The Board of Ground Rents Income 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 GBP26,000,000 facility for a term of five years (including refinancing of the Group’s existing c.GBP8,000,000 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.
Ground Rents Income 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.
GRIO : Ground Rents Income wants to borrow more