Green REIT sees further 'strong momentum' after 11% NAV rise

Green REIT, an investment vehicle set up in 2013 to capitalise on the rebound in Irish property values, said it expects rental values in the Dublin to increase by a further 20-25% over the next two years, continuing to drive performance across its portfolio.

‘We still see quite a strong momentum on the rental side driven by supply demand dynamics in the market,’ Green REIT’s executive chairman Stephen Vernon and CEO Pat Gunne told PropertyEU in an interview. ‘Rents are rising fast and we want to capture growth in these two years.’

Top rents in Dublin centre have reached €45-47 per square foot, compared to a market bottom of €34 a few years ago. ‘But they are expected to surpass the previous market peak of €65 per square foot,’ they added.

Around 75% of Green REIT’s portfolio is made of offices in Dublin city centre.

Half-year performance
Green REIT was the first real estate investment trust to list on the Irish Stock Exchange after the vehicle was introduced in 2013. It raised €300 mln at €1 a share in July 2013. Its shares are trading at €1.47 today.

In the six months to year-end 2014, the company posted a gross profit of €74 mln and NAV per share soared 11% to €1.21 per share, from €1.09 at 30 June 2014. NAV growth was largely driven by a €45.5 mln value increase across its portfolio.

On a like-for-like basis, Green REIT’s properties have reported a 12.5% hike in values in the past six months, an indication of the strength of the recovery in the Irish office sector. Dublin prime office yields have fallen by 75 basis points over the past six months from 5.75% in December 2013 to 5.00% at year-end 2014.

Following the acquisition late last year of the €400 mln Sapphire portfolio - the country’s single largest acquisition of 2014, annual passing rent in Green REIT's portfolio has increased by €24.4 mln to €53.0 mln at 31 December 2014.

‘We are coming out of a very busy buying period. For this year, we will only be looking at opportunistic acquisitions,’ the company’s executives said. In total, the company has up to €250 mln available for potential investments, if it makes use of undrawn debt facilities. Its gearing is just over 10% at present.

‘We will focus on the development side of our business in 2015,’ said Gunne. ‘This marks the beginning of an exciting new era for Green REIT, in a market that has witnessed very little supply of new space since the market collapse in 2008. Ireland’s economy is growing again and European interest rates remain at historic lows, providing a positive backdrop for the period ahead.’

The company has six projects in the pipeline, five of which are expected to kick off in 2015. Major developments include Central Park, representing a joint venture with US asset manager Pimco, and the Horizon Logistics Park covering 77,000 sq ft.

To finance these projects, Green REIT has obtained a new €150 mln loan from Barclays, with an option to increase the facility to €290 mln in the future.

Looking ahead, the company also said it will seek to play out ‘lease events’ scheduled to take place over the next three years in nearly 60% of its existing portfolio. ‘We will engage with tenants to regear and renew the leases,’ they said.

The company hopes to return an annual 10 to 15% to shareholders, in line with targeted private equity returns. ‘We can do this, even though we are using little gearing. But we have the advantage of being local,’ the two managers said. The company has just proposed its first dividend of 0.92% per share, to be paid in cash.

Green REIT's shareholders include Stephen Vernon, its executive chairman and one of the country's richest businessmen, as well as hedge fund manager John Paulson.

Asked what the company's plans are beyond the upturn in the property cycle, the managers said two options lie ahead. 'Either this company will become an attractive European REIT, meaning a provider of a good dividend stream, or it may be that the extremely cyclical nature of the Irish market means that we will be looking at an alternative, tap our shareholders for equity to invest in new opportunities. It depends on how the supply-demand dynamics play out in the market in the coming three years.'