ABOUT GREEN REIT PLC:
Green REIT plc is an Irish Real Estate
Investment Trust (“REIT”) and is listed
on the Irish and London Stock Exchanges.
We were the first REIT established in
Ireland following the introduction of REIT
legislation by the Irish Government.
Our strategy is to create a property
portfolio consisting primarily of
commercial property in Ireland to
deliver income and capital growth
through opportunistic investments,
active property management and
prudent use of debt finance.
CONTENTS
SECTION 1
// PERFORMANCE REVIEW
Chairman’s Statement
Investment Manager’s Review
Our Strategy
The Market We Operate In
Portfolio Review
The Management Team
SECTION 2
// GOVERNANCE
Board of Directors
Governance review
Governance Structure
Report of the Audit Committee
Report of the Nominations Committee
Report of the Investment Committee
Report of the Remuneration Committee
Report of the Directors
20
26
34
38
48
78
86
88
94
108
110
116
118
120
122
HIGHLIGHTS FOR THE PERIOD
ENDED 30 JUNE 2014
10
132
133
136
142
142
SECTION 3
// FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities
Report of the Auditor
Financial Statements and Notes
Accounting Policies
Notes to the Accounts
SECTION 4
// ADDITIONAL
INFORMATION
Portfolio Analysis
Shareholder information
Glossary of terms
Forward Looking Statements
170
172
174
176
169
130
TOTAL OF
€710 MILLION
RAISED FROM IPO IN JULY 2013 AND SECONDARY OFFERING IN MAY 2014INTRO // AT A GLANCE
HIGHLIGHTS FOR THE PERIOD
ended 30 June 2014
Efficient investment of€365m
to 30 June 2014 With a further€383m
committed at that dateBringing the total invested and committed to
€748m
+
=
HIGH QUALITY PORTFOLIO OF
17 ASSETS
ASSEMBLED, WITH A DUBLIN FOCUS (90% BY PORTFOLIO VALUE)HIGH CONCENTRATION IN
DUBLIN OFFICES
(73.5% BY PORTFOLIO VALUE)ATTRACTIVE INVESTMENT INCOME
YIELD OF 7.0%
ON 30 JUNE 2014 VALUATIONSCHIEF INVESTMENT OFFICER AND CHIEF OPERATING OFFICER ON BOARD TO COMPLEMENT THE EXISTING MANAGEMENT TEAM
DISCUSSIONS WELL PROGRESSED WITH LENDERS ON ADDITIONAL DEBT FINANCING
OUR RESULTS:
NAV of
€727.8 million,
with a NAV
per share of
109.1 cents
Property valuation:
14.2% increase,
on purchase price,
with a weighted
average of 50% initial
equity raised invested
over the period
Loan to value of
9.2% on
total assets,
including JV assets
and debt
Net profit of
€43.1 million,
with earnings
per share of
12.4 cents
11N4 N4 N7 N3 N3 N2 N1 N32 N1 N2 N2 N11 N81 N81 N81 N82 N11 N31 N31 N11 M1 M2 M50 M50 M50 M50 M11 DUBLIN AIRPORT Ballsbridge Glenageary Sandyford Ratfarnham Dundrum Churchtown Stillorgan Clonskeagh Blackrock Milltown Terenure Templeogue Foxrock Leopardstown Carrickmines Stepaside Cherrywood Dun Laoghaire Ranelagh Donnybrook Crumlin Drumcondra Chapelizod Port Tunnel Beaumont Coolock Santry Finglas Castleknock Lucan Ballyfermot Walkinstown Clondalkin Tallaght Portmarnock Malahide Clontarf Howth Sutton Swords Blanchardstown Donabate
CITY CENTREDUBLIN
1 2 3 4 5 6 21 9 10 11 12 13 14 15 17 16 18 19 20
Central Park, Leopardstown, Dublin 18 4 & 5 Harcourt Road, Dublin 2 76-78 Harcourt Street, Dublin 2 2 Burlington Road, Dublin 4 Arena Centre, Tallaght, Dublin 24 Horizon Logistics Park, Co. Dublin Globe Retail Park, Co. Kildare
Parkway Retail Park, Limerick 30-33 Molesworth St, Dublin 2 Fitzwilliam Hall, Dublin 2 Classon House, Dublin 14 84-93 Mount Street, Dublin 2 Ormond Building, Dublin 7 Parnell Car Park, Dublin 1
INM Building, Citywest, Co. Dublin 1-2 College Green, Dublin 2 4-5 College Green, Dublin 2 13-17 Dawson Street, Dublin 2 George’s Quay, Dublin 2 George’s Court, Dublin 2 Westend Retail Park, Dublin 15
7 8 11 2 3 4 5 6 7 8 9 10 11 13 20 12 19 14 21 15 16 17 18 Acquired since 30 June 2014 12
N4 N4 N7 N3 N3 N2 N1 N32 N1 N2 N2 N11 N81 N81 N81 N82 N11 N31 N31 N11 M1 M2 M50 M50 M50 M50 M50 M11 DUBLIN AIRPORT Ballsbridge Glenageary Sandyford Ratfarnham Dundrum Churchtown Stillorgan Clonskeagh Blackrock Milltown Terenure Templeogue Foxrock Leopardstown Carrickmines Stepaside Cherrywood Dun Laoghaire Ranelagh Donnybrook Crumlin Drumcondra Chapelizod Port Tunnel Beaumont Coolock Santry Finglas Castleknock Lucan Ballyfermot Walkinstown Clondalkin Tallaght Portmarnock Malahide Clontarf Howth Sutton Swords Blanchardstown
CITY CENTREDUBLIN
1 2 3 4 5 6 21 9 10 11 12 13 14 15 17 16 18 19 20
INTRO // AT A GLANCE
HIGHLIGHTS FOR THE PERIOD
ended 30 June 2014
On 30 June 2014
Values2 On Actual Cost3
Portfolio Income Yield 6.7% 7.8%
Investment Income Yield 7.0% 8.1%
TOTAL PASSING RENTS OF €28.6 MILLION PER ANNUM TOTAL FLOOR AREA OF 1.55 MILLION SQUARE FEET
(144,324 SQUARE METRES)
PORTFOLIO WEIGHTED AVERAGE UNEXPIRED LEASE TERM OF 6 YEARS1
PROPERTY VALUE BY SECTOR:
Offices
Retail
Development Land
Industrial
Other
73.5%
17.5%
3.6%
2.4%
3%
NET YIELDS:PORTFOLIO OCCUPANCY RATE BY FLOOR AREA
OF THE PORTFOLIO BY VALUE IS LOCATED IN DUBLIN
THE PORTFOLIO AT 30 JUNE 2014:
1 to earlier of lease break and expiry, excluding residential element
2 Calculated as passing rent at 30 June 2014 over the June 2014 valuation plus notional purchaser’s costs 3 Calculated as passing rent at acquisition over the actual purchase price and costs
90
%
90
%
George’s Quay Plaza - Dublin 2
George’s Quay Plaza - Dublin 2 One George’s Quay Plaza - Dublin 2
INTRO // AT A GLANCE
HIGHLIGHTS FOR THE PERIOD
ended 30 June 2014
FURTHER ACQUISITIONS WITH CONTRACTS
EXCHANGED AT AND SINCE 30 JUNE 2014
SAPPHIRE PORTFOLIO:
Three office buildings at George’s Quay and George’s Court in Dublin 2 together with Westend Retail Park in Blanchardstown, Dublin 15 comprising 649,000 square feet of net lettable space in total, with 429,000 square feet of office space and 220,000 square feet of retail. Total passing rent €23.3 million per annum from the portfolio and a contract price of €375 million. This acquisition completed in October 2014.
Westend Retail Park - Blanchardstown, Dublin 15
13-17 Dawson Street - Dublin 2
13-17 Dawson Street - Dublin 2 George’s Court - Dublin 2
13-17 DAWSON STREET:
Prime office redevelopment opportunity in Dublin city centre. Contract price €23 million, completed in October 2014.
AREAS OF FOCUS: ASSET
MANAGEMENT AND DEVELOPMENT
ASSET MANAGEMENT INITIATIVESUNDERWAY AND YIELDING POSITIVE RESULTS
DEVELOPMENT/ REDEVELOPMENT OPPORTUNITIES AT 6 LOCATIONS:
INTRO // AT A GLANCE
HIGHLIGHTS FOR THE PERIOD
ended 30 June 2014
13-17 Dawson Street
Dublin 2
4 & 5 Harcourt Road
Dublin 2
84 - 93 Mount Street
Dublin 2 0.45 acre Existing 42,000 sq. ft. Redevelopment of approx. 80,000-90,000 sq.ft. subject to planning consent Existing 32,000 sq. ft.Passing rent €1.3m p.a. lease expires Oct 2015
Existing 49,412 sq. ft.
Passing rent €1.7m p.a. lease expires April 2016
(contracted in August 2014, completed in October 2014)
30-33 Molesworth
Street
Dublin 2Horizon Business
Park
Dublin AirportCentral Park
Dublin 18
4 Georgian listed buildings Passing rent €0.5m p.a. Opportunity to refurbish and
redevelop rear of no 32
112 acres land at Dublin airport
Passing rent of €0.8m p.a. from 3 existing buildings
Approx. 7.4 acres of development land 700,000 sq. ft. planning consent
PERFORMANCE
REVIEW
Section 1
One step ahead
of the market:
First REIT established in Ireland,
giving us first mover advantage in
deploying capital at an early stage
in the recovery cycle.
PROPERTIES
ACQUIRED IN THE PERIOD*
* ONE OF WHICH WAS SOLD, AND 6 OF WHICH WERE CONTRACTED BUT YET TO BE COMPLETED AT 30 JUNE 2014.
24
T
he period, fromincorporation on 24 June 2013 to 30 June 2014, has been a very active one for the Company, in which it invested or committed to invest €748 million in the acquisition of 24 properties, one of which was sold, and 6 of which were contracted but yet to be completed at 30 June 2014. Since 30 June 2014 the Company contracted to acquire a prime redevelopment opportunity on Dublin’s Dawson Street for €23 million, which completed in October 2014. The acquisition of the Sapphire Portfolio for €375 million, announced on 11 June 2014, completed in October 2014.
The Board is pleased with the progress and performance of the Company to date, in particular with delivery of its stated investment strategy. The total equity raised from shareholders of €685 million net of costs has now been fully invested or committed. This efficient and disciplined investment has been ahead of the Company’s targets and has been deployed in assembling a substantial portfolio of properties
which is well positioned for active asset management and development initiatives. This is against a
positive economic backdrop in the recovering Irish economy, particularly in Dublin, where 90% by value of the Company’s properties are located.
The Company is in advanced discussions with lenders with a view to securing a cost effective and flexible debt facility which will fund further acquisitions and development initiatives to be implemented by the Company. It remains the intention of the Board to use gearing to enhance shareholder returns and that total gearing will not exceed 35 per cent. >
CHAIRMAN’S
STATEMENT
“We look forward
to the year ahead
as we build on our
initial successes.”
Summary Financial Information at 30 June 2014
EPRA and Basic NAV €727.8m
EPRA and Basic NAV Per Share 109.1 cents
Valuation increase on contract prices of properties owned at 30
June 2014 14.2%
Net Profit to 30 June 2014 €43.1m
EPRA and Basic EPS 12.4 cents
Group LTV (on total assets and including JV property and debt) 9.2%
Investment Income Yield (on 30 June 2014 values) 7.0%
Investment Running Yield (on cost) 8.1%
CHAIRMAN’S STATEMENT
FINANCIAL RESULTS AND POSITION
The Company’s properties, including its interest in joint venture properties, are valued at €402.9 million at 30 June 2014, reflecting an uplift on their aggregate contract prices of 14.2% or 10.9% when one-off acquisition costs are included. One-off acquisition costs of €10.3 million were incurred in acquiring the properties, with a further €8 million expected to be incurred on properties under contract as at 30 June 2014.
The Company’s net asset value (‘NAV’) at 30 June 2014 was €727.8 million (109.1 cents per share). This growth in NAV reflects the phased acquisition timeline in building the portfolio over the 8 month period since the initial acquisitions in November 2013. The Company’s total annual passing rent at 30 June 2014 was €28.6 million (including its share of JV rents), which has increased to €52.8 million with the completion in October 2014 of the Sapphire Portfolio and Dawson Street acquisitions.
The Board expect to declare and pay a dividend of 0.92 cent per share, a total dividend of €6.12 million, being 85% of the Property Income from the Company’s Property Rental Business in that period, both as defined in Irish REIT legislation.
CORPORATE GOVERNANCE
The Board aspires to best practice in corporate governance and recognises the benefits of an effective board of directors. To that end two new directors, Gary McGann and Pat Gunne, were co-opted to the Board on 3 June 2014. They bring with them a wealth of experience in executive positions within recognised companies both in Ireland and internationally. This increases the number of directors to 6, 4 of whom are independent and 2 are nominee directors of the Investment Manager, in line with the Company’s prospectuses. In addition, the committees of the Board, which were established in the period, are performing effectively
GARY KENNEDY
Chairman
and the Board would like to thank the committee members for their good work in that regard.
During the period, the Company took up membership of EPRA, the European Public Real Estate Association, a not for profit body established to promote, develop and represent the European public real estate sector and which formulates best practise for the European real estate sector in reporting and accounting. We expect the Company to be included in the EPRA Global Real Estate Index following EPRA’s next scheduled review in March 2015. This index is the leading benchmark of the listed real estate sector globally.
THE INVESTMENT MANAGER
The Company is managed by Green Property REIT Ventures Limited (‘the Investment Manager’), led by Stephen Vernon and Pat Gunne. The Board has worked very well with the Investment Manager in the period and looks forward to continuing to work closely with the team on further acquisitions and as the Company implements asset management and development initiatives across the portfolio. The quality of the properties acquired and the tenants in our properties, together with the strong yield being generated, reflects
the strengths of the Investment Manager in seeking out, appraising and completing the acquisition of high quality investment opportunities through its broad network of industry contacts.
OUTLOOK
The Board believes that the Company is well positioned for the future, having assembled a highly attractive portfolio of properties in line with the Company’s stated investment policy. The Company has significant financing capacity and a very experienced and focused Investment Manager. With improving economic conditions in Ireland, particularly in Dublin, the Board believes that the Company will continue to deliver strong shareholder returns.
The Company is committed to the generation of strong rental income and capital growth through the active management and development of its portfolio of properties. We look forward to the year ahead as we build on our initial successes.
28 October 2014
After experiencing a severe
recession in the period 2008
to 2012 the Irish economy
is on its path to recovery.
Opportunities for
redevelopment are on the
horizon for GREEN REIT plc
and the Company is well
positioned to take
advantage of this recovery
in the short to medium term.
Cranes
back in the
cityscape
“ We are now focused
on executing our asset
management and
development strategies
across the portfolio,
in line with the business
plans that are in place
for each property.”
T
he period of just over a year to 30 June 2014 has been a particularly active one for Green Property REIT Ventures Limited as Investment Manager of the Company. We have in this period successfully implemented the Company’s investment strategy, which in summary is to create a commercial property portfolio with strong income and value add potential, with a Dublin focus, to deliver income and capital growth through opportunistic investments, active property management and prudent use of debt finance. >INVESTMENT
MANAGER’S REVIEW
Successful Execution of Investment Strategy
On 30 June 2014 Values3 On Actual Cost4
Portfolio Income Yield 6.7% 7.8%
Investment Income Yield 7.0% 8.1%
17 properties held at 30 June 2014, valued at €402.9 million at that date, 14.2% above contract price excluding acquisition costs (10.9% when one-off acquisition costs are reflected).
Value by geography: 90% located in Dublin, with 40% of this in Dublin City Centre.
Property value by sector: 73.5% offices, 17.5% retail, 3.6% development land, 2.4% industrial and 3% other Top 10 tenants account for €19.7 million /70%
of total passing rent
Refurbishment and development opportunities: 7.4 acres of land at Central Park, 112 acres of land at Dublin airport, properties at Mount Street, Molesworth Street and Harcourt Road in Dublin city centre. Total passing rents of €28.6 million per annum
Total floor area of 1.55 million square feet (144,324 square metres)
90% portfolio occupancy rate by floor area Portfolio weighted average unexpired lease
term of 6 years (to earlier of lease break and expiry, excluding residential element)
Summary Timeline of Acquisitions to 30 June 2014 (all in €’000): Property1 Acquired Contract
Price 30 June 2014Value at Uplift in € Uplift in %
Arc Portfolio Q4 2013 €127,000 €151,465 €24,465 19.3%
2 Burlington Road Q4 2013 €46,500 €60,000 €13,500 29.0%
Other Q4 2013 Q4 2013 €10,581 €16,800 €6,219 58.8%
Danske 2 Dec-13 €22,129 €26,340 €4,211 19.0%
Central Park2 Mar-14 €114,750 €116,900 €2,150 1.9%
Harcourt Jun-14 €32,000 €31,400 -€600 -1.9%
TOTAL €352,960 €402,905 €49,945 14.2%
Net Yields:
1 See Portfolio Overview section for details of portfolio composition 2 Values relate to the Company’s 50% interest in Central Park, which is
held through a joint venture
3 Calculated as passing rent at 30 June 2014 over the June 2014 valuation plus notional purchaser’s costs
4 Calculated as passing rent at acquisition over the actual purchase price plus the actual purchaser’s costs
INVESTMENT MANAGER’S REVIEW
Progress to date against this strategy is evidenced by the
following summary of the portfolio highlights at 30 June 2014:
ACTIVITY SINCE 30 JUNE 2014
6 properties contracted at 30 June 2014, with a contract price of €375 million (‘Sapphire Portfolio’). Completion took place in October 2014. These properties have increased the total annual passing rent from €28.6 million to €52.8 million per annum and have added 649,000 square feet (60,274 square metres) of floor area, bring the total to 2.2 million square feet (204,000 square metres).
1 property contracted since 30 June 2014 at 13-17 Dawson Street in Dublin city centre which is a prime redevelopment opportunity.
George’s Quays Plaza - Dublin 2
George’s Court - Dublin 2
13-17 Dawson’s St. - Dublin 2
INVESTMENT MANAGER’S REVIEW
EFFICIENT INVESTMENT OF CAPITAL
Total invested as at 30 June 2014: €365 million, funded by €290 million of equity and €75 million of debt secured on Central Park through the Central Park joint venture
Total invested and committed including Sapphire Portfolio: €748 million, funded by €673 million of equity and €75 million of debt secured on Central Park
Further capital of €23 million committed to the acquisition of 13-17 Dawson Street in Dublin city centre Combination of
on- and off-market acquisitions
Use of gearing and joint venture structure to acquire large properties and to enhance shareholder returns
THE MARKET
Having experienced a severe recession in the period 2008 to 2012 the Irish economy began on its path to recovery in early 2013 and there is a feeling of cautious optimism, with many of the economic fundamentals signalling that the recovery is set to continue.
The impact of this recovery on the property sector in Ireland is evident in particular in the Dublin office occupier market, where vacancy rates are at low levels and where there is little supply of quality office space in Dublin city centre. Despite prime rents being at a level which would make development commercially viable, there are very few office blocks under construction in Dublin city centre. With supply being well below trend and demand, we expect further growth in Dublin office rents. With 73.5% by value of the Company’s properties being Dublin offices, several of which are primed for redevelopment, the Company is well positioned to take advantage of this recovery in the short to medium term.
With regard to the retail occupier market, improving economic conditions would lead us to believe that retail at the prime end has bottomed and is beginning to turn. Retail sales volumes in Ireland are up 6.5% in the first half of 2014 and the ESRI index of current economic conditions, based on how consumers feel about their current financial circumstance, rose by 8% in the year to June 2014. This upturn is evidenced by
the emergence of some retailers who are prepared to consider selective expansion. It has not yet translated into rental growth but with a shortage of good quality, well located retail units, growth should emerge in the short term.
With regard to the investment market we are continuing to see very strong competition for properties, with investor demand well in excess of the stock available, which is driving yields down, particularly on Dublin city centre offices. Our expectation is that NAMA and other lenders will increase the pace of their deleveraging in the second half of 2014 and onwards and that competition for these assets will be strong. To date, there has been a limited amount of retail investments available to buy. Recently a regional shopping centre portfolio has been sold, where demand was stronger than expected with a number of new entrants competitively bidding for the portfolio. This is an encouraging indication that the investor community believes this sector has bottomed and now offers opportunities for growth. >
BY VALUE OF THE COMPANY’S PROPERTIES ARE DUBLIN OFFICES, SEVERAL OF WHICH ARE PRIMED FOR REDEVELOPMENT
73
.5%
The acquisition of
Central Park in March 2014
was one of the highlights of
the period to 30 June 2014.
Central Park - Leopardstown, Dublin 18
LARGE AND COMPLEX TRANSACTIONS
Our ability to compete for and to close out on the acquisition of Central Park in March 2014 was one of the highlights of the period to 30 June 2014. This was a competitive process with some of the largest private equity investors in the world involved, where receivers appointed by NAMA were the vendors. We teamed up with PIMCO, one of our cornerstone investors at IPO and our co-investor for large and complex transactions, and with Kennedy Wilson on the residential component. With a total contract price of €311.5 million we believe that this was the single largest property transaction by NAMA to date. Post completion the bridging facility used by the JV to part fund the acquisition was refinanced with Bank of Ireland, procuring the Company’s first bank borrowings.
THE SAPPHIRE PORTFOLIO
We look forward to managing the Sapphire Portfolio, the acquisition of which completed in October 2014. The Sapphire Portfolio is a substantial portfolio of 3 prime Dublin office buildings which includes the iconic George’s Quay, and a significant retail park along with ancillary office buildings in Blanchardstown, Dublin 15. These properties have added €23.3 million to the Company’s annual passing rent and will further enhance shareholder returns.
FINANCING
The Company has a strong balance sheet, with a low loan to value ratio of 9.2%5 and significant debt
headroom. Our plans to raise additional debt finance are well advanced and we expect to make a positive announcement in that regard in the near term. This additional debt finance will allow us to take advantage of further opportunities that might arise, at a relatively low cost, without seeking further funds from shareholders. We use prudent levels of leverage to enhance shareholder returns, while always being mindful of the need to protect against downside valuation risk.
THE TEAM
The hiring of Caroline McCarthy in September 2013 as our Chief Investment Officer, and Niall O’Buachalla in January 2014 as our Chief Operations Officer, were clear messages to the marketplace and to our investment community of our strategy to build upon what we consider to be Ireland’s most
formidable property team. This is complementary to the exceptional development and asset Management Team already in place.
PRIORITIES FOR THE YEAR AHEAD
We have now assembled a portfolio of 17 properties, with a further 6 properties contracted at 30 June 2014, investing or committing to invest €748 million in doing so. We are focused on executing our asset management and development strategies across the portfolio, in line with the business plans that are in place for each property. We continue to assess acquisition opportunities that fit with our investment policy, an example being 13-17 Dawson Street, the acquisition of which was completed in October 2014.
The quality of Green REIT plc’s tenants, the active asset management initiatives underway and the potential for its development properties all augur well for the future and for the delivery of strong returns for our shareholders.
STEPHEN VERNON
Executive Chairman
Green Property REIT Ventures Limited
PAT GUNNE
Chief Executive
Green Property REIT Ventures Limited
28 October 2014
The Company’s strategy is to
assemble a property portfolio
consisting primarily of commercial
property in Ireland to deliver
income and capital growth through
opportunistic investments, active
property management and prudent
use of debt finance.
T
he Company is an activeinvestor and implements strategies to enhance the quality and value of acquired assets and improve rental values.
The Group sources new investment
opportunities primarily through the Investment Manager’s extensive network of relationships within the Irish commercial property market. The Investment Manager focuses on creating both sustainable income and strong capital returns for the Group with a target total shareholder return of 10% to 15% per annum (pre-taxation) when the proceeds of the initial and secondary equity raisings are fully invested. >
OUR
Investment criteria
and property
characteristics
Real estate assets acquired by the Group will normally
have some of the following characteristics:
Prime or good quality secondary assets and locations
Properties which have been undermanaged and
undercapitalised and which are capable of being upgraded Properties which are in locations that are expected to benefit from ongoing foreign direct investment in Ireland Retail properties which are regarded as posing minimal risk in the context of tenants entering into either receivership or prepack administration Retail assets in city centres and certain suburban areas, warehousing and distribution facilities located in close proximity to motorway infrastructure and a limited amount of mixed use assets. €10 million to
€50 million valuation range per individual asset Focus on central Dublin office properties Scope for short and medium-term value enhancement through active asset management
Properties which have strong prospects of generating income in the short to medium term in order to support the Company’s dividend policy
JOINT VENTURES AND OTHER STRUCTURES
The Company has the ability to enter into a variety of investment structures, including joint ventures, acquisitions of controlling interests or acquisitions of minority interests within the parameters stipulated in the Irish REIT Regime. For example, the Company holds a 50% interest in The Central Park Limited Partnership which, through an entity owned by it, acquired the Central Park Portfolio.
INVESTMENT SOURCING
The Investment Manager has a track record of securing real estate investments and is well placed to continue to secure properties which meet the Company’s investment criteria due to its extensive acquisition experience, established relationships and a reputation for the timely execution of agreed deals. The Board expects that the Company’s further investments will primarily be sourced through a combination of the following core avenues:
Banking Institutions/Receivers/Borrowers National Asset Management Agency Private Equity Investors
Investment Institutions
Portfolio Approach
The Company seeks to improve income profiles and add value to the Group’s property portfolio through asset management techniques which include:
The renegotiation or surrender of leases;
Improving lease lengths and tenant profile;
Undertaking physical improvements where considered appropriate; Maintaining dialogue with tenants
to assess their requirements; Taking advantage of planning
opportunities where appropriate; Re-positioning and up-grading
assets.
BORROWINGS
The Company’s approach is to use gearing with a view to enhancing equity returns whilst maintaining prudent levels of interest cover and protecting shareholders’ funds.
The Board currently intends that gearing, represented by the Group’s aggregate
borrowings as a percentage of the market value of the Group’s total assets, will in the future not exceed 35%. The Board may modify the Group’s gearing policy (including the level of gearing) from time to time in light of the then current economic conditions, relative costs of debt and equity capital, fair value of the Group’s assets, growth and acquisition opportunities or other factors the Board deems appropriate.
Dublin’s skyline
THE MARKET
WE OPERATE IN
Irish Property
Market Overview
H
alf year estimatesby the Economic and Social Research Institute (ESRI) suggest the Irish Economy is continuing its strong recovery. GDP growth for H1 2014 was 5.75% year-on-year, while the current forecast for 2014 is for growth of 3%. In addition, with strong export growth and better than expected budgetary returns, GNP growth is forecast to be 4.9% for the year.1
Unemployment continues to decline from a recessionary high of 15.1% and is forecast to fall from its current level of 11.5% to 9.8% by the end of 2015. Foreign Direct Investment is a large component of the Irish Economy, the IDA Ireland confirm that at present 161,112 persons are directly employed in 1,150 overseas companies which are located in Ireland.>
2
Growth and Output
In early July the Central Statistics Office (CSO) published the detailed National Accounts for 2013 and previous years. This publication included a major revision to the system of National Accounts which affected the level of GNP and GDP back to 1995. Primarily because of the inclusion of expenditure on R&D as part of investment, the level of GDP for 2013 was raised by 6.5 per cent. A similar large upward adjustment occurred in the figure for GNP. While these are very large adjustments in the numbers, they did not, on their own, result in a major change to the historical growth rates. However, a wide range of other revisions, consequent on new and more up to date data, did change the growth rates for past years compared to the preliminary figures published in March.
While the data for 2012 and 2013 have been revised, the published figures for GDP are still very much affected by unusual developments affecting multinational companies operating in Ireland. These problems, and their implications for the national accounts, are discussed in Box 1.
GDP and GNP Growth Rates, 2000-2015
Sources: Central Statistics Office.
-10 -8 -6 -4 -2 0 2 4 6 8 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP GNP GNP adjusted for Redomiciled Plcs
Irish GDP and GNP Growth Rates, 2000 – 2015
Irish Unemployment Rate 1960 - 2014 (%)
Source: ESRI Quarterly Economic Commentary Summer 2014
Source: ESRI Quarterly Economic Commentary Summer 2014
Quarterly Economic Commentary – Summer 2014| 33
FIGURE 7 Irish Unemployment Rate 1960 2014 (%)
Sources:
Central Statistics Office and ESRI forecasts.
0 2 4 6 8 10 12 14 16 18 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Green REIT PLC’s Pat Gunne discusses the recovery of the Dublin Property sector live on CNBC Europe (08th September 2014)
39 GREEN REIT PLC: BUILDING VALUE
The first half of 2014 has seen continued momentum in the Irish commercial property market, with a number of portfolio and single asset transactions concluding in the period. Up to the end of June a total of €1.37 billion of acquisitions were recorded, which compares to €1.8 - €1.9 billion for the full year in 20132/3. Market commentators are
suggesting this level will be exceeded in the second half of the year.
Sales of office investment have dominated the market in the first half of 2014, accounting for 63% of the deals completed, with the remainder of the investment divided between residential, industrial and retail. Of the total investment, 97% was located in Dublin.2 There are a
number of retail parks and shopping centres on the market or about to come to the market, which will provide evidence of pricing for this sector. What is emerging is that there is an extensive list of buyers of retail including new entrants, indicating positive sentiment to the sector.4
The supply continues to come largely from the banks, who have accelerated their deleveraging programmes, with Lloyds, NAMA, Ulster Bank and Bank of Ireland being the main sources of supply. 1 ESRI Quarterly Economic Commentary Summer 2014 2 JLL Ireland Investment Market Report Q2 2014 3 CBRE Research Department July 2014 4 CBRE Bi-monthly Research Report July 2014 5 SCS/IPD Ireland Quarterly Property Index to 30 June 2014 6 ESRI Quarterly Economic Commentary, Autumn 2014 7 JLL Dublin Office Market Report Q2 2014 8 JLL Dublin Retail Market Report Q2 2014 9 JLL Dublin Industrial Market Report Q2 2014
In addition there is evidence of some private equity firms re-trading properties they acquired and private individuals also selling. With the volume of investment rising, sellers are increasingly confident of market pricing and we are seeing more “off market” deals occurring.
In addition to selling assets, the banks have also been selling loans. In 2013, the sale of property loans accounted for an additional €760m of capital indirectly deployed into the property market. In the first half of 2014, best estimates are that over €18.8 billion of property loans have been sold.3
This unprecedented volume of loan sales is partly as a result of the banks deleveraging programmes and also as a result of the Government decision to liquidate IBRC (formerly Anglo Irish Bank). Private Equity Groups have been the dominant loan buyers including; Loanstar, Deutsche Bank, Blackstone and Cerberus. Whilst this volume is unlikely to be repeated in such a short timeframe, there are likely to be further loan sales, predominantly from NAMA, Ulster Bank and the residual of the IBRC loan book.
At the prime end in Dublin we have seen continued yield
SCSI / IPD Ireland Quarterly Property Index
Results for the quarter to 30 June 2014
Source: Central Statistics Office and ESRI forecasts 0
200 400
Index Value (shaded area)
All Property Index All Property Retail Office Industrial
% return per quarter (lines)
600 800 1000
Jun 99 Jun 04 Jun 09 Jun 14
-20 -15 -10 -5 0 5 10 15
compression in the first half of 2014. Since December 2013, prime Dublin office yields have moved from 5.75% to 5.00%, Retail (High Street) from 5.50% to 4.75%, Retail Warehousing from 7.25% to 6.50% and Industrial from 8.25% to 8.00%, and all are trending stronger.4
Investment Property Databank
(“IPD”) recorded total ungeared returns in Q2 2014 at 8.50%, of which the office sector was the strongest performer at 10.1% and industrial the weakest at 4.5%. The annualised total all-property return to the end of Q2 2014 was 26.6%.5
Irish investors accounted for over 55% of the market in the first
half of 2014, US investors for over 32%, with Europe, Middle East, Asia, UK and other accounting for the remaining 13%.3 The
buyer nationalities remain very diverse and a recent trend is the re-emergence of interest from European Institutional buyers, typically with a low cost of capital. >
The Dublin office leasing market has continued at pace, with total take-up for the first half of 2014 reaching just over 1 million square feet, with activity in Dublin’s central business district (‘CBD’) accounting for 60% of the total market and Dublin 2 accounting for 38% of the take-up. The IT sector dominated new lettings, accounting for 33% of take-up, followed by Consumer Services (19%), Financial (15%), Public Sector (14%) and Business Services (12%). The remainder (7%) is a mix of Industry and Professional.7
The average deal size in the 6
months to June 2014 was
9,757 square feet, with 65% of new lettings being less than 10,000 square feet. There are currently 1.3 million square feet of active letting requirements in the market.7
Recent lettings include; 75,000 square feet to Yahoo; 70,000 square feet to Amazon; 55,000 square feet to Dropbox; 45,000 square feet to Riot Games; 35,000 square feet to Oracle and 60,000 square feet in two buildings to Government and Health Departments.
Overseas companies comprise a substantial component of office take up. The IDA Ireland confirm
that 9 of the 10 Global Software Companies, 9 of the 10 Global Pharmaceutical Corporations, 10 of the 10 “Born on the Internet” Companies, 15 of the 20 Global Medical Companies and 50% of the World’s leading Financial Service Firms are located in Ireland.
The total office vacancy rate in Dublin continues to fall, down to 13.67% at the end of Q2 2014. In the South suburbs, the vacancy rate at the end of Q2 2014 was 9% (979,299 square feet). Within Dublin CBD the vacancy rate at the end of Q2 2014 was 12.39% of which the Grade A vacancy rate was
PEAK 21.18% 0 50.000 100.000 150.000 200.000 250.000 300.000 Square meters Take-up Vacancy Vacancy Rate % 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014 0% 5% 10% 15% 20% 25% H1 2014 13.67% Dublin Annual Take-up Vs Vacancy
Source: CBRE Research Department July 2014
THE MARKET WE OPERATE IN
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Vacancy Rate % Overall Dublin Dublin
2/4 Dublin6/8 IFSC CentreCity SuburbsOverall SuburbsSouth Dublin
1/3/7
Grade A
Source: CBRE Research Department July 2014
Dublin Vacancy Rates Q2 2014
6.51% (1.8 million square feet). In prime Dublin city centre (Dublin 2&4) the Grade A vacancy rate was 3.02% (563,824 square feet). 7
Prime headline quoting rents for Grade A buildings in the Dublin 2/4 CBD increased by 25% in 2013 and have increased by a further 15% during the first half of 2014.4
Quoted prime Dublin office rents currently stand at €45 per square foot, with deals being done at €40 - €45 per square foot.2 Lease
terms are also moving in the landlord’s favour, with evidence of reduced incentives.2 We anticipate
there will be additional upward pressure on these rents over the remainder of the year.
The ever-reducing supply of Grade A office accommodation in Dublin city centre and the stronger than anticipated rental growth means that refurbishment of older buildings and speculative development of new offices now appears viable. In addition, given this shortage of supply, it is likely that new entrants to the market may have to consider locating on the edge of the city centre or in suburban locations.2 >
1 ESRI Quarterly Economic Commentary Summer 2014 2 JLL Ireland Investment Market Report Q2 2014 3 CBRE Research Department July 2014 4 CBRE Bi-monthly Research Report July 2014 5 SCS/IPD Ireland Quarterly Property Index to 30 June 2014 6 ESRI Quarterly Economic Commentary, Autumn 2014 7 JLL Dublin Office Market Report Q2 2014 8 JLL Dublin Retail Market Report Q2 2014 9 JLL Dublin Industrial Market Report Q2 2014
The retail sector is increasingly positive, with unemployment levels falling, the economy now growing and with some modest income tax reductions resulting from the Government’s budget for 2015. With this backdrop, it is no surprise that retail sales volumes are up 6.5% in the first half of 2014 and the ESRI Index of current economic conditions, based on how consumers feel about their current financial circumstance rose by 8% in the year to June 2014.
While rental growth is yet to emerge, tenant demand is stronger and there is evidence of reduced incentives on new lettings.8 Demand
is typically focused on prime High Street and the better shopping centres and retail parks. Secondary locations with a limited catchment continue to struggle and retailers remain cautious, looking only at expansion opportunities in the best locations and for the best configured units.
On the high street in Dublin the vacancy rent at the end of Q2 2014 was 3.2% with only 2 vacant units on Grafton Street and 3 on Henry Street.8 HMV and H Samuel
reopened on Grafton Street in 2014 and Holland & Barrett, Hairspray, King of Trainers and Pamela Scott opened on Henry Street. In addition, Boots, HMW and Caffe Nero have
all announced plans to extend their operations across Ireland.8
Outside of the prime high street, in the greater Dublin area, lettings in Q2 have occurred to the following retailers: TK Maxx, Boots, Costa Coffee, McDonalds and Aldi.4
Looking forward, supply constraints in some locations are starting to emerge, which is likely to lead to rental growth in the short term.8 In addition improvements in
the residential market, particularly in the greater Dublin area is starting to filter through to the retail warehousing sector. Overall, after a tough number of years, retail appears to have turned the corner. >
SECTOR COMMENTARY // RETAIL
THE MARKET WE OPERATE IN
Retail Sales - Volume
Annual Change %
Source: ESRI Quarterly Economic Commentary Summer 2014 (30.0)% (25.0)% (20.0)% (15.0)% (10.0)% (5.0)% 0% 5.0% 10.0% 15.0% Annual Change %
All Property Index All Property Retail Office Industrial
2006M01 2006M05 2006M09 2007M01 2007M05 2007M09 2008M01 2008M05 2008M09 2009M01 2009M05 2009M09 2010M01 2010M05 2010M09 2011M01 2011M05 2011M09 2012M01 2012M05 2012M09 2013M01 2013M05 2013M09 2014M01 2014M05
Westend Retail Park - Blanchardstown, Dublin 15
1 ESRI Quarterly Economic Commentary Summer 2014 2 JLL Ireland Investment Market Report Q2 2014 3 CBRE Research Department July 2014 4 CBRE Bi-monthly Research Report July 2014 5 SCS/IPD Ireland Quarterly Property Index to 30 June 2014 6 ESRI Quarterly Economic Commentary, Autumn 2014 7 JLL Dublin Office Market Report Q2 2014 8 JLL Dublin Retail Market Report Q2 2014 9 JLL Dublin Industrial Market Report Q2 2014
THE MARKET WE OPERATE IN
While take-up in Q2 2014 was up 34% compared to Q1 2014, it is down when the first half of 2014 is compared to the first half of 2013 (916,459 square feet v 1.28 million square feet).9 This can partly be
explained by the length of time it is taking to close transactions, with a large pipeline expected to close in Q3. It appears however that the year-end total may not reach the level achieved in 2013.9
Demand continues to focus on prime properties, offering modern facilities, however the emergence of shortages of the best quality units means that most of the take-up has been concentrated in secondary units.9
Of deals done (measured by floor space), 79% were sales of industrial units with the remainder being lettings. The most popular locations continue to be the south west of Dublin, accounting for 52% of activity, with the north west of Dublin, accounting for 35%.9
Dublin industrial rents have remained stable at approximately €5.75 - €6.25 per square foot but there is evidence of a tightening in inducements with the standard 6 month rent free period on most 5 year leases reducing to 3-6 months.4
The agents continue to anticipate rental growth at the prime end within the short term.4/9 However,
until it emerges development will remain unviable.
SECTOR COMMENTARY // INDUSTRIAL
0 20 40 60 80 100 120 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 '000s Sq M Dublin North (N2) Dublin North City Dublin North East (N1/M1)
Dublin North West (N3) Dublin South City Dublin South East (N11) Dublin South West (N7) Dublin South West (N81) Dublin West (N4)
Source: CBRE Research, Q2 2014
Dublin Quarterly Industrial Take Up Q2 2012 Q2 2014
0 10 20 30 40 50 60 70 80 90 100 € per Sq M Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 0 20 40 60 80 100 120 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 '000s Sq M Dublin North (N2) Dublin North City Dublin North East (N1/M1)
Dublin North West (N3) Dublin South City Dublin South East (N11) Dublin South West (N7) Dublin South West (N81) Dublin West (N4)
Source: CBRE Research, Q2 2014
Dublin Quarterly Industrial Take Up Q2 2012 Q2 2014
0 10 20 30 40 50 60 70 80 90 100 € per Sq M Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Dublin Quarterly Industrial Take-Up Q2 2012 – Q2 2014
Prime Industrial Rents 2010 - 2014
Source: CBRE Research Department July 2014
SECTOR COMMENTARY // DEVELOPMENT LAND
The volume of land sales in Ireland in the first half of 2014 was higher than the entire volume in 2013, with 54 development sites sold, totalling €203 million compared to 75 deals in the whole of 2013 totalling €200 million.4 Many of the transactions
comprise small lot sizes, typically for small housing developments.
The recent sale of Burlington House in Dublin 4 which has planning permission for 170,000 square feet of new offices for a
reported price of €40m is a good indicator of demand for prime office development sites.4
It is anticipated that there will be some large land holdings released by the banks in the final half of the year, which could significantly boost the volume for the year end, including 400 acres of development land in Cherrywood, south Dublin, which is on the market at a quoting price of €220m.4
The volume of land
sales in Ireland in the
first half of 2014 is
higher than the entire
of 2013
1 ESRI Quarterly Economic Commentary Summer 2014 2 JLL Ireland Investment Market Report Q2 2014 3 CBRE Research Department July 2014 4 CBRE Bi-monthly Research Report July 2014 5 SCS/IPD Ireland Quarterly Property Index to 30 June 2014 6 ESRI Quarterly Economic Commentary, Autumn 2014 7 JLL Dublin Office Market Report Q2 2014 8 JLL Dublin Retail Market Report Q2 2014 9 JLL Dublin Industrial Market Report Q2 2014
PORTFOLIO REVIEW
A
s the first REIT in Ireland with €310 million of gross funds raised in July 2013 and a further €400 million in May 2014, the key focus in the period has been to deploy cash in an efficient manner, building up a diversified property portfolio to match the investment criteria outlined in the Company’s prospectus, and to secure assets at the low point in the Irish recovery cycle which offer performance potential in the short to medium term. The Company also has development lands at Central Park and at Horizon Logistics Park adjacent to Dublin airport.Our approach as Investment Manager to the Company is to utilise our extensive contacts to secure assets both on and off market with the primary aim that the portfolio would firstly offer a secure income base and in addition, the potential to add value over the short term by repositioning assets through active asset management and over the medium term by refurbishing or redeveloping. >
Timeline of Acquisitions
JUL ‘13 AUG ‘13 SEP ‘13
OCT ‘13 NOV ‘13
DEC ‘13 JAN ‘14 FEB ‘14
MAR ‘14
APR ‘14 MAY ‘14
JUN ‘14
JUL ‘14 AUG ‘14 SEP ‘14 OCT ‘14
Sapphire Portfolio Contracted Price(1) €375m
Acquisition completed in October 2014(3) +2%
George's Quay, Block A
Westend
Retail Park WestendOffice Park George's Quay,
Block E & F George's Court
Westend Commercial Village 13-17 Dawson Street Contracted Price(1) €23m Acquired in October 2014(3) 13-17 Dawson Street Burlington Road & Mount Street Purchase Price(1) €53m
Latest valuation(4) +36%
Central Park Purchase Price(1) €115m
Latest valuation(4) +2%
Harcourt Road & Harcourt Street Purchase Price(1) €32m
Latest valuation(4) -2%
INM Building 84-93 Mount Street 2 Burlington Road
INM Building Purchase Price(1) €4.2m Latest valuation(4) +13% Danske II Purchase Price(1) €22m Latest valuation(4) +19% Central Park Project Arc(5) Purchase Price(1) €127m Latest valuation(4) +19%
Arena Centre Horizons Logistics Park
1-2 College
Green 4-5 CollegeGreen Fitzwilliam
Hall Classon House Globe Retail Park Parnell Car Park Parkway Retail Park 4 & 5 Harcourt Rd
Ormond Building 30-33 Molesworth St 76-78 Harcourt St.
JUL ‘13 AUG ‘13 SEP ‘13
OCT ‘13 NOV ‘13
DEC ‘13 JAN ‘14 FEB ‘14
MAR ‘14
APR ‘14 MAY ‘14
JUN ‘14
JUL ‘14 AUG ‘14 SEP ‘14 OCT ‘14
Sapphire Portfolio Contracted Price(1) €375m
Acquisition completed in October 2014(3) +2%
George's Quay, Block A
Westend
Retail Park WestendOffice Park George's Quay,
Block E & F George's Court
Westend Commercial Village 13-17 Dawson Street Contracted Price(1) €23m Acquired in October 2014(3) 13-17 Dawson Street Burlington Road & Mount Street Purchase Price(1) €53m
Latest valuation(4) +36%
Central Park Purchase Price(1) €115m
Latest valuation(4) +2%
Harcourt Road & Harcourt Street Purchase Price(1) €32m
Latest valuation(4) -2%
INM Building 84-93 Mount Street 2 Burlington Road
INM Building Purchase Price(1) €4.2m Latest valuation(4) +13% Danske II Purchase Price(1) €22m Latest valuation(4) +19% Central Park Project Arc(5) Purchase Price(1) €127m Latest valuation(4) +19%
Arena Centre Horizons Logistics Park
1-2 College
Green 4-5 CollegeGreen Fitzwilliam
Hall Classon House Globe Retail Park Parnell Car Park Parkway Retail Park 4 & 5 Harcourt Rd
Ormond Building 30-33 Molesworth St 76-78 Harcourt St.
(1) Net of costs
(2) Green REIT plc’s 50% share (3) Acquisition completed in October 2014 (4) Latest valuation date – 30th June 2014
INM Building
In October 2013, the Company acquired the 999 year leasehold interest (freehold equivalent) in the Independent News and Media offices and printing works in Citywest, a business park to the west of Dublin adjacent to the M7 motorway. This asset was acquired for €4.225 million, with an attractive initial yield of 9.1%, reflecting a capital value of €64.72 per sq ft. We expect to see capital growth off this acquisition yield and rental growth as the rent is pegged to the performance of the offices in Citywest.
Fitzwilliam Hall - 2 Fitzwilliam Plaza, Dublin 2
Classon House - Dundrum Business Park, Dublin 14
PORTFOLIO REVIEW
Kuehne + Nagel, at the Horizon Logistics Park - adjacent to Dublin Airport
Project Arc
In November 2013, Project Arc was acquired from receivers appointed by Danske Bank. The purchase price was €127.6 million and reflected an initial yield of 8.5%. This price included €0.6 million for 97 St. Stephen’s Green, which was sold during the period. The portfolio comprised 708,000 sq ft of accommodation, 37% of which is retail and 29% offices. At the time of acquisition 85% was let with a WAULT of 9 years. In addition, the portfolio includes approximately 112 acres of land adjacent to Dublin airport, acquired with Horizon Logistics Park, with potential for up to 1 million sq ft of logistics warehouses, subject to planning. This portfolio offers a solid income base from diversified and good quality tenants. We have seen a positive valuation uplift since acquisition of 19.3%, predominantly from yield compression. Looking forward, there are a number of asset management opportunities to further drive value over the medium term, and there is substantial development potential in the airport lands.
Mount Street
and Burlington Road
Also in November 2013, the Company acquired 84-93 Lower Mount Street, Dublin 2, and 2 Burlington Road, Dublin 4. The Mount Street property is a second generation office building with a lease to The Office of Public Works (Irish State) until April 2016. Our development team is currently exploring options to substantially refurbish and/or redevelop, subject to planning, should the tenant vacate on lease expiry. Our aim is to utilise our skills to reposition this building and take advantage of the rising rental market. 2 Burlington Road is a third generation office building, well located in Dublin’s CBD. We have already seen substantial value increase through yield compression and the property should benefit from rising rents in the CBD. These assets were acquired for a combined purchase price of €52.9 million with a blended initial yield of 10.8%.
Mount Street - Dublin 2
PORTFOLIO REVIEW
Burlington Road - Dublin 4
Danske II
In March 2014 a further two buildings were acquired from receivers appointed by Danske Bank which were contracted in early December 2013. Ormond Building is a modern multi-let office fronting the river Liffey in Dublin 7. We have already seen a value uplift and believe there will be further growth as the vacant space is let and as we asset manage to take advantage of rising rents in the city centre. The second building, 30-33 Molesworth Street in Dublin 2 is a terrace of four Georgian buildings with a mix of long and short term income, off low rental levels. One building is vacant and requiring redevelopment behind the existing façade. Again this acquisition offers development potential and the opportunity to increase rents, given its central prime location. These acquisitions reflect a portfolio purchase price of €22.1m, a blended initial yield of 5.9%, and there has been an uplift in valuation of 19%
since their acquisition. 30-33 Molesworth Street - Dublin 2
Ormond Building - Dublin 7
Central Park
Also in March 2014 the Company acquired a 50% interest in Central Park from receivers appointed by NAMA, through a 50:50 joint venture between Green REIT and LVS II CP Investor Ltd, an entity sub-advised, advised or managed by Pacific Investment Management Company LLC or its affiliates. Central Park comprises six high quality suburban office buildings, let to tenants such as Vodafone, Merrill Lynch and Tullow Oil. The offices extend to 691,000 sq ft, with planning permission for an additional 700,000 sq ft of offices on a7.4 acre site included in the purchase. At the time of
acquisition, our expectation was that rental levels in the south suburbs would rise, and that as Central Park is one of the best quality suburban office locations, it would see the benefit first. Already, we are seeing rental growth and anticipate that this will continue in the short term. The 50% acquisition price of €114.8m reflected an initial yield of 6.2%. Over the short to medium term our development team will explore the options to add additional high quality accommodation in this location.
Harcourt Street and Harcourt Road
In late June 2014 the Company acquired two office buildings for €32 million, reflecting a net initial yield of 6.8%. 76-78 Harcourt Street is a mock Georgian office located in prime Dublin 2 and let to the Department of Foreign Affairs (Irish government) with 2.5 years to lease end. Should the tenant request to stay in occupation at lease expiry we would look to restructure the lease to take advantage of anticipated rising rental levels and for there to be a valuation benefit from having a
longer lease term to a high quality tenant. The second acquisition was 4-5 Harcourt Road, also let to a Government tenant with a lease expiring in October 2015. Our development team are working through options to re-develop the property, subject to planning and increase the floor area, should the tenant choose to vacate on lease expiry. Again this building is located in prime Dublin and should benefit from a shortage of grade A stock and rising rents.
76-78 Harcourt Street - Dublin 2
PORTFOLIO REVIEW
4-5 Harcourt Road - Dublin 2
George’s Quay - Dublin 2
PORTFOLIO REVIEW
Sapphire Portfolio
and 13-17 Dawson Street
In June 2014 the Company contracted to acquire the Sapphire Portfolio and in August 2014 the Company contracted on 13-17 Dawson Street. The Company was selected as preferred bidder for the Sapphire Portfolio following a targeted marketing process. This portfolio comprises offices at George’s Quay and George’s Court in Dublin 2 and retail and ancillary space at Westend Retail Park in Blanchardstown, Dublin 15. The office space comprises 428,000 sq ft of modern grade A office accommodation in three multi-let buildings in Dublin CBD, with tenants including RBC Dexia, Pioneer Investments, Northern Trust and Invesco. >
George’s Court - Dublin 2
13-17 Dawson Street - Dublin 2
Sapphire Portfolio
and 13-17 Dawson
Street
(continued)
Westend Retail Park is adjacent to Blanchardstown shopping centre to the west of Dublin. This open use retail park is classed as prime in Ireland, benefitting from the Dublin catchment. Tenants include GAP, Nike, Next, Argos and Lidl. The combined rent is €23.7million per annum, returning a net initial yield of 6% off a purchase price of €375 million. With a WAULT of 4.8 years across this portfolio, it offers opportunities to re-gear leases, to move tenants within buildings and with regard to the offices to take advantage of the shortage of supply and rising rents. The retail sector is showing positive signs and we are well poised to see value growth in the short term on the retail park.
13-17 Dawson Street is located in prime Dublin city centre and comprises a 42,114 sq ft office, let to 14 tenants. Vacant possession can be obtained by the end of 2015 and our intention is to submit a planning application as soon as possible and to redevelop this building to provide high quality grade A accommodation. Subject to planning we hope to increase the net floor area to between 80,000-90,000 sq ft. The acquisitions of both the Sapphire Portfolio and 13-17 Dawson Street completed in October 2014.
Westend Retail Park - Blanchardstown, Dublin 15
LOCATION
As at 30th June 2014 90% of the portfolio is located in Dublin city centre and greater Dublin with the remaining 10% located in Limerick and the rest of Ireland. This is in line with the Company’s investment strategy, where the stated acquisition strategy was to be predominantly in Dublin/greater Dublin and selectively Cork, Limerick and Galway.
NET VALUE BY LOCATIONS AS AT 30 JUNE 2014
Dublin City Centre 39.7%
Dublin - Other 50.7%
Limerick 4.3% Rest of Ireland 5.3%
of the portfolio is located
in Dublin, 10% in Limerick
and the rest of Ireland.
90
%
SECTOR SPLIT
The passing rent
by sector is again
consistent with the
portfolio split, with
72% of our income
as at 30th June 2014
coming from offices,
21% from retail
and the remaining
7% coming from
industrial/other.
The portfolio is split 73.5% offices and 17.5% retail by value at 30 June 2014, with the remaining 9% divided between industrial, development land and other (which includes residential, car park and a hotel/leisure centre). Again this is in line with our investment strategy of building a portfolio comprising approximately 60-70% offices, up to 25% retail and up to 15% industrial. While the Company’s industrial property comprises less than was intended in the investment strategy, the Company owns 112 acres of land predominantly zoned for industrial, with the potential over the medium term to create up to 1 million sq ft of modern logistics warehousing.
NET VALUE BY SECTORS AS AT 30.06.2014
Offices 73.5% Dublin 2/4 33.7% Dublin (Other) 39.8% Retail 17.5% Industrial 2.4%
Development/ Lands 3.6% Other 3.0%
PASSING RENT BY SECTORS AS AT 30 JUNE 2014
Offices 72% Dublin 2/4 33% Dublin (Other) 39% Retail 21% Industrial 3% Other 4% 67
RENT
The portfolio has a diversified and solid income base. As at 30 June 2014, 90% of the portfolio by square footage was occupied. The table and graph below show that our top ten tenants account for almost 70% of the income and include the Irish State, banks such as Bank of Ireland and Ulster Bank and Corporates such as Vodafone, Merrill Lynch and Lidl.
Top 10 Tenants Passing Rent pa €m of TotalAs a %
Allied Irish Bank (Government) 4.2 14.8
The Commissioners of Public Works
Ireland (Government) 4.0 14.1
Vodafone Ireland¹ 3.6 12.9
Woodies DIY Limited (Part of Grafton
Group) 2.4 8.4
Bank of Ireland 1.4 5.0
Ulster Bank (part of RBS)¹ 1.1 3.8
Merrill Lynch¹ 0.9 3.1
Lease Plan¹ 0.8 2.7
Glandore Business Centre 0.7 2.6
Lidl Ireland 0.6 2.2
Total Top 10 Tenants 19.7 69.6
PORTFOLIO TOTAL 28.6
-1 Green REIT plc’s share only
The portfolio is also well diversified over different tenant business sectors, with financial services accounting for just over 30% of the income, retail 22%, public administration at almost 17% and IT/Communications accounting for just over 13%. The spread of business uses not only diversifies risk but also provides for growth from a mix of business uses.
Financial Services 30.9% Transport 4.2% Other 3.4% Services 9.7% IT/ Communications 13.1%
Public Administration 16.6% Retail Trade 22.1%
PASSING RENT BY TENANT BUSINESS SECTOR AS AT 30 JUNE 2014
WAULT
ERV/OVER-RENTING
The weighted average lease term across the portfolio as at 30th June 2014 stands at 6 years. The graph shows that 69% of the portfolio has a lease event in less than 5 years. In a recovering market as is currently being experienced, this provides the opportunity to time the renegotiation of leases to maximise rents and to extend out the unexpired term, which would have a positive impact on valuations. Lease re-gear negotiations will be a key asset management initiative over the next 12-24 months.The table below shows the total passing rent at 30 June 2014 divided into the key sectors. We have compared the ERV as per the 30 June 2014 valuations to highlight where there is over-renting and have ignored the income potential from vacant space. Currently the portfolio has approximately 19% renting. The level of over-renting has been falling, particularly in the office sector, where rents grew in 2013 by 25% and as at the end of
June 2014 had increased by a further 15%, and continue to rise. The retail sector has not yet seen rental growth, but indicators are positive with consumer spending is at its highest level since 2006 and some retailers are now considering selective expansion. With limited vacancy in prime/good secondary, we expect that rental growth should emerge during 2015 and the level of over-renting in the retail properties within the portfolio will erode further.
>15 years 9%
5-10 years 11%
10-15 years 11%
<5 years 69 %
PORTFOLIO LEASE EVENT AS AT 30 JUNE 2014
Sectors Passing Rent €m pa ERV €m pa (Let only) Over-rented % (Vacant only)ERV €m pa
Office 20.6 18.5 11 1.8 Retail 6.0 4.0 50 0.5 Industrial 0.8 0.7 14 0.0 Other 1.2 0.8 50 0.0 Total 28.6 24.0 19 2.3
PORTFOLIO REVIEW
The table above also highlights the potential to increase passing rents by a further €2.4 million from letting vacant space. The vacancy by ERV is predominantly concentrated in Dublin offices including Classon House, Ormond Building and Central Park. Given the shortage of grade A space in the city centre and in the south suburbs, we are confident that much of this accommodation will be let in the short term.
Details of vacant space by property and ERV are as follows:
Property Name Vacant Floor Area sq ft €m paERV
Central Park (50% Share) 40,752 0.8
Classon House 23,778 0.4
Parkway Retail Park 23,384 0.2
Globe Retail Park 19,391 0.2
Arena Centre - Retail 18,138 0.1
30 - 33 Molesworth Street 13,151 0.4
Ormond Building 10,185 0.2
Total 148,779 2.3
YIELDS/VALUATION
We have seen a 1.1% movement downwards in both the portfolio yield and investment yield in absolute terms since acquisition. Our Portfolio yield (30 June 2014) stands at 6.7% and 7.0% when land is excluded. This compares favourably with current market yields. CBRE are estimating prime office yield in Dublin at 5% and prime retail warehousing at 6.50%, and both are trending stronger. We believe with strategic asset management there can be further yield compression within the portfolio.
At 30.06.2014 1 Running yield 2 At Acquisition 3
Portfolio Income Yield % 6.7 7.8 7.8
Investment Income Yield % 7.0 8.1 8.1
1 Calculated as passing rent at 30 June 2014 over the June 2014 valuation plus notional purchaser’s costs 2 Calculated as passing rent at 30 June 2014 over the actual purchase price plus the actual purchaser’s costs 3 Calculated as passing rent at acquisition over t
