Ground Rents Income (GRIO ) says a takeover bid by Victoria Property ‘wholly undervalues’ the portfolio, despite it having slid more than a third in its full-year results.

The Schroders-run trust used the publication of its annual results to 30 September to confirm it has rejected three offers from Victoria Property, the most recent of which, last week, valued the portfolio at £32.5m.

The third offer was priced at 34p per share – a ‘significant discount of 42.4% to the 30 September net asset value [NAV] of 59p’.

The 59p NAV per share, equal to a total NAV of £56.5m, represents a huge 34.5% tumble in the value of the fund, which is under pressure from leasehold reform and building safety upgrades following London’s Grenfell Tower fire in 2017.

An independent valuation report from Savills marked down the value of the portfolio by 30.5% to £71.5m given it is subject to the ‘industry-wide material uncertainty clause’.

GRIO said that although ‘non-recoverable remediation costs’ to replace unsafe materials on buildings have ‘been limited’, the ‘scale of ultimate liability for costs not yet incurred remains unclear’.

‘The low levels of transactional evidence across the residential ground rent market is also a valuation factor,’ said the board, chaired by Barry Gilbertson.

The board continues to wind down the fund, which shareholders voted for in 2023, with the sale of two freehold ground rent interests in Bristol and Exeter in February 2024 for £3.45m representing a 4% premium to the most recent valuation.

Since the reporting period ended, the fund, which sits at a huge 54% discount, has sold its largest asset, a freehold ground rent interest in York, for £7.9m, in line with its valuation.

‘Further disposals have either completed or are in progress,’ said the board.

The fund has been able to tackle its debt because of the asset sale, refinancing a £25m loan facility with Santander last March, which was due to expire this month. The refinanced £19.5m facility has a loan term to July 2026, with a margin of 2.75% a year.

The sale of the York asset allowed the fund to repay £7.5m of debt, taking the current loan balance to £12m and reducing the fund’s loan-to-value ratio to 38.6% – below its 50% covenant level.

Gilbertson said the fund ‘continues to satisfactorily manage the challenges presented by leasehold reform legislation and building safety legislation’.

‘Combined, these challenges have engendered negative market sentiment towards the residential ground rent sector generally, resulting in low levels of market liquidity,’ he said.

‘Although the outlook remains uncertain, we have a clear strategy to manage these challenges, which recently received strong support from shareholders, and are encouraged by the progress being made in delivering our investment policy.’

A change in the rules around building remediation has reduced the number of properties requiring work to 23, where ‘significant progress’ has been made and third-party funding is being secured.

Leasehold uncertainty continues under the Labour government, but there has been ‘a more measured approach to reforming’ what is acknowledged as a complex area of property law.

‘The company, working with peers and advisers, continues to advocate for leasehold reform that fairly balances the legitimate interests of responsible landlords with the interests of leaseholders,’ said the board.