Investment update at 30 September 2019
Unit 18 was sold on 30 September 2019 for £399,000. The investment value of the remaining units have been revalued at £2,985,000, representing a 19.0% increase from their valuation of £2,508,000 at 31 March 2019.
The shareholder vote for the potential sale of unit 18, Golden Hill Fort has concluded.
There was a 99.9% majority in favour of a sale of unit 18.
Our Property team are now working to progress the sale, with a target completion date of the end of September.
Golden Hill Fort will recommence trading at 11am on Thursday, 10 October 2019.
Read below for the full investment case.
Investment Case:
- Golden Hill Fort acquired in September 2018 at 46% discount to break up value
- Opportunity to sell one house for a net capital gain on investor equity of 95%
- Dividend paid will increase by 12% post sale
We acquired 14 units in Golden Hill Fort at a heavily discounted price of £2,680,000 through a receivership sale on 17 September 2018. At 31 March 2019, an independent surveyor valued the property at £4,985,000, 86% above the level of our purchase price.
At the time of our investment, unit 18 required finishing, with no kitchen or bathroom installed, flooring not laid, along with other work required to make the property habitable. We completed the work earlier this year at an overall cost of £28,000, which we funded from the provisions raised during the initial funding stage. Rather than let the flat straight away for a marginal gain in rental income, we decided to test the market value of the houses by marketing unit 18 for sale through a local agent.
We have now received a firm offer of £399,000 for the house, compared to a purchase price of £177,000. Once purchase costs, refurbishment expenditure, sales costs and deferred tax on capital gain have been accounted for, the net proceeds of sale will be £360,000. This represents a net capital gain of £133,000, being 58% against the gross cost of the property including refurbishment on an ungeared basis and a 95% return on equity against the initial geared investment price paid by new listing investors.
The proceeds of sale will be used to partially repay the mortgage, reducing it from £1,367,000 to £1,037,000, with £30,000 retained as a provision within the SPV. While the house represented 6.6% of the acquisition cost, its sale enables us to reduce the mortgage by 24%, increasing the value of the remaining equity from £1,623,000 to 1,725,000, without applying any increase to the investment value of the remaining units and in spite of our holding reducing by 1 unit.
Golden Hill Fort is in the process of being revalued as part of our regular 6-monthly cycle, with the results due to be published on 7 October. We would expect the surveyor to consider the substantial uplift achieved on the sale of this property in their assessment of the investment value of the other units we hold.
A reduction in service charge and the mortgage interest paid post sale means the dividend paid to shareholders will increase by 12.8% from £41,075 to £46,354 before the AUM fee. If the shareholder vote does not result in a sale and we were to let this property, the increase in rental profit would be marginal and the dividend paid to shareholders would increase by less than we will achieve by selling it.
Trading on the property will be suspended until the sales process completes but the dividend will continue to be paid at the existing level until this point.
We believe that £399,000 represents an excellent price for this unit and a significant return to shareholders on their investment.
Kind regards
Rob Weaver
Chief Investment Officer