Ground Rents Income addresses negative media comment – Ground Rents Income Fund plc, a listed real estate investment trust (REIT) investing in UK ground rents, says that it has noted the recent attention in the media regarding ground rents and the launch by the Communities Secretary, Sajid Javid, of a consultation on proposals to amend leasehold legislation. The attention has been focused on leasehold houses, which account for 11% by income of the Company’s portfolio, and, in particular, leaseholds with ground rents that double perpetually every 10 years, of which they have none.
Ground Rents Income Fund was launched in 2012 and has acquired a diversified portfolio of ground rents, valued at GBP143 million at 31 March 2017, which provide a secure and consistent stream of income to investors.
Doubling ground rents
Most of the portfolio (69.8% by income) is invested in ground rents which increase annually in line with indices, particularly the Retail Prices Index (RPI). Of the remainder, 18% by value and 17% by ground rent income is attributed to doubling ground rents, of which 4% of the ground rent income is derived from three 10-year doubling assets. None of these three assets with 10-year doubling ground rents do so in perpetuity – they double a maximum of three times before reverting to having either no further review or an index-linked review cycle. The rest of the doubling assets in the portfolio are 25, 33, 35 and 50-year doubling assets, which equate to compound increases in rent of 2.8%, 2.1%, 2.0% and 1.4% per annum respectively.
Ground Rents Income Fund total portfolio – breakdown of ground rent review pattern
Type of rent review % of income
- Index-linked 69.8
- Fixed uplift 7.3
- Flat (no review) 6.5
- Doubling, 25 years 10.0
- Doubling, 10 years 4.0
- Doubling, 50 years 1.8
- Doubling, 33 years 0.4
- Doubling, 35 years 0.2
Of the total number of units in the portfolio, 15% are houses, which generate 11% of total ground rent income. The average ground rent on the leasehold houses is approximately GBP110 per annum and none are subject to 10-year doubling review patterns.
The ground rents on 66.7% by income of the leasehold houses adjust in line with indices, with only 2.7% containing doubling reviews on a 25-year review pattern. The balance of 30.6% is split between leaseholds with fixed adjustments (3.6%) and those which do not increase (27.0%).
GRIF’s portfolio of houses – breakdown of ground rent review pattern
Type of rent review % of income
- Index-linked 66.7
- Flat (no review) 27.0
- Fixed uplift 3.6
- Doubling (25 years) 2.7
The Board, in conjunction with the Investment Manager, is considering asset management options for certain ground rents within the portfolio, reflecting concerns raised by the Government. The Board reiterates its belief, previously stated in the 31 March 2017 unaudited NAV announcement on 12 June 2017, that as a result of recent market sentiment the value of the doubling assets within the portfolio may now be worth approximately GBP5.5 to GBP6.0 million less than as at 31 March 2017. This would lead to an NAV per share of approximately 132 pence. They will provide a further update once they have received the next scheduled valuation of the portfolio by Savills, its external valuer, as at 30 September 2017.
James Agar, Investment Director of Brooks Macdonald Funds, Alternative Investment Fund Manager to Ground Rents Income Fund, said: “We welcome the Government’s consultation, which will lead to clarity on leasehold and ground rent structures. We will in due course submit our own response to the consultation, which will be available to view on our website. We are committed to being a socially-responsible landlord, working hard to treat all leaseholders in a simple, honest and transparent manner“.
GRIO : Ground Rents Income addresses negative media comment