UK REIT Hammerson has joined forces with Germany’s Allianz Real Estate to acquire the Project Jewel portfolio of loans secured against a number of retail assets in Dublin, including the Dundrum Town Centre, Ireland’s top shopping and leisure destination.

UK REIT Hammerson has joined forces with Germany’s Allianz Real Estate to acquire the Project Jewel portfolio of loans secured against a number of retail assets in Dublin, including the Dundrum Town Centre, Ireland’s top shopping and leisure destination.

A 50-50 joint venture of Hammerson and Allianz has signed an agreement with Ireland’s National Asset Management Agency (Nama) to buy the package for €1.85 bn, representing a 28% discount to the face value of €2.57 bn.

Under the long term joint venture structure, Hammerson would own 50% of Dundrum Town Centre and Dundrum Phase 2 alongside Allianz, and act as asset and development manager. Hammerson would own 100% of the remainder of the collateral assets - the Dublin Central Development site, 50% of the Ilac Centre, 50% of The Pavilions. Following the final allocation of properties, Hammerson’s total share of the deal would be €1.23 bn.

A sum equivalent to 10% of the purchase price will be paid by the JV this week. The residual payment to NAMA for the loans is to be made upon closing, expected to occur before 30 October 2015.

Hammerson will fund its share of the transaction from existing financial resources and a new €1.0 bn revolving credit facility with a maturity of March 2017. The new credit facility will be refinanced from a combination of an acceleration of the current disposal programme and future capital markets issuance. ‘We are currently marketing £200 mln of assets for sale. We also intend to execute previously identified disposal opportunities by the end of 2016 which could total up to a further £300 mln,’ the UK retail specialist said, adding that it remains committed to a long-term strategy of prudent leverage of less than 40% LTV.

‘This agreement provides Hammerson with exposure to a significant new platform of high quality, well-let retail property as well as strategically located development opportunities in Ireland, Europe’s fastest growing economy,’ said Hammerson’s CEO, David Atkins.

Allianz, whose share of the deal amounts of €900 mln, announced earlier this year that it was looking to enter the Irish property market. ‘Our investment into Project Jewel is an important step to a further diversification of Allianz’s real estate portfolio,’ said Annette Kröger, CEO of Allianz Real Estate Germany. ‘It is a very attractive opportunity to get exposure to the dynamic Irish market.’

Irish bad bank Nama hired real estate investment banking advisory firm Eastdil Secured, part of the Wells Fargo Group, to manage the sales process in June. The package was expected to generate a price in the region of €1.5 bn, or a 33% discount to the face value of the portfolio.

Opened in 2005, Dundrum is located 5 klm south of Dublin and extends to 140,000 m2 and is anchored by four department and flagship stores (House of Fraser, M&S, Harvey Nichols and Penneys) alongside a Tesco superstore, 120 retail shops, 38 restaurants, a 12-screen cinema and 3,400 space customer car park. Dundrum has won over 30 industry awards and is Ireland’s only super prime regional shopping centre.

The asset generates rent of €60 mln a year offering significant growth potential with rents in Dundrum at around 70% of equivalent retail units on Grafton Street in Dublin City Centre. The centre is currently at 98% occupancy and the weighted average unexpired lease term (WAULT) is 15 years. 90% of the leases are subject to upward-only rent reviews.

Other assets in the portfolio include Dundrum Phase 2, a 6-acre site located directly adjacent to Dundrum Town Centre and providing the opportunity to expand by 110,000 m2 the Dundrum retail and leisure offering; Dublin’s 15,000 m2 Ilac Centre owned jointly with Irish Life (50%) which is 99% let and generates rents of €10 mln a year with a WAULT to expiry of 10 years; the 5.3-acre Dublin Central Development site located adjacent to The Ilac shopping centre; Swords’ Pavilions, a 46,000 m2 retail centre serving Dublin’s northern suburbs.

Completed in 1999, the centre was subsequently extended in 2006 and currently provides 70 retail shops and restaurants, an 11-screen cinema and 2,000 space car park. The asset is owned in co-ownership with IPUT (25%) and Irish Life (25%). The centre has high occupancy of 99% and contracted rent of €15 mln with WAULT to expiry of 11 years. Adjacent to the existing centre is a 16-acre development site with outline planning permission for a 700,000 m2 retail-led mixed use development. This is not within the co-ownership with IPUT and Irish Life.

Allianz and Hammerson have established a new specialist Irish team within Hammerson focused on the management of the loan portfolio and future operational initiatives. The companies said they expect to acquire ownership of the collateral assets by way of a consensual agreement with the borrowers by the summer of 2016.

The portfolio generates total rents of €88 mln a year, reflecting an initial yield of 4.0% and a reversionary yield of 4.6% (excluding development properties). Since the loans have expired, default interest is applicable which has the effect of sweeping all rent payable from the collateral assets on which the loans are secured. The total interest receivable on the loans currently is €65 mln, equating to a cash yield of 3.5%.

The portfolio provides a projected five-year IRR of 7-8%.