Transcription

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18 Report and Valuation in respect of CAREY HOUSE LES BANQUES ADMIRAL PARK ST PETER PORT GUERNSEY Prepared on Behalf of Channel Islands Property Fund Ltd March 2015 PS 10836

19 CONTENTS CIPF CONTENTS Section Page No EXECUTIVE SUMMARY INTRODUCTION LOCATION PROPERTY DESCRIPTION STATUTORY ENQUIRIES LEGAL INTEREST MARKET COMMENTARY VALUATION CONSIDERATIONS CONCLUSIONS VALUATIONS APPENDICES Site Plan Photographs Terms of Business

20 EXECUTIVE SUMMARY CIPF EXECUTIVE SUMMARY Valuation Date: 25 th March 2015 Location: Description: Carey House is situated on Admiral Park on the edge of St Peter Port, Guernsey. Admiral Park is an established Business Park location where significant development has taken place in recent years. The property comprises a modern office premises substantially refurbished in It is arranged over lower ground, ground, first and second floors and totals circa 26,814 sq ft of office accommodation. It is finished to a Grade A specification. Accommodation: Unit Sq ft Sq m Tenure: Occupational Tenancies: Lower Ground Floor 1 Auxiliary Unit Lower Ground Floor 1, Ground Floor 7, First Floor 8, Second Floor 8, Third Floor Freehold 7 Auxiliary Units Total 26,814 sq ft 2, sq m Let on a lease to Carey Olsen Group Services Ltd for a term of 21 years from 1 st March 2008 expiring February The passing rent of 993, per annum is subject to 3 yearly rent reviews. The tenants hold a separate lease in relation to 86 car parking spaces in the adjoining car park at a current rent of 150,150 per annum. Rental Profile: Unit Current Rent pa Market Rent pa Market Value: 16,750,000 Yield: 6.5% Carey House 1,143, ,143, Total 1,143, ,143, NB - This executive summary is provided for convenient cross reference, however must be read in conjunction with the remainder of the report; important issues may not be referenced within the summary and detailed consideration should be given to all areas of the full report

21 INTRODUCTION London Glasgow Edinburgh CHARTERED SURVEYORS Our file ref: LJD/PS10836 March Bolton Street London London W1J 8BA Tel: Fax: The Directors Channel Island Property Fund Limited c/o Legis Fund Services Limited 11 New Street St Peter Port Guernsey GY1 3EG Dear Sirs PROPERTY ADDRESS: CAREY HOUSE, LES BANQUES, ST PETER PORT, GUERNSEY 1. INTRODUCTION 1.1 We thank you for your recent instructions with regard to the above property; in accordance with these instructions we have inspected and valued the freehold interest in the above property for secured lending and prepared this report on the following agreed basis: Addressee & Reliance: Property Address: Instruction and Purpose of Valuation: Interest to be valued, type of asset and title: Basis of Valuation: This report is for the sole benefit of Channel Islands Property Fund Ltd. Carey House, Les Banques, St Peter Port. You require the valuation to be carried out for asset purposes. The freehold interest in the property to be held by the company as an investment. Our valuation has been prepared in accordance with the RICS Valuation Professional Standards (2014) [ The Red Book ] published by the Royal Institution of Chartered Surveyors on the basis of Market Value. Montagu Evans LLP is a limited liability partnership registered in England and Wales with registered number OC Registered office 5 Bolton Street London W1J 8BA. A list of members names is available at the above address.

22 CIPF This report is subject to, and should be read in conjunction with, the attached General Terms of Business and Supplemental Terms of Business for Appointment of Valuers, copies of which are at Annex A. This report, together with the Appendices must be read together. Valuations Requested: Valuation Date: Purchasers and other costs Market Value. 25 th March 2015 Purchasers costs have been taken at 4.5% based on prevailing stamp duty levels within Guernsey. We understand that the property is to be purchased as a company transfer and that would result in a reduction in costs paid. No allowance has been made for any expenses of realisation, nor taxation (including VAT) which might arise in the event of a disposal, and the property has been considered free and clear of all mortgages or other charges which may be secured thereon. Disclosure of material involvement: In preparing this valuation we have acted as External valuers, subject to any disclosures made to you. You will be aware that our associated company Montagu Evans Channel Islands Ltd are managing agents in respect of the property. In addition a valuation in respect of the property has been prepared for the Royal Bank of Scotland International for secured lending purposes. The bank has agreed that a copy of the report is being addressed to CIPF for internal purposes. We can also confirm that this report has been discussed with and counter signed by the UK Head of Valuation, Rob Bower MRICS. Valuer responsible for valuation: The report and valuation has been prepared by Mrs L J Dovey MRICS. Rob Bower, MRICS has also maintained a regular involvement throughout the instruction and is a counter signatory. We confirm that the personnel responsible for this valuation are qualified for the purpose of the valuation in accordance with the RICS Valuation Standards and are RICS Registered Valuers. Special Assumptions: Agreed Extent of Our Investigations None The property was inspected on 4 th March 2015 by the author of the report. Only the significant parts and income generating elements of the property have been inspected for the purposes of proving this valuation report. As instructed a full measured survey was not carried out at this time as there are agreed floor areas set out in the lease however check measurements were carried out on site. These are within an acceptable margin of error and on this basis we are happy to rely on the agreed areas attached to the lease and used at rent review. 2

23 CIPF By agreement with you, the scope of due diligence undertaken by us in providing this valuation report to you has been limited in certain areas. The extent of the due diligence enquiries we have undertaken and the source of information we have relied upon for the purposes of our valuations are stated in the relevant sections of our report below. Nature and sources of Information: The following information and documentation has been provided to us by the borrower, and this has been relied upon by us in the preparation of our valuation, unless stated otherwise in our report: Confirmed Tenancy Schedules and details of any rent arrears or tenant issues; Details of outstanding reviews and lease renewals; Details of management expenditure or planned maintenance; Copy leases; Confirmation of break clauses, notices served on lease expiry etc; Details of any planning applications/consents and proposed developments We have assumed this information to have been correct, and have further assumed that no material information has been withheld. Should your solicitors find this to be different, you should contact us immediately to allow us to reconsider our findings. You agree to provide us with any information that will affect our Valuation, and our Valuation is prepared on the basis that there are no material omissions. Statutory enquiries: We have carried out informal enquiries with regard to Rateable Value, planning issues, flood risk and certain environmental issues. This information has been obtained from verbal discussions or the internet, and is provided without liability on behalf of the statutory bodies. Although we have assumed this to be complete and correct for our valuations, we assume it will be formally checked and clarified by your legal advisers. We have not carried out a building survey, formal building cost reinstatement valuation nor an environmental risk assessment. Should you require such, they will need to be separately procured. Insurance & Liability: We confirm that Montagu Evans LLP holds appropriate Professional Indemnity Insurance to a report such as this. A copy of this cover can be provided on request, if required. Within the frames of reference as agreed above, we set out below our findings with regards to the property. 3

24 LOCATION CIPF 2. LOCATION 2.1 General Location Guernsey is the second largest of the Channel Islands that include Jersey, Sark, Herm and Alderney. They are located approx. 65 miles to the south of the English Coast and 28 miles west of France. Guernsey does form part of the British Isles but is not part of the UK or EU. It is therefore selfgoverning and subject to its own taxation regime. The Island has a total area of 25 sq miles and is divided into 10 parishes. The Island has an estimated population of 60,000 persons a large percentage of which live in the capital, St Peters Port. The Island is serviced by regular sea and air links both to the UK and the continent. Regular airs services are provided to London Gatwick, Stansted, Manchester and Southampton. In addition, sea travel is provided by regular fast cat passenger ferries to both the UK and France. Guernsey has a substantial financial services sector and the economy is based on international offshore banking and finance. The finance industry remains the largest employer on the Island. Guernsey has a constitutional relationship with the UK but is a self-governing state having its own parliament and legislation. It has fiscal independence and is able to set its own tax rates. As a result of its favourable taxation, Guernsey, together with Jersey, have become a strategic location for many of the world s leading financial institutions. This has led to service companies to the finance industry such as lawyers and accountants also locating to the Island. In respect of its locality the property is situated within Admiral Park an established business park fifteen minutes walk from the town centre. The Business Park also includes a Waitrose Store and B&Q Unit. Additionally the slightly older office core of St Peter Port, being centred around Le Truchot, St Julian s Avenue, Hirzel Street and Lefebvre Street is within a ten minutes walk. A map identifying Carey House is attached as Appendix Situation The subject property is located on Les Banques overlooking the sea front and forms part of the Admiral Park development. This area of St Peter Port (Admiral Park) has been the subject of substantial redevelopment over the past 10 years, arising out of the area s designation as a MURA (Mixed Use Regeneration Area), by the Environmental Department of the States of Guernsey. 4 This designation, along with a similar designation for Glategny Esplanade, was in response to a pressing need for the provision of modern but also large scale office developments to service the growing finance industry whose requirements could not be met by the traditional buildings within the heart of St Peter Port. The prime area within St Peter Port for offices was located around the Le Truchot and which still continues to house a significant number of international banks, professional service companies, insurance houses and trust companies. However, with one or two exceptions, such as the 20,000 sq ft development of Generali House on Hirzel

25 CIPF Street, and one or two smaller office buildings on Lefebvre Street, it has proved difficult to develop large scale offices within this area. Very few sites have been available for development or will be available in the future and those that are potentially available are generally constrained by the town s topography, the nature of their current uses and planning restrictions. Back in the early to mid 1990 s a major phase of office development commenced in St Peter Port at both the Royal MURA and also the MURA at Admiral Park. Out of Admiral Park, the first development, that of Trafalgar Court, a 112,000 sq ft office building which was pre-let in its entirety to Barings and Close Brothers. In approximately 2005, ComProp then developed two office buildings adjacent to Trafalgar Court, these became subsequently known as Dorey Court and Martello Court, and these were both pre-let to Kleinworth Benson and the Fortis Group. Additional development at Admiral Park has included over 100,000 sq ft of retail development for both Waitrose Supermarket and B&Q. In addition, ComProp refurbished Commerce House on the Esplanade after the departure of MeersPierson/Fortis and let this in its entirety to Carey Olsen, now called Carey House, this is the subject property. Elsewhere as part of the Royal MURA significant development has also been undertaken along Glategny Esplanade. This includes Royal Bank Place, the 45,000 sq ft office development by Long Port and let to RBS in In 2011 Long Port also completed the development of Royal Chambers (60,000 sq ft) together with Royal Plaza and Royal Terrace, a mixed retail leisure/resi scheme. Interestingly, Admiral Park has proved to be as attractive an office location as the town centre offering as it does substantial amounts of car parking but lacking the infrastructure of a town centre such as retail and leisure facilities within walking distance. Nevertheless these two areas have, in our opinion, established themselves as the prime areas for office development on the island. Occupiers on Admiral Park include, ABN Amro, Kleinwort Benson, Northern Trust, Intertrust, Artemis Fund Managers & State Street Bank. We are of the opinion that the Subject Property is in a prime location for office development. 5

26 PROPERTY DESCRIPTION CIPF 3. PROPERTY DESCRIPTION 3.1 General Description and Construction Carey House comprises a modern office premises constructed in 2008 following the substantial refurbishment of the former Commerce House. The building is arranged over lower ground, ground, first, second and third floors with the third floor set back from the main frontage and forming part of the mansard roof. The premises are of cross shape with a central core area and four wings, the front and rear wings being smaller than the side wings. The building has rendered elevations at first and second floor level incorporating metal framed windows and a glazed section to the front. The ground floor is predominantly fully glazed and the third floor has tiled slopes and forms part of the mansard roof. The main entrance to the property is at the front of the premises via steps or ramp access leading to a revolving door set beneath the overhang of the first floor. This leads to a reception area which includes tiled floors, plastered and painted walls and suspended ceilings. There are two passenger lifts (8 person 630kg Kone) serving all floors as well as a staircase serving all floors. These are situated in the central core. The remainder of the ground floor is fitted out as meeting rooms to the right hand side or offices. Similarly the first and second floors are used as offices both of which has a similar layout. This includes partitioned offices or meeting rooms around the sides benefitting from the good levels of natural light and open plan office areas in the central sections. The central area also includes the lift and staircase and male and female toilet facilities as well as some ancillary staff kitchen areas. The office accommodation is finished to a good standard of specification including raised floors, suspended ceilings with recessed lighting and air conditioning. The third floor comprises 7 residential apartments which are currently used for storage. The units are finished to a basic specification with plastered and painted walls and carpeted floors. They however do not have kitchens or bathrooms fitted. We understand that this floor cannot be used as offices under planning restrictions. However due to the access restrictions it is also not possible to use the premises for residential. They are currently used as storage by the occupational tenants. We understand that the restrictions on the 3 rd floor use date back to the refurbishment of the property in The original building Commerce House included residential apartments and the planning authority wished that these remain and will not grant consent for office use. The lower ground floor has been fitted to provide shower facilities and gym for staff. In addition there is an office/post room to the rear which is finished to a more basic specification. This area has natural light from metal framed windows to the rear which overlook the car park area. In addition part of the lower ground floor was previously caretaker s accommodation although it does not include a bathroom and kitchen it cannot be used for offices and is used for storage only. 6

27 CIPF Externally there is parking for approximately 6 car spaces to the front of the property, in addition there are 8 car spaces (double parked) at the rear ground level and a further 8 spaces accessed via a ramp at the rear to lower ground floor level. The tenant has a separate lease for an additional 86 car spaces within the adjoining open car park at the rear. 3.2 Condition and Repair In accordance with your instructions we have not carried out a Building Survey of the property. However, following our inspection for the purposes of valuation we would comment that the property is in a good condition bearing in mind its age and use. 3.3 Deleterious materials We have not been made aware of the presence of any deleterious materials and so have not made any adjustment to our valuation in this regard. We have not seen an asbestos register for the property, and have made no particular allowance in this regard. There is a duty on those responsible for the maintenance of properties to assess whether there is any asbestos in the premises and, depending on its condition, either remove it or manage it; the liability for this will generally be vested with the tenants. We would recommend your solicitors investigate the existence of an asbestos audit and your building surveyors review the document. 3.4 Accommodation We have not carried out a Full Measured Survey of the property. The agreed floor areas for review purposes are included in the lease as follows: - Lower ground floor Lower ground floor Ground floor First floor Second floor Third floor Total 1 auxiliary unit 1,720 sq ft 7,326 sq ft 8,918 sq ft 8,850 sq ft 7 auxiliary units 26,814 sq ft As instructed where possible we have carried out check measurements on part of the site. We can confirm that the floor area in respect of the second floor measured is within a 2% tolerance level to the floor areas stated in the lease. On this basis we have relied upon the floor areas included within the lease and which have been adopted for review purposes. 3.5 Site The site is generally level and fronts Les Banques. 7 Our understanding of the boundaries of the Property is identified edged red on the plan attached to this report as Appendix 1 (for identification purposes only).

28 CIPF The property has over 22 car parking spaces onsite with an additional 86 spaces in the adjoining car park, giving a ratio of 1 space: 248 sq ft, which is reasonable for this area. We understand that the Subject Property benefits from all main services to include drainage, water, electricity and gas. We have assumed that these do not cross any privately owned land other than where appropriate and free rights exist. 3.6 Photographs Photographs of the property and the surrounding area, taken at the time of our inspection are attached at Appendix 2. 8

29 STATUTORY ENQUIRIES CIPF 4. STATUTORY ENQUIRIES In accordance with the scope of your instructions, and the limitations set out under our Standard Terms of Business (attached at annex 2), we have made verbal and online enquires of the Local Authority and other agencies and understand the property is recorded as follows: 4.1 Town Planning The property lies within the jurisdiction of the States of Guernsey. The current policy documents are the Urban Area Plan which was approved in July 2002 and the Rural Area Plan approved December These plans are currently under review and the Department has recently published the new Island Development Plan. In addition the Strategic Land Use Plan was approved by the States in 2011 and set out an overarching Spatial Framework for Guernsey for the next 20 years. The core objective is to improve the quality of life for Islanders and to support a successful economy while protecting the Island s environment, unique cultural identity and rich heritage. Within the existing Urban Area Plan Admiral Park is identified as a Settlement Area and a Mixed Use Development Area. The Department has published a Key Message document that identifies its aims for the area which are included within the new Island Plan published in February With regard to Employment Issues the Strategic Land Use Plan directs new larger office development to the commercial cores of the Main Centres (including Admiral Park) and seeks to enable physical improvements in the quality of office accommodation by replacing or refurbishing older office stock. The Draft Island Development Plan was published on 16 th February 2015; this document will be subject to a formal public consultation before adoption. With regard to offices the plan seeks a combination of: Development of primary offices including large floor plate buildings on new sites The refurbishment or redevelopment of older office stock in main centres into primary offices St Peter Port is identified as the primary location for offices within the Island with offices uses grouped in clusters around the Main Centre and Admiral Park providing a further cluster of large floor plate, high specification, modern offices on a business park environment. Policy MC4 (A) states: Proposals for new office development or the refurbishment, redevelopment, or extension of existing office stock within the Main Centres and the development of office accommodation above ground floor level within the Core Retail Areas will be supported. Policy MC4 (B) states: 9

30 CIPF New office development will only be supported within the Office Expansion Area at Admiral Park, as designated on the Proposals Map, which should be developed primarily for large floor plate office accommodation (1,000 square metres or more). A Development Framework will be required for this site which will form Supplementary Planning Guidance once approved and will be taken into account by the Environment Department when considering proposals for the site. With regard to the Planning History of the property we understand that when planning consent was granted for the substantial refurbishment of the former Commerce House in 2008, there were restrictions placed on the use of the premises. The original building had incorporated 8 residential units and on the refurbishment the planners insisted that these remain (or be replaced elsewhere). The 7 units located on the third floor and one unit at lower ground floor level cannot be used for offices. In practice the units are not even fitted out for residential and could not practically be sublet for residential purposes as the tenants would need to share access with Carey Olsen. We have been advised that the owners of the building have subsequently approached the planning authority to see if this can be changed but they will not amend the consent. The local planning authorities website records do not cover this far back and we have not therefore seen a copy of the original consent. We would expect that additional information in this regard will be included in the Report on Title when this is provided. There are no recent planning applications relevant to the subject property. We have assumed that the current use of the property complies with the permitted use. A search of the Local Planning Authority s website did not reveal any outstanding planning applications or enforcement issues relating to the property. We are not aware of any highway proposals in the vicinity that may have an impact upon the value of the property in the foreseeable future. The property has direct access to an adopted highway. 4.2 Environmental Issues Being beyond the scope of your instructions, we have not carried out any further investigation into contamination at either the subject or any surrounding properties, and have assumed for the purposes of our valuation that no contamination exists. From our inspection we would comment that the property is situated in a town centre location. We do however understand that the Admiral Park site was a former gas works. We would advise the bank to carry out additional investigation into the environmental condition at the site. We confirm that we have also not carried out any investigations into any adjoining or neighbouring sites to assess whether contamination may exist and as such we cannot provide any opinion on the likelihood or risk of there being any in situ or migrating contamination at the property. 4.3 Potential Flooding 10 We have not been provided with details of any flooding risk at the property and are not experts in this field. Our valuation therefore assumes that there is no flooding or flooding risk at the

31 CIPF property, however, we would note that the premises are situated within a short distance from the English Channel. 4.4 EPC Certificate We have not been provided with any information in relation the property and current environmental status using any EPC or an assessed BREAM rating. We would request that if the Company has any information in this regard, or in any matter outlined above, that it is provided to us. 11

32 LEGAL INTEREST CIPF 5. LEGAL INTEREST 5.1 Tenure We understand that the Subject Property is owned freehold by way of an unencumbered interest. We have been provided with a draft Report on Title in respect of the property prepared for CIPF and the bank by Collas Crill. This report is only in draft form and not complete. Upon receipt of the final Report we will confirm to the bank whether anything contained within the document has an impact on the value reported herein. We understand that both the Bank and CIPF have reliance in respect of the report. In summary the report states that the Target Company (Commerce Holdings) has good and marketable title to the property and that the lease, Car Park lease and the underlease to the tenant are in institutional form. It is our understanding that the front part of the site which includes the building is held freehold. The rear area is held under an Overiding Lease dated 28 th November 2008 in respect of the car park between Commerce Land Holdings Ltd and Commerce Holdings Ltd. We have requested clarification from the Collas Crill in this regard as the Report on Title does not include any detail in this regard. Our valuation is prepared on the assumption that there would be car parking available to the occupier in perpetuity. If this is not the case then this may have an impact on value. 5.2 Tenancies We have been provided with a copy of the main occupational lease. This is dated 20 th June 2008 between Commerce Holdings Ltd and Carey Olsen Group Services Ltd. This is for a term of 21 years from 1 March 2008 expiring February 2029 and is subject to 3 yearly reviews. We have set out below a summary of the pertinent lease terms and our comments as to how these effect value. Demise: Commerce House, Les Banques, St Peter Port, Guernsey Lease date: 20 th June 2008 Lessor: Lessee: Commerce Holdings Ltd Carey Olsen Group Services Ltd Term: 21 years from 1 st March 2008 Term Expiry: 28 th February 2029 Original Rent: 831,479 per annum Current Rent: 993, per annum Rent Review Frequency: 3 yrly Next review Due: 1 st September 2017 Rent Review Provisions: The rent is reviewable on three yearly upwards only basis to Market Rent being the full yearly rent at which the demised premises might be expected to be let between willing Landlord and willing Tenant assuming vacant possession, fit for immediate 12

33 CIPF occupation and use for a term equal to the residue of the term or if greater 10 years commencing on the relevant review date after inducements and having regard to the fact that the tenant is the tenants of the Car Park Lease and that additional rent is payable for these car parking spaces. This clause also assumes that the property is measured in accordance with the RICS Code of Measuring Practice and the areas are set out within Schedule 1 as follows: Unit Lower Ground Floor Lower Ground Ground Floor First Floor Second Floor Third Floor Internal spaces Sq ft 1 Auxiliary unit 1,720 sq ft 7,326 sq ft 8,918 sq ft 8,850 sq ft 7 Auxiliary units 8 clear 3 front tandem 3 rear tandem In addition the assumption is that the premises may be used for any purpose within Use Class 25 of the Island Development (Use Classes) Ordinance 1991 and the Auxiliary units may be used for any use authorised under planning law. The rent payable on Rent Review on the Auxiliary Units shall not be less than the Market Rent of the Auxiliary Units or 9.5% of the rent payable to the offices whichever shall be the greater. In addition the Allocated Car Spaces will not be less than 86 and the number of internal car spaces not less than 14. The lease disregards include tenant occupation, good will, improvements and any effect on the rent due to the number of Auxiliary Units at the property. In addition, there is provision for review of the internal car parking spaces to full annual market rent. Comment: We would comment that in general the review terms are fairly standard however due to the nature of the premises including parts of the property that cannot be used for office use these have been separately identified as Auxiliary Areas which can be reviewed to either market rent (if appropriate) or 9.5% of the rent payable in respect of the offices. We would note that at the 2014 rent review the rent agreed reflected 9.5% of the office rent as the assessment of Market Rent for the Auxiliary Units which are not fitted as residential would be likely to produce a lower rent. The clause also disregards any effect on rent due to the number of the Auxiliary Units located within the building. This means that the tenant cannot argue for a reduced rent on the basis they are paying an additional rent for effectively unusable space. Furthermore the wording of the review assumptions take account of the fact that 86 car parking spaces are held by the tenant under the car park lease and that additional rent is payable for these spaces. In addition to the 14 minimum internal car parking spaces within the subject lease. This ensures that the agreed rent reflects that fact that the building has appropriate parking levels on a separate lease arrangement. 13

34 CIPF Repairing Obligations & Service Charge: Tenant is required to well and substantially repair, maintain, replace, renew the demised premises and keep in good and substantial repair and condition. In addition the tenant pays a Service Charge being an agreed portion of the Service Charge which appears to be in respect of the estate roads and car parking area. This is based upon 14 internal car parking spaces by this lease and 86 allocated car parking spaces under the car park lease out of a total of 179 car parking spaces ie % of the service charge costs. We would note however that there is also a service charge requirement within the car park lease being 52.12% of landlords costs in relation to this area. We have requested clarification as to how the collection of service charge in respect of car parking works in practice and understand that there is no double counting and all costs are recoverable from the tenant and there is no liability to the landlord. Our valuation is prepared on this basis. Insurance Provisions: User: Landlords insure, tenants reimburses. Not to use the demised premises (excluding the Auxiliary Units) other than as Offices falling within the Use Class 25 of the Island Development (Use Classes) Ordinance Not to use the Auxiliary Units for any purpose other than the use authorised under planning law as at the date of lease, however they may be used as offices subject to such office use being authorised by planning permission. This gives the tenant the flexibility to use the Auxiliary Units for an alternative use if the planning situation changes. Alienation: The tenant is not permitted to assign without simultaneously assigning the car park lease. Assignment of the whole and underletting of whole or Permitted Part is permitted with landlords consent, not be unreasonably withheld, and subject to conditions. A Permitted Part comprises the whole or a designated part of the lower ground, ground, first and second floors or any one or more of them with no more than two subdivisions per floor or two occupiers per floor subject to no more than three sublettings of the whole of the demised premises. In addition the tenant may underlet any one of the Auxiliary Units as a single unit for any purpose authorised under planning law. Comment: The alienation provisions therefore provide the tenant with flexibility to assign or sublet whole or part of the premises subject to conditions as well as the potential for subletting the Auxiliary Units, although we have been advised that this is not practical in practice due to access issues. In addition there is a restriction that a whole lease may not be assigned without simultaneously assigning the car park lease. This ensures that the building will always be let with the appropriate level of parking. 14

35 CIPF Demise: Car Park Lease: 32 clear and restricted access spaces 54 double parked car parking spaces Lease date: 20 th June 2008 Lessor: Lessee: Commerce Holdings Ltd Carey Olsen Group Services Ltd Term: 21 years from 1 st March 2008 Term Expiry: 28 th February 2029 Original Rent: 130,250 per annum Current Rent: 150,150 per annum Rent Review Frequency: 3 yrly Next review Due: 1 st March 2017 Rent Review Provisions: Repairing Obligations & Service Charge: Insurance Provisions: User: Alienation: Rent is reviewed to Market Rent being the full annual Market Rent at which a Car Parking Space might reasonably be expected to be let between willing landlord and willing tenant for a car space of comparable quality and specification having regard to rental levels in a comparable part of the St Peter Port between a willing landlord and willing tenant assuming vacant possession fit for immediate occupation and use. The rent for a rear tandem space shall be 71.43% and the rent of the Hypothetical Space and the rent of a front tandem lease 85.71% of the rent of the Hypothetical Space. Tenant pays a due proportion of the service charge based on 86 out of 165 car spaces % Landlord insures tenant reimburses. Parking of road worthy motor vehicles. Assignment of whole subject to conditions but only if assigning office lease simultaneously to the same assignee. Underletting permitted with conditions only to sub tenants of the office. 5.3 Rental income The property is currently fully let to Carey Olsen. We are advised that there are no service charge shortfalls at the property. The gross rental income available to the owner is, therefore, currently 1,143, per annum. 5.4 Covenant Status We were not requested, nor are we qualified, to carry out a detailed analysis of the security offered by the tenant. 15

36 CIPF Carey Olsen Group Services Ltd is the main tenant on the lease and there are also personal guarantees from 9 equity partners of Carey Olsen. Carey Olsen is a leading offshore law firm operating from a number of key offshore financial centres including Guernsey and Jersey. It is the largest solicitors in the Channel Islands and employs 300 people including 42 partners. They provide legal services in all areas of corporate and finance law, trusts and fiduciary law, investment funds and dispute resolution. 16

37 MARKET COMMENTARY CIPF 6. MARKET COMMENTARY 6.1 Economic Overview Following a prolonged period of economic contraction and recession the UK economy is continuing to show signs of improvement, following a strong performance in Key indicators such as employment, inflation and economic output all continue to perform well, reflecting continued and consistent progression. Steadily improving GDP figures over the course of 2013 and 2014 indicated that the economic recovery is well underway. The UK economy grew by 0.5% in the final quarter of 2014, slightly slower than the 0.8% and 0.7% growth recorded in Q2 and Q respectively. Taking 2014 as a whole, output was around 2.6% higher than a year earlier, the strongest calendar year rate of growth since Output has now grown for eight successive quarters, the longest period of continuous growth since the onset of the economic downturn in 2008.The economy is now 3.4% above its pre-downturn level of output in Q The improvement in economic outlook for businesses has fed through to an increase in employment. The headline rate of unemployment has fallen from 7.1% in the three months to November 2013 to just 5.8% in the three months to November 2014, while the employment rate remains close to record highs. In Q4 2014, regular pay (excluding bonuses) was 1.7% higher than a year earlier and total pay (including bonuses) was 2.1% higher. However, while the labour market is tightening, the Consumer Prices Index (CPI) rate of inflation has remained subdued and fell to 0.3% in January 2015 and to 0% in February 2015, its lowest rate since records began. Much of this decline is due to the sharp fall in the price of oil, which has fallen more than 50% since mid Inflation is anticipated to fall further in the near term, and could temporarily turn negative, as falls in energy prices continue to be passed through. If the economy stays on its current course the Bank of England is unlikely to raise interest rates. Despite the improving domestic conditions, a significant threat to the strength of the recovery remains in the risk of adverse developments in the global economy, particularly in the Eurozone, instability in Russia and the Ukraine, and continued unrest in the Middle East. The UK housing market and its potential to overheat is also of concern, although more recently this appears to be more stabilised. UK all-property total returns have been steadily improving since bottoming out in late 2012 and currently stand at 19.7% for the 12 month period to end of December 2014, outperforming the 6.0% total returns recorded by equities and the 4.4% total returns recorded by gilts over the same period. 6.2 Guernsey Economy The Channel Islands are a group of self-governing crown dependencies with their own legislative assemblies, administrative, fiscal and legal systems as well as their own courts of law which are independent from the UK and of each other. 17

38 CIPF Guernsey is the second largest of the Channel Islands with a resident population of circa 65,000 although the Island is a popular tourist destination and benefits from a large number of visitors. The Island has a strong economy underpinned by the finance sector (which accounts for 40% of GDP) as well other industries including tourism, light industrial, service sector, agriculture also playing an important part in the Island s economy. Guernsey total GDP for 2013 was estimated at million (Source: States of Guernsey) this reflected growth in real terms of 0.5% which was below the State s target of 2%. The GDP per worker was however 68,586 which was 1.5% higher than in 2012 in real terms. 6.3 Guernsey Office Market The growth in the development of the office sector within Guernsey has been driven primarily by the expansion in the finance industry on the Island over the last decade. With the growth in offshore banking, as well as trust management, fiduciary services and the necessary professional support services, has come a demand for modern properly equipped offices. Whilst the town centre of St Peter Port provided a substantial and extensive range of office accommodation much of this was built during the 1970 s and 1980 s and a significant amount was, either in whole or part, conversions of old warehouses. Whilst upgrades and enhancements had occurred, the buildings were falling behind in their ability to provide large floor plates, modern air-conditioning systems, raised floors and the profile required by modern office occupiers. In order to satisfy this demand and support the growing finance industry The States of Guernsey identified two primary areas for urban regeneration, being The Royal Hotel and Savoy Hotel sites on the edge of St Peter Port and the old Guernsey Gas Works, now known as Admiral Park. At the time, The States of Guernsey recognised that the town centre was constrained by its topography and that realistically large scale office development and / or redevelopment was going to prove impossible on any substantial scale and therefore alternative office development sites needed to be found. During the period 2002 to 2007 a number of significant buildings were constructed. The first was Trafalgar Court at Admiral Park, comprising approximately 112,000 sq ft (10,405 sq m) and let at the time to Barings Guernsey and Close Bank. Regency Court on Glategny Esplanade followed shortly afterwards along with Royal Bank Place, the 45,000 sq ft (4,181 sq m) building at the junction of St Julian s Avenue and occupied by the Royal Bank of Scotland International. In 2005 two further buildings each of approximately 45,000 sq ft (4,148 sq m) were constructed at Admiral Park, adjacent to Trafalgar Court. These are known as Dorey Court and Martello Court. Of all these Regency Court was the only building which was multilet though Trafalgar Court and had two tenants but in separate wings. The subject property which is situated adjacent to Trafalgar Court was substantially refurbished in 2008 and let to Carey Olsen. Following these developments was the construction of Comprop s 60,000 sq ft Glategny Court also situated on Glategny Esplanade adjacent to Regency Court. This building (together with Regency Court) is now also with the Fund s ownership, it is multi-let and was completed in

39 CIPF The majority of new space within the town has now let and there are limited new developments in the prime office market in the short term. Whilst small suites are available there is a limited supply of Grade A accommodation providing larger floorplates. This is likely to have a positive effect on rental levels. There is further Grade A development planned at Admiral Park. Outline planning consent was granted in July 2013 for the erection of residential, office, retail, hotel and leisure facilities at various sites off Elizabeth Avenue. This includes provision for a maximum of 148,000 sq ft of offices. 6.4 Comparable Evidence / Rental Levels Historically office rents within Guernsey have been higher than Jersey and this is due to the more limited supply of land particularly within the recognised prime areas. In addition Guernsey planning policy is more restrictive in respect of releasing land for development. Looking at recent rental transactions in the town there have been few transactions in the prime market especially on Admiral Park. Within the town centre the second floor of Glategny Court was let in The second floor was let to KPMG Channel Islands Ltd with effect from 1 January 2014 at a headline rent of 706,938 per annum reflecting 37 per sq ft. The lease was for a term of 24 years and with a break in The tenant was granted a 30 month rent free period. Also within the town centre i2 office has recently taken space in Royal Chambers on a rising rent basis with a base rent of 55 per sq ft rising to 57 per sq ft in We have set out below details of other transactions within the town including rent review settlements. 1) Glategny Court, Glategny Esplanade This building is situated on the Glategny Esplanade within the town centre. constructed I 2009 to a Grade A Specification. It was a) The 2 nd Floor was subject to a new letting to KPMG with effect from January 2014 at 706,938 per annum reflecting a headline rent of 37 per sq ft. The tenant was granted a 30 month rent free period. b) Grd Flr let to Guernsey Financial Services Commission subject to review 16 September The rent remained unchanged on the office space at 37 per sq ft but increased on the car spaces. c) 1 st Flr Collas Crill, 16,425 sq ft reviewed September The rent agreed reflected per sq ft on the office space and 2,800 per cover of car space and 1,900 per uncovered car space. 19

40 CIPF 2) Regency Court, Glategny Esplanade This building was constructed in 2002 to a Grade A Specification and is situated on the Glategny Esplanade within the town centre. a) The 2 nd & 3 rd Floors, totalling 29,850 sq ft let to Butterfield Bank were subject to rent review in May The rent agreed of 1,363,761 per annum reflected 36 per sq ft on the office space, 2,625 per unrestricted car space and 1,250 per restricted car space. b) Part 1 st Flr, totalling 8,500 sq ft let to Deloitte & Touche subject to rent review in June The rent agreed at 365, per annum reflects per sq ft on the office space and 2,750 per car space. c) Part 1 st Flr, totalling 7,076 sq ft let to Barclays Wealth (now sublet) subject to rent review with effect from June 2013 at a rental of 327,024 per annum reflecting per sq ft on the office space and 2,750 per unrestricted car space. d) Grd Flr, totalling 5,726 sq ft let to International Administration Guernsey Ltd. Rent review with effect from March The rent agreed at 216, per annum reflects per sq ft on the offices and 2,750 per unrestricted car space and 1,000 for bike rack. 3) Lefebvre Court, Lefebvre Street, St Peters Port a) This modern building situated in a good location, 12,000 sq ft let to Bank Julius Baer subject to review in April 2013, agreed at a rent reflecting per sq ft. 4) Royal Chambers, St Peter Port, Guernsey This building was constructed in 2009 and is situated in the heart of St Peter Port. In July 2014 two floors were let to i2office for a term of 21 years at a rising rent of 45 per sq ft from July 2015, 47 per sq ft from July 2016 and from July With minimum 3% increase at review on the upper ground floor suite totalling 11,119 sq ft. The third floor which totals 9,731 sq ft was let on a 2 year lease at a rising rent of 55 per sq ft from July 2015, 57 per sq ft from July 2016 and from July 2017 with minimum 3% increase at review. 5) Martello Court & Dorey Court, Admiral Park These buildings are situated on Admiral Park close to the subject property are let at rents of 37 per sq ft. The July 2014 rent reviews are outstanding with a modest increase expected (although not yet agreed). 6) Carey House, Les Banques, Admiral Park The subject property has recently been subject to review with effect from March 2014 and this has been agreed at a rent reflecting 34 per sq ft on the main office space. A 20

41 CIPF detailed breakdown is set out in the valuation considerations section of this report. 6.5 Investment Market and Comparable Evidence The last 12 months has seen an increase in the number of investment property transactions within the United Kingdom, a large proportion of which have been focussed on larger central London office property. This has been partially fuelled by demand of overseas investors who consider the sector as a safe haven. More recently, however, investor confidence has increased in all sectors outside of London, including the regional markets. This has had a knock on effect on pricing with 2013 & 2014 seeing substantial levels of improvement. Demand has been driven by UK institutional funds, opportunity funds and overseas investors. In addition the cost of capital has reduced significantly and coupled with the greater opportunity to obtain leverage, this has had a positive impact on pricing. It is expected that the low interest rate environment will continue and this will continue to have a positive impact on the capital values and yield levels over the short term. Investment purchases within the Guernsey market are similar to those within the United Kingdom, however there are some differences in ways the transactions are dealt with particularly in terms of lease structures, taxation and title matters. This does deter some purchasers from investing in the island and yields paid are at a discount to those in regional UK cities. There have been increasing levels of investment activity within Guernsey in the last 12 months following a period where very few sales took place. These included the recent sale of Trafalgar Court which is situated adjacent to the property on Admiral Park. In addition CIPF recently purchased Glategny Court on the Esplanade. Furthermore also on Admiral Park, Dorey & Martello Court are under offer for purchase. We have set out below details of these transactions together with recent sales completed within Jersey: 1. Trafalgar Court, Admiral Park This property is situated adjacent to the subject property and was constructed in 2002 as the first building on Admiral Park. It totals 113,717 sq ft and is finished to a good standard of specification. The building is largely let to two tenants with Northern Trust (Gsy) Ltd occupying 86,795 sq ft on a lease until 30 th September 2028 without break. The passing rent on this element is 3,116,221 per annum ( 36 per sq ft overall). The remainder of 26,146 sq ft (apart from some annual licences in lobby area) is let to Aztec Financial Services (Guernsey) Ltd, guaranteed by Aztec Holdings with security from Close Bank Asset Management Ltd paying 1,067,040 per annum ( per sq ft overall) on a lease expiring in The average AWULTC for the property is 12.3 years. The property sold in February 2015 for 61,380,000 reflecting a net initial yield of 6.75% on a corporate sale and 6.56% on standard purchaser s costs. This property is situated adjacent to the subject property and is therefore in a very comparable position. It is a larger lot size but is finished to a similar specification. The tenant is of a good covenant strength with an AWULTC of circa 12 years this compares to the subject property which has 14 years unexpired. 21