The Irish Pension Fund Property Unit Trust (IPFPUT), the body that invests for many of Ireland's semi-state companies and the largest such fund in the State, is planning a major investment drive in Britain.
The move follows approval from Britain's Inland Revenue for the same tax-exempt status the Trust enjoys on the Irish investment market. This clearance was given about six weeks ago and allows it to invest on behalf of its customers - company pension funds - free of corporate and income taxes. This in turn allows all profits to flow back into these funds to the benefit of workers associated with them.
"The decision to move into the sterling area was taken about two years ago," explains Gus MacAmhlaigh, the Trust's chief executive.
The Committee of Management, which oversees the Trust's activities, decided that between 15 per cent and 20 per cent of the Trust's total portfolio, which currently stands at £440m, will eventually be invested in UK properties, either in Britain or in Northern Ireland.
It is already interviewing in Britain for legal, property and financial consultants to give it local market expertise. "We are putting in place the machinery to invest in the UK when the time is right," says Mr MacAmhlaigh. "The Trust would be anxious that we made a move this year."
An initial property has not yet been selected but he expects the Trust will go for "a safe building in around the £5m bracket in the greater London area so we could get used to investing in the UK."
The aim, he adds, will be to put about £50m into UK property over the next two years. "It will be a question of timing. Basically we will put together the infrastructure to allow us to invest and will wait for the right time. And we could consider investing with partners."
The UK property market has its attractions despite the strong value of sterling, he says. The Irish market is somewhat overheated, he believes, compared to the UK market which advanced much more slowly in terms of values and rents. There are also many more investment opportunities there, given the scarcity of properties in central Dublin.
"The cyclical nature of property will tell you the returns weren't always there for Irish investments," he says. The UK market would provide a hedge against fluctuation on the market here.
These points were highlighted in the Trust's recent annual report in which its chairman, Conor Sexton, noted that the UK investment option "may from time to time provide opportunities to invest surplus cash holdings when it may be difficult to find suitable outlets in Ireland".
Given the nature of its customers and their long-term goals, the Trust is in the market for low risk opportunities, Mr MacAmhlaigh says. "Ninety-five per cent of all the unit holders that we have, have been here since the start." IPFPUT invests long term and waits for peaks and valleys on the market to smooth out. "What we don't want at all is volatility."
That doesn't prevent the Trust from servicing its portfolio however. "We have sold a lot over the last few years." Many of the for sale signs appearing in front of properties came when the Trust acquired the Town and Country portfolio. Some of this portfolio didn't match what the Trust wanted and they were sold off, he adds.
The Trust was also in the property news when it decided to sell off its interests in the Dun Laoghaire and Dundrum shopping centres in 1998 and 1999 respectively. The Dun Laoghaire sale in particular sparked speculation that the Trust was selling at a bargain basement price and was doing so at a bad time.
The Trust got out of that centre because it was a particularly difficult property to manage, says Mr MacAmhlaigh. "Dun Laoghaire happened before I arrived (in 1999). It just proved an extraordinarily difficult property to manage. It needed an expert to take it over and refurbish it. It was felt that the best thing to do was to sell it."
It next sold off Dundrum, mainly because the Trust was offered a very good price that it couldn't turn down. This did not mean that the Trust had embarked on a retreat from retail properties. The Trust decided to stay with the Wilton centre in Cork and is embarking on an investment programme to upgrade it from a local to a regional shopping centre. "We would certainly invest in more retail if it came up."
Ironically, the sale of the two centres left the Trust with unproductive money on its hands, funds that in fact somewhat reduced the anticipated level of profits for 1999. "We intended to use that money to invest in an office development but that fell through so we had surplus funds." This also meant that the Trust hadn't gone back to the unit holders looking for more investment given the cash pot of £45m to £50m that was available.
The UK will offer plenty of opportunities for the Trust but it will still treat the Irish market as its investment home. "We are currently in the business of long term, five to 20 year investment. At the moment demand for good quality space in the city (Dublin) exceeds supply and will continue to do so for the next three to four years at least," says Mr MacAmhlaigh.
The retail sector in urban areas will also see good growth for the next five to seven years, he believes. "We are beginning to see supply meet demand in the suburbs for commercial property and a great reluctance by the banks to invest in any speculative development."
Key areas it will target include Dublin 1, 2, 4 and the docklands. "Anybody with development opportunities there in the next 24 months will certainly fill them. You can see by the way that rents are going."
