Ground Rents Income Fund’s portfolio value plunges after leasehold reform
Schroders’ Ground Rents Income Fund has published its long-delayed full year results for the year to 30 September 2023.
The trust revealed that “significant challenges… largely out of its control” had caused consecutive hefty drops in the value of its portfolio.
The real estate investment trust (REIT), which was first incorporated in 2012 and specialises in freehold ground rents saw the valuation of its portfolio drop by £2.9m or 2.7 per cent to £106.1m in the year ended 30 September 2023.
The audited results were accompanied by a more recent, unaudited portfolio valuation, which found the value of the firm’s properties to have collapsed by 20 per cent – or £21.3m – to just £81.5m between October and 31 March.
Despite the crash in asset prices, the trust still sits on a staggering 66 per cent discount, one of the largest among any investment trust.
The firm’s loan to value—net of cash—in the audited period ending 31 September last year was 18.3 per cent.
The trust, which was set up to generate dividends for investors by acquiring freeholds and ground rent income streams, has been rocked by the recent changes in leasehold legislation. These have made it easier for leaseholders to buy their freehold and remove ground rent charges.
It is also responsible for removing unsafe cladding from its developments, the cost of which forced it to suspend its dividend in June 2023. The company said: “Uncertainty regarding determining building remediation costs and a lack of market transactional evidence” had been behind the dividend suspension.
At an extraordinary general meeting in April 2023, shareholders voted to proceed with a new investment policy, focused on “optimising value through a controlled and orderly asset realisation.”
The company sold two freeholds during the year, one in Bristol and one in Exeter for a combined price of £3.5m, a four per cent premium to the 30 September 2023 independent valuation. Further sales are planned and in progress, the trust added.
A new continuation vote mechanism for the trust is set to commence in December, which could see shareholders decide whether to wind-up the trust.
Barry Gilbertson, the trust’s chair, said: “The company continues to face significant challenges that are largely outside of its control, with the ongoing management of complex building safety projects relating to assets developed by third parties, and uncertainty relating to leasehold reform.
“Despite these headwinds, we continue to make progress in important areas, including loan refinancing, disposals, and securing very strong shareholder support for our new investment policy.”
Correction: A previous version of the article said Ground Rents had paid £16.3m to remedy cladding faults. The figure was incorrect. Ground Rents initially booked a charge of £9.1m for building remediation costs, which was later lowered to £7.2m.