Hammerson and Allianz Real Estate last night signed exclusivity to acquire the Project Jewel loan portfolio from NAMA for €1.85bn, anchored by Ireland’s largest shopping centre, the 1.5m sq ft Dundrum Town Centre.
The 50:50 joint venture partners’ €1.85bn price reflects a 28% discount on the gross liabilities on the €2.57bn Project Jewel NPL.
Hammerson and Allianz beat Hines, which bid with the Kuwait Investment Authority, while Colony Capital fell away at the end of last week and, earlier this month, Davidson Kempner also dropped out.
Under the joint venture agreement, Hammerson and Allianz have each acquired a 50% stake in Dundrum Town Centre and Dundrum Phase 2, which has lapsed planning consent for 1.1m sq ft of retail space. Hammerson will act as asset and development manager.
The price of of the loans securing Dundrum Town Centre was not disclosed, although it is thought to reflect in excess of €1.2bn and reflect a sub 4.0% net initial yield, rising to a 4.5% reversionary yield over the next two years in line with asset management, leasing and rent reviews.
The investment by Allianz amounts to €900m.
Separately, Hammerson has solely acquired the 50% stake in the Pavilions shopping centre in Swords, making the UK REIT the majority owner alongside Irish Life and I-PUT which each own a 25% stake, and the 50% stake in The Ilac Centre, alongside Irish Life.
Hammerson also is acquiring 100% of the remainder of the Dublin Central Development site, adjoining the Ilac Centre shopping centre in Swords for which there is 1.2m sq ft of planning permission granted.
The portfolio provides a projected five year IRR of 7-8%, exceeding Hammerson’s weighted average cost of capital, the REIT’s statement continued. These returns are supported by positive rental reversion at Dundrum.
The transaction is expected to be immediately accretive to EPS and with medium term accretion to EPRA NAVPS.
Speaking to CoStar News this morning, David Atkins, CEO of Hammerson, said: “If you look at the macro position, there is no doubt Ireland is growing very rapidly: GDP growth is around 5%, retail sales is growing at 7%.
“While rents have risen dramatically in Dublin offices in recent years, in terms of retail rents, we are only just at the beginning of a rental growth cycle.
“Dundrum is the best shopping centre in Dublin and one of the best shopping centres in Europe and we believe there are very significant opportunities to drives returns and growth for our shareholders.
“It is early days in evaluate existing development plans – we will now spend many months evaluating the opportunities. We want to bring our own thoughts and skills to bear here – there could well be amendments to the scheme.”
Hammerson will fund its €1.23bn (£0.91bn) share of the transaction from existing financial resources and a new €1.0bn revolving credit facility – extended by its five principal relationship banks – with a maturity of March 2017. The all in blended cost of debt is expected to be around 2.5% over three-month Euribor.
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 before 30 October 2015.
Hammerson confirmed the joint venture’s intention is for a consensual agreement with the defaulted borrower, Joe O’Reilly’s Chartered Land.
“The primary goal of the joint venture to acquire ownership of the collateral assets by way of a consensual agreement with the borrowers,” a statement by Hammerson confirmed this morning.
Hammerson has established a new specialist Irish team has been established within Hammerson focused on the management of the loan portfolio and future operational initiatives. The joint venture anticipates owning the properties by the summer of 2016.
Total contracted rent on the underlying Project Jewel properties is €88m (£65m) reflecting an initial yield of 4.0% and a reversionary yield of 4.6%. The total interest receivable on the loans currently is approximately €65m (£48m), equating to a cash yield of 3.5%.
Hammerson said it 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 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.
Hammerson is currently marketing a further £200m of assets for sale. In addition a further up to £300m of disposals are expected to be identified for disposal by the end of 2016. Hammerson has a presentation on the Project Jewel loan portfolio acquisition available here.
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.”
“Our investment into Project Jewel is an important step to a further diversification of Allianz´ real estate portfolio,” said Annette Kröger, CEO of Allianz Real Estate Germany. “It is a very attractive opportunity to get exposure to the dynamic Irish market. We are pleased to cooperate again with Hammerson as our JV partner.”
John Moran, managing director at JLL Ireland which advised Allianz – said: “This transaction and the international attention it has commanded is testament to the quality of the assets that underlie the loan sale and the confidence international investors have in the Irish economy.
“In the past 3 years international investors have committed €9bn to the Irish market, driven by repriced rental income and the economic growth prospects. This loan sale is the largest sale from NAMA to date and we view the sale to long term investors with international experience in this sector as a very successful outcome to the process.”
NAMA chief executive, Brendan McDonagh said: “We are very pleased with the successful outcome of this competitive loan sale which represents NAMA’s biggest single transaction to date. The competitive tension throughout the loan sales process is continuing evidence of the strong investor appetite for property-related loans in Ireland.
“We are delighted that institutions of the calibre of Hammerson and Allianz have shown huge confidence in Ireland by this strategic investment in a unique, high quality portfolio.”
Hammerson were advised by Lazard, Herbert Smith Freehills, William Fry, KPMG and CBRE. In the transaction Allianz was advised by JLL, Savills, Clifford Chance and PwC.Eastdil Secured was sell side adviser for NAMA on Project Jewel.