Barnett Ross Pre-Auction Snapshot – Stafford, July 2018

Blue Alpine’s Proprietary Scoring: Pre-Auction

Locational Analysis:

Stafford is the county town of Staffordshire, in the West Midlands of England. It lies approximately 16 miles north of Wolverhampton, 18 miles south of Stoke-on-Trent and 24 miles north-west of Birmingham. Stafford has a population of approx. 68,472 and the GDHI (gross disposable household income) per head of £18,017. Looking at nearby property sales for Stafford, from January 2017 to January 2018, the total value property sales were approx. £431 million and the total number of property sales 1,988 transactions.

Snapshot of Property Pre-Auction:

Tenancy & Accommodation:

The entire property is let on a full repairing and insuring lease to H. Samuel Limited as a Jewellers (having over 300 branches) (T/O for Y/E 30/01/16 £247.4m, Pre-Tax Profit £17.9m and Shareholders’ Funds £103.9m) for a term of 5 years from 12th February 2016 at a current rent of £41,000 per annum exclusive reducing to £15,000 per annum exclusive from 12th February 2019.
Mutual Rolling Break from February 2019 on three months’ notice.

The property provides the following accommodation and dimensions:

Rent Demand for Remaining of Lease (until 11^th Feb 2021)

Note: Rental Demand Analysis – Assuming Six Week Completion (29th August 2018)

Blue Alpine’s Pre-Auction Commentary (PAC):

This property is entirely let to H Samuel Limited until 2021, so 3 years remaining on the lease. The property is a mid terrace building comprising a Ground Floor Shop with internal access to Ancillary Accommodation at first floor level.

This property is located in a prime location in the heart of the towns’ pedestrianised retail thoroughfare, adjacent to Rymans and amongst such multiples as Costa, Boots, Greggs, Trespass, Sports Direct, William Hill and many more. Stafford is the County Town of Staffordshire, situated approximately 25 miles north of Birmingham.

The pre-auction yield is 41.00%, we consider average yields for the Stafford area to be between 7% – 10%. The pre-auction guide price has factored in the future reduction of rent in February 2019 to £15,000 per annum (yield 15.00%).

The current Rateable Value for the commercial shop unit is £73,000, while the rent is £41,000. The previous Rateable Value was £73,000 in 2010. However, the rateable value seems to have fluctuated significantly between 2010 to 2017 (screen shot of rateable website below).

This Lot is for an experienced property investor that is willing to take a bigger risk for potentially higher future return on investment.

This is a tricky Lot to analyse as the rateable value suggests an investor should be getting a lot more rent, but the situation is that the rent and rateable value are too high for anyone to sustain a profitable business.

In our opinion, the rates and expected rental need to come down, but this is a long process for the council to undertake.

The way we look at this property is that an experience investor would aim to purchase the Lot around the guide price and H Samuel Limited stay in occupation. In this situation the investor would receive the £15,000 p.a. rental demand, which is a 10+% yield.

However, the investor bears the risk that H Samuel Limited vacate and he/she are stuck with a sizable business rates bill.

To minimise downside risk, the investor would want other options on the building such as developing the uppers and would ultimately be looking to see if he/she could get a tenant to sign a long-term lease at a more affordable rent of £20,000 – £25,000k.

This is not a straight forward investment and would only be for a cash buyer who is prepared to take a risk with a potentially big reward but is also aware that this could become a liability and they could lose money.