Capitalflow/ QRE Seminar, RDS 20th September 2019...QRE/Capital Flow Commercial Real Estate “FutureFocus” Dermot O’Leary Chief Economist 20 September 2019 3 ingredients for property

Capitalflow/ QRE Seminar, RDS20th September 2019

1

Irelands specialist lender since

2016, over 70 professionals, with

vast lending experience

Irelands newest

specialist lender

since 2016

Funded by

Pollen Group,

€1.2bn

portfolio to

date, Vision

Blue

Finance for local businesses and

property around Ireland

Owners: Invested in a portfolio of

finance companies.

Property bridging & Term Loans,

Pension Mortgages HP, leasing,

Invoice Discounting, Asset Based

Lending

Over €300 m of lending assets across

our product range to over 2,000

customers across Ireland.

Who are we

People what makes you tick? We take the

time to get to know the people behind the business

Delivery Fast Straight up decisions

Principle we lend with integrity. We

combine traditional value of customer service with

modern delivery & systems. We recognise that

customer growth is our growth.

What are we about?

Relationship Partnership Approach,

long term relationships, your success is our success

& local decision making

Why Us

Property Bridging & Term Loans

Specialist Property Team

Local Decision Makers

Nationwide Funding

Multiple funding products

6 months to 7 years term with 30 year amortisation

Up to 100% of financing requirement subject to max LTV 75%

Loans ranging in amounts from €250k to €15m

Interest rates from 5% & up to 5 years interest only

Pre-63 Portfolio - €12m Dublin Portfolio of City Centre PropertiesTerm Loan with flexibility for refurbishment/ rent of properties

New Business ActivityGeorgian Office Property - €2.5mDublin 2Pre-63 Portfolio - € Dublin Pension Loan with flexibility to refurbish and rent property

Hotel - €5m Cork Refinance from Pillar Bank to allow for refurbishment and flexible covenants

Student Accommodation - €1.25m Sligo Bridge Loan3 week turnaround Refurbishment required

Residential Investment - €5m Dublin 26 Apartments Term LoanTurn around 4 weeks

Shopping Centre - €1.2m Kildare Term Loan Significant Asset Management and Vacancies

Retail & Office - €750k CorkTerm Loan with flexibility for refurbishment and rent

Industrial - €4.25mOffaly Term Loan - Replace existing lender cash sweeping 100% of the surplus rental income.

COMMERICAL

PROPERTY

Competition from banks

and other funders but

only we could deliver

FAST decisions &

payments

Standard Investment

loan required for

purchase of NAMA

shopping centre,

Oranmore.

LTV Cover Figures within

banking parameters

Tailored Solutions

Bridging loan within 7

days of approval

Exercised option to

refinance to term loan

over 20 years

after 6 months

Nama Shopping Centre, Oranmore

Funding Structure

Loan: €3.25m

Catalysts for

Underlying

Demand

• Irish economy expected to grow by 4.0% in 2019 & 3.2% in 2020

• Significant planned State investment in infrastructure, and

support for SME lending

• Falling unemployment, rising asset values

Current Market• BREXIT causing uncertainty in the market

• Investors pausing

• Strong Rental Income Demand

Opportunities • BREXIT Dampened Market Demand and Values

• Commercial Property Market long term perspective is healthy

• BREXIT will bring opportunities

6.7% GDP

growth in 2018

MARKET OPPORTUNITY

• Relationship model that DELIVERS

• PEOPLE business

• Swift sensible decisions

• Funding a deal is not plain sailing – We Get IT!

• We are always grateful for the business and partnerships.

KEY TAKEAWAYS

Economic influences on Irish propertyQRE/Capital Flow Commercial Real Estate “Future Focus”

Dermot O’Leary

Chief Economist

20 September 2019

3 ingredients for property investment

Timing

Income

Flows

Economic drivers

Occupier demand

Pricing/yield

Interest rates/alternatives

Covenants

Investment climate

Follow the money!

Dealing with the elephant in the room first

A Brexit deal is reached

PM refuses to request an

extension to Article 50

PM asks for an extension and is

granted

NI – Specific backstop

• Breaks law?• Alternative

letter

• General election

• Referendum

No-deal BrexitNo-deal Brexit

11

1)

EU refuses request

The Road to October 31st

Impact of Brexit on Ireland is varied

0% 5% 10% 15% 20% 25% 30%

Cavan Monaghan

KerryLongfordTipperaryWexfordKilkenny

Mayo Carlow

Donegal Leitrim Offaly Clare

RoscommonLaois

Cork CountySligo

Galway CountyWaterford Limerick

WestmeathMeath Louth

Wicklow Kildare Fingal

GalwayCity Cork City

South Dublin Dublin City

DLR

Employment in Brexit-exposedindustries

Source: IBEC

12

Number of announced company moves Financial and Legal firms dominate the mix

Smaller, more discrete, flows of relocations dominate

Dublin has done well to date

Source: GoodbodySource: Knight Frank

Financials, 57%

Legal, 27%

Insurance, 9%

FinTech, 4%

Business Services, 4%86

5547 47

41

100

90

80

70

60

50

40

30

20

10

0

13

IDA announcements and the “51st State”

US

72%

Rest of Europe

8%

France

3%

UK

3%

Germany

7%

Rest of World

7%

Origin of IDA supported companies byemployment

Source: IDA Annual Report 2017

International

services

41%

Medical & Dental

15%

Pharma

13%

Financial

services

12%

Computers/electr

onics

10%

Misc

9%

IDA supported jobs by sector2017

Source: IDA

10%

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%

-10%2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

FDI-related Non-FDI Total

Employment growth - FDI versus non-FDIrelated

%YoY

Source: IDA, CSO

0

2,000

4,000

6,000

8,000

10,000

12,000

Apr MayJan Feb Mar

2012 2013 2014 2015

Jun Jul Aug Sep

2016 2017

Oct Nov Dec

2018 2019

No.

of

Jobs

announced

2019

IDA job announcements byyear

14

Bond market is an excellentforecaster…

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

-3.0

-4.0

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

60 64 68 72 76 80 84 88 92 96 00 04 08 12 16

10-y

r yie

ld m

inus 2

-yryie

ld

Recession Spread

15

Source: New York Fed

US yield spread

…and now puts recession probability at 40%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

Pro

babili

ty

Recession

Jan Jan

60 64 68 72 76 80 84 88 92 96 00 04 08 12 16 20

Probability of recession

16

Source: New York Fed

Probability of recession based on the yield curve

Over 1.6m square feet of Dublin office space let in H1-19 – a new record for the half year period

4.1m square feet is due for completion in 2019-21, of which 44%+ is already pre-let

9

Robust take-up levels as occupier demand remains unbowed by uncertainty

Office supply & demand in Dublin

Source: Green REIT, CBRE, GoodbodySource: Goodbody, CBRE, Knight Frank, Cushman & Wakefield,Lisney

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

H1

19

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

Square

feet(m

illions)

Long-term

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2022+

2021f

2020f

2019f

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Annual New Completions

Under Construction Pre-let

Planning Granted Pre-let

Under Construction

Planning Granted

Planning Applied

Sqm

Search for yieldcontinuing…

8.0

6.0

4.0

2.0

0.0

-2.0

-4.0

-6.0

-8.0

1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

All Office - Central Dublin Office - Rest of Dublin

18

Yield difference on property relative to government bonds%

Source: IPD/MSCI, Bloomberg

…and likely to continue for some time yet

-1.0

1.5

1.0

0.5

0.0

-0.5

1M 4M 7M 10M 13M 16M

One year ago

19M 28M 37M 46M 55M 64M 73M

6 months ago Current

19

Interest rate expectations in the euro area

%

Source: Bloomberg

Negative rates in 2025

How does Ireland compare internationally?

Zuri

ch

Munic

h

Geneva

Ham

burg

Pari

s

Berl

in

Fra

nkfu

rt

Am

ste

rdam

Dusseld

orf

Hels

inki

Milan

Madri

d

Oslo

Sto

ckholm

Copenhagen

Vie

nna

London

W.E

nd

Rom

e

Barc

elo

nanil

buD

London

City

Bru

ssels

Lis

bon

Pra

gue

Bir

min

gham

Edin

burg

h

Mancheste

r

Wars

aw

Gla

sgow

Budapest

Bra

tisla

va

Buchare

st

Offic

eYeild

Cyclical High Cyclical Low Current Yield

• Office yields comparisons in theEU• 10

• 9

• 8

• 7

• 6

• 5

• 4

• 3

Source: CBRE

20

Breaks are being pushed further out

Income is increasingly the key return driver

Office leases are lengthening in Dublin

Rent frees are diminishing for new lettings

Preference for reducing risk rather than growing headline rents

Landlords in theascendancy

Source: Goodbody, MSCISource: Knight Frank, Goodbody

Source: Knight Frank, MSCI, Goodbody

5.7

13.114

12

10

8

6

4

2

0

2014 2016 2018Avera

ge N

ew

Lease

Length

(Y

ears

)

2015

London Offices

2017

Dublin Offices

14

12

10

8

6

4

2

0Year

ofBre

ak/E

xpiry

2014 2015 2016

Average Lease Length (Yr)

Source: Knight Frank, Goodbody

2017 2018

Average Break (Yr)

14

12

10

8

6

4

2

02014 2015 2016 2017 2018

Month

s

> 50k sq ft > 30k sq ft

> 10k sq ft > 5k sq ft

0%

21

20%

40%

60%

80%

100%

Sep 2015 May 2016 Jan 2017 Sep 2017 May 2018 Jan 2019

Dublin Office: Income as a % of Total Return

Dublin rents have topped, regions more scope forrecovery

22

Investor interest in Ireland still strong

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2007 2009 2011 2013 2015 2017 2019 H1

Eur

(Billions)

Unknown

Other

Hotel

Industrial

Residential

Mixed-Use

Retail

Office

23

Investment flows into Irish property bysector

Source: CBRE

• Brexit is bad, but creates opportunities for the cities

• The US economic outlook is more important than Brexit to the Irish

economy

• The office cycle is in a more mature phase, with returns likely to be

lower

• However, yields remain attractive in a relative and international

comparison and lease terms suggest landlords still yield the power

• Investor interest has moved to residential assets recently

24

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