Wednesday 26 October 2016

Developer snaps up bargain sites for just €19k each

Project Clear included west Dublin scheme with planning for 6,126 homes sold to Cairn Homes

Published 15/05/2016 | 02:30

John Reynolds
John Reynolds

One of the country's biggest housebuilders, Cairn Homes, is poised to make a financial killing on prime Dublin land it purchased for a knockdown price from Ulster Bank.

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The Sunday Independent can reveal that Cairn snapped up sites with planning permission for 6,126 new homes for an average of just €19,000 per site - a mere fraction of the €100,000 equivalent sites are currently commanding in the same area, according to construction industry sources.

While a spokeswoman for the housebuilder insisted that the company would be delivering affordable homes on the sites that are located in Clonburris, Newcastle, and Adamstown in west Dublin "in the coming years", Cairn could potentially secure a profit of several hundred percent on its investment by simply selling the lands on to another developer.

Cairn Homes acquired the hugely valuable sites as part of its overall €378m purchase of Ulster Bank's 'Project Clear' portfolio. Given its par value of €1.75bn, the price paid by Cairn represented a massive haircut, or discount, of 79pc.

Quite apart from the development lands it secured in west Dublin, the housebuilder, which is headed up by former KBC Bank Ireland chief John Reynolds, acquired a further 24 sites in Dublin and the surrounding commuter counties of Wicklow, Kildare and Meath, which it said would form the 'core' of its plans to deliver a total of 11,229 homes into the future.

An examination of the prospectus made available by Cairn to potential investors last March showed that the company had planned to develop an additional 1,995 new homes in other areas of Dublin, with 691 of these being located in north Dublin, 1,171 in south Dublin and 133 in the city centre.

While none of these sites was acquired as cheaply as those contained in Cairn Homes' west Dublin portfolio, the company still has scope to deliver affordable housing in the case of its north Dublin lands, which it bought for an average of €71,000 per site.

In the cases of south Dublin and Dublin city centre, Cairn paid average prices per site of €137,000 and €139,000 respectively, leaving it with less room for manoeuvre in terms of pricing.

Elsewhere, in its investor prospectus, the company stated its intentions to commence the construction of 2,945 homes on seven of its core sites within the next 12 months.

Plans for the construction of an additional 2,190 units are slated to get under way within the next three years while the building of a further 6,094 homes is due to begin in 2019.

Addressing shareholders at its AGM last Tuesday, the company restated its goal to deliver 1,200 homes a year by 2019. While those figures appear impressive, the impact of the Central Bank's tighter mortgage lending restrictions may yet serve to dampen Cairn Homes' prospects of selling those units, should it seek to price them anywhere above affordable levels.

A warning of the potential impact of the Central Bank's so-called 80:20 rule on its business, the company's investor prospectus, which it published last March, stated: "These or further constraints on mortgage borrowing could cause house prices and sales volume to decline, and could result in a decline in its value of the group's inventories."

Notwithstanding the potentially negative impact of the Central Bank's lending rules on Cairn's bottom line, the company's founders, Michael Stanley and Alan McIntosh, are already in receipt of substantial remuneration packages according to the company's 2015 annual report.

Mr Stanley's total package of €719,000 comprised a salary of €455,000, an annual incentive of €212,000, retirement benefit of €46,000 and a car allowance of €6,000.

Mr McIntosh's €540,000 remuneration package, meanwhile, consisted of a salary of €372,000, an annual incentive of €162,000 and a car allowance of €6,000. The company's annual report noted that Mr McIntosh received an additional €27,000 in salary in lieu of a company pension contribution.

The company's group finance director, Eamonn O'Kennedy, received an overall remuneration package of €447,000, consisting of a salary of €230,000, an annual incentive of €185,000, retirement benefit of €23,000 and a car allowance of €9,000.

At its AGM last Tuesday, Cairn's chairman John Reynolds was forced to defend the pay of its top executives after 13pc of shareholders voted against the remuneration report proposed for 2016.

Sunday Independent

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