THE IRISH Property Unit Trust (IPUT) enjoyed gross unit returns of 8.4 per cent during 2007 on a portfolio worth just over €1.5 billion.
The company in its annual report acknowledged that 2007 had been a challenging year but was satisfied with the rise in income achieved.
The returns outperformed the Mercer average of 7.1 per cent and meant further growth in IPUT's distribution to unit-holders. This reached €61.52 per unit, up 9.4 per cent on returns for 2006, according to IPUT's chairman Frank Close.
IPUT, formerly the Irish Pension Fund Property Unit Trust (IPFPUT), is the largest property trust in Ireland. Established in 1967 it provides an investment vehicle for self-administered pension funds, charities and other tax-exempt funds to invest in property on a co-operative basis, the goal being to diversify the portfolio to help reduce risks.
At year end IPUT's holdings were based on 47 per cent office, 43 per cent retail and 10 per cent industrial. Only 11 per cent of its holdings were valued at under €10 million, with 54 per cent involving properties worth €30 million or more.
The past year was "far quieter" than 2006, says Close. "Capital growth across the portfolio eased back during the latter half of 2007 as investment yields were adjusted to reflect the change in sentiment in global security markets and particularly the tightening in credit markets."
Even so, underlying growth in rental income - mainly from rent reviews - helped to boost IPUT's performance. It saw rental income increase from €35.9 million in 2006 to €41.6 million last year.
This saw the value of a unit rise to €1,866.44, up from €1,777.20 in 2006 and €1,184.54 per unit in 2003. The return per unit at €61.52 grew significantly from its 2006 level of €56.25 and a 2003 figure of €53.57.
Income for the year after expenses was €38.8 million and this was distributed to unit-holders, delivering a return of 8.4 per cent. Inflation cut deeply into this during the year and at 4.9 per cent reduced the real rate of return to unit-holders to 3.5 per cent.
Additions to properties were valued at €12.4 million and contracted property commitments reached €67 million. Major deals included a decision last June to purchase a 35 per cent interest in the 13,000sq m (139,930sq ft) Opera Avenue retail development in the heart of Cork city, which absorbed the entire €67 million in new contracts.
In October it completed the purchase of the remaining 50 per cent of the Spicers unit in Citywest, giving IPUT full ownership of this 9,300sq m (100,104sq ft) distribution facility.
It contracted to sell 86/88 Lower Leeson Street, a 1,500sq m (16,146sq ft) multi-storey property for €16 million.
The cost of managing IPUT stood at 0.22 per cent of net assets, unchanged from the previous year.
Close says IPUT would continue renewing and modernising its stock of properties "to ensure that both rental values and capital values are protected and enhanced over the longer term". With this in mind it was preparing to sell a number of ageing retail and industrial properties, and would use this income to fund commitments over the coming years.
The economic and market conditions would "pose a stern test for the management and quality of the trust's portfolio", says Close. "The outlook for the performance of the trust's portfolio in 2008 and the Irish commercial market in general is more uncertain than usual as a result of the downgrading of economic growth rates both at home and overseas, coupled with the tightening in credit markets."
There would likely be a greater reliance on income growth from rent reviews, with yields likely to rise with a consequential "negative impact" on capital values.
He believes that IPUT's portfolio is well positioned to deliver higher rent returns given its significant involvement in the prime Dublin 2 and 4 office sector and important properties in Grafton Street, one of the dearest streets in the world in terms of rents.
