Egstow Park, Clay Cross, Derbyshire

Location

Egstow Park is situated on the main A61 Chesterfield to Derby road, 5 miles south of Chesterfield and 1 mile from Clay Cross town centre, situated midway between Junctions 28 &29 of the M1. This brownfield site is undergoing significant redevelopment, being part of the wider Egstow regeneration programme bringing in more than 850 new homes, alongside offices, shopping areas hotel public spaces and woodland.

The objective is to create a fully serviced residential community with excellent communication links to the North and South of the area. The land allocated to retail development has a McDonalds and Marston’s pub already operating successfully and further retail development (non-food and beverage) being allocated to the site under offer from LPS, which is expected to be trading before the last quarter of 2020.

The very busy A61 link road Chesterfield to Derby road, provides significant traffic flow and a great development opportunity.

Situation

LPS have been offered this development from Carnworth Estates Ltd, headed by two very experienced property professionals who are also principals of a property consultancy in Leeds. The developers have Agreements for Lease in place with Costa Coffee (Costa Ltd, owned by the global food and beverage group, Coca Cola Inc.) and Home Bargains (owned by TJ Morris Limited, one of the UK’s fastest growing discount retailers).

Carnworth own the land on long leasehold (250 years), with a peppercorn rent, recently purchased from St Modwen plc. They will provide a turnkey fixed price contract to build the units to Costa and Home Bargains’ specifications within a 30 week build period upon acquisition of the land (expected late February). LPS have agreed Heads of Terms to buy the land and then commit to stage payments during the build, therefore offering the SDLT saving passed on to investors.

It is also of note that the developers have wider interests in this site and are involved in this regeneration scheme with a total value of £133m. This scheme completes the retails aspects of the overall regeneration plan.

 

 

 

Rational for Purchase

The UK discount retail market is set to grow by as much as 40% by 2022, resulting from discounters changing consumers perception of value and constantly undercutting mainstream retailers on branded household products. Home Bargains’ aim is to compete in the non-food and beverage discount market. More than £36 billion is expected to be spent through discounters in 2020 and a significant shift in shopping through retail parks rather than high street stores.

The Drive-thru sector has and continues to enjoy significant growth as consumers shift in behaviour, changes to more frequently buying food and beverage provision ‘on the go’.

Roadside operator requirements are driven today by this more sophisticated consumer base wanting convenience, cleanliness and choice. Busier lives demand convenience and fast service, coupled with more efficient use of land and space, thus providing many opportunities in this sector. Spending in ‘quick service’ coffee outlets in the UK reached £2.1bn in 2017, out of a total of £10.1bn spending in the sector.

For investors, this means there is scope to enjoy long term inflation linked income streams, backed by strong covenants.

LPS have been looking for such opportunities for some time, to provide investors with much needed diversity and we are offering this (our first) scheme of this nature, which has been negotiated off market, with attractive terms.

Purchase Price

The agreed purchase price for the land and construction of the unit is £3.5m inclusive of purchasers’ costs. The land is to be acquired at £650,000, upon the syndicate immediately reaching its initial funding aim.

LPS 007 Ltd will fund the construction with development funding through a fixed price JCT design and build contract, with specified stage payments. an independent surveyor will be appointed, to sign off each stage.

We have negotiated an ‘interest payment’ rebate for the amounts paid during the build period (30 weeks maximum), including the cost of the land purchase, deducted from the balancing payment due at Practical Completion.

This enables us to provide a more attractive investment, than conventionally seen in this sector.

Egstow Park, Clay Cross, Derbyshire

Tenant & Covenant Strength

Costa Ltd are a wholly owned subsidiary of Coca Cola Inc, having been acquired from Whitbread plc in early 2019 for £3.9bn.

The Agreement for Lease is with Costa Ltd (the franchisee, not the operator) and therefore has the strongest possible financial backing for the lease commitment.

Costa itself have gross revenues of £1.29bn worldwide, to the year end March 2018 (last full year prior to the takeover) with Net Profit of £159m.

Coca Cola has gross worldwide revenues of $31.8bn and Gross Profit in excess of $20bn for the year ending 31.12.18. Net balance sheets assets are over $19bn.

Home Bargains is the trading name of TJ Morris Ltd, who are one of the UK’s fastest growing and highest rated retailers.

Founded by Tom Morris in 1976, now with a turnover of more than £2.5 billion, no debt, net profit of £184m to 30.6.19 and more than 500 stores across the UK. people.

Home Bargains now has over 500 stores UK wide, employs more than 22,000 staff and plans to double its store numbers over the forthcoming years. This site matches its new store criteria perfectly.

Investment Details

This scheme will provide preferential terms for early investors, to reflect the attractive terms negotiated for funding this development.

 

Phase 1 Investors

For investors providing funds from launch of the scheme, they will receive interest at a rate of 5% p.a., up to Practical Completion (PC) and the return will then depend on the ‘Income or Deferred Income’ option selected.

Phase 2 Investors

For those investors preferring to join the syndicate at PC, the return will be determined by their preference for ‘Income or Deferred Income’ as follows:

Income or Deferred Income

Income investors will enjoy a return of 5.8% per annum, with income distributed quarterly, gross to your bank account.

A limited number of Deferred income investors will be accepted, who will receive no income for the first 5 years, but will be effectively ‘buying’ a larger share of the syndicate by paying down the borrowing in the scheme e.g. a Deferred Income investment of £100,000 would be worth £140,584 after 5 years representing a return overall of 7.55% per annum on the original investment and an income from year 6 of 8.43% per annum.

Rental Income 

With the tenant secured, the rental yield after management charges and expenses is offering an immediate return of 5.8% p.a.

Based upon the rent review at the 5-year point, and assuming RPI at 2.5% pa compounded and no increases in market rents the returns are likely to increase to 6.25% p.a.

Egstow Park, Clay Cross, Derbyshire

Letting

Both Costa Coffee and Home Bargains has the benefit of a 6-month rent free period from practical completion, the cost of which is being reimbursed by the developer at Practical Completion.

Egstow Park, Clay Cross, Derbyshire

The Lease Details

Tenant:  Costa Coffee

Term:      15 Years with tenant only option to break at year 10

Rent:        £63,000 p.a

Payable:  From October 2020 (estimated)

Reviews:  5 yearly upward only reviews linked to RPI, with collar of 1% and a cap of 4%.

 

Tenant:  T J Morris Ltd T/A Home Bargains

Term:      15 Years unbroken

Rent:        £150,000 p.a

Payable:  From October 2020 (estimated)

Reviews:  5 yearly upward only reviews of the lower of 2% pa compounded or market value.

Egstow Park, Clay Cross, Derbyshire

Borrowing

The syndicate intend to raise limited borrowing on this scheme, backed by ‘Deferred Income’ investors.

floor plan

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