PM mega SPV vote

Portfolio Transfer Vote



Overview

A request has been made as to whether we can form a single larger portfolio of properties by combining all of the existing buy-to-let properties held through Property Moose to date.



The aim is to bring the following benefits:



allow those investors who want to exit their investments to do so as quickly as possible – through this strategy, those investors who wish to exit can request redemption of their investment and will receive back the relevant value as soon as sufficient funds are available from the sale of properties and/or any additional capital raised. From the exit process to date, the property market appears to be very slow and it is believed that funds can be returned significantly quicker to members through this strategy rather than selling individual SPV properties;

allow other investors to retain their investments and let them mature to potentially maximise the opportunity to create value in a significantly more efficient way – by combining all properties into a single SPV, this brings benefit of scale and will make the day-to-day management of the SPV and the properties much easier, reducing costs and therefore, hopefully, increasing returns. As an example, simply by having all the properties within a single entity, this would result in only one company to complete accounts and corporate returns saving around £50,000;

increase returns through leverage – we have received an indication that two high street banks may be willing to provide mortgages on the properties but only if they are in a single large portfolio due to the complex nature of operating large number of SPVs with low value properties within (as always, subject to due diligence and final terms). This finance would be at rates of around 3% p.a. and therefore should have a significant positive impact on rental yields.

As an example,



If the portfolio achieved a valuation of £6m and secured mortgages at 50% this would release £3m.



If this £3m was returned to exiting investors (purely as an example) this would leave £3m of equity in the portfolio.



If the rent achieved was £500,000 p.a. and the interest on the loan was £90,000 (i.e. 3% of £3m), this would leave £410,000 of rent remaining



£410,000 divided by £3m (i.e. the equity remaining from shareholders) = 13.6%



re-introduce buy-to-let opportunities and the secondary market – as a result of having a single investment SPV, Property Moose can re-introduce the secondary market. This is as a result of our professional team being comfortable that additional funds can be raised into the portfolio SPV and these can be used, firstly, to buy shares from exiting investors and then to increase the size of the portfolio through the purchase of new properties. Once we have received the relevant votes and gone through the process of dealing with the transfers and investors who wish to leave, the secondary market will be re-introduced (as always, subject to FCA rules and other regulations from time to time). In addition, should sufficient investors wish to remain invested and vote to do so in the future, the single investment SPV could be listed on a stock market (such as the London Stock Exchange) at a relatively low cost to provide further liquidity and to allow the shares to be held, tax free, within ISAs and personal pensions. This would need to be looked at in greater detail and discussed with shareholders at a later stage;

provide dedicated in-house management of properties – rather than Property Moose provide management services and staff to the SPVs, by moving to the single SPV structure, the SPV will have its own internal staff for the day to day management and operations of the properties. This will remove any possible view that there are misaligned aims between Property Moose and our members as the relevant team will work directly for the investors through the SPV that they own. This will also ensure that all services in property management are dealt with at cost;

provide greater oversight and reporting governance – we have held positive discussions with a leading “big 4” accountancy firm regarding them providing annual audits of the accounts which can be done due to the ease of auditing one entity rather than over 80. We would look to appoint an auditor once all of the properties have been transferred and the old SPVs wound up (subject to agreeing final terms and a shareholder vote).

How will it work?

All properties will have at least two market appraisals by leading independent local estate agents:



A four week sale valuation to provide the initial share valuation to reflect the desire of those investors wishing to exit to do so as quickly as possible. A four-week valuation will be lower (typically 10 – 25%) than a full market valuation as it will reflect the discount necessary to achieve a sale within such a time frame;

a full market valuation together with an assessment (to go alongside our own) as to how to reach the maximum value for the property which will be used to complete the relevant works to maximize the value for the shareholders remaining in the portfolio.

The share valuation will be calculated as follows:



SPV Value = Property Value + Cash held by the SPV – Outstanding Liabilities – Corporation Tax Owed/Accrued

Share Value = SPV Value / Number of Shares

Investors will then swap their shares in each buy-to-let SPV for shares in PM UK Portfolio PLC on a pound for pound basis following the aforementioned calculation process. As an example; if you hold £10,000 of shares in PM SPV 2 and they are now valued at £11,000, you would receive £11,000 of shares in PM UK Portfolio PLC (to be named and incorporated post the vote). Likewise, if your shares were now worth £9,000, you would receive £9,000 of shares in PM UK Portfolio PLC. This value is based on the four week valuation on the basis of ensuring it is fair for all parties and reflects the real world impact of seeking a quicker sale rather than holding property for a longer period.



Please note that the above process will take place following the closure of the vote and only if the suggested approach is approved by the SPVs.



Once we have calculated the share value, we will email all investors in that specific SPV that have voted to exit to give a final opportunity to change their mind to remain invested if they would rather see the asset value mature.



Investors can vote below as to whether they want to (i) exit their investment as soon as possible, (ii) retain their shares until further notice (at least 12 months) or (iii) exit part of their holding and retain part. Please note that any future transfer is subject to final FCA approval of PM UK Portfolio PLC and their final agreement to the acquisition of the SPVs as it is intended that all SPVs are dealt with and not a proportion.



When we know how many investors wish to exit as soon as possible, certain properties will be sold and additional finance will be brought in to return funds to those investors as quickly as possible.



This will leave the remaining investors who will now hold a greater percentage interest in the portfolio and this will be managed by the in-house management team to maximize returns the shareholders. Returns will continue to be paid quarterly with a significantly more detailed report produced across the whole portfolio due to it being in one single SPV. The aim during the process is to retain the properties that hold the greatest potential as buy-to-let investments to ensure that returns are maximized in the portfolio.



Once the initial 12-month hold period has passed, investors can request to exit their shares at any time at a price they choose and these will be offered for sale to incoming investors via the platform. The aim here is to provide liquidity to investors and re-introduce the secondary market.



Summary

Following receipt of the initial suggestion, we have formulated the above proposal as we believe it is the best option available for providing liquidity to members who require it whilst also giving those members who are able or wish to remain invested for a longer period to maximize the value of their assets.



Here we will outline the key pros and cons of each option:



Option 1 and 2

Option 2 potentially offers a much quicker route of exit for those investors that require it whilst Option 1 allows those investors that want to remain to maximise returns through a more efficient holding structure.



For those that remain, returns are likely to be higher once the portfolio is leveraged and has been given the opportunity to mature (i.e. after we complete the renovations and either sell or re-let the properties).



The change in structure also means that the process of dealing with the properties is much more efficient and economical. This will lead to better management of the properties as the team can stay on top of any maintenance and tenant issues without first having to find additional funds for a specific SPV and get all investors to vote on a resolution which takes considerable time.



In addition, the revised portfolio structure will mean that the secondary market can return and further opportunities can potentially be listed in the future.



The negatives here are that it will cost roughly £40 per property to process the transfer with the Land Registry (c.£4,000). Note that there will be no stamp duty liability as a result of this being a corporate group transfer at the point it is complete. Details Here



The changes will also result in the removal of the voting system so that you will no longer be required to vote on new tenants etc. This is one of the key improvements we have identified to the structure as it costs roughly £500 - £1,000 to process a single vote so this is not sustainable in the long term. Shareholders will still hold full voting ordinary shares and can vote on the normal shareholder decisions in relation to the portfolio SPV.



The final negative relates solely to those investors who wish to exit, by voting to return your capital as quickly as possible, the valuation of your investment may be lower than if you remain as the value of properties if sold quickly is generally lower and this is reflected in the proposal to be fair to all parties. That said, if Option 3 passes, the properties the properties are at the whim of the market and, from our feedback from agents so far, it is likely there needs to be several price reductions and potentially auction sales on some properties if we go through the single SPV sales which could result in even lower pricing.



Option 3

This option is for those who wish to remain in the single SPV structure. The benefits are that nothing changes in the structure.



The negatives are that, as the majority of the properties have been voted to sell, they are becoming empty and the costs associated with the empty properties now needs to be paid by the investors in those SPVs (as would be the case if it was your own buy-to-let). We will be looking to raise additional funds from the shareholders to pay for these costs until the properties are sold if this option is successful, failing that, we will need to raise bridging finance against the properties to cover the costs if the investors are unwilling to support them.



When a market is slow, it is not wise to sell assets quickly as this will impact on the price achieved and could result in auction sales which is why the suggestion was raised by one of our larger investors and we agree with them that the conversion to a single portfolio offers an opportunity to meet the varying aims and desires of the crowd.



Please read the voting options carefully.



Voting closes at midnight on 10th July 2018. Cast your vote at the bottom of the page.



75% of the vote is needed to pass option 1 and 2 (acting as one option). Abstentions will be deemed to vote for Option 1.



Option 1

Convert to a single SPV portfolio and retain shares

You will swap your shares for shares in PM UK Portfolio PLC as outlined above and retain the shares for a minimum of a further 12 months.



Option 2

Convert to a single SPV portfolio and exit as quickly as possible

You will swap your shares shares in all buy-to-let SPVs for shares in PM UK Portfolio PLC as outlined above and exit your investments as quickly as possible.



Please note that if you wish to sell part of your shareholding, please send an email to john@propertymoose.co.uk specifying the percentage you wish to sell with the remainder being retained as per Option 1. Please specify this as, for example, 25% exit and this will be calculated against the value of your portfolio.





Option 3

Do nothing with SPV costs to be covered

Do nothing and retain the properties as they are to go through a single SPV sale. Please note that as the properties become empty, there will be additional costs on the SPV and these will need to be met by the shareholders by investing further funds. If Option 3 is successful, we will be in touch to raise further funds from shareholders to pay for such costs.

Are you interpreting that as 'every round of voting' or as 'every vote cast'?

If the latter, I can see (and, were it so, would share) your astonishment.

However, I read / intuit it as the former, which doesn't sound outlandish taking internal time (and maybe 3rd party) costs into consideration.

no email for me either!

Ah yes, I did get a missed call from them a day or two ago.

Not sure what the best plan is - I'd sell out at normal value, but at 10-25% discount it's less appealing. May be better to go with new structure then exit on SM.

if you don't have sufficient gains to offset in current year, then yes can be carried over indefinitely until used in future, as far I know

No email for me either, though I don't have much left in PM after fire-selling as much as I could before the sm closed. I would gladly take a hit to get out completely.

Yep. And option 1 means probable being locked in.

Hopefully 2 isn’t too painful