Assetz Fund Management Commercial Property No 1 LP.

Assetz Fund Assetz Fund ManagementManagement

Commercial Property No 1 LPCommercial Property No 1 LP

UK Commercial Property FundUK Commercial Property Fund

Other MarketsOther Markets

*249% growth since 1989*249% growth since 1989

Why Commercial PropertyWhy Commercial Property

Source: IPD Index. Growth 240% and assumes UNGEARED investmentSource: IPD Index. Growth 240% and assumes UNGEARED investment

All Commercial Property Index

0

50

100

150

200

250

300

350

40019

89

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

CompoundGrowth,TotalReturns

Why Commercial PropertyWhy Commercial PropertyAll Commercial Property Index

0

1000

2000

3000

4000

5000

60001970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004


Source: IPD Index. Growth 4949% Source: IPD Index. Growth 4949% and assumes UNGEARED investmentand assumes UNGEARED investment

All Commercial Property Index

10

100

1000

10000

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004


UK Commercial FundUK Commercial Fund FRI (Full Repairing Insuring) leasesFRI (Full Repairing Insuring) leases Less volatile and more predictable due to long leasesLess volatile and more predictable due to long leases Buy Offices and Industrial off plan + tactical opportunitiesBuy Offices and Industrial off plan + tactical opportunities 9%+ prospective yield9%+ prospective yield Once tenanted the building can be worth 25% moreOnce tenanted the building can be worth 25% more Hold for 5 years and then renew/ replace lease and sellHold for 5 years and then renew/ replace lease and sell Repayment mortgage of 70% will be just 40% after 5 Repayment mortgage of 70% will be just 40% after 5

years – rent increases returnsyears – rent increases returns Finally if there are commercial property rises then even Finally if there are commercial property rises then even

better – we expect 5-7% pa for the next 5 years on these better – we expect 5-7% pa for the next 5 years on these type of propertiestype of properties

UK Commercial FundUK Commercial Fund High quality locationsHigh quality locations

AirportsAirports Major citiesMajor cities Near other large business parksNear other large business parks

Arterial roadsArterial roads Small developments (8-12 units)Small developments (8-12 units) Small units – 2500-8000 sq ftSmall units – 2500-8000 sq ft SME’s are 98%+ of the market SME’s are 98%+ of the market Prices 20% discounted with a 9.5% prospective yieldPrices 20% discounted with a 9.5% prospective yield Fast selling units to Owner OccupiersFast selling units to Owner Occupiers Limited sales to investorsLimited sales to investors

UK Commercial FundUK Commercial Fund

20% discount to market value when tenanted20% discount to market value when tenanted How is this ‘lease premium’ calculated ? How is this ‘lease premium’ calculated ? 9.5% prospective yield9.5% prospective yield Say building is £100,000 – rent would be £9,500Say building is £100,000 – rent would be £9,500 Rent is the driverRent is the driver Once tenanted the building can be sold on a 7.5% yieldOnce tenanted the building can be sold on a 7.5% yield £9,500 / .075 = £126,666 a gain of £26,666£9,500 / .075 = £126,666 a gain of £26,666

If you 50% gear that is a 53% gainIf you 50% gear that is a 53% gain If you 75% gear that is a 107% gainIf you 75% gear that is a 107% gain Less purchase and sales costsLess purchase and sales costs

0

20000

40000

60000

80000

100000

120000

140000

BuildingValue

Costs etc

Profit

Other Costs

Sale Costs

PurchaseCostsDeposit

Mortgage

Premium

Building Cost


9.5% yield is £9,500 rent per £100,000 of property9.5% yield is £9,500 rent per £100,000 of property 9.5% is set by the developer as a reasonable 9.5% is set by the developer as a reasonable

prospective yield on a property price that still makes prospective yield on a property price that still makes them money whilst leaving around 2% in it for the them money whilst leaving around 2% in it for the investorinvestor

The 7.5% yield is ‘set’ by the investor market, what they The 7.5% yield is ‘set’ by the investor market, what they are willing to receive as a yield on a tenanted property.are willing to receive as a yield on a tenanted property.

As the rent is constant, £9,500 per annum the property is As the rent is constant, £9,500 per annum the property is worth £100,000 at 9.5% prospective yield when sold by worth £100,000 at 9.5% prospective yield when sold by the developer and worth £126,666 to the investor buying the developer and worth £126,666 to the investor buying it with a tenant at 7.5% yieldit with a tenant at 7.5% yield


£9,500 / 9.5% = £100,000 £9,500 / 9.5% = £100,000 Yield is only prospective – no actual tenantYield is only prospective – no actual tenant

£9,500 / 7.5% = £126,000£9,500 / 7.5% = £126,000 Yield is real – signed up tenantYield is real – signed up tenant

Premium is the value of the leasePremium is the value of the lease The better the tenant the lower the tenanted yieldThe better the tenant the lower the tenanted yield

Property PriceProperty Price


Property PriceProperty Price

Property P

rice P

lus

Property P

rice P

lus

Rental Profit

in 5-7

Rental Profit

in 5-7

YearsYears

Lease PremiumLease Premium

Rental Income/ ProfitRental Income/ Profit

Price IncreasesPrice Increases

UK Commercial FundUK Commercial Fund Risks :Risks :

Prices do not risePrices do not rise Fund already bought at discount and the lease premium plus the Fund already bought at discount and the lease premium plus the

rental profit will still give gains.rental profit will still give gains. Prices fallPrices fall

Fund bought at discount and with the lease premium once tenanted Fund bought at discount and with the lease premium once tenanted should have around 20% protection built into purchase prices.should have around 20% protection built into purchase prices.

Tenants not found quicklyTenants not found quickly Small units do find tenants quickly but significant voids would be in Small units do find tenants quickly but significant voids would be in

some units would be countered by others having very profitable rental some units would be countered by others having very profitable rental income. Can always sell to recover costs at least to the owner income. Can always sell to recover costs at least to the owner occupier market.occupier market.

Interest rate risesInterest rate rises Fund will use interest rate hedging / fixed rates if thought necessary.Fund will use interest rate hedging / fixed rates if thought necessary.


Fund can gain in four ways :Fund can gain in four ways : Buying at a discount pre-completion – helps developers fundingBuying at a discount pre-completion – helps developers funding Tenanting the new building brings c 25% uplift in value according Tenanting the new building brings c 25% uplift in value according

to tenant quality, rental level and lease durationto tenant quality, rental level and lease duration Rental yield is high – 8%-9.5% - pays down mortgage increasing Rental yield is high – 8%-9.5% - pays down mortgage increasing

equityequity General price growthGeneral price growth

Note price growth is the last of the profit leversNote price growth is the last of the profit levers Objective of 20%+ growth per annum if assumptions metObjective of 20%+ growth per annum if assumptions met

Thank YouThank You

Stuart LawStuart Law Assetz Fund Management LtdAssetz Fund Management Ltd

Assetz Fund Management Commercial Property No 1 LP.

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