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EBRD agrees improved terms for headquarters at Exchange Square
New terms and refit of building offer substantial savings over current lease
After extensive analysis of many options, the EBRD today recommended to its Board of Directors to agree new terms for the lease of its current headquarters building at One Exchange Square. The choice was made after long and intensive negotiation with the landlord, The British Land Company plc, and serious consideration of alternative locations.
The decision was driven by the objective of devoting the highest possible portion of resources to the EBRD's mission of fostering transition in the countries from central Europe to central Asia.
The new agreement with British Land significantly improves on the terms of the current lease. The terms of British Land's offer, combined with some planned refitting of the building to economise further, mean that leasing in the current premises represents the most rational choice and is more favourable than any other feasible option.
The new lease terms will run to 2022, with rent maintained at the current level of £18,975,000 per annum and upward only rent reviews in 2006 and every five years afterwards. There will be a 3½-year rent-free period from June 2003. At the end of the lease, no reinstatement of the premises will be required.
Two floors of the building are currently sublet. The EBRD will undertake a review of offices, an auditorium and other open areas to make more efficient use of space and release more space for subletting.
The current lease on the 367,000-square-foot building dates from 1991 and runs through 2016. A break clause that takes effect in 2006 prompted the investigation into alternative locations. The Bank looked into taking advantage of downward price trends by considering a move to another rental property or to purchase a property. After short-listing three potential sites for sale, negotiations were opened with Canary Wharf Group on the purchase of a building, while negotiations were held with British Land on terms for remaining at One Exchange Square.
The decision process included rigorous financial analysis and feasibility studies, and advice from specialist consultants on real estate, safety, legal and other factors. There were extensive consultations with the Board of Directors and members of staff, including on-site visits and presentations at other building sites.
Following the agreement, British Land issued the following comment:
"This is excellent news for British Land and a major endorsement for Broadgate, its premier City of London estate," said Bob Bowden, British Land's property investment director.
"The EBRD is a prime tenant at Broadgate, and removal of the 2006 lease break, together with a lease extension to 2022, is a dual benefit. The lease is for the entire 367,000 sq ft building at a rent of £18,975,000 per annum, the next upwards only rent review being December 2006.
Compared to the delay, risk and expense of seeking a new tenant, this deal makes excellent economic sense. The rent-free period equates to a conventional developer's discount without incurring fitting out costs or fees, and the rental level has been held unchanged together with the existing rent review pattern. The cost to British Land is mitigated by the deferral and the tax saving on the rent that otherwise would be received."
British Land has given no options on taking back any potential surplus space.
Original privity of contract is preserved. At the end of the lease EBRD will not be required to reinstate their works carried out at the commencement of the original term, but will hand the building over in clear, open plan space in accordance with the fully repairing obligations in the lease.
The transaction will mean the weighted average unexpired lease term, including breaks, for the whole of Broadgate, incorporating also the recent acquisition of 1 Appold Street let to Deutsche Bank for 15 years without break, will increase as from 31 March 2003 from 12 years to 14 years. The weighted average lease length to expiry is 15.7 years."
Following are contacts for The British Land Company PLC:
John Weston Smith, Chief Operating Officer tel: 020 7467 2899
Graham Roberts, Finance Director tel: 020 7467 2948
Finsbury:
Faeth Birch tel: 020 7251 3801
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