London Central Residential: A class apart Its potential as a viable asset class in a diversified portfolio London Central Portfolio Limited

Who are LCP? What is London Central? What makes it an attractive asset class? How has it performed vs. other asset classes? The impact of the credit crunch What 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 SELL residential real estate but enable investors to 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?

International market with low correlation to the UK  Only 440,000 people in 6 square miles 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 The bullseye 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 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 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 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” Who are LCP London Central An asset class Performance Credit Crunch What now?

How has London Central performed? “Past performance is not a guide to the future” “Lies, damned lies and statistics” Who are LCP London Central An asset class Performance Credit Crunch What now?

A 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 approximately every 8 years Capital growth in London residential (1980 = 100) London Capital Growth Index = 1,292 RPI Index = 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 Performer Demonstrates 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 = 100 UK Commercial Capital Growth Index = 506 FTSE 100 Index = 1,646 London Central Residential Capital Growth Index = 5,069 UK Commercial Total Return Index = 5,532 London Central Residential Total Return Index = 7,132 Who are LCP London Central An asset class Performance Credit Crunch What now?

A Consistent Performer 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 enhanced Every 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 crunch London Central has shown a resilient performance Sector % Drop Peak to Trough % Change peak to date London Central- 15%+3% FTSE %-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? 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 affordability London Central pricing relative to different currencies London Central Residential Capital Growth Exchange Rate US$ : £ 26% Drop from Peak Exchange Rate Singapore $ : £ 28% Drop From Peak Exchange Rate MYR : £ 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 Source: Bank of England Base Rates An unprecedented fall in interest rates Gearing on London Central property is relatively low and is 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… Who are LCP London Central An asset class Performance Credit Crunch What now? What now? – Possible scenarios

Factors affecting London Central performance differ from the UK Different price trends London Central vs England & Wales 2003 = = 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 performance is probably our best predictor

Major falls in transactional activity result in limited falls in prices 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%, average capital growth at 8.7% Capital Appreciation Only Ungeared 3% Ave. Cap.App. 3.8% IRR & 44.5% RoE Total Return Ungeared 3% Ave. Cap.App. 6.6% IRR & 88.9% RoE Capital Appreciation Only Geared (60% LTV) 3% Ave. Cap.App. 7.8% IRR & 111.2% RoE Capital Appreciation Only Ungeared 8.5% Ave. Cap.App. 9.3% IRR & 143.1% RoE Total Return Ungeared 8.5% Ave. Cap.App. 11.8% IRR & 203.6% RoE Capital Appreciation Only Geared (60% LTV) 8.5% Ave. Cap.App. 16.4% IRR & 357.6% RoE Using these as downside and upside parameters projections, un-geared and geared growth can be assessed

Summary Shown robust performance outperforming conventional asset classes Potential spread of returns makes London Central a strong candidate for 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?