul Craig. The committee meets a minimum
of once a year. The function of the committee is to ensure that the
Investment Manager complies with the terms of the Investment
Management Agreement and that the provisions of the agreement
follow industry practice and remain competitive and in the best
interests of shareholders. The Management Engagement Committee will
also consider the appointment, remuneration and performance of
suppliers of services to the Group.
The Directors have not established remuneration or nomination
committees as they do not believe that such committees would be
appropriate given the nature of the Group's operations. The Board
annually reviews the remuneration of the Directors and agrees the
level of non-executive fees. The Board actively considers future
succession plans as well as consideration as to whether the Board
has the skills required to manage the Group effectively. The
assessment of the performance of the Chairman is determined by the
other Directors.
Board meetings and attendance
The Board meets at least four times each year. Additional
meetings are also arranged as required and regular contact between
Directors and the Investment Manager is maintained throughout the
year. Representatives of the Investment Manager and Company
Secretary attend each Board meeting and other advisers also attend
when requested to do so by the Board.
All three Board members have attended all Board meetings
throughout the year.
The Investment Manager
Under the Investment Manager Agreement, the Board has delegated
day-to-day responsibility for running the Group to the Investment
Manager. To ensure open and regular communication between the
Investment Manager and the Board, the Investment Manager is invited
to the Board meetings where appropriate, to report on matters such
as the Group's portfolio management, financial reporting, and wider
corporate and operational activities.
Shareholders
The Board encourages two-way communication with both its
institutional and private investors and responds quickly to queries
received either orally or in writing. All shareholders will be
given at least 21 days' notice of the Annual General Meeting
('AGM'), where all Directors and committee members will be
available to answer questions.
At the AGM all votes will be dealt with on a show of hands and
the number of proxy votes cast is indicated. Votes on separate
issues will be proposed as separate resolutions. The Investment
Manager and corporate broker N+1 Singer Capital Markets Limited
regularly update the Board with the views of shareholders and
analysts.
Internal control
The Investment Manager is responsible for operating the Group's
system of internal control and reviewing its effectiveness. Such a
system is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can provide only
reasonable but not absolute assurance against material misstatement
or loss. The Audit Committee will review annually the Investment
Manager's approach to internal control to ensure it is working
effectively. There were no internal control breaches during the
year.
Financial and business information
The Board is responsible for preparing the Annual Report and the
financial statements. The Board believes when taken as a whole they
are fair, balanced and understandable, and provide the information
necessary to assess the Group's performance.
Anti-bribery and corruption
The Board has a zero tolerance policy towards bribery and is
committed to carrying out business fairly, honestly and openly. In
considering The Bribery Act 2010, at the date of this report, the
Board has assessed the perceived risks to the Group arising from
bribery and corruption and to identify aspects of business which
may be improved to mitigate such risks.
This report was approved by the board and signed on its behalf
by:
Simon Paul Wombwell Date 20 December 2018
Director
Company registered number: 8041022
Independent auditors' report to the members of Ground Rents
Income Fund plc
Report on the audit of the financial statements
Opinion
In our opinion, Ground Rents Income Fund plc's Group financial
statements and parent company financial statements (the "financial
statements"):
l give a true and fair view of the state of the Group's and of
the parent company's affairs as at 30 September 2018 and of the
Group's loss and the Group's and the parent company's cash flows
for the year then ended;
l have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company's financial statements, as
applied in accordance with the provisions of the Companies Act
2006; and
l have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Financial Statements (the "Annual Report"), which
comprise: the consolidated and company statements of financial
position as at 30 September 2018; the consolidated statement of
comprehensive income, the consolidated and company statements of
cash flows, and the consolidated and company statements of changes
in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under ISAs (UK) are further described in the
Auditors' responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC's Ethical
Standard, as applicable to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements.
Our audit approach
Overview
l Overall group materiality: GBP1,349,716 (2017: GBP1,488,885),
based on 1% of total assets.
l Overall parent company materiality: GBP956,710 (2017:
GBP946,575) based on 1% of total assets.
l For income statement line items we applied a lower specific
materiality of GBP173,602 (2017: GBP165,536) for the Group
and GBP16,965 (2017: GBP27,470) for the parent company
based on 5% of profit before tax (PBT).
l We audited the complete financial information of each
entity held within the Group.
l The key audit matter that we identified in the current
year was the valuation of the investment property portfolio.
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of
internal controls, including evaluating whether there was evidence
of bias by the directors that represented a risk of material
misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors'
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters. This is not a complete list of all risks identified
by our audit.
Key audit matter How our audit addressed the key audit matter
Valuation of investment properties Experience of the Valuer and relevance of their work
Refer to page 27 (accounting policies) and page 31 to 32 We read the Valuer's report and held direct discussion
(notes to the financial statements). with Savills valuation team. We confirmed
The valuation of the investment property portfolio is that the approaches used were consistent with the RICS
inherently subjective and is underpinned guidelines and suitable for use in
by a number of assumptions. The valuation of the Group's determining the carrying value for the purpose of the
investment properties is the key financial statements. We assessed the
component of the net asset value and underpins the Valuer's qualifications and expertise and read their
Group's result for the year. The result terms of engagement with the Group, to
of the revaluation this year was a loss of GBP14,160k determine whether there were any matters that might have
(2017: gain of GBP1,348k), which is affected their objectivity or imposed
accounted for within 'Net revaluation on investment scope limitations upon them. We found no evidence to
properties' and is a significant component suggest that the objectivity of the Valuer
of the result for the year. in their performance of the valuations was compromised.
The Group's property portfolio has been independently Data provided to the Valuer
valued by Savills Advisory Services We performed testing, on a sample basis, to satisfy
Limited ('Savills' or the 'Valuer') in accordance with ourselves of the accuracy of the property
the RICS Valuation - Professional Standard information supplied to the Valuer by management. This
('RICS'). data included annual rental income,
In determining a property's valuation the Valuer takes the rent review mechanism and the rent review cycle to
into account property-specific information supporting evidence, such as the original
such as the current rental income, the rent review lease.
mechanism and the time to the next rent Assumptions and estimates used by the Valuer
review. They apply assumptions for Years Purchase (YP) We attended meetings with the Valuer independently of
multiples and estimated market rent management, at which the valuations
increases, which are influenced by prevailing market and the key assumptions therein were discussed. Our work
yields and comparable market transactions, covered the valuation of every property
to arrive at the final valuation. in the Group.
Our audit paid particular focus to the relevant specific We challenged management's expert on the consistency of
valuations impacted by the Government's the application of the key assumptions
consultation paper "Tackling unfair practices in the used in the valuations, including the YP multiple, and
leasehold market". ensured the responses reflected the
The existence of significant estimation uncertainty, particular characteristics of each property.
coupled with the fact that only a small Our testing which involved the use of our internal real
percentage of difference in individual property estate valuation specialists, qualified
valuations, when aggregated, could result chartered surveyors with deep market knowledge, indicated
in a material misstatement on the income statement and that the estimates and assumptions
balance sheet, warrants specific audit used were appropriate in the context of the Group's
focus in this area. property portfolio and reflected the circumstances
of the market in the year.
We determined that there were no key audit matters applicable to
the parent company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the parent company, the accounting processes and
controls, and the industry in which they operate.
The Group engagement team audited all entities within the Group
and therefore all audit matters relevant to the Group were
communicated on a frequent basis.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group and parent company overall Group and parent company specific
materiality materiality for income statement account
balances
Overall materiality Group: GBP1,349,716 (2017: GBP1,448,885) Group: GBP173,602 (2017: GBP165,536)
Parent company: GBP956,710 (2017: Parent company: GBP16,965 (2017:
GBP946,575) GBP27,470)
------------------------------------------ -----------------------------------------
How we determined it 1% of total assets. 5% of profit before tax
------------------------------------------ -----------------------------------------
Rationale for benchmark applied The key measure of the Group and parent In addition to the overall materiality, a
company's performance is the valuation of specific materiality was applied to
investment income statement
properties and the balance sheet as a account balances. This was determined on
whole. Given this, consistent with the the basis of 5% PBT excluding the
prior year, we revaluation gain.
set an overall Group materiality level A specific materiality was considered as
based on total assets. the most appropriate method to ensure
sufficient
coverage across the income statement.
------------------------------------------ -----------------------------------------
For each component in the scope of our Group audit, we allocated
a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between GBP40
and GBP417,509. Certain components were audited to a local
statutory audit materiality that was also less than our overall
Group materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP67,488 (Group
audit) (2017: GBP74,444) and GBP47,878 (Parent company audit)
(2017: GBP47,329) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which ISAs (UK) require us to report to you when:
l the directors' use of the going concern basis of accounting in
the preparation of the financial statements is not appropriate;
or
l the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group's and parent company's ability to continue to
adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group's and
parent company's ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our auditors'
report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic Report and Directors' Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006 and
ISAs (UK) require us also to report certain opinions and matters as
described below.
Strategic Report and Directors' Report
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic Report and
Directors' Report for the year ended 30 September 2018 is
consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and
parent company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors' Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of Directors'
responsibilities set out on page 13, the directors are responsible
for the preparation of the financial statements in accordance with
the applicable framework and for being satisfied that they give a
true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group's and the parent company's
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and
only for the parent company's members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you,
if, in our opinion:
l we have not received all the information and explanations we
require for our audit; or
l adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
l certain disclosures of directors' remuneration specified by
law are not made; or
l the parent company financial statements are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Daniel Brydon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Manchester Date 20 December 2018
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2018
Year ended Year ended
30 September 30 September
Note 2018 2017
GBP GBP
Continuing operations
Revenue 2 5,356,965 5,137,103
Administrative expenses 3 (1,322,983) (1,232,615)
Profit on sale of ground rent assets
and leasehold property 165,469 3,375
Net revaluation on investment
properties 8 (14,160,078) 1,347,518
Operating (loss)/profit (9,960,627) 5,255,381
Finance income 5 26,129 18,110
Finance expenses 6 (753,539) (615,248)
Net finance expense (727,410) (597,138)
(Loss)/profit before tax (10,688,037) 4,658,243
Taxation 7 - -
Result after tax and total comprehensive
(expense)/income (10,688,037) 4,658,243
------------- -------------
(Losses)/earnings per share
Basic 13 (11.05p) 4.98p
Diluted 13 (11.05p) 4.90p
The accompanying notes on pages 26
to 41 form an integral part of the
consolidated financial statements.
Consolidated Statement of Financial
Position as at 30 September 2018
Note 2018 2017
GBP GBP
Assets
Non-current assets
Investment properties - ground rents 8 127,509,800 139,088,000
127,509,800 139,088,000
Current assets
Trade and other receivables 9 1,895,271 2,571,888
Cash and cash equivalents 5,566,561 7,228,645
7,461,832 9,800,533
Total assets 134,971,632 148,888,533
------------- -------------
Liabilities
Non-current liabilities
Financial liabilities measured at
amortised cost 11 (19,211,693) (19,117,641)
(19,211,693) (19,117,641)
Current liabilities
Trade and other payables 10 (2,604,005) (2,381,414)
(2,604,005) (2,381,414)
Total liabilities (21,815,698) (21,499,055)
------------- -------------
Net assets 113,155,934 127,389,478
------------- -------------
Financed by:
Equity
Share capital 15 48,503,198 48,356,050
Share premium account 16 45,884,305 45,747,161
Retained earnings 17 29,456,468 28,628,024
(Loss)/profit for the financial year 17 (10,688,037) 4,658,243
Total equity 113,155,934 127,389,478
------------- -------------
Net asset value per ordinary share
Basic 14 116.65p 131.72p
Diluted 14 115.92p 130.24p
The financial statements on pages 22 to 41 were approved and
authorised for issue by the board of directors and signed on its
behalf by:
Simon Paul Wombwell
Director
Ground Rents Income Fund plc Date 20 December 2018
Company registered number: 8041022
The accompanying notes on pages 26 to 41 form an integral part
of the consolidated financial statements.
Consolidated Statement of Cash Flows
for the year ended 30 September 2018
Year ended Year ended
30 September 30 September
Note 2018 2017
GBP GBP
Cash flows from operating activities
Cash generated from operations 19 4,787,311 3,751,965
Interest paid on bank loan and bank
charges (753,539) (455,921)
Net cash generated from operating activities 4,033,772 3,296,044
------------- -------------
Cash flow from investing activities
Interest received 26,129 18,110
Receipts from the sale of ground rent assets
and leasehold property 452,350 15,000
Purchasing of ground rent assets and selling
of leasehold property (2,628,828) (12,053,007)
Net cash used in investing activities (2,150,349) (12,019,897)
------------- -------------
Cash flows from financing activities
Net proceeds from issuance of shares 19 284,292 3,298,323
Bank loan net proceeds - 11,049,199
Dividends paid to shareholders 18 (3,829,799) (3,702,456)
Net cash (used in)/generated from financing
activities (3,545,507) 10,645,066
------------- -------------
Net (decrease)/increase in cash and
cash equivalents 20 (1,662,084) 1,921,213
------------- -------------
Net cash and cash equivalents at 1
October 7,228,645 5,307,432
Net cash and cash equivalents at 30
September 5,566,561 7,228,645
------------- -------------
The accompanying notes on pages 26 to 41 form an integral part
of the consolidated financial statements.
Consolidated Statement of Changes in Equity
for the year ended 30 September 2018
Share
Share premium Retained
capital account earnings Total equity
GBP GBP GBP GBP
Note 15 16 17
At 1 October 2016 46,701,006 44,103,882 32,330,480 123,135,368
Comprehensive income
Profit for the year - - 4,658,243 4,658,243
Total comprehensive income - - 4,658,243 4,658,243
Transactions with owners
Issue of share capital 1,655,044 1,655,045 - 3,310,089
Share issue costs - (11,766) - (11,766)
Dividends paid (note 18) - - (3,702,456) (3,702,456)
At 30 September 2017 48,356,050 45,747,161 33,286,267 127,389,478
---------------- ----------------- ---------------- ---------------
At 1 October 2017 48,356,050 45,747,161 33,286,267 127,389,478
Comprehensive expense
Loss for the year - - (10,688,037) (10,688,037)
Total comprehensive expense - - (10,688,037) (10,688,037)
Transactions with owners
Issue of share capital 147,148 147,149 - 294,297
Share issue costs - (10,005) - (10,005)
Dividends paid (note 18) - - (3,829,799) (3,829,799)
At 30 September 2018 48,503,198 45,884,305 18,768,431 113,155,934
---------------- ----------------- ---------------- ---------------
The accompanying notes on pages 26 to 41 form an integral part
of the consolidated financial statements.
Notes to the Consolidated Financial Statements
for the year ended 30 September 2018
1 Accounting policies
Ground Rents Income Fund plc (the 'Company') is a public limited
company incorporated and domiciled in the United Kingdom. The
consolidated financial statements of the Company comprise the
Company and its subsidiaries (together referred to as the
'Group').
(a) Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union, IFRS IC interpretations, and the
Companies Act 2006 applicable to companies reporting under IFRS and
issued by the International Accounting Standards Board (the
'IASB').
(b) Basis of preparation
The consolidated financial statements have been prepared under
the historical cost convention, as modified by the revaluation of
ground rent properties. They are presented in sterling, which is
the Group's functional currency.
At the year end date, the Group had a fully drawn down debt
facility of GBP19,500,000, expiring on 15 November 2021. The
Directors continue to prepare the financial statements on a going
concern basis.
The accounting policies have been consistently 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.
(c) Adoption of new and revised standards
The following new EU-endorsed standards, amendments to standards
and interpretations are mandatory for the first time for the
financial years ending 30 September 2018, but have not had an
impact on the amounts reported in the Group financial
statements:
Amendments to IAS 7 'Statement of cash flows' - on the
disclosure initiative
Amendments to IAS 12 'Income taxes' - on the recognition of
deferred tax assets
In addition to the above, the following new EU-endorsed
standards, amendments to standards and interpretations have been
issued and are effective for financial years beginning on or after
1 October 2018 or later, but have not been early adopted:
IFRS 9 'Financial instruments'
IFRS 15 'Revenue from contracts with customers'
IFRS 16 'Leases'
In July 2014, the IASB issued the final version of IFRS 9 -
Financial Instruments that replaces IAS 39 - Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
Overall, the Directors expect no significant impact from IFRS 9 on
the financial statements.
IFRS 15 - Revenue from Contracts with Customers is a converged
standard from the IASB on revenue recognition. The standard will
improve the financial reporting of revenue and improve
comparability of the top line in financial statements globally. It
is more prescriptive in terms of what should be included within
revenue than IAS 18 - Revenue. The Directors do not expect the
application of IFRS 15 to have a significant impact on the Group's
financial statements.
IFRS 16 specifies how an IFRS reporter will recognise, measure,
present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. Lessors continue to
classify leases as operating or finance, with IFRS 16's approach to
lessor accounting substantially unchanged from its predecessor, IAS
17. IFRS 16 was issued in January 2016 and applies to annual
reporting periods beginning on or after 1 January 2019.
The impact of the following new standards and amendments will be
assessed in detail prior to adoption. However, at this stage the
Directors do not anticipate them to have a material impact on the
amounts reported in the Group financial statements:
IFRS 17 'Insurance contracts'
IFRIC 23 Uncertainty over income tax treatments'
Amendments to IFRS 2 'Share based payments' - on transaction accounting
Amendment to IFRS 4 Amendment clarification
to IAS 40 'Insurance contracts' - regarding IFRS 9 'Financial
instruments'
'Investment property'
26
Ground Rents Income Fund plc
Notes to the Consolidated Financial Statements
for the year ended 30 September 2018
1 Accounting policies (continued)
(d) 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.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of
assumptions, estimates and judgements about future conditions. Use
of available information and application of judgement are inherent
in the formation of estimates. Actual results in the future may
differ from those reported. In this regard, management believes
that the accounting policies where judgement is necessarily applied
are those that relate to valuations. The estimation of the
underlying assumptions are reviewed on an ongoing basis.
The valuation of investment properties is dependent on external
factors such as the availability of fixed rate investments in the
market as well as factors specific to the nature of the investment.
While interest rates remain low, ground rents are viewed as
attractive investments due to the secure, fixed income streams. The
value is also dependent on the timing and amount of future rental
uplifts, the most attractive being those linked to RPI with rental
cycles of 10 years or less. The least attractive are those ground
rents which are flat with no future uplifts.
Property valuations often refer to the YP multiple, otherwise
known as Years Purchase (equivalent to the valuation divided by the
current ground rent).
Valuations are provided by an independent third-party valuer and
reviewed carefully by the Directors before inclusion in the
financial statements. Further information about the qualifications
of the independent third-party valuer and the valuation methods can
be found in note 8.
(f) 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.
(g) Revenue
Revenue represents the value of ground rent income due in the
period together with any supplementary income earned in the year,
including insurance income, tenant fees and other income. Ground
rent revenue is recognised on a straight line basis over the term
receivable.
(h) Finance income and expenses
Finance income comprises interest receivable on bank deposits.
Finance expenses comprise interest and other costs incurred in
connection with the borrowing of funds. Finance income and expenses
are recognised in the income statement in the period in which they
are accrued.
(i) 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 substantially enacted at the year end
date.
(j) 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.
(k) Investment properties - ground rents
Ground rents are carried in the statement of financial position
at their open market value. The Directors have applied the
fair-value model in IAS 40 - Investment Property. Properties are
revalued at the statement of financial position date by an
independent valuer. Expenses that are directly attributable to the
acquisition of a ground rent are capitalised into the cost of
investment. Gains and losses on changes in fair value of ground
rent assets are recognised in the income statement. The Directors
instruct the independent valuers from time to time as the need
arises. Gains and losses on changes in fair value are recognised at
the time of each valuation.
(l) Cash and cash equivalents
Cash comprises of call deposits held with banks.
(m) Capital management
The capital managed by the Company 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 dividends which are prepared and reviewed on a quarterly
basis. The Company had GBP5,566,561 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. The Group has a fully
drawn down GBP19,500,000 debt facility which expires on 15 November
2021. See note 12 - Financial Instruments for further information
on the loan. Associated costs are capitalised and amortised over
the duration of the loan.
(n) Trade and other receivables
Trade and other receivables are recognised and carried at
original invoice amount less an allowance for any uncollectable
amounts. They are initially recognised at fair value and
subsequently held at amortised cost.
(o) Trade and other payables
Trade and other payables are obligations to pay for services
that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classed as current liabilities if
payment is due within one year or less. They are initially
recognised at fair value and subsequently held at amortised
cost.
(p) 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 against the income statement
over the period to which it relates.
(q) Amortisation of loan arrangement fees
Loan arrangement fees are capitalised and deducted from the
amount outstanding on the loan. They are expensed to the profit and
loss account over the period of the loan facility. This loan
amortisation is included within finance expenses in the financial
statements. The amount of the charge to the profit and loss
accounts for loan arrangement fees in the year was GBP94,052 (2017:
GBP61,090).
(r) 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.
(s) 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.
2 Segmental information
The Company is mainly concerned with the collection of ground
rent. The company receives some ancillary income to which it is
entitled as a result of its position as property freeholder or head
leaseholder.
Year ended Year ended
30 September 30 September
2018 2017
By activity: GBP GBP
Ground rent income accrued in the
year 4,681,600 4,519,624
Other income 675,365 617,479
5,356,965 5,137,103
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. The board is the chief operating decision maker and runs
the business as one segment.
3 Administrative expenses
Year ended Year ended
30 September 30 September
2018 2017
This is stated after charging: GBP GBP
Directors salaries 59,715 60,340
Auditors' remuneration
- see below 74,500 74,750
Management fees 372,210 449,430
Professional fees 472,727 292,401
Insurance 21,392 22,923
Sponsor fees 44,218 35,772
Valuation fees 69,149 67,428
Registrar fees 55,448 45,894
Listing fees 23,412 48,658
Public relations and printing
costs 77,465 14,689
Other operating expenses 52,747 120,330
1,322,983 1,232,615
No direct operating expenses were incurred in relation to
investment property in the year. Profits on sale of ground rents
and leasehold property were GBP165,469 (2017: GBP3,375).
Services provided by the Company's auditors:
Year ended Year ended
30 September 30 September
2018 2017
Group GBP GBP
Fees payable to the Group's auditors for
the audit of parent company and consolidated
financial statements 20,000 20,000
Fees payable to the Group's auditors and its associates
for other services:
- The audit of the Group's subsidiaries 54,500 54,750
74,500 74,750
-------------- --------------
4 Directors' emoluments
The Company does not have any employees other than the
Directors.
The services of Simon Paul Wombwell as a director of the Group
are provided by Brooks Macdonald Funds
Limited and invoiced on a monthly basis.
Year ended Year ended
30 September 30 September
2018 2017
GBP GBP
Short term employee benefits paid as
Directors'
remuneration 59,715 60,340
Invoiced by Brooks
Macdonald Funds
Limited 24,000 24,000
83,715 84,340
Highest paid
Director:
Emoluments 30,000 30,000
30,000 30,000
Monthly average number of Directors during
the year Number Number
Administration 3 3
There were no post-employment benefits, other long-term benefits,
termination benefits or share-based payments accrued or paid out
in the year ended 30 September 2018 (2017: none).
5 Finance income
Year ended Year ended
30 September 30 September
2018 2017
GBP GBP
Interest on bank
deposits 26,129 18,110
---------------------- ----------------------
6 Finance expenses
Year ended Year ended
30 September 30 September
2018 2017
GBP GBP
Loan interest 659,110 546,806
Amortisation of loan arrangement fees and
bank charges 94,429 68,442
753,539 615,248
---------------------- ----------------------
Loan set-up costs of GBP288,307 have been capitalised and deducted
from the total loan amount outstanding. These costs will be amortised
over 38 months to 15 November 2021.
7 Taxation
The Company applied to HMRC to join the Real Estate Investment Trust
(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 intends to comply
with the rules of the REIT regime in order to achieve these potential
benefits.
Analysis of credit in
year
Year ended Year ended
30 September 30 September
2018 2017
Current tax: GBP GBP
UK corporation tax on
profits
of the year - -
Adjustments in respect of
previous
years - -
Total tax credit for
year - -
---------------------- ----------------------
Factors affecting tax charge
for
year
The differences between the tax assessed for the year and the standard
rate of corporation tax are explained as follows:
Year ended Year ended
30 September 30 September
2018 2017
GBP GBP
(Loss)/profit before
taxation (10,688,037) 4,658,243
---------------------- ----------------------
Standard rate of corporation
tax
in the UK 19.0% 19.5%
GBP GBP
(Loss)/profit before taxation multiplied
by the standard rate of corporation tax (2,030,727) 908,357
Effects of:
Unrealised revaluation
surplus
not taxable 2,690,415 (262,766)
Property profit not taxable
under
the REIT regime (659,688) (645,591)
Adjustments in respect of
previous
years - -
---------------------- ----------------------
Total tax credit 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 standard rate of corporation tax was reduced from 20% to 19%
from 1 April 2017. The Government has announced that the corporation
tax standard rate is to be reduced to 17% with effective date from
1 April 2020.
As a UK REIT, the Group is exempt from corporation tax on the profits
and gains from its property investment business, provided it meets
certain conditions as set out in the UK REIT regulations. For the
current year ended 30 September 2018, 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.
8 Investment properties - ground rents 30 September 30 September
2018 2017
Market value GBP GBP
At 1 October 139,088,000 125,699,100
Additions 2,628,828 12,053,007
Net revaluation recognised in statement of
comprehensive income (14,160,078) 1,347,518
Disposals (46,950) (11,625)
------------ ------------
At 30 September 127,509,800 139,088,000
------------ ------------
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 12
'Fair Value Measurement'.
The fair value hierarchy has the following levels:
Level I: Quoted prices (unadjusted) in active market for
identical assets and liabilities.
Level II: Inputs other than quoted prices included within Level
I that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from
prices).
Level III: Inputs for the asset or liability that are not based
on observable market data (that is unobservable inputs).
There have been no transfers between Level II and Level III of
the fair value hierarchy during the year. All investment property
held by the Group is classified as Level III.
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 2017,
incorporating the IVSC International Valuations Standards (the
'RICS Red Book'), which is consistent with IFRS 13 measurement
requirements. The RICS Red Book provides two definitions of Fair
Value (FV). 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 in ground rents was revalued at 30
September 2018 by Savills Advisory Services Limited ('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. Most of
the properties have previously been valued by Savills when they
were acquired and from time to time as requested by the Directors.
The valuation of ground rents 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 depends on the future rental
uplift timing and nature. The most valuable ground rent 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 input (Level III):
Valuation Category - type of rent review
Fixed
30 September 2018 Indexed Doubling increases Flat
Cost (GBP) 72,130,299 19,601,149 6,829,192 6,427,949
Fair Value at 30 September
2018 (GBP) 91,512,800 20,173,000 8,400,000 7,424,000
Gross rent roll (GBP) 3,183,764 782,360 339,174 467,875
Rental Yield on purchase
price 4.41% 3.99% 4.97% 7.28%
Rental Yield on fair value 3.48% 3.88% 4.04% 6.30%
Fixed
30 September 2017 Indexed Doubling increases Flat
Cost (GBP) 68,798,174 20,551,149 6,829,192 5,477,949
Fair Value at 30 September
2017 (GBP) 102,227,000 22,849,000 8,424,000 5,588,000
Gross rent roll (GBP) 3,165,438 786,010 323,086 307,164
Rental Yield on purchase
price 4.60% 3.82% 4.73% 5.61%
Rental Yield on fair value 3.10% 3.44% 3.84% 5.50%
All categories of ground rent asset 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.
+/- effect on valuation Indexed Doubling Fixed increases Flat
Impact on fair value
of 1 YP change 3,183,764 782,360 339,174 467,875
The average YP across the portfolio is 26.7 (2017: 30.4).
9 Trade and other receivables 30 September 30 September
2018 2017
GBP GBP
Trade receivables 1,251,146 1,810,539
Other taxes and social security
costs - 18,794
Other receivables 588,213 710,209
Prepayments and accrued
income 55,912 32,346
------------------------------- -----------------
1,895,271 2,571,888
------------------------------- -----------------
Included in other receivables is GBP221,864 (2017: GBP234,088)
held in a client account at the Company's solicitors which was for
deals in progress to complete after the year end date, in addition
to an GBP83,000 deposit (2017: GBP83,000). The fair value of trade
and other receivables is equal to the book value.
The ageing analysis of trade receivables
is as follows: 30 September 30 September
2018 2017
GBP GBP
Up to 3 months 884,299 1,272,717
Over 3 months 366,847 537,822
1,251,146 1,810,539
Management consider the trade receivables to be fully collectable
due to the secure nature of the asset. 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.
10 Trade and other payables 30 September 30 September
2018 2017
GBP GBP
Trade payables 158,866 103,968
Other taxes and social security
costs 4,780 -
Other payables 1,759 1,759
Accruals 619,159 446,876
Deferred income 1,819,441 1,828,811
------------ ------------
2,604,005 2,381,414
------------ ------------
Trade payables and other taxes and social security amounts fall
due within the next three months.
11 Financial liabilities measured at amortised 30 September 30 September
cost
2018 2017
GBP GBP
Bank loan repayable over one year 19,500,000 19,500,000
Capitalised loan arrangement fees net of
amortisation (288,307) (382,359)
19,211,693 19,117,641
------------ ------------
The current loan facility is with Santander UK plc and has a
termination date of 15 November 2021. The rate of interest payable
on the loan is set in advance at 1.097% for the first tranche of
GBP15,000,000 and 0.986% for the second tranche of GBP4,500,000.
Both of these rates are to subject to an additional 2.300% margin,
giving the fully drawn loan a composite rate of 3.371%.
The loan facility is secured over assets held in group
companies, namely 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, North West Ground Rents 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 loan facility includes loan-to-value of and interest cover
covenants that are measured at a Group level and the Group has
maintained significant headroom against all measures throughout the
financial year. The Group is in full compliance with all loan
covenants at 30 September 2018.
Borrowing restrictions
The Group has self-imposed borrowing restrictions of 25% of
gross assets, these being the Group's investment properties -
ground rents. At 30 September 2018, this was 15.3% (30 September
2017: 13.7%).
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 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
2018, and are as follows:
Leverage exposure
Maximum limit Actual
Gross method 175% 114%
Commitment method 175% 119%
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. The Group does not have
any 'held to maturity' or 'available for sale financial assets' or
'held for trading financial assets and liabilities' as defined by
IAS 39.
Financial assets carried at amortised cost
The book value, fair value and interest rate profile of the
Group's financial assets, other than non-interest bearing
short-term trade and other receivables, for which book value
equates to fair value, were as follows:
30 September 2018 30 September 2017
Book value Fair value Book value Fair value
GBP GBP GBP GBP
Trade receivables 1,251,146 1,251,146 1,810,539 1,810,539
Other receivables 588,213 588,213 710,209 710,209
Cash at bank and in
hand 5,566,561 5,566,561 7,228,645 7,228,645
----------- ----------- ----------- -----------
As of 30 September 2018 no trade receivables (2017: GBPnil) were
impaired or provided for.
Financial liabilities carried at amortised cost
The book value, fair value and interest rate profile of the
Group's financial liabilities, other than non-interest bearing
short-term trade and other payables, for which book value equates
to fair value, were as follows:
30 September 2018 30 September 2017
Book value Fair value Book value Fair value
GBP GBP GBP GBP
Trade payables 158,866 158,866 103,968 103,968
Other payables and accruals 620,918 620,918 448,635 448,635
Bank loan 19,211,693 19,211,693 19,117,641 19,117,641
----------- ----------- ----------- -----------
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 company's borrowed
funds to its equity. The Group's gearing ratio at the year end date
was as follows:
30 September 30 September
2018 2017
GBP GBP
Cash and cash equivalents 5,566,561 7,228,645
Total borrowings (note 11) (19,211,693) (19,117,641)
------------- -------------
Net cash (13,645,132) (11,888,996)
Total equity 113,155,934 127,389,478
Total capital 99,510,802 115,500,482
Gearing ratio 17% 15%
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 AIFM manages and monitors 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 (Losses)/earnings per share
Basic (losses)/earnings per share
(Losses)/earnings used to calculate earnings per share in the
financial statements were:
30 September 30 September
2018 2017
GBP GBP
(Loss)/profit attributable to owners
of the Company (10,688,037) 4,658,243
------------- -------------
Basic losses/earnings per share have been calculated by dividing
losses/earnings by the weighted average number of ordinary shares
in issue throughout the year.
Weighted average number of shares in issue in the year
96,726,613 93,565,248
Basic (losses)/earnings per share (11.05p) 4.98p
Diluted (losses)/earnings per share
Diluted (losses)/earnings per share is the basic
(losses)/earnings per share, adjusted for the effect of
contingently issuable warrants in issue during the year, weighted
for the relevant periods.
30 September 30 September
2018 2017
GBP GBP
(Loss)/profit attributable to equity shareholders
of the Company (10,688,037) 4,658,243
------------- -------------
2018 2017
Number Number
Weighted average number of shares - basic 96,726,613 93,565,248
Potential dilutive impact of warrants - 1,565,659
Diluted total shares 96,726,613 95,130,907
-------------
Diluted (losses)/earnings
per share (11.05p) 4.90p
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.
30 September 30 September
2018 2017
GBP GBP
Net assets 113,155,934 127,389,478
------------- -------------
Number Number
Number of ordinary shares
in issue 97,006,397 96,712,100
Outstanding warrants
in issue 4,423,976 4,718,273
Diluted number of shares
in issue 101,430,373 101,430,373
------------- -------------
NAV per ordinary share
- basic 116.65p 131.72p
NAV per ordinary share
- dilutive 115.92p 130.24p
15 Share capital 30 September 30 September 30 September 30 September
2018 2018 2017 2017
Number GBP Number GBP
Allotted, called up
and fully paid:
Ordinary shares of
GBP0.50 each 97,006,397 48,503,198 96,712,100 48,356,050
------------- ------------- ------------- -------------
30 September 30 September 30 September 30 September
2018 2018 2017 2017
Number GBP Number GBP
Shares issued during
the year:
Ordinary shares of
GBP0.50 each 294,297 147,148 3,310,089 1,655,044
------------- ------------- ------------- -------------
Resolutions were passed at an annual general meeting on 24 July
2012 to authorise the Directors to allot shares up to an aggregate
nominal amount of GBP65,000,000.
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. 3,310,089 warrants were exercised and issued in September
2017. 294,297 warrants were exercised and issued in September 2018.
At 30 September 2018 there were 4,423,976 warrants in issue.
16 Share premium account 2018 2017
GBP GBP
At 1 October 45,747,161 44,103,882
Shares issued 147,149 1,655,045
Expenses of issue (10,005) (11,766)
At 30 September 45,884,305 45,747,161
------------- ----------------
17 Retained earnings 2018 2017
GBP GBP
At 1 October 33,286,267 32,330,480
Dividends paid (3,829,799) (3,702,456)
Retained earnings 29,456,468 28,628,024
------------- ----------------
(Loss)/profit for the
financial year (10,688,037) 4,658,243
At 30 September 18,768,431 33,286,267
------------- ----------------
18 Dividends
It is the policy of the Group to pay quarterly dividends to ordinary
shareholders.
2018 2017
Dividends declared by the Company
during the year: GBP GBP
Dividends paid 3,829,799 3,702,456
3,829,799 3,702,456
Analysis of dividends
by type:
Interim PID dividend of 1.024p
per share - 956,437
Interim PID dividend of 0.980p
per share - 915,339
Interim PID dividend of 0.980p
per share - 915,340
Interim PID dividend of 0.980p
per share - 915,340
Interim PID dividend of 0.980p
per share 947,778 -
Interim PID dividend of 0.980p
per share 947,779 -
Interim PID dividend of 0.980p
per share 947,779 -
Interim PID dividend of 1.020p
per share 986,463 -
3,829,799 3,702,456
Since the year end, the following dividends
have been announced:
Interim PID dividend of 0.980p
per share - announced - 915,340
Interim PID dividend of 0.980p
per share - announced 950,663 -
------------- ----------------
19 Cash generated from operations
Reconciliation of operating (loss)/profit to net cash inflow from
operating activities
2018 2017
GBP GBP
(Loss)/profit before
income tax (10,688,037) 4,658,243
Adjustments for:
Non-cash revaluation
movement 14,160,078 (1,347,518)
Profit on sale of ground rent assets and
leasehold property (165,469) (3,375)
Net finance expense 727,410 597,138
Operating cash flows before movements in
working capital 4,033,982 3,904,488
------------- ----------------
Movements in working
capital:
Decrease/(increase) in trade
and other receivables 690,738 (280,076)
(Decrease)/increase in trade
and other payables 62,591 127,553
Net cash generated from
operations 4,787,311 3,751,965
------------- ----------------
Proceeds of share issue
The proceeds from issue of shares can be broken down
as follows:
2018 2017
GBP GBP
Warrants converted on 13 September
2017 - 3,310,089
Warrants converted on 14 September
2018 294,297 -
Share issue costs associated with issue
of ordinary shares (10,005) (11,766)
284,292 3,298,323
------------- ----------------
Analysis of changes
20 in net cash
At 1 October Cash Non-cash At 30 September
2017 flows changes 2018
GBP GBP GBP GBP
Cash at bank and in
hand 7,228,645 (1,662,084) - 5,566,561
Total 7,228,645 (1,662,084) - 5,566,561
------------- ------------ ------------- ----------------
21 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 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
Company parties related parties
2018 2017 2018 2017
GBP GBP GBP GBP
Admiral Ground Rents Limited 6,042,932 2,035,983 - -
Azure House Ground Rents
Limited 101,782 74,899 - -
Banbury Ground Rents Limited 124,825 93,494 - -
BH Ground Rents Limited 1,442,268 1,285,210 - -
Clapham One Ground Rents
Limited 2,999,605 2,961,033 - -
D G Ground Rents Limited 1,631,866 1,631,645 - -
East Anglia Ground Rents
Limited 488,655 489,627 - -
Ebony House Ground Rents
Limited 179,968 182,160 - -
Enclave Court Ground Rents
Limited 126,229 86,617 - -
Greenhouse Ground Rents
Limited 576,156 544,520 - -
GRIF Student Ground Rents
Limited 626,590 926,823 - -
GRIF033 Limited 683,903 648,824 - -
GRIF038 Limited 104,835 104,835 - -
GRIF039 Limited 815,048 744,594 - -
GRIF040 Limited 13,829,480 11,410,100 - -
GRIF041 Limited 2,885,026 2,858,129 - -
GRIF042 Limited 674,488 639,042 - -
GRIF043 Limited 1,025,234 988,782 - -
GRIF044 Limited 1,534,695 1,498,286 - -
GRIF045 Limited 1,017,264 829,010 - -
GRIF046 Limited 2,326,240 2,304,432 - -
GRIF047 Limited 144,452 123,049 - -
GRIF048 Limited - - 405,302 416,226
GRIF051 Limited 19,213,141 19,901,102 - -
GRIF052 Limited 1,682,583 1,750,073 - -
Halcyon Wharf Ground Rents
Limited 336,922 302,830 - -
Hill Ground Rents Limited 5,109,716 5,106,778 - -
Invest Ground Rents Limited 229,097 205,876 - -
Masshouse Block HI Limited 2,925,515 1,870,786 - -
Masshouse Residential Block
HI Limited 11,370 - - 29,853
Metropolitan Ground Rents
Limited 2,646,510 2,659,841 - -
Nikal Humber Quay Residential
Limited - - 16,921 55,515
Northwest Houses Ground
Rents Limited 1,059,070 1,026,738 - -
OPW Ground Rents Limited 4,044,601 2,869,485 - -
The Manchester Ground Rent
Company Limited 4,084,463 4,037,979 - -
Trinity Land & Investments
No.2 Limited 2,521,541 2,498,953 - -
Wiltshire Ground Rents
Limited 2,512,236 2,492,763 - -
XQ7 Ground Rents Limited 648,559 622,176 - -
------------ ------------ --------- --------
All the above subsidiaries are registered at the same UK
address, being c/o Brooks Macdonald, 10th floor, No.1 Marsden
Street, Manchester, M2 1HW.
Amounts owed by related Amounts owed to
Company parties related parties
2018 2017 2018 2017
GBP GBP GBP GBP
Gateway (Leeds) Ground Rents
Limited 7,044 2,525,236 - -
Masshouse Ground Rents
Limited - 950,106 275 -
Midlands Ground Rents
Limited 821,031 819,035 - -
North West Ground Rents
Limited 1,042,559 953,141 - -
Postbox Ground Rents Limited 6,413 1,414,546 - -
TMG003 Limited - 137,029 19 -
Yorkshire Ground Rents
Limited 56,035 1,165,156 - -
------------ ------------ --------- --------
All the above subsidiaries are registered at the same Guernsey
address, being Dorey Court, Admiral Park, St Peter Port, Guernsey,
GY1 2HT.
Simon Paul Wombwell is also a director of Brooks Macdonald Funds
Limited ('BMF'), which provided services to Ground Rents Income
Fund plc during the financial year.
BMF provides investment management and administration services
to the Company, the fees for which are 0.55% per annum of the
market capitalisation of the Company. In addition, BMF is entitled
to an agency fee of 2% of the purchase price of any property
acquired by the Company, where no other agency fee is payable.
Where a third party agency fee is less than 2% of the purchase
price, BMF is entitled to an agency fee of 50% of the difference
between 2% of the purchase price and the third party agency
fee.
Transactions between Brooks Macdonald Funds Limited and Ground
Rents Income Fund plc during the financial year were as
follows:
2018 2017
GBP GBP
Advisory fee paid to Brooks Macdonald
Funds Limited 417,912 515,316
Acquisition fees paid to Brooks Macdonald
Funds Limited 28,759 49,500
Other amounts paid to Brooks Macdonald Funds
Limited 39,080 123,171
Directors fees paid to Brooks Macdonald Funds
Limited 24,000 24,000
509,751 711,987
GBP60,000 was due from Ground Rents Income Fund plc to Brooks
Macdonald Funds Limited at the year end date (2017: GBP92,400).
Braemar Estates Limited (formerly Braemar Estates (Residential) Limited)
('Braemar Estates') was also a related party by virtue of being under
common control with Brooks Macdonald Funds Limited until 1 December
2017, from when control passed to an unrelated party Rendall & Rittner
Limited. Transactions between Braemar Estates and Ground Rents Income
Fund plc during the financial year were as follows:
2018 2017
GBP GBP
Other amounts paid to Braemar Estates while
under common control 1,980 26,895
1,980 26,895
GBPnil was due from Ground Rents Income Fund plc to Braemar Estates
at the year end date (2017: GBPnil). GBPnil was due to Ground Rents
Income Fund plc from Braemar Estates at the year end date (2017:
GBPnil).
22 Other financial commitments and contingencies
The Group has a number of ground rent asset acquisitions in the
pipeline. At 30 September 2018, the Group had GBP221,864 of cash
held at solicitors for acquisitions which were in progress to
complete after the year end date (note 9) (2017: GBP234,088). The
ground rent deals are expected to cost GBP2,470,650 to
complete.
The Directors continue to receive legal advice in relation to
the claim for damages made by a leaseholder of an investment
property held by a subsidiary of the Group. The subsidiary has
disclaimed liability and will defend the action. Legal advice
obtained indicates that it is unlikely that any significant
liability will arise. The Directors are therefore of the view that
no material irrecoverable losses will arise in respect of the legal
claim at the date of these financial statements. A subsequent
revaluation loss has been factored into the fair value of the
investment property.
23 Events after the year end date
There are no events after the reporting year of note.
Company Statement of Financial Position
as at 30 September 2018
Note 2018 2017
GBP GBP
Assets
Non-current assets
Investments 5 1,665,010 1,665,010
1,665,010 1,665,010
Current assets
Trade and other receivables 6 88,439,471 85,763,862
Cash and cash equivalents 5,566,561 7,228,645
94,006,032 92,992,507
Total assets 95,671,042 94,657,517
Liabilities
Current liabilities
Trade and other payables 7 (389,690) (453,352)
(389,690) (453,352)
Total liabilities (389,690) (453,352)
Net assets 95,281,352 94,204,165
------------ ------------
Financed by:
Equity
Share capital 9 48,503,198 48,356,050
Share premium account 9 45,884,305 45,747,161
Accumulated losses 10 (3,728,845) (3,620,644)
Profit for the financial year 10 4,622,694 3,721,598
Total equity 95,281,352 94,204,165
------------ ------------
The Company financial statements on pages 42 to 50 were approved
and authorised for issue by the board of directors and signed on
its behalf by:
Simon Paul Wombwell
Director
Ground Rents Income Fund plc Date 20 December 2018
Company registered number: 8041022
The accompanying notes from pages 45 to 50 form an integral part
of the Company financial statements.
Company Statement of Cash Flows
for the year ended 30 September 2018
Year ended Year ended
30 September 30 September
Note 2018 2017
GBP GBP
Cash flows from operating activities
Cash generated from operations 12 1,870,474 2,318,247
Interest paid on bank loan and bank
charges - (201)
Net cash generated from operating activities 1,870,474 2,318,046
------------- -------------
Cash flow from investing activities
Interest received 12,949 7,300
Net cash generated from investing activities 12,949 7,300
------------- -------------
Cash flows from financing activities
Proceeds from issuance of shares 12 284,292 3,298,323
Dividends paid to shareholders (3,829,799) (3,702,456)
Net cash used in financing activities (3,545,507) (404,133)
------------- -------------
Net (decrease)/increase in cash and
cash equivalents 13 (1,662,084) 1,921,213
------------- -------------
Net cash and cash equivalents at 1
October 7,228,645 5,307,432
Net cash and cash equivalents at 30
September 5,566,561 7,228,645
------------- -------------
The accompanying notes from pages 45 to 50 form an integral part
of the Company financial statements.
Company Statement of Changes in Equity
for the year ended 30 September 2018
Share
Share premium Retained
capital account earnings Total equity
GBP GBP GBP GBP
Note 9 9 10
At 1 October 2016 46,701,006 44,103,882 81,812 90,886,700
Comprehensive income
Profit for the year - - 3,721,598 3,721,598
Total comprehensive income - - 3,721,598 3,721,598
Transactions with owners
Issue of share capital 1,655,044 1,655,045 - 3,310,089
Share issue costs - (11,766) - (11,766)
Dividends paid - - (3,702,456) (3,702,456)
At 30 September 2017 48,356,050 45,747,161 100,954 94,204,165
------------- --------------- ------------- ---------------
At 1 October 2017 48,356,050 45,747,161 100,954 94,204,165
Comprehensive income
Profit for the year - - 4,622,694 4,622,694
Total comprehensive income - - 4,622,694 4,622,694
Transactions with owners
Issue of share capital 147,148 147,149 - 294,297
Share issue costs - (10,005) - (10,005)
Dividends paid - - (3,829,799) (3,829,799)
At 30 September 2018 48,503,198 45,884,305 893,849 95,281,352
------------- --------------- ------------- ---------------
The accompanying notes from pages 45 to 50 form an integral part
of the Company financial statements.
Notes to the Company Financial Statements
for the year ended 30 September 2018
1 General information
The Company is a private company limited by shares,
incorporated, registered and domiciled in England and Wales. The
address of its registered office is 72 Welbeck Street, London,
United Kingdom, W1G 0AY.
The Company's principal activity during the year was to operate
a property rental and investment business.
2 Accounting policies
(a) Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union, IFRS IC interpretations, and the Companies Act 2006
applicable to companies reporting under IFRS and issued by the
International Accounting Standards Board (the 'IASB').
(b) Basis of preparation
The Company has taken advantage of the exemption in section 408
of the Companies Act from disclosing its individual profit and loss
account.
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. The principal accounting policies of the Company, which
have been applied consistently throughout the year, are set out
below.
(b) Adoption of new and revised standards
The following new EU-endorsed standards, amendments to standards
and interpretations are mandatory for the first time for the
financial year ending 30 September 2018, but have not had an impact
on the amounts reported in the Group financial statements:
Amendments to IAS 7 'Statement of cash flows' - on the disclosure initiative
Amendments to IAS 12 'Income taxes' - on the recognition of deferred tax assets
In addition to the above, the following new EU-endorsed
standards, amendments to standards and interpretations have been
issued and are effective for financial years beginning on or after
1 October 2018 or later, but have not been early adopted:
IFRS 9 'Financial instruments'
IFRS 15 'Revenue from contracts with customers'
IFRS 16 'Leases'
In July 2014, the IASB issued the final version of IFRS 9 -
Financial Instruments that replaces IAS 39 - Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
Overall, the Directors expect no significant impact from IFRS 9 on
the financial statements.
IFRS 15 - Revenue from Contracts with Customers is a converged
standard from the IASB on revenue recognition. The standard will
improve the financial reporting of revenue and improve
comparability of the top line in financial statements globally. It
is more prescriptive in terms of what should be included within
revenue than IAS 18 - Revenue. The Directors do not expect the
application of IFRS 15 to have a significant impact on the
financial statements.
IFRS 16 specifies how an IFRS reporter will recognise, measure,
present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. Lessors continue to
classify leases as operating or finance, with IFRS 16's approach to
lessor accounting substantially unchanged from its predecessor, IAS
17. IFRS 16 was issued in January 2016 and applies to annual
reporting periods beginning on or after 1 January 2019.
The impact of the following new standards and amendments will be
assessed in detail prior to adoption. However, at this stage the
Directors do not anticipate them to have a material impact on the
amounts reported in the financial statements:
IFRS 17 'Insurance contracts'
IFRIC 23 Uncertainty over income tax treatments'
Amendments to IFRS 2 'Share based payments' - on transaction accounting
Amendment to IFRS 4 Amendment clarification
to IAS 40 'Insurance contracts' - regarding IFRS 9 'Financial
instruments'
'Investment property'
(c) Critical accounting estimates and judgements
The preparation of financial information requires the use of
assumptions, estimates and judgements about future conditions. Use
of available information and application of judgement are inherent
in the formation of estimates. Actual results in the future may
differ from those reported. In this regard, management believes
that the accounting policies where judgement is necessarily applied
are those that relate to valuations, investments in subsidiaries
and the recoverability of intercompany receivables. The estimation
of the underlying assumptions are reviewed on an ongoing basis.
(d) Going concern
The directors have prepared the financial statements on the
going concern basis. Cash flow forecasts are prepared and reviewed
at the quarterly board meetings. At the year end date, the Group
had a fully drawn down loan facility of GBP19,500,000 which expires
on 15 November 2021. For these reasons the Directors continue to
prepare the financial statements on a going concern basis.
(f) Investments in subsidiary companies
Investments in subsidiary companies are carried at cost less any
provision for impairment, which is reviewed on an annual basis.
(g) Cash and cash equivalents
Cash comprises of call deposits held with banks.
(h) Trade and other receivables
Trade and other receivables are recognised and carried at
original invoice amount less an allowance for any uncollectable
amounts. They are initially recognised at fair value and
subsequently held at amortised cost.
(i) 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 Group monitors capital through
cash and dividends which are prepared and reviewed on a quarterly
basis. The Company had GBP5,566,561 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. The Group has a fully
drawn down GBP19,500,000 debt facility which expires on 15 November
2021. See note 11 in the consolidated financial statements for
further information on the loan. Associated costs are capitalised
and amortised over the duration of the loan.
(j) Trade and other payables
Trade and other payables are obligations to pay for services
that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classed as current liabilities if
payment is due within one year or less. They are initially
recognised at fair value and subsequently held at amortised
cost.
(k) Ordinary share capital
Ordinary share capital is classed as equity. Incremental costs
of issue are deducted from the share premium account.
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.
(l) Dividend distribution
Dividend distribution 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
profit after tax for the financial year of GBP4,622,694 (2017:
GBP3,721,598). Auditors' remuneration for audit of the parent
Company financial statements was GBP20,000 (2017: GBP20,000). The
average monthly number of employees during the year was three
(being the directors). Directors' emoluments are set out in note 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.
Investments
5 Investments in
subsidiary
undertakings
Cost GBP
At 1 October 2017 and 30
September 2018 1,665,010
The Directors believe 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 2018 all of which are wholly owned and included in the
financial statements are given below (* indicates those indirectly
held). All subsidiaries below are registered at the same UK
address, being c/o Brooks Macdonald, 10th floor, No.1 Marsden
Street, Manchester, M2 1HW:
Type of Nature of Country of
Company Share Business Incorporation
Ordinary
Admiral Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Azure House Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Banbury Ground Rents Limited GBP1 Ground Rents UK
Ordinary
BH Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Clapham One Ground Rents Limited GBP1 Ground Rents UK
Ordinary
DG Ground Rents Limited GBP1 Ground Rents UK
Ordinary
East Anglia Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Ebony House Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Enclave Court Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Greenhouse Ground Rents Limited GBP1 Ground Rents UK
Ordinary
GRIF Student Ground Rents Limited GBP1 Ground Rents UK
Ordinary
GRIF027 Limited GBP1 Ground Rents UK
Ordinary
GRIF028 Limited GBP1 Ground Rents UK
Ordinary
GRIF033 Limited GBP1 Ground Rents UK
Ordinary
GRIF034 Limited GBP1 Ground Rents UK
Ordinary
GRIF036 Limited GBP1 Ground Rents UK
Ordinary
GRIF037 Limited GBP1 Ground Rents UK
Ordinary
GRIF038 Limited GBP1 Ground Rents UK
Ordinary
GRIF039 Limited GBP1 Ground Rents UK
Ordinary
GRIF040 Limited GBP1 Ground Rents UK
Ordinary
GRIF041 Limited GBP1 Ground Rents UK
Ordinary
GRIF042 Limited GBP1 Ground Rents UK
Ordinary
GRIF043 Limited GBP1 Ground Rents UK
Ordinary
GRIF044 Limited GBP1 Ground Rents UK
Ordinary
GRIF045 Limited GBP1 Ground Rents UK
Ordinary
GRIF046 Limited GBP1 Ground Rents UK
Ordinary
GRIF047 Limited GBP1 Ground Rents UK
Ordinary
GRIF048 Limited GBP1 Ground Rents UK
Ordinary
GRIF049 Limited GBP1 Ground Rents UK
Ordinary
GRIF051 Limited GBP1 Ground Rents UK
Ordinary
GRIF052 Limited GBP1 Ground Rents UK
Ordinary
GRIF053 Limited GBP1 Ground Rents UK
Ordinary
Halcyon Wharf Ground Rents Limited GBP1 Ground Rents UK
Ordinary
Hill Ground Rents Limited GBP1 Ground Rents UK
Invest Ground Rents Ordinary
Limited GBP1 Ground Rents UK
Ordinary
Masshouse Block HI Limited* GBP1 Ground Rents UK
Masshouse Residential Block HI Ordinary
Limited* GBP1 Ground Rents UK
Ordinary
Metropolitan Ground Rents Limited GBP1 Ground Rents UK
Nikal Humber Quay Residential Ordinary
Limited* GBP1 Ground Rents UK
Northwest Houses Ground Rents Ordinary
Limited GBP1 Ground Rents UK
Ordinary
OPW Ground Rents Limited GBP1 Ground Rents UK
The Manchester Ground Rent Company Ordinary
Limited GBP1 Ground Rents UK
Trinity Land & Investments No.2 Ordinary
Limited GBP1 Ground Rents UK
Ordinary
Wiltshire Ground Rents Limited GBP1 Ground Rents UK
Ordinary
XQ7 Ground Rents Limited GBP1 Ground Rents UK
--------- ------------- ---------------
All subsidiaries below are registered at the same Guernsey
address, being Dorey House, Dorey Court, Admiral Park, St Peter
Port, Guernsey, GY1 2HT:
Type of Country
Company Share Nature of Business of Incorporation
Gateway (Leeds) Ground Rents Ordinary
Limited GBP1 Ground Rents Guernsey
Ordinary
Masshouse Ground Rents Limited GBP1 Ground Rents Guernsey
Ordinary
Midlands Ground Rents Limited GBP1 Holding Company Guernsey
North West Ground Rents Ordinary
Limited GBP1 Ground Rents Guernsey
Ordinary
Postbox Ground Rents Limited GBP1 Ground Rents Guernsey
Ordinary
TMG003 Limited GBP1 Ground Rents Guernsey
Ordinary
Yorkshire Ground Rents Limited GBP1 Ground Rents Guernsey
----------- ------------------- ------------------
The following subsidiary is registered at 72 Welbeck Street,
London, W1G 0AY:
Type of Country of
Company Share Nature of Business Incorporation
Ordinary
GRIF Cosec Limited GBP1 Corporate Director UK
--------- ------------------- ---------------
6 Trade and other receivables 30 September 30 September
2018 2017
GBP GBP
Trade receivables 7,567 10,155
Other receivables 206,594 180,617
Other taxes and social security
costs - 28,933
Amounts owed by subsidiary undertakings 88,170,440 85,522,134
Prepayments and accrued income 54,870 22,023
------------- -------------
88,439,471 85,763,862
------------- -------------
Amounts owed by subsidiary undertakings are unsecured, interest
free, have no fixed date of repayment and are repayable on
demand.
The ageing analysis of trade receivables
is as follows: 30 September 30 September
2018 2017
GBP GBP
Over 3 months 7,567 10,155
7,567 10,155
------------- -------------
7 Trade and other payables 30 September 30 September
2018 2017
GBP GBP
Trade payables 91,751 103,968
Other taxes and social security
costs 2,745 -
Accruals and deferred
income 295,194 349,384
-------------
389,690 453,352
------------- -------------
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 by subsidiary undertakings. The Company does not have any
'held to maturity' or 'available for sale financial assets' or
'held for trading financial assets and liabilities' as defined by
IAS 39.
Financial assets carried at amortised cost
The book value, fair value and interest rate profile of the
Company's financial assets, other than non-interest bearing
short-term trade and other receivables, for which book value
equates to fair value, were as follows:
30 September 2018 30 September 2017
Book value Fair value Book value Fair value
GBP GBP GBP GBP
Trade receivables 7,567 7,567 10,155 10,155
Other receivables 206,594 206,594 180,617 180,617
Cash at bank and
in hand 5,566,561 5,566,561 7,228,645 7,228,645
----------- ----------- ----------- -----------
As of 30 September 2018 no trade receivables (2017: GBPnil) were
impaired or provided for.
Financial liabilities carried at amortised cost
The book value, fair value and interest rate profile of the
Company's financial liabilities, other than non-interest bearing
short-term trade and other payables, for which book value equates
to fair value, were as follows:
30 September 2018 30 September 2017
Book value Fair value Book value Fair value
GBP GBP GBP GBP
Trade payables 91,751 91,751 103,968 103,968
----------- ----------- ----------- -----------
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 consolidated financial
statements.
9 Share capital and share premium account
The movements in share capital and share premium during the year
were as follows:
Number of Share premium
shares Share capital account
GBP GBP
At 1 October 2016 93,402,011 46,701,006 44,103,882
Shares issued 3,310,089 1,655,044 1,655,045
Expenses of issue - - (11,766)
At 30 September 2017 96,712,100 48,356,050 45,747,161
Shares issued 294,297 147,148 147,149
Expenses of issue (10,005) - (10,005)
At 30 September 2018 96,996,392 48,503,198 45,884,305
----------- -------------- --------------
The total number of ordinary shares, issued and fully paid at 30
September 2018, was 97,006,397 (2017: 96,712,100) with a par value
of GBP0.50p per share. Details of the shares issued are given in
notes 15 and 16 of the consolidated financial statements.
10 Accumulated losses 2018 2017
GBP GBP
At 1 October 100,954 81,812
Dividends paid in the year (note 18 - consolidated
financial statements) (3,829,799) (3,702,456)
Accumulated losses (3,728,845) (3,620,644)
------------ ------------
Profit for the financial
year 4,622,694 3,721,598
At 30 September 893,849 100,954
------------ ------------
Reconciliation of movements in
11 total equity 2018 2017
GBP GBP
At 1 October 94,204,165 90,886,700
Dividends paid in the year (note 18 - consolidated
financial statements) (3,829,799) (3,702,456)
Profit for the financial
year 4,622,694 3,721,598
Shares issued 284,292 3,298,323
At 30 September 95,281,352 94,204,165
------------ ------------
12 Cash generated from operations
Reconciliation of operating profit before income tax to net cash
inflow from operating activities
2018 2017
GBP GBP
Profit before income
tax 4,622,694 3,721,598
Adjustments for:
Net finance income (12,949) (7,099)
Operating cash flows before movements
in working capital 4,609,745 3,714,499
Movements in working
capital:
(Increase)/decrease in trade
and other receivables (27,303) 120,550
Increase in amounts owed by
group undertakings (2,648,306) (1,693,399)
(Decrease)/increase in trade
and other payables (63,662) 176,597
Net cash generated from operations 1,870,474 2,318,247
Proceeds of share
issue
The proceeds from issue of shares can be broken down
as follows:
2018 2017
GBP GBP
Shares issued on exercise of warrants
on 13 September 2017 - 3,310,089
Shares issued on exercise of warrants
on 14 September 2018 294,297 -
Share issue costs associated with issue
of ordinary shares (10,005) (11,766)
284,292 3,298,323
Analysis of changes in net
13 cash
At 1 October Non-cash At 30 September
2017 Cash flows changes 2018
GBP GBP GBP GBP
Cash at bank and in
hand 7,228,645 (1,662,084) - 5,566,561
Total 7,228,645 (1,662,084) - 5,566,561
14 Related party transactions
The Company's balances with fellow group companies at 30
September 2018 are set out in note 21 to the consolidated financial
statements. All transactions with fellow group companies are
carried out at arm's length and all outstanding balances are to be
settled in cash. None of the balances are secured and no provisions
have been made for doubtful debts in respect of any of the amounts
due from fellow group companies.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EALAEAADPFFF
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