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Business Centre Capital Co. Ltd www.b3c.biz Generating Superior Returns From a Traditional Asset Class The Growth of Serviced Offices as an Investment.

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Presentation on theme: "Business Centre Capital Co. Ltd www.b3c.biz Generating Superior Returns From a Traditional Asset Class The Growth of Serviced Offices as an Investment."— Presentation transcript:

1 Business Centre Capital Co. Ltd Generating Superior Returns From a Traditional Asset Class The Growth of Serviced Offices as an Investment

2 Business Centre Capital Co. Ltd 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

3 Business Centre Capital Co. Ltd Structure Overview Size Players Business Models

4 Business Centre Capital Co. Ltd Overview A Definition The provision of short term space supported by a range of business services actively managed by on-site staff

5 Business Centre Capital Co. Ltd Size Globally > 10,000 business centres + 1,000 operators > 70 countries < 1% of global office space

6 Business Centre Capital Co. Ltd 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

7 Business Centre Capital Co. Ltd UK Demographics Source: DTZ

8 Business Centre Capital Co. Ltd UK Major Players LeasedOwned Quality FullyServiced SemiServiced Regus MLS EOG MWB Workspace BEG Bizspace Lenta SOG Avanta Citibase

9 Business Centre Capital Co. Ltd Long Term Structural Growth Drivers – its 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

10 Business Centre Capital Co. Ltd Investment Potential High yield Capital Growth Scale Brand

11 Business Centre Capital Co. Ltd High Yield Serviced offices provide a higher yield typical income yield can exceed 7% typical capital growth can exceed 4% Business Centre Properties plc 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

12 Business Centre Capital Co. Ltd 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 Creation of specific serviced office developments Big meeting room/conferencing facilities Clubs, restaurants High tech wiring, easy demountable partitioning Emerging markets

13 Business Centre Capital Co. Ltd Yield Shift Serviced offices have followed yields down 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%

14 Business Centre Capital Co. Ltd POWER (Property Opportunities With Enhanced Returns) Fund Philosophy Structure Expertise Timings

15 Business Centre Capital Co. Ltd Philosophy Global provision of flexible working for individuals and businesses in secure, comfortable office accommodation

16 Business Centre Capital Co. Ltd Structure Luxembourg Domicile UK Sub Fund Europe Sub funds North America Sub funds ROW Sub funds ABCN Local operator centres (Replicated across each sub fund)

17 Business Centre Capital Co. Ltd 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

18 Business Centre Capital Co. Ltd Brand value A brand has strategic value Regus today has a £1.5 billion stock market capitalisation That is 20x earnings!

19 Business Centre Capital Co. Ltd 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 Market intelligence Marketing and referrals Alliance Access Franchising Purchasing

20 Business Centre Capital Co. Ltd 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

21 Business Centre Capital Co. Ltd 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 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

22 Business Centre Capital Co. Ltd Exit Trade sale To a new entrant To an existing operator Securitisation >£300m REIT Workspace has become a REIT

23 Business Centre Capital Co. Ltd

24 Business Centre Capital Co. Ltd 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

25 Business Centre Capital Co. Ltd Lease v. Ownership Owner Operator 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

26 Business Centre Capital Co. Ltd 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 times EBITDA

27 Business Centre Capital Co. Ltd Listed Company Valuations CompanyEV (mill) YE 06 EBITDA (mil) YE 06 MultipleShare price (p) (06/07) Share Price YoY % Regus£1, x % Serviced Office Grp£ x % MWBEX£ x %

28 Business Centre Capital Co. Ltd RGU Share Price

29 Business Centre Capital Co. Ltd SVO Share Price

30 Business Centre Capital Co. Ltd MBE Share Price

31 Business Centre Capital Co. Ltd 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

32 Business Centre Capital Co. Ltd BYG Share Price

33 Business Centre Capital Co. Ltd Metrics MWBX - £67.1m (^23%), PTP £7.8m (£2.7m) 60 locations Regus - £680m (^47%), PTP £77.5m (£38.7m) 950 centres


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