Ground Rents Income Fund has reported its NAV has inched down 1%, mainly due to “uncertainty around leasehold reform” as a Competition and Markets Authority investigation into the sector continues.
In the fund’s half-year results for the six months ending 31 March 2020, NAV declined to £106.8m (110.1 pence per share) from £108m (111.3 pence per share).
NAV was “primarily affected by uncertainty around leasehold reform and the ongoing Competition and Markets Authority investigation”, the company said.
The CMA launched an investigation into the leasehold housing sector in February, stating it found “troubling evidence and potential mis-selling and unfair contract terms” happening in the industry.
The fund said that the ongoing litigation at Beetham Tower, of which it owns the freehold, has also had an impact on NAV.
In February last year, a High Court ruling found that the fund’s subsidiary, North West Ground Rents, was responsible for repairing the 47-storey tower’s façade, and not the occupier, Blue Manchester.
The repair works will cost the fund over £8m, which is “potentially financially unviable” for the company. As a result, NWGR lodged plans which were approved to apply cladding to secure the windows.
Beetham Tower’s fair value now stands at £0, which reflects the “inherent uncertainty of ongoing litigation”, the fund said.
The company’s overall portfolio valuation dipped slightly to £122.6m from £122.9m, and the estimation included a material uncertainty clause as a result of the pandemic.
Malcolm Naish, chairman of the board, said: “While the outlook for the UK real estate market in light of the Covid-19 pandemic is uncertain, the company has a diversified portfolio of assets with defensive income characteristics and a strong balance sheet with low gearing. The granular, diversified, defensive nature of the portfolio will assist in delivering the unchanged, long-term, strategic objectives.
“The near-term outlook for the company will be influenced by the conclusion of the ongoing reviews by government, the Law Commission and the Competition and Markets Authority. The board and manager support reform which addresses historically imbalanced practices and delivers a rational, simplified and transparent leasehold market for all consumers and differentiated and attractive returns to shareholders.”
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