A possible offer for Ground Rents Income Fund has been announced by Victoria Property, valuing it at £32.5m.

Victoria Property, which is part of the Martin Property Group, said that it made three indicative offers to the board of Ground Rents Income Fund late last year, but was knocked back on each occasion. It added that the board has refused to engage with it throughout.

Today, the company made public its most recent indicative offer to encourage shareholders to urge the board to engage.

The possible offer is for 34.0p in cash, which is a 48.5% premium to the closing share price of 22.9p on 7 January 2025 and a 57.1% premium to the volume weighted average share price over three months. The possible offer implies a valuation of around £32.5m for the entire issued and to be issued share capital of the company.

Ground Rents Income Fund has not provided an up-to-date NAV but the latest independent portfolio valuation was £71.5m at 30 September 2024, which has fallen dramatically over the years (it was valued at £106.1m in September 2023 and £81.5m in March 2024). The company also has debt of £19.5m.

The reduction is principally due to the ongoing leasehold reform, set out in November 2023, and the impact of building safety related defects.

Ground Rents has adopted an investment strategy to sell down all of its assets and return capital to shareholders. So far, it has sold three assets (including its largest) for around £11m.

Rationale for the possible offer

The board of Victoria Property said that it firmly believes that Ground Rents shareholders would want to assess the possible offer terms and the opportunity to realise a cash exit, and therefore encourages shareholders to urge the board to engage with Victoria Property.

It added: “We believe the company’s current investment policy will entail a prolonged exit period of many years with elevated operating costs, without certainty on the terms or timing of a full exit.

“If a firm offer were made, [it] would provide GRIO shareholders with a full, all-cash exit, without what we believe to be the execution risk and elevated operating expense associated with the current investment policy, that we believe could take several years to implement.

“The company may continue to incur elevated operating costs, with fund management fees currently in excess of base fee levels, for the life of a prolonged realisation programme. 

“Since the company’s revised investment policy was first approved in April 2023, it has announced the sale of three assets (for a cumulative ~£11m), all in the more resilient student sector. We believe there is a scenario where the company continues to sell its better-quality assets, where there is market demand, but is left with a portfolio of less desirable assets that will be difficult to exit.”