by Below you will find our Q1 2023 performance announcement. This includes annual revaluations of trading properties across the portfolio, in addition to updated financial information on all trading properties, property disposals, dividends and other important information for investors.
For properties already determined for disposal through their 5-year anniversary process, updated information will be announced on 15 May, including share valuations, individual unit details and progress on sales.
To ensure that all clients have the opportunity to consider this announcement, the LHX Exchange will be suspended as usual, for 3 working days, re-opening at 10am on Thursday 4 May 2023.
Important upcoming dates
| 2 May | 5-year anniversary processes: voting commences Dutch Quarter II Mortgage Bond: details announced |
| 4 May 10.00am | LHX Exchange reopens for trading |
| 9 May 11.00am | Dutch Quarter II Mortgage Bond: open to Dutch Quarter II shareholders |
| 11 May 11.00am | Dutch Quarter II Mortgage Bond: open to all suitable investors |
| 15 May 10.00am | 5-year anniversary properties (those already voted for sale) information updated |
| 16 May 11.00am | Dutch Quarter II Mortgage Bond funding period ends 5-year anniversary processes: votes end, block-listings commence |
| 30 May 11.00am | 5-year anniversary processes: block-listings close |
| 31 May | May activity update published |
Today’s announcements
1. Portfolio performance
2. Independent property revaluations
3. Dividend distributions
4. LHX Mortgage Bond
5. Better’s investment & LHX All-Share plan
6. April 5-year Anniversary Properties
7. Disposals of individual units within blocks
8. Property development loans
9. Properties with fire safety issues
10. Upcoming quarterly announcements
1. Portfolio performance
Today we have updated every property’s performance, as we do each quarter, including net income, mortgage details and net cash position. You can find this information at the top of every property’s respective investment page, in the ‘Financials’ section.
The ‘Individual Unit Details’ section, a tab within the ‘Financials’ section, which provides detailed information on a unit-by-unit basis has also been updated to reflect the annual revaluations in addition to the standard monthly status and unit sales update.
Inflation remains high at over 10% and interest rates have continued to rise in the last quarter. The current BoE base rate stands at 4.25% with a further rate rise expected in May. The large increase in the cost of borrowing has been the most significant factor impacting both our portfolio and the broader housing market in the last 15 months, leading to falling house prices and reduced transaction volumes. Our annual revaluations reflect this downward trend in the market with an overall decrease of 1% in the value of the portfolio (all trading properties).
Despite the downturn in the housing market our programme of property disposals, both discretionary sales and 5-year anniversary properties, has continued. Over the quarter we have sold 18 units, with a combined value of £2.9m. These sales continue to produce strong results, with prices on average 2.6% above vacant possession value and 20% above purchase price.
Proceeds from these sales have primarily been used to pay down mortgages, along with other strategies to deleverage the portfolio, including: reduction/suspension of dividend payments, utilising substantial cash surpluses and capital injections through fundraising (most recently with the successful launch of the LHX Mortgage Bond).
The combined outcome of these actions has meant that since December 2021, we have reduced the loan-to-value (LTV) ratio across our portfolio by 11.5%, saving tens of thousands of pounds of interest on an annual basis.
Our other primary focus has been maximising gross rent and reducing property management costs. In the 12 months to 31 March 2023, the portfolio has exhibited strong rental performance, delivering 6.5% rental growth across 317 units (this does not include units that we have vacated for sale). This performance is 28.1% above the UK average of 4.9% over the same period (ONS Index of Private Housing Rental Prices).
2. Independent property revaluations
In March of each year, every property on the Exchange undergoes an annual revaluation by Allsop LLP, an independent RICS-accredited surveyor.
Below we provide a breakdown of the valuation figures, both in the context of Land Registry / ONS data for the 12 months February-22 to February-23 and in the longer term, 5 years to February-23 (February-23 being the latest available data). We also look at the variation by property type and region for a more nuanced illustration of performance to date.
| Portfolio weighting | LHX March-23 vs March-22 | LHX March-23 vs purchase (5-years avg.) | ONS / Land Registry February-23 vs February-22 | ONS / Land Registry February-23 vs 5-years | |
|---|---|---|---|---|---|
| London residential | 8% | -3.1% | -0.5% | 3.0% | 11.6% |
| Flats | 5% | -6.1% | -10.1% | 1.4% | 4.3% |
| Houses | 3% | 2.0% | 20.5% | 4.5% | 20.5% |
| Regional residential* | 52% | -1.5% | 28.0% | 6.7% | 29.9% |
| Flats | 37% | -1.1% | 14.6% | 3.9% | 15.2% |
| Houses | 15% | -2.5% | 79.8% | 6.9% | 32.2% |
| Student accommodation | 40% | 0.0% | -6.9% | N/A | N/A |
| Total | 100% | -1.0% | 9.10% | N/A | N/A |
* Regional residential property is located in English regions only
Residential property type
| Portfolio weighting | LHX March-23 vs March-22 | LHX March-23 vs purchase (5-years avg.) | ONS / Land Registry February-23 vs February-22 | ONS / Land Registry February-23 vs 5-years | |
|---|---|---|---|---|---|
| Flats | 70% | -1.7% | 11.0% | 2.9% | 10.7% |
| Houses | 30% | -1.8% | 65.8% | 6.6% | 31.3% |
| Total | 100% | -1.7% | 23.2% | 6.1% | 27.4% |
*ONS / Land Registry Data for England Only
The large increase in the cost of borrowing has been the most significant factor impacting the housing market over the last 12 months, leading to falling house prices, as illustrated by all major house price indices (Halifax, Nationwide, Rightmove, ONS and e.surv Acadata) and reduced transaction volumes. Data from HMRC shows that UK residential transactions were 18% lower in February 2023 than in February 2022 (HMRC).
As the revaluations highlight, our portfolio valuation results over the last 12 months are reflective of this market trend, but in the short term have underperformed in comparison to the ONS / Land Registry Data. It is important to note that our portfolio valuations are reflective of the market value now, whereas Land Registry data includes a lag from time of purchase to registration and therefore is slower to highlight current market trends.
The modest overall down valuation masks some very positive longer term performance. Houses have been the best performing property type in the UK on account of the shift in buyers’ priorities in the wake of the Covid pandemic. The portfolio reflects this trend, but our valuations have significantly outperformed the market with a 65.8% uplift since purchase (driven primarily by Golden Hill Fort) – more than double the 31.3% market increase. ‘Regional’ houses have exhibited a 79.8% increase in value since purchase, as buyers seek more space away from urban centres as working patterns have become more flexible.
London property, especially flats, has been the worst performing property type in the portfolio and in the wider market. This is primarily due to the aforementioned trends that are impacting house values. However, in London this impact is amplified by the fact that values were already significantly higher than other regions. Flats without outside space have been particularly badly affected by the changing demands of buyers and this largely explains the underperformance of flats in our portfolio.
For all properties, Allsop’s latest valuation survey is available on each property’s respective page on our website. For those properties that increased or decreased in value by 5% or more, we have provided additional discussion in the properties’ Investment Cases. In addition, clients can review what Allsop regarded as the most relevant comparable transactions for each property to inform their valuation here.
3. Dividend distributions
From 6 May, one property will stop paying a dividend, Ty Glyn, Bangor. All 12 remaining properties dividend distributions will be unchanged with an average yield of 4.4%.
We will continue to drive net rental yields up and mortgage LTVs down, but in the short term, it remains the case that a number of properties will continue to face mortgage interest headwinds that preclude dividend distributions.
4. LHX Mortgage Bond
Interest rates have risen significantly in the last 15 months and mortgage interest costs have risen dramatically across the portfolio. The ISA-eligible LHX Mortgage Bond was created to enable us to transfer the banks’ profit margin to our investors through the issuance of bonds that replace mortgages on selected properties in the portfolio.
The bond offers advantages over the current mortgage, including: the removal of monthly interest payments, recurring bank fees for mortgage extensions and the risk of mortgage default.
Our first Garden Court Mortgage Bond successfully raised £498,000 and we received a significant amount of positive feedback from clients. The bond completed on 26 April, the mortgage has been redeemed, the First Legal Charge in favour of bondholders is in place, and bondholders started accruing 8% p.a. in interest from 26 April.
We will be launching the next ISA-eligible Mortgage Bond on 9 May, paying 8.25% p.a., with further details to be announced on 2 May.
5. Better’s investment & LHX All-Share plan
Better’s direct investment in the Exchange began in February for 3-months which has now come to an end. Over this period, their direct investment has created greater liquidity and more efficient pricing across the marketplace.
Alongside Better’s investment, funds invested in the LHX All-Share Investment Plan have been successfully deployed. Since inception in February, the All-Share has delivered a compelling portfolio:
- February: 39 properties, 25% discount to Vacant Possession Value (after all fees and taxes) representing a 34% unrealised capital gain
- March: 32 properties, 27% discount to Vacant Possession Value (after all fees and taxes) representing a 37% unrealised capital gain
- April: 35 properties, 33% discount to Vacant Possession Value (after all fees and taxes) representing a 49% unrealised capital gain
Despite the end of Better’s direct investment in the Exchange, the LHX All-Share Investment Plan will continue to remain open and funds will be deployed in the same way; highly diversified and targeting capital discounts across the portfolio. Customer funds are invested on a monthly basis and our May deployment is open for funding until 11.59pm on 30 April.
6. April 5-year Anniversary Properties
4 properties underwent their 5-year anniversary process in April:
- 3 blocklistings were not fully funded by shareholders and the properties will now be sold (unit-by-unit to maximise value) and net proceeds will be returned to shareholders:
- 1 blocklisting completed as all shares were purchased by investors. As a result, this property will remain on the Exchange:
7. Disposals of individual units within blocks
These are discretionary sales of individual units within a block, where shareholders in each property have voted for the unit sale. Reasons for these sales include: reduction in expensive mortgages, reduction of net cash deficits, reduction of mortgage refinance risk, etc.
Clients can see the performance of these sales in the Individual Unit Details of each property and on our Selling Record.
A summary of these disposals:
- 38 unit sales completed
- 15 units currently under offer
- 12 additional units on the market
8. Property development loans
Of the 16 development loans that our clients have funded, 11 have been repaid in full with interest, returning £6.4m with an average return of 10.1% p.a.
You can find the latest updates on the outstanding loans on their respective investment pages here.
9. Properties with fire safety issues
The UK-wide fire safety scandal affecting high rise blocks continues. Where we are the freeholder we have acted swiftly, as has been the case with Tower Mint Apartments where works were completed at the end of 2022 and the property is now free of fire safety issues. We are working hard to resolve these outstanding issues and recently received the positive news that for Premier House, the freeholder had obtained the full grant funding approval for the full costs of the cladding remediation. The government is continuing to address the issues across the UK, but the situation remains far from resolved.
For further details on this and 7 properties that remain impacted, read the latest update on each affected property’s Latest Update section.
10. Upcoming quarterly announcements
31 July 2023 – market closed from 10 am that day until 10am, 3 August 2023
31 October 2023 – market closed from 10 am that day until 10am, 3 November 2023
If you have questions about these announcements, please email us at support@londonhouseexchange.com
Best wishes,
The LHX team
