Below you will find our Q3 2022 performance announcement. This includes updated financial information on all properties, and updates on property disposals and development loans.
In addition, in response to current market conditions, we announce important information, including dividend suspensions and, for a number of properties, the launch of Equity Fundraises.
To ensure that all clients have the opportunity to consider this announcement, the Resale Market will be suspended as usual, for 3 working days, re-opening at 10am on Thursday 3 November 2022.
Today’s announcements:
1. Portfolio performance and measures to strengthen financial resilience
- All property disposals that are in progress will continue
- Dividend suspensions for mortgaged properties
- Equity Fundraises for selected properties
- Temporary deferral of 5-year anniversary processes
2. 5-year anniversary disposals
3. Disposals of individual units within blocks
4. Property development loans
5. Properties with fire safety issues
6. Upcoming quarterly announcements
1. Portfolio performance and measures to strengthen financial resilience
Today we have updated every property’s performance, as we do each quarter, including financial performance, mortgage details and net cash position.
Our portfolio is performing well. It has continued to exhibit very low vacancy rates across both our residential and student properties, with limited rental voids and stable operating costs. Gross rents for residential properties have increased by 5.2% in the 9 months to 30 September; 70% of units have seen a rent increase, with more to come in the last quarter of the year. This performance relates to those units that are available for rent; it does not include those properties (discussed in sections 2 and 3 below) that we are deliberately vacating in order to sell, which does reduce the portfolio’s overall rental performance.
Operating performance and property disposals of £2.9m in the 3 months to 30 September have strengthened the balance sheets of properties in the portfolio at 30 September:
- Net cash surplus of 1.2% of property value (1.2% at 30 June, 0.5% reported in Dec-21)
- Mortgage loan-to-value of 48% (49% at 30 June, 52% at 31 Dec-21)
The impact of uncertainty and high inflation is, however, felt acutely in the cost of borrowing. Rising mortgage rates in recent months are offsetting the portfolio’s rental operating performance in all but the highest yielding properties. As we reported in Q1 and Q2 updates, we have been selling units and reducing mortgages all year. But rate rises to date and those expected in the coming months, mean that we need to continue to be highly proactive.
The portfolio today is financially stable, no mortgage payments have been missed and all SPVs are solvent. However, in this economic environment, this is not assured for all properties for the year ahead. As such, increasing financial resilience is prudent; holding sufficient capital is fundamental to servicing mortgages and controlling the all-important decision of when to sell.
Therefore, we are taking the following measures:
I. All property disposals will continue
As discussed in detail in sections 2 and 3 below, we have a substantial programme of property disposals in progress. All disposals will continue.
From our programme of sales, recent weeks have displayed increasing signs that higher mortgage interest rates are having an impact on buyers e.g. reduced numbers of viewings, sales agents recommending asking price reductions, agreed deals not progressing to exchange, etc. We are monitoring this very closely and will continue to seek the best available disposal prices – as always, if the best offer we can achieve is more than 5% below the valuation on which shareholders voted for a sale, we will hold a confirmatory shareholder vote.
II. Dividend suspensions for mortgaged properties
Across the portfolio, we are suspending dividend payments on all mortgaged properties. Net income will be accumulated and where cash surpluses allow, mortgage levels will be reduced. Mortgage rates are already at a level that makes dividend suspension economically rational for most properties; and for those with very high rental yields, suspending the dividend allows us to strengthen the balance sheet in anticipation of continued mortgage rate rises. As always, we will review this decision quarterly on a property-by-property basis.
For the avoidance of doubt, those properties without a mortgage will continue to distribute dividends, unchanged.
III. Equity Fundraises for selected properties
Despite the above measures, we have identified 21 properties (out of 74 that are mortgaged) that require additional equity funding. Where possible, we are selling units in these properties and using their net operating income to reduce their mortgage; nevertheless, the combination of rising mortgage rates, near-term mortgage expiries and poor re-mortgage prospects, mean that they need to strengthen their financial position.
You can find a full list of these properties on our Equity Fundraises page. In your personal dashboard (once logged-in), properties in which you are a shareholder that will undergo an Equity Fundraise are clearly identified.
As shown, on the Equity Fundraises page, we have determined the size of the fundraise for each property based primarily on a 35% reduction in its current mortgage. This will result in a significant reduction in interest expense and mortgage repayment risk.
Most of these 21 properties have, over recent quarters or years, had persistent and/or high cash deficits. Whilst the property portfolio as a whole is financially stable, it is important that these 21 properties do not unfairly/disproportionately draw on the portfolio’s central reserves. As such, the Equity Fundraise for each property will seek to reduce this deficit where appropriate (in all cases, accounting for a small proportion of the fundraise, with the large majority going directly to reduce the mortgage).
It is important that shareholders in these 21 properties understand and engage with the Equity Fundraise process. Shareholders in each property are guaranteed an allocation directly proportional to their shareholding e.g. if a shareholder owns 1% of shares, 1% of shares in the fundraise are reserved for them, should they choose to invest. If any properties raise more than their funding target, scale back will apply, but not to the ‘protected’ allocation of existing shareholders i.e. investing in their allocation protects shareholders from dilution. Participation is not compulsory but if the allocation is not taken-up, this will lead to dilution of current shareholdings.
The Equity Fundraises are open to all investors. It is important to note that the underlying asset value remains unchanged and the discount to current valuation represents an opportunity for longer-term capital gains. This raise will significantly strengthen the financial position of these properties, with the intention of enhancing resilience to further uncertainty and rising rates.
Fundraising opens at 11am, 1 November and closes at 11am, 29 November.
For further detailed information and to understand the context and risks, please refer to the Equity Fundraises section in the Knowledge Base here. As with any investment your capital is at risk so please read all available information.
IV. Temporary deferral of 5-year anniversary process
In order to focus funding on the Equity Fundraises, we will defer all 5-year anniversaries by at least 3 months. All properties will keep their current place in the 5-year anniversary “queue” for when they are re-started. In the meantime, all residential properties with an upcoming 5-year anniversary already have units that are in the process of sale – so whilst the shareholder anniversary votes will be delayed, shareholders in these properties will not lose any time with regard to the ultimate return of funds, should properties be determined for ultimate disposal.
You can see updated 5-year anniversary dates on individual properties’ investment pages and the ‘Trading data’ view here.
2. 5-year anniversary disposals
In the last quarter, six properties were fully funded in the ‘blocklisting’ stage and will remain on the platform.
For those properties that have previously been voted by shareholders for sale, you can view their current status on their property pages and monitor overall sales progress on our Selling Record.
A summary of 5-year anniversary sales:
- 33 unit sales completed
- 22 units under offer
- 27 additional units on the market
- 144 units to be sold as soon as possible, subject to vacant possession and ensuring we do not harm the market by selling too many units in the same block at once
3. Disposals of individual units within blocks
These are discretionary sales of individual units within a block, where shareholders in each property have voted for the unit sale. Reasons for these sales have varied, including opportunistic sales to capture favourable market conditions, reduction in expensive mortgages, reduction of a property’s net cash deficit, reduction of mortgage refinance risk, etc.
Again, clients can see the performance of these sales on our Selling Record.
A summary of these disposals:
4. Property development loans
We have successfully repaid one further development loan this quarter. Hippodrome Place, Holland Park was repaid, achieving a total net return of 28.3% (after all fees), equivalent to an interest rate of 8.4% p.a.
Of the 16 development loans that our clients have funded, 10 have now been repaid in full with interest. You can find the latest updates on the outstanding loans on their respective investment pages here.
5. Properties with fire safety issues
The UK-wide fire safety scandal affecting high rise blocks continues. Whilst the government has taken steps to address the issues, the situation remains far from resolved. For further details on this and our 8 properties impacted, read the latest update on each affected property’s Latest Update section.
- Premier House, Edgware
- Picture Works, Nottingham
- Hamilton House, Liverpool
- Vantage Building, Hayes
- Sherringham Court, Hayes
- The Heights, West Bromwich
- Vista Tower, Stevenage
- Tower Mint Apartments
6. Upcoming quarterly announcements
31 January 2023 – market closed from 10am that day until 10am, 3 February 2023
28 April 2023 – market closed from 10am that day until 10am, 3 May 2023
If you have questions about these announcements, please email us at support@propertypartner.co
Best wishes,
The Property Partner Team
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.