generating superior returns from a traditional asset class

Business Centre Capital Co. Ltdwww.b3c.biz

Generating Superior Returns From a Traditional Asset Class

The Growth of Serviced Offices as an Investment


Business Centre Capital Co. Ltd

Established 1999 Specialising in serviced office/business

centres Adviser to a number of profile institutions

and business centre operators Established first ever publicly listed

business centre fund Set up a number of LPs Combined asset value of circa £60 million


Structure

Overview Size Players Business Models


Overview

A Definition The provision of short term space supported by a range of

business services actively managed by on-site staff


Size Globally

> 10,000 business centres + 1,000 operators > 70 countries < 1% of global office space


Size in the UK

Currently represents nearly 2% of UK office space Equivalent to nearly 1.5 million square metres Represents around 5% of space in Central London Around 350 operators of flexible business space in the UK in

1,100 centres Workstation capacity has doubled in 5 years Between 2000 and 2006 the number of workstations rose from

around 120,000 to over 200,000


UK Demographics

Density of Serviced Office StockNorth East, 1%

Wales, 2%

Northern Ireland, 2%

East Anglia, 3%

West Midlands, 4%

East Midlands, 5%

Yorkshire, 5%

Home Counties North, 6%

South West, 6%

North West, 7%

Scotland, 7%

Home Counties South, 15%

London, 37%

Source: DTZ


UK Major Players

Leased Owned

Quality

Fully S

erviced

Sem

iS

erviced

Regus

MLS

EOG

MWB

Workspace

BEG

Bizspace

Lenta

SOG

Avanta

Citibase


Long Term Structural Growth

Drivers – “it’s what the client wants” Costs – TOCC shows it is more expensive to take a traditional

lease Accounting rules – require leases on balance sheet Technology – good infrastructure required Infrastructure costs are shared amongst the occupiers Flexibility – occupiers can expand/contract at will Simplicity – costs are easy to understand and predictable Convenience – allowing occupiers to concentrate on their

business


Investment Potential

High yield Capital Growth Scale Brand


High Yield

Serviced offices provide a higher yield typical income yield can exceed 7% typical capital growth can exceed 4%

Business Centre Properties plc First ever publicly available fund in the sector £40 million of serviced office properties Average income yield 7.5% to investors after fund costs Share price growth of 36% since launch ’04/04


Capital Growth

Conversions Conversion of existing office stock to serviced offices Real options in secondary locations with secondary properties Good options in primary locations where little or no flexible

space Development

Creation of specific serviced office developments Big meeting room/conferencing facilities Clubs, restaurants High tech wiring, easy demountable partitioning Emerging markets


Yield Shift

Serviced offices have followed yields down BCP bought its first building at a cap rate of 11% 2004, 11% 2005, 9% 2006, sub 8%

The risk margin has narrowed In 2004 the margin was around 2-3% Now it is 1-2%


POWER (Property Opportunities With Enhanced Returns) Fund Philosophy Structure Expertise Timings


Philosophy

“Global provision of flexible working for individuals and businesses in secure, comfortable office accommodation”


StructureLuxembourg

Domicile

UK SubFund

EuropeSub funds

North America

Sub funds

ROWSub funds

ABCNLocal

operator

centres centrescentres

(Replicated across each sub fund)


Scale

Economies of scale Spread of infrastructure costs Best economies from running assets in hubs HQ costs spread

Portfolio effect Spread of risk through geography Through client base

Big means Saleable >£300m Brandable Listable


Brand value

A brand has strategic value Regus today has a £1.5 billion stock market capitalisation That is 20x earnings!


Alliance Business Centres Network (ABCN)

ABCN is: “a distributed network of senior industry professionals”

Only global business centres network 650 locations in 37 countries Broad range of services to members

Market intelligence Marketing and referrals Alliance Access Franchising Purchasing


Timings

Fund life expected to be 10 years Seed investment £100 million equity Investment period – 3 years in the UK Expected ROW expansion year 2 onwards Target IRR 25%+ at 5 year point


Expertise Jonathan Price (CEO EMA) – 8 years in sector

Barrister at law and former investment banker President of UK Chapter of FIABCI NED to international serviced office operator

Frank Cottle (CEO US & ROW) – 22 years in sector Chairman of Alliance Business Centres Network Former investment banker specialising in real estate Board member OBCAI Former owner operator of serviced offices

Chris Brierley (COO)– 5 years in the sector Former investment banker NED on a number of property related funds Former director of a research company

Former FD of fund manager (CFO) – 14 years Former Property director of serviced office operator –

10 years


Exit

Trade sale To a new entrant To an existing operator

Securitisation >£300m

REIT Workspace has become a REIT


Lease v. Ownership

Leasehold Operator Long term liability to short term income profile Can be mitigated where a turnover lease or management

contract is in place – landlord shares risk Low capital commitment allows rapid expansion


Lease v. Ownership

Owner Operator Freehold/long leasehold Avoids mismatch of assets and liabilities High capital commitment Double whammy of rents falling and property value declining in

poor market conditions But more flexibility in getting and retaining clients


Valuation

Issues Serviced offices are hybrid: renting space and offering services Property valuation and company valuation approach diverge RICS approach to going concern valuation is based on “strictly

limited use” and serviced offices typically operate from traditional office premises

Red Book needs to be revised Multiples are beginning to emerge

Businesses operating out of leased premises on EBITDA multiples of 4-6 times

Businesses that own the operating asset 13-16 times EBITDA


Listed Company Valuations

Company EV (mill)YE ‘06

EBITDA (mil) YE ‘06

Multiple Share price (p) (06/07)

Share PriceYoY %

Regus £1,134 122 9 x 149.25 +34%

Serviced Office Grp £25 2 12.5 x 11.50 +26%

MWBEX £116 9 13 x 174.50 +65%


RGU Share Price


SVO Share Price


MBE Share Price


Alternative Asset Valuations

Valuations of student accommodation Unite 12/06 - EBITDA £103 million, EV £1.070 billion = 10 x

Valuations of self storage Big Yellow 09/06 – EBITDA £70 million, EV £900 million = 13 x


BYG Share Price


Metrics

MWBX - £67.1m (^23%), PTP £7.8m (£2.7m) 60 locations

Regus - £680m (^47%), PTP £77.5m (£38.7m) 950 centres

generating superior returns from a traditional asset class

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