Ground Rents Income Fund Plc - James Agar & Chris Leek April 2020 - Schroders
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Ground Rents Income Fund Plc James Agar & Chris Leek Marketing material for professional investors or advisers only. April 2020 Confidential.
Executive summary
Company strategy Income focus Asset management Balance sheet
Highly experienced asset £25.0m refinance-
Recurring dividend cover of 91% management team across the
Secure, consistent, inflation 2.8% vs. 3.4%
for interim period to September managed and non-managed
protected income returns £100,000 interest rate saving on
2019 estate like-for-like basis
Expiry extended to 2025
Delivering value to consumers, 43% of the ground rent income
VITA headlease – £1m capital RCF maximises balance sheet
through socially responsible due to be reviewed over the
sum and reduced risk efficiency and provides
stewardship next six years
operational flexibility
2019 strategic review Headwinds from Leasehold
Resolve legacy litigation issues LTV of c.24% on charged assets,
maintained dividend at 3.96 pps. Reform, CMA and regulatory
at Beetham Tower against a covenant of 45% LTV
Assessing Covid-19 impact change
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back
the amount originally invested.
Source: Schroders, April 2020
1
Investment case
Inflation linked returns
Ground Rents Income Fund Plc (GRIO) Illustrative ground rent revenue – RPI sensitivity
£m
7.5
– Highly-diversified, long-term portfolio of approximately 19,000
Diversified
units across 400 assets with a low default risk
7.0
– Upwards only rental increases over all durations given the 6.5
Predictable
fundamentals of the instruments
6.0
Long-term – Weighted average unexpired lease term of 345 yrs 5.5
5.0
– Uncorrelated to real estate sectors – residential, commercial
Non-correlative
or alternatives
4.5
– c.70% of the portfolio is index-linked, of which c.90% is RPI
Inflation- – 43% of the portfolio ground rent income is due to be reviewed 4.0
hedged over the next six years (from the most recent half-year report as 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
at 31 March 2019) -2% RPI -1% RPI 0% RPI 1% RPI
2% RPI 3% RPI 4% RPI 5% RPI
Income – 3.96p per share dividend
Assuming future RPI inflation of 2.5% per annum, ground rent income should increase
c.16% over next 6 years or an annualised figure matching that of RPI at 2.5%
Source: Schroders, ONS, April 2020. Chart for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
2
GRIO share price and NAV
Currently trading at a 34% discount to NAV1
145 20%
February 2017. Media coverage begins
140 December 2017. Tackling unfair
135 practices in leasehold Covid-19
10%
130 October 2018. Implementing CMA
reforms to leasehold
125
January 2020. LC report
120 on enfranchisement 0%
115 premiums
110
-10%
105
100
95 -20%
90
85
-30%
80
75
70 -40%
Sep-16
Sep-17
Sep-18
Sep-19
Mar-16
Jun-16
Dec-16
Mar-17
Jun-17
Dec-17
Mar-18
Jun-18
Dec-18
Mar-19
Jun-19
Dec-19
Mar-20
Share price (LHS) NAV (LHS) Discount/Premium (RHS)
Past performance is not a guide to future performance and may not be repeated.
Source: Refinitiv, Schroders, 16 April 2020. 1Most recent NAV per ordinary share (undiluted) as at 30 September 2019, 111.30 pence; share price at 15 April 2020 73.50 pence. Chart for illustrative purposes only
and should not be viewed as a recommendation to buy or sell
3Compliance Disclosure Requirement
Ground Rents Income Fund plc- calendar year performance
12 months to Dec 12 months to Dec 12 months to Dec 12 months to Dec 12 months to Dec
Property portfolio total returns1
2019 2018 2017 2016 2015
Ground Rents Income Fund Plc -1.1 -8.5 2.9 19.4 13.1
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well
as up and investors may not get back the amounts originally invested.
Ground Rents Income Fund Plc – Risk Factors:
The Company borrows for investment purposes. This will magnify any gains or losses made by the Company.
The Company has no maturity date. The Company may only be terminated by a continuation vote, a shareholders’ voluntary liquidation or by a compulsory liquidation if the
Company were unable to pay its debts. The Company owns a portfolio of assets with the income generated from the collection of ground rents.
Potential legislative reform may impact the Company’s value and future income streams. However, any reform would be required to strike a fair balance between leaseholders and
landlords with legitimate property interests.
The Company invests in real estate which may be viewed as a higher risk and illiquid investment and may, therefore, be adversely affected by a decrease in market liquidity for the
assets in which it invests
You may not be able to sell your product easily or you may sell at a price that significantly impacts on how much you get back. This product does not include any protection from
future market performance so you could lose some or all of your investment.
The Company will invest solely in property located in the UK. This can carry more risk than investments spread over a number of countries. The performance of the Company would
be adversely affected by a downturn in the property market in terms of capital value or a weakening of rental yields. The Company invests in real estate which may be viewed as a
higher risk and illiquid investment and may, therefore, be adversely affected by a decrease in market liquidity for the assets in which it invests.
The Company has the ability to use gearing as part of its investment strategy. The use of gearing will increase the risk profile of the Company and the volatility of the value of
Shares, and will amplify losses in the event of a decline in gross asset values. Gearing may create significant underperformance, particularly in times of a falling property market.
Borrowing costs may, from time to time, exceed returns on property.
Source: Schroders, Refinitiv, 31 December 2019. 1 Schroders, NAV to NAV (per share) plus dividends paid.
4GRIO dividend yield vs 10 year index-linked gilt yield
Current yield margin is 1.5x the five year average
Yield
10
8
6
4
2
0
-2
-4
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Jun-15
Sep-15
Jun-16
Sep-16
Jun-17
Sep-17
Jun-18
Sep-18
Jun-19
Sep-19
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Yield margin GRIO dividend yield 10 Year Index-linked Gilt Yield
Past performance is not a guide to future performance and may not be repeated.
Source: Fixed Income Investor, Schroders. April 2020. Chart for illustrative purposes only and should not be viewed as a recommendation to buy or sell
5Market commentary
Regulatory uncertainty leading to weak sentiment despite strong underlying cash flows
Long-dated, cash flow driven assets are increasingly attractive and can provide
consistent, inflation-linked returns
Despite strong demand for annuity-type cash flows, transactional volumes within
residential ground rents have been low since 2018 due to leasehold reform
Wait-and-see approach from institutional investors, as well as pivot to commercial
Law Commission report on enfranchisement process in January 2020 viewed
positively, but now overshadowed by CMA investigation
Several parties continue to be active pre Covid-19
Market dynamic likely to remain unchanged until greater certainty is provided
regarding the Government’s leasehold reform agenda and the CMA investigation
Commercial Ground Rents Assets
In contrast, commercial volumes are increasing with very strong demand for
investment grade matching assets i.e. income strips
Pre Covid19 commercial transactions continue to attract competitive bidding with
some initial yields under 3%
Commercial assets may be an option to grow the company and provide greater
liquidity
Wapping Wharf, Bristol
Source: Knight Frank Schroders, April 2020
6Covid-19
The appeal of real estate is unchanged - relatively high yields, income growth and asset control
Transactional activity is falling in most sectors globally due to uncertainty
Banks generally supportive but likely see increase in distressed sales
While monetary easing and low bond yields are supportive, real estate yields are also
heavily influenced by expectations for rental growth. Yield expansion is therefore
likely across most traditional sectors as the economic outlook deteriorates
Impact on value will be sector specific - supermarkets, logistics and data centres may
emerge relatively unscathed as ‘national infrastructure’ and become more sought
after by investors seeking secure income
Assets with short unexpired leases are likely to see a bigger fall in value than assets
with secure, long-dated income
Schroders forecast sharp drop in inflation in the short term due to falling energy
prices and weaker demand for non-food goods
Once the lockdown is lifted inflation is forecast to rise as increased demand is met by
supply disruptions. Forecast RPI of 1.5% for 2020 and 3.9% for 2021
GRIO’s secure, long-dated, index-linked portfolio should be well positioned in this
period
Imperial College, White City, London
Source: Schroders, April 2020
7Leasehold reform timeline
Past, present and future
• Feb: Government Housing White Paper • Apr: Government responds to • Mar: Select Committee report on • Jan 20: Law Commission published their
published (proposes housing market consultation 2 (proposes regulation of leasehold reform (recommends a cap on report on enfranchisement
reform to boost the supply of new homes managing agents) existing ground rents of £250/0.1%, zero • Positive for GRIO - little impact on the
and promote fairness and transparency for • May: Hackitt review published (proposes future ground rents, standardized leases long-dated ground rents
Reform Timeline
homeowners) new regulatory framework, including Duty and review by Competition and Markets
• Feb 20: CMA investigation into leasehold
• Jun: Grenfell Tower tragedy holders) Authority (CMA))
housing market
• Jul: Hackitt Review; and Government • Sep: Law Commission leasehold • Jun/Jul: Government building safety
• Covering the alleged mis-selling of new-
leasehold consultation (1) enfranchisement consultation consultation (4); CMA begins review into
build leasehold homes and potentially
home buying process; Government
• Oct: Government managing agent • Oct: Government leasehold reform unfair ground rents, service charges and
responds to consultation 3 (proposes
consultation (2) consultation (3) fees
implementation of leasehold reform); and
• Dec: Government responds to • Dec: Law Commission Commonhold Government responds to Select • 2020: Building Safety Bill
consultation 1 (proposes zero future consultation Committee (leasehold remains a
ground rents and banning sale of legitimate form of home ownership, rebuffs
leasehold houses) retrospective legislation)
2017 2018 2019 2019/2020 and Beyond
• Sep: GRIO launches doubling ground • Apr: Leasehold Reform Group (LRG) • Feb: GRIO attends Law Commission • Continued interaction with government ,
rents asset management (all of its formed symposium on proposals to reform CMA and Law Commission
residential leaseholders with doubling • Jun: GRIO meets civil servant leading the Commonhold • Meeting with new Housing Minister
ground rents offered the opportunity to government’s leasehold project leader, • Mar: GRIO and other large scale • RPI Reform Consultation
convert their existing review mechanism to Lakbir Hans, to discuss proposed freeholders meet with the then Housing
GRIO Action
the lesser of inflation, as measured by the • Industry Code of Conduct
reforms Minister, Heather Wheeler MP
Retail Prices Index (RPI), or doubling, while • Continue with doubling ground rents
• Jul: GRIO attends Industry Roundtable • Feb: GRIO attends LRG seminar on draft
retaining their existing review cycle) asset management
with the then Secretary of State, James Code of Conduct
• Oct: GRIO and other large scale Brokenshire MP, on remediating • Best-in-class asset management- Golden
• May: Schroders appointed as AIFM
freeholders and developers meet the buildings with potentially unsafe thread, digitisation of O&Ms
then Secretary of State, Sajid Javid MP, to • Jun: GRIO signatory of Government’s
cladding • Delivering value to consumers
discuss leasehold reform proposals Public Pledge for Leaseholders
• Jul: GRIO attends LRG and Winckworth
• Aug: Announcement of review of the
Sherwood seminar on leasehold reform
Company’s strategy
• Oct: Representations by GRIO and LRG
to government and Select Committee
Source: Schroders, April 2020
8Leasehold reform
GRIO portfolio- well positioned in relation to reform
– The timescale and final outcome of leasehold reform and its potential impact on the Company is uncertain
– The extent of any negative impact on the Company may be mitigated by the following:
– 345 Year Weighted Average Unexpired Lease Term
– The portfolio median ground rent is £250 p.a.
– 96% of the Company's ground rent income reviews are not deemed 'onerous' and so index-linked, fixed, flat (no
review) or double less frequently than every 20 years
– Of the remaining 4%, less than 0.1% of portfolio income (4 units) doubles in perpetuity
– Doubling ground rent asset management plan – engages with all residential leaseholders with doubling leases
regardless of review cycle (10–50 yrs)
– Offering a review variation to the lesser of doubling or RPI inflation, retaining their review cycle
– The industry pledge made this approach industry standard
– Limited exposure to leasehold houses – only 11% of total income and median ground rent is £110 p.a.
Source: Schroders, October 2019.
9Summary
Focus on growing net income and risk management
Actions COMPLETED
Refinance Building safety reform
Delivering scale and 1 Reduced cost, extend
liquidity to term & give flexibility Beetham Tower
shareholders
resolution
Actions Ongoing Actions COMPLETED
Rerating the shares Additional Income
4 2
Working to close GRIO VITA Headlease
discount to NAV Supplier Agreements
Actions Ongoing Best-in-class
Covid-19 Leasehold Reform Management
Interaction with
RPI- recalculation 3 Delivering value to
Government, Law
Commission & CMA consumers
Strategy to increase shareholder total returns and deliver a fully covered dividend
Source: Schroders April 2020. Shown for illustrative purposes only and should not be viewed as a recommendation to buy or sell
10Appendix
Ground Rents Income Fund Plc (GRIO) team
GRIO team supported by Schroders Group and Company Board
Board Schroders Residential team Schroder Real Estate/Group
Schroder Real Estate Direct
Investment Committee
Chaired by Duncan Owen
UK Direct Investment Team
James Agar
Malcolm Naish Nick Montgomery
Fund Manager
Chairman
Research and Performance
Jeremy Marsh, Rosie Nguyen
Accounting, Insurance and Tax
Rick Murphy, Derek Reeves,
Lucy Henry
Paul Craig Chris Leek Robert Dean Christopher Moore
Deputy Fund Manager Head of Asset Management Senior Accountant Distribution and
Non-Executive Director
Company Secretary
James Lowe, Matthew Rowe
PR and Public Policy
Estelle Bibby, Sheila Nicoll
Bill Holland Lauren Collier Alex Cooke Amber Wilcox Legal and Compliance
Chairman of Audit Committee Assistant Asset Manager Accountant Luong Truong, Mark Perry
Appointed 1 September 2019
Source: Schroders, October 2019.
12Schroder Real Estate overview
Experienced and well resourced team
Schroder Real Estate Direct Investment Committee
Mark Callender Nick Montgomery Jessica Berney Duncan Owen Jonathan Harris Roger Hennig Tom Walker
(Chairman)
Head of Real Estate Research Head of UK Investment Senior Fund Manager, UK Global Head of Real Estate Head of Continental Head of Switzerland Real Co-Head, Global Real Estate
European Investment Estate Securities
Schroder Real Estate
Over 200 professionals involved in the management of real estate:
Chief
Indirect UK Continental Europe Asia Pacific and Australasia Capital and Product
Operating Officer
Capital Partners United Kingdom Operations Pan European Singapore Strategic Partnerships
Real Estate Securities Sector Specialists Finance Nordics Japan Pan European
Investment Research Legal Germany Hong Kong International
Real Estate Debt Switzerland Australia Client Management
Residential France Fund Development
Source: Schroders, October 2019.
13GRIO portfolio
Portfolio breakdown by ground rent income1
Asset location Type of ground rent review
1.5%
5.3% 7.0%
9.8% 7.2%
30.6%
10.9% 16.2%
12.2%
69.6%
29.7%
North West North East Midlands
Index-linked Doubling Fixed Flat (no review)
London South West South East (exc. London)
Source Schroders, 31 December 2019. 1Based on total portfolio ground rent income. Shown for illustrative purposes only and should not be viewed as a recommendation to buy or sell
14GRIO portfolio
Overview of the portfolio as at 31 March 2019
– 70% of ground rent income reviews are index-linked Detailed review type Ground rent income (£k) % of ground rent total Market value (£m) % of market value total
Index-linked 3,336 69.6 90.6 72.3
– Fixed and doubling leases provide performance, even
in deflationary environments Doubling 779 16.2 20.0 16.0
Fixed 343 7.2 8.6 6.9
– Under the government’s definition ‘onerous leases’ are
Flat (no review) 334 7.0 6.0 4.8
ground rents that double more frequently than every
Total 4,792 100.0 125.2 100.0
20 years – this represents only 4.1% of income
– Median ground rents are sensible and sustainable
Unit type No. of units (%) Median ground rent (£) Ground rent income (%) Portfolio valuation (%)
– 15% of portfolio units are houses Apartments 72.8 250 68.9 67.0
Houses 15.0 110 11.0 10.5
‘Residential’ subtotal 87.8 250 79.9 77.5
Students 10.6 350 16.6 18.9
Commercial 1.6 250 3.5 3.6
Total 100.0 £250 100.0 100.0
Years to next review Ground rent income (%)
– 345 years average lease length 0–5 42.4
5–10 22.6
– 42% reviewing over the next 5 years 10–15 21.8
– c.19,000 units across c.400 addresses 15–20 3.9
Over 20 2.3
– Diversified geographically Flat (no review) 7.0
Total 100.0
Property Current valuation (£m) Portfolio valuation (%)
The Student Village, York 8.5 6.8
Masshouse Plaza, Birmingham 4.0 3.2
The Gateway, Leeds 3.8 3.1
One Park West, Liverpool 3.5 2.8
Rathbone Market, London 3.4 2.7
Wiltshire Leisure Village 3.3 2.6
Ladywell Point, Manchester 2.9 2.3
First Street, Manchester 2.8 2.2
Richmond House, Southampton 2.4 1.9
City Island, Leeds 1.9 1.5
Total 36.6 29.1
Source: Schroders, April 2020.
Shown for illustrative purposes only and should not be viewed as a recommendation to buy or sell
15North West Ground Rents (NWGR)
Mediation & ongoing litigation
In 2014 issues were identified regarding the structural sealant bonding on the façade shadow boxes
Mediation between all parties took place in November 2019, no definitive agreement has been reached between parties
NWGR continues with the mobilisation for the Option A repair, to comply with the January 2019 judgment
Tenders for Option A were issued 13 December 2019, quotations are ahead of expectation at over £8m due to the inclement weather risk
NWGR has been exploring a more viable alternative repair - Option B
NWGR has submitted a formal planning application and an application to the Court for permission to vary -
a) The timeline for the completion of remedial work
b) The type and nature of the remedial work to Option B
Exploring a sale of the asset
Disclosures were made in 2019 accounts, relating to any possible insolvency’s impact on NAV. Interim accounts will update shareholders
NWGR is Guernsey SPV, it’s only asset is Beetham Tower, it has no external third-party liabilities and is ring-fenced from the wider group
The board believes that seeking Court approval and planning consent for Option B remains in shareholders best interests
Without a resolution there is a risk that GRIO’s support will be withdrawn & NWGR placed into liquidation
Source: Schroders, April 2020
16Retail Price Index (RPI)
Reforming the UK inflation measure
In September 2019 the Government agreed with the UK Statistics Authority (UKSA) to reform RPI
The Chancellor pledged to bring RPI in line with a measure of consumer prices that includes housing costs (CPIH)
Reform unlikely to take place before 2025, not least due to impact on the index-linked Gilt market
The chancellor rejected a proposal from UKSA to cease publication of the RPI altogether
Investors holding RPI linked assets or obligations are likely to be impacted as CPIH is typically lower than RPI
This includes GRIO - 62% of ground rent income directly linked to RPI
Retrospective action on current RPI linked contracts would be hard to enforce without appropriate compensation (A1P1)
A consultation on whether reform should be made before 2030 has begun and will close on 22 April 2020
The Government and UKSA will respond to the consultation before the parliamentary summer recess
GRIO’s base case financial model assumes inflation of 3.0% in 2020, 2.9% in 2021 and 3.0% thereafter
This may need to be revised post 2030 depending on the outcomes of the consultation and legislative process
SREIM will discuss next steps with our internally policy team Government may-
1. Keep a notional RPI measure, so existing contracts are honoured, whilst transitioning to CPIH
2. Reform the calculation of RPI to CPIH or similar, to circumvent any compensation or market challenge
Source: Schroders, FT.com & HM Treasury March 2020
17Schroders CPI & RPI UK Inflation Profile – 31 March 2020
Y/Y%
5
4
3
2
1
0
Forecast RPI RPIX CPI CPI Core CPI target bands
Source: Schroders. 31 March 2020. Shown for illustrative purposes only and should not be viewed as a recommendation to buy or sell
18Cost efficient, flexible refinancing
£25m Santander refinancing delivers c. £96k interest rate saving*
Reduction in interest rate (existing £19.5m drawn, p.a.) Reduction in interest rate (initial £15.5m drawn, p.a.)
£k £96k interest saving
£657k £657k £172k interest saving
700 700
600 £561k 600
£485k
500 500
400 400
300 300
200 3.4% 2.9% 200 3.4% 3.1%
p.a. p.a. p.a. p.a.
100 100
0 0
Prior Loan New Loan Prior Loan New Loan
Negotiated refinancing costs Increase in the term of the loan (years)
Amort.
(£k p.a.) £498k refinancing cost, funded by cash
Prior Loan 1.8 years
150 £139k
Maturity Nov-2021
100 £90k
New Loan 5.0 years
50 Maturity Jan-2025
0 0 1 2 3 4 5
Sep-19 Post refinancing years
Source: Schroders, March 2020.
*based on existing drawn amount of £19.5m. Includes new RCF non-utilisation fee. Shown for illustrative purposes only and should not be viewed as a recommendation to buy or sell
19Key Information Document
(KID)
Background
– As required under the regulations for Packaged Retail and Insurance based Investment Products (PRIIPs), a KID has been a
requirement for all investment products available to the retail investor since 1 January 2018
– The calculation of figures and performance scenarios contained in the KID are prescribed by PRIIPS and have neither been
set nor endorsed by the board
– PRIIPS is inconsistently applied by market participants and hence creates confusion amongst investors
GRIO – cost composition1 Challenges
Breakdown of calculation % of NAV – Lack of consistency of calculation
Portfolio transaction costs 0.02%
Impact of the costs of buying and selling – Misleading for investors
underlying investments
– Risk score depended on historic share price volatility,
The impact of the costs taken each year
for managing the Company’s
not market specific criteria
investments (comprising the
Other ongoing costs 2.71%
management fee, finance costs and all
other operating costs excluding
transaction costs)
Total 2.73%
GRIO - warrant
– The GRIO warrant instrument is also a PRIIP which requires its own KID but with no ongoing costs, expiring on 31 August 2022
Source: Schroders, March 2020. 1Costs published within the KID issued by Schroders and based on the Schroders fee structure.
20Important information Marketing material for professional investors or advisers only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Schroders has expressed its own views and opinions in this document and these may change. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Information herein is believed to be reliable but we do not warrant its completeness or accuracy. Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent. Neither we, nor the data provider, will have any liability in connection with the third party data. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage. The forecasts stated in the presentation are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic, and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today's date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change. This product is listed on the London Stock Exchange and is governed by its Board of Directors. The Board has appointed Schroder Real Estate Investment Management Limited as its investment manager and accounting agent. Schroder Real Estate Investment Management Limited was appointed on 13 May 2019. Schroder Real Estate Investment Management Limited is a member of the Schroders Group and is authorised and regulated by the Financial Conduct Authority (FCA). Issued in April 2020 by Schroder Real Estate Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 1188240 England. Authorised and regulated by the Financial Conduct Authority. 21
Important information (cont.) Ground Rents Income Fund Plc – Risk Factors: The Company borrows for investment purposes. This will magnify any gains or losses made by the Company. The Company has no maturity date. The Company may only be terminated by a continuation vote, a shareholders’ voluntary liquidation or by a compulsory liquidation if the Company were unable to pay its debts. The Company owns a portfolio of assets with the income generated from the collection of ground rents. Potential legislative reform may impact the Company’s value and future income streams. However, any reform would be required to strike a fair balance between leaseholders and landlords with legitimate property interests. The Company invests in real estate which may be viewed as a higher risk and illiquid investment and may, therefore, be adversely affected by a decrease in market liquidity for the assets in which it invests You may not be able to sell your product easily or you may sell at a price that significantly impacts on how much you get back. This product does not include any protection from future market performance so you could lose some or all of your investment. The Company will invest solely in property located in the UK. This can carry more risk than investments spread over a number of countries. The performance of the Company would be adversely affected by a downturn in the property market in terms of capital value or a weakening of rental yields. The Company invests in real estate which may be viewed as a higher risk and illiquid investment and may, therefore, be adversely affected by a decrease in market liquidity for the assets in which it invests. The Company has the ability to use gearing as part of its investment strategy. The use of gearing will increase the risk profile of the Company and the volatility of the value of Shares, and will amplify losses in the event of a decline in gross asset values. Gearing may create significant underperformance, particularly in times of a falling property market. Borrowing costs may, from time to time, exceed returns on property. 22
Contact James Agar Schroder Real Estate Investment Management Limited, 1 London Wall Place London EC2Y 5AU schroders.com
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