Q3 2023 Portfolio Performance Announcement

Below you will find our Q3 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. 

To ensure that all clients have the opportunity to consider this announcement, the Exchange will be suspended as usual, for 3 working days, re-opening at 10am on Friday 3 November 2023.

Important upcoming dates 

1 November5-year anniversary processes: voting commences
3 November 10.00amLHX Exchange reopens for trading
6 November Dividends for the month of October paid
15 November 11.00am5-year anniversary processes: votes end, block-listings commence
29 November 11.00am5-year anniversary processes: block-listings close
30 November November activity update published

Today’s announcements

  1. Portfolio performance
  2. Dividend distributions
  3. LHX Mortgage Bonds
  4. October/November 5-year Anniversary Properties
  5. Property development loans
  6. Properties with fire safety issues
  7. Upcoming quarterly announcements

1. Portfolio performance

Today (31 October 2023) 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 on each property’s investment page 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. This tab is updated monthly and allows you to track sales progress for all properties voted for sale as part of their 5-year anniversary process. 

All information is updated to 30 September 2023. 

Market overview

Despite significant increases in the interest base rate, inflation continues to remain stubbornly high at 6.7% in the 12 months to September 2023 (Office for National Statistics). While the headline figure remained unchanged from August, core inflation was very slightly down in September and inflation is predicted to decrease in October on account of falling food prices. There is therefore an increasing likelihood that the Bank of England will hold interest rates at 5.25% at the next MPC meeting on 2 November; however with the UK’s inflation level remaining the highest in the G7 by a considerable margin, further rate rises are not out of the question. 

The significant increases in the cost of borrowing and the impact this has on housing affordability is placing downward pressure on house prices and this is being reflected in market data. Nationwide reported a 5.3% fall in house prices in the 12 months to September 2023 and Halifax a 4.7% fall over the same period. These decreases are broadly in line with house price predictions from industry experts; with Savills predicting a 10% fall in house prices in 2023, Knight Frank a 5% fall, JLL a 6% fall and the Office for Budget Responsibility a 7.2% fall. 

The number of transactions in the market is also down, with data from HMRC showing that the number of UK residential transactions in August 2023 was 16% lower than August 2022. Moreover, HMRC provisional data is showing that 2023/24 transaction numbers in the financial year to date will be the lowest in the last 10 years, bar 2020/21 when the country was in a protracted period of lockdown; a view recently echoed by Zoopla, who predict there will be circa 1 million transactions this year, 20% lower than the long-term average. 

Residential portfolio unit status

The table below gives a summary of unit status by category across the residential portfolio at 30 September 2023. The changes since 31 March 2023 continue to highlight the 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 202330 September 2023
To let (vacant)1047
For sale (vacant)525479
Under offer (vacant)446053
Total current units445429408

Rental performance

We have been proactively carrying out rent reviews across the portfolio, leading to increased rental performance. Across 269 tenanted residential units, contracted rent grew by 8.6% in the 12 months to the end of September 2023. By comparison, average rental growth across UK private rented residential property was 5.7% over the same period (ONS Index of Private Housing Rental Prices). 

Unit sales

There were 18 residential units sales completed in Q3 2023, amounting to £3.84m in property value. Across these completed unit sales, sales prices were on average 0.4% below their vacant possession value (VPV) and 9% above their purchase price. 

Despite the housing market slowdown we are continuing to sell a large number of units, however as we reported in Q2 2023, we are continuing to experience a marked increase in agreed sales falling through, primarily due to mortgage affordability. In line with market trends, we are seeing longer than average sales periods, and in some cases, lower offer prices compared to the most recent independent valuations (e.g. on some units the highest offers have been lower than the valuation). 

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

Mortgage debt

As it stands, the average interest rate across our mortgaged portfolio remains at 8.2%, which is unaffordable for the majority of residential properties. The cost of servicing mortgage debt erodes rental income and is the primary reason for dividend suspension across the portfolio. 

We are continuing to pay down mortgage debt wherever possible, predominantly through unit sales and £2.8 million of mortgage finance was repaid during the last quarter. The total portfolio mortgage loan-to-value (LTV) reduced to 45.4% at 30 September 2023, from 46.3% at 30 June 2023. 

2. Dividend distributions

From 6 November, one property will restart paying dividend, Compass Court, Eastbourne at 2.50% p.a. 

The average net dividend yield on the 8 properties distributing dividends is 4.25%.

3. LHX Mortgage Bonds

Following recent unit sales in Mortgage Bond properties during Q3, there has partial repayment of capital with interest in 2 bonds and full repayment of capital and interest in 1 bond:

  • The Jubilee Mansions Mortgage Bond has been repaid in full with interest. Bondholders achieved a total return equivalent to an average interest rate of 9.14% p.a. accounting for increases in the Base Rate over the bond’s term. 
  • The 15 & 25 Anchor Point Mortgage Bond has been partially repaid with pro rata interest, equivalent to an interest rate of 9.25% p.a. 25% of the mortgage bond remains in place, secured with first legal charge on the remaining unit with bond investors continuing to accrue interest at a current rate of 9.25% p.a.
  • The Garden Court Mortgage Bond has been partially repaid with pro rata interest, equivalent to an interest rate of 8.68% p.a accounting for increases in the Base Rate over the bond’s term. 51% of the Mortgage Bond remains in place, secured as first legal charge on the remaining units, with bond investors continuing to accrue interest at a current rate of 9.00% p.a.

The Mortgage Bonds and their rates are presented below, but please note the next Bank of England base rate decision is coming up on 2 November 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 Drayton*9.00%
Dutch Quarter II, Colchester9.25%
Flats 7 & 9 Anchor Point, Surrey Quays9.25%
Flats 15 & 25 Anchor Point, Surrey Quays*9.25%
Keogh House, Swindon8.25%
Jubilee Mansions, Barons CourtFully repaid, with interest

* Indicates partial repayment of capital with interest following unit sales. 

Mortgage Bonds page

4. October/November 5-year Anniversary Properties

Four properties underwent their 5-year anniversary process in October. All 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:

4 properties are undergoing their 5-year anniversary process in November, with voting commencing on 1 November: 

5. Property development loans

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

30 April 2024  – market closed from 10 am that day until 10am, 3 May 2024

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

Best wishes, 

The LHX team