generating superior returns from a traditional asset class
DESCRIPTION
Generating Superior Returns From a Traditional Asset Class. The Growth of Serviced Offices as an Investment. Business Centre Capital Co. Ltd. Established 1999 Specialising in serviced office/business centres Adviser to a number of profile institutions and business centre operators - PowerPoint PPT PresentationTRANSCRIPT
Business Centre Capital Co. Ltdwww.b3c.biz
Generating Superior Returns From a Traditional Asset Class
The Growth of Serviced Offices as an Investment
Business Centre Capital Co. Ltdwww.b3c.biz
Business Centre Capital Co. Ltd
Established 1999 Specialising in serviced office/business
centres Adviser to a number of profile institutions
and business centre operators Established first ever publicly listed
business centre fund Set up a number of LPs Combined asset value of circa £60 million
Business Centre Capital Co. Ltdwww.b3c.biz
Structure
Overview Size Players Business Models
Business Centre Capital Co. Ltdwww.b3c.biz
Overview
A Definition The provision of short term space supported by a range of
business services actively managed by on-site staff
Business Centre Capital Co. Ltdwww.b3c.biz
Size Globally
> 10,000 business centres + 1,000 operators > 70 countries < 1% of global office space
Business Centre Capital Co. Ltdwww.b3c.biz
Size in the UK
Currently represents nearly 2% of UK office space Equivalent to nearly 1.5 million square metres Represents around 5% of space in Central London Around 350 operators of flexible business space in the UK in
1,100 centres Workstation capacity has doubled in 5 years Between 2000 and 2006 the number of workstations rose from
around 120,000 to over 200,000
Business Centre Capital Co. Ltdwww.b3c.biz
UK Demographics
Density of Serviced Office StockNorth East, 1%
Wales, 2%
Northern Ireland, 2%
East Anglia, 3%
West Midlands, 4%
East Midlands, 5%
Yorkshire, 5%
Home Counties North, 6%
South West, 6%
North West, 7%
Scotland, 7%
Home Counties South, 15%
London, 37%
Source: DTZ
Business Centre Capital Co. Ltdwww.b3c.biz
UK Major Players
Leased Owned
Quality
Fully S
erviced
Sem
iS
erviced
Regus
MLS
EOG
MWB
Workspace
BEG
Bizspace
Lenta
SOG
Avanta
Citibase
Business Centre Capital Co. Ltdwww.b3c.biz
Long Term Structural Growth
Drivers – “it’s what the client wants” Costs – TOCC shows it is more expensive to take a traditional
lease Accounting rules – require leases on balance sheet Technology – good infrastructure required Infrastructure costs are shared amongst the occupiers Flexibility – occupiers can expand/contract at will Simplicity – costs are easy to understand and predictable Convenience – allowing occupiers to concentrate on their
business
Business Centre Capital Co. Ltdwww.b3c.biz
Investment Potential
High yield Capital Growth Scale Brand
Business Centre Capital Co. Ltdwww.b3c.biz
High Yield
Serviced offices provide a higher yield typical income yield can exceed 7% typical capital growth can exceed 4%
Business Centre Properties plc First ever publicly available fund in the sector £40 million of serviced office properties Average income yield 7.5% to investors after fund costs Share price growth of 36% since launch ’04/04
Business Centre Capital Co. Ltdwww.b3c.biz
Capital Growth
Conversions Conversion of existing office stock to serviced offices Real options in secondary locations with secondary properties Good options in primary locations where little or no flexible
space Development
Creation of specific serviced office developments Big meeting room/conferencing facilities Clubs, restaurants High tech wiring, easy demountable partitioning Emerging markets
Business Centre Capital Co. Ltdwww.b3c.biz
Yield Shift
Serviced offices have followed yields down BCP bought its first building at a cap rate of 11% 2004, 11% 2005, 9% 2006, sub 8%
The risk margin has narrowed In 2004 the margin was around 2-3% Now it is 1-2%
Business Centre Capital Co. Ltdwww.b3c.biz
POWER (Property Opportunities With Enhanced Returns) Fund Philosophy Structure Expertise Timings
Business Centre Capital Co. Ltdwww.b3c.biz
Philosophy
“Global provision of flexible working for individuals and businesses in secure, comfortable office accommodation”
Business Centre Capital Co. Ltdwww.b3c.biz
StructureLuxembourg
Domicile
UK SubFund
EuropeSub funds
North America
Sub funds
ROWSub funds
ABCNLocal
operator
centres centrescentres
(Replicated across each sub fund)
Business Centre Capital Co. Ltdwww.b3c.biz
Scale
Economies of scale Spread of infrastructure costs Best economies from running assets in hubs HQ costs spread
Portfolio effect Spread of risk through geography Through client base
Big means Saleable >£300m Brandable Listable
Business Centre Capital Co. Ltdwww.b3c.biz
Brand value
A brand has strategic value Regus today has a £1.5 billion stock market capitalisation That is 20x earnings!
Business Centre Capital Co. Ltdwww.b3c.biz
Alliance Business Centres Network (ABCN)
ABCN is: “a distributed network of senior industry professionals”
Only global business centres network 650 locations in 37 countries Broad range of services to members
Market intelligence Marketing and referrals Alliance Access Franchising Purchasing
Business Centre Capital Co. Ltdwww.b3c.biz
Timings
Fund life expected to be 10 years Seed investment £100 million equity Investment period – 3 years in the UK Expected ROW expansion year 2 onwards Target IRR 25%+ at 5 year point
Business Centre Capital Co. Ltdwww.b3c.biz
Expertise Jonathan Price (CEO EMA) – 8 years in sector
Barrister at law and former investment banker President of UK Chapter of FIABCI NED to international serviced office operator
Frank Cottle (CEO US & ROW) – 22 years in sector Chairman of Alliance Business Centres Network Former investment banker specialising in real estate Board member OBCAI Former owner operator of serviced offices
Chris Brierley (COO)– 5 years in the sector Former investment banker NED on a number of property related funds Former director of a research company
Former FD of fund manager (CFO) – 14 years Former Property director of serviced office operator –
10 years
Business Centre Capital Co. Ltdwww.b3c.biz
Exit
Trade sale To a new entrant To an existing operator
Securitisation >£300m
REIT Workspace has become a REIT
Business Centre Capital Co. Ltdwww.b3c.biz
Business Centre Capital Co. Ltdwww.b3c.biz
Lease v. Ownership
Leasehold Operator Long term liability to short term income profile Can be mitigated where a turnover lease or management
contract is in place – landlord shares risk Low capital commitment allows rapid expansion
Business Centre Capital Co. Ltdwww.b3c.biz
Lease v. Ownership
Owner Operator Freehold/long leasehold Avoids mismatch of assets and liabilities High capital commitment Double whammy of rents falling and property value declining in
poor market conditions But more flexibility in getting and retaining clients
Business Centre Capital Co. Ltdwww.b3c.biz
Valuation
Issues Serviced offices are hybrid: renting space and offering services Property valuation and company valuation approach diverge RICS approach to going concern valuation is based on “strictly
limited use” and serviced offices typically operate from traditional office premises
Red Book needs to be revised Multiples are beginning to emerge
Businesses operating out of leased premises on EBITDA multiples of 4-6 times
Businesses that own the operating asset 13-16 times EBITDA
Business Centre Capital Co. Ltdwww.b3c.biz
Listed Company Valuations
Company EV (mill)YE ‘06
EBITDA (mil) YE ‘06
Multiple Share price (p) (06/07)
Share PriceYoY %
Regus £1,134 122 9 x 149.25 +34%
Serviced Office Grp £25 2 12.5 x 11.50 +26%
MWBEX £116 9 13 x 174.50 +65%
Business Centre Capital Co. Ltdwww.b3c.biz
RGU Share Price
Business Centre Capital Co. Ltdwww.b3c.biz
SVO Share Price
Business Centre Capital Co. Ltdwww.b3c.biz
MBE Share Price
Business Centre Capital Co. Ltdwww.b3c.biz
Alternative Asset Valuations
Valuations of student accommodation Unite 12/06 - EBITDA £103 million, EV £1.070 billion = 10 x
Valuations of self storage Big Yellow 09/06 – EBITDA £70 million, EV £900 million = 13 x
Business Centre Capital Co. Ltdwww.b3c.biz
BYG Share Price
Business Centre Capital Co. Ltdwww.b3c.biz
Metrics
MWBX - £67.1m (^23%), PTP £7.8m (£2.7m) 60 locations
Regus - £680m (^47%), PTP £77.5m (£38.7m) 950 centres