We are writing to update you on the sale of properties owned by the London and Regional Capitals funds.

London Fund

The sale of the final property owned by the London fund is nearing its completion, which we hope will be finalised in the next couple of weeks. The total sales value of the nine properties in the fund is c. £3.8m.

The liquidators are on standby to begin the wind-down process once the final property has been sold, and will be able to make distributions to shareholders. We understand that timelines from HMRC are likely to be a key determinant of this process - it can take a number of months, but we hope that it will be faster than this. We are looking at all ways to shorten this timeline, such as potentially making an interim distribution to investors, which we hope will be made ~2 months after their appointment.

In the meantime, we are doing the preparatory work for the distribution payments; for example, we will be in touch with investors in the coming weeks to verify bank details, where necessary. In addition, we will get in touch with ISA customers to understand how they want their payments to be made.

Regional Capitals Fund

The sales process for the Regional Capitals fund was expected to take longer than the London fund - fire safety remediation works are underway in a number of buildings, but the funding application process continues in others.

As of 10/01/23, we have 60 properties (47% of the portfolio) sold or under offer for a total sales value of c. £9.6m. There are an additional 15 individual units on the market and 43 units where remediation works are currently underway or waiting to begin which prevents them from being marketed.

Now that we have sold enough assets to fund the expected cost of remediation works, sales proceeds are being used to repay the £6m Barclays loan facility. The latest outstanding balance is £1.9m.

In some cases, we are involved in or considering legal action against developers/contractors. For example, in one building where the fund owns 8 properties, a settlement has been agreed with the developer to refund 80% of the cost of remediation works. This will return ~£32k to the fund.

Alongside, the Government is now starting to take action which could indirectly benefit our investors. For example, the Department of Levelling Up’s Recovery Strategy Unit recently gave Grey GR Ltd, the freeholder of a building in Stevenage, 21 days to complete the cladding works or a court order will be sought which will force the company to pay for it. This is believed to be an important test case of the recently enacted Building Safety Act, which should help many leaseholders across the country. As the Regional Capitals fund owns a leasehold property where the freehold is also held by Grey GR Ltd, we are monitoring this particularly closely.

We expect there will be other similar developments in the coming months.

Dividends

After discussions with our auditors and tax advisors, the Directors of the REITs concluded that property income distribution ('PID') payments should be paused to ensure that dividends are not overpaid to shareholders during the wind-down period of both funds. Income generated by the properties continues to build in the relevant funds’ accounts and accrue to investors’ benefit, but will not be paid out as dividends.