ESB moves €70m of property to pension fund

THE ESB Pension Fund has transferred ownership of €70 million worth of investment properties to the top performing Irish Property Unit Trust (IPUT) which manages one of the largest property portfolios in the country.

Under the new arrangement the pension fund will become one of the major stakeholders in the trust which manages property investments for a range of pension funds worth around €445 million.

The ESB Pension Fund is one of the largest in the country with total assets of close to €3 billion. The decision to swop seven property investments producing a rental income of €8 million for units in the trust will allow the ESB fund to benefit from a wider mix of properties, particularly modern office investments in Dublin city centre. IPUT has 55 per cent of its assets tied up in the core Dublin office market which is expected to offer enhanced returns in the medium term due to the fall off in speculative developments.

Niall Gaffney, chief executive of IPUT, said yesterday that their revenues had held up well and he anticipated paying investors a net income yield for 2011 of just over 8 per cent.

The other major unit holders in IPUT are Diageo, CIÉ, RTÉ, Eircom, An Post, Irish Airlines, KBI (formerly KBC Asset Management) and Aviva Investors.

The London researcher IPD has ranked IPUT as the best performing Irish property fund over the last three years. Irish Life Permanent, which operates the largest Irish property fund valued at €900 million will shortly be reporting a net return of between 8 and 9 per cent for 2011.

The highest value property in the ESB fund at around €20 million is the BT2 store at 28/29 Grafton Street which has an ideal configuration of 2,787sq m (30,000sq ft) over three trading levels. A new lease signed earlier this year by Brown Thomas is due to run for 15 years with a break option after 10 years. The rent has not been disclosed but is thought to reflect the difficult trading conditions over the past four years.

The ESB fund also has a second property on Grafton Street, number 55, which is let to Swatch on a lease which has another 10 years to run. This will bring IPUT’s ownership on the street to eight buildings, including a 50 per cent stake in HMV and full ownership of Champion Sports, Dubray Books, Aldo Shoes and the Ulster Bank branch.

The ESB fund’s office investments include Styne House on Hatch Street which extends to 6,503sq m (70,000sq ft) and is occupied by Green Property, L’Oriel and Brown Brothers Harriman. The fund also has two modern office blocks at Shelbourne Road in Ballsbridge which have a combined floor area of 5,109sq m (55,000sq ft) and are rented by Iona Technologies.

On the industrial side, there is a 8,361sq m (90,000sq ft) warehouse close to Dublin Airport which is let to DHL and a smaller unit at Plassey Technology Park in Limerick which is currently to let.

Niall Gaffney said that as long term investors in commercial property the ESB fund was a good fit for IPUT. “We would look to other pension funds with similar direct property holdings to consider the advantages of investing their real estate into a larger scale and more diversified property fund such as IPUT.”

Gaffney said that IPUT was focused on opportunities to add value to its enlarged portfolio and was also keeping a close eye on market opportunities.

Marie Collins, ESB Group pensions manager, said their trustees had decided to transfer the property assets into IPUT because it would provide their fund with greater exposure to a more diversified portfolio of Irish properties without changing the fund’s overall allocation to Irish property.