Hi guys

 
Below is an overview for the potential acquisition of a newly delivered, high quality ESG office
building in the heart of Shoreditch, UK. It is very similar to the Go West building in Amsterdam.
 
The file can be found in the below link:
 
M:\Investment_General\Sourcing\GB\2210168GB - Wenlock Works – Shoreditch
 
Brochure attached.
 
 
Investment Summary:
 
 Address: Wenlock Works, Shepherdess Walk, London N1 7BQ
 Link: https://goo.gl/maps/7E9je5Cc2dW1Xu8v9
 HQ Office
 Freehold
 Developed 2020
 BREEAM “Excellent”
 127.516 sq ft (11.847 sq m) of Grade A office space
 Multi-let to 2 tenants – Checkout.com and Marketing VF
 FRI lease (NNN)
 82% occupied
 Vacancy is in a ready-to-let condition
 2 year rent guarantee on the vacant space
 6,5 year WALB  (with 2 year top up)
 52% of the income is linked to RPI (5 yearly – 1% & 4%)
 
 
 
Vendor Summary:
 
 On-market
 Vendor is Schroders (SREF – institutional fund)
 On market for 2 months
 Quote price is £170m (4.50% NIY)
 Marketing is continuing with interest from overseas parties (middle eastern and
Singaporean)
 
 
Location:
 
 Asset located in Shoreditch, London
 Well connected:
 5 minutes walk to Old Street underground station /Silicon Roundabout
 20 minutes walk to Moorgate underground station / City of London
 20 minutes walk to Farringdon Elizabeth Line (new underground line)
 
 Old Street Roundabout (aka Silicon Roundabout) is the centre of Shoreditch and the cluster
of tech. firms in London
  Silicon Roundabout is going through a £25M transformation which will create additional
public realm
 To the north of the property are the high end residential areas of Shoreditch, Islington, Stoke
Newington, Highbury where a lot of the staff walk in from
 
 

 
 

 
Red Dot = 80 Old Street
Green symbol = Subject Asset
 
Situation:

 Periphery location in the Shoreditch market

 Large number of mixed use developments in the micro location which will help grow the
Shoreditch sub-market towards the subject asset and Islington:
 
 
 
 
Red dot = Subject property
 
 
The Building:
 
 Newly developed (2020)
 Island site – detached on 3 sides
 Contemporary warehouse Grade A office accommodation
 BREEAM “Excellent”
 Old 1980s frame and foundations were retained to enhance the sustainability of the
building from saving significant embodied carbon
 The inside was fully refurbished, and 2 floors added and a rear extension
 Well-renowned, award winning architects – Buckley Gray Yeoman – this company is
very well-known in London
 LG, Ground and 6 upper floors
 2 self-contained wings providing ground and lower ground office space (the LG
ceiling has been cut back to provide natural light into the basement space)
 4.4m reception
 14K sq ft floor plates – L shaped
 Floor to ceiling crittall (factory style) windows
 3m floor to ceiling heights
 Four pipe fan coil air conditioning
 Exposed ceiling voids / services
 Raised floors
 Occupational density of 1:10 m2
 134 cycle spaces
  144 lockers
 13 showers
 4 passenger lifts
 88 WCs
 Large terrace
 New lifts
 
 

 
 

 
 

 
 

 
 
 
SWOT:
 
Strengths:
 
 Modern refurbished building (2022) - highest ESG credentials
 HQ building for the 2 current strong covenants of the occupying tenants
 52% of the total income (incl. the rent guarantee) is RPI linked
 Shoreditch location - high letting liquidity
 Distressed seller – Schroders gated fund
 
Weaknesses:
 
 Currently 17% vacant
 Periphery location within its sub-market
 
 
 
Tenancy:
 
1. Checkout.com (guarantee from Checkoout Payments Group Limited) – 52% of income:
 
 D&B rating of 1 A1
 UK’s largest unicorn company with a valuation of $40bn (Revolut at $33bn)
 Leading international provider of online payment solutions
 Offering payment processing software and application programming interfaces for e-
commerce websites and mobile applications
 Software allows you to process payments directly on your site or App
 Focus on large global enterprise merchants like Netflix, Shein, Grab, FF, Pizza Hut,
Revolut
 Series D funding round closed in January 2022 at $1bn à this would have reduced
following the last 2 weeks however we see the online payment sector of the tech
market more defensive going into 2023
 Primary investors include Altimeter, Dragoneer, Franklin Templeton, GIC, Insight
Partners, the Qatar Investment Authority, Tiger Global, the Oxford Endowment Fund
 Announced plans to acquire French start up Ubble, the online identification platform
 
 New FRI lease (pre-let)
 10 year term from 2020
 Rent reviews every 5 years linked to RPI (1% & 4%)
 24 months rent free
 7,8 years unexpired
 High spec fit out
 Tenant had options to take the 2 vacant wings on the ground floor and LG for a gym,
canteen and auditorium but halted plans to expand during the covid pandemic. The
tenant went under offer again for 100% of vacant space in the summar of 2022 but
backed out after the min-budget in October 2022.
 

 
 Next rent review is in 2025
 The increase in rent at review will improve the NIY by 75 bps
 
 There is a full lease guarantee from Checkout Payment Group Limited, the Jersey based
parent company – we are still to recieve their financials.
 
 
 
2. MVF – 32% of income:
 
 D&B rating of 4 A1
 Founded in 2009
 Digital marketing to develop a smarter, data-led approach to customer generation
 Fastest growing tech company in 2013
 Voted the 2nd best company to work for in the Sunday Times Best Company List (2020)
 
 New FRI lease (pre-let)
 15 year term from 2020 with 10 year break option
 5 yearly upwards only open market rent reviews
 24 months rent free
 7,8 years unexpired
 High spec fit out
 
 
 
Tenant Financials:
 
 

 
 
Tenant is currently being checked by the research team.
 
Checkout is loss making but continues to raise capital. An exercise will be needed to understand
where the fund raising will go in the next 12-18 months and whether Checkout.com will be able to
sustain their costs over this time.
 
 
Vacancy:
 
 2x - 11K sq ft units
 LG and ground floors
 Separate entrances
 Also connected to main reception internally
 1x unit is currently in advanced discussions with a biotech company to host their
office and lab space
 2 year rent, rates and service charge guarantee will be proposed in any offer
 Rent will be set for the guarantee at £58 psf average across all the space.
 
 
 
City of London Fringe Leasing Market:
 
 Take up Q2 2022:                              131,000 sq ft
 10 Year Average Q2 take up:       92,000 sq ft
 Supply:                                                 1,1M sq ft
 Prime Rent:                                        £75 psf
 
 
Letting Evidence:
 

 
 The Script, 44 Featherstone Building – very similar spec building which is newly refurbished
but more of a constrained site with limited natural light on almost all floors. The comparable
is in a far more superior location nearer to Old Street Roundabout. The building has smaller
floorplate sizes of 6K sq ft vs 14K sq ft in the subject building. For the top 2 levels of the
building (Floor 5 and 6), a rent of £81 psf has been achieved on a 10 year lease. The subject
building would achieve a discount to this if let on a floor by floor basis but the subject
building is better specification.
 The Stage, The Bard Shoreditch – comparable is more placed in the city of London market
next to Amazon’s HQ office – floors 9 and 10 achieved £75 psf on a 10 year lease with 5 year
break on 20K sq ft – the subject building would dbe at a discount due to its location and
quantum of space
 The Featherstone Building, 66 City Road – 10 storey new build in a better location which has
achieved £71 psf on the 1st floor and £85 psf at the top of the building for 10-15K sq ft
lettings on 10 year terms with 5 year break options. The subject building would be at a
discount due to quantum of space leased, length of term achieved and location.
 
The subject building has recently achieved £63-£65 psf on floors 1-6 – leases are on a floor by floor
basis (14K sq ft).
 
We would feel comfortable at putting the rental value of an average upper floor at £65 psf, making
the subject property rack rented. This provides a good discount for its location to prime Shoreditch.
 
 
 
Investment Comparables:
 

 
 Kaleidoscope, Farringdon – this building is new build above the new Elizabeth Line station in
Farringdon with 9 years unexpired term and leasehold (typically +50 bps in central London).
The subject property is in a less central location, has a freehold title and has vacancy. The
market has moved 100 bps on NIY since the comparable traded in September 2022. I would
expect a discount of around 125 bps for the property.
 C-Space, City of London – multi-let building, under-rented with 6.7 year walb traded in
November 2021 at 4% NIY (equivalent yield of 4,50%) – the subject building is newer
(comparable was built 6 years ago) but does have a vacancy and in a more inferior location.
The market has moved since the comparable traded. I would expect a 125 bps discount due
to vacancy, location and market movement in the subject property.
 
Prime yields in the Shoreditch market are 4,50%.
 
A discount would apply to the subject property for:
 
 Location (+25 bps)
 Vacancy (+25 bps)
 Market (+100 bps)
 
Corum paid 6,50% NIY for rack rented 9 year income to serviced office occupier in a newly
refurbished building which was held on a leasehold title. I would expec the following disocutn to be
applied:
 
 Strong tenants (-50 bps)
 Vacancy (+25 bps)
 Market (+100 bps)
 Freehold (-50 bps)
 New building (-50 bps)
 
My view on yield is between 5,75% and 6,25% NIY.
 
 
 
Proposal:
 
 The deal offers a newly refurbished HQ office property with limited capex going forward, let
for more than 7 years walb to 2 well-performing tenants in their sectors
 The tenant line up will support fund raising showing the quality of the income in the fund
 Increase the fund’s exposure to the London market and to one of the fastest growing sub-
markets in London pre-covid
 The building offers quality, new quirky office space that will have high letting liquidity and is
what tenants are looking for currently
 The building has leading green ESG credentials and is one of the first
properties/redevelopments I have seen that applies sustainable building methods which will
support long term leasing and investment liquidity
 The vacant space has been under offer twice to Checkout.com which has meant that leasing
has been restricted for the space but offers the opportunity in the future for the current
tenant to take the space
 The vacant space is of high quality and offers the ability to be self-contained – getting it at a
low rent guarantee will allow upside for the AM team on reletting
 52% of the income has inflation linked rent reviews
 Low cap val (sub-£1,000 psf) showing low passing rent currently to market
 Similar deal to Go West (6.13% NIY) – new office, lease length, vacancy level, ESG credentials
and major Tier 1 city sub-market location – however Go West was leasehold, Shoreditch is a
stronger micro market and Go West achieved a 5 year top up (standard for the Dutch
market) on the vacancy
 
 
This is one of the best office buildings I have seen. It is a quirky location but still is central and within
walking distance to transport links etc. The area also is developing which will support growth in the
future. The quality of tenants and the rents achieved also support the attraction of the building and
the micro location. I would say 9 months ago, this property would have achieved around 4,75% NIY.
 
 
My recommendation would be to make an initial verbal offer at £123m which reflects 6.25%
NIY and £965 psf cap val, which is a 27% discount to quote.
 
 
Let me know what you think.
 
Thanks
 
Jonny