78 Union Street

Aberdeen AB10 1HH

Overview

Well secured 19.50 year income with annual RPI rent reviews capped at 3%
  • Prime retail banking opportunity on Aberdeen's traditional high street.
  • Aberdeen is Scotland's third largest city, and is the only UK member of the World Energy Cities Partnership.
  • Absolute Ownership (Scottish equivalent of English freehold).
  • Wholly let to The Royal Bank of Scotland Plc with an unexpired lease term in excess of 19 years.
  • Passing rent of £173,571.52 per annum.
  • Lease subject to annual rent reviews on 25 December each year, based upon the Retail Price Index (RPI), subject to an annual cap at 3.00%.
  • The lease offers excellent income protection through controls on lease assignment.
Offers sought in excess of £2,850,000 (Two Million, Eight Hundred and Fifty Thousand Pounds), subject to contract and exclusive of VAT.

A purchase at this level would reflect an attractive net initial yield of 5.75%, assuming purchaser's costs of 5.96%.

Based on Oxford Economics' 2018 forecast, RPI is expected to perform in excess of the 3.00% cap. At the quoting price this would provide a running yield of 5.92% in December 2018.

This asset forms part of a wider programme of sales ("Project Helios") being marketed in conjunction with this opportunity, all of which are let on the same lease structure.

Details can be found in the Proposal section of this website.

Location

Aberdeen is located approximately 130 miles (209 km) north of Edinburgh, 71 miles (114km) north of Dundee and 105 miles (169 km) east of Inverness. The city has excellent road connections south via the A90 (T) and west to Inverness by the A98 (T).

Aberdeen benefits from excellent rail connections via the East Coast main line with travel times to Edinburgh of around two and a half hours. Aberdeen international airport is situated approximately 6 miles west of the city centre at Dyce.

RETAILING IN ABERDEEN

Aberdeen is the major retail and leisure hub for the North East of Scotland with a retail catchment in excess of 550,000 people. The core retail area comprises the historic prime pitch of Union Street, which stretches east to west, and the city's four main shopping centres: Bon Accord Centre, St. Nicholas Centre, Trinity Centre and Union Square which are situated in a linear formation north to south.

In 2017, Aberdeen had a total in-store comparison retail expenditure of £3.1bn, which is forecast to grow by 1.7% pa by 2022 (PROMIS).

The prime section of Union Street begins at the junction with Bridge Street, anchored by the Trinity Centre entrance, which then flows east and weakens beyond the junction with Market Street. Occupiers on the prime pitch include Primark, All Saints, Lush and Molton Brown. 1-7 St Nicholas Street forms the newest retail development in the city centre, which opened at the end of 2016. This has further strengthened the city's retail and leisure offering through the provision of high profile retailers Schuh, TSB and Five Guys.

Union Square is the dominant shopping centre in Aberdeen, providing 700,000 sq ft of retail and leisure space. Retailers include: Hugo Boss, Joules, The White Company, Apple and Superdry. The leisure element of this centre has also proved successful with restaurants including TGI Fridays, Byron, Cosmo and Wagamama.

The new Aberdeen Western Peripheral Route is due for completion later in the year (2018), which will reduce congestion on Union Street and ease traffic flow in and around the City and Shire, making Aberdeen city centre an even more attractive destination.

Situation

The property is located on the prime pitch of Aberdeen's traditional high street, Union Street, at its junction with St Nicholas Street.

The unit occupies a prominent corner adjacent to the Bon Accord & St Nicholas Shopping Centre.

Description

The property comprises a Grade B listed building of grey granite ashlar arranged over basement, ground and four upper floors under a flat roof. Internally, the property provides banking hall facilities at ground floor level as well as storage in the basement and offices on the upper floors. The entirety of the property has been fitted out in the RBS corporate style.

Accommodation

The property has been measured by Plowman Craven and provides net internal areas as seen in the schedule below:


Tenure

Absolute Ownership (Scottish equivalent of English freehold).

Tenancy

The property is wholly let to The Royal Bank of Scotland Plc until 17 December 2037, therefore providing in excess of 19 years unexpired.

Current passing rent of £173,571.52 pa, which is reviewed on an annual basis on 25 December each year, linked to the UK's Retail Price Index (RPI) in the preceding October, subject to a cap of 3%.

The third floor of the office accommodation has been sublet.

Further information is available on request.

TENANCY AND KEY LEASE CONSIDERATIONS

Tenant Break Option and Flexibility Premium

Under the terms of the lease, the tenant has an option to determine the lease, except during the last five years of the term. If the break is exercised, the tenant is required to pay a "flexibility premium".

The amount payable depends on when the break is exercised and is set out in a schedule to the lease. The current "flexibility premium" is £3,558,497, which is significantly in excess of the quoting price and this makes the exercise of the option uneconomic.

The premium is structured to ensure the landlord does not suffer a loss as a result of the operation of the break and in addition to the value of the "flexibility premium", the landlord also has security in the benefit of the vacant reversionary interest.

Under certain circumstances the tenant may become entitled to a partial rebate of the "flexibility premium" if the property is sold or re-let on certain specified terms and within certain timescales where the landlord has made a profit as a result.

Assignation

Assignation of the whole is permitted with landlord's consent (not to be unreasonably withheld) subject to certain conditions, which include a requirement that the proposed assignee must have a credit rating of A or better from Standard & Poors (or equivalent).

This clause provides excellent income security and value protection for the purchaser.

Option to Renew

The tenant has an option to renew the lease for a further term of 5, 10, 15, 20 or 25 years. This option is exercisable at any time after the expiry of the tenth year of the term (except during the last 12 months of the term).

Any new lease is to be on substantially the same terms as the existing lease at a starting rent benchmarked to open market rental value on the penultimate day, but does not include the contractual option to renew, the right of first refusal, the right to acquire the landlord's interest or the flexibility provisions.

There is also an option for the original tenant or a Group company to purchase the landlord's interest in the Property at the end of the term for the higher of Market Value or Special Value (as defined by the lease) subject to a minimum purchase price, and the right for RBS to have first refusal in respect of a sale.

Further information on all of the above is available upon request.

Covenant Information

The Royal Bank of Scotland Plc is a principal subsidiary of The Royal Bank of Scotland Group Plc. In February 2018, The Group reported significant results with an annual profit of £752m for 2017. Its financial strength is a reflection of the UK Government's majority ownership and control of the business, which stands at 62% (June 2018).

As part of restructuring by the bank to separate domestic retail banking from investment banking sectors, in line with the UK ringfencing requirements required to be in place by January 2019, The Royal Bank of Scotland Plc will sit inside of the ring-fencing requirements. It will hence benefit from greater protection afforded under these measures, with separation of the retail banking sector from investment and international banking activities.

The Royal Bank of Scotland Plc is rated as investment grade as follows:

Standard & Poors: Long Term Debt - A-, Outlook - Positive
Fitch: - Long Term Debt - A-, Outlook - Positive

For further information on the above, including latest reports by Standard & Poors and Fitch to support the investment grade covenant rating, please review https://investors.rbs.com/fixed-income-investors/credit-ratings.aspx. See the online data room for further information.

The company has a Dun & Bradstreet rating of 5A 1 (June 2018), representing a minimum risk of business failure.

VAT

We understand that the property has not been elected for VAT.

EPC

An Energy Performance Certificate has been undertaken and provides a rating of D-42. A copy is available on request.

DATAROOM

A copy of the lease and Plowman Craven measured survey are available in the online data room. Please contact Cushman & Wakefield for further information.

Proposal

Offers sought in excess of £2,850,000 (Two Million, Eight Hundred and Fifty Thousand Pounds), subject to contract and exclusive of VAT.

A purchase at this level would reflect an attractive net initial yield of 5.75%, assuming purchaser's costs of 5.96%.

Based on Oxford Economics' 5 year RPI forecast, at the quoting price this would provide the following running yield profile:

  • December 2018 - 5.92%
  • December 2019 - 6.09%
  • December 2020 - 6.27%
  • December 2021 - 6.46%
  • December 2022 - 6.65%
This asset forms part of a wider programme of sales ("Project Helios") being marketed in conjunction with this opportunity, all of which are let on the same lease structure.
  • Greenock Britannia House, Main Street (office asset)
  • Chatham Waterside Court, Chatham Maritime (office asset)
  • Newcastle-under-Lyme - Brampton House, 352 Brampton Road (office asset)
  • High Street Retail Portfolio Southend-on-Sea/Preston/Loughborough (3 high street retail assets)

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NET INITIAL YIELD:
5.75%
PRICE:
£2,850,000
REGISTER INTEREST
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