This message contains important information, including changes to Property Partner’s fee structure. As a regulated trading exchange and to ensure all clients have the time to review these announcements, we have paused trading on the Resale Market until Thursday, 11am 18 July 2019.
At Property Partner, we have built the UK’s leading online property investment platform. Below are our plans to make Property Partner even stronger for the future and better able to deliver returns for our clients.
The Board of Property Partner has recently appointed me as CEO, taking over from Marshall King. Over the last 15 months, Marshall has done an outstanding job developing the business and the Board is delighted to retain Marshall as a non-executive director. Having been a shareholder of Property Partner since inception in 2014 and CFO since April 2016, I am extremely excited to lead the company in the period ahead.
Now in our 5th year, we have a client base of 10,000 active investors; a £144m property portfolio; an industry-leading technology platform that offers clients seamless investment, diversification and portfolio management; the UK’s only crowdfunding platform with an FCA-regulated Resale Market, on which £34m of shares has been traded.
Since the EU referendum in June 2016, we have tripled the size of our property portfolio. But the current environment presents significant challenges. The conditions for investment have tightened continuously, sustained by unprecedented levels of political and economic uncertainty.
As a company, we have made important changes to strengthen our business model. We have extended our offering to student accommodation and development loans, and reduced the cost base of the company. But further changes are required to make the business more durable and drive returns for our clients.
Introduction of an Assets Under Management (AUM) fee
As our business has matured, our £144m property portfolio has naturally come to dwarf the value of our New Listing activity in any given period. Until now, our revenue has been sourced almost entirely from upfront fees on New Listings, so we need to re-balance our fee structure to reflect the relative scale of the property portfolio.
From 5 August 2019, we will charge an AUM fee based on the equity value of each property’s latest independent valuation (“equity value” refers to that part of the property’s value that is owned by clients i.e. does not include the mortgage). The AUM fee will amount to 1.2% per annum on portfolios valued up to £25,000 and 0.7% on the portion of portfolios valued over £25,000. The AUM fee will be applied to each property SPV, reducing monthly dividend distributions. This fee only applies to investments in property equity, not development loans.
An AUM fee is the most common and important fee across the asset management industry, and it is essential that Property Partner implement this.
The introduction of the AUM fee is a significant change for our clients and we are making some related changes as a result:
- Any shares owned on or before 15 July 2019 that a client sells on the Resale Market before 5 February 2020, will automatically receive a rebate of the AUM fee that has been paid on those shares sold.
- With the AUM fee in place, our direction of travel in the future is to reduce our upfront fees on New Listings. That process will commence immediately by reducing the combined Vendor and Sourcing Fees from 3.5% to a Sourcing Fee only of 3.0%.
Introduction of an Account fee
A compelling feature of investing with Property Partner has always been that clients can invest relatively small amounts in an asset class that otherwise requires substantial amounts of capital. We are devoted to continuing to offer all clients the ability to invest as much or as little as they choose, but we need to account for the fact that there is a minimum “cost to serve” all clients. From 5 August 2019, we will charge clients an Account fee of £1 per month + VAT – deducted on the same day that dividends are distributed. This fee is only applicable to clients with investments or deposits on account.
Creation of property portfolio central fund
As the landlords among you are aware, property management is a ceaseless challenge, complete with tenant issues and unforeseeable costs. Until now, when a property has experienced a financial shortfall, Property Partner has funded the shortfall by extending a short-term, interest-free loan to the SPV.
The scale of the property portfolio now provides the opportunity to establish a central fund, allowing Property Partner to make better property management decisions, utilising the power of the whole portfolio for all investors.
All property SPVs will contribute 1% of their purchase price to a ring-fenced central fund. When an individual property experiences a shortfall, this will be covered by the central fund extending a short-term, interest-free loan to the SPV.
To ensure that “strong” properties are not subsidising properties with management issues, we will then reduce the dividend of the borrowing SPV to create the surplus required to repay the loan over a reasonable period e.g. 6-12 months. This is consistent with our existing, quarterly review of all property dividend yields, resulting in adjustments where necessary.
The central fund benefits investors, as long-term property management decisions should not be determined solely by the immediate availability of cash within a single property SPV. And it avoids the severe volatility that would result if we were to suspend dividends every time an unexpected bill was received.
The central fund will be used to pay sales agents’ fees when properties are sold (a cost previously borne by individual SPVs), so that each property SPV ultimately recovers the value of its original 1% contribution.
These changes will make Property Partner a significantly stronger business, that is better able to deliver returns for our clients.
I welcome any feedback you may have, and I look forward to discussing our business plans and these changes with as many of you as possible in the coming weeks and months.
We also have two further announcements today. Please use the links below to find out more:
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. Past performance is not a reliable indicator of future performance. 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. 5 yearly exit protection, exit on platform, exit in line with a specific investment case or fund strategy, 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.