Ground Rents Income Fund PLC · LSE:GRIO
Ground Rents Income Fund — FY2022 Earnings Presentation
33 slides from Ground Rents Income Fund's earnings presentation, June 2023
Slide 1: Ground Rents Income Fund PLC (GRIO) Full year results
June 2023 GROUND RENTS INCOME FUND PLC (GRIO) Full year results to 30 September 2022 and summary unaudited results to Marketing material. 31 March 2023
Slide 2: Contents
01 3 02 8 03 12 Executive summary Building safety reform Leasehold reform and disclaimer of opinion CONTENTS 04 15 05 18 06 20 Strategy Conclusion Appendices
Slide 3: Overview, financial results and market context
OVERVIEW, FINANCIAL RESULTS AND MARKET CONTEXT
Slide 4: Executive Summary
Executive Summary Challenging and complex regulatory environment but strong support in favour of EGM proposals Most significant regulatory reform to the UK’s built environment in almost 40 years, including large developers pledging to remediate buildings at their cost. Year end Accounts include a di
Slide 5: Results to 30 September 2022 and summary to 31 March 2023
Results to 30 September 2022 and summary to 31 March 2023 Key metrics 30 September 2021 30 September 2022 31 March 2023 Year ended Comment (audited) (audited) (unaudited)2 Upwards only rent reviews. Annual ground rent of £5.1m Ground rent income £4,942,648 £4,945,755 £2,586,344 as at 31 March 2023.
Slide 6: Market context
Market context Headwinds continue with low levels of liquidity – The residential ground rent market is not immune to wider Portfolio Net Initial Yield (NIY) vs. 10 year gilt yield economic uncertainty and fear of a ‘credit crunch’, together with Yield (%) the continued building safety and leasehold
Slide 7: Discrete yearly performance
Discrete yearly performance Ground Rents Income Fund Plc Discrete Yearly Performance (%) Q1 2022–Q1 2023 Q1 2021–Q1 2022 Q1 2020–Q1 2021 Q1 2019–Q1 2020 Q1 2018–Q1 2019 Share price1 -40.5 -8.7 0.7 -26.0 -17.8 Shareholder Total Return2 -37.3 -4.4 6.2 -23.6 -14.6 NAV Total Return3 3.8 -7.3 -1.5 -0.1 -
Slide 8: Building safety reform and disclaimer of opinion
BUILDING SAFETY REFORM AND DISCLAIMER OF OPINION
Slide 9: Building Safety Reform and impact on the Company
Building Safety Reform and impact on the Company Key risk non-recoverable costs and impact on cashflow Building Safety Act 2022 (‘BSA’) increased complexity of challenges facing the Company but progress being made, including Developer Pledge – Most significant regulatory reform to the UK’s built env
Slide 10: Auditor disclaimer of opinion
Auditor disclaimer of opinion Good progress verifying valuation assumptions Illustrative portfolio assets (31 March 2023) – Understanding the practical and financial impact of the BSA, The Gateway, Leeds together with the proportion of portfolio subject to a MUC 552 units; non-managed and (£22.6m, o
Slide 11: Building Safety Reform and impact on the Company
Building Safety Reform and impact on the Company Good progress is being made mitigating building safety risks % of Portfolio Value Clarifications Remediation, as of Number of Assets (30-Sept-22) – Managed Estate (MEST) – GRIO is responsible for management 30-Sept-22 MEST / NMEST / Total MEST / NMEST
Slide 12: Leasehold reform
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Slide 13: Leasehold reform
Leasehold reform CURRENT POSITION Additional reforms not expected until end 2023 – The Government has banned creation of new residential ground rents and is progressing ‒ Residential leaseholders have a statutory right, with a second, more comprehensive programme of reform, but detail of its intenti
Slide 14: Enfranchisement reform
Enfranchisement reform Assessing the potential impact on GRIO’s portfolio – The enfranchisement and investment markets are connected but governed Portfolio Ground rent (%) Valuation (%) by different participants and dynamics – We have worked with Rightmove to provide illustration of the potential im
Slide 15: Strategy
STRATEGY
Slide 16: Summary of new strategy
Summary of new strategy Challenging and complex regulatory environment but strong support in favour of EGM proposals New strategy Objectives Risks – Strong support from shareholders for change 1. Improve portfolio liquidity and – Liabilities and/or illiquidity that may arise from to the Company’s ‘C
Slide 17: Executing strategic objectives
Executing strategic objectives Financial derisk – summary of terms and next steps Summary – The Company has a £25 million facility with Santander UK Plc which matures in January 2025, comprising a £12.5 million term loan and a £12.5 million revolving credit facility (RCF) – The interest payable on t
Slide 18: Conclusion
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Slide 19: Conclusion
Conclusion “ Strong shareholder support in favour of EGM proposals – Challenging operating environment, reflected in the continuing MUC – A significant amount of work is ongoing to manage risks and, although the valuation Continued headwinds but discounts are not expected to be fully incurred, the a
Slide 20: Appendices
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Slide 21: Portfolio summary
Portfolio summary Overview of the portfolio as at 30 September 2022 – Portfolio to capture rising and above Detailed review type Ground rent income % of ground Market value % of market value target inflation (see fan chart) with (£k) rent total (£m) total 73% of ground rent income reviews Index-link
Slide 22: Portfolio summary
Portfolio summary Overview of the portfolio as at 30 September 2022 – 392 years Weighted Average Years to next review Ground rent Asset location Portfolio ground Portfolio valuation Unexpired Lease Term, with shortest income (%) rent income (%) (%) term remaining of 82 years 0–5 40.9 North East 32.0
Slide 23: NAV movement for the year ended September 2022
NAV movement for the year ended 30 September 2022 NAV decrease of 10.3% and a NAV total return of 1.3% – NAV of £88.5 million or 92.5 pps as at 30 September 2022, which compares with £99.7 million or 103.1 pps as at 30 September 2021 – NAV decline of 10.6 pps or -10.3% with a NAV total return, inclu
Slide 24: NAV movement for the six months ended March 2023
NAV movement for the six month ended 31 March 2023 NAV increase of 1.9% and a NAV total return of 1.3% – NAV of £90.2 million or 94.3 pps as at 31 March 2023, which compares with £88.5 million or 92.5 pps as at 30 September 2022 – NAV increase of 1.8 pps or 1.9% with a NAV total return, including di
Slide 25: Balance sheet
Balance sheet Summary 30 September 2021 30 September 2022 31 March 2023 As at £ million £ million £ million Investment properties 119.4 109.0 110.9 Cash 1.1 1.9 1.5 Net payables (1.3) (1.4) (1.2) Debt (19.5) (21.0) (21.0) Net Asset Value 99.7 88.5 90.2 NAV (pps) 103.1p 92.5p 94.3p Loan to Value (%)
Slide 26: Statement of Comprehensive Income
Statement of Comprehensive Income 30-Sep-21 30-Sep-22 31-Mar-23 Year ended £m £m £m Ground Rental income 4.9 4.9 2.6 Insurance commission 0.4 0.4 0.2 Consent fees 0.3 0.2 0.1 Other income 0.1 0.1 0.0 Gain on the disposal of investment property 0.3 0.0 0.0 Operating Income 6.0 5.6 2.9 Legal and other
Slide 27: Balance sheet resilience
Balance sheet resilience Group LTV is 19.3% as at 30 September 2022 – The Company has two debt facilities – a £12.5 million fixed term loan and a £12.5 million revolving credit facility (expires January 2025) – As at 30 September 2022, an aggregate £21 million was drawn. The interest payable on the
Slide 28: Building Safety Reform and impact on the Company
Building Safety Reform and impact on the Company Overview of provisions set out in the Building Safety Act 2022 (‘BSA’) Developer no longer in existence Type of building in portfolio* Pledged Developer Developer and other ‘Polluters’ still in existence (‘orphaned property’) Not relevant building 1.
Slide 29: Strategy timeline
Strategy timeline Significant activity since Schroders appointment in May 2019 and subsequent Board appointments CMA announces further GAV - left axis NAV - left axis Gross Rental Yield - right axis Undertakings and investigation Govt. amends Building Safety Bill, now in ‘final stages’ making it mor
Slide 30: Ground Rents Income Fund Plc
Ground Rents Income Fund Plc Inflation-linked income Illustrative ground rent revenue – inflation sensitivity £ millions 10yr Listed in August 2012 and Schroders appointed as Investment 8.5 CAGR Background Manager in May 2019 to support the GRIO Board with the complex 4.8% challenges relating to bui
Slide 31: 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 32: Important Information
Important Information Marketing Material This information is a marketing communication. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. We recommend you seek financial advice from an Independent Adviser before
Slide 33: 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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