Property Update Summary
Quarter 3 Activity
- Acquisition of three exciting investments: large Industrial Unit in Dublin 12, collection of four retail properties in Dublin 2, and a large, modern office in Galway
- Phase 2 planning achieved for upgrade of Royal Hibernian Way Retail Mall
- Kilkenny Retail Park is now fully let
- 44.82 % Retail
- 10.39% Industrial
- 31.77% Office
- 2.11% Redevelopment
- 10.91% Cash*
* Includes cash, assets and liabilities.
Quarter 3 Financial Highlights
- Top 10 tenants account for almost 60% of rental income
- Almost 70% of the property portfolio is held in core, income-producing, investments
- Equivalent yield of 5.62%
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): €509.0m
Property portfolio value: €436.9m
Annual rental income: €24.4m
Initial income yield: 5.29%
Equivalent yield: 5.62%
Vacancy rate: 5.68%
WALT: 8 Years 3 Months
Ireland is the best performing Eurozone economy for three consecutive years, with 2017 expected to be the fourth. Unemployment is now 6.1% (which is the lowest in over nine years) and Gross Domestic Product (GDP) growth forecast has continued its upward trajectory and is now expected to come in close to 4.5% for 2017).
These excellent macro indicators provide a positive backdrop for the Irish property market. Following an exceptionally strong trading year in 2016, the level of investment is returning to a more normal level. €1.3bn of commercial property deals completed in the first nine months of the year, with Q4 expected to be an active quarter as a result of some large investments which have recently launched to market. Investment continues from a combination of domestic and overseas buyers, including a recent increase of core investors from Europe. International investors tend to favour larger lot sizes, which have been scarce so far this year. It is expected that some of the developments which are under construction may be placed on the market when closer to completion and partially or fully pre-let. This should bring a new flow of deals to the market over the coming 12-24 months, aimed at long-term, “hold for income” investors. In addition, the first batch of properties that were eligible for the Capital Gains Tax (CGT) tax break (those purchased between Dec 2011 and Dec 2014) are just over a year away from tax relief realisation, and this should bring with it a supply of stock to the market. Prime yields remained stable across the office (4.5%) and industrial (5.5%) sectors, whereas the retail sector experienced slight yield compression (3.2%) (Lisney). While market-driven capital appreciation continues (mainly due to increasing rental levels), it is at a slower pace than in recent years. As such, total property returns going forward are expected to be driven more by income than capital.
Q3 was an active time for the Fund, in terms of acquisitions, lettings and redevelopment projects. Three acquisitions were made on behalf of the Fund. A including large industrial asset let to Valeo Foods (Jersey) Ltd is an excellent addition to the portfolio, with a long lease and an initial yield of c.5.75%. An office property let to Cisco, in Oranmore in Galway was also acquired for the Fund, at a very attractive initial yield of over 9%. Most recently, the Merrion Collection, a portfolio of four retail assets on Merrion Row in Dublin 2, was acquired at a yield of c.5%. This is a very exciting investment with a medium term, value add strategy. Royal Hibernian Way retail mall due to commence on site in Q4, and terms are being finalised with the preferred tenant for the larger restaurant unit. It is expected that both new restaurant units will be pre-let, which de-risks the redevelopment. Similarly, the redevelopment of the Blackrock properties is progressing, including preliminary works on Enterprise House which are due to begin in Q4. Planning was granted during Q3 for the exciting upgrade of the shopping centre, with “back of house” works already underway. The performance YTD is 3.8%, and 5.9% on a 12 month rolling basis. This has been somewhat muted by the redevelopment projects, as capital values have fallen due to tenants vacating in preparation for the works to commence on site. In addition, some capital expenditure accruals have been accounted for in the Fund’s net asset value. Friends First will progress significant asset management initiatives to deliver capital value improvements on existing assets over the coming three years. Investors should take a medium to long term view if investing in the Fund in order to experience the outcome of the larger redevelopment projects, Royal Hibernian Way and the Blackrock properties. The Fund’s income profile continues to be very attractive, with a strong initial income yield at the property portfolio level of 5.3% and a weighted average lease term (if all break options are exercised) of eight years three months. The top 10 tenants (by rental level) account for almost 60% of the rental income. These tenants are of exceptionally high standard (Woodies, Musgrave, Tech Group and OPW for example) and underpin the quality of the Fund’s income stream.
Merrion Collection, Merrion Row, Dublin 2
At the end of September, Friends First, on behalf of the Fund, acquired
the high-profile Merrion Collection on Merrion Row, an exceptional
location just 300m from St Stephen’s Green. The portfolio of properties
was acquired at an initial yield of c.5%. The acquisition includes the
well-known Unicorn Restaurant, Marcels, the vacant Nationwide building and No. 5 Vinoteca wine bar.
This is an exceptional opportunity to acquire a collection of properties in a high profile city centre location that offers a wide variety of potential options for the owner. These properties are an excellent fit for the Fund, and for Friends First’s skill set, as an active asset manager.
This portfolio offers a variety of options to Friends First over the medium
term, including the refurbishment and amalgamation of the existing
buildings, re-gear of the existing leases or redevelopment of the overall
portfolio. Previous planning permissions (which have now lapsed) would
indicate that the scope for redevelopment for this overall site is significant.
Cisco, Ard Oran, Galway
During Q3, Friends First acquired a modern office building, in the
Oranmore Business Park in Galway, let to Cisco Systems Internetworking (Ireland) Limited. Oranmore is a long established business location, and the business park is in a prominent position at the junction of the R446 dual-carriageway and N18 Galway- Limerick Road. The M6 Galway- Dublin motorway is easily accessible two kilometres north of the property.
Cisco is a multinational corporation that designs and sells communication technology and services. The building is laid out over
four storeys (over basement) and extends to 4,613sq m (49,694sq ft). The basement car park accommodates 99 cars, and there is also surface parking for an additional 42 cars.
The acquisition price reflects an initial yield of over 9% which will be accretive to the overall portfolio yield, in line with the Fund’s income-focussed strategy, while also exploring value add opportunities. Cisco has occupied the building on a 25-year lease from 2007, with the next break option occurring at the end of 2022.
Important Returns Note
The return(s) shown are based on bid-to-bid performance of the funds quoted and as such do not represent the returns on insurance contracts linked to these funds; returns on insurance contracts linked to these funds would be lower due to additional charges. Details of all charges for the Friends First fund are available on request.
General Advice Disclaimer
The information on this page does not constitute investment advice. It does not take into account the investment objectives, financial position or needs of any particular investor. Before making an investment decision, you should consult suitably qualified and independent investment, taxation and regulatory advisors to discuss your specific situation and investment objectives. The investment strategies and risk profiles outlined in this page may not be suitable for your specific investment needs.
Warning: If you invest in this product, you may lose some or all of the money you invest.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment can go down as well as up.