Introduction to Equity Fundraises

Summary of Terms

Properties selected for Equity Fundraises	Where a property's financial position is unsustainable, particularly due to high mortgage interest rates, and immediate action is required, shareholders will have a choice: A. Equity Fundraise; with the funding requirement determined by the financial position of the property in question. Funds raised will be used to strengthen its financial position while units are sold in an orderly manner to maximise value. B. Auction Sale; units to be sold at auction as soon as possible; we have been advised that auction sales typically result in approximately 20% discount to fair value. The outcome will be determined by a majority of shares voted.
Equity Fundraise timetable	Voting process: Shareholders will have 14 days to select between Equity Fundraise or Auction Sale. Equity Fundraise process: If voted for by shareholders, this will begin the day that voting closes and will be open for 14 days. Results announced: Following close of fundraising. Funds will then be deployed and new shares issued. Where applicable, trading will resume on the 15th of the following month (or the first working day thereafter).
Who can invest	All clients are able to invest in any and all of the Equity Fundraises. Existing shareholders in any Equity Fundraise property can invest as much or as little as they choose; if they do invest, their proportionate allocation is protected ensuring that they do not get diluted providing this is taken up in full. Non-shareholders can invest as much or as little as they choose, but may be 'scaled-back' proportionately to ensure shareholders' allocations are protected.
What will happen to the properties following the Fundraises	If successful, funds will be deployed to repay mortgages and cash deficits and we will proceed with unit sales in an orderly manner, with funds being used to further repay mortgage debt. If a fundraise fails, a unit will be entered into an Auction Sale as soon as possible.
Target fundraise amount for each property	This will vary on a property-by-property basis. Please refer to the investment case for the rationale. In all cases, funds will be used to address mortgages and cash deficits.
If funding falls short of the Target fundraise	i) Funding is less than 50% of Target: Properties that fail to meet this threshold will be closed and funds committed to that property will be returned to respective investors. ii) Funding is more than 50% but less than 100% of Target: Fundraise will complete.
If funding exceeds the Target fundraise	a) Existing shareholders in that property that have chosen to invest, will receive their full allocation, up to the relevant proportion already owned. b) Amounts over and above those described in (a) and all amounts invested by non-shareholders in the relevant property, are subject to scale-back in proportion to the amount committed.
Equity Fundraise share price	Equity Fundraise share price is calculated by taking a 50% discount to the Vacant Possession Value (VPV) share price.
London House Exchange fees	Nil transaction fees on investment. The Equity Fundraises will increase the amount of client equity invested, on which London House Exchange charges an AUM fee of 0.7% p.a. + VAT.
What are the risks of participation	As with any investment your capital is at risk so please read all available information. Participation involves the usual risks of investment on the London House Exchange platform as outlined in our Key Risks section here.

Background

We have been adapting to the rising cost of debt since January 2022, using all available options, including:

Maximising gross rent and seeking cost efficiencies
Reduction/suspension of dividend payments
Utilising substantial cash surpluses, with excess funds going towards repaying mortgages
Accelerating unit sales with the proceeds used to pay down mortgage debt

Since December 2021, the average loan-to-value (LTV) ratio has reduced from 52% to 46% today.

However, rates have risen significantly and strong rental performance is being offset by large increases in the cost of borrowing. The average mortgage rate has increased by over 100% in the 12 months to December 2022, from 3.1% to 6.3%. On certain properties within the portfolio the cost of interest is not sustainable over the medium- to long-term.

Without a stronger capital base and a reduced mortgage, these properties risk being unable to cope with further interest rate rises - whilst this is not imminent today, in the extreme, there is a risk of mortgage default.

Where a property’s financial position is unsustainable, particularly due to high mortgage interest rates and/or a significantly reduced ability to refinance their current mortgage at expiry, we are able to use Equity Fundraises as a tool to strengthen the property’s financial position. Funds are raised to pay down mortgage debt and cash deficits (where applicable), while units are sold in an orderly fashion to further pay down debt.

The following properties successfully raised fresh equity in Nov-Dec 2022 and strengthened their financial positions. New shares were issued, and mortgages and deficits (where applicable) were reduced.

As we outlined during the original Nov-Dec 2022 Equity Fundraise process, properties that failed to successfully raise equity will require further measures. In the first instance, properties will undertake a shareholder vote to allow shareholders in each property to determine how best to raise new capital to strengthen their financial position.

Shareholders will have a choice between the following two options:

A. Equity Fundraise; with the funding requirement determined by the financial position of the property in question. Funds raised will be used to strengthen its financial position while units are sold in an orderly manner to maximise value.

B. Auction Sale; units to be sold at auction as soon as possible; we have been advised that auction sales typically result in approximately 20% discount to fair value.

If an Equity Fundraise is selected by shareholders, this will commence following the end of the 14-day voting period.

The size of the fundraise for each property is determined by the size of the current mortgage, any cash deficit on the property’s balance sheet and the ongoing process of unit disposals. The funds raised will be used to pay down mortgage debt and cash deficits, while unit disposals continue with proceeds from these sales also being used to further pay down mortgage debt. This will result in a significant reduction in interest expense and mortgage repayment risk, strengthening the financial position of these properties. In some cases, the combination of a successful Equity Fundraise with unit sales will eliminate mortgage debt on the property entirely.

It is important that shareholders understand and engage with this process. Shareholders in each property are offered a right of first refusal and are guaranteed an allocation directly proportional to their shareholding. Those shareholders that take-up this full allocation will be protected from dilution. Participation is not compulsory, but if not taken up, will lead to dilution of your shareholding value (see Equity Fundraises page for dilution on each property). This means that the percentage you own of the overall investment decreases and your shares are worth less. Despite dilution, the underlying asset value remains unchanged and shareholder’s in properties that complete their Equity Fundraise can be assured that even if they elect not to participate the financial position of that property will be strengthened.

Capital at risk: before investing please read Key Risks

Articles in this section

Introduction to Equity Fundraises

Summary of Terms

Background