To view the presentation in full, the webcast link is http://edge.media-server.com/m/p/eyowkguy
• Major new platform of high quality retail property in Ireland
– Opportunity to become Ireland’s leading retail property owner
– Loans secured against a portfolio of established, well-let shopping centres and core retail development opportunities in Dublin, Ireland
– Concentration and quality of assets difficult to replicate through individual transactions
– Hammerson share of acquisition is €1.23 billion (£0.91 billion) in a joint venture with existing partner, Allianz
• Portfolio anchored by Dundrum, a 1.5 million sq ft super-prime European shopping centre
– Ireland’s leading retail and leisure destination with 120 shops, 38 restaurants, 12-screen cinema, 3,400 car park spaces, located in affluent southern Dublin catchment
– First stop for global retail, fashion and leisure brands entering Ireland
– Material rental reversion to be captured
– Platform also includes The Ilac Centre and The Pavilions shopping centres, as well as Dundrum Phase 2 and Dublin Central Development Sites
• Gain exposure to fast growing consumer economy in Ireland
– Fundamentals in place to deliver strong retail rental growth
– Fastest GDP growth of any Eurozone country – OECD projects 5.0% rise in 2015
– Retail sales up 7% over the twelve months to July 2015
– Significant Foreign Direct Investment attracted by low corporation tax and highly-skilled workforce
– Consumer wealth boosted by rising real wages and house price inflation
• Significant value upside from asset management and development opportunities
– Transaction is in line with Hammerson’s strategy of owning and managing high quality European assets
– Significant synergies with Hammerson’s existing UK portfolio – tenant overlap and similar legal and commercial environment
– Major development opportunities adjacent to Dundrum and The Pavilions as well as the Dublin Central development opportunity fronting onto Henry Street
• Clear strategy in place for route to asset ownership
– Specialist Irish loan management team established within Hammerson
– Loans have expired and repayment can be requested on demand
– Planned engagement with borrowers with a view to a consensual transaction
• Attractive financial metrics
– Acquired at a blended initial yield of 4.0% and a reversionary yield of 4.6% (excluding development sites)
– Projected 5-year ungeared IRR of 7-8%, exceeding Hammerson’s WACC
– Transaction will be immediately accretive to EPS and supports existing guidance on dividend growth of 6 – 8 % per annum
– New €1.0 billion (£0.7 billion) credit facility
– Acquisition to be funded from a combination of existing financial resources, an acceleration of the current disposal programme and future capital markets issuance
Hammerson CEO, David Atkins said: “This agreement provides Hammerson with exposure to a significant new platform of high quality, well-let retail property as well as strategically located development opportunities in Ireland, Europe’s fastest growing economy. The transaction fulfils our strategy to focus on growing a portfolio of high-quality retail destinations in prime locations, which stand to benefit from high footfall, attractive catchments and positive consumer trends. In partnership with Allianz, I believe we are well positioned to maximise the future potential of these properties and deliver consistent returns for our shareholders.”
Real estate portfolio (“Collateral Assets”)
The loan portfolio is secured by best-in-class retail assets:
Dundrum Town Centre (“Dundrum”)
Opened in 2005, Dundrum is Ireland’s premier retail and leisure destination. The centre extends to approximately 1.5 million 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 €60 million (£44 million) 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 18 million and is combined with a high average dwell time of around two hours. Current annual sales for Dundrum Town Centre are estimated at around €500 million (£370 million).
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 1.15 million 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 €1.3 million (£1.0 million).
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 12 million 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 €15 million (£11 million) (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 30 million 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 €60 million 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 18 million per year.
Contracted rent from The Ilac Centre is €10 million (£7 million) (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 1.4 million 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 €2.4 million (£2.0 million).
Transaction structure and funding
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 €1.85 billion (£1.37 billion). The face value of the loans is €2.57 billion (£1.90 billion).
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 €1.23 billion (£0.91 billion).
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 €1.23 billion (£0.91 billion) share of the transaction from existing financial resources and a new €1.0 billion 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 £155 million, 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 £300 million. 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.
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.
Total contracted rent on the underlying properties of the portfolio is €88 million (£65 million) 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 €65 million (£48 million), 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 £350 million. We anticipate following planned disposals of £500 million in total that LTV will be mid-30%.
On this transaction, Hammerson were advised by Lazard, Herbert Smith Freehills, William Fry, KPMG and CBRE.
Investor conference call
A conference call for analysts and investors will be held today at 08:30 BST and a presentation to accompany this call is available on Hammerson’s website at www.hammerson.com
Participants, Local – London, United Kingdom: +44(0)20 3364 5729
Participants, Local – New York, United States of America: +1646 254 3371
Participants, Local – Paris, France: +33(0)1 76 77 22 42
Participants, Local – Amsterdam, Netherlands: +31(0)20 721 9157
Confirmation Code: 5748991
The webcast link is http://edge.media-server.com/m/p/eyowkguy
For further information
David Atkins, CEO
Tel: 020 7887 1000
Timon Drakesmith, CFO
Tel: 020 7887 1106
Simon Betty, Corporate Development Director
Tel: 020 7887 1077
Rebecca Patton, Head of Investor Relations
Tel: 020 7887 1109
Lindsay Noton, Head of Corporate Communications
Tel: 020 7887 1111