Ground Rents Income Share Discussion Threads

[spectoacc] 24/4/2024 06:53

Do you rate the alternatives tho? Labour have the right mood music, but as far as I can see there's nothing between the ears. Reeves is lamentable, Sir Keir is from Corbyn era, and whilst I'm fond of Wes Streeting for not avoiding a fight, I can't see him lasting the first NHS strike.

We digress, but what Labour do is going to be key to a lot of investments - infrastructure, PFI, house builders, GRIO, utilities etc. Unconvinced much of it is priced in yet.


Edit - 7 minutes after posting, an RNS. I'll let someone who holds analyse it.

[dandigirl] 23/4/2024 17:11

There isn't an issue that Gove can't make worse. Sooner the better he is gone.

[spectoacc] 23/4/2024 15:42

Can't decide if he's best of a bad bunch, hardworking and a details man (cladding; ground rents; CAP), or if he's fairly useless (cladding; ground rents; CAP).

[cousinit] 23/4/2024 15:36

The pension funds are probably somewhat binary. Most have none some have loads. Rothesay Life (I think) is in the latter camp.

I would say that Gove always seems to be two faced, but I think he actually has more than Ronnie Barker... Can't seem to stop himself from indulging in political chicanery rather than concentrating fully on the day job (where he clearly has built up a number of seemingly unlikely advocates)

[spectoacc] 23/4/2024 13:37

I know there's talk of a £15bn hit to pension funds from it, but still tiny in the context of total assets - a kick it down the road arrangement probably works for them.

That doesn't leave GRIO in a good place though.

Michael Gove - the best leader Labour never had.

[cousinit] 23/4/2024 13:00

Gove is probably taking advantage of the Labour threat by pushing for more concessions - you would imagine freeholders are alert to this and should be prepared to take quite some pain to avoid it just being immediately re-litigated after the election.

It does feel like there are some shenanigans going on in terms of rent cap/peppercorn similar to the Greek debt package to limit 'human rights' type claims from freeholders (you will be paid, only in money that's nominally the same but not at all in real terms.)

[spectoacc] 23/4/2024 12:33

Interesting, thanks. I've long regarded GRIO as uninvestable, & the many twists & turns of legislation that STILL isn't law, and still may not be ahead of the Labour govnt, makes it bloody trickier still. But at some point, for the few who understand what's going on, there may eventually be a buy op.

Didn't help that they got caught up in that cladding issue with the Manchester block either.

Labour have the right mood music but there's going to be a few things they'll hammer - can't see anyone crying for the ground rent landlords.

[cousinit] 23/4/2024 12:28

I have been trying to interpret the various dripped out snippets from the likely draft legislation.

This suggests:
Cap of £250pa for ground rent on implementation
20 year transition to peppercorn (no indication of profile of this)
Rent foregone by landlord is rolled up to any future lease extension premium calculation

My initial stab at assumptions would be:
£250 (as a nominal cap) is applied for 5-10 years and then halves for remainder of 20 years
Rent foregone is capped at the £250 and not the current level or future lease increases and is probably added in a simple way and doesn't 'compound' over the period 'withheld'

Probably some carve outs for commercial leases and those where a lower premium was previously paid in return for an annual ground rent to be payable. Not sure if buy to let investors would be included in the scope of the cap, but I'd assume so.

If the above is a flavour of what is likely, then it probably hits the 'newer' ground rents that GRIO holds. The typical GRIO lease seems to be a flat built in the 2010s, with a £250 RPI rent that refixes every 15 years on a 250+ year lease (so were now on the verge of resetting to maybe £500pa).

The loss of income, indexation and the next lease extension being maybe 150+ years away makes it very dependent on any rent 'roll up' approach.

Compare this to maybe a 125 year lease on a flat built in 1990 with a £50pa rent that doubles every 25 years. Current rent £100pa and lease event likely before lease falls under 80 years, so by 2035. So potentially unaffected before the taper to peppercorn kicks in.

[bitgold] 06/1/2024 15:19

I invest in this monthly as a gamble. Way I see it, they already hinted that existing contracts cannot be changed, but stopped new contracts from being formed. Thus, these are a way to get into something for which there will be no future supply into the market. In addition, if the "own nothing and be happy" comes to pass, one part of that might be the chaos of people defaulting on loans and contracts, then the properties being repossessed. They are either worth nothing, or a lot.

[dandigirl] 11/12/2023 18:14

Whatever Gove comes up will be a dog's breakfast. It will not be thought through like most things he tampers with. There is no issue that Gove [and Jenrick] cannot make worse. The man is quite mad and, consequently, should join the fruitcakes and loony tunes in the LibDems.

[tabhair] 11/12/2023 13:45

ft.com/content/b2d4c358-fe23-4d5b-8b7b-16b539ab5ea4

Interesting article on the leasehold reform (or expropriation if you are negatively affected by it).

It does look the company have been caught off guard. Their recent investors presentation suggested that they expected that ground rents would be capped at 0.1% of capital value rather than effectively abolished, as the Michael Gove seems to want to do.

It seems the question to ask here is whether this measure is constitutional or not. Any legal experts here have thoughts?

[apollocreed1] 20/11/2023 15:32

There was a statement issued by "TIME Freehold Income authorised fund" which is an open ended ground rents fund, that they had to suspend dealing in their shares due to the valuer declaring that there was "material uncertainty" as to the value. That's really worrying because TIME's fund has been one of the best performing funds in the UK for the last 25 years. Very low volatility and I have a significant amount invested there. I would hope the government would have to pay compensation if destroying the value of the assets held.

[spectoacc] 20/11/2023 14:48

If they Tories don't go far enough< GRIO has a Labour administration to look forward to.

[tabhair] 20/11/2023 13:45

This is getting battered. The wording from the government consultation suggests there is a possibility that ground rent for existing properties could be abolished entirely, rendering this worthless.

I am struggling to see the justification for keeping ground rent at all.

[dandigirl] 03/1/2023 16:21

Company asserts divi under review.

[spectoacc] 23/12/2022 13:34

Vulture funds, activists, directors... Little sign of any of them buying.

Yes, the income is going to keep rising. Trouble is, so far the costs appear at risk of rising faster. I don't think the dividend is safe.

[small cap value investor1] 23/12/2022 13:32

I thought it strange that whilst the risk of Santander turning nasty if the company was placed in Liquidation was mentioned nothing was said of the current very favourable interest rate on the loan
The majority of the portfolio benefits from Index linked increases which with current inflation must give a major boost to income in coming years
No mentioned of selling better assets and using funds to buy back shares at a large discount to boost NAV of remaining shares
It would be interesting if any vulture funds start buying
From the list of major holdings they seem to be private investors

[spectoacc] 23/12/2022 09:36

""The Company continues to operate in an increasingly challenging regulatory environment, and we are working hard to protect both our leaseholders' interests and our shareholders' investments. Since Schroders' appointment in mid-2019, and our subsequent new Board appointments from late 2019, progress has been made to reduce risk and manage historic, legacy issues. Given this uncertain outlook, and the forthcoming Continuation Vote, the Board and Schroders intend to consult with shareholders to determine the best strategy for managing these various complex issues and optimising value for shareholders.""

"To do so, we are adopting new Government guidance to verify the extent and cost of building safety remediation that is required across the portfolio, and the party, or parties, responsible for such costs. This is challenging due to the rapidly changing legislative environment and increased demand for specialist building consultants."

"Despite the Polluter Pays principle,, the BSA also places responsibility for remedying unfunded, residual defects upon landlords such as the Company. This could impact the Company. Consequently, understanding the extent of this residual risk is the purpose of the verification exercise outlined above"


None of that suggests full kitchen-sinking, and nor does the fact they wouldn't get anywhere remotely near NAV if they attempted to sell.

But agree on director pay.


Think I misread Beetham, seems the sale did indeed resolve the issues. It's legacy issues elsewhere they're talking about. Have edited post above so as not to mislead.

"Having resolved the highly complex legacy litigation at Beetham Tower in Manchester in August 2021, the Board and Manager are continuing to deal with legacy issues relating to historic transactions and portfolio activity carried out prior to the current Board and Manager's appointments with the Company. These legacy issues are granular, time consuming, and generally relate to disputes concerning legal title, disrepair and property management."

[calton1] 23/12/2022 09:24

Think we have the fairly typical situation in which potential liabilities are stated at the highest conceivable level by professional advisors for their own safety.
Only time will flush these out so I will go for a continuation and hope for the yield to continue!!
What majority is required for continuation? Some suggestion in the statement it had to be unanimious - but that can't be right.
Don't think we should vote for Directors pay increase!!!!

[spectoacc] 23/12/2022 08:43

@andy246 - many of the assets have open-ended and so far unquantifiable liabilities - not convinced there's a market for some of them at any price (eg the Beetham liabilities, supported by the rest of the portfolio).

At the mercy of govnt diktat - which hasn't gone in their favour so far - and have absolutely zero chance of getting anywhere near to NAV.

Perhaps sell the few good assets, return that money to shareholders, and "bad bank" everything else?

[andy246] 23/12/2022 08:36

The consultation proposal seems a scam, with the asset manager benefiting the most by the changes.

The company should be placed in liquidation, giving Savills the mandate to the sell the portfolio at a fair market value (maybe that's a 10-20% discount to Sep-2022).

At a minimum, management should place for sale the best assets and realize the full value and buy back shares at a 50% discount to NAV.

[spectoacc] 23/12/2022 07:44

Had a bargepole feeling to it, tho fingers crossed for holders.

Eg:
"..To more accurately verify the valuation adjustments used in the forthcoming audited year end accounts to 30 September 2022. To do so, we are adopting new Government guidance to verify the extent and cost of building safety remediation that is required across the portfolio, and the party, or parties, responsible for such costs. "

"In order to protect shareholders' interests, we and other institutional owners are also making representations to the Government in order to encourage greater fairness towards landlords who have not developed the assets.."

(Good luck with that).


If I thought there was genuinely 92p of NAV, and was a holder, I'd vote for the money back. But no chance of getting anywhere near that IMO.

"...Until market conditions and liquidity improve, we believe that the portfolio may not be realisable on acceptable terms.." says very clearly that the NAV isn't really the NAV.

Loan maturity in Jan 2025, which realistically they'll need to address a year from now. Have lost track of debt levels but falling NAV won't help. What would you lend to GRIO at?

Beetham Tower must rank as one of the worst purchases ever.

Dividend looks under threat:
"....Combined with the potential costs associated with the matters described and a rising interest rate environment, means the long term sustainability of the dividend may be impacted."

Getting incrementally more money in from ground rents, but being hit on all sides with remedial costs etc.

Interesting that the dramatic change in Gilt yields has largely passed GRIO by - they've got much bigger problems.

[dandigirl] 23/12/2022 07:13

Trading update a sad read. I will vote for continuation given the chance.

[small cap value investor1] 18/8/2022 13:43

Just purchased a few more
In addition to the yeild and discount
Many of the rents are index linked which with current inflation will see a larger than expected rise in income