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London Central Residential:London Central Residential:A class apart A class apart
Its potential as a viable asset class in a diversified portfolioIts potential as a viable asset class in a diversified portfolio
London Central Portfolio LimitedLondon Central Portfolio Limited
Who are LCP?Who are LCP?
What is London Central?What is London Central?
What makes it an attractive asset class? What makes it an attractive asset class?
How has it performed vs. other asset classes?How has it performed vs. other asset classes?
The impact of the credit crunchThe impact of the credit crunch
What now – possible scenariosWhat now – possible scenarios
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
For 20 years LCP have approached London Central as an alternative asset class
LCP do not LCP do not SELLSELL residential real estate but enable investors to residential real estate but enable investors to maximise their profit opportunity through sound business modelling maximise their profit opportunity through sound business modelling
Offering a full service solution: property finding, refurbishment and furnishing, letting and rental management
Launched the only two closed end residential funds targeting London Central
Based on financial criteria(income/expenditure and return targets)
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Who are LCP?Who are LCP?
International market with low correlation to the UKInternational market with low correlation to the UK
Only 440,000 people in 6 square miles
What is London Central…What is London Central…
The Royal Borough of Kensington & Chelsea
City of Westminster
Just 2 boroughs out of 33
Average price almost £1 million
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Prime London Central Prime London Central
The The bullseyebullseye of the capital of the capital
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Globally desirable: the best real estate in the world…
International centre: geography, culture, finance, education
Scarcity of stock (215,000 units)
Lack of new supply (500 new units per annum)
What makes London Central an What makes London Central an attractive investment class?attractive investment class?
Low transaction levels (Ave. sales p.m. 600, 3.4% turnover p.a.)
High levels of rental occupancy (97%)
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Average price is 1/4 of London Central (£230,562)
...and Docklands & Canary Wharf...and Docklands & Canary Wharf
30,000 units developed since 2000: oversupply of rental units
42 major developments approved ’08/’09 vs 17 in London Central
Differentiated from the rest of the UKDifferentiated from the rest of the UK
More impacted by Credit Crunch
Average price 1/3 of London Central
Affected by domestic factors: unemployment & mortgage availability
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
““The Simplified Map of London”The Simplified Map of London”Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
How has London Central performed?How has London Central performed?
““Past performance is not a guide to the Past performance is not a guide to the future”future”
““Lies, damned lies and statistics”Lies, damned lies and statistics”
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
A Strong PerformerA Strong Performer
Capital values have increased more than 12 fold since 1980, 4 times in real terms
Representing 8.7% compound growth and a doubling of values Representing 8.7% compound growth and a doubling of values approximately every 8 yearsapproximately every 8 years
Capital growth in London residential (1980 = 100) Capital growth in London residential (1980 = 100)
London Capital GrowthIndex = 1,292
RPIIndex = 312
Source: CML/ODPM/Office for Communities & Local Government/Office of National Statistics/LCP In-house
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
A Competitive PerformerA Competitive PerformerDemonstrates significantly less volatility and outperforms UK
commercial property and the UK stock market
Source: HM Land Registry, IPD, Reuters, LCP In house research
Comparative performance 1970 = 100Comparative performance 1970 = 100
UK Commercial Capital Growth Index = 506
FTSE 100 Index = 1,646
London Central Residential Capital GrowthIndex = 5,069
UK CommercialTotal Return Index = 5,532
London Central Residential Total ReturnIndex = 7,132
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
A Consistent PerformerA Consistent Performer
IRR over 10 year period (total return)IRR over 10 year period (total return)
Despite adverse conditions (1989 and the credit crunch) a 10 year hold has always shown real growth
Source: CML/ODPM/Office for Communities & Local Government/Office of National Statistics/LCP In-house
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
10 year IRR shows a spread of 5-12%.
Investment returns can be further enhancedInvestment returns can be further enhanced
Every case differs & you should seek specialist tax adviceEvery case differs & you should seek specialist tax advice
Net residential yields allow 60-70% gearing
Income tax mitigation
CGT exemption for non-res and non-doms
Inheritance tax mitigation through offshore holding vehicles
Significantly increasing returns over an 8 year period
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
The impact of the credit crunchThe impact of the credit crunch
London Central has shown a resilient performanceLondon Central has shown a resilient performance
Sector % Drop Peak to Trough % Change peak to date
London Central - 15% +3%
FTSE 100 - 47.75% -27%
UK commercial - 40% -22%(total return)
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Source: HM Land Registry, IPD, Reuters, LCP In house research
What has underpinned London Central’s resilience? What has underpinned London Central’s resilience?
Desire for transparency: retrenchment into tangible assets
Opportunistic buying
Belief in long term desirability & longevity
High dependence on international vs domestic economy (investors & tenants)
Diversification
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Weakness in sterling increased affordabilityWeakness in sterling increased affordabilityLondon Central pricing relative to different currenciesLondon Central pricing relative to different currencies
London Central Residential Capital Growth
Exchange RateUS$ : £
26% Drop from Peak
Exchange RateSingapore $ : £
28% Drop From Peak
Exchange RateMYR : £
28% Drop From Peak
Source: HM Land Registry (RBKC &CoW)/xrates.com
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Reduced borrowing costs increased accessibility Reduced borrowing costs increased accessibility
Source: Bank of England Base Rates
An unprecedented fall in interest ratesAn unprecedented fall in interest rates
Gearing on London Central property is relatively low and is Gearing on London Central property is relatively low and is primarily a tax planning mechanism primarily a tax planning mechanism
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Press reporting on UK property market should be handled with care…Press reporting on UK property market should be handled with care…
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
What now? – Possible scenarios What now? – Possible scenarios
Factors affecting London Central performance Factors affecting London Central performance differ from the UK differ from the UK
Different price trends London Central vs England & WalesDifferent price trends London Central vs England & Wales 2003 = 1002003 = 100
Source: HM Land Registry HPI (RBKC &CoW)
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Continued weak UK economy (low interest rates/weak sterling):Incentivises the foreign investor
High levels of inflation: historically reflected in property prices
Increase in base rates: already factored in at about 4% for 5 year fix
London loses its allure: not convincing (10m HNW, $39 trillion)
Lack of buyers leads to major price reductions: evidence suggests a floor to price falls
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Despite risk of double-dip or triple-tumble, past Despite risk of double-dip or triple-tumble, past performance is probably our best predictorperformance is probably our best predictor
Major falls in transactional activity result in limited Major falls in transactional activity result in limited falls in pricesfalls in prices
Transaction falls peak to trough vs price falls Transaction falls peak to trough vs price falls
Source: HM Land Registry (RBKC &CoW)
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Source: CML/ODPM/Office for Communities & Local Government/LCP In-house. Assumes 7.5% day 1 uplift and 3.5% net rental yield
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Historic data shows lowest 10yr IRR at 3%, Historic data shows lowest 10yr IRR at 3%, average capital growth at 8.7%average capital growth at 8.7%
Capital Appreciation OnlyUngeared 3% Ave. Cap.App.
3.8% IRR & 44.5% RoE
Total ReturnUngeared 3% Ave. Cap.App.
6.6% IRR & 88.9% RoE
Capital Appreciation OnlyGeared (60% LTV) 3% Ave. Cap.App.
7.8% IRR & 111.2% RoE
Capital Appreciation OnlyUngeared 8.5% Ave. Cap.App.
9.3% IRR & 143.1% RoE
Total ReturnUngeared 8.5% Ave. Cap.App.
11.8% IRR & 203.6% RoE
Capital Appreciation OnlyGeared (60% LTV) 8.5% Ave. Cap.App.
16.4% IRR & 357.6% RoE
Using these as downside and upside parameters projections, Using these as downside and upside parameters projections, un-geared and geared growth can be assessedun-geared and geared growth can be assessed
SummarySummary
Shown robust performance outperforming conventional asset classes
Potential spread of returns makes London Central a strong candidate Potential spread of returns makes London Central a strong candidate for inclusion in a balanced portfoliofor inclusion in a balanced portfolio
London Central is a unique market benefiting from:
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
Scarcity of stock
Increasing global demand
Consistent returns
Upside potential due to inherent market desirability
Downside possibility due to uncertain economic future
10 year ungeared IRR shows a spread of 5%-12%, ave. growth 8.7%
Who are LCP
London Central
An asset class
Performance
Credit Crunch
What now?
