Exchange of contracts

RNS Number : 9594E

Off-Plan Fund Limited (The)

02 October 2008

The Off-plan Fund Limited

2 October 2008

The Off-plan Fund Limited

Contracts exchanged in respect of completed units in Walton-on-Thames, Surrey

The Board of The Off-plan Fund Limited (the 'Fund'), which specialises in providing forward finance to UK housebuilders, is pleased to announce the exchange of contracts for the purchase of 10 apartments in a recently completed development in Walton-on-Thames, Surrey at £165,000 per unit, equating to a discount of 21% to the prevailing average 'Red Book' valuation of £210,000.

Background

The Board and the Fund's investment manager are of the view that prevailing market conditions offer the Fund excellent opportunities to buy nearly or recently completed units which developers are willing to dispose of at deep discounts to list prices and attractive discounts to independent Red Book valuations, in order that they can fully exit a development, satisfy financing arrangements and avoid further marketing costs.

Although the main focus of the Fund has been to provide forward finance to UK housebuilders, there is a lack of quality new developments coming to the market as developers are either not starting or are mothballing projects until the market improves. The investment manager is finding it increasingly difficult to source quality deals on the existing financing model, due to lending banks' aversion to risk, without committing far greater deposits. Even where it appears that deals can be secured on that model, prevailing market conditions add to the risks inherent in any early stage development financing.

When the Fund was established this stage (although not the particular circumstances and extent) of the property cycle was anticipated and the AIM admission document authorised the Board and the investment manager to take advantage where they believe the realisable value of potential acquisition properties is such that their on-sale would generate a profit for the Fund. The Board has therefore authorised the investment manager to source deals with a view to completing on the units and renting them out until the market for sales, and their prices, improve. Rental prospects and yields in the Fund's current target markets (home counties, inner M25, no over-supply, with good transport links) and target units (typically 1 bedroom with parking) are good.

The Fund has available cash resources that allow it to move quickly to secure these deals during what may only be a limited window of opportunity. In purchasing high quality stock at this stage in the cycle, the Fund should be well positioned to sell the units when the mortgage market improves and capitalise on the anticipated undersupply of quality units.

Transaction details

The Fund is acquiring 10 one bedroom apartments with underground parking in 'The Heart' development at Walton-on-Thames, Surrey. All apartments benefit from balconies and face internally across landscaped gardens. The development of c.280 units is now largely sold. It is in the town centre, located 15 miles from central London between the towns of Esher and Weybridge. Walton-on-Thames has experienced significant regeneration over the last few years and further inward investment is visible. The development surpasses previous local developments in terms of specification and amenities, with all the benefits of living in a major regeneration project and the advantages of shopping and restaurants on the door step. Walton station is 10 minutes walk away and benefits from excellent links to London Waterloo (c.25 minutes). Both the M25 and Heathrow are within a 10 mile radius and these high density business areas will provide the majority of the expected tenants.

The Fund has agreed to purchase on an outright basis ten apartments at a price of £165,000 each. Separate independent Red Book valuations from Colleys and Edwin Evans (for the Fund and Coutts, as lender, respectively) for the units range from £200,000 - £220,000 and both average out at £210,000 indicating a 21% average discount in the purchase prices. Comparable 1 bed units at the development have completed at prices up to £250,000 this year. The Fund intends to complete using cash but has arranged a re-financing facility with Coutts and Co which it may elect to utilise.

The anticipated rental income of each apartment is c.£950 per month, equating to a gross yield of c.7%. These apartments are in demand with many rental agents declaring waiting lists of tenants.