QUARTERLY REPORT Reporting Period: 1Q2017 Deco 8 UK Conduit 2 plc. (Deal ticker: Deco 8 - C2X)
Coverage Coverage Securitisation Name Reporting Period: 3Q2 Report Date IPD Date 20/01/2017 Loan as % of Total Pool 69.98% Contact Details Primary Servicer Special Servicer Note Trustee Situs Solutus Advisors Ltd Deutsche Trustee Company Ltd Dan Boakes Gareck Wilson Hannah Ward +44 (0) 20 7220 1850 +44 (0) 203 735 1200 +44 (0) 207 547 7629 cmbsinvestors@situs.com saspecial@solutus.co.uk SNAPSHOT OF KEY UPDATES The re-financing of the portfolio continues to be pursued, however the feedback from possible new lenders since UK decision to leave the EU has caused some lenders to prefer to wait for a period of time, to assess any impact, and the magnitude of such, on property values. Solutus instructed a 3rd party Valuer/Agent to provide an updated opinion of where the value sits today. This was advised at a range of 176m - 184m gross. Even though the decision to leave the EU has delayed matters, it is still the intention to pursue a refinance or sale of the portfolio on completion of remaining asset management initiatives which are likely to maximise the value of the portfolio and recoveries under the Loan; In the meantime the Special servicer has consented to the standstill/restructuring plan submitted by the Borrower, details of which were published in the RIS Notice of 30th December 2016; There have been terms agreed on three units, further detail provided within the Asset Management and Disposal strategy on pages 4-11; Loan Information Property Information Loan Work Out Summary Origination Date 13/02/2006 Location Various Date of Transfer Maturity Date 20/04/2016 Type Office Reason for Transfer Interest Type 3-m LIBOR Number of Assets 16 Standstill Agreement Current All-in Interest Rate 1.33% Number of Leases 43 Recovery Type Origination Whole Loan Balance 208,556,250 WARLT (years)* 6.09 Administration Origination Senior Loan Balance 208,556,250 Net Lettable Area* 1,173,790 LPA Receivership Origination Junior Loan Balance 0 Current Value (OMV) 191,442,500 Appraisal Reduction? Current Whole Loan Balance 189,169,392 Current Value (VPV) TBD If (Y), Reduction Amount Current Senior Loan Balance 189,169,392 Date of Valuation 27/02/2015 Swap in Place Current Junior Loan Balance 0 NOI** 11,369,065.25 Indicative Unwind Cost Loan Status Matured/Defaulted * WARLT = Weighted Average Remaining Lease Term 25/10/2012 LTV Breach Yes Asset Mgmt and Sale or Refinance No Yes Yes 5,272,957 No N/A Covenant Information ** NOI Increased due to rent free period for Tri Centre expiring. Covenant @ Origination Previous Quarter Current Quarter ICR Yes (annual projected) - > 1.25x 1.77x 3.52x 4.51x DSCR N/A 1.77x 3.52x 4.51x LTV Yes - < 90% 75.00% 98.81% 98.81% Comment 5.00x 4.00x 3.00x 2.00x 1.00x 0.00x ICR History 2Q2016 3Q2016 4Q2016 1Q2017 5.00x 4.00x 3.00x 2.00x 1.00x 0.00x DSCR History 2Q2016 3Q2016 4Q2016 1Q2017 150% 100% 50% 0% LTV History 2Q2016 3Q2016 4Q2016 1Q2017
% of Total Area Property Address: Various - see footer Property Strats Title Occupancy by Area Reserves Economic Vacancy* Top Five Tenants Microsoft Ltd The Post Office American Express Services Europe Ltd Secretary of State for Communities The Sec of State for Communities 14 Freehold / 2 long LH 82.59% 128,397 33.30% * based on ERV's, or passing rent where ERV not available. Increase due to reallignment of ERV's and Tri Centre renewal. 54.8% 11.0% 4.3% 3.3% 2.9% Lease Expiry Profile 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2017 2018 2019 2020 2021 2022 2023 RENT AREA 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Occupancy History 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 Top 5 Tenants as % of Total: 76% Region Distribution East Midlands Valuation Information OMV / VPV (in millions) Valuer Net Initial Yield Reversionary Yield Equivalent Yield Costs of Sale as % of Purchase Price Date of Next Valuation 191.4m/TBD C&W 6.55% Various 7.19% 5.75% TBC Special Assumptions: Property valued at 191,442,500 with a potential premium if sold as a Portfolio. 28% 3% 6% 4% 12% 2% 4% 3% 2% East Anglia Greater London North-West Scotland South-East South-West Wales West Midlands 36% Yorks & Humberside Oak House, Watford, WD24 4QP - Tri Centre, Swindon, SN1 1HN - Rowland House, Chesterfield, S49 1HQ - Orchard House, Blackburn, BB1 6HA - York House, Leicester, LE1 6FB - Sussex House, Burgess Hill, RH15 9AQ - Verney House, Aylesbury, HP19 8ET - Wellington House, Barnsley, S70 1WA - Southgate House, Gloucester, GL1 1DL - Friars House, Coventry, CV1 2TE - 21 Farncombe Road, Worthing, BN11 2BW - Hyde Park House, Ipswich, IP1 3LG - Stirling House, Clydebank, G81 2NT - Microsoft Buildings 1/3 & cps, Reading, RG6 1WG - Premier House, Reading, RG1 7EB - Gwent Consultancy Office, Cwmbran, NP44 3HR
Work Out History and Strategy Interest Payment Date Waterfall Date of last Servicer site visit: Sep 14 (various dates) Date of last Borrower meeting: 31st October 2012 History: Solutus Advisors appointed end of October 2012, following the loan-to-value (LTV) event of default called by the primary servicer; By market value, we had anticipated initially 65% of asset sales over 2014, with the remaining 35% sold prior to loan maturity (April 2016) in line with the completion of value-add initiatives. However, this was reviewed and revised based upon advice and an asset management program was pursued; Following the new Valuation, there remains one final ongoing matter to conclude in respect of historic liabilities on the Mapeley Beta Companies, which would remove circa 14m of liabilities and enable the assets along with the corporate structure to be potentially sold as one; There is currently a capex program in place across all assets to increase letability of the vacant units; The Special servicer has consented to the standstill/restructuring plan submitted by the Borrower, details of which were published in the RIS Notice of 30th December 2016; New lettings and heads of terms continue to be negotiated in respect of Friars House, Oak House, and Southgate House. Please see over page for progress this quarter; Income Gross Rent 3,339,842.25 Service Charge 342,762.20 Insurance 220,221.81 Other - 3,902,826.26 Outgoings Management Fees 249,743.24 Administration Fees - Receiver Fees 123,159.86 Property Non Recoverables* 3,618,473.69 Service Charge Costs 553,386.20 Insurance 216,263.73 Third Party Costs - 4,761,026.72 Head Rent Net Income - 858,200.46 * Includes property repairs and maintenance, utility charges and vacant unit business rates. Historic set up costs have also been recovered this quarter. - A valuation has been instructed and should be completed in the course of the next quarter.
Microsoft Buildings, Reading Oak House, Watford The property is located on Thames Valley Park (TVP), which is a high-tech business park on the eastern outskirts of Reading, Berkshire. Three neighbouring headquarters styled buildings extending over ground and three upper floors, with Buildings 1 & 2 also benifitting from bassement level storage and car parking There is 9 years remaining on the Lease with Microsoft. Discussions are taking place with Microsoft in relation to a re-gear to obtain a 25 year certain. The property is located in Watford, which is an established office market in the north M25 region. Oak House is a detached office building extended over basement, ground and two upper floors, with car parking provided in the basement and service car parking to the front and rear of the property. After the main tenant vacating the property in December 2015, over the last 12 months terms have been agreed and the property is now fully let with a WALT of 6.9 years (to expiry). The asset is currently undergoing a refurbishment of circa 2m. The tenant did not action their break option effective June 17.
Tri Centre 1,2 & 3, Swindon Premier House, Reading The Tri Centre 1, 2 & 3 are three stand-alone office buildings arranged around a central square. The property is located in Swindon, the principal town and commercial centre in the county of Wiltshire, located in the south west along the M4 corridor. Recently FIREM agreed a Lease renewal on Tri Centre 1 and 2 with Zurich Assurance Ltd on a 10 year term at 17.50sqft, with a break option on 28th September 2021. Tri Centre 3 was vacated by Zurich and a refurbishment program has commenced. FIREM have agreed a new 5 year lease with a break at year 3 with the sub-tenant who occupy the 6th and 7th floors. The remaining floors (41,385 sq ft vacant) are currently being marketed with local and national agents. Additional capital expenditure required for service offices and additional refurbishment Premier House is a self-contained three storey office building. Internally the property comprises regular shaped floor plates providing flexibility for single or multi occupation on a floor by floor basis. The property is located in Reading, which is the largest economic and commercial centre in the South East outside of London. Lease renewal terms have been issued to the existing tenant. Alternatives uses are also being explored should the existing tenant not renew.
Hyde Park House, Ipswich 21 Farncombe Road, Worthing The property is a modern purpose-built office arranged upon a ground and two upper floors. The property is located in Ipswich, approximately 100 miles to Central London which can be accessed via the A12. Local and National agents are instructed to let the premises and capital expenditure of approx. 470k has been identified in order to improve the vacant office floors to achieve lettings. 21 Farncombe Road is an office building over basement, ground and four upper floors. The property benefits from 69 car parking spaces to the front and rear of the property. The property is located in Worthing, West Sussex an affluent coastal town along the south coast. Lease renewal terms being negotiated with the existing tenant. Should the tenant not renew, an alternative use is being evaluated via PDR. Serviced office being considered for the 1st floor vacant area. Additional capital expenditure required for the serviced office and to install air conditioning.
Friars House, Coventry Ty Gwent, Cwmbran Friars House is a detached office building extending over ground and 10 upper floors. The property is located within the centre of Coventry, which is 4 miles from Junction 2 of the M6 Motorway and 9 miles from Junction 6 of the M42 Motorway at its intersection with A45 trunk-road. The strategy is to refurbish the vacant floors to increase the gross rent and reduce landlords non recoverable costs. Agents have been appointed to market the space with the 9th floor currently under offer. The property is a self-contained office building on ground and two upper floors. The property is situated in the south east corner of Llantarnam Business Park, approximately 1.5 miles south of Cwmbran town centre and 4 miles north of Newport town centre. There are various interested parties and negotiations are ongoing. Further capital expenditure required for the 8th floor to provide refurbished space and 4th floor for a serviced office.
Orchard House, Blackburn Rowland House, Chesterfield Orchard House is a stand-alone office block on a self-contained site, providing accommodation over ground and two upper floors. The property is situated within Blackburn, which is located in the North West of England, approximately 28 miles north of Manchester, 9 miles east of Preston. The property is currently occupied by a single tenant and Solicitors have been instructed on a lease renewal. Rowland House comprises two modern, inter-connected office blocks on a self-contained site, each providing accommodation over ground and three upper floors. The property sits approximately 0.75 miles to the west of Chesterfield town centre, on the edge of the town s commercial area. Tenant has confirmed they want to renew the lease on Block A but vacate Block B. Dilapidation and lease negotiation ongoing. Additional capital expenditure required for ad hoc works to Block B.
Southgate House, Gloucester Verney House, Aylesbury Southgate House is a self-contained office building which extends over the ground and three upper floors, and built as a quadrangle on the upper floors. Gloucester lies along the M5 motorway between Birmingham (52 miles north) and Bristol (35 miles south). Cheltenham lies 8 miles to the east. The strategy is to refurbish the vacant space and to increase the gross rent and reduce the landlords non recoverable costs. Further capital expenditure of approx. 485k is required to refurbish the vacant office space (22,795 sq ft). Serviced office being considered for 1st floor vacant area. Addional capital expenditure of up to 315,000 required for the serviced office. Verney House is a dilapidated detached office property extending over ground and three upper floors, and which provides regular rectangular shaped floor plates. There is an extension of ground floor office accommodation, perpendicular to the main building. The property lies to the west of the town centre. Aylesbury is approximately 20 miles south of Milton Keynes and north west of Hemel Hempstead. The strategy is to pursue a change of use to residential. We expect to obtain planning permission or permitted development rights (PDR) to maximise the value. We anticipate costs to obtain planning and prepare a scheme to be circa 100k.
Stirling House, Clydebank Sussex House, Burgess Hill Stirling House is a purpose built office building arranged over 3 storeys, with each floor providing open plan floor plates. The property is located within Clydebank Business Park, an established office and industrial park in Glasgow, Scotland, which provides approximately 600,000 sq ft of accommodation. The property had been vacant for 3 years. FIREM have recently secured terms with Ascensos Limited on a term of 10 years from 24th June 2016 on a stepped rental with a rent review on the fifth anniversary of the term and a break option on 6th anniversary. With a 120k capital contribution. Sussex House is a 1970 s purpose built, detached office building comprising basement, ground and three upper levels. The property is located on Civic Way in Burgess Hill town centre, West Sussex. Burgess Hill provides good transport communications being approximately 10 miles north of Brighton, 20 miles south of Gatwick and 45 miles south of London. FIREM structured a lease renewal with AMEX in Dec 2013 for a term of 10 years with a rent review in 2018 at a headline rent of 1,275,00 subject to 3 years rent free spread over the first 5 years of the term in lieu of the tenant commiting to 25m to completely refurbish the asset.
Wellington House, Barnsley York House, Leicester Wellington House comprises a stand-alone office building over basement, ground and two upper floors. The property is situated to the south of Barnsley town centre. Barnsley is located in South Yorkshire, approximately 12 miles north of Sheffield, 15 miles north-west of Doncaster, 24 miles south of Leeds and 32 miles east of Manchester. FIREM have completed terms with Barnsley Council and the property is now fully let. The property has been refurbished and let to strong covenants Sussex House is a 1970 s purpose built, detached office building comprising basement, ground and three upper levels. The property is located on Civic Way in Burgess Hill town centre, West Sussex. Burgess Hill provides good transport communications being approximately 10 miles north of Brighton, 20 miles south of Gatwick and 45 miles south of London. FIREM structured a lease renewal with AMEX in Dec 2013 for a term of 10 years with a rent review in 2018 at a headline rent of 1,275,00 subject to 3 years rent free spread over the first 5 years of the term in lieu of the tenant commiting to 25m to completely refurbish the asset.