That Mustard Seed is undertaking a significant increase in the scale at which it operates
- MSP has operated a successful business model for over a decade, generating net surpluses in years when capital not raised / property purchased.
- Strong evidence has been used to underpin the assumptions in their business plan and forecast financial model, around the new properties – including capital costs and rental incomes - and the revenue growth that will drive.
Impact of Covid 19 on business model (additional cost and reduced income)
- There are some operational cost increases which have been planned for to ensure the required PPE and additional cleaning is provided for all properties.
- MSP does not expect there will be any reduction in income or reduced density in terms of accommodation (numbers of people living at properties)
Voids caused by residents either moving out or being slow to take up anticipated occupancy; some rooms may be left vacant for a time, putting pressure on the partners.
- MSP leases properties to partners on internally repairing and insuring leases, meaning this is a risk that is shouldered by the partner.
- Rents are set to allow for some level of voids as well as maintenance and management costs
Property development; buying and developing property carries both cost and time overrun risk. Both affect the ability to deliver expected financial yields.
- Valuations and appropriate surveys by qualified personnel, including detailed costs reports for all significant refurbishment work, are carried out ahead of purchases.
The business model is asset rich, and for that reason expansion requires significant cash outlay, share capital and debt finance
- MSP has successfully raised share capital to date and has also built solid relationships with lenders (including Triodos Bank and OpenBox Developments).