Important Update 29/01/2020
Aviva Life & Pensions Ireland DAC has a responsibility to treat all policyholders fairly and equitably. Due to recent net outflows from the Friends First Irish Commercial Property Fund, we have taken the decision to move our property fund pricing from an acquisition to disposal basis. This impacts redemption requests received after close of business on Friday 24 January 2020, which is in line with company policy. The impact of the switch in pricing basis is -9.1%. Please see the explanation here to understand more about acquisition and disposal pricing.
Due to recent net outflows from the Friends First Irish Commercial Property Fund, we have taken the decision to temporarily suspend redemptions, including surrenders, and switches, where the request was received after close of business 30th January 2020. If you reach your normal retirement age or you are currently taking a regular withdrawal during this moratorium you will have access to your retirement benefits and current regular withdrawal (at the existing amount) as normal.
Talk to your Financial Broker for more information.
Quarter 4 Activity
- Completion of Enterprise House, Blackrock to an exceptionally high standard. Building handed over to the tenant in early December;
- In Royal Hibernian Way, planning permission was granted to redevelop 12 Duke Lane (office) creating additional office space;
- The rent free period for the new tenant in Trident House, Blackrock has ended, an additional boost to the Fund’s income profile.
- 40.3% Retail
- 9.5% Industrial
- 35.1% Office
- 9.0% Redevelopment*
- 1.5% Other
- 4.6% Cash, assets & liabilities**
* Includes properties under redevelopment that are partially income producing.
**The Fund cash holding at 31 December was 5.4% of the NAV
Quarter 4 Financial Highlights
- Strong fund performance of 8.7% (gross of AMC) over 2019;
- Best performing unit-linked Irish Commercial Property Fund over one and three years annualised;
- Attractive income yield of over 5%.
Lease Expiry Profile - % Net Rent
Based on scenario with all breaks exercised; excludes tenants on a rent free period.
Irish Commercial Property Fund Statistics
Overall fund size (includes cash): €616.3m
Property portfolio size: €538.1m
Annual rental income: €32.0m
Initial income yield: 5.2%
Vacancy rate: 3.0%
WALT: 7 years 3 Months
The Irish Commercial Property market completed a record breaking €7.2bn in transactions for 2019, well ahead of the previous high of €4.6bn achieved in 2014 (CBRE). There was an increased number of ‘mega deals’, the largest being the sale of Green REIT which added significantly to office volumes. The Irish economy continues to perform well, with GDP growth expected to come in at 5.6% for 2019, primarily due to strong export numbers, continued foreign direct investment and further growth in the multinational sector. Reduced Brexit uncertainty has also led to an improvement in economic sentiment. Unemployment is now at a 13-year low of 4.8% (CSO December). With more people in employment, companies have requirements for additional space and consumers have additional spending power – both of which continue to positively impact the property sector. 2019 experienced another strong performance for Irish real estate in terms of occupational take-up, transactional volumes and total returns. Investor sentiment has remained strong, in particular from overseas investors. The office market achieved another strong year. Technology occupiers continue to dominate accounting for almost 50% of the Dublin office take-up (Lisney). The Irish retail sector remains resilient, performing well compared to our UK counterparts. Footfall and turnover remain strong, particularly in prime locations. Retail spending rose 2.8% for the first ten months of the year and almost 3.5% over the Christmas period compared to the same period in 2018 (Retail Ireland).
The sector does face challenges, retailers and landlords need to evolve to meet changing consumer demands in order to keep pace with changes such as online sales and sustainable retail. Activity in the industrial sector slowed towards the second half of the year as supply constraints and Brexit uncertainty surrounding trade and tariffs impacted activity levels. Demand for modern industrial buildings around the M50 remains strong especially for logistics, ecommerce, data centre and food & beverage sectors. Prime office are rents stable at €700 psqm (c.€65 psqft) and as far as €355 psqm, (€35 psqft ) in the suburbs.Prime high street retail rents are currently at €6,250 psqm (€580 psqft), with prime yields at 3.5%. Prime office yields remain at 4%. Prime industrial rental levels improved over 2019 and are now reaching €110 psqm or €10.50 psqft with further increases possible.
Prime industrial yields remain at 5.1%(CBRE). Favourable economic conditions
such as positive GDP growth, full employment and continuing low interest rates are likely to be key drivers of solid real estate performance and activity for the year ahead.
Fund performance to the end 2019 was 8.7% (gross of AMC). Strong performance is being driven by our value-add and redevelopment projects. The Fund’s income profile remains attractive with an initial income yield at 5.2% and a WALT of 7.25 years. The Fund’s cash balance is 5.4% of the NAV. Enterprise House in Blackrock completed and was handed over to the tenant in December 2019. The five storey office building was demolished in 2017 and rebuilt over a two year period to an exceptionally high standard doubling the original office footprint. Benefits will continue after completion as an additional source of sustainable income has been created for the Fund. Blackrock Shopping Centre is undergoing a major upgrade including the installation of a bespoke roof, an impressive, modern entrance, upgrading of the mall areas and improvement of retail units. The project is expected to complete by summer 2020. In Royal Hibernian Way, planning permission was granted to redevelop 12 Duke Lane (office) creating extra storeys of office accommodation and increasing the existing floor plate. Plans have progressed to an advanced design stage. Reconfiguration works will commence during Q1 2019 for the amalgamation of 57 South William Street and 1 Coppinger Row expanding the kitchen and dining area of Coppinger Row restaurant and adding office units overhead. In letting activity, the ‘rent-free’ period for Trident House, Blackrock new tenants has ended. At 5 St. Stephens Green, Carroll’s t/a The Aran Store are occupying the building which was vacated by Coast in late 2019. A break option was removed from the lease of EZ Living at Kilkenny Retail Park and they have committed to a longer term lease. Veridian vacated the second floor at Block A, Ashtown Gate and a marketing campaign is underway to secure a tenant for the vacant floor.
The Fund is very conscious of environmental aspects and sustainability of newly acquired properties, refurbishments and redevelopment projects which are targeting ‘LEED Gold’ rating standards as a minimum. ‘LEED’ is the most widely used global green building rating system.
The exciting redevelopment of Enterprise House, Blackrock completed in early December 2019 to exceptionally high standards. The five storey, 80,000 sq ft building has now been handed over to the tenant Zurich Insurance to be used as their Irish headquarters. It was demolished in 2017 and rebuilt over a two year period to double its original size. The office building is part of a mixed use investment held for the Fund in the centre of Blackrock Village which also includes Blackrock Shopping Centre and Trident House office. Lease terms were agreed with the tenant prior to its demolition thereby reducing risk for the Fund.
Enterprise House is extremely well located in one of Ireland’s most affluent suburbs. It has excellent transport links, a large surrounding population and is an established office location. The area is very accessible by public transport with multiple bus routes and Blackrock DART station within a five minute walk. The N11 and M50 are also easily accessible. Demand for office space in the south suburbs, in particular those with good public transport links increased significantly during 2019. Suburban rental levels remain well below those in the city centre and many companies are taking up space.
In keeping with our environmental policy, the building was constructed in line with ‘LEED Gold’ standards. ‘LEED’ standards or Leadership in Energy and Environmental Design, is the most widely used global green building rating system. All mechanical and electrical systems were designed to minimise energy consumption and energy metering is in place allowing monitoring and reporting of the building’s carbon footprint.
Retail Parks, Naas (The Globe), Carlow and Kilkenny
The Fund owns three retail parks across the east of the country in Naas, Carlow and Kilkenny. An increased supply of new housing completions and home improvements, coupled with the increased availability of mortgages, has underpinned growth in the retail
parks sector. The anchor tenant for all three parks is Woodies DIY (backed by Grafton Group Plc). The company is an excellent
covenant and is trading very well. Woodie’s DIY delivered a strong trading performance during 2019 with a 5.4% increase in revenue.
In order to create additional value in the parks we completed the development of a Coffee Pod in The Globe Retail Park in Naas which was pre-let to Costa Coffee. A similar strategy was later completed for Kilkenny Retail Park. Coffee pods are relatively quick and low cost construction and have led to increased footfall and dwell times in both retail parks. Kilkenny Retail Park was awarded ‘Best Commercial Centre’ by Kilkenny Tidy Towns in late 2019 reflecting the high standards maintained at the site.
Demand for retail, particularly homewares and household goods, is set to continue. There is currently no vacancy in all three retail parks and all are trading well and rental growth prospects are strong.
The parks are well located in demographically strategic locations; in close proximity to each of the towns and importantly are close to major arterial roads with good visibility and accessibility. The large floor space is conducive to both show room and click and collect, last mile depots or e-commerce re-purposing as changing retail demand dictates. We are progressing plans for further ways to add value to some of the sites.
In some tables and charts, due to rounding, the sum of the individual components may not exactly equal the stated totals.
Explanation of “Acquisition/Disposal Basis”
When a fund has positive cashflow (i.e. more cash is being invested in the fund than is being encashed), then it is generally acquiring new assets on a regular basis. In this scenario the costs involved in acquiring assets (for example stamp duty and legal fees) are added to the value of the fund’s assets when the unit price is being calculated, and the fund is said to be priced on an acquisition basis”. The price therefore reflects the cost of transacting in the assets.
When, however, a fund has negative cashflow (i.e. more cash is being encashed from the fund than is being invested) it may have to sell assets. In this case, when calculating unit prices the value of the assets of the fund are reduced to reflect the costs of selling those assets, and the fund is said to be priced on a “disposal basis”.
Change to the Pricing basis of the fund:
A change in a fund pricing basis, from acquisition to disposal basis (or vice-versa) can result in a significant unit price movement within a very short period of time (i.e. the pricing basis can change daily). The value or impact of the change in unit price will depend on the allowance for dealing costs in buying and selling assets within that fund and the value of assets within that fund at the time of the pricing basis change.