Ground Rents Regulatory News (GRIO)

6 June 2023

Ground Rents Income Fund plc

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2022

Ground Rents Income Fund plc (the 'Company') announces its audited full year results for the year ended 30 September 2022, which are available on the Company's website, www.groundrentsincomefund.com.

The Company's Annual Report and Accounts for the year ended 30 September 2022 are also being published in hard copy format and an electronic copy is also available using the following link: http://www.rns-pdf.londonstockexchange.com/rns/7269B_1-2023-6-5.pdf. A shareholder circular for an Extraordinary General Meeting to be held on 29 June 2023 at 9.30 a.m. has also been published.

Barry Gilbertson, the Company's Chair, commented:

"We continue to operate in a challenging and complex regulatory environment, reflected in the Material Valuation Uncertainty Clause ('MUC') impacting our independent portfolio valuation and the Modified Auditors Report relating to these accounts. Encouragingly, the impact of the Government's legally binding Pledge signed by 48 of the UK's largest residential developers under the 'Polluter Pays' principle, combined with our extensive due diligence and related activity across the portfolio, has reduced the risk of the Company incurring the full Building Safety remediation costs assumed in the independent valuation.

"The strong support from shareholders for the important changes to the Company's 'Continuation Vote' and new Investment Policy approved at an EGM held on 24 April 2023 means the Board and Manager are now well positioned to execute the strategy of improving the liquidity of the underlying portfolio, continuing to support our leaseholders by delivering best-in-class residential asset management, and ultimately optimising value for our shareholders through a controlled, orderly and timely realisation of assets."

Key highlights:

· The financial year to 30 September 2022 was a challenging period due to the complex issues arising from the introduction of the Building Safety Act 2022 (the 'BSA'), the most significant regulatory reform to the UK's built environment in almost 40 years. Understanding the practical and the financial impact of the BSA, including secondary legislation from July 2022, delayed preparation of the accounts, which include a Modified Auditors Report.

· Under the so-called 'Polluter Pays' principle, the Government has introduced a legally binding pledge ('Pledge') that obliges residential developers to remediate, at their own cost, all life-critical fire-safety defects of buildings 11 metres and over in height that they developed or refurbished in England over the last 30 years. This includes reimbursing public funds where relevant. To-date, 48 developers, including the top ten largest house builders in the UK, have signed the Pledge. At the financial year end, seven of these developers are relevant to the Company's portfolio across 13 assets. The Government has also enhanced protections available to landlords who did not develop their assets, such as the Company, from defective building practices.

· Independent portfolio valuation of £109.0 million, a decline of £10.4 million, or 8.7% (30 September 2021: £119.4 million), reflecting a negative valuation adjustment of £11.4 million relating to 30 assets or 21% of portfolio value subject to a building safety Material Valuation Uncertainty Clause ('MUC') (30 September 2021: £6.1 million or 11% of portfolio value), and an additional negative valuation adjustment for residential leasehold regulatory reform risk of £3.8 million (30 September 2021: £1.1 million).

· The Modified Auditors Report is caused by the Auditors being unable to adequately verify the independent valuer's assumptions relating to the negative valuation adjustment of £11.4 million. This is principally due to the short period from the BSA's introduction to the financial year end, and extensive due diligence is ongoing across the portfolio to better understand the BSA's impact, with good progress made over the subsequent half year period to 31 March 2023 (see below).

· Net Asset Value ('NAV') of £88.5 million, or 92.5 pence per share ('pps') (30 September 2021: £99.7 million, or 103.1 pps). This reflected a NAV decline of 10.6 pps, or -10.3%

· Earnings (excluding property revaluations and exceptional items) decreased by £332,000, or 10.2%, to £2.8 million (30 September 2021: £3.2 million), reflecting lower ancillary income and higher expenses.

· Dividends paid totalling £2.9 million or 3.0 pps (30 September 2021: £3.8 million or 3.96 pps), resulting in a negative NAV total return of 7.4% (year to 30 September 2021: 1.3%).

· Group Loan to Value ('LTV') of 18.8% with £21 million of drawn debt, an effective interest rate of 2.8%.

· Ground rent income increased by approximately £200,000, or 4.1%, to £5.1 million as at year end, supported by inflation-linked rent reviews affecting 14.8% of the Company's portfolio by value.

Following extensive corporate and other due diligence undertaken and related activity across the portfolio, the Company provides an update on progress and activity since the financial year end, including the interim period to 31 March 2023:

· MUC now applies to 26 assets representing 16% of the portfolio by value (30 September 2022: 30 assets and 21% of portfolio value) with a lower total negative valuation adjustment for building safety regulatory reform of £9.3 million, compared to £11.4 million at the financial year end.

· Together with other valuation adjustments, including negative £4.0 million (30 September 2022 : £3.8m) for leasehold reform risk, the result is an unaudited independent valuation as at 31 March 2023 of £110.9 million, an increase of £1.9 million, or 1.7%, compared with the 2022 financial year end.

· Unaudited NAV of £90.2 million, or 94.3 pps, an increase of £1.7 million, or 1.8 pps, compared with the 2022 financial year end.

· Following the launch of a consultation in December 2022, an EGM was held in April 2023, with all proposals passed including a Continuation Vote in December 2024 and a new Investment Policy focussed on optimising value through a controlled and orderly asset realisation, together with a continued focus on delivering best-in-class residential asset management.

· Proposal to move to semi-annual dividend payments, with a potential risk that future payments will be withheld until the Modified Auditors Report is removed.

Enquiries:

Schroder Real Estate Investment Management Limited

Nick Montgomery / Matthew Riley / Chris Leek

020 7658 6000

FTI Consulting

Richard Gotla / Dido Laurimore

0203 727 1000 / Schroderrealestate@fticonsulting.com

Singer Capital Markets (Broker)

James Maxwell / Alaina Wong (Investment Banking)

Sam Greatrex (Sales)

020 7496 3000

Appleby Securities (Channel Islands) Limited (Sponsor)

Andrew Weaver / Michael Davies

01534 888 777