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 1 Activity
- Progression of redevelopment works at Blackrock Shopping Centre, including a significant upgrade of retail units and common areas; a new glazed roof is in now place;
- Over 68% of rent is contracted for more than five years;
- Planning submitted for the proposed redevelopment at Merrion Row comprising of commercial space at ground floor level and build to rent units on the upper levels.
- 39.2% Retail
- 9.6% Industrial
- 35.9% Office
- 9.4% Redevelopment*
- 1.5% Other
- 4.4% Cash, assets & liabilities**
In some tables and charts, due to rounding, the sum of the individual components
may not exactly equal the stated total(s).
Actual cash balance of the fund at 31 March is 5.2%
Quarter 1 Financial Highlights
- Annualised return of 7% since inception1;
- Top 10 Tenants account for over 55% of rent, these tenants represent strong covenants;
- Attractive income yield of 5.2%
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): €548.3m
Property portfolio size: €531.0m
Annual rental income: €31.3m
Initial income yield: 5.2%
Vacancy rate: 3.6%
WALT: 7 years
- Redevelopment Vacant
As Covid-19 continues to spread globally and in Ireland, the impact on the local economy is clearly visible. The most notable impacts across Irish commercial property markets will be uncertainty surrounding valuations, rent collection and a reduction in transactional activity across investment and occupier markets. To date there has been a short and sharp impact on the Irish economy with the Central Bank estimating a GDP fall of -8.3% during 2020, compared with strong growth of 5.5% during 2019, which was the highest in Europe for a sixth consecutive year(1). The Central Bank also estimates unemployment will have moved from 4.8% (effectively full employment) in February to an average of 14% for 2020(2). The Irish Government has responded to the Covid-19 crisis by introducing a number of key policy measures to support the Irish economy, including income support and support for businesses. Globally, continued fiscal and monetary stimulus is expected to aid beleaguered World economies. Despite the unprecedented uncertainty towards the end of quarter one 2020, Irish commercial property markets experienced a strong quarter, with the second highest level of office take up in ten years. Much of the office leasing activity for the quarter took place in the suburbs with technology and financial services companies dominating the take up of space. The largest letting was by Mastercard at South County Business Park, near our fund’s two properties within the same park. The impacts of the current crisis will become more apparent during quarter two 2020 as investors are now adopting a “wait and see” approach to transactions. Of the main sectors, offices and logistics are holding up well. Office rental levels have not seen a deterioration thus far although demand has slowed as decisions regarding expansion are being put on hold as business continuity is the primary consideration for most companies. Logistics experienced significant demand during quarter one 2020, in particular those related to the supermarket and pharmaceutical sector and there was no deterioration in rental levels. The retail sector has been the most affected during the crisis and the closure of non-essential retail outlets is continuing to negatively impact the sector’s performance. The potential for online shopping has been impacted also by Covid-19 restrictions and the companies’ necessity to keep staff in warehouses safe, as well as a general reduction in disposable income as people are less certain about their employment.
Many retailers are struggling to pay rents. Prime office rents remain stable at €700 per square metre with prime industrial rents stable at €110 per square metre. Prime office and industrial yields have remained unchanged during the quarter, at 4% and 5.2% respectively(3). Lisney moved out prime retail yields (bar grocery and pharmaceutical sectors) by 0.25% to reflect market sentiment to 3.75%(4).
1. Source: Central Bank 3 April 2020.
2. Source: CSO February 2020.
3. Source: CBRE 31 March 2020.
4. Source: Lisney 31 March 2020
For most of quarter one 2020, prior the arrival of Covid-19, activity within the portfolio continued at a strong pace. Redevelopment works progressed at Blackrock Shopping Centre, the new bespoke glazed roof is now in place and the upgrade of retail units and common areas has progressed well. As is the case for all construction sites during Covid-19 works are currently suspended with only three months’ work left to complete the Blackrock project. Letting of vacant units has commenced within the shopping centre with two leases signed post quarter end. Preparation for Phase Two of the Royal Hibernian Way upgrade, the redevelopment of 12 Duke Lane (office) creating additional office space, is well underway. Planning was submitted during the quarter for the proposed redevelopment at Merrion Row, seeking to construct a six storey building comprising of commercial space at ground floor level and accommodation on the upper levels. We are at the advanced stages of the sale of a property within the portfolio, with two further properties at earlier stages of their respective disposal processes. The Fund is well positioned to navigate the current uncertainty, with our top 10 tenants accounting for c.55% of rent and these tenants represent very strong covenants. The retail component of the portfolio will be most
impacted in the short term, both in terms of rent collection and valuations. A large portion of retail rent derives from two large grocery anchor stores (SuperValu in Blackrock and Swords), with grocery being the most resilient of the retail subsectors at present. Retail parks (accounting for 18% of total rent) are expected to be a subsector that will rebound quickly, when residential property transactions recommence. There is currently no debt within the Fund.
While rent pressures are inevitable in the short term, we have strong relationships with our tenants and are proactively engaging with them in order to ensure that they can return to trading and occupancy as soon as the restrictions are lifted. This is in the best interests of the Fund, our policyholders and our tenants.
Sustainability and ESG considerations (Environment, Social and Governance) remain a priority with a full ESG gap analysis underway, autism hours are being introduced into our retail parks and e-chargers are at an advanced stage of being introduced at the retail parks, which are some of the initiatives taking place during 2020.
March 2020 valuations saw a -1.74% adjustment downwards, largely driven by an outward shift in the retail yields as a reflection of the Covid-19 pandemic. The Fund continues to be priced on a disposal basis and remains subject to a moratorium of up to six months
Unit 6, Ard Oran, Oranmore, Galway.
Ard Oran is an impressive modern office building situated in a prominent position at the junction of the N6 Galway-Dublin road and N18 Galway-Limerick Road in Oranmore with access to all of
Galway’s arterial roads. Oranmore is a long established business location approximately two kilometres from Galway city. The area of Oranmore is recognised as one of Galway’s prime areas to
live and work. This impressive Galway office block comprises of a modern four storey over basement building finished to a high specification in Oranmore Business Park. The building comprises almost 50,000 sq ft and includes a basement and surface carpark with 140 car parking spaces.
The tenant, Cisco, is a multinational corporation that designs and sells communications technology and services, and is headquartered in San Jose in California. They are in occupation on a long lease since November 2007. Galway has attracted a high volume of foreign direct investment in recent years with strong occupier demand in the city. The property is currently yielding over 8.5%.
Unit B, Merrywell, Dublin 12.
This is a good example of a core property with long income in place, forming part of the foundation of the Fund’s strategy pyramid. This industrial property situated on a private gated site
of c. 9.4 acres with 190 parking spaces. It is located adjacent to and within the M50 in the Ballymount area, one of Irelands most popular warehouse locations. The area includes occupiers such as An Post, DHL and Smurfit. Its location within the M50 gives it a further advantage due to ease of access to the city centre. This industrial property comprises a high bay warehouse and distribution facility built in two sections with ten and twelve meter eaves and eighteen dock levellers (for loading and unloading goods) – each being important features for industrial properties. In addition to the industrial unit, the property also includes two storeys of corporate offices.
The tenant Valeo Foods is Ireland’s leading producer of branded food products with a portfolio of iconic food brands including Odlum’s, Batchelors, Jacob’s, Roma and Chef brands. Valeo uses this unit as its main Irish distribution centre and the group employs over 100 people here. The property is currently yielding almost 6% with a long lease of over nine years until the next break option.
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.