Hatfield Philips International Deco 11 U.K. Conduit 3 Plc Investor

Hatfield Philips International
Deco 11 U.K. Conduit 3 Plc Investor Call
14th 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
Loan
Investco Estates
Current Balance (£)
Whole Loan
A-Note
B-Note(s)
1,435,000
#
Properties
Location
Property
Type
Maturity Loan Status Transfer Date
1,435,000
-
1
UK
Light Industrial
Oct-2013 In Special
Oct-2013
Mapeley Gamma
216,361,058 216,361,058
-
25
UK
Office/Retail
Jan-2017 In Special
Oct-2012
Total
217,796,058 217,796,058
-
26
Workout Strategy
Asset
management/Sales
Asset
Management/Sales
Value
Valuation
1,250,000
Date
20 Jan 2014
Current Whole Loan
LTV
114.8%
Occupancy
100%
WALL
3.67 Years
Mapeley Gamma
136,015,000
23 Feb 2015
159.1%
67%
3.3 Years
Total
137,265,000
Loan
Investco Estates
(£)
3
Investco Estates
Dutch Offices II
Loan Status
UPB at Origination
GBP 1,700,000
Current UPB
GBP 1,435,000
Initial Whole Loan LTV
Workout History
Performance / Credit Events



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
Valuation/Date
Location
Light Industrial



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.
UK
GBP 180,000
ERV
GBP 100,000
WALL

The loan was transferred to Special Servicing on
22 October 2013 due to a failure to repay at
maturity.
GBP 1.25M/ 20/01/2014
NRI
Vacancy

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.
0%
3.67 years
Strategy


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
Workout History
Loan Status
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
Valuation/Date
Location
GBP 136M / 23/02/2015
Various UK
GBP 12,194,506
ERV
GBP 10,759,700*
WALL
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.

Office/Ancillary Retail
NRI
Vacancy

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.
33%
3.3 years
* 6 properties excluded as alternative uses assumed.
Performance / Credit Events



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)
Strategy



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
Status
Lettable Area
344,478 sqft
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Office
Single Let
March 2018
£5,500,000
0%
2.25 years
Market Value
£37,970,000
Strategy

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.

Strategy is focused on converting this asset from a
single let office with short term income, into a multilet “campus” style office with increased WALL and
income diversification.
6
Dutch
OfficesRoad,
I
58
Clarendon
Watford
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
90,682 sqft
Office
Single Let
September 2024
£2,000,000
0%
8.75 years
£29,000,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
240,614 sq ft
Mixed Use
Multi Let
Multiple Breaks / Lease Expiries
£913,000
76%
1.25 years
£16,900,000
Strategy

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 Gate,
Offices
I
Nelson
Southampton
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
167,878 sqft
Mixed Use
Multi Let
Multiple Breaks / Lease Expiries
£885,000
63%
1.25 years
£5,530,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
198,905 sqft
Data Centre / Office
Single Let (2 leases)
24 November 2025
(tenant break November 2020)
£1,743,000
0%
4.83 years
£16,900,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
52,669 sqft
Office
Multi Let
Multiple Expiries
£66,000
84%
2.50 years
£1,580,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
50,636 sqft
Office
Single Let
26 January 2019
£605,000
0%
3.25 years
£2,120,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
70,271 sqft
Purpose built call centre
Single Let
3 January 2015
£833,000
0%
0 years
£5,000,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
35,319 sqft
Office
Single Let
30 September 2016
£410,000
0%
0.75 years
£1,500,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
31,750 sqft
Industrial (now Office)
Single Let
11 February 2020
£350,000
0%
4.08 years
£4,110,000
Strategy

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 Offices
Emerald
Court,I Peterlee
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
60,950 sqft
Office
Single Lease
4 November 2016
£717,000
0%
0.9 years
£1,280,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
50,439 sqft
Office
Multi Let
Multiple Expiries
£68,000
53%
3.5 years
£1,600,000
Strategy

Under the 2 occupational leases the rent increases to
£113k in July 2016. The property is held leasehold.

There are 2 vacant floors, 1st and 2nd, totalling 27,000
sqft. The floors are un-refurbished and would require
upgrading to secure an occupier. Office 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
House,
Dutch Offices
I Sunderland
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
35,974 sqft
Office
Single Let
29 September 2016
£475,000
100%
0.75 years
£2,725,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
22,163 sqft
Office (now D1 Educational Use)
Single Let
18 November 2020
£50,000 increases to
£75,000 in November 2018
0%
4.83 years
£1,180,000
Strategy

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
WALL accordingly.

The Business Plan is to hold the asset in the short term
for income.
Kiln Farm, Milton Keynes
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
20,357 sqft
Office
Vacant
N/A
£13,000
100%
N/A
£1,545,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
31,481 sqft
Office
Single Let
1 August 2019
£315,000
0%
3.5 years
£1,235,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
16,662 sqft
Office
Vacant
N/A
£0
100%
N/A
£800,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
9,074 sqft
Office
Single Let
19 December 2017
£154,000
0%
1.92 years
£590,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
9,706 sqft
Office
Single Let
31 March 2018
£89,000
0%
2.17 years
£705,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
42,800 sqft
Office
Vacant
N/A
£0
100%
N/A
£480,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
10,381 sqft
Office
Vacant
N/A
£0
100%
N/A
£640,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
40,940 sqft
Office
Vacant
N/A
£9,000
100%
N/A
£410,000
Strategy

100% vacant since 2009.
parking.
Income from temporary

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
5,178 sqft
Office
Single Let
21 May 2023 (tenant breaks
May 2020, 2021 & 2022)
£35,000
0%
4.33 years
£315,000
Strategy

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
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
83,757 sqft
Office
Vacant
N/A
£0
100%
N/A
£1,250,000
Strategy

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.

Strategy is currently to vary the head lease to allow
residential use ahead of a sale to a residential
developer.
29
Unicorn House, North Shields
Status
Lettable Area
Asset Type
Leasing Profile
Lease Expiry Date
Annualized GRI
Vacancy
WALL
Market Value
26,479 sqft
Office
Vacant
N/A
£0
100%
N/A
£650,000
Strategy

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