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Ground Rents revises valuation

Exposure to the doubling rents debate could trim valuations.
June 26, 2017

Ground Rents Income Fund (GRIO) is a closed-end real estate investment trust (Reit) that does what it says on the tin, generating rental income from a portfolio of residential properties. And in the six months to March 2017, this grew to £2.18m, up a shade from £2.05m a year earlier. Pre-tax profits were significantly higher, but that's after including a valuation uplift of £6.3m on the £143m portfolio.

IC TIP: Buy at 133.5p

However, 18 per cent of the portfolio's capital value is made up of 'doubling' ground rent agreements (whereby the ground rent on a property doubles every set number of years), and given the level of criticism that these have attracted, the company now believes this could trim up to £6m off the portfolio valuation, which would leave net asset value unchanged from a year earlier. These are only estimates, and the next valuation date is 30 September 2017.

Further freeholds were purchased costing £10.9m, and a further £6m of purchases have been agreed through either the exchange of contracts or option agreements, of which £3.3m are expected to be completed in the current financial year, ending in September 2017. These will be financed through a newly secured five-year £19.5m loan facility, and there is an additional £7.4m of further acquisitions under negotiation.

GROUND RENTS INCOME FUND (GRIO)
ORD PRICE:133.5pMARKET VALUE:£125m
TOUCH:132-135p12-MONTH HIGH:141pLOW: 117p
DIVIDEND YIELD:3.0%DEVELOPMENT PROP:nil
DISCOUNT TO NAV:3%
INVESTMENT PROP:£143mNET DEBT:13%

Half-year to 31 MarNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161326.16.61.9166
20171388.08.52.004*
% change+5+30+29+5

Ex-div:-

Payment:-

Quarterly dividends paid in the half-year. Third-quarter dividend of 0.98p payable on 30 Jun