Ground Rents Income Fund plc - GRIO

Following a change to the Investment Policy in April 2023, the assets of the Company will be realised in a controlled, orderly and timely manner, with the objective of achieving a balance between (i) periodically returning cash to shareholders at such times and from time to time and in such manner as the Board (in its absolute discretion) may determine; and (ii) optimising the net realisation value of the Company’s investments. The strategy for realising individual investments will be flexible and may need to be altered to reflect changes in circumstances of a particular investment or in the prevailing market conditions. All material disposals of assets to be made by the Company will be approved by the Board. The Company may not make new investments, except where required to preserve and/or enhance the disposal value of its existing assets. (Please see above for the Company’s Investment Policy in full.)

The Government has been considering reforms to the residential leasehold system and building safety regime since 2017. This has created uncertainty and impacted the Company. More specifically, the uncertainty relating to the practical and financial impact of building safety legislation on the Company’s portfolio has resulted in a disclaimer of opinion within the Auditor’s report (the ‘Modified Auditor’s Report’) in the 2022 Annual Report. This modification was caused by the Company’s Auditor being unable to adequately verify the various assumptions made by the Company’s independent valuer. Whilst the Modified Auditor’s Report remains in place, all future dividend payments will be withheld, despite the Company having significant distributable reserves and good visibility of earnings. The final outcome of future building safety and residential leasehold legislation remains unclear and could negatively impact the Company’s portfolio further. The Board of the Company and Schroders Capital as Investment Manager are focussed on a clear strategy to address the headwinds to do with building safety and leasehold reform and thereby to optimise value for shareholders via a controlled, orderly, and timely realisation of assets, whilst aiming to deliver best-in-class residential asset management for leaseholders. Further details are contained in the recent report and accounts.

• Capital erosion: Where fees are charged to capital instead of income, or a fixed distribution amount is paid regardless of the Company’s performance, there is the potential that performance or capital value may be eroded.

• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.

• Counterparty risk: The Company may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the Company may be lost in part or in whole.

• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.

• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.

• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Market Risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.

• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.

• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.

• Smaller companies risk: Smaller companies generally carry greater liquidity risk than larger companies, meaning they are harder to buy and sell, and they may also fluctuate in value to a greater extent.

The Company currently conducts its affairs so that its shares can be recommended by IFAs to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The Company's shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust.