Par­adise gained: Dublin’s Jervis cen­tre off­shore, but on tar­get for €400m value

Jervis is con­trolled from the Isle of Man, but re­mains a jewel in Paddy McKillen’s crown

The Irish Times - Business - - BUSINESS / AGENDA - Mark Paul Busi­ness Af­fairs Correspondent

We wouldn’t know it only for the Par­adise Pa­pers leak that this week whipped the towel from the global rich and their cre­ative fi­nances, but the Jervis Shop­ping Cen­tre has got to be one of the most at­trac­tive re­tail as­sets on the Isle of Man.

The Jervis cen­tre is, of course, nowhere near the misty, craggy is­land and UK crown de­pen­dency that sits in the mid­dle of the Ir­ish Sea, re­splen­dent in all its glory as the home of diminu­tive cats’ tails and even more diminu­tive tax bills. The shop­ping cen­tre is as Dublin as can be, lo­cated smack bang in the com­mer­cial heart of our cap­i­tal city, strad­dling the thor­ough­fare that gives it its name and the ad­ja­cent Mary Street.

Yet in 2013, as the mas­sive doc­u­ment leak from off­shore lawyers Ap­pleby re­veals, its own­ers Paddy McKillen and Padraig Drayne shifted con­trol of the Jervis cen­tre off­shore to a build­ing just off the prom­e­nade in Dou­glas. The Manx is­land’s 130-year old ju­bilee clock sits right out­side its front door.

McKillen and Drayne moved con­trol of the shop­ping cen­tre to the is­land to get an im­pend­ing €140 mil­lion re­fi­nanc­ing over the line with UK firm M&G In­vest­ments, which put up the cash to help them buy out its loans from the Ir­ish Bank Res­o­lu­tion Cor­po­ra­tion (IBRC). The new lenders only put up the cash on con­di­tion that the as­set was re­lo­cated to a re­mote struc­ture de­signed to push Ir­ish tax au­thor­i­ties down the queue for re­pay­ment in the event that things went sour.

That loan was re­fi­nanced ear­lier this year by the ma­jor­ity State-owned bank AIB, al­though the as­set was left sit­ting in its tax ef­fi­cient struc­ture in Dou­glas.

The Ap­pleby leak opened up a seam of doc­u­ments that throw light on the in­ner work­ings of the Jervis cen­tre, and the af­fairs of the no­to­ri­ously me­dia-shy McKillen and his busi­ness part­ner.

Al­most five years ago, the doc­u­ments show, they were gen­er­at­ing €19 mil­lion in rent from the as­set and val­ued it at €230 mil­lion.

How much might Jervis be worth now, one blis­ter­ing eco­nomic re­cov­ery and a re­newed con­sumer boom later?

Prop­erty sources this week spec­u­lated that Jervis might be near­ing a €400 mil­lion val­u­a­tion. The AIB re­fi­nanc­ing was for €155 mil­lion, im­ply­ing that there is likely about €240 mil­lion of equity in the prop­erty. Half of that po­ten­tial bounty – €120 mil­lion – be­longs to the wily McKillen. No won­der he fought so hard to re­fi­nance it when IBRC put his loans out to mar­ket.

Own­er­ship

A quick trawl of the Isle of Man’s com­pa­nies house shows that own­er­ship of the Jervis cen­tre now re­sides in a Dou­glas en­tity, JSC Prop­er­ties, owned 50-50 by McKillen and Drayne. A mort­gage doc­u­ment filed by JSC for the M&G re­fi­nanc­ing com­pleted in 2014 lists the rent paid by each and ev­ery ten­ant.

Fash­ion re­tailer For­ever 21 signed a 20-year lease in 2010 at an an­nual rent of €2.75 mil­lion. Boots chemist was pay­ing €1.6 mil­lion, on a 25-year lease signed when Jervis opened in 1996. DSG Ire­land, which owns Cur­rys PC World on the ground floor, was pay­ing just over €1.14 mil­lion.

The Par­fois hand­bag shop signed a 15-year lease in 2013 at a rent of €265,000. Ul­ster Bank pays €34,000 rent on its ATMs. Burger King was pay­ing €275,000, Mother­care €559,000, while the Celtic foot­ball shop, owned by a com­pany whose big­gest in­vestor is Der­mot Des­mond, was pay­ing €195,000 an­nu­ally for its unit.

Voda­fone pays €6,349 for its mo­bile phone mast on the build­ing’s roof, while the com­pany that owned mo­bile op­er­a­tor 02 (now owned by Three Ire­land) was pay­ing €18,000. The com­pany that was pro­vid­ing the “kid­die rides” paid €31,500. Kiosks were pay­ing be­tween €35,000 and €50,000.

JSC’s doc­u­ments also re­veal that the Jervis cen­tre, in 2014, was in­sured against acts of ter­ror­ism to the sum of €275 mil­lion and for €182 mil­lion for prop­erty dam­age, and €92.6 mil­lion for busi­ness in­ter­rup­tion.

If the JSC doc­u­ments drill down to the gran­u­lar de­tail of how the Jervis cen­tre op­er­ates on the ground, the sep­a­rate Par­adise Pa­pers leak gives us a he­li­copter view.

McKillen and Drayne started plan­ning for the re­fi­nanc­ing to­wards the end of 2012 when Drayne, who runs the cen­tre while McKillen re­mains hands off, com­piled a de­tailed re­port on its op­er­a­tion.

On Jan­uary 4th, 2013, Dublin tax ad­viser Kieran Twomey of Twomey Mo­ran emailed Seán Dowl­ing, the man­ag­ing part­ner of Ap­pleby: “Many thanks for mak­ing your­self and your col­leagues avail­able to meet with us on Mon­day 7th Jan­uary at 12 o’clock in your of­fices to dis­cuss a po­ten­tial new mat­ter.”

Twomey en­closed a num­ber of “back­ground doc­u­ments”, in­clud­ing Drayne’s re­port and de­tailed in­struc­tions on how its new struc­ture was to be set up in or­der to get its re­fi­nanc­ing over the line.

He con­tin­ued: “It is a con­di­tion of pro­vid­ing this in­for­ma­tion to you that none of the in­for­ma­tion pro­vided can be dis­closed to any per­son out­side of your­self and your im­me­di­ate col­leagues with­out writ­ten au­tho­ri­sa­tion to do so from my clients . . . Padraig Drayne and Paddy McKillen.”

The Jervis cen­tre was to be lumped into a par­ent com­pany (Par­entco) and sub­sidiary com­pany (Subco) struc­ture de­signed by Twomey, “to en­sure Par­entco and Subco are not re­garded as UK tax res­i­dent or Ir­ish tax res­i­dent”.

Twomey in­cluded an agenda. Item five was to dis­cuss Ap­pleby’s ex­pe­ri­ence of any “ex­am­i­na­tion” of sim­i­lar struc­tures by UK or Ir­ish tax au­thor­i­ties. Twomey was to be joined at the meet­ing by McKillen’s long-time as­so­ciate Liam Cun­ning­ham, and Oliver McAl­lis­ter from Drayne’s of­fice.

The re­port pre­pared by Drayne out­lined how McKillen and Drayne as­sem­bled the Jervis site in the lead up to the mid-1990s, buy­ing up patches of land, build­ings, rights of way and re­mov­ing power lines.

The six-floor, 33,445sq m (360,000sq ft) of re­tail space scheme was then the big­gest build­ing project in Dublin. Drayne’s re­port said it took just 18 months to build, but be­cause of the speed of con­struc­tion they spent “the next five years fin­ish­ing” it.

At the end of 2012, the re­port said, it had foot­fall of 12 mil­lion, which to­day has risen to 14.1 mil­lion, ac­cord­ing to prop­erty agency Sav­ills.

At the time, the re­tail econ­omy was in some dif­fi­culty, and Drayne de­scribed the level of ne­go­ti­a­tions around rent re­duc­tions and the churn of tenants in dif­fi­culty. Nev­er­the­less, over the pre­vi­ous three years, they had se­cured 27 new tenants gen­er­at­ing €7.2 mil­lion.

The re­port said McKillen and Drayne spent €1.8 mil­lion re­con­fig­ur­ing units to at­tract For­ever 21 and New Look, which opened its first store in Europe there. To­tal rent roll was €19 mil­lion and the to­tal rev­enue of the com­pany that then owned the Jervis cen­tre was €23 mil­lion, in­clud­ing cash for ser­vice charges, etc.

The com­pany em­ployed 54 staff, in­clud­ing 21 se­cu­rity per­son­nel and 19 clean­ers. Drayne was the hands-on man, over­see­ing the whole op­er­a­tion.

An­other back­ground re­port at­tached set out the pro­posed own­er­ship struc­ture. It said it was a con­di­tion of the re­fi­nanc­ing that the Jervis cen­tre be “held in a bank­ruptcy re­move ve­hi­cle”. This was so that “Ir­ish cap­i­tal gains tax is not a pri­or­ity to the re­fi­nanc­ing debt” in the event that the re­fi­nanc­ing bank calls in its se­cu­rity. Ev­ery­thing to fol­low was de­signed to fa­cil­i­tate this.

It said Ty­rone-based Drayne was UK tax res­i­dent, but that McKillen “is not tax res­i­dent in ei­ther Ire­land or the UK”.

He is known to still use a Dublin ad­dress on of­fi­cial com­pany doc­u­ments but McKillen has homes all over the world and hasn’t based him­self in Ire­land for years.

The “as­sumed cur­rent mar­ket value” of the Jervis cen­tre at the be­gin­ning of 2013 was €230 mil­lion with IBRC debt of €130 mil­lion (the M&G re­fi­nanc­ing was ul­ti­mately com­pleted a year later for a fig­ure €10 mil­lion higher).

The in­cred­i­bly com­plex trans­ac­tion Twomey pro­posed is best dis­tilled as fol­lows: An Isle of Man par­ent com­pany – Par­entco – is in­cor­po­rated, owned 50-50 by McKillen and Drayne. It would then set up a Manx sub­sidiary com­pany – Subco. The two men would flip the as­set to Par­entco for €230 mil­lion, paid for by a share is­sue. Parencto would then flip it on the same day to Subco, which would bor­row the €130 mil­lion for the re­fi­nanc­ing. This, along with an in­ter­com­pany balance of €100 mil­lion, would set­tle that trans­ac­tion. Par­entco would lend the cash in­ter­est free to McKillen and Drayne, who would then use it to pay off IBRC.

McKillen (but not Drayne) would be­come a di­rec­tor of the Isle of Man com­pany, along with a cou­ple of Ap­pleby nom­i­nees. All com­pany records had to be kept on the is­land, and not in Dublin.

Un­der the plan, Drayne’s Apamore Ser­vices com­pany was to con­tinue pro­vid­ing man­age­ment ser­vices to the Jervis cen­tre. The doc­u­ments said Apamore man­ages sev­eral shop­ping cen­tres on both sides of the Bor­der with a to­tal rent roll of £50 mil­lion (€56 mil­lion).

Meet­ings

McKillen was to at­tend monthly meet­ings of the Isle of Man com­pany, al­though some of these could be over the phone. It was di­rected that the Manx com­pany would ap­point a Jim Byrne as “prop­erty ad­viser”. The doc­u­ments said Byrne had 18 years ex­pe­ri­ence deal­ing with the Jervis cen­tre.

Fol­low­ing the Jan­uary meet­ing, Ap­pleby replied with a pro­posed sched­ule of fees for main­tain­ing the ex­otic struc­ture pro­posed by Twomey. This in­cluded set up fees of £13,500, le­gal fees of £10,000 and an­nual fees of £50,500. This did not in­clude 15 hours a month to be billed by the Ap­pleby part­ners to be ap­pointed as di­rec­tors of the new Jervis en­ti­ties. Two le­gal opin­ions of the struc­ture were to cost £5,000.

Twomey ex­plained he was meet­ing three pos­si­ble ad­min­is­tra­tion com­pa­nies on his Jan­uary trip to the is­land. Ul­ti­mately, the gig ap­pears to have gone not to Ap­pleby, but to a ri­val Isle of Man-based pro­fes­sional ser­vices firm called Equiom.

Since its domi­cile was shifted from Ire­land to the Isle of Man, the Jervis cen­tre has thrived along with the Ir­ish econ­omy. One prop­erty source said it is the “ground zero” for Dublin re­tail.

“It now has the Luas. It has the car parks. It was the first of its kind in Ire­land and it hasn’t dated,” said the source.

They said McKillen and Drayne would be un­likely to “let it go” but a val­u­a­tion would be hard to cal­cu­late any­way with­out know­ing the tightly-held met­ric of walt (weighted av­er­age lease term) and adding a yield.

An­other source said that, un­der a rule of thumb, the Jervis cen­tre is prob­a­bly worth up to 16 or 17 times its in­come. In­clud­ing full rev­enues of €23 mil­lion (and not just rent roll), this im­plies a val­u­a­tion of over €390 mil­lion.

Other sources said a €400 mil­lion val­u­a­tion would be con­sid­ered rea­son­able, on the ba­sis of other re­tail trans­ac­tions. Given how the com­mer­cial prop­erty in­dus­try has re­bounded to near frothy lev­els in the last five years, from when the Jervis cen­tre was val­ued at €230 mil­lion, it must surely be near­ing this quan­tum now.

Prop­erty agency Sav­ills, which acts for Drayne and McKillen at the Jervis cen­tre, would not be drawn on the op­er­a­tion of the cen­tre, or its value. The firm, how­ever, con­firmed the foot­fall and said it is “near full oc­cu­pancy”.

There are ru­mours in the in­dus­try that the own­ers are near­ing a deal for the last re­main­ing unit, with in­ter­na­tional re­tail­ers in­ter­ested in a 1,115sq m (12,000sq ft) unit that was once part of Top­shop.

McKillen would not com­ment

The leak opened up seam of doc­u­ments that throw light on the in­ner work­ings of the Jervis cen­tre, and the af­fairs of the no­to­ri­ously me­dia-shy McKillen

McKillen and Drayne as­sem­bled the site in the lead up to mid-1990s, buy­ing up patches of land, build­ings, rights of way

on the Jervis cen­tre or the Isle of Man trans­ac­tion. But in fair­ness to him, why should he? Given how suc­cess­fully it has worked out for him, he may as well just sit back and smile: the Manx cat who has got the cream.

PHO­TO­GRAPH: ALAN BETSON

The Jervis Shop­ping Cen­tre is as Dublin as can be, lo­cated smack bang in the com­mer­cial heart of our cap­i­tal city, strad­dling the thor­ough­fare that gives it its name and the ad­ja­cent Mary Street.

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