Hammerson/Allianz jv buys Irish retail portfolio

Hammerson plc, together with its joint venture partner, Allianz Real Estate, has signed an agreement with Ireland’s National Asset Management Agency (“NAMA”) to acquire the Project Jewel portfolio of loans secured against market-leading retail assets in Dublin, Ireland, including Dundrum Town Centre, Ireland’s pre-eminent shopping and leisure destination.

The loan acquisition is being made through a 50:50 joint venture between Hammerson and Allianz. The purchase price paid by the JV for the loans secured against the Collateral Assets is €1.85bn (£1.37bn). The face value of the loans is €2.57bn (£1.90bn).

Under the long term joint venture structure, Hammerson would own 50% of Dundrum Town Centre and Dundrum Phase 2 alongside Allianz, and act as asset and development manager. Hammerson would own 100% of the remainder of the Collateral Assets (being the Dublin Central Development site, The Ilac Centre (50%), The Pavilions (50%)). Following the final allocation of properties, Hammerson’s total share of the consideration would be €1.23bn (£0.91bn).

A sum equivalent to 10% of the purchase price will be paid by the JV this week. The residual payment to NAMA for the loans is to be made upon closing, expected to occur before 30 October 2015.

Hammerson will fund its €1.23bn (£0.91bn) share of the transaction from existing financial resources and a new €1.0bn revolving credit facility with a maturity of March 2017. Management is committed to maintaining a strong investment grade credit rating and believes that the acquisition also enhances the quality, diversity and income security of our portfolio. The new credit facility will be refinanced from a combination of an acceleration of the current disposal programme and future capital markets issuance. During the course of 2015, Hammerson has announced disposals of £155m, recycling capital into those assets which are best positioned to deliver value creation for shareholders. We are currently marketing a further £200m of assets for sale. We also intend to execute previously identified disposal opportunities by the end of 2016 which could total up to a further £300m. The management team remains committed to a long-term strategy of prudent leverage in line with its policies of less than 40% LTV and 10x net debt to EBITDA ratio.

Dundrum Town Centre

Opened in 2005, Dundrum is Ireland’s premier retail and leisure destination. The centre extends to approximately 1.5m sq ft (140,000 sq m) and is anchored by four department and flagship stores (House of Fraser, M&S, Harvey Nichols and Penneys) alongside a Tesco superstore, 120 retail shops, 38 restaurants, 12 screen VIP cinema and 3,400 space customer car park.

Dundrum is located 5km south of Dublin City Centre, and is well connected through excellent public transport access serviced by the light rail Luas service and is adjacent to exit 13 of the M50 Motorway.

The centre benefits from one of the most affluent and densely populated catchment areas in Ireland, with 71% of the primary catchment being categorised as ABC1.

Dundrum has won over 30 industry awards and is Ireland’s only super prime regional shopping centre. The centre has created a retail and leisure leasing proposition unique in Ireland, accommodating more than thirty ‘first to Ireland’ international tenants, including House of Fraser, Harvey Nichols, Hollister, Aldo, Starbucks, Jamie’s Italian, H&M, Hugo Boss and Bershka. The large modern units have attracted international retailers and 63% of the centre’s income comes from international brands.

Contracted rent of €60m (£44m) offers significant growth potential with rents in Dundrum c.70% of equivalent retail units on Grafton Street in Dublin City Centre, offering reversion potential of c.15%. Many of the brands trade in the top quartile of their store portfolios and there is identified demand from existing retailers for expansion as well as new brands looking to use Dundrum as a platform to enter Ireland.

The centre is currently at 98% occupancy and the weighted average unexpired lease term (“WAULT”) is 15 years. 90% of the leases are subject to upward-only rent reviews.

The centre sees annual footfall of 18m and is combined with a high average dwell time of around two hours. Current annual sales for Dundrum Town Centre are estimated at around €500m (£370m).

Dundrum Village (“Dundrum Phase 2”)

Dundrum Phase 2 is a 6-acre site located directly adjacent to Dundrum Town Centre. The site provides the opportunity to expand the successful Dundrum retail and leisure offering or to develop with a complementary mixed-use offering.

Situated next to the Luas station with direct links to Dublin Centre, and near to Dublin’s exclusive residential areas of Ballsbridge and Donnybrook, the site offers a desirable location for future development.

The site benefits from being categorised as a Major Town Centre and has previously been granted planning permission for a 1.15m sq ft (110,000 sq m) development of retail, dining and leisure facilities although this permission would need to be renewed.

The site currently houses retail properties let on short term leases to facilitate development. The site generates gross annual rents of €1.3m (£1.0m).

The Pavilions, Swords

The Pavilions is the prime retail centre serving Dublin’s northern suburbs, situated directly adjacent to the M1 motorway. Completed in 1999, the centre was subsequently extended in 2006 to provide approximately 490,000 sq ft (46,000 sq m) of retail and leisure space. The centre is anchored by Dunnes Stores, Ireland’s largest retailer, SuperValu, Ireland’s largest grocery chain, and Penneys (not included in Collateral Assets), alongside 70 retail shops and restaurants, an 11-screen cinema and 2,000 space car park. The asset is owned in co-ownership with IPUT (25%) and Irish Life (25%).

The Pavilions offers an attractive retail and leisure mix with a combination of international brands such as Zara, H&M, River Island, Tommy Hilfiger and Next. The cinema is let to Movies @ Swords cinema, which is ranked within the top five in the country. A number of recent lettings to major international retailers have been achieved.

The Pavilions has an annual footfall of 12m and is located in the most affluent catchment of North Dublin, with 62% of the primary catchment categorised as ABC1.

The centre has high occupancy of 99% and contracted rent at The Pavilions is €15m (£11m) (100% of centre) with WAULT to expiry of 11 years.

Adjacent to the existing centre is a 16-acre development site. This is not within the co-ownership with IPUT and Irish Life. Outline planning permission has been granted for a 1.2 mil sq ft retail-led mixed use development (including 0.7 mil sq ft of retail space).

The Ilac Centre, Dublin

The Ilac Centre offers one of the largest City Centre malls within Dublin’s primary shopping area. It sits at the heart of Dublin’s retail core, bounded by Henry Street to the south, Moore Street to the east and Parnell Street to the north. Henry Street is the busiest shopping street in Ireland, with footfall of 30m per annum. The street has a significant retail offer with Arnotts department store, M&S, Debenhams, Dunnes, Penneys and The Jervis Centre. The asset is owned jointly with Irish Life (50%).

Ilac is configured over a single level, comprising four malls surrounding a central square with approximately 160,000 sq ft (15,000 sq m) of retail accommodation. It includes 85 retail and catering units with a value-led retail proposition. TK Maxx, Boots, Argos, H&M and River Island are key tenants.

The centre underwent a €60m refurbishment in 2008 which improved design, external frontages, lighting and the internal environment.

The centre’s north-central location is easily accessible by public transport which is provided by many city centre bus routes. The centre also benefits from light rail connections to the Luas service. Footfall is supported by the connection to the largest car park in the north of the city centre with over 1,000 spaces. This is owned and operated by Dublin City Council. As a result of its connections, the centre sees footfall of 18m per year.

Contracted rent from The Ilac Centre is €10m (£7m) (100%) with 99% occupancy and WAULT to expiry of 10 years.

Dublin Central Development site

The Dublin Central Development site located adjacent to The Ilac shopping centre is a 5.3-acre area in the heart of central Dublin. With a combination of impressive scale and irreplaceable location, the site is one of the best-positioned urban retail development sites in Europe.

Assembled over the course of a decade, the site comprises multiple buildings along Henry Street, O’Connell Street and Parnell Street. With its strategic location and mix of current tenants, the site offers the flexibility to pursue numerous development scenarios and deliver a modern landmark of international importance that is sympathetic to the neighbourhood’s history.

The buildings on the site have a combined area of 1.4m sq ft with a mix of retail, office, restaurants and residential. They are currently predominantly let to local operators on short-term leases and the site generates gross rents of €2.4m (£2.0m).

Management and strategy for period of loan ownership

A new specialist Irish team has been established within Hammerson focused on the management of the loan portfolio and future operational initiatives.

Hammerson is committed to ensuring the most appropriate outcome for all parties, including NAMA’s commitments to stability in the property markets, fair and transparent discussions with the borrowers, ensuring the assets meet their future potential for the communities they serve and delivering shareholder returns.

The secured loans that Hammerson and Allianz have acquired have expired and repayment on demand can be requested. The borrowers are not expected to be in a position to repay the loan amounts due. It is the primary goal of the joint venture to acquire ownership of the Collateral Assets by way of a consensual agreement with the borrowers.

The joint venture anticipates owning the properties by the summer of 2016.

Financial effects

Total contracted rent on the underlying properties of the portfolio is €88m (£65m) reflecting an initial yield of 4.0% and a reversionary yield of 4.6% (excluding development properties).

Since the loans have expired, default interest is applicable which has the effect of sweeping all rent payable from the Collateral Assets on which the loans are secured. The total interest receivable on the loans currently is approximately €65m (£48m), equating to a cash yield of 3.5%.

The portfolio provides a projected 5 year IRR of 7-8%, exceeding Hammerson’s weighted average cost of capital. These returns are supported by positive rental reversion at Dundrum. Opportunities to pursue development schemes at Dundrum Phase 2, Dublin Central and The Pavilions provide material value upside potential.

The transaction is expected to be immediately accretive to EPS and with medium term accretion to EPRA NAVPS.

Proforma for the acquisition of the loan portfolio, LTV will be 40% and gearing will be 59%, with liquidity of over £350m. Hammerson anticipate, following planned disposals of £500m in total, that LTV will be mid-30%.

HMSO : Hammerson/Allianz jv buys Irish retail portfolio

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