Transcript Europroperty Investment Summit - Marbella

Generating Superior Returns From a
Traditional Asset Class
The Growth of Serviced Offices as an
Investment
Business Centre Capital Co. Ltd
www.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. Ltd
www.b3c.biz
Structure
 Overview
 Size
 Players
 Business Models
Business Centre Capital Co. Ltd
www.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. Ltd
www.b3c.biz
Size Globally
 > 10,000 business centres
 + 1,000 operators
 > 70 countries
 < 1% of global office space
Business Centre Capital Co. Ltd
www.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. Ltd
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UK Demographics
Density of Serviced Office Stock
North East, 1%
Wales, 2%
Northern Ireland, 2%
East Anglia, 3%
West Midlands, 4%
East Midlands, 5%
London, 37%
Yorkshire, 5%
Home Counties North,
6%
South West, 6%
Home Counties South,
15%
North West, 7%
Scotland, 7%
Source: DTZ
Business Centre Capital Co. Ltd
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Quality Fully
Serviced
UK Major Players
Regus
MWB
Avanta
Citibase
MLS
EOG
BEG
SOG
Leased
Owned
Workspace
Bizspace
Lenta
Semi
Serviced
Business Centre Capital Co. Ltd
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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. Ltd
www.b3c.biz
Investment Potential
 High yield
 Capital Growth
 Scale
 Brand
Business Centre Capital Co. Ltd
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High Yield
 Serviced offices provide a higher yield
 typical income yield can exceed 7%
 typical capital growth can exceed 4%
 Business Centre Properties plc
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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. Ltd
www.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
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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. Ltd
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Yield Shift
 Serviced offices have followed yields down
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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. Ltd
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POWER (Property Opportunities With
Enhanced Returns) Fund
 Philosophy
 Structure
 Expertise
 Timings
Business Centre Capital Co. Ltd
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Philosophy
 “Global provision of flexible working for
individuals and businesses in secure, comfortable
office accommodation”
Business Centre Capital Co. Ltd
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Structure
Luxembourg
Domicile
UK Sub
Fund
Local
operator
centres
centres
North
America
Sub funds
Europe
Sub funds
ABCN
centres
(Replicated across each sub fund)
Business Centre Capital Co. Ltd
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ROW
Sub funds
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. Ltd
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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. Ltd
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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
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Market intelligence
Marketing and referrals
Alliance Access
Franchising
Purchasing
Business Centre Capital Co. Ltd
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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. Ltd
www.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
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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. Ltd
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Exit
 Trade sale
 To a new entrant
 To an existing operator
 Securitisation
 >£300m
 REIT
 Workspace has become a REIT
Business Centre Capital Co. Ltd
www.b3c.biz
Business Centre Capital Co. Ltd
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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. Ltd
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Lease v. Ownership
 Owner Operator
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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. Ltd
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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. Ltd
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Listed Company Valuations
Company
Regus
Serviced Office Grp
MWBEX
EV (mill)
YE ‘06
EBITDA (mil)
YE ‘06
Multiple
Share price (p)
(06/07)
Share Price
YoY %
£1,134
122
9x
149.25
+34%
£25
2
12.5 x
11.50
+26%
£116
9
13 x
174.50
+65%
Business Centre Capital Co. Ltd
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RGU Share Price
Business Centre Capital Co. Ltd
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SVO Share Price
Business Centre Capital Co. Ltd
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MBE Share Price
Business Centre Capital Co. Ltd
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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. Ltd
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BYG Share Price
Business Centre Capital Co. Ltd
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Metrics
 MWBX - £67.1m (^23%), PTP £7.8m (£2.7m)
 60 locations
 Regus - £680m (^47%), PTP £77.5m (£38.7m)
 950 centres
Business Centre Capital Co. Ltd
www.b3c.biz