146 PRINCES STREET, 1 HOPE STREET, 11 HOPE STREET LANE & …€¦ · 02 HOUSE OF FRASER EDINBURGH INVESTMENT SUMMARY • Edinburgh, the capital city of Scotland, is a major administrative,

146 PRINCES STREET, 1 HOPE STREET, 11 HOPE STREET LANE & 3 HOPE STREET / EDINBURGH

02

HOUSE OF FRASEREDINBURGH

INVESTMENT SUMMARY

• Edinburgh, the capital city of Scotland, is a major administrative, retail and tourist destination with a growing and affluent catchment population

• Unique opportunity to acquire one of the city’s 6 key retail department stores

• Prominently located, overlooking Edinburgh Castle, at the west end of Princes Street, the focal point for retailing in the city centre

• Iconic building extending to 6,647 sq m (71,553 sq ft) over lower ground, ground, and five upper levels

• Let in isolation on 2 leases to House of Fraser (Stores) Limited until 2058 (Just over 40 years unexpired)

• Ability to subdivide / redevelop subject to vacant possession and planning

• Substantial reversionary investment with main store valued to approximately 50% of rental value

• Total current rent passing is £729,945 per annum equating to £10.20 per sq ft overall

• Outstanding rent review, which upon settlement is expected to increase to an estimated annual rent of £743,200 per annum

• Offers in excess of £13,700,000 (Thirteen Million, Seven Hundred Thousand Pounds) exclusive of VAT. Assuming usual purchaser’s costs and LBTT, a purchase at this level would reflect an attractive net initial yield of 5.02%, increasing to 5.11% assuming settlement of the outstanding rent review at £743,200 per annum

146 PRINCES STREET, 1 HOPE STREET,11 HOPE STREET LANE & 3 HOPE STREET

Edinburgh is Scotland’s Capital City and its principal financial and administrative centre, housing both the Scottish Parliament and the Scottish Government.

Edinburgh is recognised as a globally important business centre and is the UK’s second largest and Europe’s fourth largest financial centre, by equity assets under management. It is the capital city of Scotland, located approximately 400 miles north of London and 45 miles east of Glasgow. Edinburgh is one of the six cities categorised by Property Market Analysis as a major city and, consequently, benefits from a significant catchment population.

The city has a population of 487,500 people and a regional population of over 1.6 million within the Fife and Scottish Borders catchment area. It is the most prosperous regional city in the UK and its workforce is one of the most highly educated.

Edinburgh is consistently ranked as one of the UK’s most competitive cities, based on factors such as skills, productivity and qualifications. As a city, it has the second highest gross value added per resident of any of the 133 regions of the UK, at £38,000 per resident compared to the average of £20,699. Edinburgh has been voted the UK’s best city for the second year running by The Telegraph.


While traditionally recognised as a city of history and heritage, Edinburgh is now at the forefront of a rapidly expanding TMT sector, having recently been voted the UK’s second most most tech-savvy city, and home to established TMT businesses, such as Rockstar North, FanDuel, Cirrus Logic, and Skyscanner.

There are eight universities and further education colleges in Edinburgh, with almost 80,000 students in the city. The University of Edinburgh was ranked 24th in the World University Rankings by The Times in 2015/16. In the past five years, more than 80 spin-out companies have come from The University of Edinburgh, 95% of which are still active.

LOCATION

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Edinburgh is the most visited tourist and commercial destination in the UK after London, with an exceptional transport and communications network connecting it both internationally and with other cities throughout the UK.

Rail The city centre is served by Edinburgh Waverley and Haymarket rail stations, with House of Fraser equidistant between the two. Edinburgh Waverley is Scotland’s second busiest rail station with in excess of 21 million entries/exits in the year to December 2015.

Both Edinburgh Waverley and Haymarket rail stations have benefited from recent multi-million pound refurbishments and upgrading programmes to keep pace with increased passenger demand. Edinburgh Waverley provides direct train services to and from London via the East Coast main line and also provides easy access to and from other key English towns and cities, as well as providing services to all major Scottish cities.

Tram The City’s new tram system began operating in May 2014, directly connecting Edinburgh Airport with the city centre. The tram route directly passes the entrance to the store, with the West End (0.2 miles) and Princes Street (0.3 miles) stops both in the immediate vicinity. In its second full year of operation 5.38 million passenger journeys were recorded on Edinburgh trams, representing an increase of over 9% on the previous year.

AirEdinburgh Airport is located only 8 miles from the city centre and is Scotland’s busiest airport and the UK’s sixth largest. Passenger numbers in 2015 increased by 9.4% to 11.13 million representing an average of 30,495 passengers per day.

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Road Edinburgh benefits from access to the national motorway network. The City is served by the M8 and M9 from the West (Glasgow and Livingston), the M90/A9 from the North (Aberdeen and Inverness) and the A1/A7 from the South/South East (East Lothian, the Borders and Newcastle).

CONNECTIVITY

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Houseof Fraser

Tram StopKey: Train Station Bus Station


Edinburgh is one of the strongest retailing centres in the UK and being the Capital City, dominates its catchment, generating an estimated £2.56bn of in-store comparison retail expenditure. This is further enhanced by tourist expenditure which is estimated at over £1bn annually, equating to an average spend of £334 per visitor.

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The city centre has a very compact prime retail core, comprising Princes Street, George Street, Multrees Walk and two shopping centres, although the St James Centre has recently been closed in order to allow demolition and the creation of a new scheme, Edinburgh St James.

Retailing in the city centre is focussed on Princes Street, which is home to a wide variety of major occupiers. There are five other department stores in the city centre, including Jenners, Marks & Spencer and Debenhams on Princes Street, Harvey Nichols in St Andrew Square, and John Lewis which forms part of the St James Centre.

Supporting the retail offer on Princes Street, George Street to its north and Multrees Walk to the east of St Andrew Square, are now considered to be the preferred destination for upmarket boutique retailers, high end fashion retailers, licensed leisure operators

and jewellers. Again, there is almost 100% occupancy on George Street and Multrees Walk, with occupiers including Anthropology, LK Bennett, Hobbs, Armani, Louis Vuitton and Mulberry.

Located at the east end of Princes Street, TH Real Estate are currently undertaking an £850m redevelopment of the St James Centre, which upon completion in 2020 will comprise a new, state of the art shopping centre. Anchored by the existing John Lewis department store, it will comprise more than 850,000 sq ft of retail, dining, and leisure space along with a hotel and residential accommodation. It is expected to extend Edinburgh’s shopper catchment by 20% and boost the City’s retail sector to 8th in the UK from the current position of 13th. The leisure offer will incorporate a 214 bedroom W Hotel, 6 screen Everyman Cinema and over 20 restaurants.

05RETAILING INEDINBURGH


House

of Fraser


1877The previous tenements on the corner of Princes Street and Hope Street were re-modelled to form the Osborne Hotel, and then the Scottish Liberal Club in 1879 following fire damage.

1928The business became a PLC and expanded to take in 145 and 145A Princes Street.

1953House of Fraser took over the Binns group and the shop, which by then comprised 50 departments on seven floors.

1981The store was fitted with 12 elevators and the top floor restaurant that stands today, and the business was branded ‘Frasers’.

1960The famous clock was added to the shopfront.

2017Today, the property continues to trade as ‘Frasers’ department store over basement, ground, and five upper levels, with a restaurant on the top floor and Caffè Nero concession fronting the pedestrian section of Hope Street.

1931 Following the death of Sir Robert Maule, the business was acquired by H Binns & Son Co Ltd and the original turreted premises demolished in favour of the 1930s façade still there today.

1894The property was converted, and for the first time began trading as the well renowned department store, Robert Maule & Sons, supported by the popular advertising slogan ‘Meet me at Maules.’ The reputation has continued in the generations since, and remains one of the City’s most popular meeting points.

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The subject property is an iconic Grade B listed department store, with a history dating back well over 100 years.

THEBUILDING


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Princes Street

George Street

Queen Street

Charlotte Square

Queensferry Street

Hope Street

Shandwick Place Lothian Road

Charlotte Square Gardens

Waverley Station

Waverley Mall

Scottish National Gallery

St Andrew Square

Edinburgh St James(Currently under redevelopment)

Princes Street Gardens

Tram Stop

Tram Stop

Tram Stop

Usher Hall

NCP Castle Terrace(Multi Level Parking)

Waldorf Astoria

Edinburgh Castle

Sheraton Grand Hotel & Spa

*the above aerial shows an approximate building footprint provided for guidance only and should not be relied upon


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3 Hope Street comprises approximately 23,122 sq ft and 146 Princes Street provides 46,066 sq ft of retail accommodation. Both stores are arranged over basement, ground and five upper floors.

An overall measurement survey has been carried out by Square Foot Media as part of the marketing process. The survey calculated an overall Gross Internal floor area of the two buildings of 6,647 sq m (71,553 sq ft). Detailed plans and elevations are available in the data room.

From previous measurement exercises, we understand from our clients that the floor area split between the two properties, is as follows on an approximate gross internal (GIA) basis:

FLOOR SQ FT SQ M

Basement 6,805 632

Ground 6,081 565

First 5,614 522

Second 6,852 637

Third 6,853 637

Fourth 6,853 637

Fifth 7,008 651

TOTAL 46,066 4,280

FLOOR SQ FT SQ MBasement 4,766 443

Ground 3,441 320

First 3,634 338

Second 2,340 217

Third 2,340 217

Fourth 2,340 217

Fifth 2,340 217

Sixth (plant room) 1,921 178

TOTAL 23,122 2,148

3 Hope Street

146 Princes Street

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TENUREHeritable (Scottish equivalent of English Freehold).

TENANCIES

COVENANT

YearEnding

30th Jan2016

31st Jan2015

25th Jan 2014

Turnover £814,700,000 £772,000,000 £717,200,000

Profit Before Tax

£13,100,000 £23,100,000 £25,700,000

TangibleNet Worth

(-£46,800,000) £47,600,000 £60,900,000

The property is held on two leases to House of Fraser (Stores) Limited.

3 Hope Street is held on a Full Repairing and Insuring lease for a term of 77 years and 8 months from 2nd June 1980, let to House of Fraser (Stores) Limited at a current rent of £267,745 per annum.

This lease is subject an outstanding rent review from 15th May 2015 and 5 yearly thereafter. The tenant has previously offered to settle the outstanding rent review at £281,000 per annum, subject to documentation and without prejudice, but this has not yet been agreed.

The vendor’s agent is confident that a higher figure will be agreed, but we

have worked off this figure for the purposes of our yield profile. 146 Princes Street, 1 Hope Street and 11 Hope Street is let to House of Fraser (Stores) Limited on a Full Repairing and Insuring lease for a term of 99 years from 30th January 1959 at a rent of £462,200 per annum, subject to a rent review on 30th January 2029 only.

The current total rent passing is therefore £729,945 per annum, which will increase to a rent of £743,200 per annum assuming settlement of the outstanding rent review.

The WAULT is 40 years.

House of Fraser was established in Glasgow in 1849 and currently trades from 59 locations throughout the UK and Ireland. They are one of the leading premium, multi-branded retailers in the UK and Ireland.

In April 2014 an 89% stake of the business was sold to the Chinese conglomerate, San Power Group, via the acquisition vehicle Nanjing Xingiekon Department Store Co. Ltd, a leading chain of Chinese Department stores. The group has in excess of £1.3bn annual sales and employs

approximately 4,950 House of Fraser staff with a 100,000 global workforce and over 100 subsidiaries.

House of Fraser is trading well, with like for like sales increasing by 2.7% over the Christmas period and record sales figures in the two weeks leading up to 31st December 2016.

The most recent financial accounts for House of Fraser (Stores) Limited are summarised below.


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Both leases contain rent review provisions which are beneficial to the tenant. 3 Hope Street is held on a lease which links the revised rental value to the percentage uplift of prime streets within Edinburgh City Centre.

The rent review at 3 Hope Street is outstanding with the tenant having offered settlement at £281,000 per annum. This would reflect an uplift of 5% on the previous rent, based on the hypothetical unit and the rent review provisions. On the actual area of 23,122 sq ft, this would reflect £12.15 per sq ft.

The lease on 146 Princes Street is subject to a rent review in 2029. The lease provides that the rent is reviewed to a base sum of £29,400 plus 50% of the amount by which the open market value of the Premises immediately after the relevant review date exceeds the sum of £29,400. The current passing rent

of £462,000 pa, therefore reflects an overall rate of only £10.00 per sq ft based on the GIA of 46,066 sq ft.

In our opinion, the current estimated rental value of 146 Princes Street, based on the rent review clause as of today’s date would likely be in the region of £547,000 per annum, which reflects a rent of £11.00 per sq ft (50% of £22.00 per sq ft). We have assumed a positive end allowance of 8% for the rent review pattern, having also taken into account a negative allowance for the lease term. This rental level is in line with the rent achieved on the letting to TK Maxx at South St David Street, where the tenant took a new 15 year lease at a rent of £725,000 pa for 27,400 sq ft, reflecting a headline rate of £27.38 per sq ft and a net rate of £22.00 per sq ft.

The total estimated rental value on the basis of the existing leases therefore lie in the region of £828,000 per annum.

The above estimated rental values are based on the existing rent review provisions, which we believe are extremely beneficial to the tenant. The total proposed passing rental of £743,200 per annum (assuming settlement of 3 Hope Street at a rent of £281,000 per annum) based on the total GIA of 71,553 sq ft, reflects £10.39 per sq ft overall.

In our opinion, the building is highly reversionary in the open market, either letting it as a whole or in separate parts. Should the building become available, we believe there would be strong interest either in the whole premises as retail or sub-divided, which could include the following uses:

- Retail- Restaurant / Bar- Hotel- Office- Residential

As such, we would anticipate, subject to the suitable consents being in place and division works being carried out, that an estimated headline rental roll in the region of £1.5m could be achieved.

RENTAL ANALYSIS


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ADDRESS TENANT TRANSACTION GIA (SQ FT) DATE RENT RATE PSF

129 North StreetBrighton Boots

Reversionary lease

71,395 06/2018 £1,300,000£16.81 (Net)with 7.5% for fittings

127 / 128 Princes StreetEdinburgh

Waterstones Regear 20,000 07/2017 £550,000 £27.50

Unit 1, 5 South St David StreetEdinburgh

TK Maxx OML 27,400 06/2016 £725,000£27.38 (HL)£22.22 (Net)

18 / 20 Church StreetLiverpool

Next RR 100,975 09/2015 £1,655,000 £15.16 (Net)

JennersPrinces StreetEdinburgh

HoF RR 179,451 04/2015 £2,615,000£14.20before

allowances

140 / 142 BriggateLeeds HoF RR 114,516 07/2014 £1,643,000 £14 (Net)

107 Princes StreetEdinburgh Next RR 40,010 02/2013 £1,290,000 £28.60

The strength of the occupational market and economy in Edinburgh has resulted in many UK and overseas buyers seeking to invest in the city. Transactional volumes remain buoyant, with a total spend of £928 million thus far in 2017. Investors are attracted by the strong occupier story, the attractive yield profile and the continuing evolution of Edinburgh into a European capital city.

The most salient comparable evidence can be set out as follows:-

1. 47/52 Princes Street, Edinburgh (House Of Fraser)

Heritable Department store investment let to House of Fraser (Stores) Limited on a lease to expire April 2040 at a rent of £2,615,000 per annum, reflecting an overall rate of £14.20 per sq ft. The property was sold in August 2017 for £53m, reflecting a net initial yield of 4.64% and a capital value of £295 per sq ft

2. 12/18 West Street, Chichester(House Of Fraser)

Freehold department store let on a lease to expire 30/07/2039 (22 years unexpired) at a rent of £752,584 per annum, reflecting £10.34 per sq ft. The property was sold to Savills IM in April 2017 for £13.4m which reflected a net initial yield of 5.26% and a capital value of £193.33 per sq ft.

3. 78 & 79 Princes Street, Edinburgh (YO! Sushi, Sketchers, Ernest Jones)

Heritable retail parade let to multiple tenants including YO! Sushi, Skechers, Ernest Jones, Crabtree & Evelyn with a WAULT of 6.14 years to break. The property was sold to GLL Real Estate Partners in January 2016 for £19.87m which reflected a net initial yield of 5.2% and a capital value of £763 per sq ft.

4. 129/130 Princes Street, Edinburgh

Freehold with vacant possession purchased by Sports Direct in July 2016 for £9.5m, reflecting a capital value of £463 per sq ft. The store extended to approximately 20,500 sq ft over 4 levels.

5. 32/35 High Street and 3/8 Catherine Street, Exeter(House Of Fraser)

Freehold property let in its entirety to House of Fraser (Stores) Ltd on a lease expiring in December 2038 at a rent of £491,500 per annum, with the next and final rent review in December 2025. The property was purchased by DTZIM in November 2017 for £9.15 million, reflecting a net initial yield of 5.03%.

INVESTMENT ACTIVITY


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VATThe property has been elected for VAT purposes. It is anticipated that the investment sale will be treated as a Transfer Of a Going Concern (TOGC).

EPCThe property has an Energy Performance Rating of F100. Further details are available in the Data Room.

DATA ROOMFurther information is available within the data room. To arrange access, please contact the vendor’s agent.

PROPOSALWe are instructed to seek offers in excess of £13,700,000 (exclusive of VAT) for the benefit of our client’s Heritable interest. Assuming usual purchaser’s costs and LBTT, a purchase at this level would reflect an attractive net initial yield of 5.02%, increasing to 5.11% assuming settlement of the outstanding rent review at £743,200 per annum, and further reversion to 5.69% on settlement of the Princes Street review in 2029.

The capital value reflects £191.47 per sq ft.


Philip Hay020 7637 7100

[email protected]

Brook Wannop020 7637 7100

[email protected]

Douglas Macrae0131 226 7654

[email protected]

Knight Frank LLP give notice to anyone who may read these particulars as follows: 1. Particulars: These particulars are not an offer or contract, nor part of one. You should not rely on statements by Knight Frank LLP in the particulars or by word of mouth or in writing (“information”) as being factually accurate about the property, its condition or its value. Neither Knight Frank LLP nor any joint agent has any authority to make any representations about the property, and accordingly any information given is entirely without responsibility on the part of the agents, seller(s) or lessor(s). 2. Photos etc: The

photographs show only certain parts of the property as they appeared at the time they were taken. Areas, measurements and distances given are approximate only. 3. Regulations etc: Any reference to alterations to, or use of, any part of the property does not mean that any necessary planning, building regulations or other consent has been obtained. A buyer or lessee must find out by inspection or in other ways that these matters have been properly dealt with and that all information is correct. 4. VAT: The VAT position relating to the property may change without notice. Knight Frank LLP is a limited

liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London W1U 8AN, where you may look at a list of members’ names. November 2017.

For further information and access to the data site, please contact:

Alasdair Steele0131 222 9622

[email protected]

Kenneth Brewster0131 222 9631

[email protected]

Alastair Bird0207 861 1232

[email protected]

CONTACT DETAILS

146 PRINCES STREET, 1 HOPE STREET, 11 HOPE STREET LANE & 3 HOPE STREET / EDINBURGH

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146 PRINCES STREET, 1 HOPE STREET, 11 HOPE STREET LANE & …€¦ · 02 HOUSE OF FRASER EDINBURGH INVESTMENT SUMMARY • Edinburgh, the capital city of Scotland, is a major administrative,