Hatfield Philips International Deco 11 U.K. Conduit 3 Plc Investor Call 14 th January 2016 Hatfield Philips International 25 Canada Square 34th Floor London E14 5LB
Disclaimer This report has been compiled by Hatfield Philips International Limited ("Hatfield Philips") in its capacity as Special Servicer of the loans which are discussed in this report. Hatfield Philips makes no representation as to the reliability of the information provided to it by third parties in order to compile this report. Information in this presentation should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments. This presentation may contain forward looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Hatfield Philips s control. Neither the whole nor any part of this report may be reproduced in any published document, circular or statement, nor is it to be relied upon by any party, without the prior written permission of Hatfield Philips. Hatfield Philips disclaims any duty, responsibility or liability of any nature whatsoever to any party in respect of this report other than to its contractual partners.
Deco 11 UK Conduit 3 p.l.c. DEAL SUMMARY Asset Profile Current Balance ( ) # Property Loan Whole Loan A-Note B-Note(s) Properties Location Type Maturity Loan Transfer Date Investco Estates 1,435,000 1,435,000-1 UK Light Industrial Oct-2013 In Special Oct-2013 Mapeley Gamma 216,361,058 216,361,058-25 UK /Retail Jan-2017 In Special Oct-2012 Total 217,796,058 217,796,058-26 Workout Asset management/sales Asset Management/Sales Value Valuation Loan ( ) Date Current Whole Loan LTV Occupancy Investco Estates 1,250,000 20 Jan 2014 114.8% 100% 3.67 Years Mapeley Gamma 136,015,000 23 Feb 2015 159.1% 67% 3.3 Years Total 137,265,000 3
Investco Estates Dutch s II Loan UPB at Origination GBP 1,700,000 Current UPB GBP 1,435,000 Initial Whole Loan LTV 70.8% Current Whole Loan LTV 114.8% Special Servicing Transfer Date 22/10/2013 Estimated Final Resolution Date Q1 2017 Asset Stats Lettable area 54,028 sq ft No. of assets 1 Asset type Light Industrial Valuation/Date GBP 1.25M/ 20/01/2014 Location UK NRI GBP 180,000 ERV GBP 100,000 Vacancy 0% 3.67 years Workout History The loan matured on 22 October 2013. Upon servicing transfer, the Special Servicer initiated discussions with the borrower to glean information regarding their exit strategy which was to redevelop the site. The Special Servicer, after taking requisite advice, did not share the same view of valuation as the borrower and elected to hold the asset for income rather than pursue a surrender with the tenant. Development appraisals are reviewed on a periodic basis with latest market pricing. Quotes were sought for LPA Receivership in the event the borrower fails to co-operate (Asset Manager is related party) The Special Servicer is open to opportunistic sales offers deemed to be acceptable to all parties. Performance / Credit Events The loan was transferred to Special Servicing on 22 October 2013 due to a failure to repay at maturity. LSH completed a valuation report in January 2014 showing a value of GBP 1.25M. All debt service remains current and the loan has amortized by GBP 265,000 from the trapped rental surplus since defaulting. Chenavari is currently the Operating Advisor An updated valuation report has been called for. The lease expires in September 2019, and, at which point, it is considered that the site will be redeveloped with a residential scheme if the existing tenant does not purchase the asset or renew their lease on favourable terms. The current strategy is to hold the asset for income and further amortise the debt to a level which would facilitate a sale (circa Q1 2017). 4
Mapeley Gamma Loan Workout History Performance / Credit Events UPB at Origination GBP 231,269,250 Current UPB GBP 216,361,058 Initial Whole Loan LTV 68.95% Current Whole Loan LTV 159.1% Special Servicing Transfer Date 25 October 2012 Estimated Final Resolution Date Q3 2017 Asset Stats Lettable area 1,750,674 sq ft No. of assets 25 Asset type /Ancillary Retail Valuation/Date GBP 136M / 23/02/2015 Location Various UK NRI GBP 12,194,506 ERV GBP 10,759,700* Vacancy 33% 3.3 years * 6 properties excluded as alternative uses assumed. Upon default, the Special Servicer contacted the borrower to ascertain whether the sponsor would inject funds into the deal to cure the breach. The sponsor declined and offered to lead a consensual sale process, albeit with unreasonable fees to themselves thus diverting funds from the Issuer. This proposal was rejected by the Special Servicer. DTZ was appointed as LPA receiver and LSH as Property Manager in December 2012. Cordatus was appointed as Asset Manager following a competitive tender process in April 2013 which included JLL and APAM. Business Plan agreed to actively asset manage the portfolio to create value by exploiting change of use, letting up and lease re-gears. Re-geared IBM lease at Warwick in November 2014 extending their term certain by 5 years Cushman and Wakefield replace LSH as property manager in July 2015. Secured permitted development consent on the Croydon asset in August 2015 whilst completing dilapidation settlements of circa GBP 0.5M. Agreed in principle to vary the head lease on the Southampton asset and significantly reduced current service charge. There have been no material CapEx requirements. The loan was transferred to Special Servicing on 25 October 2012 following a LTV breach. The Loan was accelerated on 11 December 2012. Montagu Evans completed a valuation report in August 2013 showing a value of GBP 107M LTV 202%. Updated valuation by Strutt and Parker received in July 2015 showing a value of GBP 136M LTV 159%. HSBC have exercised their break options at Nelson Gate Southampton with effect from June 2015 and June 2016. IBM exercised their break option at Kiln Farm Milton Keynes with effect from November 2014. EE s lease at Cobalt Newcastle expired January 2015 and they are holding over pending renewal negotiations. Chenavari is currently the Operating Advisor Circa GBP 1.5M held in reserve to aid cover of unbudgeted CapEx or income shortfalls. Indicated swap unwinding costs GBP 9.9M (at Dec 15) The Special Servicer, LPA Receiver, and Asset Manager continue to work up asset management opportunities on the individual properties within the portfolio and seek opportunistic sales where presented, whilst taking into account such considerations as Swap breakage costs and portfolio cash flow. The current strategy is to realise the portfolio within the following 12 months. Individual asset slides immediately follow: 5
The Pearl Centre, Peterborough 344,478 sqft Single Let Lease Expiry Date March 2018 Annualized GRI 5,500,000 Vacancy 0% 2.25 years Market Value 37,970,000 The property is let on a single lease to Diligenta Ltd, expiring March 2018. Diligenta occupy c50% of the space with the remainder sub-let to various other companies. is focused on converting this asset from a single let office with short term income, into a multilet campus style office with increased and income diversification. 6
Dutch s I 58 Clarendon Road, Watford 90,682 sqft Single Let Lease Expiry Date September 2024 Annualized GRI 2,000,000 Vacancy 0% 8.75 years Market Value 29,000,000 The property is single let to KPMG on a lease expiring in September 2024 with a fixed rental uplift in September 2020 to 2.25m ( 24.81 psf). The current rent reflects 22.00 psf. The Business Plan is to hold the asset for income ahead of a sale at a time when there will still be an attractive unexpired term remaining on the lease with the additional benefit of a fixed rental uplift.
Leon House, Croydon 240,614 sq ft Mixed Use Multi Let Lease Expiry Date Multiple Breaks / Lease Expiries Annualized GRI 913,000 Vacancy 76% 1.25 years Market Value 16,900,000 The property is multi let with vacancy rising to 90% in Q3 2016. The property benefits from Permitted Development Rights (PDR) for change of use to 249 residential units. This consent will lapse in August 2018. The Business Plan is to reduce non-recoverable costs, take steps to secure vacant possession and sell with benefit of PDR.
Dutch s I Nelson Gate, Southampton 167,878 sqft Mixed Use Multi Let Lease Expiry Date Multiple Breaks / Lease Expiries Annualized GRI 885,000 Vacancy 63% 1.25 years Market Value 5,530,000 The property is multi let with a variety of tenants including HSBC who will vacate in June 2016 raising vacancy to 77%. The property is held on a head lease from Southampton City Council expiring on 12 June 2102 (87yrs unexpired). The lease is geared to 21% net rent received and restricts use to offices. The Business Plan is to explore alternative uses and vary the head lease accordingly.
IBM Campus, Warwick 198,905 sqft Data Centre / Single Let (2 leases) Lease Expiry Date 24 November 2025 (tenant break November 2020) Annualized GRI 1,743,000 Vacancy 0% 4.83 years Market Value 16,900,000 The property is let to IBM who occupy Phase I as a data centre and Phase II as an office. Lease re-gear negotiations have been successfully concluded with IBM to remove the tenant breaks in November 2015. The Business Plan is to hold the asset in the short term for income. 10
Wellington House, Leicester 52,669 sqft Multi Let Lease Expiry Date Multiple Expiries Annualized GRI 66,000 Vacancy 84% 2.50 years Market Value 1,580,000 The property is multi let to 4 tenants including Leicester City Council and Capita Business Services. The next lease expiry is in mid 2016. The income is negative once landlord s shortfalls are taken into account. A review of alternative uses has concluded the building would be well suited for conversion to residential / student accommodation use. A sale in the short term for such conversion is to be considered.
St Aiden s House, Peterlee 50,636 sqft Single Let Lease Expiry Date 26 January 2019 Annualized GRI 605,000 Vacancy 0% 3.25 years Market Value 2,120,000 The property is let to HP Enterprise Services Limited, on a term expiring in 26 January 2019. Tenant break options in 2009 & 2010 were not exercised. The Business Plan is to open discussions with the tenant to explore extending the lease prior to sale.
Cobalt Business Park, Newcastle 70,271 sqft Purpose built call centre Single Let Lease Expiry Date 3 January 2015 Annualized GRI 833,000 Vacancy 0% 0 years Market Value 5,000,000 The property is fully let to EE under the name of Orange Personal Communications Services expiring on 3 January 2015. Lease renewal discussions are progressing slowly due to the EE/BT merger. The Business Plan is to renew the lease prior to sale.
Cherry Court, Hull 35,319 sqft Single Let Lease Expiry Date 30 September 2016 Annualized GRI 410,000 Vacancy 0% 0.75 years Market Value 1,500,000 The property is let in its entirety to the Secretary of State for the Environment (HMRC). The tenant has vacated the ground floor of the building. Terms have been agreed to renew the existing tenant s lease on expiry. The lease renewal is to be completed and the asset held for income in the short term.
Pear Tree House, Newbury 31,750 sqft Industrial (now ) Single Let Lease Expiry Date 11 February 2020 Annualized GRI 350,000 Vacancy 0% 4.08 years Market Value 4,110,000 The property is let to Accenture (UK) Ltd with Vodafone Ltd as guarantor. The existing tenant has a 5 year contract with Vodafone to the end of the lease. The industrial unit is now used as offices with the previous/current tenant & guarantor extensively fitting out the premises. The guarantor did not exercise their break clause in January 2015. We are in direct contact with the guarantor to explore a potential lease re-gear. 15
Dutch s I Emerald Court, Peterlee 60,950 sqft Single Lease Lease Expiry Date 4 November 2016 Annualized GRI 717,000 Vacancy 0% 0.9 years Market Value 1,280,000 The property is let to The Secretary of State for Transport Local Government and the Regions (occupied by HMRC) on a 15 year lease expiring on 4 November 2016. Lease renewal discussions will commence in Q1 2016. In Q4 2015, HMRC announced plans to close 137 local offices and centralise into 13 UK regional centres. The impact of this on Emerald Court is not yet known. The Business Plan is to renew the lease prior to sale.
Northminster House, Peterborough Lease Expiry Date 50,439 sqft Multi Let Multiple Expiries Annualized GRI 68,000 Vacancy 53% 3.5 years Market Value 1,600,000 Under the 2 occupational leases the rent increases to 113k in July 2016. The property is held leasehold. There are 2 vacant floors, 1 st and 2 nd, totalling 27,000 sqft. The floors are un-refurbished and would require upgrading to secure an occupier. demand in Peterborough city centre remains relatively subdued. The current strategy involves trying to secure occupiers for the vacant space on the basis that the landlord would refurbish the space to a level commensurate with the lease terms.
Gilbridge Dutch s House, I Sunderland 35,974 sqft Single Let Lease Expiry Date 29 September 2016 Annualized GRI 475,000 Vacancy 100% 0.75 years Market Value 2,725,000 Let in its entirety to the Secretary of State for the Environment (HMRC) on a lease expiring on 29th September 2016. HMRC closed and vacated the office in 2015. The Business Plan is to explore alternative uses prior to sale.
Church Walk House, Basildon 22,163 sqft (now D1 Educational Use) Single Let Lease Expiry Date 18 November 2020 Annualized GRI 50,000 increases to 75,000 in November 2018 Vacancy 0% 4.83 years Market Value 1,180,000 The property was let to SEEVIC College at a low rent ( 2.25 psf) because the tenant undertook a full refurbishment of the building on occupation. SEEVIC have sublet the whole building to NCB Studio School on the same terms. As part of the deal, the tenant break in 2017 was removed increasing the accordingly. The Business Plan is to hold the asset in the short term for income.
Kiln Farm, Milton Keynes 20,357 sqft Vacant Lease Expiry Date N/A Annualized GRI 13,000 Vacancy 100% N/A Market Value 1,545,000 The single storey office was let to IBM UK Ltd, who exercised their break option to terminate the lease at 30 November 2014. Income from temporary parking. Extensive roof repairs are being undertaken as part of the dilapidations claim agreed in principle with the previous tenant. The building is currently being marketed on an all enquiries basis.
Wear House, Peterlee 31,481 sqft Single Let Lease Expiry Date 1 August 2019 Annualized GRI 315,000 Vacancy 0% 3.5 years Market Value 1,235,000 The property is let to NPower Limited on a lease expiring on 1 August 2019. The Business Plan is to open discussions with tenant to explore extending the lease prior to sale.
Ty Bevan, Cardiff Lease Expiry Date 16,662 sqft Vacant N/A Annualized GRI 0 Vacancy 100% N/A Market Value 800,000 The property was let to Velindre NHS Trust on a lease that expired on 16 April 2014. They vacated in order to relocate with other NHS tenants in to a larger building. The property requires significant capital expenditure to secure a letting. It is being marketed on an all enquiries basis. The Business Plan is to hold the asset whilst disposal options are reviewed and considered.
Oakwell House, Barnsley 9,074 sqft Single Let Lease Expiry Date 19 December 2017 Annualized GRI 154,000 Vacancy 0% 1.92 years Market Value 590,000 The property is fully let to Barnsley Metropolitan Borough Council at a rent of 17 psf. There are no break options. The Business Plan is to hold the asset whilst exploring a lease re-gear when close enough to the lease expiry for the tenant to engage in negotiations. 23
Parkway House, Seacroft, Leeds 9,706 sqft Single Let Lease Expiry Date 31 March 2018 Annualized GRI 89,000 Vacancy 0% 2.17 years Market Value 705,000 The Secretary of State for Communities & Local Government (Job Centre) occupy the building. The tenant did not exercise their January 2016 break option. There is direct contact with the tenant to try and secure a lease re-gear. The strategy assumes a sale of Parkway House together with the adjoining Irford House.
Springfield House, Barnsley Lease Expiry Date 42,800 sqft Vacant N/A Annualized GRI 0 Vacancy 100% N/A Market Value 480,000 The vacant property was last used as offices but has not been occupied since 2009. The site extends to c1.5 acres on 2 separate plots and is surrounded by residential properties. It is unlikely that the building has a future as an office. The site is most likely to appeal to residential developers for new build development or possibly conversion of the existing building. The Business Plan is to sell the site for residential redevelopment.
Waverley House, Clevedon 10,381 sqft Vacant Lease Expiry Date N/A Annualized GRI 0 Vacancy 100% N/A Market Value 640,000 The property was vacated in late 2012. The offices are in good condition as the previous tenant undertook the dilapidation works themselves. Any potential redevelopment for alternative uses is constrained by a river running across the site and under the office building itself. The Business Plan is to pursue a phased letting of the 3 storey building floor by floor prior to a sale.
Gemini, Peterlee Lease Expiry Date 40,940 sqft Vacant N/A Annualized GRI 9,000 Vacancy 100% N/A Market Value 410,000 100% vacant since 2009. Income from temporary parking. The property requires a significant amount of capital expenditure to secure a letting, in part or whole. Business Plan is to explore occupational interest prior to sale.
Irford House, Seacroft, Leeds Lease Expiry Date 5,178 sqft Single Let 21 May 2023 (tenant breaks May 2020, 2021 & 2022) Annualized GRI 35,000 Vacancy 0% 4.33 years Market Value 315,000 The property has been let to DISC (Developing Initiatives for Support in Community) on an 8 year term from May 2015. The strategy is to hold the asset in the short term for income and to then consider a sale with the adjoining Parkway House. 28
Mountbatten House, Chatham 83,757 sqft Vacant Lease Expiry Date N/A Annualized GRI 0 Vacancy 100% N/A Market Value 1,250,000 A building of this size presents significant challenges from an office letting perspective in a town of the size of Chatham. In addition, the building would need significant refurbishment to be a viable office building. The building is held leasehold and sits on top of the main shopping centre for the town. The head lease prohibits residential use. is currently to vary the head lease to allow residential use ahead of a sale to a residential developer. 29
Unicorn House, North Shields 26,479 sqft Vacant Lease Expiry Date N/A Annualized GRI 0 Vacancy 100% N/A Market Value 650,000 100% vacant since May 2010. This property almost certainly has no future as an office given its condition and lack of occupier demand. Likely to appeal to new build low cost residential developers and possibly the retail sector. Business plan is to monitor planning regime and sell for redevelopment. 30