Property fund slashes book value of its investments

The annual report of the Irish Property Unit Trust – which has a stake in The Pavilions centre in Swords – posted a return of minus 38.8 per cent for 2008, writes JACK FAGAN.

ONE OF the largest property funds in Ireland has written down its investment by 39 per cent in Opera Avenue, a new shopping enclave in Cork city centre which is not due to open for business until later this year.

Irish Property Unit Trust (IPUT) is committed to paying €40 million for a 35 per cent stake in the retail development on the former site of the Cork Examiner.

The annual report of the trust, released yesterday, shows that the decision to mark down its interest by 39 per cent in the O’Callaghan Properties scheme was in keeping with the general fall off in retail values.

However, chairman Frank Close said IPUT remains convinced that this development would outperform in time because it was the only prime retail scheme in Cork.

He said IPUT’s larger retail holdings – Airside Retail Park near Dublin Airport and The Pavilions shopping centre in Swords (the trust acquired a 25 per cent stake in it in 2006 for around €120 million) – saw capital value reductions of 32 and 48 per cent respectively.

Despite this, IPUT strongly believes that these properties would outperform in the medium term when more normal economic activity returned.

Mr Close said the investment fundamentals of commercial property had been undermined here and elsewhere.

The consequent increase of valuation investment yields resulted in capital values falling by 40 to 60 per cent across the various property sectors over the course of 2008.

The trust’s portfolio was not immune to this background and posted a return of -38.8 per cent for 2008 compared with the Investment Property Databank (IPD) average of -35.12 per cent.

Mr Close reminded the trust that property was a long term income generating asset class and said its portfolio had produced a rent of €42.4 million in 2008, representing an income return of 6.1 per cent.

The retail sector was the hardest hit by the increase in valuation yields and experienced substantial re-pricing from historical lows, he said.

The various sub-sectors within it suffered capital falls ranging from 40 to 65 per cent.