Morgan Stanley December 2016 Report & Valuation CityPoint, One Ropemaker Street, London EC2 savills.co.uk 14 December 2016 Ian Malden E: [email protected] Ref: WEVA380886/EMCS/CEHA DL: +44 (0) 207 409 8894 Morgan Stanley Fixed Income & Commodities 33 Margaret Street 20 Bank Street London Floor 03 W1G 0JD Canary Wharf savills.com London E14 4AD For the attention of Dominic Rea Dear Sirs, BORROWER: BSREP CITYPOINT BIDCO LIMITED PROPERTY: CITYPOINT, ONE ROPEMAKER STREET, LONDON EC2Y 9AW In accordance with the instructions as confirmed in our letter dated, 14 December 2016, we have inspected the property, a landmark multi-let freehold City investment, and made such enquiries as are sufficient to provide you with our opinion of value on the bases stated below. Our letter confirming instructions is enclosed at Appendix 1. We draw your attention to our accompanying Report together with the General Assumptions and Conditions upon which our Valuation has been prepared, details of which are provided at the rear of our report. We trust that our report meets your requirements, however should you have any queries, please do not hesitate to contact us. Yours faithfully For and on behalf of Savills Advisory Services Limited EDWARD SHAKESPEARE MRICS CHARLOTTE ASCHAN MRICS IAN MALDEN MRICS RICS Registered Valuer RICS Registered Valuer RICS Registered Valuer Director Director Director Offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Savills Advisory Services Limited. Chartered Surveyors. A subsidiary of Savills plc. Registered in England No. 6215875. Registered office: 33 Margaret Street, London, W1G 0JD Report & Valuation CityPoint, One Ropemaker Street, London EC2Y 9AW Contents Executive Summary 1 1. Instructions and Terms of Reference 7 1.1. Instructions and Report Reliance .......................................................................................................................... 9 1.2. Background ........................................................................................................................................................ 12 2. The Property, Statutory & Legal Aspects 15 2.1. Location .............................................................................................................................................................. 17 2.2. Situation .............................................................................................................................................................. 22 2.3. Description .......................................................................................................................................................... 23 2.4. Accommodation .................................................................................................................................................. 30 2.5. Condition ............................................................................................................................................................ 32 2.6. Environmental Considerations ............................................................................................................................ 34 2.7. Town Planning .................................................................................................................................................... 35 2.8. Taxation .............................................................................................................................................................. 37 2.9. Tenure ................................................................................................................................................................ 37 2.10. Occupational Leases .......................................................................................................................................... 42 2.11. Strength of Tenants’ Covenant ........................................................................................................................... 48 2.12. Marketing of Vacant Accommodation ................................................................................................................. 54 3. Market Commentary 55 3.1. Macro Economic And Property Market Overview ............................................................................................... 57 3.2. City of London Office Occupational Market ........................................................................................................ 57 3.3. Retail Occupational Market in Central London ................................................................................................... 70 3.4. City Investment Market Commentary .................................................................................................................. 74 4. Valuation Advice 91 4.1. Principal Valuation Considerations ..................................................................................................................... 93 4.2. Approach To Valuation ....................................................................................................................................... 99 4.3. Valuations ......................................................................................................................................................... 106 4.4. Indication of Reinstatement Cost ...................................................................................................................... 107 5. Loan Security 109 5.1. Suitability As Loan Security .............................................................................................................................. 111 6. General Assumptions & Conditions to Valuations 115 6.1. General Assumptions and Conditions ............................................................................................................... 117 Appendices 119 Appendix 1.0 Instructions 121 Appendix 2.0 Schedule of Tenancies 123 Appendix 3.0 Macroeconomic and Property Market Overview 125 Appendix 4.0 Development Pipeline Chart 127 Appendix 5.0 Argus Capitalisation Printout – Existing Income Profile 129 Appendix 6.0 Argus Capitalisation Printout – Topped-Up Income Profile 131 Morgan Stanley December 2016 5 Report & Valuation CityPoint, One Ropemaker Street, London EC2Y 9AW Executive Summary Morgan Stanley December 2016 1 Report & Valuation CityPoint, One Ropemaker Street, London EC2Y 9AW Morgan Stanley December 2016 2 Report & Valuation CityPoint, One Ropemaker Street, London EC2Y 9AW Executive Summary Morgan Stanley December 2016 3 Report & Valuation CityPoint, One Ropemaker Street, London EC2Y 9AW Background and Proposal The building was originally constructed in 1967 as a headquarters building for British Petroleum. By the 1990s, the building was largely obsolete, such that an extensive refurbishment of the building, designed by Sheppard Robson International, was undertaken and completed in 2001. Following completion of the redevelopment works, the building comprised 707,300 sq ft (65,708 sq m) was re-branded as CityPoint and now extends to an aggregate net internal area of 709,501 sq ft (65,915 sq m). On 15 January 2006 a consortium comprising UBS Global Asset Management (UK) Limited, Schroder Exempt Property Unit Trust, Caisse De Depot Et Placement Du Quebe and Tishman Speyer Properties UK Limited, purchased the freehold interest from CLOUT Limited, for a consideration of £520.0M. Following a short holding period by the above mentioned consortium, the property was comprehensively marketed by CBRE in February 2007. The property was subsequently acquired by Beacon at a price of around £660.0M in May 2007 and the acquisition was financed with the benefit of a loan from Morgan Stanley. The loan was securitised by Morgan Stanley in July 2007, in the £429M Ulyssses ELoC 27 CMBS, in addition to which was a two tranche £106M junior loan, of which £18.0M was repackaged in a B-Loan Repackaging Programme, known as Hillenbrand Partners. The original loan was due to mature in July 2014. Interest payments were suspended on the junior loan, and the underlying securitisation, in February 2012, and in May 2012 consensual restructuring negotiations between Beacon and CMBS bondholders and the junior lender collapsed and the property was subsequently placed into receivership in October 2012. It was subsequently announced in November 2014 that Brookfield Office Properties had purchased the junior loan for a sum of understood to be in the order of £70.0M to £75.0M. We understand that in June / July 2016 the receivers approached 15 parties in relation to a potential sale of the property. Of these initial parties circa 7-8 progressed to the second round where they inspected the property and were given access to a data room. First round bids were received on or around 17 October 2016 and our understanding from the vendor’s agents, GM Real Estate, is that around six parties submitted bids, and following the initial first round bid stage discussions progressed with 2-3 parties, and ultimately the property was placed under offer to Brookfield, your Sponsor, at an agreed price of £561.5M, this being a transfer of the shares of the SPV entity. Our Report and Valuation is required in connection with the proposed loan. Property Overview CityPoint is a landmark office building located to the north of the City core on Ropemaker Street at its junction with Moor Lane, immediately to the east of the Barbican Arts and Conference centre. The area benefits from reasonable