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GRIF to pursue asset management plan

04 September 2017 08:09

Ground Rents Income Fund's board has decided to pursue an asset management plan following the launch by the Communities Secretary, Sajid Javid, of a consultation on proposals to amend leasehold legislation.

GRIF said that during the remainder of this year, it would contact all of its residential leaseholders with doubling ground rents, regardless of whether they had a 10, 25, 33, 35 or 50-year review cycle, and offer them the opportunity to convert their existing review mechanism to the lesser of inflation, as measured by the Retail Prices Index (RPI), or doubling, while retaining their existing review cycle.

It said that this offer, which would be without obligation, would remain open to leaseholders for a period of 12 months, in order to give them, and in many cases their mortgage lenders, the opportunity to fully assess the proposal and conclude the required legal processes.

GRIF was launched in 2012 and has acquired a diversified portfolio of ground rents, valued at £143 million at 31 March 2017, which provide a secure and consistent stream of income to investors.

GRIF said most of the company's portfolio (69.8% by income) was invested in ground rents which increased in line with indices, particularly RPI.

Of the remainder, 18% by value and 17% by ground rent income was attributed to doubling ground rents, of which 4% of the ground rent income was derived from three 10-year doubling assets.

It said none of these three assets with 10-year doubling ground rents did so in perpetuity - they doubled a maximum of three times before reverting to having either no further review or an index-linked review cycle.

The remainder of the doubling assets in the portfolio were 25, 33, 35 and 50-year doubling assets, which equated to compound increases in ground rent of 2.8%, 2.1%, 2.0% and 1.4% per annum respectively.

GRIF said that in its update issued on 2 August, the board reiterated its belief, previously stated in the company's 31 March unaudited NAV announcement on 12 June, that as a result of changes in market sentiment the value of the doubling assets within the portfolio might now be worth approximately £5.5 to £6.0 million less than as at 31 March 2017.

This would lead to an NAV per share of approximately 132 pence (31 March 2017: 135.31 pence)

It said: "It is not possible for the board to estimate the number of leaseholders who will take up the opportunity to convert, during the asset management plan process.

"It has however reviewed a number of scenarios which indicate that the likely impact on the directors view of the NAV on the 2nd August is unchanged.

"In addition, the board estimates that the one-off administrative costs of this exercise will be in the order of £200,000 before VAT."

It said the company would provide a further update once it has received the next scheduled valuation of the portfolio by Savills, its external valuer, as at 30 September.

At 8:09am: (LON:GRIO) Ground Rents Income Trust share price was 0p at 124p

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