Ground Rents Income Fund PLC · LSE:GRIO
Ground Rents Income Fund — FY2021 Earnings Presentation
38 slides from Ground Rents Income Fund's earnings presentation, January 2022
Slide 1: Ground Rents Income Fund PLC (GRIO) Full year results
January 2022 GROUND RENTS INCOME FUND PLC (‘GRIO’) Full year results to 30 September 2021 Marketing material for professional clients only.
Slide 2: Contents
Contents 01 02 03 04 05 Overview, financial Market context Leasehold reform Building safety reform Portfolio results and strategy 06 07 Summary Appendix 2
Slide 3: Overview, Financial Results and Strategy
OVERVIEW, FINANCIAL RESULTS AND STRATEGY
Slide 4: Executive summary
Executive summary Implementing strategy to improve shareholder returns Company strategy Financials Income focus Asset management NAV £99.7m or 103.1 pence per share Strong ground rent collection during Best-in-class management – significant Investment objective to provide secure, (“pps”) pandemic an
Slide 5: Results for the year ended 30 September 2021
Results for the year ended 30 September 2021 Key metrics 12 months to 30 September 2020 30 September 2021 % change Ground rent income £4,855,924 £4,942,648 +2% Ancillary income £1,210,201 £751,139 -38% Recurring distributable earnings* £3,124,190 £3,159,112 +1% Profit/(loss) after tax (£1,586,203) £
Slide 6: NAV movement for the year ended 30 September 2021
NAV movement for the year ended 30 September 2021 NAV decrease of 2.8% and a NAV total return of 1.3% – NAV of £99.7 million or 103.1 pps as at 30 September 2021, which compares with £102.6 million or 105.7 pps at 30 September 2020. – NAV decline of 2.6 pps or -2.5% with a NAV total return, includin
Slide 7: Falling ancillary income
Falling ancillary income Challenging market conditions have lead to reduced income Ancillary income* Consents • Apartment sales weakened by industry wide building safety issues and Covid-19. £700,000 E.g. apartment sales fell 38% vs. 20% fall for houses over the past two years** • Fees are subject t
Slide 8: Income and dividend
Income and dividend Delivering a sustainable and progressive dividend policy Earnings Dividend Annual dividend target reduced by 24% to 3.0 pps, expected to be fully Year to 30 Sept. 2020 Year to 30 Sept. 2021 covered by recurring earnings during the full year ending September 2022. (£m) (£m) At thi
Slide 9: Illustrative ground rent income
Illustrative ground rent income Income visibility supports path progressive, fully covered dividend Portfolio well placed to capture rising and above target inflation. 10yr CAGR Ground rent expected to increase 3.3% p.a. over next five years assuming RPI inflation of 2.7% p.a.* 4.3% 7.3 4.0% 3.6% 6.
Slide 10: Strategy
Strategy Progress in key areas Legislative reform Supplier retenders Corporate strategy Share buybacks Ground rent reform Property Manager and Legal retenders – The Company's share price discount to NAV has – Progressing in line with expectations – Formal tenders part of optimising shareholder retur
Slide 11: Discrete yearly performance
Discrete yearly performance Ground Rents Income Fund Plc Discrete Yearly Performance (%) Q3 2020 – Q3 2021 Q3 2019 – Q3 2020 Q3 2018 – Q3 2019 Q3 2017 – Q3 2018 Q3 2016 – Q3 2017 Share price1 -9.0 -7.7 -19.5 -9.4 -4.8 Shareholder Total Return2 -3.8 -3.3 -17.1 -6.1 -1.9 NAV Total Return3, 4 1.3 -1.5
Slide 12: Market Context
MARKET CONTEXT
Slide 13: Inflation
Inflation Inflationary pressure should begin to ease in the second half of 2022 Annual inflation % 8.0 Forecast 7.0 6.0 RPI 5.0 CPI 4.0 CPI Target Bands 3.0 2.0 1.0 0.0 -1.0 Source: ONS, Schroders. December 2021. Note forecasts should be regarded as illustrative of trends. Actual figures will differ
Slide 14: Inflation
Inflation Higher inflation could become permanent if labour shortages trigger a wage-price spiral UK Inflation UK Labour Market Annual inflation % Cumulative change 000 since December 2019 Forecast 8 1000 7 800 6 600 400 5 200 4 0 3 -200 2 -400 -600 1 -800 0 -1000 -1 -1200 RPI CPI CPI Target Bands E
Slide 15: GRIO dividend yield vs index-linked yields
GRIO dividend yield vs index-linked yields Current yield margin is 1.1x the five year average Yield (%) From Sept-21 rebased dividend 10 target of 3.0 pps used 8 6 4 2 0 -2 -4 Dec-16 Dec-17 Dec-18 Mar-20 Jun-18 Dec-19 Mar-21 Jun-19 Jun-17 Mar-19 Mar-17 Mar-18 Sep-17 Sep-18 Dec-20 Sep-19 Sep-21 Dec-2
Slide 16: Leasehold Reform
LEASEHOLD REFORM
Slide 17: Leasehold reform: Reform progressing
Leasehold reform Reform progressing Leasehold reform – Government intends to tackle leasehold reform through two pieces of legislation: 1. The Leasehold Reform (Ground Rent) Bill. Introduced in May 2021 and currently at the Report Stage in the House of Commons. The bill will fulfil the commitment to
Slide 18: Leasehold reform: CMA securing undertakings
Leasehold reform Competition and Markets Authority (“CMA”) securing undertakings Latest – The CMA has secured undertakings with Aviva and three housing developers – Countryside, Persimmon and Taylor Wimpey – to remove rent reviews that double more frequently than every 20 years – Where the developer
Slide 19: Enfranchisement reform (1)
Enfranchisement reform (1) Current position – Residential leaseholders have a statutory right, subject to qualification, to buy the freehold of their property (collectively for an apartment block or individually for houses), or extend their lease by an additional 90 years at a ‘peppercorn’ (nil) ren
Slide 20: Enfranchisement reform (2)
Enfranchisement reform (2) Analysing the potential impact – The Government proposes making it “easier and cheaper” for residential leaseholders to buy their freehold or extend their lease by: 1. Abolishing “marriage value” as part of the premium calculation – Not relevant to GRIO because marriage va
Slide 21: Enfranchisement reform (3)
Enfranchisement reform (3) Analysis of results Caught by Ground rent Ground rent Ground rent Valuation Valuation Key observations for fully in scope assets legislation* vs. freehold (£'000)*** (%)*** (£m)*** (%)*** – 60% of ground rent or 58% of value below 0.2% %** – 13% of ground rent or 14% of va
Slide 22: Building Safety Reform
BUILDING SAFETY REFORM
Slide 23: Building safety reform
VITA First St, Manchester Building safety reform Seeking to resolve complex building safety issues – In January 2022 the Government reset its approach to building safety issues: – Common sense - misinterpreted advice replaced by a more proportionate, risk-based approach to avoid wholescale cladding
Slide 24: Fire safety asset management
Fire safety asset management Progressing remediation projects to address complex building safety issues Gov. Clarifications No. of Ground Type of funding No. of Valuation Valuation – Managed Estate - properties where GRIO is responsible Issues? Detail* underlying rent asset to date assets (£m)*** (%
Slide 25: Portfolio
PORTFOLIO
Slide 26: GRIO portfolio
GRIO portfolio Overview of the portfolio as at 30 September 2021 – 71% of ground rent income reviews Detailed review type Ground rent income % of ground rent total Market value (£m) % of market value total (£k) are index-linked, of which 90% is RPI- Index-linked 3,486 71.4 92.3 77.3 linked* Doubling
Slide 27: GRIO portfolio
GRIO portfolio Overview of the portfolio as at 30 September 2021 – 375 years Weighted Average Unexpired Years to next review Ground rent income Asset location Portfolio ground rent Portfolio valuation (%) (%) income (%) Lease Term, with shortest term remaining of 83 years 0–5 46.2 North East 29.4 29
Slide 28: Summary
SUMMARY
Slide 29: Summary
Summary Progress made executing strategy despite headwinds Continued headwinds – Portfolio continues to offer attractive income characteristics due to its secure, long-dated but progress with underlying cashflows, and well placed to benefit from rising inflation expectations. – Portfolio value impac
Slide 30: Appendix
APPENDIX
Slide 31: Ground rent collection to 31 December 2021
Ground rent collection to 31 December 2021 Rent collection reflects beneficial characteristics of the portfolio in times of economic distress Outstanding Rent Due by Month 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Arrears % - 2018 Arrears % - 2019 Arrears % -
Slide 32: Ground Rents Income Fund Plc team
Ground Rents Income Fund Plc team GRIO team supported by Schroders Group and non-executive Board Non-executive Board Schroders Group Schroder Real Estate Direct Investment Committee Chaired by Sophie Van Oosterom UK Direct Investment Team Barry Gilbertson Bill Holland Katherine Innes Ker Jane Vessey
Slide 33: Balance sheet
Balance sheet Summary 30 September 2020 31 March 2021 30 September 2021 As at £million £million £million Investment properties 124.2 123.6 119.4 Cash 2.4 1.5 1.1 Net payables (1.6) (1.3) (1.3) Debt (19.5) (19.5) (19.5) NWGR provision (2.9) (2.9) - Net Asset Value 102.6 101.4 99.7 NAV (pps) 105.7p 10
Slide 34: Statement of comprehensive income
Statement of comprehensive income Summary 30 September 2020 31 March 2021 30 September 2021 For year ended £million £million* £million Revenue 6.1 2.9 5.7 Operating profit/(expenses) (6.8) (1.3) 0.5 Profit on sales 0.3 - 0.3 Net revaluation loss on investment properties (0.5) (0.5) (4.7) Operating p
Slide 35: AMC analysis
AMC analysis Increase in workload due to increased headwinds – Schroders receives a tiered fee of 1.0% of NAV p.a. up to £200 million, payable quarterly in arrears. The fee will be 0.9% of NAV p.a. between £200 million and £400 million, and 0.8% of NAV p.a. above £400 million. There is no minimum or
Slide 36: Important Information
Important Information Marketing material for professional investors or advisers only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invest
Slide 37: Important Information
Important Information Ground Rents Income Fund Plc – Risk Factors: The Company borrows for investment purposes. This will magnify any gains or losses made by the Company. The Company has no maturity date. The Company may only be terminated by a continuation vote, a shareholders’ voluntary liquidatio
Slide 38: Contact
CONTACT Chris Leek Investment Manager T +44 (0)7970 951 607 M +44 (0)207 658 6027 Chris.leek@schroders.com Schroder Real Estate Investment Management Limited 2 St Peters Square, Manchester, M2 3AA schroders.com
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