TIDMGRIO
RNS Number : 7321D
Ground Rents Income Fund PLC
28 June 2019
28 June 2019
GROUND RENTS INCOME FUND PLC
("GRIO" or the "Company")
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2019
Ground Rents Income Fund plc (LSE: GRIO), a listed real estate
investment trust (REIT) investing in UK ground rents, today
announces its unaudited half year results for the six months ended
31 March 2019.
Key Highlights
-- Portfolio value of GBP125.2 million (30 September 2018: GBP127.5 million)
-- Net assets of GBP109.9 million (30 September 2018: GBP113.2 million)
-- NAV per ordinary share of 113.24 pence (30 September 2018: 116.65 pence)
-- Revenue of GBP2.7 million (H1 2018: GBP2.6 million)
-- Loss before tax of GBP1.4 million (H1 2018: GBP5.0 million),
including GBP2.6 million revaluation loss (H1 2018: GBP6.6
million)
-- Basic loss per share of 1.45 pence (H1 2018: 5.18 pence)
-- Diluted loss per share of 1.45 pence (H1 2018: 1.45 pence)
-- Two interim dividends paid of 0.98 pence per share for period
to 31 December 2018 and 0.98 pence per share for the period to 31
March 2019
Malcolm Naish, Chairman of the Board, said:
"We believe the long-term and inflation-hedged revenues
generated by the Company's underlying portfolio should support
sustainable returns during an anticipated period of greater
economic and political uncertainty.
"The Investment Manager and broader industry are continuing to
engage constructively with the government to address concerns
regarding leasehold practices. While the final outcome of leasehold
reform remains uncertain, we remain confident that institutional
management of ground rent assets on fair terms offers the best
long-term outcome for consumers and other stakeholders."
James Agar, Head of Residential, Schroders, Investment Manager
to GRIO, added:
"The valuation reflects weaker market sentiment which can be
attributed to lower transactional volumes, the government's recent
response to its own consultations and the subsequent review of
residential leasehold law by the Law Commission.
"The current government proposals under consultation are not
retrospective, but there is a stated desire from policymakers to
make leasehold enfranchisement and extensions simpler, fairer and
cheaper.
"Any reform of legislation impacting value would need to strike
a 'fair balance' and would require sufficient compensation to be
paid to landlords.
"The Company and the Investment Manager are committed to being a
best-in-class operator in the leasehold sector and this is
reflected in our commitment to the Public Pledge for
Leaseholders."
The Half Year Report is also being published in hard copy format
and an electronic copy of that document will shortly be available
to download from the Company's webpage
http://www.groundrentsincomefund.com/. Please click on the
following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/7321D_1-2019-6-27.pdf
The Company has submitted a pdf of the hard copy format of the
Half Year Report to the National Storage Mechanism and it will
shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
Contacts:
Schroder Real Estate Investment Management
Limited
James Agar 020 7658 6000
N+1 Singer (Broker)
James Maxwell / Ben Farrow 020 7496 3000
Tavistock (Media)
James Whitmore / Jeremy Carey 020 7920 3150
Appleby Securities (Channel Islands)
Limited (Sponsor)
Andrew Weaver / Zim Ceko 01481 755 600
_____________________________________________________________________________________________________________________
Chairman's statement
I am pleased to present the unaudited interim results of Ground
Rents Income Fund plc ('GRIO' or the 'Company') for the six months
ended 31 March 2019.
Overview
The residential ground rent sector continues to experience
challenging market uncertainty due to ongoing leasehold reform and
this, along with low transaction volumes, contributed to a 1.8%
decline in the value of the underlying portfolio. This dilution
resulted in a 2.9% reduction in the net asset value ('NAV') to
GBP109.9 million or 113.2 pence per share (30 September 2018:
GBP113.2 million or 116.6 pence per share). Dividends totalling
1.96 pence per share, or GBP1.9 million, during the period resulted
in a NAV total return of -1.3%.
The Investment Manager is engaging with the government and other
stakeholders in the leaseholder reform process, most recently
evidenced by the Company signing the government-backed Public
Pledge for Leaseholders. This pledge formalises a commitment which
we have already taken action on, as outlined in the Investment
Manager's Report. The Company is also working proactively to
resolve construction-related challenges, such as at Beetham Tower
in Manchester, where legal and other third-party fees and expenses
are diluting earnings.
Despite these challenges, the portfolio's underlying cash flows
remain attractive in the current environment due to its high
proportion of inflation-linked leases and the yield premium above
fixed income investments.
Appointment of Schroders
Schroder Real Estate Investment Management Limited ('Schroders')
replaced Brooks Macdonald Funds Limited as the Alternative
Investment Fund Manager ('AIFM' or the 'Investment Manager') for
the Company on 13 May 2019. The Board is pleased the appointment
retains the experience of the existing management team, while
combining with Schroders' broader real estate expertise to support
complex situations such as managing the impact of Carillion's
liquidation and related litigation at Beetham Tower in
Manchester.
Schroders' appointment is for an initial period of three years
following which the termination notice period will be one year.
Schroders is paid a simplified, transparent, tiered fee of 1.0% per
annum of NAV up to GBP200 million, payable quarterly in arrears.
The fee will be 0.9% per annum of NAV above GBP200 million up to
GBP400 million and 0.8% per annum of NAV above GBP400 million. For
the initial twelve-month period, the fee will be 0.9% of NAV with
the potential to increase this up to 1.0% of NAV subject to
delivering income-enhancing initiatives. The Board believes the
revised fee structure is in line with comparable real estate funds
and aligns Schroders' remuneration to long-term shareholder
value.
As part of the mandate transfer, the Company announced a review
of the strategy to determine the best course to maximise
sustainable shareholder total returns, including a review of the
dividend policy.
The Company will report the findings of the review to the market
in due course.
Corporate governance
As previously announced, Simon Wombwell intends to resign as a
Director following the appointment of Schroders. The exact timing
will be determined by the appointment of a new independent director
for which a search has commenced but will be no later than 30
September 2019. The Directors will continue to take appropriate
measures to ensure that the Company appropriately complies with the
UK Code on Corporate Governance taking into account, among other
things, the size of the Company and the nature of its business.
Debt
The Company has bank debt funding provided by Santander UK plc
('Santander') of GBP19.5 million at a composite fixed interest rate
of 3.37% maturing in November 2021. The loan-to-value of the assets
charged to Santander of 29.5% compares with the Group's
consolidated net loan-to-value ratio at 31 March 2019 of 11.1% (30
September 2018: 10.7%). The terms and cost of debt will be reviewed
as part of the ongoing Company review.
Outlook
We believe the long-term and inflation-hedged revenues generated
by the Company's underlying portfolio should support sustainable
returns during an anticipated period of greater economic and
political uncertainty.
Since the year-end results, the Investment Manager and broader
industry have continued to engage constructively with the
government to address concerns regarding leasehold practices. While
the final outcome of leasehold reform remains uncertain, we remain
confident that institutional management of ground rent assets on
fair terms offers the best long-term outcome for consumers and
other stakeholders.
Yours faithfully,
Robert Malcolm Naish - Chairman
26 June 2019
Investment Manager's report
The Company's Unaudited Net Asset Value ('NAV') as at 31 March
2019 was GBP109.9 million or 113.2 pence per share ('pps') compared
with GBP113.2 million or 116.7 pps as at 30 September 2018. This
reflected a decrease of 3.5 pps or 2.9%, with the underlying
movement in NAV set out in the table below:
GBPm PPS
--------------------------------------- ------ ------
Audited NAV as at 30 September 2018 113.2 116.7
--------------------------------------- ------ ------
Revaluation plus costs of acquisition (2.6) (2.7)
--------------------------------------- ------ ------
Net revenue 1.2 1.2
--------------------------------------- ------ ------
Dividends paid (1.9) (2.0)
--------------------------------------- ------ ------
Unaudited NAV 31 March 2019 109.9 113.2
--------------------------------------- ------ ------
The independent portfolio valuation as at 31 March 2019 of
GBP125.2 million represented a decrease in value of GBP2.3 million
or -1.8% compared to the 30 September 2018 valuation. The
like-for-like decrease, after adjusting for a small acquisition,
was GBP2.6 million or -2.0%.
The valuation reflects weaker market sentiment which can be
attributed to lower transactional volumes, the government's recent
response to its own consultations and the subsequent review of
residential leasehold law by the Law Commission.
During the period the Company paid two dividends totalling
GBP1.9 million or 1.96 pps, reflecting dividend cover of 63% (H1
2018: 83%). Dividend cover excluding costs incurred in connection
with the litigation at Beetham Tower in Manchester was 94% (H1
2018: 88%).
Market overview
Residential ground rent transactional volumes remain low and
this is thought to be at least in part due to continuing
uncertainty relating to leasehold reform. The current government
proposals under consultation are not retrospective, but there is a
stated desire from policymakers to make leasehold enfranchisement
and extensions simpler, fairer and cheaper.
In the Company's view, any reform of legislation impacting value
would need to strike a fair balance and would require sufficient
compensation to be paid to landlords, to be compliant with Article
1 of the First Protocol to the European Convention on Human Rights,
as previously asserted in its submission to the government's
consultation on this topic.
In contrast, commercial ground rents have become increasingly
popular over the past 12-24 months, experiencing strong demand from
institutional investors seeking long-dated, inflation-proof income
streams. In this environment, the average net initial yield for
commercial ground rents was 2.6% in 2018, 20 basis points lower
than in 2017(1) .
The annual retail prices index ('RPI') slowed to 3.0% in April
2019 from a peak of 4.1% at the end of 2017. Most of the
deceleration has been due to the fading impact of sterling's
depreciation in 2016, which followed the UK's vote to leave the
EU.
There are a number of potential factors that will influence
inflation, including commodity prices, trade wars, Brexit and
currency fluctuations. The Company remains well hedged to inflation
with approximately 70% of the portfolio ground rent reviews being
index-linked. It is also worth noting that inflation-linked gilt
yields fell from -1.7% to -2.2% over the period(2) , increasing the
yield premium offered by the Company's underlying portfolio.
_____________
(1) Source: Knight Frank
(2) Source: Domestic bond Gilt 0.125r 22mar2029 (ISIN:
GB00B3Y1JG82)
Portfolio overview
As at 31 March 2019 the portfolio comprised approximately 19,000
ground rent units across approximately 400 assets valued at
GBP125.2 million. The portfolio produces a ground rent income of
GBP4.79 million per annum, reflecting an average Years Purchase
('YP') of 26.1 or a gross income yield of 3.8%. The median annual
ground rent charge is GBP110 for houses and GBP250 for apartments
(excluding student assets). During the period the Company acquired
one asset in Manchester for GBP270,000.
The portfolio's weighted average lease term as at 31 March 2019
was 345 years, with 93% of the ground rent income subject to
indexed or fixed increases. This is broken down in the table below
and, for illustrative purposes only, if the RPI were to be 3.0% per
annum over the next 10 years, the like-for-like portfolio ground
rent income would increase by approximately 2.6% per annum.
Detailed review type Ground rent income % of ground rent total Market value (GBPm) % of market value
(GBPk) total
---------------------- ---------------------- ----------------------- -------------------- -----------------------
Index-linked 3,336 69.6 90.6 72.3
---------------------- ---------------------- ----------------------- -------------------- -----------------------
Doubling 779 16.2 20.0 16.0
---------------------- ---------------------- ----------------------- -------------------- -----------------------
Fixed 343 7.2 8.6 6.9
---------------------- ---------------------- ----------------------- -------------------- -----------------------
Flat (no review) 334 7.0 6.0 4.8
---------------------- ---------------------- ----------------------- -------------------- -----------------------
Total 4,792 100.0 125.2 100.0
---------------------- ---------------------- ----------------------- -------------------- -----------------------
During the six months to 31 March 2019 1.8% of ground rents were
subject to review which realised an average uplift of 12%. This
increased portfolio-level ground rents by 0.2%.
The rent review profile is shown in the table below with 42.4%
of the ground rent income due for review over the next five
years:
Years to next review Ground rent income (%)
--------------------- -----------------------
0-5 42.4
--------------------- -----------------------
5-10 22.6
--------------------- -----------------------
10-15 21.8
--------------------- -----------------------
15-20 3.9
--------------------- -----------------------
Over 20 2.3
--------------------- -----------------------
Flat (no review) 7.0
--------------------- -----------------------
Total 100.0
--------------------- -----------------------
The portfolio comprises residential apartments, houses and
commercial units with median ground rents as summarised below:
Unit type No. of units Median ground rent (GBP) Ground rent income (%) Portfolio valuation (%)
(%)
------------------------ -------------- ------------------------- ----------------------- ------------------------
Apartments 72.8 250 68.9 67.0
------------------------ -------------- ------------------------- ----------------------- ------------------------
Houses 15.0 110 11.0 10.5
------------------------ -------------- ------------------------- ----------------------- ------------------------
'Residential' subtotal 87.8 250 79.9 77.5
------------------------ -------------- ------------------------- ----------------------- ------------------------
Student 10.6 350 16.6 18.9
------------------------ -------------- ------------------------- ----------------------- ------------------------
Commercial 1.6 250 3.5 3.6
------------------------ -------------- ------------------------- ----------------------- ------------------------
Total 100.0 250 100.0 100.0
------------------------ -------------- ------------------------- ----------------------- ------------------------
The top 10 assets represent 29.1% of the total portfolio
valuation as at 31 March 2019:
Property Current valuation (GBPm) Portfolio valuation (%)
-------------------------------------------------- ------------------------- ------------------------
The Student Village, York 8.5 6.8
-------------------------------------------------- ------------------------- ------------------------
Masshouse Plaza, Birmingham (Hive and H&I) 4.0 3.2
-------------------------------------------------- ------------------------- ------------------------
The Gateway, Leeds 3.8 3.1
-------------------------------------------------- ------------------------- ------------------------
One Park West, Liverpool 3.5 2.8
-------------------------------------------------- ------------------------- ------------------------
Rathbone Market, London 3.4 2.7
-------------------------------------------------- ------------------------- ------------------------
Wiltshire Leisure Village, Royal Wootton Bassett 3.3 2.6
-------------------------------------------------- ------------------------- ------------------------
Ladywell Point, Manchester 2.9 2.3
-------------------------------------------------- ------------------------- ------------------------
First Street, Manchester 2.8 2.2
-------------------------------------------------- ------------------------- ------------------------
Richmond House, Southampton 2.4 1.9
-------------------------------------------------- ------------------------- ------------------------
City Island, Leeds 1.9 1.5
-------------------------------------------------- ------------------------- ------------------------
Total 36.6 29.1
-------------------------------------------------- ------------------------- ------------------------
The geographic spread of the portfolio as at 31 March 2019 is
shown in the chart below:
Asset location Portfolio ground rent income Portfolio valuation
(%) (%)
---------------- ----------------------------- --------------------
North West 30.6 28.1
---------------- ----------------------------- --------------------
North East 29.7 30.0
---------------- ----------------------------- --------------------
Midlands 12.2 13.0
---------------- ----------------------------- --------------------
London 10.9 11.0
---------------- ----------------------------- --------------------
South West 9.8 11.1
---------------- ----------------------------- --------------------
South East 5.3 5.2
---------------- ----------------------------- --------------------
Wales 1.5 1.6
---------------- ----------------------------- --------------------
Total 100.0 100.0
---------------- ----------------------------- --------------------
Leasehold reform
The Investment Manager continues to engage with the Ministry of
Housing, Communities and Local Government (MHCLG), the Law
Commission and other policymakers regarding potential reform of the
leasehold sector. Reform activity has been ongoing since the
government's consultation was announced in 2017. The government and
the Law Commission have, at various times, emphasised that any
potential legislative reform will be subject to both economic
impact assessments and a requirement that 'fair' or 'sufficient'
compensation be paid to landlords.
Schroders and the Company welcomed the government's aims to
reform and simplify many aspects of leasehold legislation as we
recognise the need for a system that delivers a more equitable,
transparent and better service for homeowners. Institutional
landlords have the expertise, resource and experience needed to
provide the required risk, governance and health and safety
oversight.
The Company and the Investment Manager are committed to being a
best-in-class operator in the leasehold sector and this is
reflected in our commitment to the Public Pledge for Leaseholders,
outlined below.
The MHCLG Public Pledge for Leaseholders was published in March
2019 and signed by a large cross section of freeholders,
housebuilders and developers, including the Company. Both the Board
and the Investment Manager believe the pledge is an important step
towards positive and transparent change in the leasehold sector and
reflects the desire of the wider professional investor community to
bring about meaningful, sensible and well-thought-out reform. The
pledge is published in full on the MHCLG website:
www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders.
The announcement committed the Company to initiatives that the
management team, who have since transitioned to Schroders, was
already implementing, including the eradication of onerous
leases.
Onerous leases
Under the government's definition 'onerous leases' contain
ground rents that double more frequently than every 20 years. The
Company has proactively addressed this in its Asset Management
Plan, announced in 2017, which offers in-scope leaseholders with a
doubling rent review mechanism of any review cycle a simple deed of
variation to amend that review to the lesser of doubling or RPI on
the same cycle.
The Asset Management Plan involves 2,855 residential units with
doubling review patterns from 10 to 50 years across 42
properties:
Review cycle No. of units Ground rent income (GBP) Portfolio ground rent income (%)
------------- ------------- ------------------------- ---------------------------------
10 377 188,350 4.1
------------- ------------- ------------------------- ---------------------------------
15 4 400 0.0
------------- ------------- ------------------------- ---------------------------------
25 1,945 466,115 9.7
------------- ------------- ------------------------- ---------------------------------
33 44 13,400 0.4
------------- ------------- ------------------------- ---------------------------------
35 54 12,800 0.3
------------- ------------- ------------------------- ---------------------------------
50 431 83,500 1.7
------------- ------------- ------------------------- ---------------------------------
Total 2,855 764,565 16.2
------------- ------------- ------------------------- ---------------------------------
Leaseholders at 434 of the apartments across the in-scope
properties have expressed an interest in a lease variation. Of
these, 91 have formally completed the process, with the necessary
documents having been registered at HM Land Registry.
As part of the abovementioned Public Pledge for Leaseholders,
information regarding the doubling ground rent offer has been made
publicly available on the Company's website.
Property management
Health and safety compliance is a key focus, and we assess our
own and suppliers' performance against best practice and
legislation. We also work closely with our insurance broker,
Lockton, to maintain effective oversight of health and safety.
Finally, a comprehensive health and safety management system was
implemented in 2017 to actively monitor and audit required actions
together with obligations under the relevant legislation.
Following a detailed review of the portfolio, one asset has been
identified as having aluminium composite material (ACM) cladding
and requires remedial works. This site has a formally-constituted
Residents Management Company (RMC) within the lease structure which
holds the insuring, repairing and maintenance obligations. Works
have begun to remediate the site after a proposal was agreed with
the developer, main contractor and local authority. Completion of
the project is expected to occur in 2021.
There are three other sites requiring works to the façade and/or
insulation, but which do not involve ACM cladding. We are actively
engaged at each of these sites with the key stakeholders with the
aim of achieving a positive outcome.
The ongoing remedial work at these four assets is the
responsibility of their respective RMC's and should not therefore
negatively impact the Company's NAV.
Beetham Tower, Manchester
On 1 February 2019 the Company announced the High Court judgment
in connection with the case between the Company's wholly-owned
subsidiary, North West Ground Rents Limited ('NWGR'), and Blue
Manchester Limited ('BML'), a leaseholder operating a hotel at
Beetham Tower in Manchester (the 'Building'), the principal
freehold property asset owned by NWGR.
The principal basis of BML's claim related to the failure of the
structural sealant on a number of shadow box units, forming part of
the façade of the Building, and the question of whether remedial
work carried out by Carillion Construction Limited prior to its
liquidation had kept the building in good and substantial
repair.
The court found in favour of BML in determining that the
Building was in disrepair and granted an order for specific
performance that permanent remedial works be designed and
implemented within 18 months of the judgment date. The court also
determined that BML was entitled to related damages that are still
to be quantified.
Due to the legal action and uncertainty of its outcome in
September 2018, the value of the Building was reduced to GBP100,000
in the accounts of NWGR. NWGR continues to pursue Carillion's
insurers and sub-contractors under collateral warranties. NWGR has
no external third-party debt and is ring-fenced from the wider
group.
During the period, NWGR incurred costs of approximately GBP1.1
million in relation to the judgment and will incur further sums as
part of seeking to comply with the judgment timetable. NWGR is
reliant on the financial support of the Company as its parent to
finance further legal action and any decision on future funding
requests will have appropriate regard to shareholders interests
together with the interest of other stakeholders.
Responsible and positive impact investment
Corporate social responsibility is key to our long-term future
business success. A successful sustainable investment programme
should deliver enhanced returns to investors, improved business
performance for leaseholders and deliver tangible positive impacts
to local communities, the environment and wider society.
Following the appointment of Schroders as the Company's
Investment Manager, the Company will seek to incorporate 'positive
impact' investing within the strategy and activities of the
Company.
Finance
The Company has bank debt funding provided by Santander of
GBP19.5 million at a composite fixed interest rate of 3.37%
maturing in November 2021. The loan-to-value of the assets charged
to Santander of 29.5% compares with the Group's consolidated net
loan-to-value ratio of 11.1%. The table below shows the Santander
loan position at the end of the period.
Lender Loan Maturity Interest Loan to LTV ratio Interest ICR ratio Forward Forward
(GBPm) rate (%) Value covenant cover covenant looking looking
('LTV') (%) ratio (%) ICR ratio ICR
ratio(3) (%)(4) (%)(5) ratio
(%) covenant
(%)4
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Santander GBP19.5m Nov 2021 3.37 29.5 40.0 328.8 270.0 331.3 270.0
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
_________
(3) Loan balance divided by Santander secured portfolio bank
valuation as at 18 March 2019.
(4) For the quarter preceding the Interest Payment Date ('IPD'),
((rental income received -- void rates, void service charge and
void insurance)/interest paid).
(5) For the four quarters following the IPD, ((rental income to
be received -- void rates, void service charge and void
insurance)/
interest paid).
Outlook
Despite headwinds relating to regulatory reform, we believe the
underlying portfolio offers well-secured, long term,
inflation-linked income that should remain attractive to investors
in a low interest rate environment.
The change of manager provides an opportunity to undertake a
review of the strategy and portfolio with the Board to determine
the best course to maximise sustainable shareholder total returns.
The results of this review will be announced in due course.
James Agar
Schroder Real Estate Investment Management Limited
26 June 2019
Condensed Consolidated Income Statement for the six months ended
31 March 2019
Unaudited Unaudited Audited
6 months 6 months
to to 31 year ended
31 March March 30 September
Note 2019 2018 2018
GBP GBP GBP
------------------------------------ ----- ------------ ------------ --------------
Continuing operations
Revenue 2,732,490 2,625,379 5,356,965
------------------------------------- ----- ------------ ------------ --------------
Administrative expenses (1,173,027) (679,369) (1,322,983)
Profit on sale of ground
rent assets 6,500 4,350 165,469
Net revaluation loss on investment
properties (2,606,600) (6,589,278) (14,160,078)
Operating loss (1,040,637) (4,638,918) (9,960,627)
------------------------------------- ----- ------------ ------------ --------------
Finance income 12,905 5,549 26,129
Finance expenses 4 (374,251) (377,371) (753,539)
------------------------------------- ----- ------------ ------------ --------------
Net finance expense (361,346) (371,822) (727,410)
------------------------------------- ----- ------------ ------------ --------------
Loss before tax (1,401,983) (5,010,740) (10,688,037)
------------------------------------- ----- ------------ ------------ --------------
Taxation - - -
------------------------------------ ----- ------------ ------------ --------------
Loss after tax and total comprehensive
income (1,401,983) (5,010,740) (10,688,037)
-------------------------------------------- ------------ ------------ --------------
Losses per share
Basic 7 (1.45p) (5.18p) (11.05p)
Diluted 7 (1.45p) (5.18p) (11.05p)
------------------------------------- ----- ------------ ------------ --------------
There is no other comprehensive income for the period.
The accompanying notes from pages 17 to 23 form an integral part
of the unaudited interim consolidated financial statements.
Condensed Consolidated Statement of Financial Position as at 31
March 2019
Unaudited Unaudited Audited
31 March 31 March 30 September
Note 2019 2018 2018
GBP GBP GBP
-------------------------------- ----- ------------- ------------- -------------
Assets
Non current assets
Investment properties - ground
rents 5 125,196,000 135,100,900 127,509,800
-------------------------------- ----- ------------- ------------- -------------
125,196,000 135,100,900 127,509,800
-------------------------------- ----- ------------- ------------- -------------
Current assets
Trade and other receivables 1,815,586 2,662,875 1,895,271
Cash and cash equivalents 5,309,077 5,426,099 5,566,561
7,124,663 8,088,974 7,461,832
-------------------------------- ----- ------------- ------------- -------------
Total assets 132,320,663 143,189,874 134,971,632
-------------------------------- ----- ------------- ------------- -------------
Liabilities
Non current liabilities
Financial liabilities measured
at amortised cost 6 (19,258,310) (19,165,075) (19,211,693)
-------------------------------- ----- ------------- ------------- -------------
(19,258,310) (19,165,075) (19,211,693)
-------------------------------- ----- ------------- ------------- -------------
Current liabilities
Trade and other payables (3,209,727) (3,541,618) (2,604,005)
-------------------------------- ----- ------------- ------------- -------------
(3,209,727) (3,541,618) (2,604,005)
Total liabilities (22,468,037) (22,706,693) (21,815,698)
-------------------------------- ----- ------------- ------------- -------------
Net assets 109,852,626 120,483,181 113,155,934
-------------------------------- ----- ------------- ------------- -------------
Financed by:
Equity
Share capital 9 48,503,198 48,356,050 48,503,198
Share premium account 45,884,305 45,747,161 45,884,305
Retained earnings 16,867,106 31,390,710 29,456,468
Current period loss (1,401,983) (5,010,740) (10,688,037)
Total equity 109,852,626 120,483,181 113,155,934
-------------------------------- ----- ------------- ------------- -------------
Net asset value per ordinary
share
Basic 8 113.24p 124.58p 116.65p
Diluted 8 112.67p 123.44p 115.92p
-------------------------------- ----- ------------- ------------- -------------
The accompanying notes from pages 17 to 23 form an integral part
of the unaudited interim consolidated financial statements.
The unaudited financial statements on pages 12 to 23 were
approved and authorised for issue by the Board of Directors and
signed on its behalf by:
Yours faithfully,
Robert Malcolm Naish - Director and Chairman
26 June 2019
Ground Rents Income Fund plc
Company registered number: 8041022
Consolidated Statement of Cash Flows for the six months ended 31
March 2019
Unaudited Unaudited Audited
6 months
6 months to 31 Year ended
to 31 March March 30 September
Note 2019 2018 2018
GBP GBP GBP
-------------------------------- ----- ------------- ------------ --------------
Cash flows from operating
activities
Cash generated from operations 11 2,244,532 3,015,227 4,787,311
Interest paid on bank loan
and bank charges (327,296) (329,795) (753,539)
Net cash generated from operating
activities 1,917,236 2,685,432 4,033,772
--------------------------------------- ------------- ------------ --------------
Cash flows from investing
activities
Interest received 12,905 5,549 26,129
Receipts from the sale of
ground rent assets 6,500 32,215 452,350
Purchase of ground rent assets (292,800) (2,630,043) (2,628,828)
Net cash used in investing
activities (273,395) (2,592,279) (2,150,349)
-------------------------------- ----- ------------- ------------ --------------
Cash flows from financing
activities
Net proceeds of issuance of
shares - - 284,292
Bank loan net proceeds - (142) -
Dividends paid to shareholders (1,901,325) (1,895,557) (3,829,799)
Net cash used in financing
activities (1,901,325) (1,895,699) (3,545,507)
-------------------------------- ----- ------------- ------------ --------------
Net decrease in cash and cash
equivalents (257,484) (1,802,546) (1,662,084)
-------------------------------- ----- ------------- ------------ --------------
Net cash and cash equivalents
at 1 October 5,566,561 7,228,645 7,228,645
-------------------------------- ----- ------------- ------------ --------------
Net cash and cash equivalents at 31
March/30 September 5,309,077 5,426,099 5,566,561
--------------------------------------- ------------- ------------ --------------
The accompanying notes from pages 17 to 23 form an integral part
of the unaudited interim consolidated financial statements.
Consolidated Statement of Changes in Equity for the period ended
31 March 2019
Share
Share premium Distributable
capital account reserve Total
GBP GBP GBP GBP
----------------------------- ----------- ----------- -------------- ------------
At 1 October 2017 48,356,050 45,747,161 33,286,267 127,389,478
----------------------------- ----------- ----------- -------------- ------------
Comprehensive expense
Loss for the period - - (5,010,740) (5,010,740)
Total comprehensive expense - - (5,010,740) (5,010,740)
----------------------------- ----------- ----------- -------------- ------------
Transactions with owners
Dividends paid (note 10) - - (1,895,557) (1,895,557)
At 31 March 2018 48,356,050 45,747,161 26,379,970 120,483,181
----------------------------- ----------- ----------- -------------- ------------
Comprehensive expense
Loss for the period - - (5,677,297) (5,677,297)
Total comprehensive expense - - (5,677,297) (5,677,297)
----------------------------- ----------- ----------- -------------- ------------
Transactions with owners
Issue of share capital 147,148 147,149 - 294,297
Share issue costs - (10,005) - (10,005)
Dividends paid (note 10) - - (1,934,242) (1,934,242)
At 30 September 2018 48,503,198 45,884,305 18,768,431 113,155,934
----------------------------- ----------- ----------- -------------- ------------
Comprehensive expense
Loss for the period - - (1,401,983) (1,401,983)
Total comprehensive expense - - (1,401,983) (1,401,983)
----------------------------- ----------- ----------- -------------- ------------
Transactions with owners
Dividends paid (note 10) - - (1,901,325) (1,901,325)
At 31 March 2019 48,503,198 45,884,305 15,465,123 109,852,626
----------------------------- ----------- ----------- -------------- ------------
The accompanying notes from pages 17 to 23 form an integral part
of the unaudited interim consolidated financial statements.
Notes to the Condensed Financial Statements for the six months
ended 31 March 2019
1. General information
Ground Rents Income Fund plc ('the Company') is the parent
company of a group of companies which operate a property investment
and rental business. The Company's primary activities are set out
in its last annual report and financial statements for the
financial year to 30 September 2018. A copy of the statutory annual
report and financial statements has been delivered to the Registrar
of Companies.
The Company is a closed-ended real estate investment trust
('REIT') incorporated in England and Wales and is listed on the
International Stock Exchange ('TISE') and the SETSqx platform of
the London Stock Exchange.
2. Accounting policies
Basis of preparation
These unaudited consolidated results are for the six months
ended 31 March 2019. They have not been prepared in accordance with
IAS 34 Interim Financial Reporting. They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Company for the year ended 30 September 2018.
The information in this announcement does not comprise statutory
financial statements within the meaning of section 434 of the
Companies Act 2006. The Company's financial statements for the
financial year ended 30 September 2018 have been reported on by the
auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified and did not draw attention to any
matters by way of emphasis. They also did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
The Company continues to adopt the going concern basis in
preparing its consolidated interim financial statements. This
financial information for the half-year ended 31 March 2019 has
neither been audited nor reviewed. The financial information was
approved by the Board on 26 June 2019.
Standards, interpretations and amendments to published standards
that are effective for the first time
The following standards, amendments and interpretations endorsed
by the EU were effective for the first time for the Company's 31
March 2019 period end and had no material impact on the financial
statements:
- IFRS 2 (amended) - Share Based Payments
- IFRS 4 (amended) - Insurance Contracts
- IFRS 9 - Financial Instruments
- IFRS 15 - Revenue from contracts with customers
- IAS 40 (amended) - Investment Property
- IFRIC 22 - Foreign Currency Transactions and Advance
Consideration; Annual Improvements to IFRSs (2014 - 2016 cycle)
Standards, interpretations and amendments to published standards
that have been issued but are not yet effective
The following standards, amendments and interpretations were in
issue at the date of approval of these financial statements but
were not yet effective for the current accounting period and have
not been adopted early. Based on the Company's current
circumstances, the Directors do not anticipate that their adoption
in future periods will have a material impact on the financial
statements of the Company:
IFRS 16 - Leases (effective 1 January 2019) 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 of 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.
3. Segmental information
The Company is mainly concerned with the collection of ground
rent. The Company receives ancillary income to which it is entitled
as a result of its position as property freeholder or head
leaseholder.
Unaudited Unaudited Audited
6 months 6 months year ended
to to 30 September
31 March 31 March
2019 2018 2018
GBP GBP GBP
---------------------------- ---------- ---------- --------------
By activity:
Ground rent income accrued
in the period 2,390,649 2,318,102 4,681,600
Other income falling due
within the period 341,841 307,277 675,365
----------------------------- ---------- ---------- --------------
2,732,490 2,625,379 5,356,965
---------------------------- ---------- ---------- --------------
All income of the Company is derived from activities carried out
within the United Kingdom. The Company 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.
4. Finance costs
Unaudited Unaudited Audited
6 months 6 months
to to Year ended
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
---------------------------------- ---------- ---------- --------------
Loan interest costs 327,296 329,795 659,110
Amortisation of loan arrangement
fees 46,955 47,576 94,429
----------------------------------- ---------- ---------- --------------
374,251 377,371 753,539
---------------------------------- ---------- ---------- --------------
Loan set-up costs of GBP248,626 have been capitalised and
deducted from the total loan amount outstanding. These costs are
being amortised over 32 months to November 2021.
5. Investment Properties - Ground rents
Ground
rent assets
Market value GBP
At 30 September 2017 139,088,000
----------------------------------- -------------
Additions 2,630,043
Disposals (27,865)
Net deficit on revaluation (6,589,278)
At 31 March 2018 135,100,900
----------------------------------- -------------
Additions (1,215)
Disposals (19,085)
Net deficit on revaluation (7,570,800)
At 30 September 2018 127,509,800
----------------------------------- -------------
Additions 292,800
Disposals -
Net deficit on revaluation (2,606,600)
At 31 March 2019 125,196,000
----------------------------------- -------------
Net book value
At 31 March 2019 125,196,000
At 30 September 2018 127,509,800
----------------------------------- -------------
At 31 March 2018 135,100,900
----------------------------------- -------------
The Company's investment in ground rents was revalued at 31
March 2019 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. 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.
6. Financial liabilities measured at amortised cost
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
--------------------------------------- ----------- ----------- -------------
Bank loan repayable over
one year 19,500,000 19,500,000 19,500,000
Capitalised loan arrangement fees net
of amortisation (241,690) (334,925) (288,307)
------------------------------------------ ----------- ----------- -------------
19,258,310 19,165,075 19,211,693
--------------------------------------- ----------- ----------- -------------
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
GBP15m and 0.986% for the second tranche of GBP4.5m. Both of these
rates are to subject to an additional 2.3% margin, giving the
GBP19.5m loan a composite rate of 3.371%.
As at 31 March 2019, the loan facility was 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
complied with all measures throughout the period. The group was in
full compliance with all loan covenants at 31 March 2019.
7. Losses per share
Basic losses per share
Losses used to calculate losses per share in the financial
statements were:
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
-------------------------------------------- ------------ ------------ -------------
Losses attributable to equity shareholders
of the Company (1,401,983) (5,010,740) (10,688,037)
----------------------------------------------- ------------ ------------ -------------
Basic losses per share have been calculated by dividing losses by
the weighted average number of shares in issue throughout the period.
Weighted average number
of shares - basic 97,006,397 96,712,100 96,726,613
Basic losses per share (1.45p) (5.18p) (11.05p)
--------------------------------------------- ------------ ------------ -------------
Diluted losses per share
Diluted losses per share is the basic losses per share, adjusted
for the effect of contingently issuable warrants in issue in the
period, weighted for the relevant periods.
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
-------------------------------------------- ------------ ------------ -------------
Losses attributable to equity shareholders
of the Company (1,401,983) (5,010,740) (10,688,037)
----------------------------------------------- ------------ ------------ -------------
Number Number Number
Weighted average number of shares -
basic 97,006,397 96,712,100 96,726,613
Potential dilutive effect
of warrants - 854,711 -
--------------------------------------------- ------------ ------------ -------------
Diluted total shares 97,006,397 97,566,811 96,726,613
----------------------------------------------- ------------ ------------ -------------
Diluted losses per share (1.45p) (5.18p) (11.05p)
----------------------------------------------- ------------ ------------ -------------
8. Net asset value per ordinary share
The NAV represents the net asset value per share of the Company.
The diluted NAV per ordinary share is calculated after assuming the
exercise of all outstanding warrants.
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
--------------------------- ------------ ------------ -------------
Net assets 109,852,626 120,483,181 113,155,934
------------------------------ ------------ ------------ -------------
Number Number Number
Number of ordinary shares
in issue 97,006,397 96,712,100 97,006,397
Outstanding warrants
in issue 4,423,976 4,718,273 4,423,976
---------------------------- ------------ ------------ -------------
Diluted number of shares
in issue 101,430,373 101,430,373 101,430,373
---------------------------- ------------ ------------ -------------
NAV per ordinary share
- basic 113.24p 124.58p 116.65p
NAV per ordinary share
- dilutive 112.67p 123.44p 115.92p
---------------------------- ------------ ------------ -------------
9. Share capital
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
-------------------- -------- ----------- ----------- -------------
Allotted, called up and
fully paid:
Ordinary shares of
GBP0.50 each Number 97,006,397 96,712,100 97,006,397
Amount
GBP 48,503,198 48,356,050 48,503,198
---------- ------------------ ----------- ----------- -------------
Shares issued during the
period:
Ordinary shares of
GBP0.50 each Number - - 294,297
Amount
GBP - - 147,148
---------- ------------------ ----------- ----------- -------------
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
each year following admission up to and including 31 August 2022.
294,297 warrants were exercised and issued in September 2018. At 31
March 2019 there were 4,423,976 warrants in issue.
10. Dividends
It is the policy of the Company to pay quarterly dividends to
ordinary shareholders.
Unaudited Unaudited Audited
6 months 6 months
to to year ended
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
------------------------------------------ ---------- ---------- --------------
Dividends declared by the Company during
the period:
Dividends paid 1,901,325 1,895,557 3,829,799
--------------------------------------------- ---------- ---------- --------------
Analysis of dividends
by type:
Interim PID dividend of
0.980p per share - 947,778 947,778
Interim PID dividend of
0.980p per share - 947,779 947,779
Interim PID dividend of
0.980p per share - - 947,779
Interim PID dividend of
1.020p per share - - 986,463
Interim PID dividend of
0.980p per share 950,662 - -
Interim PID dividend of
0.980p per share 950,663 - -
------------------------------------------- ---------- ---------- --------------
1,901,325 1,895,557 3,829,799
------------------------------------------ ---------- ---------- --------------
Since the period ended 31 March 2019, the Company has announced
an interim PID dividend of 0.980p per share (GBP950,663).
11. Gross cash flows
Unaudited Unaudited Audited
6 months 6 months
to to year ended
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
--------------------------------------- ------------ ------------ -------------
Reconciliation of profit before income tax to net cash
inflow from operating activities
Loss before income
tax (1,401,983) (5,010,740) (10,688,037)
------------------------------------------ ------------ ------------ -------------
Adjustments for:
Non-cash revaluation
deficit 2,606,600 6,589,278 14,160,078
Profit on sale of
ground rents (6,500) (4,350) (165,469)
Net finance cost 361,346 371,822 727,410
Operating cash flows before movements
in working capital 1,559,463 1,946,010 4,033,982
------------------------------------------ ------------ ------------ -------------
Movements in working
capital:
Increase/(decrease) in trade
receivables 79,685 (90,987) 690,738
Decrease in trade
payables 605,384 1,160,204 62,591
Net cash generated from
operations 2,244,532 3,015,227 4,787,311
---------------------------------------- ------------ ------------ -------------
12. Related party transactions
Transactions between the Company and its subsidiaries which are
related parties, have been eliminated on consolidation. The
captions in the primary statements of the Company include the
amounts attributable to subsidiaries. All amounts due to or from
subsidiary companies are interest free and repayable on demand.
Simon Wombwell is also a director of Brooks Macdonald Funds
Limited which provided services to Ground Rents Income Fund plc
during the financial period.
Brooks Macdonald Funds Limited provided investment management
and administration services to the Company during the period as the
Alternative Investment Fund Manager ('AIFM'), the fees for which
were 0.55% per annum of the market capitalisation of the Company.
In addition, Brooks Macdonald Funds Limited was entitled to an
agency fee of 2% of the purchase price of any property acquired by
the Company, where no other agency fee was payable. Where a third
party agency fee was less than 2% of the purchase price, Brooks
Macdonald Funds Limited was 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 period were as
follows:
Unaudited Unaudited Audited
6 months 6 months
to to year ended
31 March 31 March 30 September
2019 2018 2018
GBP GBP GBP
-------------------------------------------- ---------- ---------- -------------
AIFM fee payable to Brooks Macdonald
Funds Limited 181,518 249,307 417,912
Acquisition fees payable to Brooks
Macdonald Funds Limited - 28,759 28,759
Other amounts payable to Brooks Macdonald
Funds Limited 14,252 24,053 39,080
Directors fees payable to Brooks Macdonald
Funds Limited 12,000 12,000 24,000
----------------------------------------------- ---------- ---------- -------------
207,770 314,119 509,751
-------------------------------------------- ---------- ---------- -------------
Amounts owing of GBP41,969 were due to Brooks Macdonald Funds
Limited in respect of invoices issued in the period 1 October 2018
- 31 March 2019 at 31 March 2019.
As noted above, Schroder Real Estate Investment Management
replaced Brooks Macdonald Funds Limited as AIFM on 13 May 2019.
13. Other financial commitments and contingencies
The Company has two ground rent acquisitions under contract
where it has paid deposits of GBP83,000 which should complete on
during the next twelve months.
In January 2019 a High Court judgment was handed down against
North West Ground Rents Limited ('NWGR'), a wholly owned subsidiary
of the Company. The damages associated with this judgment have yet
to be determined in a separate hearing, for which a date has not
yet been set.
NWGR continues to evaluate what the next actions and
consequences of the judgment may be. NWGR is reliant on the
financial support of the Company to finance further legal action
and to comply with the judgment. The Company continues to review
its own obligations in regard to NWGR and NWGR's obligations under
the judgment.
14. Events after the date of the accounts
Schroder Real Estate Investment Management Limited ('Schroders')
were appointed as the new Company Alternative Investment Fund
Manager ('AIFM'), replacing Brooks Macdonald Funds Limited on 13
May 2019. For the initial twelve-month period, the fee will be 0.9%
of NAV with the potential to increase this up to 1.0% of NAV
subject to delivering income-enhancing initiatives.
Upon completing the purchase of a property which has been
introduced by Schroders, and for which no third-party introductory
fees are payable, Schroders will be entitled to receive an
acquisition fee of 1.0% of the acquisition price.
All additional payments and commissions that were previously
received by Brooks Macdonald Funds Limited in connection with
managing the portfolio and providing services to occupier and long
leaseholders will be received by Ground Rents Income Fund plc.
Five Guernsey registered group entities completed voluntary
strike off in April 2019, following completion of a project to
onshore Guernsey assets.
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
IR BLGDLXUDBGCR
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