Today is our largest-ever quarterly performance announcement. The entire property portfolio has been re-valued, financial information on all properties has been updated and 40 properties are either recommencing or increasing dividend distributions.
To ensure that all clients have the opportunity to consider this announcement, the Resale Market will be suspended for 3 working days, as usual, re-opening at 11am on Wednesday 7 April 2021.
Property Partner is performing well at the corporate level. A challenging 2020 reframed the necessity for even greater efficiency in managing our £140m property portfolio and servicing over 9,000 clients. The business is well capitalised, and we have no need or plans to raise further capital in the foreseeable future.
On platform, there has been a considerable increase in momentum recently, for example:
- Resale Market trading volumes have increased by almost 100% and average prices are up by 9%
- We successfully funded a new property development loan in Salcombe and two separate block listings at Tower Mint
- We repaid the Aldbury Homes development loan, delivering a return to investors of 9.75% p.a., and partially repaid the Epsom development loan
More details on these and other topics in today’s announcements:
1. Property revaluations
2. Property financial performance
3. Recommencing 29 dividends, increasing a further 11 dividends
4. 5-year anniversary processes continue
5. Disposals of single flats within blocks
6. Resale Market update
7. Property development loans
8. Properties with fire safety issues
9. Next quarterly announcements and close periods
At a national level, the residential property market has seen house prices rise by 5.7% in the 12 months to March (Nationwide House Price Index). Within that national average, contrasting trends have become more pronounced in the last quarter and these are directly relevant to our portfolio:
- Lower demand for flats as buyers seek outdoor space and place less importance on proximity to city centres
- Economic disruption has hit first time buyers harder than existing homeowners, with the former group being a large buyer of flats and lower value houses
- London School of Economics study shows those with the means are targeting larger homes with more outdoor space, taking advantage of the stamp duty holiday and the opportunity to work from home in more comfortable surroundings; conversely, transaction levels for flats are falling
- Financial Times estimate that 840,000 leasehold flats, more than 3% of the national housing stock, are currently effectively unsaleable due to cladding and fire safety issues
- Disproportionately low transaction volumes of flats and lower value houses, and their associated underrepresentation in house price indices, mean the true impact on this part of the market may not be fully reflected in current house price data
The student accommodation sector remains in a state of considerable uncertainty. Many students did not move to or stay in their university city this academic year, due to severe social and academic restrictions. During the winter, a steady trickle of new arrivals at our student blocks has seen overall occupancy increase to 74% of total bedspaces. Flexibility over lease length and reduced pricing has been necessary to achieve the additional bookings.
1. Property revaluations
All properties in the portfolio have now been revalued by Allsop LLP, an independent, RICS-accredited surveyor, for the first time since the Covid crisis began. Overall, valuation declined by 4.0%. To understand this decline, we can divide the portfolio into three categories:
- 78 standard residential properties that increased by an average of 1.0%; this group included 50 properties that showed no change in their valuation
- 20 residential properties that fell significantly, on average by 14.0%; these are flats in city or commuter town centres, often without outdoor space, and have been hit directly by Covid trends driving increased supply and substantially reduced demand; this group also includes properties with fire safety concerns
- 11 student accommodation blocks that fell by 8.7%; as described above, student accommodation has suffered severely during the Covid crisis
For all properties, Allsop’s latest valuation and survey is available on each property’s respective Investment Case. In addition, clients can review here what Allsop regarded as the most relevant comparable transactions for each property to inform their valuation. For those properties that increased or decreased in value by 5% or more, we have provided additional discussion in the properties’ Investment Cases.
2. Property financial performance
Every 6 months, for each property, we report historical financial results and the property’s net cash surplus or deficit. These financials can be found in each property’s Financials section and the Investment Case contains further discussion.
The financial results disclosed include rental income, property operating and works costs, mortgage interest costs, fees paid to Property Partner, dividends, etc. Since these financials were last reported, rental income across the portfolio has increased by 2.2% and property operating costs have decreased by 8.5%.
Overall, the net cash position of the portfolio is a surplus of 0.1% of property value. This is consistent with the previously reported surplus. The better operating performance was offset by a return to mortgage interest payments and the repayment of mortgage holidays that were taken when the Covid crisis began.
3. Recommencing 29 dividends, increasing a further 11 dividends
We continue with our cautious approach to restarting dividends, only declaring dividends for those properties that are in a strong financial position and where there is confidence that the dividend is sustainable in the medium term.
The first 29 properties listed below will recommence dividend payments from 6 April 2021. Below those are a further 11 properties that are already paying a dividend and will increase their dividend payments from 6 April 2021.
In total, 56 of our 109 properties are now paying dividends, with an average dividend yield of 3.1% p.a. based on latest independent valuations. Across the entire portfolio, including those not paying dividends, the average dividend yield is 1.9% p.a.
Prior to the Covid crisis, all dividends were quoted before deduction of the AUM fee; we have changed that policy, and all dividends are now quoted after deduction of the AUM fee. For example, the 3.1% yield quoted above, would have been quoted pre-crisis as 4.3%. Those clients with larger portfolios receive a rebate that reduces the net AUM fee paid on investments in excess of £25,000 from 1.2% to 0.7%, hence receiving higher yields than those quoted.
The following 29 properties will re-commence paying a monthly dividend from 6 April 2021:
The following 11 properties are already paying a dividend and will increase their dividend payments from 6 April 2021:
| Property | Dividend yield p.a.(after AUM fee) |
| 1. London Road, Brighton & Hove | 3.50% |
| 2. Woodland Way, Mitcham | 3.50% |
| 3. Molyneux Court, Broadgreen | 3.50% |
| 4. Friars Way & Abbotsmeade Close, Fenham | 3.00% |
| 5. Pitt Street, Newcastle | 5.25% |
| 6. Verney Street, Exeter | 5.25% |
| 7. Cubbington Road, Leamington Spa | 4.00% |
| 8. Worcester, Worcestershire | 5.25% |
| 9. Ramsay Place, Aberdeen | 7.00% |
| 10. Compass Court, Eastbourne | 3.00% |
| 11. Barton Court, Warrington | 3.00% |
Further discussion of the performance of the above 40 properties can be found in each property’s Investment Case.
For properties with dividends that remain suspended, all net rental income accumulates within that property’s account, strengthening its financial position.
On 30 June 2021, we will announce further properties that are able to restart paying a dividend.
4. 5-year anniversary processes continue
In October 2020, we recommenced the 5-year anniversary processes for individual properties. Since then, we have launched the process for 17 properties, of which 12 are proceeding with a sale and 5 have been held.
Of the 12 sales in process, 6 are “deal agreed” and progressing toward exchange. We maintain a transparent record of these and other properties that we sell on our Selling Record. For all properties that we have either sold or are deal agreed, clients have earned an average total return (dividends plus capital gains) of 5.7% p.a. after all fees and taxes.
The single largest challenge in selling 5-year anniversary properties has been securing vacant possession. When the Covid crisis began, we were forced to pause the 5-year anniversary processes for, what was at the time, an unknown duration, and went to great lengths to secure tenants in the interim. With the processes now re-started, tenants have been afforded government protection from eviction, which has significantly disrupted our ability to sell the properties.
The majority of these properties have been flats in either city or commuter town-centre locations, typically without outdoor space. The weaker market for these properties, as a result of the Covid crisis, has further impaired the disposal processes.
We have been running processes for 3 properties per month. From 1 July 2021, we will increase that rate to 4 properties per month until we catch-up with the original 5-year anniversary dates. The 5-year process date is prominently displayed on each property’s investment page and the relevant dates for all properties that you have invested in, are now easily seen in your Current Properties portfolio as the first column on the table. The dates have a significant impact on the way properties trade on the Resale Market in the months preceding the respective processes.
5. Sale of single flats within blocks, subject to shareholder votes
On 30 September 2020, we outlined a strategy of targeted disposals within the portfolio, where an SPV with multiple units would benefit from the disposal of one or more of those units (i.e. not the disposal of an entire property/block).
These disposals can be for a broad range of reasons, including opportunistically realising an attractive valuation, addressing a historic financial deficit, reducing future mortgage re-finance risk, etc. In each case, we agree with the mortgage provider how the proceeds will be used, but typically this involves the majority of proceeds paying down the mortgage.
We are currently marketing 25 individual units for sale, of which 9 have received an attractive offer and shareholders have voted to proceed with a sale – these 9 are listed below and you can review the returns performance for each of these on our Selling Record:
1. Flat 4, 7 Spencer Parade, Northampton
2. Flat 10, 129 Southwood Road, Hayling Island
3. Flat 41, Sandars Maltings, Gainsborough
4. Flat 48, Sandars Maltings, Gainsborough
5. Flat 6, 93 Queen Street, Sheffield
6. Flat 3, Stokes Mill, Stalybridge
7. Flat 5, Blackfords Court, Cannock
8. 54 Whitewell Road, Frome
9. Flat 11, Dutch Quarter, Colchester
The remaining 16 are listed below, a number for which we are in negotiations with a potential buyer and will hold shareholder votes in the near future:
1. Flat 11, St. Catherine’s Mews, Lincoln
2. Flat 21, St. Catherine’s Mews, Lincoln
3. Flat 11, 8 Bridgewater Street, Manchester
4. Flat 5, Keogh House, Swindon
5. Flat 6, Lydan House, Redditch
6. Flat 27, Dutch Quarter, Colchester
7. Flat 8, Prospect Court, Market Drayton
8. Flat 3, 7 Spencer Parade, Northampton
9. Flat 6, 7 Spencer Parade, Northampton
10. Flat 6, The Warehouse, Chester
11. Flat 112, Norman House, Derby
12. Flat 7, Carlisle Mews, Gainsborough
13. Flat 3, St. Catherine’s Mews, Lincoln
14. Flat 4, Ansteys Court, Torquay
15. Flat 13, St. David’s Lodge, Hastings
16. 7 Stackyard Farm, Scarborough
6. Resale Market update
In February and March, we have seen the highest level of trading on our Resale Market, since March 2020. Trading volumes were 98% higher than the average of the previous 3 months.
Over the past quarter, PPX (the index of trading prices for all properties) has increased from 73.1 in late-December 2020 to 79.6 today, a rise of 9%.
Clients can select their own properties on the Resale Market or invest via an Investment Plan, which selects the best portfolios available according to one of 2 strategies:
- Income Investment Plan provides a portfolio of the 10 highest dividend paying properties; the plan targets a portfolio with a yield in excess of 3% p.a. (after AUM fee), but given the discounts available on the Resale Market, the plan is currently delivering in excess of 4% p.a. (after AUM fee)
- Capital Discount Investment Plan selects a portfolio of 20 properties with the largest discounts to independent surveyors’ valuation; the target average discount is a minimum of 20%; based on Resale Market trading prior to this close period, the plan was delivering an average discount in excess of 25%
7. Property development loans
In March, we successfully raised over £680,000 for a new property development loan in Salcombe. This quarter, we also repaid the Aldbury Homes loan, delivering a net return to investors of 9.75% p.a., and we partially repaid the Epsom loan.
Of the 16 development loans that our clients have funded, 6 have now been repaid in full with interest. You can find the latest update on the 10 loans outstanding on their respective investment pages here.
8. Properties with fire safety issues
The UK-wide fire safety scandal continues to gather momentum. Whilst the government has taken significant steps to address the issues, the situation remains far from resolved. For further details, read our latest update here.
We have 7 properties that are currently impacted by fire safety concerns – updates on each of them can be found here.
9. Next quarterly announcements and close periods
- 30 June 2021 – market closed from 11am that day until 11am, 5 July 2021
- 30 September 2021 – market closed from 11am that day until 11am, 5 October 2021
If you have questions about these announcements, please email support@propertypartner.co.
Kind regards
The team at Property Partner
Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however, the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested.
The performance information (including any expression of opinion or forecast) reflects the most up-to-date data at the time of production; publication is made in good faith on the basis of publicly available information or on sources believed by Property Partner to be reliable.
Past performance and / or forecasts (if stated) are not a reliable indicator of future performance. Interest and capital returned may be lower than expected. Gross rent, dividends, and capital growth may be lower than estimated. Exiting your investments (on the resale market, via the 5-year anniversary process or according to targeted strategies) is subject to price and demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Financial promotion by London House Exchange Limited (No. 8820870); authorised and regulated by the Financial Conduct Authority (No. 613499). See Key Risks for further information.