Q2 2023 Performance announcement

Below you will find our Q2 2023 performance announcement. This includes; updated financial information on all properties, updated individual unit details, property disposals, development loans, dividends and other important information for investors. This includes an important update for 5-year anniversary properties regarding the sale of properties more than 5% below their independent valuation (please see Portfolio Performance section in the announcement for further information).

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 3 August 2023.

Important upcoming dates 

1 August 5-year anniversary processes: voting commences
3 August 10.00amLHX Exchange reopens for trading
5 August Dividends for the month of July paid
15 August 11.00am5-year anniversary processes: votes end, block-listings commence
29 August 11.00am5-year anniversary processes: block-listings close
31 AugustAugust activity update published

Today’s announcements

1. Portfolio performance

2. Dividend distributions

3. LHX Mortgage Bonds

4. July 5-year Anniversary Properties

5. Property development loans

6. Properties with fire safety issues 

7. Upcoming quarterly announcements

1. Portfolio performance

Today we have published updated financial information for every property, including net income, mortgage details and the net cash position. You can find this information at the top of each 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 latest status of every unit and contracted rent for let units. Where units are under offer for sale the agreed sale price has been added for the first time.

The table below gives a summary of unit status by category across the residential portfolio at 30 June 2023. The changes since 31 March 2023 demonstrate the increasing focus on selling residential units, as we seek to repay mortgages and fulfil shareholder mandates to sell properties, following their 5-year anniversary votes.  

Residential unit status31 March 2023 30 June 2023
To let (vacant)104
For sale (vacant)5254
Under offer (vacant)4462
Total current units445431
Total units at purchase531531

Across 311 tenanted residential units, contracted rent grew by 9.3% in the 12 months to the end of June 2023, thanks predominantly to proactive rent reviews carried out. By comparison, average rental growth across UK private rented residential property was 5.1% over the same period, according to the ONS Index of Private Housing Rental Prices.

14 residential units sales completed in Q2 2023 and £1.2 million of mortgage finance was repaid during the quarter. The total portfolio mortgage loan to value reduced to 46.3%, from 47.4% at 31 March 2023. 

Across the market, significant increases in the interest base rate have started to have a modest impact on inflation, with a drop to 7.9% in the year to June (Office for National Statistics) down from 8.7% in April and May. Despite this, inflation remains high and further rises to the base rate are possible. The average interest rate across our mortgaged portfolio has risen to 7.9%, which is unaffordable for the majority of residential properties. 

Market indicators suggest that the cost of borrowing and broader macroeconomic uncertainty are placing downward pressure on both house prices and transaction numbers. Halifax reported a 2.6% fall in house prices in the 12 months to June 2023. Data from HMRC shows that the number of UK residential transactions in June 2023 was 9% below June 2022, while the May 2023 figure was 27% lower than May 2022. 

Across those unit sales which completed in Q2 2023, sale prices were on average 1.5% above their vacant possession value (VPV) and 16% above their purchase price. At the same time, we have experienced a marked increase in agreed sales falling through, with the most common reason being that the buyer’s mortgage offer has been withdrawn or has become unaffordable. Looking ahead, we expect the difficult conditions for buyers to translate into longer average sales periods and having to accept lower offer prices, relative to properties’ historic valuations, in some cases. 

Where residential properties have mortgages, we need to continue to sell units until these are repaid, as the cost of mortgage interest has become unsustainable. Based on contracted rental income and the current rate of mortgage interest cost, 48 out of 57 mortgaged residential properties are forecast to run at a monthly cash flow deficit from July 2023. 

For properties voted for sale through the 5-year anniversary process, this could mean that we have no choice but to sell units at prices which take the overall sale price more than 5% below the property’s anniversary valuation, which we previously announced as the minimum level at which we would sell, without returning for a further shareholder vote. In these cases, an update will be provided on the individual property page, with two properties currently in this position:

Flats 15 & 25 Anchor Point, Surrey Quays

Graham Road, Hendon

Once mortgages are repaid, shareholders will be offered a vote on whether to proceed with any further unit sales at prices below the previously announced minimum level. 

Where properties have not been voted for sale through the 5-year anniversary process, unit sales which are necessary to repay unaffordable mortgages will take place without shareholder votes on whether to proceed. In all cases, units will be marketed for sale on the open market for a sufficient period of time to secure the best possible price in current market conditions. 

Clients can see the performance of agreed and completed sales in the Individual Unit Details of each property and on our Selling Record.

2. Dividend distributions

From 6 May, four properties will stop paying a dividend as they are no longer generating sufficient rental profit to do so:

Vantage Building, Hayes

The Heights, West Bromwich

London Road, Brighton

Norman House (GAMA)

The 7 remaining properties dividend distributions will be unchanged with an average yield of 4.4%.

3. LHX Mortgage Bonds

To date we have completed 5 Mortgage Bonds, raising over £1.75m – representing 3.9% of total mortgage debt. The last Mortgage Bond, Jubilee Mansions, was successfully funded in June. 

The current Mortgage Bonds and their rates are presented below, but please note the next Bank of England base rate decision is coming up on 3 August and any change to the base rate will be immediately passed directly on to bondholders, changing the per annum interest rate for each of our Mortgage Bonds:

PropertyCurrent p.a. return 
Garden Court, West Drayton8.75%
Dutch Quarter II, Colchester9.00%
Flats 7 & 9 Anchor Point, Surrey Quays9.00%
Keogh House, Swindon8.00%
Jubilee Mansions, Barons Court9.00%

We are working on the release of further mortgage bonds in the coming months. View the Mortgage Bonds page here.

4. July 5-year Anniversary Properties

2 properties underwent their 5-year anniversary process in July. Both 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 once all units have been sold:

1 property is undergoing its 5-year anniversary process in August:

3 properties 5-year anniversary processes are being deferred due to fire-safety issues. Please refer to each properties Latest Update section: 

5. 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.

6. Properties with fire safety issues 

The UK-wide fire safety scandal affecting high rise blocks continues. We are working to help resolve outstanding issues where possible and the government is continuing to address the issues across the UK, but the situation remains far from resolved across our impacted properties. Our power to progress the situation is usually limited in our capacity as a leasehold owner of a small number of flats within a larger block, in all outstanding cases on our platform. 

For further details on this and 7 properties that remain impacted, read the latest update on each affected property’s Latest Update section.

7. Upcoming quarterly announcements

31 October 2023 – market closed from 10 am that day until 10am, 3 November 2023

31 January 2024 – market closed from 10 am that day until 10am, 5 February 2024

If you have questions about these announcements, please email us at support@londonhouseexchange.com

Best wishes, 

The LHX team