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CITY EQUITIES OCTOBER MAGAZINE -
CAN OAK GET THE NOD? - Vote YES!

In this section we question CEO Steve Lewis about Oak Holding's exciting and ambitious YES! project to turn former coalfield land in Rotherham, South Yorkshire into a £270m mixed leisure/entertainment property development. We also find out about the Group's consultancy arm and what lies beyond the YES! project.

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Q What is your background and how did you first become involved with Oak and the YES! development?

Oak Holdings Ltd was formed some five years ago by a collection of individuals that had a sound and solid working relationship over the years to focus on leisure development. The concept of a new genre of very high quality all year round leisure entertainment was formed at an early meeting and became the catalyst for the growth of Oak and eventual reversal into AWG. A number of potential sites were investigated and eventually the Rother Valley site was selected as having the best demographics and transport links. In terms of my experience, I started work training as a building surveyor with MEPC, which at the time was the second largest property group in Europe. From there I joined St Martins Property, where I worked for nearly 10 years and was introduced to Brian Cann and Malcolm Savage (now Oak Holdings' Chairman). A strong bond and working relationship then developed with Malcolm. From St Martins, I joined Grosvenor Estates as Director of their specialist development company, Wheatsheaf Investments, where I was responsible for such projects as the major redevelopment in Brook Street next to Claridges, amongst others. I have also worked for Estates and General and Planet Hollywood, as well as Heron International.

Q Oak Holdings has two sides to its business. Could you briefly expand on what they are and what synergies exist between them?

Oak is now successfully developing a consultancy side to generate immediate income streams. Whilst the Board's skills are clearly suited to large-scale development, these have the attendant problems of long gestation periods and onerous demands on cash during the development phase. Oak perceived that there was a niche in the market, whereby passive investors and other participants in the property industry did not have the experience or skills in leisure development. Oak also identified that there was a clear gap in the market place for investors that neither had the inclination nor time to actively manage their property interests. This is particularly true of foreign investors. Oak realised it was in a unique position to offer added value services at competitive rates from the perspective of a surrogate client. The experience within the Board lay primarily with major asset owning organisations and with actively managing portfolios. The differentiator with Oak is that it not is constrained by corporate guidelines; the need to hit specific targets or concentrate on a particular field of activity. Moreover our innovative approach in discounting fees to secure a carried interest is a way of encouraging clients to avail themselves of the services and for us to be rewarded by performance on enhanced asset value.

Q Can you tell us about some of the tenants you have secured for the YES! project and the facilities they will be providing?

Organisations that have already been secured for the YES! Project are the Baydrive organisation, who run the innovative Top Golf and Top Chip golf driving concepts, being rolled out worldwide. Venture Xtreme, soon to become Europe's largest extreme sports operator, Sony and Venue Solutions for the indoor entertainment facilities and technology solutions. Advanced discussions are taking place with two particular hotel groups, one a major player in the short break leisure market which is also interested in providing the largest spa facility in the UK. Other potential tenants have been keen, but we have deliberately held back commitments to secure sufficient critical mass to support the planning statement and not to enter into inappropriate agreements prematurely.

Q How much of a setback has it been to drop plans for a cinema, theatre and bowling alley to gain the backing of Sheffield City Council for the project?

The “perceived setback” due to dropping the cinema, theatre and bowling alley is not a concern for two principal reasons. First the cinema and bowling were merely additional facilities to broaden the spread of offer. They did not substantially affect the viability of the scheme. Other facilities have replaced these, which are more sports orientated, and potentially more lucrative. The removal of the theatre, whilst a disappointment, does not impact on the viability nor the appeal of the scheme. Secondly, development is the art of the possible, and it is far more important for the company and its shareholders to secure an early consent rather than as it were die on one's sword over a particular issue. To secure the support of Sheffield was absolutely vital in avoiding a heavily contested Public Inquiry.

Q What other companies are being sought to fill these ‘gaps' and provide services?

There is keen interest in the hotel elements, but it is premature to tie down any operator at this stage. The convention facilities are being offered as a package with the hotel and this has increased the attractiveness to hotel operators. Other operators are in discussion with us; for instance a major brewery group and food chain wish to offer a unique brewery experience and food academy. These will be attractions that have wide appeal and currently do not exist in the UK. A number of other organisations have registered interest, but these will be progressed once the result of the planning application is known.

Q Do you have a target for the number of tenants that you need to secure to reach a ‘critical mass'?

We do not have a target for the ultimate number of tenants. Our aim to provide best of breed and indeed new concepts that will capture the imagination. For example a traditional restaurant may occupy a 1,000 – 2,000 sq ft in a smaller unit, where as food academy will be nearer 10,000 sq ft. We have already secured sufficient interest to support the planning application.

Q How exactly will Oak generate revenue from the project? Will it come from consultancy fees and/or rental income or another source?

Oak will generate revenue by way of securing a development management fee during the development phase. This will become due once the development loan is secured upon planning and signing agreements for leases on critical mass of around 40% of the net lettable area. This fee will provide substantial income during the development phase and allow the project to be properly serviced. Once opened the rental income will be secured. Further into the design phase, opportunities for sponsorship, naming right associations, softer income such as advertising, short term lets and other promotional opportunities will be explored fully.

Q When do you expect to hear about planning consent for YES! and are the signs pointing towards a positive outcome?

The revised planning application was lodged on Tuesday 13 September 2005. The Planning Committee is liable to determine either in November or December. The time lag is due solely to the consultation period with the statutory authorities, particular the Highways Agency. Whilst there is a statutory period within which applications must be determined, the statutory bodies have license to comment at any time and it would be foolish for the local authority to determine until their views have been crystallised and embodied in writing. From this, the Government Office then has 28 days to decide whether to call in the application or refer it down to the Office of the Deputy Prime Minister (ODPM). We anticipate learning the outcome in late 2005 or early part of 2006. Indeed all our activities have been focused around securing an early consent without the need of a Public Inquiry. We have exercised ourselves to ensure that we have consulted with all interested parties and have expended a great deal of time and effort in lobbying and communication.

Q What other hurdles are yet to be cleared in the planning application process and what recourse is there should there be a problem?

As mentioned, the final hurdle is that of securing approval from the statutory authorities, in particular the Highways Agency. There are, of course, still technical planning issues that have to be addressed, but our planning case is robust. Sight should not be lost, however, that this site was offered as a major development opportunity for a world class tourist destination. The site was offered by the local authority and government agency. Therefore the principle of the development cannot be hidden behind a planning technicality.

Q Assuming consent is gained, how will the £270m project be financed and when will the first bricks be laid?

The project will be financed by way of a traditional development loan, which will be taken out by a long term fixed rate bond upon completion of the development and the scheme opening to the public. Depending on the procurement method, it is anticipated that if consent is granted during the early part of 2006, then the initial phase of infrastructure works could be commenced in September 2006, but certainly before the end of the year.

Q If YES! is a success, will it prompt the Company to look for another similar regional project, or is YES! Oak's sole raison d'être?

YES! is certainly not Oak's ‘raison d'etre', but merely a springboard to Oak's future intentions. The concepts are well established in investment principles and are both scalable and relocatable. The maturity and solidity of the business case of the YES! Project has bought other opportunities both here and abroad. Oak will not be a one trick pony, nor will it be confined to developments of the nature of project envisaged of YES! However, it will be very circumspect in the areas it seeks to promote activities to ensure that it identifies opportunities where its skill base can add real value.

Q The shares have a comparatively modest trading range, but have recently been attracting more interest. Do you have an expectation for potential upside on the back of success?

Naturally, Oak is a young company and YES! is an ambitious property development. However, the steady growth of consultancy activity over recent months and the steady but positive flow of news generated by securing solid consultancy projects and other development opportunities augers well for the future. We are certainly not looking for spectacular leaps, but sustainable solid growth that is underpinned by a sound business philosophy.

Q Whilst you have only called on the City once for funding since the reverse takeover, has it been beneficial working with and seeking finance from institutions such as City Equities Ltd?

Oak has been very circumspect of how it has dealt with the City so as not to fall into the trap of being seen to be consistently calling on shareholders to feed an ambitious development program. Our resources have been marshalled meticulously and our budget performance exemplary. The Board recognises the risk of merely placing cash calls without a solid philosophy within the Company and a development program that is complimented by other forms of income producing activities. The experience of the last round of funding was with the confidence shown by companies such as City Equities proved to be most encouraging.

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