Case study: sale of Group property (Poland)

In April 2020, just as the international coronavirus crisis set in, we completed the sale of our largest asset, Chałubinskiego 8 (CH8), an office tower in central Warsaw. The sale was agreed in December 2019 and generated a profit of €1.6 million (c£1.4 million) after costs and after a provision of €2.67 million (£2.3 million) in respect of a rent guarantee provided to the buyer of the property. The net cash received by the Group amounted to some £16.7 million, increasing total Group cash to more than £20 million, representing over half the Company’s market value at the time.

The sale came at an excellent time for the Group given the uncertainty created by the economic shutdowns across the Globe prompted by COVID-19. The significant cash generated by the sale underpins the Group and provides it with significant resources with which to make new investments in what is likely to become an interesting investment market. It is intended for the cash to be used in partnership with clients of the Group. This should significantly increase the equity available to make investments to above £100 million which, when coupled with bank debt, should generate buying power of over £300 million.

Case study: sale of client property (UK)

We acquired this mixed use building totalling 31,100 ft2 in March 2011 on behalf of UK Pension Property Portfolio LP at an initial yield of 7%. Just over half of it was let to pub operator JD Wetherspoon. The upper floors were let on a long lease to a church and a small retail unit on the ground floor was let to a sole trader.

In 2011 we restructured the lease to JD Wetherspoon by incorporating fixed rental uplifts of 7.5% into the 2021 and 2026 rent reviews, instead of open market rent reviews. It was partly this which prompted JD Wetherspoon to offer to buy the property from us before the first rental uplift became effective. The price offered was at a yield of 3.4%, equating to £7.95 million and resulting in a capital gain of £3.9 million, a 97% increase on our purchase price of £4 million.

Case study: active asset management (Romania)

A proactive approach helped to ensure this property remained let through two economic downturns. It was first acquired in July 2007 at a yield of 9% from its sole tenant Aquila, a logistics operator, under a 10-year sale and leaseback transaction. Annual rent increases were indexed to Eurozone CPI.

Aquila traded well from it throughout the credit crunch and extended the lease 7 months beyond its 10 year term, leaving in 2018. We then altered the property to appeal to a broader array of potential tenants but retained the cold storage facilities, the most valuable sections of the warehouse. Within two months of Aquila’s departure, the Group secured a new 10-year anchor lease with leading British OEM manufacturer, Teconnex, and further repurposed the property for them. Shortly afterwards, the Group secured a second long-term lease with a leading local logistics operator, SLS, thereby diversifying the rental income from the property and staggering the lease expiry profile.

And recently, in April 2020, at the height of COVID-19 panic, the Group entered into a new long term lease with Teconnex encompassing its existing space and the remaining vacant space in the building, totalling some 6,300 m2.

Case Study: Credit Crunch

Nadir of credit crunch: UK commercial property values had fallen c50%.

Return to investment in UK.

Fprop Response:
To establish a new UK fund (£106 million).

Earned recession-resilient high income returns for our fund
Investors have extended life of fund.

Case Study: Union Park, West Drayton

Union Park, West Drayton. Acquired August 2014 for £7.8 million, sold March 2015 for £18.3 million.

Amendment to Permitted Development Rights (PDR).

To convert offices to residential use without the requirement to obtain formal planning consent.

Fprop Response:
To establish a £42 million fund to invest in offices eligible for conversion to residential use utilising PDR.

The fund earned a net return on equity to its investors of 53% and an IRR of 98% – all without the use of leverage. In the process it enabled the conversion of 360,000 ft2 of office space into 665 flats across the UK, worth a total of some £100 million; around a third of these properties were sold to Housing Associations.

Case study: Antelope Park, Southampton

Antelope Park, Southampton. Acquired December 2016 at net initial yield of 6.7% (£23 million). We immediately sold adjacent unit which lay just outside the park (let to Jewsons) for a net initial yield of 5.25% – illustrating bifurcation in market following Brexit vote.

Bifurcation of commercial property market following Brexit vote of June 2016 – institutional investors became less active, resulting in reduced investment competition for larger lot sizes.

To invest in institutional property.

Fprop Response:
To recommend to Shipbuilding Industries Pension Scheme (SIPS), for which we were investing at the time, that it increase its investment commitment to take advantage
of reduced commercial property prices.

SIPS increased its commitment by £45 million, increasing its total commitment to £170 million.