Saturday 18 August 2018

Retail Reit plan remains 'on track'

An aerial view of the Square centre and surrounding area in Tallaght, Co Dublin. Oaktree’s acquisition of the Square has provided Sigma Retail Partners with the scale it requires for an IPO
An aerial view of the Square centre and surrounding area in Tallaght, Co Dublin. Oaktree’s acquisition of the Square has provided Sigma Retail Partners with the scale it requires for an IPO

Ronald Quinlan, Commercial Property Editor

Plans for the flotation of a new real estate investment trust (Reit) focussed on the retail sector remain on track, notwithstanding the decision by Core Industrial Reit last Thursday evening to pull its own planned IPO.

While Core said in a statement that it had received "encouraging institutional support" for its planned €225m offering, it had decided not to proceed with its "potential initial offering at the current time due to market conditions".

Asked if Core's decision to hold off on its IPO would have any impact on the plan or the anticipated timeline for the flotation of the retail Reit involving the country's main retail asset manager, Sigma Retail Partners, industry sources said they still expected it to proceed this summer.

"This Reit is a different proposition to the one offered by Core, both in terms of its offering and its timing," one source familiar with the matter said.

Sigma Retail Partners, which is headed up by Nama's former senior retail property adviser, Marcus Wren, and retail property specialist Neil Bannon, currently manages retail assets with a combined value of over €500m in 13 locations including Galway, Navan, Bray, Drogheda, Naas, Thurles, and Waterford.

While this portfolio was already significant in itself, Oaktree's completion two weeks ago of its €250m acquisition of the Square shopping centre in Tallaght is widely considered by industry sources to have provided the scale required for a public offering to proceed as early as this summer.

The addition of the Square to the prospective retail Reit portfolio has certainly served to whet the appetite of the investment community.

Indeed, such has been the attraction of the overall offering, a number of industry sources claimed last week that in excess of several hundred million euro had already been committed by potential investors for the proposed retail Reit.

A source close to the process sought to dismiss that suggestion however, describing it as "speculation".

Notwithstanding that denial, it has been reported that Sigma will commence an 'early-look' investor roadshow with stockbrokers Davy in the coming weeks.

Sigma's plans for the flotation of a retail Reit have been the subject of intense speculation for some time now.

Indeed, the Sunday Independent reported last January that the company had already been engaged in discussions with a number of private-equity acquirers of Irish shopping centres about the formation of a Reit that would provide them with a means of exiting the Irish market.

This newspaper also pointed to the necessity, as one industry source saw it, of the Square shopping centre being added to the Reit portfolio to provide it with "the scale necessary for any public offering".

But with Oaktree's acquistion of the Square in Tallaght yet to be completed at that point, a source close to the matter told this newspaper at the time that an IPO was "still way from fruition".

Oaktree completed its purchase of the Square on February 28 last, paying Nama €250m - or some €17m more than the €233m asking price quoted by joint agents JLL and Cushman & Wakefield for a "controlling interest" of over 90pc of the scheme's units.

While the price paid represented a massive fall from the near €640m valuation the scheme carried in 2007 when financier Derek Quinlan's Quinlan Private sold a stake of around 51pc to developer Noel Smyth for €320m, it is still one of the largest retail transactions to have taken place in Ireland and is likely to be Nama's final disposal of a major single asset.

The sale also represented the last of the five major M50 retail schemes to have changed hands since the crash.

Oaktree's acquisition gives it control of 118 of the Square's 160 shop units, a cinema with 13 digital screens and more than 2,400 car spaces.

The centre is anchored by Dunnes Stores, Tesco and Debenhams.

Extending to 53,603 sq m (577,500sq ft) the Square is located on a site of 27 acres.

Hugely popular with shoppers, the scheme registered 22 million visitors in 2016 alone and is currently producing annual rental income of almost €14m. Oaktree's purchase of the Square was part-financed by AIB Real Estate Finance.

Commenting on the deal following its completion, Sigma Retail Partners co-founder Marcus Wren said: "The Square Town Centre has remained in fractured ownership since its opening in 1990 and as a consequence it had not been possible, until relatively recently, to meaningfully adjust or manage the centre to reflect the needs and wants of today's shopper." Prior to offering the Square for sale, Nama acquired and amalgamated various borrower's interests in the scheme, putting it in a position to sell over 90pc of the its units and 100pc of its redevelopment potential.

Should Core Industrial Reit continue to hold off on its proposed flotation, Sigma could well step in before it to become the fourth Irish real estate investment trust, and the first to specialise in the retail sector.

Three Reits are already listed on the Irish Stock Exchange - Green Reit, Hibernia Reit and Ires Reit.

They specialise in office, industrial and residential accommodation respectively,

Quite apart from giving investors access to individual commercial real estate sectors by allowing them to invest in stocks in a tax-efficient trust, the Reit model provides those funds who acquired assets in Ireland following the crash with a means of exiting the market.

Sunday Independent

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