VALUATION REPORTS - London Stock Exchange · 9/29/2017 · 4 bed flat 46 5 bed flat 2 1 bed house 244 2 bed house 5,574 3 bed house 9,628 4 bed house 905 5 bed house 42 6 bed house

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VALUATION REPORTS

Numerical Apportionment Basis

Where the applicable Final Terms and the Loan Facility Agreement state that the security in respect of the Deed of Guarantee is allocated on a Numerical Apportionment Basis, the Notes will be secured by, inter alia, an allocation of charged properties from a shared security pool. On an ongoing basis, the Security Trustee apportions such number of parts of the Charged Properties between all the Beneficiaries (including the Issuer) as is appropriate. The following valuation reports (the Valuation Reports) prepared by the Valuers therefore relate to the total shared security pool, an appropriate part of which will be allocated to secure the Notes, such part as is required to enable the Group Borrower to satisfy the Asset Cover Test (see the section entitled "Description of the Loan Facility Agreement" above).

The Valuation Reports were prepared by Jones Lang LaSalle Limited, Registered Chartered Surveyors of 30 Warwick Street, London W1B 5NH and Savills Advisory Services Limited, Registered Chartered Surveyors of 33 Margaret Street, London W1G 0JD (together, the Valuers). Each Valuation Report is included in this Offering Circular, in the form and context in which it is included, with the consent of the relevant Valuer and the relevant Valuer has authorised the contents of this section entitled "Valuation Reports" relating to the Valuation Report prepared by it.

Each Valuer has no material interest in the Issuer, the Group Borrower or the Original Borrowers.

Summary of valuations

A summary of the values of the Charged Properties in the total shared security pool set out in the Valuation Reports is set out below:

EUV-SH or, where appropriate, MV-ST Total Units EUV-SH is

appropriate Units MV-ST is

appropriate

No. No. Jones Lang LaSalle Limited* Affinity Sutton Homes 26,215 £1,819,670,000 4,943 £354,170,000 £2,173,840,000 Sub-total 26,215 £1,819,670,000 4,943 £354,170,000 £2,173,840,000 Savills Advisory Service Limited** Circle 33 18,425 £938,252,000 7,249 £1,594,585,000 £2,532,837,000 Old Ford 439 £32,826,000 546 £136,457,000 £169,283,000 Russet 4,104 £261,906,000 - - £261,906,000 Sub-total 22,968 £1,232,984,000 7,795 £1,731,042,000 £2,964,026,000 Total 49,183 £3,052,654,000 12,738 £2,085,212,000 £5,137,866,000

Issuer's Apportioned Part

Of the 61,921 units which comprise the total shared security pool at any time, a certain number of units will be apportioned to the Issuer as lender under each Loan Facility Agreement. The percentage of (a) the

* A further 2,557 units have been given a nil value. ** A further 2,462 units have been given a nil value.

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number of units allocated to the Issuer in relation to a Loan Facility Agreement on the relevant Issue Date in relation to (b) the number of units comprising the total shared security pool (the Series Security Percentage) on the Issue Date in respect of the relevant Series, together with the Minimum Value of the NAB Charged Properties allocated to the Issuer on the Issue Date in respect of the relevant Series, shall be specified in the applicable Final Terms.

Specific Apportionment Basis

Where the applicable Final Terms and the Loan Facility Agreement state that the security in respect of the Deed of Guarantee is allocated on a Specific Apportionment Basis, the relevant valuation report will be set out in a drawdown prospectus in respect of the Series which funds the relevant Loan Facility.

Valuation Advisory Valuation of 33,715 Affordable Housing Properties Owned by

Affinity Sutton Homes Limited

9 | 2017

30 Warwick Street, London W1B tel +44 (0) 20 7493 4933 www.joneslanglasalle.co.uk

Jones Lang LaSalle Limited

Registered in England and Wales Number 1188567

Registered Office - 30 Warwick Street, London, W1B 5NH

To:

1) Prudential Trustee Company Limited in its capacity as Security Trustee for itself and for and on behalf

of the Finance Beneficiaries under (and terms being defined in) a Security Trust Deed dated 24 May

2007 made between Prudential Trustee Company Limited as Security Trustee (1), Circle Thirty Three

Housing Trust Limited (2), Clarion Treasury Limited (3), Wherry Housing Association Limited (4), South

Anglia Housing Limited (5) and Old Ford Housing Association (6) as amended and supplemented by

a NAB Administration Agreement dated 29 November 2016 and as the same may be further amended,

novated, restated, supplemented or varied from time to time (together the “Security Trust Deed”)

and its successors, transferees and assignees;

2) each of the Security Beneficiaries (as defined in the Security Trust Deed) both present and future and

its or their successors, transferees and assignees;

3) Prudential Trustee Company Limited of Laurence Pountney Hill, London EC4R 0HH (the “Note

Trustee”);

4) Clarion Funding plc

Level 6

6 More London Place

Tooley Street

London SE1 2DA (the “Issuer”);

5) the other entities within the Clarion Housing Group listed in Appendix 1;

6) each of the Dealers listed in Appendix 1; and

7) any receiver or other party which is appointed to realise the security,

(together the “Addressees”)

Prudential Trustee Company

Laurence Pountney Hill

London

EC4R 0HH

Your ref

Our ref FJH\\JM

Direct line 020 7087 5973

[email protected]

30 Warwick Street, London W1B tel +44 (0) 20 7493 4933 www.joneslanglasalle.co.uk

Jones Lang LaSalle Limited

Registered in England and Wales Number 1188567

Registered Office - 30 Warwick Street, London, W1B 5NH

29 September 2017

Dear Sirs

Clarion Funding plc – Valuation of 33,715 Properties for the Establishment of a Secured Euro Medium Term Note Programme (the “Programme”)

We are pleased to attach our report (the “Report”) in connection with the above. This Report is issued for the benefit and use of the Addressees and for inclusion in the Offering Circular for the Programme issued by the Issuer (the “Offering Circular”) and may only be used in connection with the transactions referred to in this Report and for the purposes of the Offering Circular. To the best of our knowledge (having taken all reasonable care to ensure that such is the case) the information given in this Report is in accordance with the facts and does not omit anything likely to affect the import of such information. Before this Report or any part of it is reproduced or referred to in any document, circular or statement (other than the Offering Circular in respect of the Programme), our written approval as to the form and context of such publication must be obtained. If you have any questions about this Report, or require further information, please contact Fiona Hollingworth ([email protected]) or James Massey ([email protected]).

Yours faithfully

Fiona Hollingworth Director For and on behalf of Jones Lang LaSalle Limited T 020 7087 5973 (Direct) M 07788 715 533 (Mobile) [email protected]

Yours faithfully

Richard Petty Lead Director – Affordable Housing For and on behalf of Jones Lang LaSalle Limited T 020 7087 5971 (Direct) M 07767 413 631 (Mobile) [email protected]

Valuation Advisory – Clarion Funding plc September 2017

COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

Executive Summary

This summary should be read in conjunction with the main body of our Report. Section numbers are supplied

where relevant.

Introduction

The date of this Report is 29 September 2017.

Jones Lang LaSalle Limited has been instructed to value a portfolio of 33,715 properties for loan security purposes

(the “Portfolio”) in connection with each series of Notes to be issued by the Issuer under the Programme where the

underlying security is apportioned on a “Numerical Apportionment Basis” pursuant to the Security Trust Deed. The

Portfolio is broken down as follows (section 3):

76 rented units formerly owned by Aashyana Housing Association Limited (“AHA”);

8,369 rented units formerly owned by Broomleigh Housing Association Limited (“BHA”);

7,039 rented units formerly owned by Downland Housing Association Limited (“DHA”);

14,554 rented units formerly owned by William Sutton Housing Association Limited (“WSHA”);

1,120 shared ownership units; and

2,557 units which are managed by third party agents or have been sold on long leases and included at nil value.

Each of the properties in the Portfolio is now owned by Affinity Sutton Homes Limited (“ASHL”).

This Report addresses those units which carry a value for the purpose of this exercise and consequently refers to

the valuation of 31,158 units only.

In accordance with our instructions we have inspected approximately 20% of the Portfolio this year (Section 2).

Valuations

Our opinions of value are as at the date of this Report.

Our valuation of all 26,215 properties being valued on the basis of EUV-SH, in aggregate (Section 6), is:

£1,819,670,000

(one billion, eight hundred and nineteen million, six hundred and seventy thousand pounds)

Our valuation of all 4,943 properties being valued on the basis of MV-T, in aggregate, (Section 6) is:

£354,170,000

(three hundred and fifty four million, one hundred and seventy thousand pounds)

Our indicative valuation of the 25,890 freehold properties that have been valued on the basis of EUV-SH, in

aggregate, is:

£1,796,390,000

(one billion, seven hundred and ninety six million, three hundred and ninety thousand pounds)



Our valuation of the 4,943 freehold properties that have been valued on the basis of MV-T, in aggregate, is:

£354,170,000


Our indicative valuation of the 325 leasehold properties that have been valued on the basis of EUV-SH, in

aggregate, is:

£23,280,000

(twenty three million, two hundred and eighty thousand pounds)

The following tables summarise our valuations:

Freehold Properties

Category Unit Count EUV-SH MV-T

Ex-AHA rented units 16 £950,000 -

Ex-BHA rented units 8,369 £594,950,000 -

Ex-DHA rented units 6,800 £520,275,000 -

Restricted Ex-WSHA rented units 9,611 £602,620,000 -

Unrestricted Ex-WSHA rented units 4,943 - £354,170,000

Shared ownership units 1,094 £77,595,000 -

Total 30,833 £1,796,390,000 £354,170,000

Leasehold Properties

Category Unit Count EUV-SH

Ex-AHA rented units 60 £4,160,000

Ex-DHA rented units 239 £17,005,000

Shared ownership units 26 £2,115,000

Total 325 £23,280,000

Our valuation is broken down as follows:


Ex-AHA rented units 76 £5,110,000 -

Ex-BHA rented units 8,369 £594,950,000 -

Ex-DHA rented units 7,039 £537,280,000 -

Restricted Ex-WSHA rented units 9,611 £602,620,000 -




Unrestricted Ex-WSHA rented units 4,943 £213,970,000 £354,170,000

Shared ownership units 1,120 £79,710,000 -

Total 31,158 2,033,640,000 £354,170,000

We confirm that, in our opinion, should the Security Trustee become a mortgagee in possession of the Portfolio,

then it would be possible to achieve a sale of the residential properties either to another Registered Provider of

Social Housing (“RP”) that would be at a price at least equivalent to our valuation on the basis of EUV-SH, or, in

principle, to a private purchaser at a price equivalent to our valuation on the basis of MV-T.

Stock

The stock, excluding the agency managed and nil value properties, is summarised as follows:

Property Type Unit Count

Room 106

Studio flat 637

1 bed flat 6,550

2 bed flat 4,957

3 bed flat 1,289

4 bed flat 46

5 bed flat 2

1 bed house 244

2 bed house 5,574

3 bed house 9,628

4 bed house 905

5 bed house 42

6 bed house 3

7 bed house 1

1 bed bungalow 855

2 bed bungalow 306

3 bed bungalow 12

5 bed bungalow 1

Total 31,158

We have been informed by Clarion Housing Group that the gross annual rent receivable for the Portfolio is

£173,510,306. We have relied on this information as being accurate, and have not verified the rent roll otherwise.



A summary of our assumptions for the main cashflows is provided in the tables below. The former WSHA estates

have been valued in individual cashflows and we have therefore provided a summary of the range of assumptions

used in these cashflows.

Valuation Category DCR

Income Management

costs Repairs (Year 1)

Voids

Former AHA GN units 6.0% £625 £1,275 2.5%

Former BHA GN units 6.0% £625 £1,900 2.5%

Former BHA Sheltered units 6.25% £650 £1,900 2.5%

Former BHA High Rise units 8.0% - 8.25% £675 £1,575 - £8,775 3.0%

Former DHA GN units 5.75% £625 £1,300 2.5%

Former DHA Sheltered units 5.85% £625 £1,350 2.5%

Former DHA High Rise units 8.0% £675 £1,575 3.0%

Former WSHA Estates (EUV-SH units) 5.5% - 8.75% £625-£650 £1,300 - £1,550 2.5% - 3.0%

Former WSHA Borehamwood only 6.25% - 8.0% £625 £1,950 - £2,800 2.5% - 3.0%

Valuation Category DCR

(Income) DCR

(Sales) Management

Costs Repair Costs Voids

Shared Ownership (North) 5.75% 8% 8% Fully Recovered N/A

Shared Ownership (South) 5.5% 8% 5% Fully Recovered N/A

Shared Ownership (South) High Rise 6.75% N/A 5% Fully Recovered N/A

Former WSHA Borehamwood S.O. 5.5% N/A 5% Fully Recovered N/A

Assumption Former WSHA Estates (MV-T)

Discount rate (income) 7.5% - 8.5%

Discount rate (sales) 9.5% - 10.5%

Sales (houses) 3% - 25%

Sales (flats) 4% - 16%

Management costs 10% of gross income

Repair costs (year 1) £2,400 - £2,725

Years to MR 1 – 5

Voids (year 1) 8.0% - 10.0%

This summary should be read in conjunction with the remainder of the valuation Report and must not be

relied upon in isolation.



Contents

1 Introduction ............................................................................................................................................ 1 1.1 Background .............................................................................................................................................. 1 1.2 Instructions............................................................................................................................................... 1 1.3 Compliance .............................................................................................................................................. 2 1.4 Status of Valuer ....................................................................................................................................... 2 1.5 Property Documents ................................................................................................................................ 2 1.6 Portfolio .................................................................................................................................................... 3 1.7 Changes to Social Housing Rental Growth from March 2016 .................................................................. 3 1.8 Affordable Rent ........................................................................................................................................ 4 1.9 Market Conditions .................................................................................................................................... 5

2 Methodology ........................................................................................................................................... 7

2.1 Valuation Model ....................................................................................................................................... 7 2.2 Information Provided ................................................................................................................................ 7 2.3 Inspections ............................................................................................................................................... 7 2.4 Market Research ...................................................................................................................................... 8

3 General Commentary ............................................................................................................................. 9 3.2 Stock Numbers ........................................................................................................................................ 9 3.3 Property Types ....................................................................................................................................... 12 3.4 Condition ................................................................................................................................................ 13 3.5 Caveats and Disclaimers ....................................................................................................................... 13

4 General Needs and Sheltered Commentary ...................................................................................... 14 4.2 Tenancies .............................................................................................................................................. 14 4.3 Rental Income ........................................................................................................................................ 14 4.4 EUV-SH – Rental Growth....................................................................................................................... 15 4.5 MV-T – Rental Growth ........................................................................................................................... 15 4.6 Outgoings .............................................................................................................................................. 16 4.7 Bad Debts and Voids ............................................................................................................................. 16 4.8 Management Costs ................................................................................................................................ 17 4.9 Repairs and Maintenance ...................................................................................................................... 17 4.10 Relet and Sales Rates ........................................................................................................................... 18 4.11 Discount Rate ........................................................................................................................................ 19 4.12 Market Value subject to Vacant Possession (MV-VP)............................................................................ 20 4.13 House Price Growth ............................................................................................................................... 20

5 Shared Ownership Commentary ........................................................................................................ 21 5.2 Rental Growth ........................................................................................................................................ 21 5.3 Outgoings .............................................................................................................................................. 21 5.4 Voids and Bad Debts ............................................................................................................................. 21

5.5 Repairs and Maintenance ...................................................................................................................... 21 5.6 Discount Rate ........................................................................................................................................ 22 5.7 Market Value subject to Vacant Possession (MV-VP)............................................................................ 22 5.8 Rate of Sales ......................................................................................................................................... 22

6 Valuation ............................................................................................................................................... 24 6.1 Background ............................................................................................................................................ 24 6.2 General Needs and Sheltered Units ...................................................................................................... 24



6.3 Shared Ownership ................................................................................................................................. 25 6.4 Freehold Properties ............................................................................................................................... 25 6.5 Leasehold Properties ............................................................................................................................. 25 6.6 Market Value Assuming Vacant Possession .......................................................................................... 25 6.7 Summary Table ...................................................................................................................................... 25 6.8 Suitability as Security ............................................................................................................................. 28

7 Bases of Valuation ............................................................................................................................... 30 7.2 Existing Use Value for Social Housing ................................................................................................... 30 7.3 Market Value .......................................................................................................................................... 30 7.4 Expenses ............................................................................................................................................... 31 7.5 Tax ......................................................................................................................................................... 31 7.6 VAT ........................................................................................................................................................ 31

8 Market Commentary ............................................................................................................................ 32 8.1 The Effect of Brexit ................................................................................................................................ 32

8.2 Housing Demand Levels ........................................................................................................................ 33 8.3 UK Housing Market Overview ................................................................................................................ 35

9 Sources and Verification of Information ............................................................................................ 36 9.1 General .................................................................................................................................................. 36 9.2 Tenure ................................................................................................................................................... 36 9.3 Title ........................................................................................................................................................ 36 9.4 Nomination Agreements ........................................................................................................................ 36 9.5 Measurements/Floor Areas .................................................................................................................... 36 9.6 Structural Surveys .................................................................................................................................. 37 9.7 Deleterious Materials ............................................................................................................................. 37 9.8 Site Conditions ....................................................................................................................................... 37 9.9 Environmental Contamination ................................................................................................................ 37 9.10 Market Rental Values ............................................................................................................................. 37 9.11 Insurance ............................................................................................................................................... 38 9.12 Planning ................................................................................................................................................. 38 9.13 Outstanding Debts ................................................................................................................................. 38 9.14 Services ................................................................................................................................................. 38 9.15 Compliance with Building Regulations and Statutory Requirements ...................................................... 38



Appendices

Appendix 1 ..............................................................................................................................................List of Addressees

Appendix 2 ......................................................................................................................................... Valuation Summaries

Appendix 3 ............................................................................................................................................ Property Schedules

Appendix 4 ....................................................................................................................................... Cashflow Assumptions


COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved 1

1 Introduction

1.1 Background

1.1.1 Clarion Housing Group (hereafter “Clarion”) has instructed Jones Lang LaSalle (“JLL”) to prepare a valuation of

33,715 properties owned by ASHL (“the Portfolio”).

1.1.2 We understand that this Report will be used in order to assist with the establishment of a new Secured Euro

Medium Term Note Programme (the “Programme”). This valuation is required to assess the level of security for

each series of Notes to be issued by the Issuer under the Programme where the underlying security is apportioned

on a “Numerical Apportioned Basis” in accordance with the Security Trust Deed.

1.1.3 This Report has been prepared by James Massey MRICS (Valuer Number: #5036140) under the supervision of

Fiona Hollingworth MRICS (#0099707) and Richard Petty FRICS (#0089005). Both Richard and Fiona are

Directors in the Affordable Housing team of JLL.

1.1.4 Our valuations have been prepared in accordance with the current RICS Valuation – Global Standards 2017

published by the Royal Institution of Chartered Surveyors and the RICS Valuation - Professional Standards UK,

January 2014 (revised April 2015) (commonly known as the “Red Book”).

1.1.5 The date of valuation is 29 September 2017.

1.1.6 We can confirm that no conflict of interest has occurred as a result of our production of this Report.

1.1.7 For the avoidance of doubt, we confirm that it would not be appropriate or possible to compare this valuation with

any values appearing in ASHL's accounts. This Report has been prepared in accordance with the Red Book.

The valuations are prepared on this basis so that we can determine the value recoverable if the charges over the

properties were enforced at the date of this Report. We understand that values given in ASHL’s accounts are

prepared on a historic cost basis which considers how much the properties have cost and will continue to cost

ASHL. This is an entirely different basis of valuation from that used for loan security purposes.

1.2 Instructions

1.2.1 Our Report is prepared in accordance with Clarion’s formal instructions.

1.2.2 We have been instructed to prepare our valuations on the following bases:

Existing Use Value for Social Housing (“EUV-SH”); and

Market Value subject to existing Tenancies (“MV-T”) – where applicable.

1.2.3 Please note that the properties that have been valued on the basis of MV-T have also been valued on the basis

of EUV-SH, for information purposes only.



1.2.4 We have valued the Portfolio on these bases, unless otherwise stated in this Report. In addition, and for guidance

only (and specifically not to be relied on or represented for any purpose connected with loan security or similar

purposes), we are instructed to provide our indicative opinion of value on the basis of Market Value assuming

Vacant Possession (“MV-VP”).

1.2.5 For reference only, and in accordance with our instructions, we have also provided our opinion of the value of the

Portfolio assuming that the properties that are currently let at Affordable Rent, stay at Affordable Rent levels,

rather than revert to social rent. Additionally we have also provided our opinion of the value of the Portfolio which

allows for a degree of prudent lotting where we feel this is appropriate, and which also reflects the possibilities of

the recently deregulated environment and builds in some sales of properties, where we believe that would be

appropriate and justifiable. These additional valuations are included in the valuation summaries and property

schedules at Appendices 2 and 3 respectively but are not otherwise referred to in this Report.

1.3 Compliance

1.3.1 This valuation qualifies as a Regulated Purpose Valuation (“RPV”) as defined by the Red Book. A RPV is a

valuation which is intended for the information of third parties in addition to the Addressees. It is a requirement of

UKVS 4.3 of the Red Book in relation to disclosures that we declare our prior involvement with Clarion, or the

properties being valued, to ensure that there is no conflict of interest.

1.3.2 We confirm that the total fee income earned from Clarion is substantially less than 5% of the fee income earned

by JLL in our last financial year (ending 31 December 2016) and that we do not anticipate this situation changing

in the foreseeable future.

1.4 Status of Valuer

1.4.1 In preparing this Report, we confirm that JLL is acting as an external valuer as defined in the Red Book. We can

also confirm that we consider ourselves to be independent for the purposes of this instruction.

1.4.2 We confirm that we valued the properties in March 2017 for Clarion’s annual requirements under its loan

covenants. After the appropriate due diligence, we consider that we do not have any conflict of interest in providing

the advice that you have requested.

1.4.3 In accordance with RICS guidance, and our own rotation policy, we recommend that a rotation of overall

responsibility is considered no later than the end of 2023.

1.5 Property Documents

1.5.1 We have reviewed the original certificate of title dated 12 April 2012, the Reliance and Top Up Letters dated 29

November 2016 and the Reliance and Top Up Letter to be dated on or about the date of this Report and to be

issued by Winckworth Sherwood LLP (together “the Property Documents”) and can confirm that our valuations

fully reflect the disclosures contained therein. In particular, in respect of each unit which we have valued on the

basis of MV-T, we can confirm that (based on our review of the Property Documents) such units may be disposed

of by or on behalf of the Security Trustee on an unfettered basis (meaning subject to existing tenancies disclosed



in the Property Documents but not subject to any security of interest, option or other encumbrance or to any

restriction preventing or restricting its sale to, or use by, any person for residential use).

1.6 Portfolio

1.6.1 The Portfolio comprises the following properties as described in section 3, schedules of which form Appendix 3:

26,215 units which have been valued on the basis of EUV-SH; and

4,943 units which have been valued on the basis of MV-T.

1.6.2 In addition there are 2,557 units in the Portfolio which are either managed by third parties, or have been sold on

long leases. Clarion’s interest in these properties is considered to be de minimis for the purpose of this exercise

(or treated as being such) and so they are included at nil value. Please note that these units are not included in

any unit counts or other statistics in this Report (with exception of the front cover of the Report), but are listed in

Appendix 3.

1.6.3 Consequently, the valuation and summaries included hereafter refer to the 31,158 units being valued.

1.7 Changes to Social Housing Rental Growth from March 2016

1.7.1 The Welfare Reform and Work Act 2016 (“the Act”) has now passed through the House of Lords and been given

Royal Assent. Under the Act, all RPs are to be required to reduce their rents charged on social housing (as

defined in the Housing and Regeneration Act 2008) by 1% each year, up to and including 1st April 2019. This

period was originally for four years from 2016 and is set out in Section 23 of the Act.

1.7.2 Social housing as defined in the 2008 Act includes all forms of housing let at below market rents, however Shared

Ownership and Low Cost Home Ownership is expressly excluded from the Act, together with other property in the

ownership of RPs which is listed as exceptions in The Social Housing Rents (Exceptions and Miscellaneous

Provisions) Regulations 2016 (“the Regulations”). These include, but are not limited to:

intermediate rent accommodation (defined in the Regulations to include inter alia properties let on sub-market

rents, let on Assured Shorthold Tenancies which have not previously been let at social rents and are not let

at Affordable Rent);

specialised supported housing (defined in the Regulations to include inter alia supported housing of bespoke

design in which a high level of support is offered to tenants);

temporary social housing (meaning low cost rental accommodation made available to a person who is

homeless, within the meaning of the Housing Act 1996;

student accommodation;

accommodation where the rent registered under the Rent Act 1977 is lower than the social rent rate;

care homes; and

accommodation where the rent payable by the tenant was temporarily reduced or waived for any period during

the previous relevant year.



1.7.3 Supported Housing was exempt from the first year of cuts but rents will be reduced by 1% for the years up to and

including 2019.

1.7.4 Once the period of cuts has ended, in April 2020, we expect that RPs will be allowed to continue to increase their

rents by CPI plus 1%, in line with the rent regime introduced by the government in April 2015. This is based on

informal indications from government. However, as will be evident from the recent shift in government policy,

there can be no certainty as to what the government will decide to do in April 2020 and there is therefore a degree

of risk around this assumption.

1.7.5 This heightened risk is reflected in the discount rate applied to this valuation. However, this component of risk is

not new – there has always been an element of legislative or regulatory risk in social housing valuations, where

gross and net rental incomes are assessed over a long period; and this risk has always been reflected in the

discount rates applied to valuations.

1.7.6 However, the Act includes provisions for either a mortgagee in possession, or a receiver, and its successor in title

(which could be either an RP or a non-regulated purchaser) to be exempt from the need to make future cuts after

the date of acquisition. These exceptions are contained in Section 24 of the Act.

1.7.7 In our opinion, neither a mortgagee in possession (or receiver), nor any purchaser acquiring stock from the same,

would choose to implement rent cuts over the period 2016-2019; and would actively use a legal right to avoid

reducing the gross rental income from a housing portfolio. We have therefore prepared our valuation on the basis

of EUV-SH on the express assumption that no further reductions in rent would be made after the hypothetical sale

at the valuation date. This is consistent with our reading of the Act and with the interpretation of the Act by the

Homes and Communities Agency (“HCA") which would, in effect, be powerless to prevent even an RP from

choosing not to reduce rents over this period.

1.7.8 It follows that, for a valuation given for loan security purposes only, with a date of valuation prior to 1 April 2017,

no reductions in rent would need to be made; and there is therefore no adverse effect on value other than any

effect attributable to the increased discount rate referred to above.

1.8 Affordable Rent

1.8.1 The Affordable Rent framework has been introduced by the Government and HCA in an effort to improve the

delivery of affordable housing whilst reducing grant subsidy. This model provides RPs with more flexibility in the

length of tenancies issued, and the level of rent which they charge to tenants. The contracts allow RPs to let

properties at a level of up to 80% of Market Rent (“Affordable Rent”) inclusive of service charge (although the

actual level is different in each contract and there are substantial regional variations).

1.8.2 The investment contracts are individual to each RP and the terms therein will not be bound to the land or title, nor

will the details of the contracts be disclosed to the market. This has ramifications for the value of properties which

are owned by the RPs because it follows that, in a bidding situation, the value which the vendor could achieve

when selling a portfolio will be related to the rent level which the eventual purchaser could charge future tenants,

rather than the level set out in the vendor’s contract.

1.8.3 This introduces uncertainty in the assumptions which we make about the rental income which could be realised

in the future, after a hypothetical transfer of stock (the concept upon which all valuations are based). Funders are



wary about lending money against security with such valuations attributed to them and, in light of this and in

accordance with our instructions, we have valued the Portfolio on the assumption that properties are not let at

Affordable Rents, as defined above. We have assumed that the Portfolio is rented in line with the Rent Influencing

Regime into perpetuity, and have not included additional hope value for Affordable Rent in our valuation on the

basis of EUV-SH.

1.9 Market Conditions

1.9.1 On 14 June 2017, a fire at the Grenfell Tower apartment block in London became out of control and destroyed

the building, with significant loss of life. A number of inquiries have been commissioned to investigate the event,

and it is likely that recommendations will be made as to the construction and management of similar properties.

1.9.2 In the light of this, we are aware that market participants that may also be affected by the same or similar issues

are reviewing details of construction, health and safety – and particularly fire prevention, mitigation and means of

escape. At this point it is too early to assess the longer-term consequences. In the short-term, however, it is

likely that potential investors and occupiers will be more cautious – and the liquidity and pricing of some of the

properties in the Portfolio may be impacted. We would therefore draw your attention to the fact that in the case

of those properties as at the date of our valuation, there is greater uncertainty concerning the valuation figure than

would normally be the case. We would recommend that specialist advice is taken on these issues.

1.9.3 This present period of uncertainty seems likely to persist for some time, perhaps for a number of months, whilst

official enquiries and investigations are concluded. These may lead to, for example, revisions of the Building

Regulations or Fire Safety Regulations and measures may be introduced which will require material capital

expenditure.

1.9.4 It will also, in our view, be some time before investor confidence in such buildings amongst social landlords, or

purchasers from a mortgagee to a social landlord, will be restored. Accordingly, whilst this period of uncertainty

endures, we recommend that you should interpret any opinions of value of such buildings with considerable

caution. We will keep the matter under review as and when further measures are announced or conclusions

drawn, and would be happy to revisit our valuation of the high-rise properties in this Portfolio as and when there

is more certainty as to any remedial measures that will need to be taken.

1.9.5 We understand from Clarion that there are 18 blocks of six storeys or above in the Portfolio. We understand that

these block have all been recently looked at by Clarion and tests have been carried out where necessary. Clarion

have provided us with remedial cost estimates where these are felt to be appropriate, and we have included these

costs in our valuations. Furthermore, we have factored the additional risk outlined above into the discount rates

we have applied when valuing these properties.

1.9.6 Our Report now follows and is divided into five main parts:

Methodology;

Commentaries;

Valuation;

Bases of Valuation; and



Sources and Verification of Information.



2 Methodology

2.1 Valuation Model

2.1.1 We have undertaken our valuation of the housing stock using fully explicit discounted cashflow models, over a

50-year period, with the net income in the final year capitalised into perpetuity.

2.1.2 Against the income receivable for the Portfolio, we have made allowances for voids and bad debts; the costs of

management and administration; major repairs; cyclical maintenance; day-to-day repairs; and for future

staircasing (where applicable). We have assumed an appropriate level of future growth in these costs

(expenditure inflation).

2.1.3 We have then discounted the resulting net income stream at an appropriate rate which reflects our judgement of

the overall level of risk associated with the long term income. A more detailed explanation of the discount rate is

included in section 4.

2.1.4 Summary tables of the assumptions used in our valuation models are included at Appendix 4.

2.2 Information Provided

2.2.1 The principal source of background data for the Portfolio has been the rent roll for each property provided by

Clarion. This detailed the number and type of units, the rent payable, and equity retained by the association

(where applicable).

2.2.2 This information was supplemented with our market research and other data we have gathered from similar

instructions undertaken recently and involving comparable stock. From these sources we have collated

information on the following:

rents;

bad debts, voids and arrears;

cost of maintenance and repairs; and

management and administration expenses.

2.3 Inspections

2.3.1 We understand that, under the terms of the existing loan agreements, Clarion must deliver a full valuation report

to the Security Trustee at least once in every period of five calendar years.

2.3.2 The Portfolio comprises over 33,500 properties, which, in line with the loan agreements, are required to be

inspected by a valuer every five years. The logistics of inspecting this number of units in one year would be time

consuming and costly and therefore it has been agreed with the Security Trustee that we will inspect 20% of the

properties, every year so that over a 5 year period all of the properties will have been inspected.



2.3.3 We can confirm that we inspected the exterior of 20% of the properties this year and of these properties, we

inspected the interior of 5%. Our inspections were undertaken between 20th February 2017 and 10th March 2017.

2.4 Market Research

2.4.1 In arriving at our valuation, we have undertaken a comprehensive programme of research to supplement our

knowledge and understanding of the Portfolio. This has included:

researching local vacant possession values through conversations with local estate agents together with

internet research and using RightmovePlus, a bespoke tool for comparable evidence;

examining local benchmark affordable rents and comparing these with Clarion’s rents; and

analysing data provided by Clarion.



3 General Commentary

3.1.1 Schedules summarising the following data for each property within the Portfolio form Appendix 3 of this Report:

address;

unit type;

equity retained; and

gross weekly rent.

3.2 Stock Numbers

3.2.1 Clarion has provided us with a summary of the housing stock as at the Valuation date, upon which we have based

our valuations. This data is summarised below. All of the Portfolio is now owned by Affinity Sutton Homes Limited

but for the purposes of the valuation we have broken down the stock into its former subsidiaries and these are

identified below:

Valuation Category Unit Count Valuation Basis

Ex-Aashyana Housing Association

AHA General Needs 76 EUV-SH

Ex-Broomleigh Housing Association

BHA Affordable Rent 659 EUV-SH

BHA General Needs 6,144 EUV-SH

BHA General Needs High Rise 67 EUV-SH

BHA High Rise Non-PRC 53 EUV-SH

BHA Keyworker 16 EUV-SH

BHA Lewisham Stock Transfer 338 EUV-SH

BHA Lewisham Stock Transfer High Rise 160 EUV-SH

BHA Market Rented 38 EUV-SH

BHA PRC Other 320 EUV-SH

BHA Sheltered 574 EUV-SH

Ex-BHA Total 8,369

Ex-Downland Housing Association

DHA Affordable Rent 734 EUV-SH

DHA GN Freehold 5,544 EUV-SH

DHA GN Freehold High Rise 144 EUV-SH

DHA GN Leasehold 10 EUV-SH




DHA Keyworker and RTHB 4 EUV-SH

DHA Keyworker and RTHB High Rise 2 EUV-SH

DHA Sheltered 601 EUV-SH

Ex-DHA Total 7,039

Ex-William Sutton Housing Association

WSH Intermediate Rent 22 EUV-SH

WSH London – Affordable Rent (EUV) 76 EUV-SH

WSH London – Affordable Rent (MV-T) 14 MV-T

WSH London - Bethnal Green 169 EUV-SH

WSH London – City Road 95 MV-T

WSH London – Islington (EUV) 26 EUV-SH

WSH London – Islington (MV-T) 126 MV-T

WSH London – Kingston 52 MV-T

WSH London – Rotherhithe 144 EUV-SH

WSH London – Southwark 28 EUV-SH

WSH London – Southwark High Rise 40 EUV-SH

WSH London – St Quintin 477 EUV-SH

WSH Midlands – Birmingham 340 EUV-SH

WSH Midlands – Rugby 329 EUV-SH

WSH Midlands – Stoke-on-Trent (EUV) 444 EUV-SH

WSH Midlands – Stoke on Trent (MV-T) 313 MV-T

WSH Midlands – Tamworth 343 EUV-SH

WSH North East – Middlesbrough (EUV) 101 EUV-SH

WSH North East – Middlesbrough High Rise 36 EUV-SH

WSH North East – Middlesbrough (MV-T) 497 MV-T

WSH North East – Newcastle 138 MV-T

WSH North East – South Shields (EUV) 61 EUV-SH

WSH North East – South Shields (MV-T) 728 MV-T

WSH North West – Bolton 356 MV-T

WSH North West – Manchester 420 EUV-SH

WSH North West – Newton-le-Willows 168 EUV-SH

WSH North West – Preston 265 EUV-SH

WSH North West – Salford 174 EUV-SH

WSH North West – Warrington 473 MV-T




WSH North West – Widnes 17 EUV-SH

WSH South East – Affordable Rent (EUV) 337 EUV-SH

WSH South East – Affordable Rent (MV-T) 5 MV-T

WSH South East – Bedford 10 MV-T

WSH South East – Borehamwood 3,506 EUV-SH

WSH South East – Borehamwood High Rise 136 EUV-SH

WSH South East – Bracknell 115 EUV-SH

WSH South East – Chelmsford (EUV) 46 EUV-SH

WSH South East – Chelmsford (MV-T) 226 MV-T

WSH South East – Hemel Hempstead (EUV) 64 EUV-SH

WSH South East – Hemel Hempstead (MV-T) 200 MV-T

WSH South East – Hitchin 43 EUV-SH

WSH South East – Leatherhead 25 EUV-SH

WSH South East – Letchworth 9 EUV-SH

WSH South East – Luton 91 EUV-SH

WSH South East – Milton Keynes (EUV) 89 EUV-SH

WSH South East – Milton Keynes (MV-T) 2 MV-T

WSH South East – Stevenage 170 EUV-SH

WSH South West – Affordable Rent (EUV) 127 EUV-SH

WSH South West – Affordable Rent (MV-T) 50 MV-T

WSH South West – Bristol 181 MV-T

WSH South West – Exeter (EUV) 88 EUV-SH

WSH South West – Exeter (MV-T) 37 MV-T

WSH South West – Ilminster 21 EUV-SH

WSH South West – Plymouth (EUV) 63 EUV-SH

WSH South West – Plymouth (MV-T) 836 MV-T

WSH South West – Teignbridge 8 EUV-SH

WSH Yorks – Bradford (EUV) 215 EUV-SH

WSH Yorks – Bradford (MV-T) 375 MV-T

WSH Yorks – Hull 108 EUV-SH

WSH Yorks – Leeds (EUV) 337 EUV-SH

WSH Yorks – Leeds (MV-T) 229 MV-T

WSH Yorks – Sheffield 333 EUV-SH

Ex-WSHA Units 14,554




Ex-Ridgehill S.O. 133 EUV-SH

S.O. North 9 EUV-SH

S.O. South 917 EUV-SH

S.O. South High Rise 61 EUV-SH

Agency Managed 114 Nil

Leasehold 2,443 Nil

Grand Total 33,715

3.3 Property Types

3.3.1 The following table summarises the different property types within the Portfolio:

Property Type Unit Count

Room 106

Studio flat 637

1 bed flat 6,550

2 bed flat 4,957

3 bed flat 1,289

4 bed flat 46

5 bed flat 2

1 bed house 244

2 bed house 5,574

3 bed house 9,628

4 bed house 905

5 bed house 42

6 bed house 3

7 bed house 1

1 bed bungalow 855

2 bed bungalow 306

3 bed bungalow 12

5 bed bungalow 1

Total 31,158



3.4 Condition

3.4.1 We have not carried out a condition survey, this being outside the scope of our instructions.

3.4.2 The properties in the Portfolio are a mixture of ages. Based on our inspections, we are satisfied that the properties

we inspected internally, are being maintained to an acceptable social housing standard, in line with regulatory

requirements and commensurate with the likely demands of the target tenant group.

3.4.3 Overall we have assumed that each property has a useful economic life of 50 years providing short term

compliance with Decent Homes Standards and, beyond that period, that the properties continue to be properly

maintained in the future.

3.5 Caveats and Disclaimers

3.5.1 Unless otherwise stated in this Report, in carrying out our valuations we have made assumptions relating to the

following factors which are either beyond the remit of our instructions, or for which we have not received

information:

ground condition;

environmental considerations;

planning;

tenure

titles; and

nominations agreements.

3.5.2 These factors are discussed in Section 9.



4 General Needs and Sheltered Commentary

4.1.1 There are 30,038 general needs and sheltered properties in the Portfolio, broken down as shown in the table below.

At the date of valuation and from previous reviews of the Property Documents for the Portfolio, 25,095 of the units

were subject to disclosures that would be binding on a mortgagee in possession and therefore we have valued

them on the basis of EUV-SH only.

Bedrooms Houses/Bungalows Flats/Rooms Total %age

0 - 743 743 2.5%

1 1,087 6,355 7,442 24.8%

2 5,627 4,617 10,244 34.1%

3 9,347 1,278 10,625 35.4%

4 890 46 936 3.1%

5+ 46 2 48 0.2%

Total 16,997 13,041 30,038 100%

%age 56.6% 43.4% 100%

4.2 Tenancies

4.2.1 The majority of the properties (circa 79.4%) are let on assured tenancies. We have assumed that these are

‘standard’ assured tenancies although we have not seen example tenancy agreements. The remaining 6,187

units are let on secure tenancies.

4.3 Rental Income

4.3.1 The total gross rent receivable from the properties in the general needs and sheltered Portfolio amounts to

£170,040,748 per annum (based on a 52-week year). A breakdown per property is included within the schedule

at Appendix 3. The average gross weekly rents are set out in the table overleaf.

4.3.2 We are unable to verify the accuracy of the rent roll provided to us by Clarion.

4.3.3 According to the Valuation Office, the Local Reference Rent (LRR) is the 30th centile point between what in the

local Rent Officer’s opinion are the highest and lowest non-exceptional rents in a given Broad Rental Market Area.

This analysis looks at local properties and differentiates by bedroom number but not by property type (i.e. houses

and flats). These statistics are used as a reference for housing benefit and are a good indication of rent levels

which are affordable in a given area.



4.3.4 The table below sets out a comparison of Clarion’s average rents with the average LRRs in the Portfolio in the

same areas (rents are shown on the basis of 52 weeks):

Bedrooms Clarion’s Properties Average LRRs

1 £94.70 £190.57

2 £108.80 £248.24

3 £117.06 £275.99

4 £138.29 £374.50

5 £145.42 £462.40

Average £108.86 £246.59

4.3.5 The prevailing passing rents are approximately 56% lower than the LRRs for properties in the same areas.

4.4 EUV-SH – Rental Growth

4.4.1 In accordance with section 1.6.7 we have assumed that a purchaser of the stock with the benefit of protection

from the rent cuts set out in the Welfare Reform and Work Act would increase rents by CPI plus 1% into perpetuity

and have modelled rental growth in our EUV-SH valuation models accordingly.

4.5 MV-T – Rental Growth

4.5.1 Passing rents are currently below market levels, resulting in good prospects for future rental growth when

considering the market value of the Portfolio.

4.5.2 We have assumed that it will take between 1 and 5 years for assured rents to increase to market levels and

thereafter for rents to rise at 1% (real) per annum. The average increase we have modelled per year for houses

and flats in each of our MV-T cashflows is shown in the table below:

Valuation Category Years to Market

Rent Flats Houses

WSH London – Affordable Rent (MV-T) 4 28.3% 25.9%

WSH London – City Road 4 27.3% N/A

WSH London – Islington (MV-T) 5 24.3% 30.5%

WSH London – Kingston 4 21.0% 25.2%

WSH Midlands – Stoke-on-Trent (MV-T) 2 8.0% 23.2%

WSH North East – Middlesbrough (MV-T) 2 8.6% 15.0%

WSH North East – Newcastle 2 13.8% 11.9%

WSH North East – South Shields (MV-T) 2 5.7% 18.0%



Valuation Category Years to Market

Rent Flats Houses

WSH North West – Bolton 2 13.1% 16.3%

WSH North West – Warrington 2 11.1% 22.0%

WSH South East – Affordable Rent (EUV) 3 25.6% 26.9%

WSH South East – Bedford 2 24.5% N/A

WSH South East – Chelmsford (MV-T) 3 23.9% 25.1%

WSH South East – Hemel Hempstead (MV-T) 3 25.3% 28.3%

WSH South East – Milton Keynes (MV-T) 3 N/A 19.8%

WSH South West – Affordable Rent (MV-T) 3 18.7% 24.8%

WSH South West – Bristol 3 20.1% 24.5%

WSH South West – Exeter (MV-T) 3 23.8% 27.9%

WSH South West – Plymouth (MV-T) 3 16.0% 21.9%

WSH Yorks – Bradford (MV-T) 1 5.7% 35.3%

WSH Yorks – Leeds (MV-T) 2 29.0% 26.0%

4.6 Outgoings

4.6.1 In forming our opinion of the net rental income the Portfolio will generate we have considered the following

outgoings:

bad debts and voids;

management costs; and

repair and maintenance costs.

4.6.2 We emphasise that, under the definitions of the bases of valuation we have been instructed to adopt, we are not

valuing Clarion’s stewardship of the stock – rather we are assessing what a hypothetical purchaser in the market

would pay for the stock, based on the market’s judgement of the capabilities of the Portfolio.

4.6.3 The assumptions we have made in our appraisal reflect our opinion of the view the market would adopt on the

future performance of the Portfolio. In forming our opinion, we have had regard to other recent valuations we

have undertaken of comparable stock.

4.6.4 A summary of the assumptions adopted in our cashflow models is included at Appendix 4.

4.7 Bad Debts and Voids

4.7.1 We have incorporated into our valuation the potential for future voids and bad debts. The rate applied is similar

to allowances used by other RPs providing a management and maintenance service in the areas where the

properties are situated.



4.7.2 Any loss of income for void properties is reflected in a deduction made from the gross rental income. Similarly

we have also made an allowance for bad debts.

4.7.3 In our EUV-SH valuations we have adopted a rate for bad debts and voids of between 2.5% and 4.0% of gross

income for the Portfolio.

4.7.4 In our MV-T valuations, we have adopted rates of between 8% and 10% of gross income for the first 3 years of

the cashflow, between 6% and 7% in years 4 and 5 and 4% in all years thereafter.

4.7.5 This is because we are assuming greater increases in rents than a social landlord would impose. In our opinion,

these rent increases would inevitably be reflected in a higher level of voids and bad debts than would otherwise

be the case. The associated risk has been factored into our MV-T discount rate.

4.8 Management Costs

4.8.1 We have adopted rates for management and administration, based on our experience of other RPs operating in

similar areas to Clarion. Our rates are shown below and are subject to an annual inflator of 0.5% over inflation

for the duration of the cashflow reflecting long-term earnings, growth predictions and potential management

savings.

4.8.2 We have adopted a rates of between £625 and £650 per unit for management and administration in our valuations

on the basis of EUV-SH.

4.8.3 We have assumed that a mortgagee in possession would expect to spend 10% of rental income on management

and administration in our valuations on the basis of MV-T.

4.9 Repairs and Maintenance

4.9.1 Although the majority of the properties are generally in a reasonable or good condition, renewal, day-to-day and

cyclical maintenance will be required to keep the stock in its present condition.

4.9.2 The following table sets out the various assumptions we have made in our cashflows. All of our appraisals assume

that these costs will inflate at 1% (real) per annum.

Category of Expenditure EUV-SH MV-T

Major repairs and renewals – Year 1 £625-£8,000 £1,750-£2,000

Cyclical repairs – Year 1 £300-£350 £300-£325

Day-to-day repairs £350-£425 £350-£400

Total £1,275-£8,775 £2,450-£2,725



4.9.3 In accordance with section 1.9, we have adopted higher costs in the first 2 years of our High Rise EUV-SH

valuation models to reflect the cost of any estimated remedial works required at these properties in the wake of

the fire at Grenfell Tower.

4.9.4 We have adopted higher costs for major repairs in the first 2 years of our MV-T models as some of the properties

will require refurbishment and redecoration in order to attract buyers or to be let on the open market. After this

initial period, our costs settle to a lower level of between £650 and £750 per unit per annum.

4.10 Relet and Sales Rates

4.10.1 Our EUV-SH model allows for a rate at which secure tenancies are relet as assured tenancies. We have adopted

rates of 3% (houses), 5% (flats) and 8% (sheltered) and have assumed that those properties will be relet at the

prevailing average target rent. In addition, we have included an allowance for incidental voids as outlined in

section 4.7.

4.10.2 Following announcements made in the Budget delivered on 8 July 2015 we anticipate that the tenants of some of

the properties within the Portfolio may in future have either the Right to Buy (“RTB”) or the Right to Acquire (“RTA”).

The National Housing Federation (“NHF”) put an offer to Government in September 2015 in which it proposed the

implementation of an extended RTB on a voluntary basis (“VRTB”). This offer was described as a compromise

with a view to securing the independence of housing associations and the best deal on compensation (for

discounts) and flexibilities (the ability to refuse the RTB in relation to certain properties). In the Autumn Statement

2016 it was announced that the Government would fund a large-scale regional pilot of the RTB for housing

association tenants. It is expected that over 3,000 tenants will be able to buy their own home with RTB discounts

under this extended pilot scheme. The pilot scheme, which is expected to run for one year, is aimed at testing

two aspects of the voluntary agreement that the original pilots did not cover, namely:

one-for-one replacement; and

portability of discounts.

4.10.3 However, the Government is yet to announce the specific terms and locations of this pilot and, more broadly, the

wider terms of the overall extension of RTB and therefore any consideration of the impact of RTB or RTA on

valuations would be speculative. We consider it imprudent to reflect additional value from capital receipts and we

have therefore assumed that neither RTB nor RTA will be available to exercise at the date of valuation.

4.10.4 In our MV-T cashflows we have assumed that some of the units which become void are sold on the open market

and have included sales rates of per annum for houses and flats as shown in the table below:

Valuation Category Flats Houses

WSH London – Affordable Rent (MV-T) 4.0% 4.0%

WSH London – City Road 5.0% 3.0%

WSH London – Islington (MV-T) 4.0% 16.0%

WSH London – Kingston 16.0% 6.0%

WSH Midlands – Stoke-on-Trent (MV-T) 8.0% 4.0%



Valuation Category Flats Houses

WSH North East – Middlesbrough (MV-T) 4.0% 5.0%

WSH North East – Newcastle 5.0% 25.0%

WSH North East – South Shields (MV-T) 5.0% 5.0%

WSH North West – Bolton 4.0% 4.0%

WSH North West – Warrington 4.0% 4.0%

WSH South East – Affordable Rent (MV-T) 4.0% 4.0%

WSH South East – Bedford 10.0% 5.0%

WSH South East – Chelmsford (MV-T) 8.0% 5.0%

WSH South East – Hemel Hempstead (MV-T) 4.0% 4.0%

WSH South East – Milton Keynes (MV-T) 4.0% 5.0%

WSH South West – Affordable Rent (MV-T) 8.0% 5.0%

WSH South West – Bristol 8.0% 4.0%

WSH South West – Exeter (MV-T) 4.0% 6.0%

WSH South West – Plymouth (MV-T) 5.0% 5.0%

WSH Yorks – Bradford (MV-T) 4.0% 4.0%

WSH Yorks – Leeds (MV-T) 8.0% 4.0%

4.11 Discount Rate

4.11.1 Our cashflow valuations are based on constant prices and therefore explicitly exclude inflation. The chosen

discount rate reflects our judgement of the economic conditions at the time of the valuation and the level of risk

involved in each cashflow, taking all factors and assumptions into account. To determine the risk involved we

have looked at:

the sustainability of the existing rental income;

the likely rate of future rental growth;

the condition of the Portfolio;

the level of outgoings required to maintain the maximum income stream;

the likely performance of the Portfolio in relation to its profile and location;

the real cost of borrowing; and

the long-term cost of borrowing.

4.11.2 For our EUV-SH valuations we have adopted discount rates of between 5.5% and 8.75% on net rental income.

4.11.3 In our MV-T model we have adopted a higher rate on rental income to reflect additional risk resulting from the

significant rental growth that we have assumed during the first 1 to 5 years. In addition, we have adopted a higher



rate on income from sales to reflect the additional premium on the yield which an investor would expect from a

sales income stream.

4.11.4 We have adopted discount rates of 7.5% and 8.5% (rental income), and between 9.5% and 10.5% (sales) for our

MV-T cashflows.

4.12 Market Value subject to Vacant Possession (MV-VP)

4.12.1 We have undertaken research into MV-VPs in locations covered by the Portfolio. We have assessed the average

value of dwellings on a property by property basis. The values adopted are based on comparable research and

reflect the diversity of the stock and the different areas.

4.12.2 The average MV-VP of the general needs and sheltered properties in the Portfolio is £232,500.

4.13 House Price Growth

4.13.1 We have assumed house prices will grow in real terms at 0% in the first 3 years of our cashflow models and in

the long term at a rate of 1% per annum.



5 Shared Ownership Commentary

5.1.1 There are 1,120 shared ownership properties within the Portfolio. The equity retained by Clarion in each of our

shared ownership cashflows and average weekly rent charged against this equity are shown in the table below:

Valuation Category Units Retained Equity Weekly Rent

S.O. Ex-Ridgehill 133 73.32% £61.79

S.O. North 9 56.67% £48.39

S.O. South 917 60.08% £59.28

S.O. South High Rise 61 66.41% £60.76

5.2 Rental Growth

5.2.1 The HCA's restriction on future rental growth through section 2.4.5 of the Capital Funding Guide allows a maximum

of 0.5% real growth per annum only. The imposition of this formula effectively constrains the net present value of

the cashflow to the basis of EUV-SH.

5.2.2 It should also be noted that although, in general, rents in the sector will be linked to CPI, the rents for shared

ownership properties will grow as set out in the signed leases for each property. We have not had sight of these

leases and assume that they have the standard rent review provisions (upwards only, indexed linked at RPI plus

0.5%) set out in the model shared ownership lease, published by the National Housing Federation.

5.2.3 We have grown rents at a rate of RPI plus 0.5% in line with this guidance and the terms of the existing leases.

5.3 Outgoings

5.3.1 In forming an opinion of the net rental income the Portfolio will generate, we have made an allowance of between

5% and 8% of gross rental income for management.

5.4 Voids and Bad Debts

5.4.1 We understand that all of the properties are now let and so we would not expect any voids going forward. We

have allowed for the incidence of bad debts in the discount rate.

5.5 Repairs and Maintenance

5.5.1 We have assumed any repair obligations will lie with the leaseholders. We would expect that repair/renewal, day-

to-day and cyclical maintenance would be required to keep the stock in its present condition. However, we have

assumed that, where appropriate, service charge income fully covers expenditure.



5.6 Discount Rate

5.6.1 For our EUV-SH valuations we have adopted a discount rate of between 5.5% and 6.75% on the rental income

and 8.0% on sales.

5.7 Market Value subject to Vacant Possession (MV-VP)

5.7.1 The average MV-VP in the shared ownership Portfolio is £279,700.

5.8 Rate of Sales

5.8.1 We have adopted what we would expect to be a long-term sustainable rate of sales of further tranches over the

50 years of our S.O. North and S.O. South cashflow models. We have assumed that equity is sold in 25%

tranches.

5.8.2 The 133 ex-Ridgehill properties and 61 High Rise properties have no allowance for future staircasing included

within their valuations.

5.8.3 The rates we have adopted in our S.O. North and S.O. South cashflows are as follows:

S.O. North

Years Tranche sales p.a.

Years 0-1 0

Years 2-7 1

Years 8-40 0

Years 41-50 0

S.O. South

Years Tranche sales p.a.

Years 0-1 0

Years 2-11 40

Years 12-26 20

Years 27-50 10

5.8.4 It is difficult to judge when tenants will purchase additional tranches so the income from sales proceeds has been

discounted at a higher rate, in line with section 5.7, to reflect the additional risk of realising the value. However, it



should be noted that in our valuation, the majority of the value (between 62.0% and 66.5%) is attributed to the

rental income.



6 Valuation

6.1 Background

6.1.1 We have prepared our valuations on the following bases:

Existing Use Value for Social Housing (“EUV-SH”); and

Market Value subject to existing Tenancies (“MV-T”) where applicable.

6.1.2 Please note that the properties that have been valued on the basis of MV-T have also been valued on the basis

of EUV-SH, for information purposes only.

6.1.3 We have also provided an aggregate valuation of the Portfolio on the basis of Market Value assuming Vacant

Possession (“MV-VP”) for indicative purposes only.

6.1.4 Our valuations have been prepared in accordance with the RICS Red Book.

6.1.5 Apportionments of the valuations have been calculated as arithmetic apportionments and are included in the

schedules at Appendix 3. This is a portfolio valuation, and no valuation of individual properties has been

performed.

6.1.6 In forming our opinion of the value of the Portfolio as a whole, we have neither applied a discount for quantum nor

added a premium to reflect break-up potential.

6.1.7 The definitions of the bases of valuation are set out in full in section 7 of this Report.

6.2 General Needs and Sheltered Units

6.2.1 Our valuation of the 25,095 restricted general needs and sheltered properties, in aggregate, on the basis of EUV-

SH at the valuation date is:

£1,739,960,000

(one billion, seven hundred and thirty nine million, nine hundred and sixty thousand pounds)

6.2.2 Our valuation of the 4,943 unrestricted general needs and sheltered properties, in aggregate, on the basis of MV-

T at the valuation date is:

£354,170,000




6.3 Shared Ownership

6.3.1 Our valuation of the 1,120 shared ownership properties, in aggregate, on the basis of EUV-SH at the valuation

date is:

£79,710,000

(seventy nine million, seven hundred and ten thousand pounds)

6.4 Freehold Properties

6.4.1 Our valuation of the 25,890 freehold properties that have been valued on the basis of EUV-SH, in aggregate, is:

£1,796,390,000

(one billion, seven hundred and ninety six million, three hundred and ninety thousand pounds)

6.4.2 Our valuation of the 4,943 freehold properties that have been valued on the basis of MV-T, in aggregate, is:

£354,170,000


6.5 Leasehold Properties

6.5.1 Our indicative valuation of the 325 leasehold properties that have been valued on the basis of EUV-SH, in

aggregate, is:

£23,280,000

(twenty three million, two hundred and eighty thousand pounds)

6.6 Market Value Assuming Vacant Possession

6.6.1 Our indicative valuation of the 31,158 properties in the Portfolio, on the basis of MV-VP, in aggregate, is:

£7,300,000,000

(seven billion, three hundred million pounds)

6.7 Summary Table

6.7.1 The following table summarises the valuations shown above by individual category:


Ex-Aashyana Housing Association

AHA General Needs 76 EUV-SH £5,110,000

Ex-Broomleigh Housing Association




BHA Affordable Rent 659 EUV-SH £41,050,000

BHA General Needs 6,144 EUV-SH £457,720,000

BHA General Needs High Rise 67 EUV-SH £2,880,000

BHA High Rise Non-PRC 53 EUV-SH £1,030,000

BHA Keyworker 16 EUV-SH £1,810,000

BHA Lewisham Stock Transfer 338 EUV-SH £21,080,0000

BHA Lewisham Stock Transfer High Rise 160 EUV-SH £5,850,000

BHA Market Rented 38 EUV-SH £5,730,000

BHA PRC Other 320 EUV-SH £24,330,000

BHA Sheltered 574 EUV-SH £33,470,000

Ex-BHA Total 8,369 £594,950,000

Ex-Downland Housing Association

DHA Affordable Rent 734 EUV-SH £50,270,000

DHA GN Freehold 5,544 EUV-SH £446,360,000

DHA GN Freehold High Rise 144 EUV-SH £4,270,000

DHA GN Leasehold 10 EUV-SH £680,000

DHA Keyworker and RTHB 4 EUV-SH £320,000

DHA Keyworker and RTHB High Rise 2 EUV-SH £90,000

DHA Sheltered 601 EUV-SH £35,290,000

Ex-DHA Total 7,039 £537,280,000

Ex-William Sutton Housing Association

WSH Intermediate Rent 22 EUV-SH £2,250,000

WSH London – Affordable Rent (EUV) 76 EUV-SH £7,020,000

WSH London – Affordable Rent (MV-T) 14 MV-T £2,430,000

WSH London - Bethnal Green 169 EUV-SH £13,900,000

WSH London – City Road 95 MV-T £20,460,000

WSH London – Islington (EUV) 26 EUV-SH £2,940,000

WSH London – Islington (MV-T) 126 MV-T £33,070,000

WSH London – Kingston 52 MV-T £12,380,000

WSH London – Rotherhithe 144 EUV-SH £11,940,000

WSH London – Southwark 28 EUV-SH £3,070,000

WSH London – Southwark High Rise 40 EUV-SH £3,270,000

WSH London – St Quintin 477 EUV-SH £45,050,000

WSH Midlands – Birmingham 340 EUV-SH £14,920,000




WSH Midlands – Rugby 329 EUV-SH £18,950,000

WSH Midlands – Stoke-on-Trent (EUV) 444 EUV-SH £15,960,000

WSH Midlands – Stoke on Trent (MV-T) 313 MV-T £16,980,000

WSH Midlands – Tamworth 343 EUV-SH £13,820,000

WSH North East – Middlesbrough (EUV) 101 EUV-SH £2,230,000

WSH North East – Middlesbrough High Rise 36 EUV-SH £610,000

WSH North East – Middlesbrough (MV-T) 497 MV-T £20,760,000

WSH North East – Newcastle 138 MV-T £5,960,000

WSH North East – South Shields (EUV) 61 EUV-SH £1,830,000

WSH North East – South Shields (MV-T) 728 MV-T £32,970,000

WSH North West – Bolton 356 MV-T £15,620,000

WSH North West – Manchester 420 EUV-SH £14,960,000

WSH North West – Newton-le-Willows 168 EUV-SH £6,460,000

WSH North West – Preston 265 EUV-SH £11,280,000

WSH North West – Salford 174 EUV-SH £7,130,000

WSH North West – Warrington 473 MV-T £26,520,000

WSH North West – Widnes 17 EUV-SH £690,000

WSH South East – Affordable Rent (EUV) 337 EUV-SH £23,230,000

WSH South East – Affordable Rent (MV-T) 5 MV-T £450,000

WSH South East – Bedford 10 MV-T £830,000

WSH South East – Borehamwood 3,506 EUV-SH £269,560,000

WSH South East – Borehamwood High Rise 136 EUV-SH £5,250,000

WSH South East – Bracknell 115 EUV-SH £12,170,000

WSH South East – Chelmsford (EUV) 46 EUV-SH £3,400,000

WSH South East – Chelmsford (MV-T) 226 MV-T £31,800,000

WSH South East – Hemel Hempstead (EUV) 64 EUV-SH £5,750,000

WSH South East – Hemel Hempstead (MV-T) 200 MV-T £25,810,000

WSH South East – Hitchin 43 EUV-SH £3,940,000

WSH South East – Leatherhead 25 EUV-SH £2,720,000

WSH South East – Letchworth 9 EUV-SH £730,000

WSH South East – Luton 91 EUV-SH £6,350,000

WSH South East – Milton Keynes (EUV) 89 EUV-SH £6,410,000

WSH South East – Milton Keynes (MV-T) 2 MV-T £210,000

WSH South East – Stevenage 170 EUV-SH £14,870,000




WSH South West – Affordable Rent (EUV) 127 EUV-SH £4,520,000

WSH South West – Affordable Rent (MV-T) 50 MV-T £3,530,000

WSH South West – Bristol 181 MV-T £21,020,000

WSH South West – Exeter (EUV) 88 EUV-SH £4,520,000

WSH South West – Exeter (MV-T) 37 MV-T £4,050,000

WSH South West – Ilminster 21 EUV-SH £1,060,000

WSH South West – Plymouth (EUV) 63 EUV-SH £2,550,000

WSH South West – Plymouth (MV-T) 836 MV-T £50,610,000

WSH South West – Teignbridge 8 EUV-SH £330,000

WSH Yorks – Bradford (EUV) 215 EUV-SH £8,100,000

WSH Yorks – Bradford (MV-T) 375 MV-T £14,100,000

WSH Yorks – Hull 108 EUV-SH £3,140,000

WSH Yorks – Leeds (EUV) 337 EUV-SH £11,750,000

WSH Yorks – Leeds (MV-T) 229 MV-T £14,610,000

WSH Yorks – Sheffield 333 EUV-SH £13,990,000

Ex-WSHA Units 14,554 £766,330,000

Ex-Ridgehill S.O. 133 EUV-SH £8,260,000

S.O. North 9 EUV-SH £460,000

S.O. South 917 EUV-SH £67,980,000

S.O. South High Rise 61 EUV-SH £3,010,000

Agency Managed 114 Nil Nil

Leasehold 2,443 Nil Nil

Grand Total 33,715 £2,173,840,000

6.8 Suitability as Security

6.8.1 Your instructions require us to comment on whether the properties we have valued continue to provide adequate

security for the loan.

6.8.2 It is difficult for any valuer, without being asked to consider a specific credit or risk assessment policy, to make an

absolute, unqualified statement that those assets will provide suitable security because our instructions do not

explain what criteria the Security Trustee is applying in making this assessment.

6.8.3 However we confirm that, in our opinion, should the Security Trustee become a mortgagee in possession of the

Portfolio, then it would be possible to achieve a sale to another RP that would be at a price at least equivalent to



our valuation on the basis of EUV-SH or, in principle, to a private purchaser at a price equivalent to our valuation

on the basis of MV-T as set out in our Report. However, the valuation assumes implicitly that a purchaser could

obtain debt finance on commercially viable terms to facilitate a purchase of the Portfolio. Furthermore, we have

identified the following attributes of the Portfolio which should assist the Security Trustee in its assessment:

given the divergence between property prices and local average earnings, demand for these properties should

be sustainable in the medium to long term;

the level of rental income for all areas is broadly in line with other RPs in the respective areas;

the level of rental income is, in aggregate, below the LRRs for each region;

the EUV-SH and MV-T values per unit and percentage relationships to MV-VP, are at levels appropriate to

the current climate, having regard to the Portfolio’s location and composition; and

we have made conservative assumptions with regard to the respective rent and sales contributions to the

valuations of the shared ownership units and they are not overly dependent on proceeds from sales.

6.8.4 With the above factors in mind, and with specific regard to the continuing need for well-maintained social housing

accommodation, we believe it reasonable to conclude an acceptable demand for a portfolio of this nature from

commensurate social housing landlords and private institutional investment firms.

6.8.5 Subject to the information presented within this Report, and at the values formally reported, we are satisfied to

recommend to the Security Trustee that this Portfolio is suitable for security purposes.



7 Bases of Valuation

7.1.1