Other Markets
*249% growth since 1989

Why Commercial Property
All Commercial Property Index
250
200
150
100
50
0
400
350
300
Compound
Growth,
Total
Returns
Source: IPD Index. Growth 240% and assumes UNGEARED investment

Why Commercial Property
5000
3000
1000
10
0
Growth, Growth,
Total
Returns
Total
Returns
Source: IPD Index. Growth 4949% and assumes UNGEARED investment

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UK Commercial Fund
FRI (Full Repairing Insuring) leases
Less volatile and more predictable due to long leases
Buy Offices and Industrial off plan + tactical opportunities
9%+ prospective yield
Once tenanted the building can be worth 25% more
Hold for 5 years and then renew/ replace lease and sell
Repayment mortgage of 70% will be just 40% after 5 years – rent increases returns
Finally if there are commercial property rises then even better – we expect 5-7% pa for the next 5 years on these type of properties

UK Commercial Fund
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High quality locations
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Airports
Major cities
Near other large business parks
Arterial roads
Small developments (8-12 units)
Small units – 2500-8000 sq ft
SME’s are 98%+ of the market
Prices 20% discounted with a 9.5% prospective yield
Fast selling units to Owner Occupiers
Limited sales to investors

UK Commercial Fund
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20% discount to market value when tenanted
How is this ‘lease premium’ calculated ?
9.5% prospective yield
Say building is £100,000 – rent would be £9,500
Rent is the driver
Once tenanted the building can be sold on a 7.5% yield
£9,500 / .075 = £126,666 a gain of £26,666
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If you 50% gear that is a 53% gain
If you 75% gear that is a 107% gain
Less purchase and sales costs

UK Commercial Fund
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9.5% yield is £9,500 rent per £100,000 of property
9.5% is set by the developer as a reasonable prospective yield on a property price that still makes them money whilst leaving around 2% in it for the investor
The 7.5% yield is ‘set’ by the investor market, what they are willing to receive as a yield on a tenanted property.
As the rent is constant, £9,500 per annum the property is worth £100,000 at 9.5% prospective yield when sold by the developer and worth £126,666 to the investor buying it with a tenant at 7.5% yield

UK Commercial Fund
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£9,500 / 9.5% = £100,000
 Yield is only prospective – no actual tenant
£9,500 / 7.5% = £126,000
 Yield is real – signed up tenant
Premium is the value of the lease
The better the tenant the lower the tenanted yield

UK Commercial Fund
Price Increases
Rental Income/ Profit
Lease Premium
Property Price Property Price

UK Commercial Fund
 Risks :
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Prices do not rise
 Fund already bought at discount and the lease premium plus the rental profit will still give gains.
Prices fall
 Fund bought at discount and with the lease premium once tenanted should have around 20% protection built into purchase prices.
Tenants not found quickly
 Small units do find tenants quickly but significant voids would be in some units would be countered by others having very profitable rental income. Can always sell to recover costs at least to the owner occupier market.
Interest rate rises
 Fund will use interest rate hedging / fixed rates if thought necessary.

UK Commercial Fund
 Fund can gain in four ways :
 Buying at a discount pre-completion – helps developers funding
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Tenanting the new building brings c 25% uplift in value according to tenant quality, rental level and lease duration
Rental yield is high – 8%-9.5% - pays down mortgage increasing equity
General price growth
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Note price growth is the last of the profit levers
Objective of 20%+ growth per annum if assumptions met

Thank You
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