Ground Rents Income Share Discussion Threads

[jonwig] 08/5/2017 08:55

Actually, doubling every ten years is equivalent to an increase of 7.2% pa, or about 4.6% pa in real terms if the inflation rate is 2.5%. This is rather onerous, and I imagine will be phased out if lenders refuse to mortgage against it. I wonder whether rewriting contracts could be considered? I'll ask them.

[jonwig] 06/5/2017 09:53

Yes, I just read that. The latest factsheet shows that doubling GRs are 13% of the portfolio:



I suspect that the immediate effect will be to reduce capital values (Ladywell Point Manchester, for example). It will be interesting to see whether contracts will be rewritten rather than being stuck with dubious assets.

There's a good summary here of the whole leasehold property market:

[analyst] 06/5/2017 09:40

Nationwide Building Society is refusing to lend on new-build leased property with a ground rent of over 0.1% of the selling price and increases must be limited to RPI. Leases must be for 125 years for flats and 250 years for houses.

[davebowler] 13/4/2017 11:43

Just spotted this in ARTL's Annual report;
Our investment in the Freehold Investment Authorised Fund (“FIAF”),
that holds a diversified ground rent portfolio, continues to
generate high risk-adjusted returns and stable cashflows which
assist the Company’s earnings whilst offering monthly liquidity.
In its latest trading update, FIAF announced a total return of
4.67% for the six month period ended 30 September 2016,
including an income return of 2.47%.
ARTL holds about 20% in Freeholds and trades at a big discount to NAV.

[1flyfisher] 29/3/2017 18:08

Can anyone explain why the intraday share price is so volatile?
Is this likely to be the result of shorting

[jonwig] 18/11/2016 13:24

They have the new debt facility, and have bought a GR for £7.8m, yielding 3.6% initially, 5-yearly RPI review.



It would have been nice to know the terms of the Santander facility!

[jonwig] 08/11/2016 11:35

Investor report for September:



They point out that 10yr doubling = 7.2%pa. I calculate 25yr doubling = 2.8%pa.
The top five assets have a blended yield of over 3%. If they're going to gear up as suggested, the best way might be a £25m 30-yr fixed rate bond yielding below 2.5%. I think they'd get plenty of institutional support for that. Unfortunately a retail bond is pretty unlikely.

[davebowler] 27/10/2016 10:16

Ground Rents Income Fund plc (LSE: GRIO), a listed real estate investment trust (REIT) investing in UK ground rents, announces its unaudited Net Asset Value for the six months ended 30 September 2016.
Highlights:
Net asset value per ordinary share was 131.9 pence as at 30 September 2016. This is an increase of 10.9% from 31 March 2016.
Three properties acquired for £1.7m excluding costs in H2 2016.
The unaudited net asset value (‘NAV’) per share of the Company as at 30 September 2016 was 131.9 pence. This is an increase of 10.9% over the net asset value of 118.9 pence per share at 31 March 2016.
The increase in the net asset value has been driven by the uplift in the external portfolio valuation by Savills as at 30 September 2016

[spectoacc] 27/10/2016 09:16

@jonwig - thanks for the reply. I've not been through GRIO's holdings in depth so you may be right, & I may be exaggerating the effect of caps/timescales etc.

Agree entirely re security of cover, but have some concerns over capital value - +10% in 6 months is stupendous, but for how long can it continue? How much lower can yields/interest rates go? They can stay low for ages, but I'd love to read the basis for that uplift in valuation.

Also, the "insurance scam" of leaseholds may one day get legislated against. Is similar with commercial property leases - a nice little bonus for the landlord.

Just had a look at David Stevenson's article (something I generally avoid!):
"70 per cent of the assets are inflation linked, with another 14 per cent doubling in payment every 25 years. Twelve per cent of the leaseholds are fixed."

I still say that's not overly inflation-linked - in an environment of rising prices, only 70% is covered, and that at a lag. I'm assuming the "lag" isn't retrospective, ie you might get 5 years of fixed payments as inflation rockets, then a rise in payments that itself is rapidly overtaken by inflation.

The recent move to allow gearing is interesting, but also curious - the ground rents I've seen come up at auctions are on phenomenally low yields, eg 2%, so just how cheaply can they borrow? But then again, they wouldn't be looking at gearing if there wasn't a benefit to be had from it.

Looking for a home for some money but I don't think GRIO is it, though I can well understand why someone would be long - they've certainly delivered so far. Think my biggest fear is the thing they're currently doing the best at - capital values. Yield isn't high enough to compensate (for me) for when they go into reverse. That might not be for ages, but got to assume interest rate cycle is nearer the bottom than the top!. Good luck.

[jonwig] 27/10/2016 09:02

Spec - I see your argument, but look at linkers ... almost all the profit comes from the uplift at final maturity (which is often many years in the future), certainly not the income! And yet the stock's market value moves on a current basis.

That's essentially the same situation as a ground rent, except the latter has a non-trivial income element, and security cover makes tenant default pretty unlikely!

I'm not sure about inflation caps - I thought they were an option negotiated when the building was first put up, and mostly found in residential anyway. Could be mistaken.

[spectoacc] 27/10/2016 07:56

That's a big rise in 6 months - wonder what's prompted it. I guess could argue that interest rates have halved!

I've yet to buy in to GRIO, what always puts me off ground rents is the relative falsehood of index-linking - most are collar/capped and all have long gaps between uplifts to RPI. Very different to eg Linkers.

[jonwig] 27/10/2016 07:16

"The unaudited net asset value ('NAV') per share of the Company as at 30 September 2016 was 131.9 pence. This is an increase of 10.9% over the net asset value of 118.9 pence per share at 31 March 2016.

The increase in the net asset value has been driven by the uplift in the external portfolio valuation by Savills as at 30 September 2016"

I doubt that the share price will sit at a discount for very long. 135p looks reasonable.

[jonwig] 07/10/2016 07:07

Proposed changes - longer-term debt:



Higher equity returns should be the result.

[davebowler] 24/8/2016 16:21

ARTL is another way into this type of income stream.18% of its assets are in Ground Rents of a similar nature, and its at a big % discount to NAV.
hxxp://www.alpharealtrustlimited.com/

[jonwig] 02/8/2016 08:55

Fundraising has been mooted more than once. This new share price premium gives them an ideal opportunity to raise new equity somewhere between 119p and 128p depending on investor enthusiasm.

[jonwig] 01/8/2016 17:44

So folks realise this is an index-linked gilt in all but name and have been buying like mad.

[jonwig] 29/7/2016 06:50

Tipped in IC. Summary:

True, shares in Ground Rents won't appeal to punters wanting a quick killing. But - for providing a steady, low-risk investment with dividends paid quarterly - the attractions are clear, especially when contrasted with the negative returns offered by long-dated index-linked gilts. The shares are trading at a small premium to forecast net asset value (see table), which may look expensive compared with some Reits. But, given the reliability of the revenue stream and the potential for further valuation uplifts in the underlying portfolio, that premium isn't a problem. Buy.

[18bt] 04/5/2016 08:07

Pleasing growth in NAV pus div yield of 3.1%, so c total return of 7%, in line with what I am looking for in this stock plus the benefit of inflation protection.

[jonwig] 04/5/2016 07:48

The unaudited net asset value per share of the Company as at 31 March 2016 was 118.9 pence. This is an increase of 4.1% over the net asset value of 114.2 pence per ordinary share at 30 September 2015.

The market seems to have anticipated this, but the share should trade at a premium, so a rise this morning is possible?

[jonwig] 17/10/2015 09:14

David Stevenson likes GRIO:

[davebowler] 11/8/2015 16:52

ARTL has 19% of its assets in Ground Rents on a similar basis to this.Its 33% below NAV too.

[pavey ark] 10/8/2015 10:30

Jonwig, the fact remains that the actual dividend payment has fallen.
The capital appreciation figure is based on the current market price paid for these ground rents.
If interest rates increase the yield on these assets would not be as attractive and their value could decline, so in the long/medium term I think it would be wise to focus on the actual dividend paid.
Obviously there is the comfort of a comparative secure stream of income that is effectively index linked but it is 3.3%.
The income stream is certainly based on upward revision only but that is not the case with the valuation of the worth of these assets.
Still looking at these but not jumping in yet and when/if I do it will be for a smaller number than I first planned to buy.

[jonwig] 09/8/2015 10:12

Pavey - some good points.

I've just checked, and can't find reference to a target yield on NAV of 4.4%. The current 3.3% is the one I'm assuming will hold for now.

The yield won't be so high because capital appreciation has kicked in over the past couple of years, so you're getting total return rather than income yield.
Agreed the share price got a bit toppy, but has come back with a premium now of only about 4% to NAV.

Again on the plus side, much of the portfolio is either index-linked or periodic doubling, so you've got - hopefully - protection from inflation. Also, shouldn't be too highly correlated with the property sector in general.

A possible minus: they might get carried away and get excessively geared, buying ground rents at too high a price.

On balance, my view is very much yours of "buy and forget". Fortunately my purchases were below 105p.

EDIT: I see there was some discussion of target yields earlier on this thread, but the figures mentioned are "history" now!

[pavey ark] 09/8/2015 08:43

I've been looking these over and have spent some time getting into the world of ground rents (new to me) but have to say I was rather disappointed with the recent dividend announcement and with it a running yield of c. 3.2%.
Now wondering about whither to include these in a new portfolio I was setting up. My new shares were intended as a buy and forget income stream so these should have fitted the bill but with the possibility of interest rates rising and inflation looking rather subdued I think there may be better options.

I wonder if I've missed something and I know there was a lot of corporate action ,fund raising,shares issued,fairly heavy buying of ground rents with remaining cash so this could have impacted on this year's cash ?

These may be considered a safe investment but they are trading above asset value ( most recent figures I could find) and if the yield target is 4.4% I certainly don't see much upside on the share price for some time to come.

[jonwig] 17/7/2015 11:38

Yes, absolutely!

I added around 105p a while ago (why not below 100p? Kicking myself). May add again if they fall closer to NAV.