PLEASE NOTE. Taj Ubhi Six Degrees Sheff Limited Sheffield TERM LOAN AMOUNT SECURITY VALUE LTV. 15 months 747,000 1,237, %

Size: px

Start display at page:

Download "PLEASE NOTE. Taj Ubhi Six Degrees Sheff Limited Sheffield TERM LOAN AMOUNT SECURITY VALUE LTV. 15 months 747,000 1,237, %"

Baldwin Gordon
6 years ago
Views:

PLEASE NOTE The information contained in this credit report has been provided by the applicant, who has read this report and declared it complete, accurate and correct.

Assetz Capital has assessed the loan against its prevailing acceptance criteria but it has not audited the information and as such provides no warranty, recommendation or advice in relation to this

39% INTEREST CAPITAL Paid Monthly Bullet (by month 15) SECURITY 1. First Legal Mortgage over Freehold Land and Buildings known as The Orchard Centre, 14 18 Westbar Green, Sheffield S1 2DA MV 1.

1 PLEASE NOTE The information contained in this credit report has been provided by the applicant, who has read this report and declared it complete, accurate and correct. Assetz Capital has used reasonable care to ensure the information provided is authentic and that it has been replicated clearly and accurately in this credit report. Assetz Capital has assessed the loan against its prevailing acceptance criteria but it has not audited the information and as such provides no warranty, recommendation or advice in relation to this loan application. Investors should seek their own advice before investing. Taj Ubhi Six Degrees Sheff Limited Sheffield TERM LOAN AMOUNT SECURITY VALUE LTV 15 months 747,000 1,237, % INTEREST CAPITAL Paid Monthly Bullet (by month 15) SECURITY 1. First Legal Mortgage over Freehold Land and Buildings known as The Orchard Centre, Westbar Green, Sheffield S1 2DA MV 1.238m (LTV 60.39%), with 6 months restricted 1.07m (LTV 66.14%); 2. Cross Guarantees, unlimited in amount, between Six Degrees Sheff Limited and LK & K Properties Limited; 3. Mortgage Debenture Web from Six Degrees Sheff Limited and LK & K Properties Limited 4. Personal Guarantee by Mr Taj Ubhi, unlimited in amount. A s s e t z C a p i t a l Page 1

2 1 BORROWER (and brief background) Taj Ubhi ( TU ) (DoB 9/2/69) is well known to Assetz Capital, where previous lines have been successfully extended and repaid, notably under the Flat Cap Limited corporate model. TU is a serial property entrepreneur, having been involved in the sector (across the wider East Midlands) for over 20 years and was the principal behind the successful Nottingham Student Development Loan; since fully repaid. He holds an extensive property portfolio, a mixture of HMO/B2L properties both in his personal name and across various special purpose vehicles ( SPV ), such as Cube Investments Limited and Trent Pads Limited. Equally through Dunbar Leisure Limited, he also has commercial serviced office space (37,000 sq ft) in Nottingham. A full property portfolio is held (over 61 properties), where TU puts his aggregate MV at c 28m, with associated debt of 14m. None of the values have been tested, other than those which have or are currently funded via Assetz Capital. Within those numbers are properties held directly in his personal name (24 units), and these have a MV c 6.5m and debt outstanding of 3.632m; so, a direct equity base of 2.8m. The income stream s run-rate is 2.4m pa in aggregate, with associated DSC at 900K pa. In his personal capacity, the numbers are 353K pa and 128K pa respectively. So, the overall portfolio is c50% geared, with Rent Roll coverage to DSC, tracking 2.6x. These are deemed satisfactory metrics. In terms of operational aspects, a flat structure, TU handles purchasing and planning, assisted on the administration side via 1 FTE (covering the likes of HMO applications, utilities supplies, contractor payments and general office matters). A bookkeeper is also utilised in the office. TU typically employs a project manager to check on progress under the fixed price building contracts (where he is developing out flats/units) and deal with issues arising, alongside organising furnishing and fittings. Lettings are handled by TU s son. In terms of the request before lenders TU has established a SPV, Six Degrees Sheff Limited ( 6D ), which is 100% owned by TU and has been established purely for the purposes of the transaction. 2 PROPOSAL 2.1 The Transaction TU has agreed to purchase The Orchard Centre, Westbar Green, Sheffield S1 2DA (the property) at c 700K, but via a share acquisition. As such 6D will acquire the issued share capital of LK&K Properties Limited ( target ). Target s sole asset is the property, which is charged to Lloyds Bank plc and to which the charge will be repaid, so as to ensure our charge is the only charge held against the property. A s s e t z C a p i t a l Page 2

3 Our Lawyers will oversee this, in conjunction with TU s lawyers and Assetz Capital will hold a first ranking legal charge on completion. Contemporaneously with purchase, a 12-month lease will be granted to Dunbar House Limited ( DHL ) at 120K pa FRI. DHL is a serviced office provider (Barnsley and Leeds) and will look to utilise the property as serviced offices under the terms of the lease. Any fit-out work/refurbishments are to be at DHL s expense. The rental cashflows will provide interest cover (c1.8x) during the bridge. Please see below for details of DHL/Counter-party Risk. However, the primary strategy is a planning play, with TU looking to develop a student accommodation scheme with the property close to Sheffield University and is surrounded by similar schemes. The plan is to convert the front of the building into bedrooms and here TU is ready to submit a Planning Application on the day of purchase. TU has met with his architect and contractor to discuss and the view is these units should be worth circa 75K per room, which gives the uplift in value to 2.4m. The rear of the building will be knocked down eventually and there will be another bedrooms here. In total, there will be between 64 and 70 bedrooms. This type of approach has proven successful for TU in the past and with good strategic thinking always driving his property plays, he is well versed in this activity, albeit deliberately, no direct pre-application work has been undertaken with the planners. In terms of exit, TU will either look to develop out the approved scheme or look to flip the property into the market and make a turn on the planning gain. Not an untypical play by a property entrepreneur. A 12-month time line is envisaged in which to secure planning and finalise which option (flip or build). DHL Counter-Party Risk DHL is an existing serviced office operator, with sites in Barnsley (1 McLintocks Business Centre, Summer Lane) and Leeds (2 Dunbar Business Centre, Sheepscar Court, Leeds). The respective Rent Rolls are 369K pa and 156K pa ( 525K pa in aggregate). The MV of the properties are put at 3.3m, with debt outstanding at c 2m. DSC is 190K pa, with RR offering 2.76x cover, and inclusive of the proposed rent (re Orchard House), then overall coverage is 1.69x. With the existing offices blocks at full occupancy, the director see Sheffield as an ideal location to expand, and given location (as borne out by the valuer), there is likely to be good demand. We hold FY15 draft accounts, which show T/O tracking 590K, and an Operating Profit at 412K. Net of interest costs, a PBT of 344K was evident. We are advised no management A s s e t z C a p i t a l Page 3

4 accounts are prepared (outside rental schedules (which are held)) and the FY16 accounts are still awaited. It is clear better corporate governance is required re filling of accounts etc., but at primary face value the underlying business looks satisfactory. Whilst dated, the proposed rent (re Orchard House) is covered 2.8x FY15 pre-tax profits. It is also worthy of note that DHL has a low Delphia score, principally due to 2 CCJ at 3.5K, which arose due to a dispute with suppliers and has since been settled. We await confirmation of the CCJs being satisfied. Equally TU was a 51% shareholder up and until December 2015, at which time there was an asset swap, with TU taking the Nottingham based asset (Archer House) and DHL retaining the Barnsley and Leeds properties. This was driven purely due to location, as TU s primary business interests are centred around Nottingham/Derby. Companies House records need to be updated here. This is being attended to. Accepting TU knows the DHL and its owners well, there is additional comfort that he is content with the counter-party risk too (accepting he is providing an unlimited guarantee to cover the Loan). The proposed lease is within acceptable tolerances re market rent, where the valuer opines 117,500 pa (vs 120,000). Requirements Lenders are therefore asked to support TU/the borrower by way of the proposed facility; 1. Amount; 747,000 (covers fees and retained interest) 2. Term; 15 months 3. Interest; monthly at 5, pcm 4. Repayment; Bullet by month 15 (from draw-down) 5. Retained Fund; 3 months interest payments will be retained The borrower will be 6D, but as outlined below, the property will sit in Target and thus appropriate corporate security will be taken to ensure 6D is secured by the proposed legal mortgage over the property. Whilst the proposed lease will be granted by target to DHL (and thus the cash inflows are caught accordingly), a management charge would then be established between target and 6D, to ensure 6D receive the necessary cash funds to service the borrowings. This is not untypical in structure. A s s e t z C a p i t a l Page 4

5 3 PROPERTY DETAILS SECURITY 3.1 The Property has been valued by Spencer Birch, Chartered Surveyors, who have confirmed that they hold the necessary skill and knowledge to undertake the valuation and that they carry PII up to 2m. 3.2 A brief description is as follows; the property is a conventionally styled and built 3 and 4 storey office property arranged in a U shape around a central courtyard. The accommodation extends imaginatively to provide a light and airy office establishment. 3.3 To the rear of the property is a large warehouse with open yard parking. The property is currently vacant. 3.4 The Property is located on Westbar Green, in the centre of Sheffield, adjacent to the Hampton Hilton Hotel and immediately adjacent to the National Emergency Services Museum. The University of Sheffield is a short walk away, as are the prime shopping areas of Fargate. The property is on the fringe of the Cathedral quarter, the traditional business area of Sheffield. 3.5 The majority of the building has been used as office, although more recently there was a fitness gym on the ground floor. To the rear is a large steel framed warehouse, that provides 2,500 sq ft of storage. Overall the property extends to 12,151 sq ft. 3.6 In terms of state of repair, the valuer comments the property is reasonably well maintained and presented having been improved and upgraded over time. There is the occurrence of asbestos and the valuer recommends a survey is undertaken. That said we hold a 2008 asbestos report which has been forwarded to the valuer for comment. His response is awaited. His response is a condition precedent. 3.7 The proposed use, as serviced offices conforms with existing planning and the property does not sit in any conservation or is listed. Highways are adopted, and whilst no fire risk assessment is evident, this will need to be brought into play by DHL, on taking occupancy. 3.8 EPC; rated at C, with no environmental aspects identified. Valuation 3.9 The valuer has used a comparative basis approach to establishing the capital and rental values of the property, with a wide selection of comparable used. They conclude that a market rental value is fairly represented at 13 sq ft to the ground floor, 11 for the 1 st floor, 10 for the 2 nd, 8 for the 3 rd floor and 5.50 for the warehouse. This aggregates to 117,500 pa (vs the 120,000 pa re the proposed term). The valuer has then applied a risk yield to the market rent of 9.5%, so as to arrive at a Market Value of 1.237m and 1.070m on a 6 months restricted marketing period. VP is assessed at m. A s s e t z C a p i t a l Page 5

6 3.9.a.1 LTV Assessment; MV; 60.39% 6m restricted; 66.14% VP; 69.82%. 3.9.a.2 Security Given the way the property is being acquired, certain UK Company Act requirements are necessary to ensure the purchase is properly conducted. This will be overviewed by our Lawyers, Shakespeare Martineau. However, the security will cover; a) First Legal Mortgage over the Property b) Cross guarantee, unlimited in amount, between 6D and Target c) Mortgage Debentures from 6D and Target d) Unlimited Personal Guarantee by TU. 4 CONDITIONS AND COVENANTS 4.1 Conditions Precedent 4.1.a.1 Professional Valuation on the above property confirming a market value of no less then 1.2m, alongside a 6-month restricted and vacant possession ( VP ) value (please see covenants below for lending restriction relative to the VP value). Position; details highlighted above. Condition satisfied. 4.1.a.2 Satisfactory completion of Assetz Capital s AML/KYC checks, including clear Credit Searches on all borrowers; Position; Full KYC/Experian profiles undertaken. No material adverse information. Condition satisfied. 4.1.a.3 Satisfactory completion of the stated security. As the proposed purchase is to be structured via a share purchase of the 100% issued share capital of LK & K Properties Limited, we are to be satisfied as to; 4.1.a The level of legal due diligence undertaken and what warranties and representations are being provided for by the vendor; Position; aspects to be covered via our Legal Due Diligence ( LDD ), with Shakespeare Martineau appointed by AC. Condition outstanding. 4.1.a Sight and satisfaction with the Share Purchase Agreement; Position; whilst held, the aspect as to being in an acceptable state is one for our lawyers to comment upon (which we expect to be the case). However, we await their advises. Condition outstanding. 4.1.a That the transaction complies fully with current UK Company Law and is executed in line with all statutory requirements. Position; the transaction will follow a tried and tested route, with standard formalities to be satisfied so as to ensure full compliance with statutory company law. LDD will confirm. Condition outstanding. A s s e t z C a p i t a l Page 6

7 4.1.a.4 Completion of Assetz Capital s Loan Application Form; Position; Held/completed. Condition satisfied. 4.1.a.5 Prior sight and satisfaction with 6 months personal and business statements; Position; we hold personal statements (to Jan 2017) and to which they reveal a satisfactory profile. Condition satisfied. 4.1.a.6 Satisfactory insurance cover to be in place with the interest of Assetz Capital Trust Company Limited noted as first loss payee; Position; Policy is awaited. Condition outstanding. 4.1.a.7 Lease between Target and DHL Limited, for 120,000 pa and for a term of 12 months or more to be executed on completion. Position; the draft lease is awaited, but execution thereof will be caught via our Legal Due Diligence. Condition outstanding. 4.1.a.8 Prior sight and satisfaction with an Asbestos Survey relating to the property; Position; A 2008 report is held and has been copied to the valuer for his comment. This is awaited. Condition outstanding. 4.1.a.9 Prior sight and confirmation that the DHL CCJ have been satisfied. Position; this is awaited. Condition outstanding. 4.2 Conditions Subsequent a) Planning application for the proposed change of use is to be lodged within 3 months of drawdown. b) Progress report on the status of the planning application to be provided within 6 months of drawdown. 4.3 Covenants Quarterly confirmation of rental income received for the previous quarter to be provided within 30 days of quarter end. Debt Servicing Gross Rental Income to Assetz Capital Debt Service Liability for each Quarter must be at least 1.25:1. To be tested Quarterly on a Rolling 12-month basis. Loan to Value The Loan must not exceed 75% of Property s Vacant Possession value on each Valuation Date. Annual accounts for the borrower, to be received within 6 months of the year-end A s s e t z C a p i t a l Page 7

8 RISK AND MITIGANTS a. Exit Strategy Planning Risk; the key plank to TU s exit is the securing of planning for the proposed student accommodation and then executing the build or flipping the property, with the benefit of planning. Which route is taken is an unknown, but given TU s growing desire to build his portfolio, a retention and build strategy is the likely favoured route. That said, securing planning is equally an unknow. So as recognised, this is a planning play, where time and effort will be expensed (by TU) in developing the scheme. A Condition Subsequent has been drafted, so as to ensure planning is submitted in a timely manner. Therefore, a balanced view is required, in that TU has options, should planning be refused. These are; 1. Sell the property; a logical move, and this may be back into the open market (as a vacant property), or as what may be evident, a sale to DHL, who would have established a foothold into the Sheffield serviced office market and wish to purchase as sitting tenants; 2. Appeal; there will be routes to appeal any planning decision and TU will be guided by his planning consultant/team, so as to ensure the most cost effective route is explored. 3. Land Bank; subject to DHL renewing the lease, TU may simply hold on to the property and bide his time. This would need lender s agreement. Recognising the above options, it is equally fair to say in TU we have a serial property entrepreneur, someone who has a good track record with Assetz Capital and has to date honoured all commitments. He certainly has the cash reserves to fund the planning and any subsequent requirements (prior to developing this out). The 4 th option would be to release equity against TU s existing property portfolio so as to repay our line. As may be recalled, this has circa 3m in equity (not tested). Other risks/mitigants associated with the request are centred around; b. Operational Keyman; TU is the man driver here and any incapacity could impact. That said, there is good headroom in cash (over DSC) so as to potentially bring in property managers. Equally his son is employed in the wider business so as to give an element of succession planning. c. Financial Counter-party Risk; DHL s Experian score is low, and predicated off the 2 CCJs and the late finalising to the FY15 accounts. Both of which are readily repaired, with the CCJ s satisfied. With TU s knowledge of the DHL business, he is well placed to judge the ability for the rental A s s e t z C a p i t a l Page 8

9 to be covered, which off the FY15 draft accounts is adequately so (albeit acknowledged as being dated). DSC; we are not holding a full term retained fund, just 3 months. As such we are reliant in the first instance on the DHL lease. This offers 1.8x DSC coverage (interest only), which is acceptable (the covenant is set at 1.25x). Should the lease (for whatever reason) fall away, then TU does have surplus income via his existing property interests (with the linkage created via the unlimited Personal Guarantee). As such the Plan B re any negative impact on DHL, is the recourse to TU (outside the retained fund). d. Security Capital Values; whilst these can and will fluctuate, the underlying LTV is c60% and offers a good upside, with VP equally sub 70%. The recourse to TU, and the knowledge that he has a good track record with Assetz Capital (and the wider property market), creates a solid platform here. Company Act Compliance; given the manner to which the property is being acquired, is different to a direct purchase; here 6D is purchasing the issued share capital of Target (which in turns holds the property). The downside risk here is that as this is a share purchase, 6D is acquiring all the existing rights and obligations of target, including any contingent liabilities. As such the level of Due Diligence and the establishment of the necessary protections via warranties and representations are standard features in a share purchase transaction. Our lawyers will be reviewing this to ensure these protections are afforded. That said, we are led to believe target was solely established to hold the property and an Experian Report suggests the balance sheet to be clean. A s s e t z C a p i t a l Page 9

Lending Criteria. Standard Residential Read in conjunction with General Criteria

Lending Criteria. Standard Residential Read in conjunction with General Criteria This list is not exhaustive. Please contact us to discuss your requirements Standard Residential Age: Minimum: 18 Term: Maximum: 35 years or the number of years it will take (the eldest) applicant to reach