AIBIM is part of AIB Group. It has assets under management of about €9 billion. The property portfolio comprises about €1.2 billion of this. This figure should rise to more than €1.6 billion when current deals and developments are completed by the end of 2007, said O’Shea.
About 70% of the portfolio is located in Ireland, with the balance in Britain and other European markets. The largest component is the AIB property fund, which manages €540m of assets. It is targeted at pension funds and charities and is 100% exposed to the Irish property market.
In addition, AIBIM manages a series of leveraged, single-property funds. The typical loan-to-value ratio on acquisition of the property in these funds is about 65%.
It also manages a series of co-ownership syndicates in individual properties on behalf of high net worth investors with a value of €300m.
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Performance
The property fund has shown strong annual returns of more than 19% over both the past 10 years and the past three years. This compared with an average return of 18% over 10 years and 18.7% over three years, according to the Mercer survey of institutional pooled pension funds. In the year to the end of September 2006, the fund achieved a return of 27% compared with an average return of 26%.
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Investment philosophy
AIBIM aims to provide consistent outperformance in the medium to long term through exposure to quality assets and quality asset management, according to O’Shea.
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“Our approach is based on fundamental analysis of the key drivers of the property market, identifying sectors or subsectors where market yields imply undemanding rental growth relative to prospective growth, taking into account demand from tenants for property,” she said.
“We believe that, in the long term, superior returns will be generated by exploiting opportunities for active management of properties. The property fund, for instance, is overweight in shopping centres relative to its peers in the Investment Property Databank index. Our view is that these offer opportunities for development, extension, buying back units to create evidence to drive rental growth, advertising and other income.”
Buying and selling
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AIBIM is acquiring a British shopping centre for up to £100m (€148m). This is being packaged for investment by high-net-worth investors to give them exposure to a property with a strong line-up of existing tenants and opportunities for active management. “There is the potential to double the size of the centre through negotiations on adjoining sites,” said O’Shea.
The property fund is also working with developer Coolbrook on the redevelopment of various properties in Burlington Road, Dublin 4. This is designed to take advantage of the strong demand for prime office space in the capital.
Last year, AIBIM managed the acquisition of the 325,000 sq ft extension to AIB’s Bankcentre in Ballsbridge for the Serpentine Consortium, a group of wealthy investors.
AIBIM invests indirectly in European markets and it is developing a new fund to facilitate investment in overseas property markets, particularly in Europe, by pension fund clients.
“The best prospective returns would be the Nordic countries and Spain, where the economies are strong.
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By the same token, there’s also an argument for investing in Germany and the Netherlands, if you take the view that the economic cycles there will turn,” she said.
Outlook
O’Shea believes the outlook for Irish property remains good, based on the strong economic fundamentals and the consequent strong demand from tenants.
Returns, however, could fall back from the current double-digit levels to high single-digit growth. “There is scope for some further yield contraction,” said O’Shea, “but future returns are likely to be driven by rental growth and active management.”