Everything from petrol stations to pubs is now part of property plays

Property assets:This was the year in which many Irish businesses chose to unlock the underlying value of their prime real estate portfolios, writes Ciarán Brennan

Liam Carroll's acquisition of a 22 per cent stake in Greencore, perhaps more than anything, signalled that 2006 was the year of the property play. The attraction for Carroll is Greencore's 900-acre land bank, which, following the termination of sugar processing, is surplus to requirements and ready for development.

Chambers Ireland head of policy Seán Murphy says: "Liam Carroll has built up a substantial stake in Greencore and it isn't necessarily because he's interested in the added value of food they produce.

"It is because he is a builder and he sees the substantial landbank that Greencore controls. It is definitely an issue and it is definitely a factor in a lot of the plays that are going on right now."

Last year's "battle for Ballsbridge", which eventually saw Jurys Doyle selling three hotels in Ballsbridge to developer Seán Dunne for €380 million as part of his plan to transform the suburb into the Manhattan of Dublin, highlighted the fact that many Irish companies were sitting on prime real estate portfolios that was not reflected in their values.

The lesson was not lost in the boardrooms of Irish business and 2006 was the year in which many Irish businesses chose to unlock the underlying value of their property assets.

"The rise in property values in the past couple of years has focused the attention of Irish plc management on the value and potential of their Irish asset bases," says Goodbody analyst Liam Igoe. "Food companies tend, for historic reasons, to have significant property holdings across the country. In the last year in particular, investors as well as management have looked at the potential value of that property."

In April, fruit distributor Fyffes issued details of its planned €197 million property venture, Blackrock International. The company transferred 30 properties into a separate vehicle, which was listed on Dublin's IEX and London's AIM stock markets.

The company said the move would help it take advantage of increased demand for development property. When it announced its first set of interim results in September, Blackrock said it was targeting an investment spend of €200 million in just two years and also revealed that net rental income is already running at more than €100,000 a week.

Earlier this year, Glanbia set up a property unit to maximise the value and returns from its property portfolio. Like a lot of companies in Ireland, Glanbia is looking at the property assets it has accumulated over the years and is selling surplus into a high property market.

While other companies may not have gone as far as hiving off and floating their own property companies, many spent the year conducting reviews of their property assets, including AIB, Bank of Ireland and Eircom.

Last year, AIB sold part of its Bankcentre site at Ballsbridge in Dublin 4 to the Serpentine Consortium for €367.75 million in cash, as part of a sale and leaseback deal. This year saw the bank ramping up its sale and lease back programme to take in a number of its branches.

The State's largest bank made €100 million when it sold off 12 bank branches in Dublin in the second half of the year to developer and investor Gerry Gannon.

A further 25 branches in a number of provincial cities and towns have since been offered on a sale and leaseback basis to investors and mirrors a similar sale and lease back by rival Bank of Ireland which pocketed €237 million for 37 branches during the year.

But it's not just publicly quoted companies that are assessing - or being assessed - for their property portfolios. Everything from pubs to petrol stations are now looked at as property plays.

Analysts agree that a lot of the valuations on pubs over the past number of years, particularly in Dublin, were driven by the underlying property value and location and are not linked to turnover or profitability.

"The actual profit margins in a lot of pubs would be down around 2 per cent to 3 per cent so you're not going to be paying huge multiples for that," says one. "Pubs with large car parks may well be redeveloped subsequently with apartments and a pub underneath."

Topaz, which this year took over retail and commercial business of Statoil in the Republic, has already recouped €60 million from its acquisition last year of Shell's Irish business by selling stations that were worth more as development property than forecourts.

Some fear that the obsession with property is having a detrimental effect on business and the economy. Virtually every company that comes on the market is now regarded as a property play and is sized up and valued on its property portfolio rather than its core business fundamentals and accounts.

Companies interested in acquiring all or part of a business for their core activities are now finding themselves up against well-funded developers eyeing up the same business for its property assets and this can lead to inflated prices.

"The opportunity costs for business purposes is being undermined by the sheer strength and demand for other types of uses for those properties such as domestic residential luxury apartments, for example," says Murphy.

The property-buying frenzy is also nudging the economy towards an over-reliance on one sector - construction, he adds. The money being pumped into property and construction comes at a cost to other areas, particularly investment in small companies and start-ups.

"The early part of the current boom was driven by employment and productivity increases. Now it is frankly consumer borrowing and construction that is actually driving demand.

"Upwards of 14 per cent of the entire workforce is tied up in construction. One in five of all male workers is now in construction. These are extremely high levels of activity which may not have as strong an impact in the long-term from the point of view of productive investment."

There are advantages though if companies use money gained from the sale of property assets to develop their core business, he says. "There are sale and lease-back arrangements that can facilitate the unlocking of the entrepreneurial activity and the separation of it from the property activity.

"If you have a business with a landbank, you can start doing something with that. You can spin it out and capitalise it and use it to invest in other types of productive capacity in the future."