7 October 2016
GROUND RENTS INCOME FUND PLC
Proposed Changes to the Investment Policy and Notice of General Meeting
Ground Rents Income Fund plc (the "Company") announces that it is sending a circular (the "Circular") to Shareholders, containing details of proposed changes to the Company's investment policy in order to permit greater use of leverage by the Company for investment purposes, and on a longer term basis (the "Proposal").The Circular will be posted to Shareholders today and will be available on the Company's website at www.groundrentsincomefund.com
The Chairman's Letter and the Proposed Investment Policy, as contained in the Circular, are set out below. A comparison of the Proposed Investment Policy and the Existing Investment Policy, showing the proposed changes, is contained in Part 2 of the Circular.
Terms used and not defined in this announcement bear the meaning given to them in the Circular.
Contacts:
Ground Rents Income Fund plc |
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Simon Wombwell (Director) |
020 7499 6424 |
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Brooks Macdonald Funds Limited |
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James Agar (Director) |
020 7659 3454 |
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N+1 Singer (Broker) |
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James Maxwell / Liz Yong |
020 7496 3000 |
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Tavistock (Media) |
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Jeremy Carey / James Whitmore |
020 7920 3150 |
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Appleby Securities (Channel Islands) Limited (Sponsor) |
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Kate Storey / Danielle Machon |
01481 755600 |
Dear Shareholder,
PROPOSED CHANGES TO THE COMPANY'S INVESTMENT POLICY AND NOTICE OF GENERAL MEETING
1. Introduction
Your Board announced earlier today that it proposes to change the Company's investment policy in order to permit greater use of leverage by the Company for investment purposes, and on a longer term basis (the "Proposal").
The Proposal is conditional upon the Company obtaining approval from its Shareholders. Accordingly, your Board has convened a general meeting, notice of which appears on pages 14 to 15 of the Circular, to be held at 10:00 at the offices of the Company at 72 Welbeck Street, London W1G 0AY on 26 October 2016, the purpose of which is to consider and if thought fit pass the Resolution.
The purpose of the Circular is to explain the background to and reasons for the Proposal, the text of the Proposed Investment Policy and to explain why the Directors consider the Proposal to be in the best interests of the Company and the Shareholders as a whole, and are unanimously recommending that you vote in favour of the Resolution to be proposed at the General Meeting.
The contents of this letter are important and I would urge you to read it carefully and to sign and return the Form of Proxy in accordance with the instructions given on it and in paragraph 5 below headed "Action to be taken" as soon as possible.
2. The Proposal
The purpose of amending the Existing Investment Policy is to remove the restriction on the Company's ability to make use of structural or long-term debt facilities for investment purposes.
Currently, the Existing Investment Policy provides a restriction that borrowings should be used for short-term purposes only and thus any borrowings would need to be repaid from the proceeds of future fundraisings or asset sales.
The Board believes that the ability to utilise borrowings in addition to equity, and to leverage assets over a longer term period, will allow the Company to take advantage of attractively priced debt currently available to it, and provide greater flexibility now that the Company's equity is fully invested, to allow the Company to move quickly to purchase good quality Ground Rent assets, in competitive market conditions and to determine how best to finance those investments in the longer term.
Accordingly, the Directors believe that having greater flexibility to utilise longer term debt will place the Company in a strong position to secure further assets for the Group. The Investment Adviser has identified a pipeline of such assets for consideration by the Board, which investments would otherwise be in line with the Existing Investment Policy. It has also conducted preliminary discussions with the Company's principal banker, Santander plc, with a view to implementing a fixed rate, interest only £26,000,000 facility for a term of five years (including refinancing of the Group's existing c.£8,000,000 short-term facility with Santander plc).
The Investment Manager has advised the Board that debt is currently available at historically low interest rates and therefore it should be a good time for the Group to seek to utilise further leverage. The Directors believe that, were the Resolution to be passed, and were new facilities to be utilised by the Group, the use of such leverage should be accretive to the net dividend, particularly given that the issue of new equity would be potentially dilutive to Shareholders during the investment period until any such further equity raise was fully invested. In addition, a larger portfolio of Ground Rent assets acquired through the use of any such leverage to acquire those assets identified by the Investment Adviser should, the Directors believe, provide a greater weighting on index linked assets for the Group.
The Existing Investment Policy restricts the use of gearing in scale to no more than 25 per cent of the gross assets of the Company. The Proposal does not seek to increase this restriction in any way, but simply to allow the Company to utilise debt over a longer term and without the need to repay any such debt from the proceeds of future fundraisings.
The Company is not, as a REIT, subject to any express borrowing restrictions. However, there will be a tax charge if the income profits of the Company's Qualifying Property Rental Business do not cover its related financing costs at least 1.25 times. Based on the current proposals, the Directors do not believe that such a tax charge would arise as a result of entering into the proposed facility described above.
The Proposed Investment Policy is set out in Part 2 of the Circular, with the proposed amendments to the Existing Investment Policy shown by blacklining.
If the Resolution is passed, Shareholders' prior approval by ordinary resolution would still be required for any material future changes to the Proposed Investment Policy, including the maximum borrowing limits.
3. AIFMD update
If the Resolution is passed, and if the Company were to utilise additional leverage and grow its assets under management to the extent that it could no longer qualify as a small registered AIFM (the relevant threshold of assets under management being €100 million where leverage is used), then the Company would need to be managed by a full scope AIFM under AIFMD. Accordingly, the Company would be required to appoint an AIFM in such circumstances, in order to comply with AIFMD. Further, upon any such appointment of an AIFM, the Company would automatically cease to act itself as the AIFM of the Company, and such functions would then be performed by the external AIFM. In those circumstances, the Company expects to appoint the Investment Adviser, which is regulated by the FCA as a full scope AIFM. If the Company was to be required to be managed by a full scope AIFM, the AIFM would have to ensure that the Company complied with the requirements in the AIFMD, including appointing a depositary and the AIFM would be subject to certain organisational, operational and transparency obligations.
In the circumstances referred to above, the Company would publish a CISEA supplementary listing document reflecting material changes since the last published listing document in May 2013.
4. General Meeting
Given the Proposal outlined above, the Company is seeking the approval of Shareholders for the material change to its investment policy to utilise longer term debt for investment purposes. Accordingly, a general meeting of the Company, notice of which is set out on pages 14 to 15 of the Circular is to be held on 26 October 2016 at 10:00 a.m. at the offices of the Company at 72 Welbeck Street, London W1G 0AY for the purpose of considering and, if thought fit, passing the Resolution. The Proposal is conditional on the Resolution as set out in the notice of General Meeting being passed without amendment.
A Form of Proxy for use at the General Meeting is enclosed with the Circular (see paragraph 5 below headed "Action to be taken").
Shareholders have the right to attend, speak and vote at the General Meeting (or, if they are not attending the meeting, to appoint someone else as their proxy to vote on their behalf) if they are on the Register at the Voting Record Time (being close of business on 24 October 2016). Changes to entries in the Register after the Voting Record Time will be disregarded in determining the rights of any person to attend and/or vote at the General Meeting. If the General Meeting is adjourned, only those Shareholders on the Register as at close of business on the day which is two days before the date of the adjourned General Meeting will be entitled to attend, speak and vote or to appoint a proxy.
The number of Ordinary Shares a Shareholder holds as at the Voting Record Time will determine how many votes that Shareholder or his/her proxy will have in the event of a poll.
Explanation of the Resolution to be proposed at the General Meeting
The notice convening the General Meeting sets out the Resolution which will be proposed at it. The Resolution, which will be proposed as an ordinary resolution, approves the changes to the Existing Investment Policy and adopts the Proposed Investment Policy, the text of which, along with a mark-up including the proposed changes to the Existing Investment Policy, is set out in Part 2 of the Circular.
5. Action to be taken
A Form of Proxy for use at the General Meeting accompanies the Circular. The Form of Proxy should be completed in accordance with the instructions on it and returned to the Company's registrars, Capita Asset Services, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible but in any event so as to be received by 10:00 on 24 October 2016. The completion and return of a Form of Proxy will not preclude a Shareholder from attending the General Meeting and voting in person should they so wish.
6. Recommendation
The Directors consider the Proposal to be in the best interests of the Company and its Shareholders as a whole and accordingly recommend unanimously that Shareholders vote in favour of the Resolution to be proposed at the General Meeting.
Yours faithfully
Robert Malcolm Naish
Chairman
SUMMARY OF PROPOSED INVESTMENT POLICY
Assuming that the Resolution is passed at the General Meeting, the Company's new investment policy will be as follows.
INVESTMENT OBJECTIVE
The Company has been established to provide secure long-term performance through investment in Long Dated UK Ground Rents, which have historically had little correlation to traditional property asset classes and have seen their value remain consistent regardless of the underlying state of the economy.
The Company will give investors the opportunity to invest, through the Company, in a portfolio of Ground Rents. The Company will seek to acquire a portfolio of assets with the potential for income generation from the collection of Ground Rents. These investments also have the potential for capital growth, linked to contractual increases in Ground Rents over the long-term.
The Company will seek to generate consistent income returns for Shareholders by investing in a diversified portfolio of Ground Rents including freeholds and head leases of residential, retail and commercial properties located in the United Kingdom.
INVESTMENT POLICY
The Company will seek to benefit from the Ground Rents' long-term cash flows, rental income from each freehold and head leases and additional income from the obligation to arrange the insurance of the building and, further, the ability to charge for permissions under the lease when the leasehold ownership changes hands. The Company will not invest in non Ground Rent instruments, listed securities or other forms of commercial or residential property.
The Company will invest in freeholds and head leases in the United Kingdom. The Company intends to purchase Ground Rents where the leasehold interests are Long Dated although shorter opportunities will be considered if the Directors believe it is in the best interest of the Company to do so.
Each portfolio of Long Dated Ground Rents comprising the freeholds and head leases of residential, retail and commercial properties in the United Kingdom will have a pre-determined long-term income stream from the lease and, ultimately, when the lease comes to an end, a reversionary value. The Company may also exploit other investment opportunities which provide the Company with Ground Rent income but may not have the right to a reversionary value.
The Company intends that no single ground rent property should represent more than 25 per cent of the gross asset value of the Company at the time of investment.
The Company does not expect to engage in any hedging transactions, although, at the sole discretion of the Directors, the Company may utilise hedging, financial and money market instruments in the management of its assets and risk.
The Company may reinvest both realised invested capital and any profits that have not been distributed, subject to distributing 90 per cent of distributable income profits arising from the Group's Qualifying Property Rental Business in each accounting year in order to comply with the Company's REIT obligations.
The Company may make use of structural or long-term debt facilities for investment purposes, and if a portfolio of assets was available to be acquired in a corporate structure which had some existing borrowings within its corporate vehicles, these may be retained. In all cases the gearing anticipated would be limited in scale, to no more than 25 per cent of the gross assets of the Company.
END OF ANNOUNCEMENT
