Expanding into London flexible offices

Transcription

1 Expanding into London flexible offices Investing in opportunity January 2018 rdireit.com

2 Agenda 1 Business update post FY17 results Strategic rationale for major capital recycling Transaction and deal specifics Overview of the UK flexible office sector Portfolio effects Outlook and conclusion Q&A Investing in income-led opportunity St Dunstan s, Monument

3 RDI market update post FY17 results Strong investment and operational activity underpins a solid year to date performance 2 New name and refreshed brand Leasing activity Completed 59 lease events totalling 5.3m gross annualised rent Occupancy remains high TK Maxx fitting out Key retail tenants delivered pleasing Christmas results Continued success in active recycling: Increased holding in IHL from 17% to 74% Completed the sale of the Leopard portfolio for 205m at a 10.8% premium realising 117.5m ( 103.5m) of equity Strategic disposals of smaller assets totalling 28.8m, including: Two regional offices in Bristol and Plymouth Retail asset in Hull, let to House of Fraser Acquisition of Kingston Business Park for 18.8m at NIY of 5.8%, presenting clearly identified opportunities Acquisition of 80% interest in high quality London flexible office portfolio valued at 161.7m Kingston-upon-Thames Business Park Committed to being the UK s leading income focused REIT

4 Relentless focus on delivering sustainable and growing income Recycling low growth income at a premium and capitalising on / cyclical high 3 Opportunistic disposal capitalising on exceptionally strong investment market: German Retail Portfolio 205m disposal at 20m profit 12.7m net annualised rental income; implied 5.8% NIY 66 assets with average lot size: 3.1m Limited near to medium-term income growth Completed on 29 December 2017 Recycle Increase investment in strong property fundamentals and structural growth opportunity: Office Space In Town (OSIT s) portfolio 80% interest in 4 flexible London offices valued at 161.7m 10.3m EBITDA; implied NIY >6% (1) Average lot size: 40.4m Significant income growth opportunity Completed on 12 January 2018 LTV: 45% in line with strategic priority to reduce group leverage (1) Net initial yield net of management fee. Diversified business model provides ability to opportunistically invest for growth

5 Transaction summary Earnings accretive acquisition in line with strategic priorities m portfolio value yielding >6% Consideration of approximately 72.5m reflecting 80% interest Existing debt of 45% LTV Established flexible office operator Anticipated yield on equity >9% Experienced, high quality management team with aligned interest through retained co-investment and management fee based on % of EBITDA Office Space In Town was founded in May 2009 by Giles and Niki Fuchs Manage 6 London and 5 regional flexible offices, including the 4 acquired assets Income focused cultural fit Non compete arrangements and right of first refusals on future OSIT developments in place Ownership structure Boundary Row 80% 20% PropCo Little Britain HoldCo Assets New Broad Street RDI experienced with investing in operational/serviced real estate OpCo St Dunstan s Management agreement

6 Deal rationale London exposure at over 6% NIY with improved growth prospects 5 Increased allocation of capital to areas of long term economic growth Sector outlook supported by occupier trends and ongoing structural change Increased exposure to London, particularly Crossrail and Southbank Differentiated flexible office business model Owned model with a proven sustainable track record Established and experienced operator with aligned interests Highly serviced, uniquely designed and wholly refurbished space in recent years Not competing directly with lower margin co working models Benefiting from progression of start-ups in to highly serviced but more corporate space Asset management opportunities Synergies with existing portfolio Improved brand awareness Other revenue opportunities Scalable platform Right of first refusal on future developments Simple integration of future acquisitions and potential repurposing of existing assets RDI experienced with investing in operational/ serviced real estate Alignment with strategic priorities to continue delivering superior, sustainable and growing income

7 Portfolio summary buyers of strong property fundamentals High quality London flexible office portfolio yielding >6% 6 St Dunstan s, EC3R Boundary Row, SE1 Little Britain, EC1A New Broad Street, EC2M Market value: 63.7m 36.3m 32.3m 29.4m Capital value per sqft: 1, Nearest tube: Monument Southwark St Pauls Liverpool Street Lettable area: 58,432 sqft 35,796 sqft 36,908 sqft 35,419 sqft Number of desk: Number of clients: Average monthly desk rate (1) : (license fees only) Implied rent per sqft: Occupancy (1) : 86% 99% 92% 96% Average stay (1) : n/a 30 months 23 months 30 months Illustrative opportunities: Shared space revenues Hotel synergies Space reconfiguration Restricted use gym operator In December 2017, 3 of the acquired assets were included on Easy Offices Top 10 serviced offices (1) Source: Data as at 31 December 2017.

8 Well located assets complementing existing portfolio Locations weighted towards areas in London expected to deliver medium to long-term growth 7 Farringdon Barbican Liverpool Street Whitechapel Tottenham Court Road Holborn Chancery Lane Little Britain, St Pauls Moorgate New Broad Street, Liverpool Street 127 Charing Cross Road Covent Garden Leicester Square Temple Charing Cross Blackfriars St Paul s Bank Mansion House Cannon Street Monument Aldgate Fenchurch Street Tower Hill St Dunstan s, Monument Embankment Holiday Inn, Southwark Wapping Waterloo Southwark Boundary Row, Waterloo Borough London Bridge OSIT portfolio Existing RDI portfolio Newington House Coburg House High occupancy and enquiry levels underpinned by strong occupier demand

9 London flexible office sector London is the single largest and most developed flexible office market globally 8 Market summary and outlook London economy is suited to flexible space, both culturally and practically Demand for flexible space in London is on the rise and supported by increased occupier demand for flexible, cost efficient space Flexible workspace and co-working account for c.7% of Central London office stock. JLL expects share to increase to 30% by 2030 The sector is more resilient in times of economic uncertainty Since Brexit, London job creation has slowed, however flexible offices share of take-up has increased UK growth forecasts 2025 CAGR # serviced offices 6, % # workstations 1,562, % Monthly desk rate (ave.) % Source: Capital economics.

10 Structure of London flexible office sector OSIT s ownership model allows control over use, design, density and cost base 9 London operators by size Ownership models 2.2 Regus WeWork TOG 0.8 Workspace 0.6 LEO 0.4 i2 Office 0.2 Serviced Office Group Business Environment Group RDI (OSIT portfolio) million sqft Source: Serviced Offices: 'A new asset class' Capital Economics (June 2016), Savills, Cushman & Wakefield, The Instant Group. Owned model Leased model Owning the assets allows for: Control over use, design and service provisions Flexibility in density, rates and cost management Freedom to realise asset management opportunities

11 Competitor landscape changing from providing a product to providing high quality service Not competing directly with lower margin co-working models 10 Flexible office space (c.7% of Central London) Traditional office space (c.93% of Central London) Providing a product Inflexible longer leases Generally larger, corporate tenants Serviced offices (c.80% of flexible office space) Providing a high quality and tailored service Occupier demand from large corporates and smaller, growing businesses Flexibility to manage costs and adapt More corporate space Co-working space (c.20% of flexible office space) Provides greater community and creative freedom Experiencing significant growth and demand from small companies and start ups High density, but generally shorter average stay and less profitable Generally noisy, disruptive and confidentiality risk Trendy Corporate

12 Current Central London serviced office monthly desk rates OSIT portfolio provides premium flexible space at mid-market rates 11 Cost per desk per month North Northern Fringe /Shoreditch Higher value Lower value Paddington Knightsbridge 900 1,300 North of Mayfair Soho Noho West End Core 900 1, average Midtown Strand Little Britain City Core Southbank Boundary Row 635 average New Broad Street 644 average Eastern Fringe St Dunstan s 814 average Canary Wharf Victoria OSIT average monthly desk rates as at 31 December 2017 Source: Knight Frank, Flexible Office Services Targeting between 90% and 95% occupancy whilst maintaining competitive desk rates

13 Structural and behavioural change set to continue driving demand for flexible, cost efficient space 12 Globalising markets drive increased satellite offices, outsourcing and offshoring Technology supports mobility Occupier trends: Currently 92% of all London companies have <9 staff. Estimated net growth of 1.8m small firms in next decade Businesses require flexibility and ability to adapt and save costs More flexible workforce with employees demanding flexibility and work life balance Large corporates taking up more flexible space Collaboration and attracting talent Overflow and project space Employment rates in key sectors for flexible offices anticipated to grow at twice the rate of wider economy Business with 0 to 49 employees (small) Business with 50 to 249 employees (medium) Business with 250 or more employees (large) Major international investment bank indicated an increase in flexible space to account for 30% of total footprint Share of total flexible office space: 0.9% 20% 2.0% 40% 20% 1.9% 1.7% 1.5% Overall growth Information and Professional, in jobs across the communications scientific and whole economy sector technical annually activities sector Adminstrative and support service activities sector Financial and insurance activities sector Source: Capital Economics Source: Capital Economics

14 Portfolio effects Significant progress in enhancing portfolio property fundamentals whilst maintaining EPRA NIY at 5.7% 13 Increased exposure to long-term economic growth geographies Increased weighting to subsectors underpinned by strong occupier demand Overall retail exposure reduced 28.8% 27.8% 28.8% 38.5% 33.9% 13.9% 25.0% 46.2% 14.7% 12.2% 24% 60% 16% 33% 21% 46% As at 31 Aug 2017 Pro forma (1) As at 31 Aug 2017 Pro forma (1) As at 31 Aug 2017 Pro forma (1) Greater London Other big cities UK Indexed Germany indexed Open market rent reviews exposed to strong occupier demand Hotels Retail Commercial (1) Pro forma reflects the portfolio as at 31 August 2017 adjusted for IHL, Leopard and OSIT transactions. Income growth targets underpinned by improved long-term occupier demand

15 Outlook and conclusion Sustainable and growing income underpinned by strong occupier demand 14 Continued delivery against strategic priorities Relentless focus on superior, sustainable and growing income Portfolio quality and income credentials enhanced Reducing LTV OSIT, a clear income-led opportunity to enhance the portfolio RDI REIT (formerly Redefine International) Scalable business Superior income Income focused portfolio Growing income Sustainable income Efficient capital structure Medium-term guidance unchanged and continue to target 3% 5% growth in underlying earnings per share Financial discipline

16 QQ&A 15

17 16 AAppendices

18 Pro forma portfolio 17 Pro forma Portfolio % of portfolio by market value Market value ( m) Properties Annualised gross rental income ( m) ERV ( m) EPRA NIY EPRA topped up yield Reversionary yield Weighted average lease length EPRA occupancy (by ERV) UK Shopping Centres 19% % 6.8% 8.0% % 27.5% UK Retail Parks 10% % 6.2% 6.0% % 4.7% UK Other Retail 2% % 7.5% 7.8% 16.6 UK Retail 31% % 6.6% 7.3% % 19.4% UK Offices Greater London 6% % 3.3% 4.6% % 23.7% UK Offices Flexible London 10% % 6.0% 6.0% % UK Offices Regions 7% % 7.7% 7.6% % 23.0% UK Distribution & Industrial 7% % 5.0% 6.0% % UK Automotive 3% % 6.3% 5.0% % UK Commercial 33% % 5.7% 6.0% % 18.2% Greater London RBL portfolio 11% % 6.0% 6.4% 8.3 Edinburgh 2% % 6.1% 7.1% % IHL Hotels RBL portfolio 5% % 7.5% 7.5% 10.0 IHL Hotels Travelodge portfolio 2% % 5.3% 5.3% % Enfield Travelodge 1% % 4.2% 4.2% % UK Hotels 21% % 6.2% 6.5% % Total UK 85% 1, % 6.2% 6.6% % 16.9% German Shopping Centres 11% % 4.3% 5.5% % 94.5% German Supermarkets and Retail Parks 4% % 5.9% 6.6% % 94.4% Europe 15% % 4.7% 5.8% % 94.5% Total 100% 1, % 6.0% 6.5% % 27.0% % Indexed

19 Product overview 18 Membership/ product Contrib. (1) Description Desks/Clients Pricing (2) Avg. length Office/ Desk rental 80% Private offices with capacity for 1-60 people Flexible terms to allow for growth and change Access to all buildings in the portfolio 1,826 desks Pricing based per room 146 clients (3) per month: implied rate per desk Initial contract average 11 months Length of stay average 30 (3) months Meeting rooms 7% 37 individually designed meeting rooms Capacity for people Suitable for bespoke meetings, training courses, seminars, interviews, product launches, etc. Catering facility provided Pricing based on a per room per hour basis: per hour Larger spaces and meetings are done on a delegate rate Average annual spend, including catering: Over 6.5k per internal client Over 250k by external clients Contracted Service Fees 10% Contracted IT and telephony, including bandwidth, handsets, call charges, IP s, rack rental, etc. Beverage charges Pricing based on individual tailored packages: Introduced target package price of 85 per head in 2017 Average annual spend: Over 82 per desk at 100% occupancy, including call charges Adhoc Service Fees 3% Including office customisation, support services, photocopying, postage, etc. Pricing per product or service n/a Virtual 0.1% Virtual office product, which allows clients to connect to all centres Includes telephone answering and mail handling Priced per month full Virtual product at 150 Monthly rolling contracts (1) Based on 2017 Sales Income. (2) Pricing excludes VAT. (3) As of Dec 2017.

20 St Dunstan s London Monument Sunseekers Luxury Yachts 19 Historic performance Occupancy (%) 86 International Property Awards UK 2016 Best office interior London Average monthly desk rate ( ) license fees only Note: St Dunstan s only trading since 2015.

21 Boundary Row London Waterloo Alice in Wonderland 20 Historic performance Occupancy (%) Featured as Rightmove s Dream Property October Average monthly desk rate ( ) license fees only

22 Little Britain London St Paul s Old English culture and English authors 21 Historic performance Occupancy (%) Average monthly desk rate ( ) license fees only

23 New Broad Street London Liverpool Street Historic London board game 22 Historic performance Occupancy (%) Average monthly desk rate ( ) license fees only