Irish Real Estate Update

Transcription

1 The Irish Real Estate Investment Market Transaction volumes in the Irish Market remain exceptionally strong with c. 3.bn of assets changing hands over the course of, some 1.2bn of which transacted in the fourth quarter of the year. Overseas investors continue to play an important role albeit that the profile of these investors has changed over the past year with core style investors now replacing the opportunistic funds that had been active earlier in the cycle. It was also a very busy year for the Irish institutional property funds which were particularly acquisitive in the prime sectors of the market. 1 Market Performance and Pricing MSCI (formerly IPD) reported that Irish commercial property produced a total return of 25 in. The combined effect of contraction in yields and growth in rental values gave rise to an increase in capital values of 18.7 over the course of the year while a strong income return made up the balance of the total return figure. At the end of December MSCI reported that the equivalent yield on Irish commercial property stood at 5.8 which is some 7 basis points lower than that recorded 12 months previously. 2 Irish Occupational Property Markets Office Sector Office letting agents reported very strong levels of take up in the Dublin market throughout with c million sq.ft of space transacted, representing a 25 increase over that recorded in 21 and some higher than the 5 year average. These levels of take up are the highest experienced in the Dublin market since 27. The strength of letting activity has lead to further reductions in vacancy rates which now stand at c. 7.8, down from c recorded 12 months earlier. There is now c. 3 million sq.ft of office space under construction in the city, some 9, sq.ft of which is due to be completed in 216 (61 of this figure is either reserved or pre-let). Prime quoting rents for offices in Dublin City Centre stand at between 55 6 per sq.ft per annum and c per sq.ft per annum in the Dublin Suburbs. 1 Irish Commercial Real Estate Returns Dec Dec Capital Growth Income Return Total Return Source: Bloomberg/MSCI (formerly IPD). Irish Equivalent Yields vs. Bond Yields Dec Dec Property Yield Spread Over Risk Free Rate MSCI (formerly IPD) All Property Equivalent Yield Yield on BofA Merrill Lynch 5+ Yr Euro Gov Index Source: SSGA Real Estate, MSCI (formerly IPD) and Bloomberg. Current Yield Gap V. Risk Free Rate Long Term Yield Gap Top Five Transactions of Property Sector Reported Price Purchaser Project Molly Office Portfolio Office c. 35m Starwood REIT & 5 Grand Canal Square, Dublin Office c. 233m Union Investment Elm Park, Dublin Mixed Use c. 19m Starwood REIT Whitewater Shopping Centre, Newbridge, Co. Kildare Retail c. 181m Deka The National Shopping Centre Portfolio Retail c. 177m Davidson Kempner Source: Jones Lang La Salle.

2 Yield Environment Approximate Equivalent Yields Dec 29 Dec 2 Dec 211 Dec 212 Dec 213 Dec 21 Dec Prime Retail Grafton Street Henry Street Prime Offices City Centre Suburban Industrial Prime Distribution Source: SSGA Real Estate and Jones Lang LaSalle. Market Pricing Irish Real Estate Equivalent Yield Yield on BofA Merrill Lynch 5+ Year Euro Govt. Index Property Yield Spread (i.e. Property Yield minus BofA ML5+ Yield) Dec 27 Dec 28 Dec 29 Dec 2 Dec 211 Dec 212 Dec 213 Dec 21 Dec Source: SSGA Real Estate, Bloomberg and MSCI All Property Equivalent Yield. The calculation method for value added returns may show rounding differences. Retail Sector Over the past two years Dublin s prime high streets have experienced a revival with the influx of a number of new occupiers including Space NK Apothecary (store managed by SSGA), Hugo Boss (store owned by SSGA PUT), Molton Brown, Lifestyle Sports and Massimo Dutti on Grafton Street alone. Competition among occupiers for units in prime locations has led to reductions in vacancy rates and improvements in rental values. The recovery in rental values has been most pronounced on Grafton Street where prime rents increased by c in. 3 Industrial Sector was a very strong year for the industrial market with more space taken-up by occupiers (i.e. through lettings and sales) in the first nine months of the year than had been taken-up in any of the previous years. Prime rents currently stand a c. 7 per sq.ft pa with agents JLL forecasting that they will increase to in excess of 8 per sq.ft pa in SSGA Property Unit Trust (QIAIF) The SSGA Property Unit Trust is an open-ended real estate unit trust. The Fund was established in 1981 with the objective of generating capital and income returns through investment in real estate and real estate related investments. Current Positioning of the Fund We have seen a significant increase in interest in the SSGA Property Unit Trust over the past year and we believe the Fund is currently well positioned to take advantage of the current market conditions. The Fund also offers: Geographic Diversification. In addition to its core Irish market exposure, the Fund offers investors diversification through its direct UK holdings. This diversified approach has been key to the Fund s outperformance over the past years. Overweight to Dublin Office Sector. Strong investor interest in the Dublin office market has resulted in yield contraction, while agents are forecasting continued improvements in rental values. Income Distribution. The policy of the Fund has recently been amended to provide for income distributions. Portfolio Analysis The SSGA Property Fund holds a diversified portfolio of Irish (78) and UK (22) commercial real estate (ex. cash). The Fund has a bias towards the office sector with a current weighting of c. 6, while the retail and industrial sectors make up c. 25 and c. 15 respectively (ex. cash). Performance The Fund is a constituent part of the MSCI (formerly IPD) Index in both Ireland and the UK and won the prestigious IPD, European Property Investment Award in the balanced category for Ireland in 29, 2 and was joint winner in Jones Lang La Salle. 2 MSCI (formerly IPD). 3 BNP Paribas Real Estate. 2

3 Characteristics of SSGA Property Unit Trust (QIAIF) Structure Qualifying Investor Alternative Investment Fund ( QIAIF ). Investment Manager SSGA Ireland Limited Base Currency Euro SSGA Property Unit Trust (QIAIF) 31 December 3 Fund Size 29 million (as at 31 December ) Vacancy Rate Income Yield Number of Properties 38 Net Initial Yield Reversionary Yield Weighted Average Unexpired Lease Term c. 3.5 (a) c. 6. (b) c. 5.7 (c) c. 5.5 (d) c. 6.5 years (e) Months 1 Year 3 Years 5 Years Years Source: SSGA Property Unit Trust Fund (QIAIF). Figures shown correct as at 3 December. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. a) This is an estimate and is based on the estimated rental value of vacant space expressed as a percentage of the total estimated rental value of the portfolio. b) This is an estimate and is calculated on the basis of contracted rent divided by capital value of direct property holdings and does not take into account any of the costs associated with the fund or property acquisition costs. c) The Net Initial Yield is calculated by dividing the current rent roll by the value of the properties grossed up by acquisition costs. d) The Reversionary Yield is calculated by dividing the Estimated Rental value of the portfolio by the value of the portfolio grossed up by acquisition costs. e) Please be advised that the figure currently shown is for September. Figures provided by MCSI (formerly IPD). Portfolio Analysis 31 December UK Industrial Ireland Office 57 UK Retail 9 UK Offices 3 SSGA PUT The industry proxy for Irish property is the Mercer Pooled Fund Survey Property Fund Manager Average until 31st December and the AON Hewitt invision Group Pooled Pension Fund Survey - Irish Property Fund from 1st April. Source: SSGA Property Unit Trust Fund (QIAIF). Performance is calculated net of management fees. Performance returns for periods of less than one year are not annualised. Past performance is not a guarantee of future results. The performance includes the reinvestment of dividends and other corporate earnings and is calculated in EUR. Benchmark returns are unmanaged and do not reflect the deduction of any fees or expenses. Benchmark returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Please note the returns indicated here represent the performance of the net share class of the fund. Performance for the SSGA Property Fund is calculated based on the Offer Price. The Offer Price is the Subscription Price that would apply to a subscription order received for the relevant Subscription Day if no other unit dealing was received on that Subscription Day. It is computed by adding a provision of estimated costs for purchasing underlying investments such as solicitor fees, agent fees, stamp duty and any other applicable charges to the NAV per unit as at the relevant Valuation Point. Depending on the net amount of subscriptions or redemptions on the relevant Subscription Day, the actual Subscription Price applicable to subscription orders on the relevant Subscription Day may differ from the Offer Price, and the performance calculated using actual Subscription Prices may therefore differ from that displayed on this report. Ireland Industrial 5 Ireland Retail 16 Source: SSGA Property Unit Trust Fund (QIAIF). Figures shown exclude cash. Portfolio analysis is as of the date indicated, is subject to change, and should not be relied upon as current thereafter. 3

4 PROPERTY HOLDINGS UPDATE The final quarter of was a busy period for the SSGA Property Fund. Two properties were acquired for the Fund; one property was sold, and below you will find details of the transactions: ACQUISITION Eagle House, Dublin Airport Logistics Park, St. Margaret s Road, Co. Dublin Eagle House is a modern detached high bay warehouse which extends to c., sq.ft and is located within Dublin Airport Logistics Park, adjacent to Dublin Airport and the N2. The building is leased in its entirety to Gilead Sciences Ireland UC, a member of the Gilead Sciences Group which is headquartered in California. The group has a net asset value of $15.bn. Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and commercialises innovative medicines. Valuation Range: 5m m Lease Expiration: 8 years ACQUISITION 7/8 Wilton Terrace, Dublin 2 This modern five storey, over lower ground floor, office building was acquired jointly by the SSGA Property Fund and another institutional property fund on a 5:5 basis in December. The office block, which extends to c. 33, sq.ft, was built in 27 and is located on Wilton Terrace overlooking the Grand Canal. The building is fully occupied by four tenants: The Canadian Embassy, Philip Lee Solicitors, Beechwood Partners and Markel International Insurance. Valuation Range: 15m 2m Lease Expiration: 8 years SALE City Square Shopping Centre, Waterford In October the SSGA Property Fund and the other institutional co-owner of City Square Shopping Centre, who had owned the building on a 5:5 basis, completed the sale of the asset to an overseas investor. Top Ten Assets 31 December Building Sector Sample Tenants Deloitte & Touche House, Earlsfort Terrace, Dublin 2 Dublin City Centre Office Deloitte Wilton Park House, Wilton Place, Dublin 2 (33) Dublin City Centre Office IDA Grafton Buildings, Grafton Street, Dublin 2 Dublin Prime Retail T.M. Lewin, Seasons of Ireland, Grafton Medical Centre. 7/8 Wilton Terrace, Dublin 2 (5) Dublin City Centre Office The Canadian Embassy, Philip Lee Solicitors, Beechwood Partners and Markel International Insurance. 67/68 Grafton Street, Dublin 2 Dublin Prime Retail Next Units at Manor Royal, Crawley, Sussex, UK UK Industrial Harwoods Ltd, UPS, HSS Hire Units at Citywest Business Park Campus, Dublin 2 Dublin Suburban Offices Nestle, Applus Car Testing, Wincor Nixdorf Site B, Etheridge Avenue, Brinklow, Milton Keynes UK Industrial Radley Group Ltd, Lok n Store Temple House, Blackrock, Co. Dublin Dublin Suburban Offices Irish Life, European Cataract Society, Vodafone. 2/26 Bridge Street, Stratford upon-avon UK High Street Retail Laura Ashley, New Look Source: SSGA Real Estate. Tenant names shown may in some instances represent the tenant s trading name as distinct from the corporate entity leasing the property in question.buildings shown above may contain vacancies from time to time which are not shown in this document. Top Ten Assets are as of the date indicated, are subject to change, and should not be relied upon as current thereafter.

5 ssga.com This material is solely for the private use of SSGA clients and prospects and is not intended for public dissemination. Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered number Member of the Irish Association of Investment Managers. Telephone: +353 () Facsimile: +353 () Investing involves risk including the risk of loss of principal. Investing in REITs involves certain distinct risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. REITs are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs, especially mortgage REITs, are also subject to interest rate risk (i.e. as interest rates rise, the value of the REIT may decline). Risk associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions. Actively managed funds do not seek to replicate the performance of a specified index. The fund is actively managed and may underperform its benchmarks. An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the Fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment. There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA s express written consent. Investing in foreign domiciled securities may involve risk of capital loss from unfavourable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Diversification does not ensure a profit or guarantee against loss. The views expressed in this material are the views of SSGA Ireland Real Estate Team through the period ended 31 December and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2/39/EC) and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor s or potential investor s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information. BofA Merrill Lynch and The BofA Merrill Lynch Index SM are reprinted with permission. Copyright 216 Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML). Previous to 31 March this fund was known as the SSGA Exempt Property Unit Trust (EPUT). The Property Unit Trust was authorised by the Central Bank of Ireland as a unit trust pursuant to the Unit Trusts Act, 199 and the European Communities (Alternative Investment Fund Managers Directive) Regulations 213 (as amended) as a Qualifying Investor Alternative Investment Fund on 31 March. This document should be read in conjunction with its Prospectus and Supplement. All transactions should be based on the latest available Prospectus and Supplement which contain more information regarding the charges, expenses and risks involved in your investment. Prospective investors may obtain these reports free of charge from. Two Park Place, Upper Hatch Street, Dublin 2. T: 353 () F: 353 () State Street Corporation. All Rights Reserved. ID5993-IREMKT Exp. Date: 28/2/217