Capitalflow/ QRE Seminar, RDS 20Th September 2019

Capitalflow/ QRE Seminar, RDS 20th September 2019

1 Who are we

Irelands specialist lender since 2016, over 70 professionals, with vast lending experience

Finance for local businesses and property around Ireland

Owners: Invested in a portfolio of finance companies.

Property bridging & Term Loans, Pension Mortgages HP, leasing, Irelands newest Invoice Discounting, Asset Based specialist lender FundedLending by since 2016 Pollen Group, €1.2bn portfolioOver €300 to m of lending assets across dateour product, Vision range to over 2,000 Bluecustomers across Ireland. WhatWhy Usare we about?

Relationship Partnership Approach, long term relationships, your success is our success & local decision making

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. Property Bridging & Term Loans

Up to 100% of financing requirement Specialist Property Team subject to max LTV 75%

Loans ranging in amounts from Local Decision Makers €250k to €15m

6 months to 7 years term with 30 Nationwide Funding year amortisation

Multiple funding products Interest rates from 5% & up to 5 years interest only New Business Activity

Georgian Office Property - €2.5m Pre-63 Portfolio - €12m Dublin 2 Dublin Pre-63 Portfolio - € Portfolio of City Centre Properties Dublin Term Loan with flexibility for Pension Loan with flexibility to refurbishment/ rent of properties refurbish and rent property

Hotel - €5m Student Accommodation - €1.25m Cork Sligo Refinance from Pillar Bank to allow Bridge Loan for refurbishment and flexible 3 week turnaround covenants Refurbishment required

Residential Investment - €5m Shopping Centre - €1.2m Dublin Kildare 26 Apartments Term Loan Term Loan Significant Asset Management and Turn around 4 weeks Vacancies

Industrial - €4.25m Retail & Office - €750k Offaly Cork Term Loan - Replace existing lender Term Loan with flexibility for cash sweeping 100% of the surplus refurbishment and rent rental income. COMMERICAL PROPERTY Nama Shopping Centre, Oranmore

Funding Structure Loan: €3.25m Standard Investment Tailored Solutions loan required for Competition from banks Bridging loan within 7 purchase of NAMA and other funders but days of approval shopping centre, only we could deliver Oranmore. FAST decisions & Exercised option to payments refinance to term loan LTV Cover Figures within over 20 years banking parameters after 6 months MARKET OPPORTUNITY

• Irish economy expected to grow by 4.0% in 2019 & 3.2% in 2020 Catalysts for • Significant planned State investment in infrastructure, and 6.7% GDP Underlying support for SME lending growth in 2018 Demand • Falling unemployment, rising asset values

• BREXIT causing uncertainty in the market Current Market • Investors pausing • Strong Rental Income Demand

• BREXIT Dampened Market Demand and Values Opportunities • Commercial Property Market long term perspective is healthy • BREXIT will bring opportunities KEY TAKEAWAYS

• 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. Economic influences on Irish property QRE/Capital Flow Commercial Real Estate “Future Focus”

Dermot O’Leary

Chief Economist

20 September 2019 3 ingredients for property investment

Economic drivers Timing Occupier demand

Pricing/yield Income Interest rates/alternatives Covenants

Investment climate Flows Follow the money! Dealing with the elephant in the room first

The Road to October 31st

PM refuses to PM asks for an 1) EU refuses A Brexit deal is request an extension and is request reached extension to Article granted 50 • Breaks law? • Alternative letter

NI – Specific No-deal Brexit • General No-deal Brexit backstop election • Referendum 1 1 Impact of Brexit on Ireland is varied

Employment in Brexit-exposedindustries

Cavan Monaghan Kerry Longford Tipperary Wexford Kilkenny Mayo Carlow Donegal Leitrim Offaly Clare Roscommon Laois Cork County Sligo Galway County Waterford Limerick Westmeath Meath Louth Wicklow Kildare Fingal Galway City Cork City South Dublin Dublin City DLR

0% 5% 10% 15% 20% 25% 30% Source: IBEC

1 2 Dublin has done

Smaller,well moreto datediscrete, flows of relocations dominate

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

100 Business 86 Services, 4% 90 FinTech, 4% 80 70 Insurance, 60 55 9% 47 47 50 41 40 30 20 Legal, 27% Financials, 10 57% 0

Source: Knight Frank Source: Goodbody

1 3 IDA announcements and the “51st State”

IDA job announcements by year Origin of IDA supported companies byemployment 12,000 Rest of World 7% Rest of Europe 10,000 8% 2019 France 8,000 3%

announced UK 6,000 3%

4,000 Germany of Jobs 7%

No. 2,000

0 US Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 72% 2012 2013 2016 2017 2018 2019 2014 2015 Source: IDA Annual Report 2017

Employment growth - FDI versus non-FDIrelated IDA supported jobs by sector2017 Misc 10% 9% 8% Computers/electr onics 6% 10% 4% International

2% services YoY 0% 41% % Financial -2% services -4% 12% -6% -8% -10% Pharma 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 13% Medical & Dental FDI-related Non-FDI Total 15% Source: IDA, CSO Source: IDA

1 4 Bond market is an excellent forecaster…

US yield spread

5.0

4.0

3.0

yield 2.0

yr - 2 1.0

minus minus 0.0

yield yield yr

- -1.0 10 -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 Recession Spread Source: New York Fed

1 5 …and now puts recession probability at 40%

Probability of recession based on the yield curve

100%

90%

80%

70%

60%

50% Probability 40%

30%

20%

10%

0% Jan 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 20

Recession Probability of recession Source: New York Fed

1 6 Office supply &

Robustdemand take-up levels inas occupierDublin demand remains unbowed by uncertainty

Over 1.6m square feet of Dublin office space let 4.1m square feet is due for completion in 2019- in H1-19 – a new record for the half year period 21, of which 44%+ is already pre-let

4.5 350,000

4 300,000

3.5 250,000

3 200,000

2.5 Sqm 150,000 (millions) Long-term

2 100,000 Square feet Square 1.5 50,000

1 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2

2 2+

0.5 Annual New Completions Under Construction Under Construction Pre-let Planning Granted

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

H1 Planning Granted Pre-let Planning Applied 19

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

9 Search for yield continuing…

Yield difference on property relative to government bonds

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 Source: IPD/MSCI, Bloomberg

18 …and likely to continue for some time yet

Interest rate expectations in the euro area

1.5

1.0

0.5 %

0.0

-0.5 Negative rates in 2025 -1.0 1M 4M 7M 10M 13M 16M 19M 28M 37M 46M 55M 64M 73M

Source: Bloomberg One year ago 6 months ago Current

19 How does Ireland compare internationally?

• Office yields comparisons in theEU

• 10

Yeild • 9 • 8

Office • 7 • 6 • 5

• 4 i

n r

s s

a a e a

e e

o o

g d

n n a

n n

n n n

rf rf i

i l

rt rt

k l

st m m m

ch ch ch

v l

r a n gh

e n

i i u e

n a

• 3 e

a m a

r u

e b

b r

olm

d s

City City

d o h

rs ss

u u

i Mil

W.End

Z h

e D

h e c

c i

B Glasgow Budapest Bratislava

London

C London

Source: CBRE Cyclical High Cyclical Low Current Yield

20 Landlords in the

Preferenceascendancy for reducing risk rather than growing headline rents

Office leases are lengthening in Dublin Breaks are being pushed further out

14 14 13.1 12 12

Length Length 10 10 8 8

6 5.7 6 (Years)

4 Break/Expiry 4

2 of 2

0 0 Year Year Average New Lease New Average 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

London Offices Dublin Offices Average Lease Length (Yr) Average Break (Yr)

Source: Knight Frank, MSCI, Goodbody Source: Knight Frank, Goodbody

Rent frees are diminishing for new lettings Income is increasingly the key return driver

14 > 50k sq ft > 30k sq ft Dublin Office: Income as a % of Total Return > 10k sq ft > 5k sq ft 12 100% 10 80%

8 nths

o 60%

M 6

4 40%

2 20% 0 2014 2015 2016 2017 2018 0% Sep 2015 May 2016 Jan 2017 Sep 2017 May 2018 Jan 2019 Source: Knight Frank, Goodbody Source: Goodbody, MSCI

21 Dublin rents have topped, regions more scope for recovery

22 Investor interest in Ireland still strong

Investment flows into Irish property by sector 5.0 4.5 Unknown 4.0 Other 3.5 Hotel 3.0 Industrial 2.5 Residential

(Billions) 2.0 Mixed-Use 1.5

Eur Eur Retail 1.0 Office 0.5 0.0 2007 2009 2011 2013 2015 2017 2019 H1 Source: CBRE

23 Key messages

• 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

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