Clients on our platform can exit their investments at any time by offering their shares for sale on our Resale Market. But, of course, the price and speed of that exit depends on the size of the holding being sold and levels of demand from buyers of shares.
For this reason, the ability to exit has always been backed-up by the underlying UK property market – a process we call the 5-year exit mechanic.
It is a 3-4 step process that ensures that all investors in a property, no matter how large or small, can exit at a price that fairly reflects the underlying value of the asset. Either everyone who wants an exit gets one, or the property is sold on the open market.
Our first property will have its 5th anniversary on 15 December 2019. Another 16 properties will have their 5th anniversaries in the 6 months to 30 June 2020, with a further 21 to follow by 31 December 2020.
How it works
Step 1 – Prior to 5th anniversary: Determining the fair market value of the property
Property Partner will commission an external RICS accredited surveyor to inspect the property and provide a full Red Book valuation report.
We will also speak to local agents to assess the likely demand for the property to provide a cross section of professional opinions and guidance on the value and how long it could take to secure a sale in current market conditions.
Step 2 – On the 5th anniversary: Shareholder vote
Resale Market trading will be suspended.
Payment of future dividends will be suspended, with net rental income accumulating within the property’s accounts, until the 5-year exit process is complete, and distributed to investors at that point.
Shareholders will vote on whether or not they would like to sell their full shareholding in the property at the independent surveyor’s valuation.
The vote will be open for 2 weeks following the 5th anniversary.
At the time of this vote, shareholders should be aware that if the property is sold, there can be no guarantee that the surveyor’s valuation will be achieved. If the best offer for the property is more than 5% below the surveyor’s valuation, shareholders will be given a further vote.
Step 3: Block listing of shares for sale
Shares belonging to shareholders who have voted to sell are pooled together and listed for funding at the surveyor’s valuation in a form similar to a new listing fundraise on the platform.
All purchase costs and fees incurred at the point of acquisition 5 years earlier will have fully amortised, enabling new investors to acquire shares at the underlying net asset value of the property, with no property purchase costs. As with all purchases of shares, stamp duty reserve tax will apply at 0.5%.
If all the shares are sold, the block listing will have been successful in enabling investors who wanted to exit at the surveyor’s valuation, to do so. The property will resume trading on the Resale Market and dividend payments will recommence. A new 5 year cycle will begin, with the same exit mechanic to be run on the 10th anniversary of a property’s acquisition.
Step 4: Sale of the property
If the block listing is not fully funded after 4 weeks, the underlying property will be marketed for sale, seeking offers at or above the surveyor’s valuation.
Property Partner may decide to keep the block listing open once the property has been listed for sale, if fully funding the remaining shares is feasible within a reasonable timeframe and that this outcome would deliver a better result for investors.
Reserve price: Property Partner will work to secure a sale at or above surveyor’s valuation. However, this cannot be guaranteed and we will consider lowering the asking price if no offers have been received. If the best offer for the property is more than 5% below the surveyor’s valuation, shareholders will be given a further vote.
Sales period: duration of the sales period cannot be guaranteed, but could typically be expected to take 3-9 months for a single flat and longer for a multi-unit block, where the units are sold sequentially to maximise price. The sales period would also take account of the expiry dates of tenants in occupation.
Treatment of tenants: we aim to provide high quality homes for our tenants and ensure that they are treated fairly. Where possible, we will manage tenancy agreements to ensure that tenants do not have long outstanding lease terms at the point of a property’s 5-year anniversary. However, we will not seek to evict tenants ahead of 5-year anniversaries and properties are likely to be tenanted when the exit mechanic vote takes place.
In most cases, the best sale price will be achieved by vacating the property and offering it for sale with vacant possession. Properties will therefore be marketed for sale when the tenant has left and the property has been prepared for sale. As a result, there could be a period of months between the conclusion of the block listing of shares and the property being marketed for sale.
When a property is sold, the net proceeds of sale will be returned to shareholders. Typically this will include the deduction of sales costs and corporation tax paid on any capital gain. For properties with liabilities, such as mortgages or amounts owing to the SPV central fund, these liabilities will be repaid in full before the proceeds of sale are returned to shareholders. Any rental profit accrued within the SPV will be paid to shareholders along with the proceeds of sale.
From time to time, Property Partner may, at our discretion contact shareholders to propose the sale of a property outside of the standard 5-year cycle, where we believe this offers a significant performance advantage. In these cases a vote is held, requiring a 75% majority of voting shareholders to agree to a sale before proceeding.
To go back to the quarterly close period update click here.