Waterside Court, Chatham Maritime

Chatham, Kent ME4 4RT

Overview

Well secured 19.50 year income with annual RPI rent reviews capped at 3%
  • Opportunity to acquire a secure long income office building in Chatham Maritime, Chatham's premier commercial location.
  • Chatham is located 30 miles south east of London, 3 miles north of the M2 Motorway (J3) and 5 miles north of the M20 Motorway (J6), linking directly with the M25.
  • Held long leasehold at nil rent for a further 129 years.
  • Waterside Court is a landmark office building and provides modern office accommodation constructed in 1998 arranged over ground and two upper floors, totalling 48,204 sq ft.
  • Excellent parking ratio of 1:177 sq ft.
  • Wholly let to NatWest Markets Plc (formerly The Royal Bank of Scotland Plc) with an unexpired lease term in excess of 19 years.
  • Passing rent of £1,035,230.15 per annum, reflecting £21.48 per sq ft overall.
  • 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 £17,630,000 (Seventeen Million, Six Hundred and Thirty Thousand Pounds), subject to contract and exclusive of VAT.
A purchase at this level would reflect an attractive net initial yield of 5.50%, assuming purchaser's costs of 6.74%, and a capital value of £366 per sq ft.

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 5.67% 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:
  • Greenock Britannia House, Main Street (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)
  • Aberdeen 78 Union Street (high street retail asset)

Location

Chatham is located in the Medway unitary authority in North Kent and sits 30 miles south east of central London, 24 miles west of Canterbury and 8 miles north of Maidstone.

The town benefits from excellent road links and is located 3 miles north of Junction 3 of the M2 Motorway and 5 miles north of Junction 6 of the M20 Motorway. The M20 links to the M25 Motorway at Junctions 3 and 5 and also provides easy access to the Dartford Crossing.

Chatham Train Station provides regular direct services to London Bridge in 42 minutes, to London Victoria in 46 minutes, and to the nearby towns of Rochester and Gillingham, both in under 5 minutes.

The town is positioned with easy access to all major surrounding airports, including London Heathrow (66 miles west), London Gatwick (43 miles south west), London City (30 miles north west) and Stansted (54 miles north).

Further south, the channel ports can be reached in under a 60-minute drive.

Situation

Waterside Court occupies a prominent position towards the southern edge of Chatham Maritime, a former major urban regeneration area now home to a 350 acre mixed use development, sitting 2 miles north of Chatham town centre.

The property sits adjacent to and is highly visible from the A231 Maritime Way roundabout immediately north east, connecting with the town centre to the south and in turn the A2. To the west, the A2 links with the M2 motorway to Greater London (via Rochester) and to the east, with Gillingham, Sittingbourne and Canterbury.

Chatham Maritime has attracted a number of key office occupiers in addition to RBS, including Bose, the Insolvency Service, Reeves Chartered Accountants, Lloyds of London, Xchanging, Vanquis Bank, The Border and Immigration Agency and Sopra Steria.

Waterside Court is surrounded by a variety of commercial uses. Immediately to the north, the £63m Dockside retail outlet development is home to established occupiers including M&S, The Range, Mountain Warehouse and Clarks. Chatham Maritime also offers extensive food and beverage provision including Nando's, Starbucks, Costa, Subway, and Pizza Hut. There is also an Odeon multiplex cinema, Pure Gym and trampoline park within a 5-minute walk. To the north of the property, St Mary's Island provides luxury residential accommodation and to the south sits a Travelodge.

Description

Waterside Court provides modern office accommodation constructed in 1998 arranged over ground and two upper floors. The property extends to 48,204 sq ft and is of steel frame construction with a mixture of brick and glass cladding and a pitched slate roof.

The property is used as a call centre for RBS and NatWest, where approximately 500 employees work from site on a daily basis. The property also houses an in-house training facility for new recruits.

The property was built to a high-quality standard and was subject to substantial refurbishment in 2008, to include new carpets, wall coverings and installation of chillers. The tenant has also made further modernisations in 2017 to include a new boiler system and lighting to common parts.

The specification includes:

  • Two 13 person passenger lifts in the central core
  • Full access raised floors
  • Suspended ceilings
  • 4 pipe fan coil air conditioning system
  • 273 surface car parking spaces, providing an excellent ratio of 1:177 sq ft.
The property is situated in a secure site and benefits from 24/7 security provision.

The property has been measured by Plowman Craven in accordance with RICS Property Measurement (1st Edition, 2015), which incorporates the RICS Code of Measuring Practice (6th Edition) and the International Property Measurement Standards (IMPS). Please see the accommodation schedule below for areas.


Tenure

Long leasehold from National Westminster Properties No. 1 Limited for a term of 150 years (less 15 days) from 24th December 1997, thereby providing an unexpired term of 129 years.

No rent is payable to the landlord under the long lease.

Tenancy

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

The rent 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 current passing rent of £1,035,230.15 pa reflects a low passing rent of £21.48 per sq ft overall.

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 £23,491,602, 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.

Assignment

Assignment 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

NatWest Markets Plc (formerly known as 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).

On 29 April 2018, The Royal Bank of Scotland Plc was renamed NatWest Markets Plc, as part of a 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. NatWest Markets Plc will sit outside of the ring-fencing requirements.

NatWest Markets Plc reported a significant sales turnover of £15.101bn in its 2016 accounts and is rated as investment grade as follows:

Standard & Poors: Long Term Debt - BBB+, Outlook - Positive
Fitch: - Long Term Debt - BBB+, 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-investorscreditratings.aspx.

The tenant has a Dun & Bradstreet rating of 5A 1 (June 2018), representing a net worth of £29.592 billion and 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 E-112. 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 are sought in excess of £17,630,000 (Seventeen Million, Six Hundred and Thirty Thousand Pounds), subject to contract and exclusive of VAT.

A purchase at this level would reflect an attractive net initial yield of 5.50%, assuming purchaser's costs of 6.74%, and a capital value of £366 per sq ft.

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

  • December 2018 - 5.67%
  • December 2019 - 5.83%
  • December 2020 - 6.00%
  • December 2021 - 6.18%
  • December 2022 - 6.37%
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)
  • Newcastle-under-Lyme - Brampton House, 352 Brampton Road (office asset)
  • High Street Retail Portfolio Southend-on-Sea/Preston/Loughborough (3 high street retail assets)
  • Aberdeen 78 Union Street (high street retail asset)

Occupational Market Commentary

Please see the marketing brochure.

Investment Market Commentary

Please see the marketing brochure.

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NET INITIAL YIELD:
5.5%
PRICE:
£17,630,000
REGISTER INTEREST
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