US investor Kennedy Wilson closes in on €306 million purchase of 16 Irish properties

Three overseas investment groups bid more than €300 million for high-profile portfolio

Ciarán Hancock, Finance Correspondent

California-based investment group Kennedy Wilson is close to securing a portfolio of 16 commercial properties in Ireland formerly connected with developer Treasury Holdings for €306 million in cash.

The properties were funded by a bond raised in 2006 through a vehicle called Opera Finance (CMH) plc, which is listed in Dublin.

The properties were managed by Real Estate Opportunities, a listed company that was majority owned by Treasury, which is now in liquidation.

The finance for the portfolio comprised €375 million in senior funding and €50 million in junior debt. The debt fell due for repayment in February 2014.

Eurohypo, which serviced the company's loans, appointed debt specialists Cairn Capital and law firm Sidley Austin to advise on the disposal process.

On May 20th, Opera Finance issued a statement to the stock exchange stating that after a competitive bidding process involving three parties, Kennedy Wilson Europe Ltd’s all-cash offer had been endorsed.

This offer must be voted on by bondholders, with documentation relating to the transaction due to be issued by May 30th.

Under the proposed transaction, David Hughes and Luke Charleton have been lined up as receivers of the properties and property companies connected with the loan notes.

The portfolio has a number of high-profile properties, including the Stillorgan Shopping Centre, KPMG’s head offices on St Stephen’s Green, Bank of Ireland’s headquarters on Mespil Road, a Marks & Spencer outlet in Cork, and the offices of law firm Mason Hayes & Curran on Barrow Street in Dublin.

It has a current rent roll of about €25 million a year, giving a yield to Kennedy Wilson of just under 8 per cent. It is thought to be 98 per cent occupied.

The haircut on the value of the original loans is 28 per cent.

While considered to be a strong portfolio of properties, it is not without its challenges. For example, the Stillorgan Shopping Centre needs to be updated while KPMG’s lease at St Stephen’s Green is due to end in 2017.

It is understood to Kennedy Wilson was chosen ahead of two other bidders - London & Regional and Northwood Investors. All three are believed to have bid more than €300 million for the portfolio.

Northwood holds the junior debt associated with this portfolio, having acquired the former Anglo Irish Bank loans from the National Asset Management Agency. Given that it is a junior noteholder, Northwood faces losing this investment when the sale closes.

London & Regional is controlled by Ian and Richard Livingstone and owns the Four Seasons hotel in Dublin.

Latest accounts available for Opera Finance (CMH) plc show that the properties were valued at €270.4 million on February 28th 2012. The company took an impairment charge of €25 million that year against the properties to bring to €100 million the total provision booked up to that point.

Similar impairments were applied by the company’s directors to the loan notes that funded the acquisition.

It is understood that another valuation process this year pared back the value further to €250 million.

It is understood that the sale of the portfolio could trigger a a potential tax liability of up to €52 million has created uncertainty around the completion of the deal.

Reports in specialist UK property media have suggested that an embedded capital gains tax liability remains.

However, one source close to the sale process said no tax issues arises. It is understood that the structure of the deal will avoid any potential tax liabilities.

No comment was available yesterday from either Kennedy Wilson, E&Y or the Revenue Commissioners.