Below you will find our Q2 2022 performance announcement. This includes updated financial information on all properties (now including comparative financials for the previous year), dividend changes, disclosure of EPC ratings for the first time, and updates on property disposals and development loans.
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 Wednesday, 3 August 2022.
- 1. Portfolio performance and enhanced reporting
- 2. Dividend changes
- 3. EPC ratings and sustainability
- 4. 5-year anniversary disposals
- 5. Disposals of individual units within blocks
- 6. Property development loans
- 7. Properties with fire safety issues
- 8. Upcoming quarterly announcements
1. Portfolio performance and enhanced reporting
As we do each quarter, today we have updated every property’s performance. For each property, we report historical financial performance and the property’s net cash position. In addition, today, for the first time, we have enhanced the financial disclosures to include comparative financials for the previous financial year.
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.
Net cash across the portfolio is a surplus of 1.2% of property value (up from 0.5% reported in Dec-21 and 1.1% reported in Mar-22), representing a continued strengthening of the properties’ balance sheets.
Our portfolio has benefitted for the last 6 years from the low cost of borrowing on variable rate mortgages. However, since December 2021, the BoE base rate has increased from 0.1% to 1.25% currently. The BoE’s Monetary Policy Committee meets next on 4 August and 15 September, and further rate rises are expected. We will consider any further rate rises, along with property operating performance, in our next quarterly performance update on 31 October 2022.
It is likely that further interest rate increases will result in reductions to dividends.
In the next quarter, we will continue and accelerate the following measures to reduce exposure to interest rates:
- Sale of individual units within residential blocks: as shown on our Selling Record, we have completed sales of 27 units, with the large majority of proceeds being used to reduce mortgages; since June 2021, the loan-to-value ratio across the portfolio has reduced from 53% to 49%
- Reduce or suspend dividends of properties where it is necessary or advantageous to use net rental profits to reduce mortgage principal: as mentioned below, we have done this for 18 properties at this announcement
2. Dividend changes
Across the portfolio, we are reducing the weighted average dividend yield from 3.3% p.a. today to 2.9% p.a. from 5 August 2022. This average includes those properties that are not paying a dividend. This dividend reduction is because of the significant increase in mortgage interest rates. This is only partially offset by stronger net rental performance.
|First dividend payment date||5 Apr-21||5 Jul-21||5 Oct-21||5 Jan-22||5 Apr-22||5 Aug-22|
|Dividend yield p.a.||1.9%||2.1%||2.4%||3.2%||3.3%||2.9%|
The average dividend yield of 2.9% reflects the following changes from 5 August 2022:
- 5 properties will increase their monthly dividend
- 9 properties will decrease their monthly dividend
- 9 properties will suspend their monthly dividend
You can find the full list of dividend changes here.
3. EPC ratings and sustainability
For the first time, today we are disclosing the EPC (Energy Performance Certificate) ratings for every residential property on the platform. You can find this information in each property’s ‘Property Detail’ section (showing the lowest unit rating within each block).
Energy use in our homes accounts for a significant proportion of greenhouse gas emissions, contributing to both climate change and air pollution. With energy costs now at record levels, energy inefficient homes can add hundreds, if not thousands, of pounds to bills.
A Government White Paper indicates that legislation will be coming into force requiring many landlords to improve residential property EPC ratings. Currently, they need to meet a minimum rating of E. From 2025, new tenancies will need a rating of C or better and from 2028, all existing tenancies will need to be C or better.
Energy efficiency of properties that we purchased has always been a consideration and our portfolio is well positioned for the potential legislation, with over 70% of units rated C or better. We are keeping a close eye on the progress of the draft legislation and will provide updates in due course.
For those properties that are not already rated C, we will develop improvement plans that minimise the cost of works and offset this cost with energy cost savings. In addition, for the vast majority of our portfolio already rated C or better, there may be energy efficiency opportunities that are still worth pursuing. Aside from the environmental benefits, in time, this may potentially result in reductions in the cost of borrowing, reduced bills and increased desirability of our properties, for both tenants and purchasers.
A property’s energy efficiency will continue to increase in importance in the future, so today’s additional disclosure of EPC ratings is a first step in understanding this fundamental aspect of our portfolio.
4. 5-year anniversary disposals
In recent months, there has been strong support from shareholders for properties going through their 5-year anniversary processes. In July, 3 out of 4 properties, and in June, all 4 out of 4 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:
- Completed sales: properties which have been sold and funds returned to shareholders
- Individual unit sales: individual units that have been sold within a block that has been elected for sale through the 5-year anniversary process
A full list of 5-year anniversary sales is summarised below:
- 33 properties / units sales completed
- 34 properties / units under offer
- 12 properties / units on the market
- 97 properties / 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
5. 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 monitor the performance of these sales on our Selling Record.
A full list of these disposals is summarised below:
6. Property development loans
We have successfully repaid two development loans this quarter. Bickley Road, Leyton was repaid in full, achieving a total return of 26.1% (after all fees), equivalent to an interest rate of 9.25% p.a. Jubilee Street, Whitechapel was repaid in full, achieving a total return of 24.3% (after all fees), equivalent to an interest rate of 10% p.a.
Of the 16 development loans that our clients have funded, 9 have been repaid in full with interest. You can find the latest updates on the outstanding loans on their respective investment pages here.
7. 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 investment case.
- 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
8. Upcoming quarterly announcements
31 October 2022 – market closed from 10am that day until 10am, 3 November 2022
31 January 2023 – market closed from 10am that day until 10am, 3 February 2023
If you have questions about these announcements, please email firstname.lastname@example.org
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.