Three-year-old Henderson Park this week agreed to buy Ireland’s first REIT, in a €1.3bn (£1.2bn) bet on the Irish commercial property market.
The UK private equity company’s offer for Green REIT stands at a 2.3% premium to its EPRA NAV per share as at 30 June, and 24.7% premium to its share price before it kicked off the sale in April.
Nick Weber, founding partner and chief executive of Henderson Park, said the acquisition of Green REIT offered a “rare opportunity to invest in a large institutional quality office portfolio and a strategic logistics park through a single transaction”.
“The portfolio offers exposure to high-quality properties located predominantly in Dublin, leased to blue chip tenants, and two strategic development sites,” he said. “We believe in the short-term and long-term prospects of the Irish market, with its strong macroeconomic backdrop and underlying real estate fundamentals.”
But the deal, which still needs shareholder approval, is a big move into a relatively new market for Henderson Park. The investor, launched in 2016, only recently dipped its toe into the Irish market, buying mixed-use campus Heuston South Quarter in Dublin with Chartered Land for €222m in May.
Henderson Park fought off competition for Green REIT from Germany’s DekaBank, seen as having some of the deepest pockets in Europe, and California-based Kennedy Wilson, another regular player in Dublin’s property market.
And speculation around what Henderson Park has in mind for Green is already mounting. Insiders suggest the firm could be preparing to sell off its mature, prime, income-producing Dublin city centre office portfolio, let to the likes of the Revenue Commissioners, Barclays Bank and Vodafone, and retain development opportunities such as its key suburban offices location in Central Park in Sandyford, south Dublin, and its Horizon Logistics Park near Dublin Airport.
Taking risks
Green has a €1.5bn portfolio of largely office and logistics assets. Some 83% of the portfolio is made up of offices in the Dublin area.
“My understanding is that Henderson Park will keep the asset management heavy assets and sell off core assets. Their money is seen as more opportunistic,” said one source familiar with the matter.
Another Dublin-based property source added: “I met with Henderson Park six months ago to discuss possible investments, but they wanted higher risk assets, hotels and stuff in Greece. They said some of the things we talked about were ‘a bit vanilla’. I think with Green they will sell core properties and keep the development plays.”
Local property agents say the phones are already ringing and buyers are expressing interest in Green deals. The first round of bidding attracted widespread interest from the likes of Irish Life, Goldman Sachs, Brookfield and Union, the investment arm of DZ Bank Group.
But the deal comes as the Irish commercial real estate market shows indications of slowing following years of growth. Prime office rents in Dublin have more than doubled since Green was launched in 2013, but have plateaued at €65 per sq ft over the past year, according to CBRE.
Yields are also hovering at record lows, holding out at around 4% at the end of the second quarter of 2019.
Green chief executive Pat Gunne and chairman Stephen Vernon, who will both step away from the listed property group once it is sold, have spoken of the challenges in the Irish property market.
In an analyst call in February, Gunne said: “Brexit is a headwind for Ireland in particular and the picture is unclear… The only bit of clarity that we got was before Christmas, when M&S and Next both announced in their results that they were going to be upscaling the in-country logistics for Ireland.”
He also cited the housing crisis in Ireland as a worry: “Availability of residential is another particular pinch point, we are probably delivering half of what we actually need.”
Other investors such as Starwood Property Trust are also offloading assets while prime yields stand at record lows.
Cian O’Sullivan, an analyst at Goodbody Stockbrokers in Dublin, said: “The fizz has settled out of the Dublin office market. Performance has matured throughout 2018 and into 2019 as rental and capital value growth has stabilised.”
But given the fact that Green had been trading at up to a 26% discount in the months before the sale was announced, for many the terms of the deal are reassuring for a market that lives in fear that history could repeat itself, with the Irish property boom turning again to bust.
“It is a welcome vote of confidence in Irish commercial real estate,” concludes O’Sullivan. “The pricing is in line with our expectations, and represents important transactional evidence.”
Henderson Park – the lowdown
Henderson Park is a pan-European private equity real estate manager based in London, which was launched in 2016 by Nick Weber, a former partner at Goldman Sachs and head of Europe at Mount Kellett.
The firm announced in July 2019 that it had closed on $3bn in total equity commitments. Henderson Park held its first close in September 2017. An initial $500m was raised at launch from Henderson Park’s cornerstone investors: Stone Point Capital, Kuwait Investment Authority, and Wafra Investment Authority Advisory Group.
It currently has a $5.8bn European portfolio, made up primarily of hotels, private rental sector, student housing, and offices. These are located across the UK, France, Greece, Spain, Poland and, more recently, Ireland.
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