Wednesday 21 March 2018

Unit linked funds surge as property values grow sharply

An Irish Life property fund acquired the Hodges Figgis building on Dawson Street in Dublin as part of the Sovereign Portfolio
An Irish Life property fund acquired the Hodges Figgis building on Dawson Street in Dublin as part of the Sovereign Portfolio

Donal Buckley

In contrast to the recent weaknesses in global stock markets, Irish property REITs and unit linked funds have been outperforming.

The Moneymate monitor shows that global equity unit-linked funds have seen their gains pared back to only 2.43pc over the first nine months of this year and 40.2pc over three years. Meanwhile managed defensive funds averaged only 1pc and 25.4pc over the same periods.

In contrast Irish property funds fared better as they achieved an average rise of 7.3pc over nine months and 51pc over three years. Irish equities also achieved strong growth - up 20pc over nine months as well as a 93.6pc over three years

But Irish REITs and property investments have not been immune to the global stock market and this is shown in the way that two Irish REITs have slipped off their August highs. Hibernia REIT is down from 1.39 per share to 1.26 on Tuesday this week while Green REIT slipped from 1.56 to 1.48 over the period.

Nevertheless the two REITs outperformed most of the unit-linked property sector over the nine months although a few unit linked funds did manage to keep pace. Green Green saw its share rise 15.6pc in the year to September 25 while Hibernia's share price rose 14.4pc over the same period. Unlike unit linked funds the two REITs also bring the added bonus of dividends with Green generating a 0.62pc yield and Hibernia a 0.4pc yield.

IRES REIT also generated a 0.62pc dividend yield. However as it's a niche residential player with an enterprise value at less than half that of Green's €998m, it's understandable that the IRES share price has not attracted the support afforded to the well known Green chiefs, Stephen Vernon and Pat Gunne.

Indeed the attractions of REITs was also reflected in Zurich's fund of REIT's which, with a 17.9pc rise, proved the second best performing property fund in the unit-linked funds sector so far this year.

Other unit linked funds have been also competing strongly for commercial properties with the REITs and this is especially evident in the acquisitions and development plans of Irish Life, Aviva and to a lesser extent Friends First and Standard Life.

Irish Life's recent purchases include €150m spent buying 13 Dublin city centre properties in the Sovereign Portfolio including the MHodges Figgis on Dawson St. It also acquired 3 Henry St giving it a hat trick of adjoining premises.

"These acquisitions give the Irish Life Property Fund additional exposure to exceptionally strong retail properties at an early stage in the retail rental recovery cycle. With improving consumer confidence and increasing retail sales sparking renewed demand from retailers for strong high street locations, retail rents are strengthening, which will impact positively on property values," explains Martin O'Reilly, executive manager, property fund management at Irish Life.

Its recent office acquisitions include Block 3 in the Sweepstakes, Ballsbridge, Dublin 4, as well as Block 2 George's Dock and it is undertaking refurbishments to generate opportunities to let them at higher rents.

Rising office rents helped boost the performances of the two key Irish Life property funds, one of which is aimed at institutions and the other at retail investors. Their unit linked funds have risen by about 13pc over the first nine months of this year and by more than 112pc since 2012.

The best performing unit linked fund over both the short and medium term periods was the Friends First Corinthian Fund with a 25.7pc rise in the nine months and 373pc over three years. In contrast Friends First Pan European Insight Property Fund recorded 8pc and 28pc falls over the same time frames. Neither of those two funds are currently open to investors.

Investors in Friends First Irish property fund will be hoping that the Elm Park property portfolio currently on the market will fetch a good price as it could boost the value of the fund which owns one of the Elm Park office blocks which is not included in the sale.

According to the firm, its Block A, known as "The Quartz" at Elm Park was recently fully let to the Willis Group on a long lease and this has resulted in the value of the property appreciating substantially in the past few months.

"The recent announcement by Nama to divest its properties in the Elm Park development is likely to give rise to expressions of interest in Block A and Friends First will deal with these as they arise. As a result of this letting the fund vacancy rate has reduced to less than 2pc by assets under management," Friends First said.

Its Irish fund owns 18 other properties including the Reiss and Oasis shops on St Stephen's Green, the Disney World shop on Grafton St and Blackrock Shopping Centre in south Dublin.

Aviva has also been actively managing its portfolio selling or refurbishing older properties and buying newer ones. As part of this strategy, its Irish fund recently acquired One Grants Row, a four storey modern multi-let office in central Dublin. It has also completed the refurbishment of Clanwilliam Court, a 25,000sq ft office building near Google and reports strong interest from prospective tenants.

"We are in advanced negotiations to let space within the building. We have just obtained planning permission for the refurbishment of 26/27 Grafton Street in Dublin, where we are in advanced negotiations to let the retail space to a well-known high street retailer," a spokesperson said.

Since Aviva's fund re-opened for investors last October it has attracted €50m from investors. Meanwhile its Irish Property Fund Series 2 has risen 12pc in the nine months and 63.8pc over three years.

After selling out of Irish property in the boom, Standard Life has returned to the market and now considers itself 'heavy' on Irish commercial property. Its best performing property fund in Moneymate's Irish monitor rose 6.7pc in the nine months and 34.6pc in thee years.

A spokesperson said the investment manager "expects Irish commercial property to return between about 11-13pc a year over the next three years. However, the Irish commercial property market is known for its volatility and investors should be aware that there may be liquidity risks."

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