Case Studies

This property was purchased in June 2002 for £3.7 million, reflecting a net initial yield of 7.5%. It comprises a small supermarket located on Eastwood Road, just off the High Street in Rayleigh, Essex and was let to Somerfield on a 35 year lease from 1979, expiring in May 2014 at a rent of £294,000 per annum.

In 2010 (with only 4 years remaining) we commenced lease negotiations with Coop and they subsequently signed a new 15 year lease, with a break option after 10 years at an increased rent of £417,500 per annum (25.8% increase). They received no incentive.

In January this year the property was valued at £6.5 million, reflecting a yield of 6.1% and had 5 years remaining until the break option in 2020.

We have subsequently agreed to surrender the existing lease and re let to M&S on a new 20 year lease at an enhanced rent of £475,000 per annum (13.8% increase). M&S also agreed to 5 yearly reviews to RPI (capped at 4% pa and collared at 1% pa). M&S were paid a premium to take this lease. The new lease completed in July 2015 and we are pleased to report that we have now sold the asset to ICL Pension Trust for a price of £10,000,000. This reflects a yield of 4.49%.

During its life with the Fund, the property has had three tenants, two asset management initiatives, two successful rent reviews and finally a sale. If we had passively held the asset, the original lease would have expired last summer, however it now benefits from a new 20 year term to an improved covenant.

The Fund has benefited from capital growth of £5 million (after deducting the premium to M&S) and income of £4.74 million since purchase. This illustrates why commercial property can be such an important constituent in a portfolio - a high income component combined with capital growth enhanced through active management. The IRR over the hold period is 14% per annum.

These two industrial units, totalling 220,000 sq ft between them, were acquired in April 2014 for £11.4 million reflecting a yield of 8.4%. One unit was let to Croda plc, a FTSE 250 Chemicals Company and the other unit was empty and the vendor provided a 24 month rental guarantee.

15 months later we successfully let the empty unit to Howdens Joinery on a new 5 year lease at a rent of £618,650 per annum (£4.50 per sq ft), 6% ahead of the rental guarantee. We were also able to distribute the remaining rental guarantee as a dividend.

We normally look to invest for the long term, but also like to be very opportunistic, especially where we have identified mis-pricing and can bring our asset management skills to strong affect. We reviewed the business plan after letting the empty unit and decided the new build supply pipeline had increased significantly and therefore considered that the asset didn’t merit a long term hold. After a full marketing campaign we disposed of the asset in November 2015 and achieved a price of £14.0 million, reflecting a yield of 6.9%.

Since purchase we received £1.215m from the rental guarantee and a further £650,000 in rent. We also made a £2.48 million capital profit after costs. Combined, this asset produced £4.35m over and above its purchase price over the short 20 month hold period. This produces an IRR of 20% IRR.

This property comprises a 48,000 sq ft office building located close to Farringdon Station in Central London. It was acquired in March 2011 for £23 million reflecting a yield to the Fund of 7.06% and a capital value per sq ft of £480. At the time it was let to EHS Brann, a Franco-Spanish advertising company for a further five years at a rent of £34 per sq ft. One of the primary reasons for acquiring the building was the benefit that would be bestowed by the delivery of Crossrail in 2018.

Shortly before the lease expiry in 2016 we agreed a short lease extension with the existing tenant and a dilapidations payment, enabling us to undertake a refurbishment in spring 2017.

Planning permissions were applied for and granted to provide a new full height reception area, a brand new facade, new windows, new mechanical and electrical services along with the addition of some floorspace and maximisation of natural light. It also included a strong focus on sustainability, with the provision of 70 bike racks and 7 showers as well as an aspiration to improve the EPC rating from D with a score of 95. We retained the existing structure to reduce using unnecessary resources and producing avoidable waste.

The project was tendered at a total cost of £175 per sq ft and works commenced in Autumn 2017. We are pleased to report completion of this project occurred on the 8th August 2018 – on schedule and under budget. The EPC score has increased to B with a score of 36 (new builds have an EPC score of 35).Trains are also due to start running on the new Elizabeth Line (Crossrail) next year, further improving transport accessibility of this property.

We are also pleased to report that prior to completion of the building works we signed an agreement for lease to pre-let 80% of the building to Macmillan Publishers Ltd a major international publishing house. Macmillan was established in 1843 by the Macmillan family in Scotland and authors included Lewis Carroll, Alfred Tennyson, Thomas Hardy, Rudyard Kipling and Ian Fleming. The company is now wholly owned by German media giant Holtzbrinck Publishing Group. Holtzbrinck has annual sales of €1.4 billion and assets of €2.5 billion.

Macmillan have signed a new 15-year lease with a break option at year 10 (upon the payment of a penalty) at a rent of £2.36 million per annum, reflecting an average rent of £65.00 per sq ft.

The remainder of the building has been let to a technology company. The new tenant, Airsorted, occupy the ground and lower ground floors and have relocated to The Smithson as their head office location. We secured a premium rent in excess of our target which marks the end of a successful asset management project for CPF in repositioning the property through a comprehensive refurbishment. This asset is now fully let and in total produces a rent of in excess of £3 million per annum which is 83% above the rent that the previous tenant was paying prior to the refurbishment. 

This asset has delivered income of over £11 million during its ownership and capital growth of close to £25 million after deducting the refurbishments costs. This produces an IRR of over 20% per annum during the seven years of ownership.

We have completed the development of a new mixed use hotel and leisure scheme in Poole town centre. The property is let Travelodge (35 years), Costa Coffee (15 years), Anytime Fitness (15 years) and Subway (15 years). All of the leases (excluding Costa Coffee) benefit from rent reviews linked to the RPI Index, guaranteeing future growth. The property occupies a very prominent site overlooking Poole Harbour, opposite the train station and is adjacent to a large supermarket and residential which helps to drive footfall.

This follows on from our successful funding of the Travelodge in Cambridge, which has witnessed close to a 50% increase in capital value against the book cost. Rental growth prospects at Poole are good, particularly for the Travelodge income which is let off a low rental base and constitutes approximately 60% of the overall income at the asset. As with Cambridge and because we were involved from the  outset of the construction the asset benefits from excellent energy efficiency and sustainability credentials and we have once again improved the built environment.

The property is located on the west side of Chancery Lane, arranged on lower ground, ground and four upper floors with two self-contained retail units on part of the lower ground and ground floors. The office accommodation totals 30,391 sq ft with an additional 1,643 sq ft of retail accommodation on the ground floor. The building was purchased in 2004 previously single let to BNP Paribas who paid a premium to surrender their lease.

The building was fully refurbished in 2012 and achieved BREEAM Very Good rating. Bike racks and showers were installed to improve tenant facilities and encourage green methods of transport, and the building is DDA compliant with full disability access. The Fund have completed 12 lettings to 8 different tenants, with the latest letting at £52 per sq ft, 30% higher than target. A concentration on sustainability and new business practices has helped to increase rent by 50% and achieve 100% occupancy. The pre-refurbishment value was £17m, the cost of refurbishment £4.25m, leading to a value today of £30m. For this reason we see this building as a long term hold. It is set to benefit from the improving micro location, and we believe it will continue to perform very well going forward.

A freehold office building comprising a converted Victorian warehouse arranged over lower ground, ground and six upper floors occupied by LK Bennett as their UK HQ. We partnered with a developer and structured the acquisition as a forward commitment whereby we paid £16 million once the substantial redevelopment works and the new lease completed.  The property is located close to Old Street roundabout in a prominent location at the gateway to Shoreditch on the junction of Great Eastern Street and Rivington Street. The property is considered a local landmark offering well configured floor plates, excellent natural light and a contemporary specification. The lease is for a 15 year term at a low rent of £45 per sq ft offering good prospects for growth. The purchase completed in February 2015 and the June 2015 valuation was £19.25 million, reflecting a 20% capital growth in 4 months.

One of the Fund’s most exciting projects was the forward funding of a new Travelodge hotel in Cambridge, which was completed in July 2013. The Fund acquired the site and spent £16.3m on construction, completing the landmark development shown there, which was concluded on time and on budget. The Fund therefore improved the built environment, providing a valuable public service. Further to this, the Fund insisted that the property was built to a BREEAM rating of Very Good, demonstrating excellent sustainability features. Benefitting from a 35 year lease to Travelodge with uncapped RPI rental increases, the development has a completed valuation of £18.8m. The scarcity of freehold sites such as this in Cambridge, as well as the restrictive planning regulations makes this an extremely valuable holding, which we believe was undervalued by the market when it was acquired by the Fund, and probably continues to be so. There have been several other hotel transactions recently in the market, which support this belief. It is encouraging that the new owners of the Travelodge business have invested significant equity into the portfolio, refurbishing many of their existing hotels. The covenant is now institutional grade, driving yield compression for hotel investments comparable to Cambridge.