Ground Rents Regulatory News (GRIO)

20 December 2018

Ground Rents Income Fund plc("GRIF" or the "Company)

FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

Ground Rents Income Fund plc (LSE: GRIO), a listed Real Estate Investment Trust (REIT) investing in UK ground rents, announces its audited results for the year ended 30 September 2018.

Highlights

· Portfolio value of £127.5 million (30 September 2017: £139.1 million)

· Net assets of £113.2 million (30 September 2017: £127.4 million)

· NAV per ordinary share of 116.65p (30 September 2017: 131.72 pence)

· Diluted NAV per ordinary share of 115.92p (30 September 2017: 130.24 pence)

· Loss before tax (including £14.2 million decrease in valuation) of £10.7 million (FY 2017: profit of £4.7 million, including £1.3 million valuation gain)

· Basic loss per share of 11.05 pence (FY 2017: earnings of 4.98 pence)

· Diluted loss per share of 11.05 pence (FY 2017: earnings of 4.90 pence)

· Dividends paid of 3.96 pence per share, reflecting a gross yield (based on weighted average issue price) of 3.96%. (FY 2017: 3.96 pence; 3.96%)

· Acquired £2.4 million of ground rent assets

Malcolm Naish, Chairman of GRIF, said: "We strive to continue to maintain returns for our shareholders, while ensuring we operate in an open and socially-responsible manner.

"Our portfolio is defensively positioned with regards to Brexit, as all investment property is held within the UK. Furthermore, any legislative reform that may impact the future growth of the Group is not forecast to become law before 2020/21.

"As a Board we are focused on ensuring that the income of the portfolio remains robust and attractive to shareholders while, subject to market conditions, seeking new acquisitions to generate further revenue."

A copy of the Annual Report and financial statements for the year ended 30 September 2018 can be accessed at the Company's website, www.groundrentsincomefund.com and via the link: http://www.rns.com 

For further information:

Appleby Securities (Channel Islands) Limited (Sponsor)

Andrew Harding / Danielle Machon 01481 755 600

Registered number

8041022

Ground Rents Income Fund plcAnnual Report and Financial Statementsfor the year ended 30 September 2018

Consolidated Financial StatementsContents

Page

Company Information 1

Chairman's Statement 2

Strategic Report 5

Directors' Report 12

Independent Auditors' Report to the members of Ground Rents Income Fund plc 16

Consolidated Statement of Comprehensive Income 21

Consolidated Statement of Financial Position 22

Consolidated Statement of Cash Flows 23

Consolidated Statement of Changes in Equity 24

Notes to the Consolidated Financial Statements 25

Company Statement of Financial Position 40

Company Statement of Cash Flows 41

Company Statement of Changes in Equity 42

Notes to the Company Financial Statements 43

Company Information

Directors

Robert Malcolm Naish - Chairman

Paul Anthony Craig

Simon Paul Wombwell

Company SecretaryWilliam Martin Robinson

Alternative Investment Fund Manager Depositary

Brooks Macdonald Funds Limited INDOS Financial Limited

72 Welbeck Street St Clements House

London 27 Clements Lane

W1G 0AY London

EC4N 7AE

Independent Auditors Registrars

PricewaterhouseCoopers LLP Link Market Services Limited

Chartered Accountants and Statutory Auditors The Registry

No 1 Spinningfields 34 Beckenham Road

Hardman Square Kent

Manchester BR3 4TUM3 3EB

Principal Bankers Solicitors

Royal Bank of Scotland plc CMS Cameron McKenna Nabarro Olswang LLP

Southern Corporate Office 1 The Avenue

PO Box 391 Manchester

40 Islington High Street M3 3AP

London

N1 8JX

TISE Listing Sponsor Corporate Broker

Appleby Securities (Channel Islands) Limited N+1 Singer Capital Markets Limited

PO Box 207 13-14 Esplanade One Bartholomew Lane

St Helier London

Jersey EC2N 2AXJE1 1BD

Registered office72 Welbeck StreetLondon

W1G 0AY

Registered number8041022

Chairman's Statement

Overview

I am pleased to present the annual audited results of Ground Rents Income Fund plc ('GRIF' or the 'Group') for the year ended 30 September 2018.

Against a backdrop of continued Brexit uncertainty and legislative scrutiny of the ground rent sector, the portfolio's resilient income profile has allowed the Group to maintain the dividend at 3.96 pence per share per annum.

During the financial year, Brooks Macdonald Funds Limited, the Investment Manager, has remained focused on sourcing assets which can deliver sustainable income streams to support this dividend. Companies within the Group completed ground rent asset purchases for a total cost of £2.4 million. These mainly resulted from the exercise of options to acquire freehold and/or long-leasehold interests following the completion of developments and were agreed historically at attractive levels of pricing.

The Group funded the current year acquisitions by utilising funds drawn from its £19.5 million loan facility with Santander UK plc and still has sufficient cash resources available to complete agreed acquisitions during the new financial year.

To supplement the stable, asset-backed income of the portfolio, the Investment Manager continues to add value through active asset management. During the year, the Group pursued the forfeiture of a head lease interest of a property located in Hull. In August 2018, the Group completed the sale of this interest, in addition to benefitting from an uplift in the overall annual ground rent receivable from the property.

Finally, from a capital perspective, the Group raised a further £0.3 million in September 2018 through the issuance of new Ordinary Shares, converted from Warrants held by existing Warrant holders.

Portfolio valuation

Continued uncertainty in the ground rent market prevails due to the current government consultation being led by the Ministry for Housing, Communities and Local Government (the 'MHCLG'). This, in turn, has led to reduced market activity and some downward pressure on prices.

This has been reflected in the independent valuation of the Group's property portfolio undertaken by Savills Advisory Services Limited ('Savills') in accordance with the Royal Institution of Chartered Surveyors ('RICS') Valuation - Global Standards 2017 incorporating the IVSC International Valuation Standards (the 'RICS Red Book').

As at 30 September 2018, in the opinion of Savills the portfolio had a fair value of £127.5 million, compared with £139.1 million as at 30 September 2017 (excluding purchase costs), a decrease of £11.6 million or 8.3%. While the Board considers a more cautious stance towards property valuation to be justified, it is important to note that income from the portfolio remains robust, with the overall ground rent yield of 3.7% for the year.

Financial results

The financial results reflect our defensive investment policy during this period of continued uncertain political and economic conditions, for both the UK generally and the ground rents sector in particular.

Under International Financial Reporting Standards ('IFRS') our operating loss for the year to 30 September 2018 was £9.96 million (30 September 2017: profit of £5.3 million), with total comprehensive expense of £10.7 million (30 September 2017: income of £4.7 million), which reflects the drop in the Group's investment portfolio valuation. Revenue for the year to 30 September 2018 was £5.4 million (30 September 2017: £5.1 million). Basic losses per share ('EPS') for the year were 11.05 pence (30 September 2017: earnings of 4.98 pence).

The net asset value ('NAV') per share as at 30 September 2018 was 116.65 pence (30 September 2017: 131.72 pence).Dividends

The Group was able to maintain the dividend per Ordinary Share and during the financial year, declared and paid four Property Income Distribution ('PID') dividends, totalling 3.96 pence per share.

The Board has also declared the first interim quarterly dividend for 2018/19 of 0.98 pence per Ordinary Share, payable wholly as a PID (net of withholding tax, where appropriate), in respect of the period from 1 October to 31 December 2018.

Please see note 18 Dividends for further details.

Board and governance

The Board continues to promote strong internal governance and control, both within the Investment Manager's operational activities and at Board level. Our annual report describes in detail our approach to corporate governance within the Directors' report, on pages 13 to 16.

Brooks Macdonald Funds Limited, the Investment Manager, is a full-scope Alternative Investment Fund Manager ('AIFM') under the AIFM Directive ('AIFMD') and continues to ensure that the Group complies with the requirements of the directive.

Shareholder engagement

During the year, the Investment Manager continued its strong communication and relations with our investors.

James Agar, the Head of Specialist Funds for the AIFM, met with the majority of institutional shareholders during July 2018 as part of the Investment Manager's annual roadshow. This annual programme is an important part of our corporate governance initiatives, which we hope will encourage and continue a transparent and mutually beneficial communication with our shareholders.

The Board has also adopted an 'e-communication' strategy in partnership with our corporate registrar Link Market Services Limited, which we hope will further improve shareholder engagement.

Leaseholder initiatives

In May 2018, the Investment Manager contacted all residential leaseholders with doubling ground rents and offered them the opportunity to convert their existing review mechanism to the lesser of inflation, as measured by the Retail Prices Index ('RPI'), or doubling, while retaining their existing review cycle. The "lesser of" element of the offer ensures that consumers are protected from excessive rental increases which are ahead of inflation. To date, there has been around an 8% take up for this offer, rising to 15% for the 2% of our leaseholders with 10-year doubling ground rents, and we will continue to interact proactively with consumers in this regard.

Leasehold reform

The Investment Manager continues to engage with the MHCLG on the Group's behalf regarding the ongoing consultation on leasehold reform. The Board is keen to ensure that a transparent, open and productive dialogue is maintained with MHCLG so that the views of institutional investors are fully and appropriately represented in any legislative discussions.

The Board fully supports leasehold sector reform that aims to prevent the abuses and poor practices faced by some consumers and is in favour of many of the Government's policy proposals, including:

l Improving the buying and selling process of residential properties and providing consumers with better information. Contractual information should be in plain English, whilst legal advisers must be fully independent;

l Prospective homebuyers should not be offered a leasehold house when there is no overriding reason the house should not be sold under freehold ownership;

l The elimination of onerous ground rents, which we believe are those that double every 10 and 15 years. (As indicated above, the Investment Manager is doing this for the Group's own portfolio through an asset management programme that provides an unconditional offer to all homeowners with a doubling ground rent); and

l Compulsory regulation of managing agents in order to improve management practices and drive up standards to safeguard homeowners.

The Board agrees with the proposal in the recent consultation calling for the banning of the sale of new leasehold houses in England, where the sale of the freehold is an option and supports considered reforms that will reduce costs and strengthen the sustainable management of England's residential developments.

The Board again asks the Government to take powers already provided to establish a Code of Conduct - with regulatory backing - for housebuilders, developers, freehold investors and managing agents to protect all stakeholders in the sector, and to make a clear statement that poor practice will be driven out of our industry.

However, the Board believes that the suggested annual £10 ground rent cap is ill-conceived and inconsistent with what would be required to uphold a Code of Conduct. This is because the level of ground rent is simply too low for large-scale professional investors to invest in the sector, as it does not recognise the level of genuine management, oversight and support that a responsible investor - the recent Independent Review of Building Regulations and Fire Safety, led by Dame Judith Hackitt, called for such responsibilities to be carried out by a 'Dutyholder' - will provide to a managing agent, residents' management companies and leaseholders.

Outlook

The Board and the Investment Manager strive to continue to maintain returns for our shareholders, while ensuring we operate in an open and socially-responsible manner.

In the wider economic environment, prospects continue to be dominated by Brexit negotiations and leasehold sector reform. The ultimate outcomes remain unknown, and it is therefore difficult to assess their future impact on the UK economy and the ground rent investment market. Our portfolio is defensively positioned with regard to Brexit, as all investment property is held within the UK. Furthermore, any legislative reform that may impact the future growth of the Group is not forecast to become law before 2020/21.

As a Board we are focused on ensuring that the income of the portfolio remains robust and attractive to shareholders while, subject to market conditions, seeking new acquisitions to generate further revenue.

Malcolm Naish Date 20 December 2018Chairman

Strategic Report

The Directors present their Strategic Report on the Group for the year ended 30 September 2018.

Our business

Ground Rents Income Fund plc is a closed-ended real estate investment trust ('REIT') incorporated in England and Wales on 23 April 2012 and tax resident in the United Kingdom. Its ordinary shares and warrants were admitted to the Official List of The International Stock Exchange ('TISE') and to trading on the SETSqx platform of the London Stock Exchange in August 2012.

Ground Rents Income Fund plc, together with its subsidiaries, operates a property investment and rental business. The Group invests in a diversified portfolio of ground rents.

A ground rent is the rent paid by the lessee of a property to the freeholder or a head leaseholder of the property. It represents the underlying interest in property, which is subject to a lease for a period of time usually between 99 and 999 years. Individual amounts payable as ground rents are usually modest annual sums. Ground rents produce a secure, stable, low-risk and long-term income.

The Group's portfolio of ground rents includes freeholds and head leaseholds of well-located residential, retail and commercial properties located in the United Kingdom. The Group generates income primarily from the collection of such ground rents. It generates additional income from sources such as commissions on insurance policies.

Investment objective

The Group has been established to provide secure, long-term performance through investment in long-dated UK ground rents, which have historically had little correlation to traditional property asset classes regardless of the underlying state of the economy.

The Group gives investors the opportunity to invest in a portfolio of ground rents. The Group owns a portfolio of assets with the income generated from the collection of ground rents. These investments also have the potential for capital growth, linked to contractual increases in ground rents over the long term.

The Group seeks to generate consistent income returns for Shareholders by investing in a diversified portfolio of ground rents, including freeholds and head leases of residential, retail and commercial properties located in the United Kingdom.

Investment restrictions

The Group intends that no single ground rent property should represent more than 25 per cent of the gross asset value of the Group at the time of investment.

The Group does not expect to engage in any hedging transactions, although, at the sole discretion of the Directors, the Group may utilise hedging, financial and money market instruments in the management of its assets and risk.

The Group may reinvest both realised invested capital and any profits that have not been distributed, subject to distributing 90 per cent of distributable income profits arising from the Group's Qualifying Property Rental Business in each accounting year in order to comply with the Group's REIT obligations.

The Group may make use of structural or long-term debt facilities for investment purposes, and, if a portfolio of assets was available to be acquired in a corporate structure which had some existing borrowings within its corporate vehicles, these may be retained.

In all cases the borrowing anticipated would be limited in scale to no more than 25 per cent of the gross assets of the Group.

Our strategy

The Group has acquired and intends to continue to acquire portfolios of ground rents. These interests have and will have a pre-determined long-term income stream from the lease and, ultimately, when the lease comes to an end, a reversionary value.

The Group may also exploit other investment opportunities which provide the Group with ground rent income, but may not have the right to a reversionary value such as long-dated head leases. Collection of ground rents, as well as income from additional sources such as commissions on insurance premiums, is expected to provide predictable income streams.

The freehold interest in a ground rent is usually valued on a multiple of the ground rent receivable; the lower the multiple, the higher the yield. The multiples paid vary according to a number of factors, including the amount and timing of any contractual future increases in the ground rent, market sentiment, and the unexpired period of any leases.

Ground rents acquired

Since IPO in 2012 the Group has built up a highly-diversified portfolio of freehold and long-leasehold properties to provide secure, inflation-hedged ground rent of £4.7 million. This income profile is scaled up from approximately 19,000 units across 400 addresses and a median per unit ground rent of £250 per annum.

Values of the investment properties reflect the quality of the income and the rent review profile. Ground rents that are flat and, therefore, have no reviews are the least desirable and produce the highest yields. At the other end of the scale are ground rents that are subject to frequent rent reviews that provide regular uplifts in the income stream. The most attractive of those investments are currently those linked to the Retail Prices Index ('RPI'), or those that have imminent rent reviews.

Most ground rents are subject to pre-determined rent reviews, which are documented in each lease granted by the freeholder or head leaseholder. Increases are linked to a variety of measures: they may be indexed to factors such as RPI, they may be subject to a periodic doubling or subject to fixed-sum increases. The review cycles vary between annual and 50 years, although 91% of the Group's ground rents are 20 years or less. The driver of movements in the valuation of a ground rent investment tends to be variations in yields, until the final few years before a review date.

As at 30 September 2018, the total net assets of the Group were £113.2 million (2017: £127.4 million), of which £127.5 million (2017: £139.1 million) was represented by investments in ground rents.

Current year activity

The Group completed three acquisitions in the year ended 30 September 2018, which increased the ground rent roll by £0.1 million at a cost of £2.4 million, giving a gross initial ground rent yield of 4.31%. These transactions were executed despite the prevailing uncertainty due to the transactions being negotiated historically at prices accretive to the NAV and income profile of the portfolio.

Beetham Tower Birmingham

In November 2017, the 999 year residential head lease interest of Beetham Tower Birmingham was purchased by the Group. The 39-floor mixed-use building, designed by SimpsonHaugh, was built in 2006. The 152 apartments generate £25,950 of total ground rent linked to 21-year RPI, although a non-peppercorn rent linked to five-year RPI is payable to the freeholder, which brings net ground rent to £13,288 for the year.

The Group paid £0.2 million for the asset, giving a gross initial ground rent yield of 8.74%, which should provide an excellent income return on capital deployed, partly due to the unusual ground rent review pattern secured against one of Birmingham's most recognisable buildings.

Lewisham Gateway

In December 2017, the Group purchased the 250 year long-leasehold interest for the first residential phase of the Lewisham Gateway scheme, having exchanged contracts in September 2015. The acquisition of phase one consists of a 68-unit Private Rented Sector ('PRS') block operated by Fizzy Living as well as a block of private sale units consisting of 125 apartments. In total, the 193 units generate £64,000 of ground rent linked to 20-year RPI at a cost of £1.5 million, giving a gross initial ground rent yield of 4.30%.

Rathbone Market

Also in December 2017, the third and final phase of the Rathbone Market development, located in Canning Town, London, was acquired for £0.7 million. The 150 year long-leasehold acquisition consists of 75 ground rent-paying private residential apartments, as well as an 87-unit PRS block and 54 affordable units.

Total ground rent of £22,500 is linked to 20-year RPI, which gives a gross initial ground rent yield of 3.33%. The Group has now secured the entire long-leasehold interest in the site, having previously purchased the first two phases. The acquisition should therefore protect the Group's interest in the wider scheme. The high reversionary values of the sites should provide the Group with excellent secure, long-term, inflation-hedged income.

Asset management project

In conjunction with the Investment Manager, the Board of Directors agreed to contact all residential leaseholders with doubling ground rents and offer them the opportunity to convert their existing review mechanism to the lesser of inflation, as measured by RPI, or doubling, while retaining their existing review cycle. The process is ongoing and is expected to conclude in early 2019. This small but important variation ensures that consumers are protected from excessive rental increases which are ahead of inflation.

Asset focus

The five most valuable assets and their respective locations as at 30 September 2018 are as follows:

Building name Location Value

Vita York York £8.2 million

Gateway Leeds £3.9 million

One Park West Liverpool £3.6 million

Wiltshire Leisure Village Wiltshire £3.3 million

Vita First Street Manchester £2.9 million

The largest asset represents 6.1% of the total portfolio.

The Group has limited exposure to leasehold houses. Of the total number of units in the portfolio 15% are houses, which generate only 11% of total ground rent income since the median ground rent on the houses is £110 per annum. None are subject to perpetual 10-year doubling review patterns, which have attracted some recent focus in the media. Furthermore, the Group has no exposure to perpetual doubling ground rents and de minimis exposure to 10-year doubling assets, which account for only 4% of total ground rent income. These three assets double a maximum of three times before reverting to having either no further review or an indexed linked review cycle.

Portfolio characteristics

The chart below shows the period of time before the next review date for the ground rents in the portfolio at 30

September 2018:

The chart demonstrates that 35% of the portfolio will be subject to a rent review within the next five years. Typically, the impact of a forthcoming rent review is recognised in the valuation over the three years leading up to the review date.

The chart below shows the type of rent review in the portfolio at 30 September 2018:

69% of the portfolio's income or gross rent roll is directly linked to inflation-based indices. The doubling and fixed rate increases also provide an inflation hedge for the portfolio but over different review cycles to index-linked assets.

The geographic spread of the portfolio at 30 September 2018 is shown in the chart below:

31% of the Group's portfolio is located in the North West and 30% in the North East, based on ground rents income.

Key Performance Indicators 

Many of the Key Performance Indicators ('KPIs') are linked to the appraisal of acquisition opportunities and the amount of cash available for investment.

In order to ensure that the Group has identified investments which are appropriate for the Group and which will allow the Directors to achieve the strategic aims of the Group, the Investment Manager considers the following factors when reviewing acquisition opportunities:

· Acquisition cost as a multiple of ground rent income, from which gross yield is imputed

· Potential for additional income streams

· Type of rent review

· Rent review cycle

· Number of years before next rent review

· Location

· Value relative to total portfolio

These factors are considered on an ad hoc basis at meetings of the AIFM Investment Committee when acquisition opportunities are considered for approval.

In order to monitor the performance of the Group against its stated income and capital growth objectives and its tax status, the Directors consider the following KPIs reported on and considered at the quarterly Directors' meetings.

l Dividend yield

The dividend reflects the Group's ability to deliver a sustainable income stream from its portfolio.

In the year ended 30 September 2018, the dividend yield on the ordinary shares was 3.96% (year ended 30 September 2017: 3.96%) on the weighted average issue price.

l Ongoing charges

The ongoing charges measure is the ratio of Group administration and operating costs expressed as a percentage of average net asset value throughout the year. It represents a measure of costs associated with managing and operating the Group, which includes the management fees due to the Investment Manager. It provides investors with a clear picture of operational costs involved in running the Group.

For the year ended 30 September 2018, the ratio was 0.72% (30 September 2017: 0.67%).

l NAV

Net asset value (NAV) is the value of an entity's assets minus the value of its liabilities. It reflects the Group's ability to grow the portfolio and add value to it through its assets.

As at 30 September 2018 the NAV was £113.2 million (30 September 2017: £127.4 million).

l Portfolio valuation

The Directors review analysis of the portfolio valuation and composition with reference to geographical location and timing of rent reviews.

The Directors cannot set a target figure for the portfolio valuation as it is influenced by external factors which are not under the control of the Directors. However, the AIFM Investment Committee prepare forecasts and consider the characteristics of each investment opportunity carefully before deciding on an appropriate offer as well as seeking independent confirmation of the value prior to purchase.

l Compliance with REIT rules

The Directors review each of the REIT criteria and monitor compliance on a quarterly basis. If there were any indicators that the Group would cease to comply with the REIT regime, the Directors would ensure that appropriate steps were taken to ensure compliance. There has been no non-compliance noted during these reviews.

Alternative Investment Fund Manager ('AIFM')

Brooks Macdonald Funds Limited (the 'Investment Manager') is authorised and regulated by the Financial

Conduct Authority ('FCA') as a full-scope AIFM and provides its services to the Group.

INDOS Financial Limited ('INDOS') act as the depositary to the Group, responsible for cash monitoring, asset verification and oversight on behalf of shareholders.

Under the AIFM Directive, the Group is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive. These are set out in Note 11 of the notes to the Group consolidated financial statements.

During the year the parent company of the AIFM, Brooks Macdonald Group plc, disposed their property management business Braemar Estates (Residential) Limited ('Braemar Estates'). The ownership of Braemar Estates, who the AIFM delegates the majority of the Group's property management services to, passed to Rendall & Rittner Limited on completion of the disposal.

Social, community and employee responsibility

The Group has no direct social, community or employee responsibilities. The Group has no employees other than three Directors and accordingly no requirement to separately report in this area, as the management of the portfolio is the responsibility of the Investment Manager.

The Investment Manager is an equal opportunities employer, who encourages employee involvement in its financial performance, considers that regular employee training is extremely important and recognises the need for employees to have an appropriate work-life balance.

The Group is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and is therefore not obliged to make a slavery and human trafficking statement. The Directors are satisfied that, to the best of their knowledge, the Group's principal suppliers comply with the provisions of the UK Modern Slavery Act 2015.

Principal risks and uncertainties

The Group has identified the risks arising from its activities and has established policies and procedures as part of a formal structure of managing risk. The key risks and how these are managed are considered below:

l Investment objective

The Directors are conscious that new investments must achieve the target return of the portfolio. An investment with a lower return profile would be detrimental to the performance of the portfolio as a whole. The AIFM Investment Committee reviews each transaction to ensure that any ground rents purchased will generate returns which are in line with the desired return level for the portfolio.

l Compliance with laws and regulations

The Group must remain compliant with the REIT rules in order to take advantage of the potential efficiencies in its tax affairs, including exemption from UK corporation tax on profits and gains from its UK property rental business. The Group must also remain compliant with the prescribed requirements of the Listing Rules of the International Stock Exchange, Market Abuse Regulations ('MAR'), the Companies Act and other statutory requirements. The AIFM must also comply with the requirements of the AIFM Directive.

The Directors receive a quarterly report on the Group's compliance with the REIT rules and take independent advice on the conduct of its business to ensure that it remains compliant with the REIT regime. The Group Company Secretary monitors compliance and reports to the Directors on a quarterly basis. The Group's Depositary, responsible for cash monitoring, asset verification and oversight of the Group reports to the Directors also on a quarterly basis.

l Dependence on the investment advice, key individuals and relationships

The Group's ability to achieve its investment objective is substantively dependent on the performance of the AIFM and its identification of suitable acquisitions and disposals and the management of such investments. Failure by these people to provide appropriate advice and support to the Group could have a materially adverse effect on the Group.

The Directors monitor the AIFM and review the Group performance on a quarterly basis. The Management Engagement Committee reviews the AIFM's performance on an annual basis. The Group engages with reputable advisers following appropriate due diligence undertaken by the AIFM and Directors.

l Availability of equity and/or debt

The Group has forward commitments to complete transactions for which it has exchanged contracts and may in future take an option to acquire ground rents on property which has yet to be constructed. If insufficient cash exists, the Group will need to seek additional equity and/or debt within its self-imposed borrowing restrictions.

The Directors monitor liquidity and projected cash flows at each quarterly board meeting. The pipeline of acquisitions identifies capital requirements in good time for the Directors to consider the financing options available to them.

l Investment market conditions

A systematic fall in the valuation of ground rent assets could lead to a fall in the Group's NAV. Valuations are linked to multiples of the ground rent payable and ground rents payable are subject to pre-determined, contractual review dates and amounts. The multiples vary according to market sentiment, the nature of the rent review and the time until the next rent review.

The AIFM looks to invest in assets with pre-determined uplifts in ground rent receivable with pre-determined review cycles over the long-term.

l Leaseholder payment of ground rents

Ground rent receivables form part of the Group's cash flow receipts and are managed tightly to ensure they do not become large enough to inhibit the Group's ability to manage its cash flows. The AIFM employs agreed collection procedures and timelines and, at the last resort, the right of forfeiture for non-payment of ground rent can be implemented.

l Insurance cover

Insurances and the adequacy of insurance cover is monitored by the AIFM and the Group's insurance broker, using risk and insurance information collated by the AIFM, its managing agents and surveyors. Property reinstatement values are independently assessed every three years, in accordance with the underwriter's requirements. Health & Safety reporting is reviewed by the Directors on a quarterly basis.

If a property were to suffer an uninsured loss, due to a failure to insure the building or if a building was insured for an inadequate reinstatement value, the Group would incur costs to reinstate the property where no coverage is provided under the scope of the Group insurance policy wording or schedule of endorsements.

l Working capital liquidity

Sufficient working capital liquidity is required to service payables including dividend distributions and committed property transactions when they fall due. The AIFM manages and monitors short-term liquidity requirements to ensure the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash obligations can be met.

Future developments

The Group will continue to seek suitable ground rent acquisitions and employ its existing cash resources, while intending to maintain the dividend yield for the year ahead. The Directors intend to be highly selective in making any acquisitions. They may also consider the disposal of certain assets should suitable opportunities arise for sale and re-investment which would enhance shareholder value.

While the media and political focus on the ground rent market has dampened transactional volumes, any further movements in valuation will be reflected in the next independent valuation, which will be performed by Savills as at 31 March 2019.

On behalf of the board:

Simon Paul Wombwell Date 20 December 2018Director

Directors' Report

The Directors present herewith their report in accordance with the requirements of the Companies Act 2006, together with the audited consolidated financial statements for the Group and Company for the year ended 30 September 2018.

Results and dividends

A summary of the Group's performance during the year is set out in the Chairman's Statement on pages 2 to 4.

The stated policy of the Group is to pay quarterly interim dividends and details of the interim dividends paid during the year are set out in Note 18 of the notes to the Group consolidated financial statements.

Total dividends of 3.96p per ordinary share were paid for the year ended 30 September 2018 (2017: 3.96p). These dividends amount to £3,829,799 (2017: £3,702,456). In accordance with the Directors' policy of paying all dividends as interim dividends, the Directors do not recommend payment of a final dividend.

Listing requirements

Throughout the accounting year ended 30 September 2018, the Group complied with the conditions set out in the TISE Rules for Companies. The Directors monitor the compliance at board meetings and take advice from the Group's TISE Listing sponsor where required.

Board of Directors

The following persons served as Directors during the year and up to the date of signing the financial statements:

Robert Malcolm Naish Paul Anthony Craig Simon Paul Wombwell

Third party indemnity provisions

The Company has made qualifying third-party indemnity provisions for the benefit of its Directors. These provisions were in force during the year and these remain in force at the date of this report.

Substantial shareholdings

At the quarterly board meetings, the Directors review the report of composition of shareholders to ensure compliance with the REIT rules (not be a close company).

As at 18 December 2018, the Group had been informed of the following notifiable interests in the voting rights of the Group, in accordance with DTR5:

Political donations

Neither the Company nor its subsidiaries has made any political donation or incurred political expenditure during the year.

Financial instruments

Details of the Group's use of financial instruments, together with information on policies and exposure to risk, can be found within the Strategic Report on pages 5 to 12 and in note 12 of the notes to the Group consolidated financial statements. This information is incorporated into this Directors' Report by reference and is deemed to form part of this Directors' Report.

Events after the reporting year

There are no events after the reporting year of note.

Going concern

At the year end date, the Group had a debt facility of £19.5 million, expiring on 15 November 2021, which was fully drawn down. The Directors have prepared cash forecasts in excess of two years and have concluded that sufficient cash reserves exist that enable them to continue to prepare the financial statements on a going concern basis.

Future developments

An indication of likely future developments in the Group can be found within the Strategic Report on pages 5 to 12. This information is incorporated into this Directors' Report by reference and is deemed to form part of this Directors' Report.

Statement of Directors' responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the parent company and of the profit or loss of the Group and parent company for that period. In preparing these financial statements, the Directors are required to:

l select suitable accounting policies and then apply them consistently;

l state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

l make judgements and accounting estimates that are reasonable and prudent; and

l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The Directors of the ultimate parent company are responsible for the maintenance and integrity of the ultimate parent company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to auditors

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and this will be considered at the next Annual General Meeting.

Each person who was a director at the time this report was approved confirms that:

l so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware; and

l he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Corporate Governance

The Board is committed to the highest standards of corporate governance, which meet the statutory and regulatory requirements for companies listed in Guernsey on the International Stock Exchange.

Leadership and governance

Although the Group does not fully comply with or is required to adhere to the UK Corporate Governance Code, the Directors place a great deal of importance on ensuring that high standards of corporate governance are maintained and, wherever possible, are committed to the principles of corporate governance contained in the UK Corporate Governance Code issued by the Financial Reporting Council ('the Code') in 2016.

Independent non-executive Directors

In reference to smaller companies, the Code recommends that at least two non-executive members of the Board (excluding the Chairman) should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement.

The Board continues to be composed of three non-executive Directors. The Board has carefully considered the Directors' independence and has determined that the Directors will discharge their duties in an independent manner.

The independence of each Director is considered on a continuing basis. The Board is satisfied that there is a balance of skills and experience, independence and knowledge of both the Group and the wider investment company sector, to enable it to discharge its respective duties and responsibilities effectively and that no individual or group of individuals is, or has been, in a position to dominate decision-making.

Board committees

The Board has established the Audit Committee and the Management Engagement Committee.

The Audit Committee meets at least once a year and reviews the financial reporting process and system of internal control and management of financial risks. The Audit Committee is responsible for overseeing the Group's relationship with the external auditors, including making recommendations to the Board on the appointment of the external auditors and their remuneration. The Audit Committee considers the nature, scope and results of the auditors' work and reviews. The Audit Committee primarily focuses on compliance with legal requirements, accounting standards and the TISE Listing Rules and ensures that an effective system of internal financial and non-financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and financial statements remains with the Board.

The Management Engagement Committee comprises Malcolm Naish, who chairs the committee, and Paul Craig. The committee meets a minimum of once a year. The function of the committee is to ensure that the Investment Manager complies with the terms of the Investment Management Agreement and that the provisions of the agreement follow industry practice and remain competitive and in the best interests of shareholders. The Management Engagement Committee will also consider the appointment, remuneration and performance of suppliers of services to the Group.

The Directors have not established remuneration or nomination committees as they do not believe that such committees would be appropriate given the nature of the Group's operations. The Board annually reviews the remuneration of the Directors and agrees the level of non-executive fees. The Board actively considers future succession plans as well as consideration as to whether the Board has the skills required to manage the Group effectively. The assessment of the performance of the Chairman is determined by the other Directors.

Board meetings and attendance

The Board meets at least four times each year. Additional meetings are also arranged as required and regular contact between Directors and the Investment Manager is maintained throughout the year. Representatives of the Investment Manager and Company Secretary attend each Board meeting and other advisers also attend when requested to do so by the Board.

All three Board members have attended all Board meetings throughout the year.

The Investment Manager

Under the Investment Manager Agreement, the Board has delegated day-to-day responsibility for running the Group to the Investment Manager. To ensure open and regular communication between the Investment Manager and the Board, the Investment Manager is invited to the Board meetings where appropriate, to report on matters such as the Group's portfolio management, financial reporting, and wider corporate and operational activities.

Shareholders

The Board encourages two-way communication with both its institutional and private investors and responds quickly to queries received either orally or in writing. All shareholders will be given at least 21 days' notice of the Annual General Meeting ('AGM'), where all Directors and committee members will be available to answer questions.

At the AGM all votes will be dealt with on a show of hands and the number of proxy votes cast is indicated. Votes on separate issues will be proposed as separate resolutions. The Investment Manager and corporate broker N+1 Singer Capital Markets Limited regularly update the Board with the views of shareholders and analysts.

Internal control

The Investment Manager is responsible for operating the Group's system of internal control and reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable but not absolute assurance against material misstatement or loss. The Audit Committee will review annually the Investment Manager's approach to internal control to ensure it is working effectively. There were no internal control breaches during the year.

Financial and business information

The Board is responsible for preparing the Annual Report and the financial statements. The Board believes when taken as a whole they are fair, balanced and understandable, and provide the information necessary to assess the Group's performance.

Anti-bribery and corruption

The Board has a zero tolerance policy towards bribery and is committed to carrying out business fairly, honestly and openly. In considering The Bribery Act 2010, at the date of this report, the Board has assessed the perceived risks to the Group arising from bribery and corruption and to identify aspects of business which may be improved to mitigate such risks.

This report was approved by the board and signed on its behalf by:

Simon Paul Wombwell Date 20 December 2018

Director

Company registered number: 8041022

Independent auditors' report to the members of Ground Rents Income Fund plc

Report on the audit of the financial statements

Opinion

In our opinion, Ground Rents Income Fund plc's Group financial statements and parent company financial statements (the "financial statements"):

l give a true and fair view of the state of the Group's and of the parent company's affairs as at 30 September 2018 and of the Group's loss and the Group's and the parent company's cash flows for the year then ended;

l have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company's financial statements, as applied in accordance with the provisions of the Companies Act 2006; and

l have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Financial Statements (the "Annual Report"), which comprise: the consolidated and company statements of financial position as at 30 September 2018; the consolidated statement of comprehensive income, the consolidated and company statements of cash flows, and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our audit approachOverview

 The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

We determined that there were no key audit matters applicable to the parent company to communicate in our report.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the parent company, the accounting processes and controls, and the industry in which they operate.

The Group engagement team audited all entities within the Group and therefore all audit matters relevant to the Group were communicated on a frequent basis.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £40 and £417,509. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £67,488 (Group audit) (2017: £74,444) and £47,878 (Parent company audit) (2017: £47,329) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

l the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

l the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's and parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and parent company's ability to continue as a going concern.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 and ISAs (UK) require us also to report certain opinions and matters as described below.

Strategic Report and Directors' Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 30 September 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the Group and parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors' responsibilities set out on page 13, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's and the parent company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Use of this report

This report, including the opinions, has been prepared for and only for the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you, if, in our opinion:

l we have not received all the information and explanations we require for our audit; or

l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

l certain disclosures of directors' remuneration specified by law are not made; or

l the parent company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Daniel Brydon (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Manchester Date 20 December 2018

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2018

The financial statements on pages 22 to 41 were approved and authorised for issue by the board of directors and signed on its behalf by:

Simon Paul WombwellDirector

Ground Rents Income Fund plc Date 20 December 2018Company registered number: 8041022

The accompanying notes on pages 26 to 41 form an integral part of the consolidated financial statements.

Consolidated Statement of Cash Flowsfor the year ended 30 September 2018

The accompanying notes on pages 26 to 41 form an integral part of the consolidated financial statements.

Consolidated Statement of Changes in Equity

for the year ended 30 September 2018

The accompanying notes on pages 26 to 41 form an integral part of the consolidated financial statements.

Notes to the Consolidated Financial Statements

for the year ended 30 September 2018

1 Accounting policies

Ground Rents Income Fund plc (the 'Company') is a public limited company incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the 'Group').

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, IFRS IC interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS and issued by the International Accounting Standards Board (the 'IASB').

(b) Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of ground rent properties. They are presented in sterling, which is the Group's functional currency.

At the year end date, the Group had a fully drawn down debt facility of £19,500,000, expiring on 15 November 2021. The Directors continue to prepare the financial statements on a going concern basis.

The accounting policies have been consistently applied to the results, assets, liabilities and cash flows of the entities included in the consolidated financial statements are consistent with those of the previous year.

(c) Adoption of new and revised standards

The following new EU-endorsed standards, amendments to standards and interpretations are mandatory for the first time for the financial years ending 30 September 2018, but have not had an impact on the amounts reported in the Group financial statements:

Amendments to IAS 7 'Statement of cash flows' - on the disclosure initiative

Amendments to IAS 12 'Income taxes' - on the recognition of deferred tax assets

In addition to the above, the following new EU-endorsed standards, amendments to standards and interpretations have been issued and are effective for financial years beginning on or after 1 October 2018 or later, but have not been early adopted:

IFRS 9 'Financial instruments'

IFRS 15 'Revenue from contracts with customers'

IFRS 16 'Leases'

In July 2014, the IASB issued the final version of IFRS 9 - Financial Instruments that replaces IAS 39 - Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. Overall, the Directors expect no significant impact from IFRS 9 on the financial statements.

IFRS 15 - Revenue from Contracts with Customers is a converged standard from the IASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. It is more prescriptive in terms of what should be included within revenue than IAS 18 - Revenue. The Directors do not expect the application of IFRS 15 to have a significant impact on the Group's financial statements.

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019.

The impact of the following new standards and amendments will be assessed in detail prior to adoption. However, at this stage the Directors do not anticipate them to have a material impact on the amounts reported in the Group financial statements:

26

Ground Rents Income Fund plc

Notes to the Consolidated Financial Statements

for the year ended 30 September 2018

1 Accounting policies (continued)

(d) Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's directors.

(e) Critical accounting estimates and judgements

The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions. Use of available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported. In this regard, management believes that the accounting policies where judgement is necessarily applied are those that relate to valuations. The estimation of the underlying assumptions are reviewed on an ongoing basis.

The valuation of investment properties is dependent on external factors such as the availability of fixed rate investments in the market as well as factors specific to the nature of the investment. While interest rates remain low, ground rents are viewed as attractive investments due to the secure, fixed income streams. The value is also dependent on the timing and amount of future rental uplifts, the most attractive being those linked to RPI with rental cycles of 10 years or less. The least attractive are those ground rents which are flat with no future uplifts.

Property valuations often refer to the YP multiple, otherwise known as Years Purchase (equivalent to the valuation divided by the current ground rent).

Valuations are provided by an independent third-party valuer and reviewed carefully by the Directors before inclusion in the financial statements. Further information about the qualifications of the independent third-party valuer and the valuation methods can be found in note 8.

(f) Basis of consolidation

The Group's financial statements comprise a consolidation of the financial statements of the parent company (Ground Rents Income Fund plc) and its subsidiaries. The financial statements of the subsidiaries are prepared using consistent accounting policies. Subsidiaries are entities controlled by the Group and control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities. The financial statements of the subsidiaries are included from the date on which control is transferred to the Group. Financial statements of subsidiaries are deconsolidated from the date on which control ceases.

All intra-group transactions and balances are eliminated on consolidation.

(g) Revenue

Revenue represents the value of ground rent income due in the period together with any supplementary income earned in the year, including insurance income, tenant fees and other income. Ground rent revenue is recognised on a straight line basis over the term receivable.

(h) Finance income and expenses

Finance income comprises interest receivable on bank deposits. Finance expenses comprise interest and other costs incurred in connection with the borrowing of funds. Finance income and expenses are recognised in the income statement in the period in which they are accrued.

(i) Taxation

Tax on the profit for the year comprises current tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the year end date.

(j) Deferred tax

Generally, the Group is not exposed to deferred tax because it is a REIT. REITs do not pay tax on property income and gains.

(k) Investment properties - ground rents

Ground rents are carried in the statement of financial position at their open market value. The Directors have applied the fair-value model in IAS 40 - Investment Property. Properties are revalued at the statement of financial position date by an independent valuer. Expenses that are directly attributable to the acquisition of a ground rent are capitalised into the cost of investment. Gains and losses on changes in fair value of ground rent assets are recognised in the income statement. The Directors instruct the independent valuers from time to time as the need arises. Gains and losses on changes in fair value are recognised at the time of each valuation.

(l) Cash and cash equivalents

Cash comprises of call deposits held with banks.

(m) Capital management

The capital managed by the Company consists of cash held across different bank accounts in several banking institutions. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maximise the interest return on funds which have yet to be invested while ensuring there is enough free cash to meet day to day liabilities. In order to maintain or adjust the capital structure the Directors have the option to adjust the dividends paid to shareholders, return cash to shareholders, sell assets or delay purchase of individual assets. The Group monitors capital through cash and dividends which are prepared and reviewed on a quarterly basis. The Company had £5,566,561 of cash at the year end. The Directors intend to retain an amount for working capital at least equal to the next quarter's dividend payment. The Group has a fully drawn down £19,500,000 debt facility which expires on 15 November 2021. See note 12 - Financial Instruments for further information on the loan. Associated costs are capitalised and amortised over the duration of the loan.

(n) Trade and other receivables

Trade and other receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. They are initially recognised at fair value and subsequently held at amortised cost.

(o) Trade and other payables

Trade and other payables are obligations to pay for services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classed as current liabilities if payment is due within one year or less. They are initially recognised at fair value and subsequently held at amortised cost.

(p) Deferred income

Deferred income arises because ground rents are usually billed annually in advance. Deferred income is held in the deferred income account within payables and released against the income statement over the period to which it relates.

(q) Amortisation of loan arrangement fees

Loan arrangement fees are capitalised and deducted from the amount outstanding on the loan. They are expensed to the profit and loss account over the period of the loan facility. This loan amortisation is included within finance expenses in the financial statements. The amount of the charge to the profit and loss accounts for loan arrangement fees in the year was £94,052 (2017: £61,090).

(r) Ordinary share capital

Ordinary share capital is classed as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction from the share premium account.

(s) Warrants

Warrants were issued on a one for five basis with the issue of the Ordinary Share Capital in August 2012. Each warrant gives the holder the right to subscribe for an ordinary share for £1 on the anniversary of their issue for a period of ten years.

2 Segmental information

The Company is mainly concerned with the collection of ground rent. The company receives some ancillary income to which it is entitled as a result of its position as property freeholder or head leaseholder.

All income of the Group is derived from activities carried out within the United Kingdom. The Group is not reliant on any one property or group of connected properties for the generation of its revenues. The board is the chief operating decision maker and runs the business as one segment.

No direct operating expenses were incurred in relation to investment property in the year. Profits on sale of ground rents and leasehold property were £165,469 (2017: £3,375).

4 Directors' emoluments

The Company does not have any employees other than the Directors.

The services of Simon Paul Wombwell as a director of the Group are provided by Brooks Macdonald Funds

Limited and invoiced on a monthly basis.

Fair value hierarchy

Non-financial assets carried at fair value, as is the case for investment property held by the Group, are required to be analysed by level depending on the valuation method adopted under IFRS 12 'Fair Value Measurement'.

The fair value hierarchy has the following levels:

Level I: Quoted prices (unadjusted) in active market for identical assets and liabilities.

Level II: Inputs other than quoted prices included within Level I that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices).

Level III: Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs).

There have been no transfers between Level II and Level III of the fair value hierarchy during the year. All investment property held by the Group is classified as Level III.

Key assumptions within the basis of fair value are:

The value of each of the Properties has been assessed in accordance with the relevant parts of the Royal Institution of Chartered Surveyors Valuation - Global Standards 2017, incorporating the IVSC International Valuations Standards (the 'RICS Red Book'), which is consistent with IFRS 13 measurement requirements. The RICS Red Book provides two definitions of Fair Value (FV). The one appropriate for the IFRS basis of accounting is as follows:

"The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date".

The commentary under VPS 4 (1.5.3) of the Red Book states that, for most practical purposes, Fair Value is consistent with the concept of Market Value and there is no difference between the two.

The Group's investment in ground rents was revalued at 30 September 2018 by Savills Advisory Services Limited ('Savills'). The valuer has confirmed to the Directors that the fair value as set out in the valuation report has been primarily derived using comparable recent market transactions on an arm's length basis.

The valuer within Savills is a RICS Registered Valuer. Most of the properties have previously been valued by Savills when they were acquired and from time to time as requested by the Directors. The valuation of ground rents takes into account external factors such as interest rates and the availability of other fixed rate investments in the market.

The valuation of a ground rent depends on the future rental uplift timing and nature. The most valuable ground rent assets are those which are RPI linked with reviews every 10 years or less. Other types of ground rents are doubling where the rent doubles at a fixed time interval and fixed increases where the uplifts are fixed and detailed in the lease. The least attractive ground rents are those which are flat with no future rental increases which attract the lowest Years Purchase (YP) multiple and the highest yield.

Information about fair value measurement using significant unobservable input (Level III):

Valuation Category - type of rent review

All categories of ground rent asset have been valued by independent valuers using available market comparisons. During the year, some assets held with doubling rent reviews transitioned to a flat review profile.

The table below shows the principal sensitivity to the key valuation metrics and the resultant change to the valuation.

Included in other receivables is £221,864 (2017: £234,088) held in a client account at the Company's solicitors which was for deals in progress to complete after the year end date, in addition to an £83,000 deposit (2017: £83,000). The fair value of trade and other receivables is equal to the book value.

Trade payables and other taxes and social security amounts fall due within the next three months.

The current loan facility is with Santander UK plc and has a termination date of 15 November 2021. The rate of interest payable on the loan is set in advance at 1.097% for the first tranche of £15,000,000 and 0.986% for the second tranche of £4,500,000. Both of these rates are to subject to an additional 2.300% margin, giving the fully drawn loan a composite rate of 3.371%.

The loan facility is secured over assets held in group companies, namely Admiral Ground Rents Limited, Clapham One Ground Rents Limited, GRIF040 Limited, GRIF041 Limited, GRIF044 Limited, GRIF048 Limited, Masshouse Block HI Limited, Masshouse Residential Block HI Limited, North West Ground Rents Limited, OPW Ground Rents Limited, The Manchester Ground Rent Company Limited and Wiltshire Ground Rents Limited.

No security or guarantee exists in relation to the facility over any other group assets or assets within the parent company.

The loan facility includes loan-to-value of and interest cover covenants that are measured at a Group level and the Group has maintained significant headroom against all measures throughout the financial year. The Group is in full compliance with all loan covenants at 30 September 2018.

Borrowing restrictions

The Group has self-imposed borrowing restrictions of 25% of gross assets, these being the Group's investment properties - ground rents. At 30 September 2018, this was 15.3% (30 September 2017: 13.7%).

Leverage ratio

For the purposes of the AIFMD, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives.

It is expressed as a ratio between the Group's gross assets and its NAV and is calculated under the gross and commitment methods, in accordance with AIFMD. This differs to the Group's borrowing restriction which is expressed as an absolute measure as quoted above.

The Group is required to state its maximum and actual leverage levels, calculated as prescribed by the AIFMD as at 30 September 2018, and are as follows:

Leverage exposure

Maximum limit Actual

Gross method 175% 114%

Commitment method 175% 119%

The gross method represents the sum of the Group's positions (total assets) after deducting cash balances. The commitment method represents the sum of the Group's positions without deducting cash balances.

12 Financial instruments

The Group's financial instruments comprise cash and various items such as trade and other receivables and trade and other payables which arise from its operations. The Group does not have any 'held to maturity' or 'available for sale financial assets' or 'held for trading financial assets and liabilities' as defined by IAS 39.

Financial assets carried at amortised cost

The book value, fair value and interest rate profile of the Group's financial assets, other than non-interest bearing short-term trade and other receivables, for which book value equates to fair value, were as follows:

As of 30 September 2018 no trade receivables (2017: £nil) were impaired or provided for.

Financial liabilities carried at amortised cost

The book value, fair value and interest rate profile of the Group's financial liabilities, other than non-interest bearing short-term trade and other payables, for which book value equates to fair value, were as follows:

Financial risk management

The Group has identified the risks arising from its activities and has established policies and procedures as part of a formal structure of managing risk.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maximise the interest return on funds which have yet to be invested while ensuring there is enough free cash to meet day to day liabilities. In order to maintain or adjust the capital structure the Directors have the option to adjust the dividends paid to shareholders, return cash to shareholders, sell assets or delay purchase of additional assets. The Group monitors capital through cash and dividend forecasts which are prepared and reviewed on a quarterly basis.

A gearing ratio measures the proportion of a company's borrowed funds to its equity. The Group's gearing ratio at the year end date was as follows:

Credit risk

Cash deposits are placed with a number of financial institutions whose financial strength and credit quality have been considered by the Directors based on advice received from the AIFM. The panel of suitable counterparties is subject to regular review by the Board.

Interest rate risk

The Company places excess cash of the Group on deposit in interest bearing accounts to maximise returns.

Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due. The AIFM manages and monitors short-term liquidity requirements to ensure that the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash obligations can be met.

13 (Losses)/earnings per shareBasic (losses)/earnings per share

(Losses)/earnings used to calculate earnings per share in the financial statements were:

Basic losses/earnings per share have been calculated by dividing losses/earnings by the weighted average number of ordinary shares in issue throughout the year.

Weighted average number of shares in issue in the year 96,726,613 93,565,248

Basic (losses)/earnings per share (11.05p) 4.98p

Diluted (losses)/earnings per share

Diluted (losses)/earnings per share is the basic (losses)/earnings per share, adjusted for the effect of contingently issuable warrants in issue during the year, weighted for the relevant periods.