One Year On, Was Brookfield's €1.1B Price Right For Hibernia REIT?
One year on from Brookfield's blockbuster €1.1B takeover of listed property company Hibernia REIT — one of the biggest deals in Irish real estate history — Dublin, real estate and the world are very different places.
Higher debt costs, redundancies in the tech sector and the ongoing impact of hybrid and remote working have cast question marks over the fast-track development of office space in the Irish capital, amid worries that Celtic Tiger-era legacy offices could become stranded assets.
Dublin’s commercial real estate market is facing a period of, at best, serious uncertainty. At worst, a sharp correction. And with technology firms making up 43% of Hibernia’s rent roll, the landlord is heavily exposed to a category that has seen a wave of redundancies among the headline players.
Data on recent deals showed that values have dropped by 10%-15% since the deal closed. But the long-term picture looks relatively bright.
So did Brookfield bag itself a bargain or a burden?
On 20 June it will be the 12-month anniversary of the standout Dublin deal of 2022. While the supercharged €6B investment in the city’s commercial property sector last year was boosted by a number of landmark deals, none was bigger than the sale of Hibernia REIT for nearly €1.1B to Brookfield Asset Management's fourth real estate opportunity fund.
First announced in March, on 20 June 2022 Hibernia REIT delisted and in short order became Hibernia Real Estate Group, absorbed as the Canadian behemoth was angling to snap up perceived bargains across the Europe office market. And sure enough, Brookfield sealed the deal below net asset value.
Brookfield sourced €930M in loans to facilitate the takeover, and, in completing the deal, the Canadian asset management giant secured a portfolio then valued at €1.35B, which included prime Grade-A Dublin office assets with a coveted tenant base that featured Twitter, Deloitte and Hubspot.
A Brookfield special-purpose vehicle paid €1.634 a share in cash, representing a 33.9% premium to Hibernia’s average share price over the previous three months prior to completion.
Brookfield had been on an acquisition spree across Europe as it bet on the future of offices and took advantage of the discounts to asset value at which many of the continent’s landlords trade, including Hibernia REIT, where the offer price represented a 6% discount to Hibernia’s asset value at the end of 2021. Hibernia's board said it was selling the company because it had persistently traded at a discount to its net asset value.
Immediately after the deal's completion, Tom Edwards-Moss, formerly chief financial officer, was appointed chief executive, and on 11 August 2022 Hibernia REIT changed its name to Hibernia Real Estate Group Ltd to reflect its status change.
Hibernia said that its plan was to continue its focus on prime offices and redevelopment sites in central Dublin, with an emphasis on asset clustering and environmental, social and corporate governance excellence.
“Our focus on providing our customers with high-quality work environments with top-tier sustainability credentials is unchanged,” Edwards-Moss said at the time of the change. “We are also continuing to develop new office clusters, with our near-term priority being the major redevelopments of the Clanwilliam Quarter and Harcourt Square.”
Brookfield declined to comment for this article.
Was The Price Right?
Given the challenges of the past 12 months, capital values have dropped since the deal completed, and the rental market has become shakier.
Since the deal was first mooted in March 2022, CBRE estimates prime Dublin yields have moved up by 50 basis points for prime, 100 bps for secondary city centre and 125 bps for prime south suburbs offices.
Prime rents are broadly stable over the same period at €65 per SF and €29.50 per SF for prime south suburbs, with the adviser predicting that prime rents will hold while secondary may soften.
However, as Goodbody Head of Real Estate Colm Lauder pointed out, active pre-letting has put Hibernia in a strong position regardless of the current situation.
“Yields have moved out around 50 bps since the acquisition and probably have a bit more to go, with demand weaker," he said. "That said, rents have held up pretty well broadly, especially for the newer stock.
“Dublin did not reprice anywhere near as quickly as, for example, London, and so the city is perhaps lagging by six months in terms of asking prices adjusting to the situation. The difference between now and previous downturns is that most landlords are well-capitalised, LTVs are low, and while there are certainly plenty who would like to sell, there is a definite value gap between would-be buyers and sellers.”
Although that means it is likely to be a soft market for a little longer, Lauder said Hibernia’s ability to sign major deals with tech giants ahead of construction completion now leaves the company in a strong position.
“In many ways Brookfield Hibernia is very well-placed because it achieved pre-lets at rates two years ago that it would be unlikely to achieve in today’s market, so it had tied up its tenants before the market dip, and those tenants are committed to those rents regardless of how they occupy the space,” Lauder said.
JLL CEO and Head of Capital Markets John Moran said that Brookfield will be looking to the longer term, prepared to weather the challenges across the Dublin commercial real estate market.
“It’s worth remembering that Ireland had one of the most arduous lockdowns, and we only really came out in April last year, so we have only had 15 months to adjust to the new reality,” Moran said. “The industry is still learning just what is going on.
“Undoubtedly there has been some yield softening, by around 50-75 bps since last June for prime, a little more for secondary. Although by contrast, rents have held up pretty well. There has been a reduction in tenant activity, and vacancy rates have hit 13%, although the impact of the tech redundancies has been somewhat overplayed.”
Hibernia Remains Office-Focused
Hibernia's website said the value of its portfolio is €1.427B, although that valuation is not dated. The portfolio has a 39% weighting to Dublin office south blocks, 29% for Dublin office traditional core, 12% Dublin office International Financial Services Centre, 12% Dublin residential and 4% each to Dublin office development and industrial/land.
Significantly, 43% of its rent roll is also attributed to the hard-hit tech sector.
“At the moment we’re on track for around 1.5M SF of pickup over the year, which compares with a five-year average of 2.5M SF, and it’s likely that the challenging conditions will continue for the rest of the year, although there is only around two years of good-quality stock available, and the slowdown in development means that in the mid term, that should work its way through the system,” Moran said.
“It’s a very hard market to value at the moment because the last really sizable deal was the Blackstone purchase of the Salesforce building,” he added. “What we are seeing is very little liquidity in the €100M and above commercial real estate market. The deals are for far smaller lot sizes.”
Hibernia Deals And Developments
Hibernia has been active. It started the process in March to seek a buyer for a portfolio of 293 rental apartments it owns in the south County Dublin suburb of Dundrum. Located close to Dundrum Town Centre, the units are distributed across the Dundrum View and Wyckham Point residential schemes and will be offered to the market at a guide price of between €140M and €150M, according to reports.
It is also understood to be looking to sell its 22K SF Central Quay building in the South Docks area, which it acquired for €51.3M in 2016.
And there is also life beyond the tech giants.
In January of this year, Hibernia started the soft strip ahead of demolition of the former Garda Dublin regional headquarters at Harcourt Square to clear the way to deliver a new headquarters office for KPMG. The new office complex is scheduled for completion in February 2026 to accommodate more than 3,000 of KPMG’s Dublin-based workforce.
“The portfolio Brookfield acquired with the purchase of Hibernia is predominantly campus-style and prime and should be in pretty good shape," Moran said. "Undoubtedly, it will have lost a little in value because of the general conditions, but Brookfield gave every indication that when it came into the market that it was looking for a platform to gain entry into Ireland. It certainly appears that the company is here for the medium to long term.
“And importantly, it’s not sitting on a portfolio stuffed with '70s, '80s and '90s buildings that are less desirable and also need refurbishment.”
Beyond the fit-out of the new KPMG headquarters and redevelopment of the 80K SF across two blocks at Clanwilliam Court, Moran expects Brookfield to get active again.
“Once it has those completed, then there is every likelihood that it will be looking for further development and acquisition opportunities,” Moran said. “I think Brookfield still wants to be a player in Ireland.”
