Highly Secure New London Supermarket Investment – 15 year lease term from 2019
Villiers Avenue | Lower Marsh Lane | Surbiton | London | KT5 8BH
subject to contract
Situated within London’s Royal Borough of Kingston Upon Thames
Newly developed supermarket investment
Secure covenant - Co-Operative Group Food Limited
Highly secure income – Pre-Tax Profits £207.9 million
New 15 year lease from 2019, without breaks
5 yearly rent reviews in line with CPI
£2,650,000, subject to contract
5.0% net initial yield
Surbiton is situated in south-west London, within the Royal Borough of Kingston upon Thames. Located next to the River Thames, the town is approximately 21 km (13 miles) from Central London. Kingston upon Thames town centre is approximately 3.2 km (2 miles) to the north and Epsom is 9.6 km (6 miles) to the south-east.
Surbiton benefits from good communications lying close to the A3 Kingston bypass providing access to Central London and the M25 London Orbital Motorway, approximately 13 kms (8 miles) to the south-west. Surbiton British Rail Station offers frequent mainline services to London Waterloo with a quickest journey time of approximately 18 minutes. Surbiton is also close to Heathrow Airport (15 km / 9 miles to the north-west) and Gatwick Airport (37 km / 23 miles to the south). Surbiton is also set to benefit from the planned Crossrail 2.
Surbiton serves an affluent population. Kingston Upon Thames ranks as the second least deprived local authority in London and is one of the safest boroughs, with crime rates significantly below the London average. In 2018 the Borough had 179,600 residents and this is projected to increase to 202,000 by 2030 (Source: Kingston Council).
Richmond Park, the largest of the capital’s eight Royal Parks, is a short distance to the north.
The subject property occupies a prominent position fronting Villiers Avenue, at its junction with Lower Marsh Lane. Surbiton Station is 1.3 km (0.8 miles) to the south-west and Kingston Upon Thames Station is 1.6 km (1 mile) to the north.
The property provides the retail offering for a wider residential scheme, Villiers Point, a flagship new development comprising of 39 private and 10 affordable homes ranging from 1-bedroom maisonettes to 4-bedroom family houses, set within a landscaped setting.
The property not only benefits from being in a densely populated residential area but is also adjacent to a local retail parade with occupiers including a newsagents, café and bakers.
Kingston University Campus and Halls of Residence are within close proximity to the subject property. Hampton Court Palace and Bushy Park, home to the famous Diana Fountain, are also a short distance away.
The property comprises a newly constructed building over ground and three upper floors, with the investment being the ground floor supermarket. Practical completion occurred in August 2019 and the supermarket has been fitted out by the tenant to a high standard in their usual corporate style.
The sale includes the car park area to the front of the property, providing 7 car parking spaces.
The upper floors comprise ten apartments. Whilst legally part of the sale, the tenure section below explains this section in relation to the investment.
The purchaser will be provided with a Checkmate insurance policy in relation to the construction on completion.
|Ground Internal Floor Area||413.7 sq m||4,453 sq ft|
The Agreement for Lease (see legal package) stipulates a minimum threshold for the Gross Internal Area of 4,263.60 square feet, providing that should the Gross Internal Area be equal or greater than 4,375.8 square feet, the initial rent shall be £140,000 per annum. It was subsequently confirmed between the developer and the tenant that the Gross Internal Area is 4,453 square feet (413.7 square metres).
A Phase I Assessment was carried out by Delta Simons in October 2019 which concluded that “the Site represents an overall investment opportunity with a Low risk” and “flood risk at the Site is considered to be Low”. A copy of this report is available to download and will be assigned to a purchaser on completion at a cost of £2,845 + VAT.
The investment ownership is in effect a freehold plus a “virtual” freehold given the long leasehold arrangement as explained below.
The entire building is held by the vendor on a freehold basis (and the freeholder also has a 125 year lease over the car park and road area to the front of the retail unit).
The entire building is let to “Paragon”, a housing association on a 125 year long lease.
“Paragon” sublet the commercial element to freeholder on a 125 year (less two days) long lease
The long-leaseholder (also the freeholder), then let the commercial element to Co-Operative Group Food Limited (15 year lease term commenced in 2019 and incorporates a tenant option for a further 15 year term)
The vendor is selling both the freehold and long leasehold of the commercial element (as well as the lease of the car park and road area), thereby removing any management input for the freeholder, given Paragon have a full repairing and insuring obligation.
At the end of the Paragon long lease, the entire accommodation reverts to the freeholder since residential property is excluded from statutory rights to renew, as with commercial leases. Further, the property is not occupied by Paragon since housing associations provide residential accommodation, hence the tenant has no rights of renewal.
The whole building is let by the freeholder to Paragon Asra Housing Limited (‘Paragon’) on a full repairing and lease for a term of 125 years from 8 February 2019 at a rent of £1 per annum. Paragon sub-let the residential accommodation as housing association accommodation, comprising 10 flats.
Paragon have granted a lease of the commercial section on the ground floor to the vendor, for 125 years from 8 February 2019 at a rent of £1 per annum. The lease provides for the long leaseholder of the commercial section to pay a service charge, and contribute a fair proportion to the costs of insuring the entire premises.
The vendor, as the long leaseholder of the commercial section, has let the accommodation for a term of 15 years (with a tenant option for a further 15 years) to Co-operative Group Food Limited from 7 August 2019 at an initial rent of £140,000 per annum. The vendor’s obligations to pay the service charge and insurance in the leaseback described above are passed on to The Co-operative Group Food Limited through the Co-op’s lease.
In relation to the car park and road area to the front of the retail unit, the freehold of this area is owned by Thames Water and let to the freeholder for a term of 125 years from 8 December 2016 at a peppercorn rent. Both Paragon as long leaseholder and Co-Op as occupational tenant have been granted rights by the freeholder over this area. The long leasehold interest also forms part of the sale.
The net effect is a freehold sale of the property, and a long leasehold of the car park area, and the long lease of the commercial element (subject to the lease to the Co-op) with a purchaser deriving secure income from Co-Operative Group.
The ground floor premises is let to Co-Operative Group Food Limited (No. 26715R) for a term of 15 years from 7th August 2019, expiring on 6th August 2034 (approximately 14.5 years unexpired lease term) or 6 August 2049 (if the tenant option for a new lease on the same terms is exercised).
The current passing rent is £140,000 per annum (£338.41 per sq m / £31.44 per sq ft). The lease benefits from 5 yearly rent reviews calculated in line with changes to the Consumer Price Index (CPI) over the period, capped and collared annually between 1% and 3%. The first rent review will occur 7th August 2024.
The tenant benefitted from a 6 month rent free period from the start of the term which has now expired.
The tenant is to keep the premises and the Car Park Area in good and substantial repair and condition.
The tenant has an option to renew the lease for a further 15 years from expiry of the current lease and has been granted within the protection of the security of tenure provisions of the 1954 Act.
The property is well secured to Co-Operative Group Food Limited (No. 26715R) which has reported the following figures;
|5th January 2019||6th January 2018|
|Revenue||£7,185.2 million||£6,940.2 million|
|Pre-Tax Profits||£207.9 million||£232.5 million|
|Net Assets||£1,970.5 million||£1,875.1 million|
The company is a wholly owned subsidiary of Co-operative Group Limited.
With origins tracing back to 1844 the Co-Operative Group has become one of the world’s largest consumer co-operatives and the largest mutual business in the United Kingdom, with interests across food, funerals, insurance, electrical and legal services. Co-operative Group is the UK’s fifth biggest food retailer with more than 2,500 local convenience and medium-sized stores, employing around 70,000 people.
For further information visit www.co-operative.coop.
The property has been registered for VAT. It is anticipated that the sale will be treated as a Transfer of a Going Concern (TOGC).
|Property||Sale Date||Tenant||Term Certain||Sale Price||NIY|
|Fulham Road, London||Dec-19||Sainsbury's||5 years||£2,100,000||4.75%|
|Hampton Road, Twickenham||Feb-19||Co-op||15 years||£2,275,000||4.79%|
|Clapham Road, London||Dec-18||Sainsbury's||11 years||£2,600,000||3.99%|
|Brighton Road, Coulsdon||Nov-18||Little Waitrose||16 years||£5,860,000||4.02%|
|Adenmore Road, London||Sep-18||Sainsbury’s||15 years||£2,102,000||4.25%|
|High Street, Colliers Wood||May-18||Co-op||14 years||£1,730,000||4.90%|
We are seeking offers in the region of £2,650,000 (Two Million, Six Hundred and Fifty Thousand Pounds), subject to contract, reflecting a net initial yield of 5.0%, assuming standard purchaser’s costs of 6.40%.
Please note that a purchaser will be re-charged the cost of the searches and surveys which are provided in the data room.
An opportunity to acquire a new supermarket investment;
The investment provides highly secure from the covenant of Co-Operative Group Food Limited;
New 15 year lease from 2019 with no breaks;
The lease benefits from rent increased in line with changes to the Consumer Price Index (capped and collared annually between 1% and 3%.;
Situated within the affluent London borough of Kinston Upon Thames, with good communications to Central London and the M25 Motorway;
The property forms the retail offering for a flagship new residential development;
A purchase at the asking price will provide an investor with an attractive net initial yield;
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