Ground Rents Income Share Discussion Threads

[jonwig] 23/6/2017 12:52

Thanks, they've addressed the main problems in the HY report, just published;

The Board notes the recent attention in the media and elsewhere concerning ground rents, which has been focused on both leasehold houses and leaseholds with five and 10-year doubling rents.

In respect of the Company's wider portfolio of doubling ground rents, which represents 18% of the portfolio capital value, the Directors believe that the valuation may now be lower, based on recent market sentiment, by approximately £5.5 to £6.0 million. However, it must be stated that these figures are purely estimation and the fair value of the portfolio has therefore not been adjusted. The next valuation date is 30 September 2017.

The Board will update shareholders when appropriate.

[sikhthetech] 23/6/2017 12:38

Queen’s speech: House building and leasehold reform

[sikhthetech] 12/6/2017 16:25

Leasehold rip-offs: Nationwide Building Society is among big investors that benefit

Nationwide's own Pension fund invest in Ground Rents...

"But now it has emerged Nationwide’s “final salary” pension plan, which to closed to new staff in 2007, invests in grounds rents.

According to the fund’s 2016 annual report, its “ground rent property” assets are worth £54m. A spokesman for the would not reveal what proportion of these investments were in escalating ground rents. They would only say the “vast majority” of the fund’s holdings complied with the new policy."

[spectoacc] 12/6/2017 15:53

Bear in mind this election was sprung on them - the Momentum takeover wasn't yet complete and as you say, there were/are still some Labour moderates (all falling rapidly into line much as the Republicans have done with Trump!). I don't see Corbyn as anything other than a useful idiot for the very unpleasant lot pulling the strings behind him - but as you say, best to avoid such discussion on here :) But Labour could be quite an unpleasant beast if/when it gains power next time around - rationality out the window, as seen by the last manifesto.

[jonwig] 12/6/2017 14:46

OK - he seems to want to hit BtL investors hard (Say, compulsory ability of tenants to purchase their rented property at a discount). That includes institutions.

Therefore demand for build-to-rent dries up. Therefore supply dries up. But he wants to build 500,000 homes per year.

That's the Labour message: say something great in one line, which takes maybe five lines to refute. Folks have stopped listening.

Sorry about the rant - normally I try to avoid such things! Anyway, enough Labour MPs would block such policies even if we had a Lab gov't.

[spectoacc] 12/6/2017 12:36

And if Corbyn gets in......

[jonwig] 12/6/2017 12:26

Statement re doubling GRs:

The Directors are mindful of the recent media attention on the ground rents market, specifically doubling ground rent assets. In respect of the Company's portfolio of doubling ground rents (18% of the portfolio capital value), the Directors believe that the valuation may now be lower, based on recent market sentiment, by approximately £5.5-£6.0m.

Were this to be applied to the reported NAV, the NAV would reduce as follows:

· Net asset value per ordinary share of approximately 132 pence as at the date of this announcement

· Diluted net asset value per ordinary share of approximately 130 pence as at the date of this announcement


Which would represent an increase of 0.12% over the audited net asset value of 131.83 pence per share at 30 September 2016.

Although the Directors feel it is right to share this information with the market, it must be stated that these figures are purely estimation and the fair value of the portfolio has not been adjusted. The next valuation date is 30 September 2017.

[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.