A year after its €310m (£245m) IPO on the Dublin and London Stock Exchanges, Green REIT has speedily built up a portfolio of prime Irish properties.
From the €710m of equity and €74.6m of debt it has now raised, Ireland’s first REIT has invested a total of €719.4m in 19 assets with a focus on grade A Dublin offices.
But will these investments deliver the 10-15% annual total returns that it promised to investors including Investec, BlackRock and Paulson & Co, which took stakes of 12.9%, 9.6% and 12.9% respectively at the time of its IPO?
Pat Gunne and Stephen Vernon, who lead the firm’s external manager, Green Property REIT Ventures, have won seven of the nine competitive bidding processes Green REIT entered, as well as completing off-market deals.
Deal-making is one thing, but is Green REIT buying assets that generate opportunities to capture rental growth at the right yields?
The Dublin property market has moved rapidly since Green REIT’s launch in July 2013, when values had been in decline for 22 consecutive quarters. The turning point came in Q3, when values rose by 0.3% – the first value rise since the 2008 market crash, according to the IPD. Q1 figures show capital value growth of 5%, thanks largely to intense competition from international private equity buyers.
The yield for Green REIT’s current portfolio is now 7.9%. However, higher-yielding assets are becoming more scarce as competition intensifies. Last month the purchase of two offices on Harcourt Street for €32m reflected a 6.8% yield, and the €375m Cosgrave Portfolio of mixed central Dublin properties gave a 6% yield.
By contrast, the company’s first major transaction, a €127.6m portfolio of offices, shops and sheds from Danske Bank in October, yielded 8.5%.
There is also the question of whether Ireland’s first REIT will go back to the capital markets for a third time, having invested 99% of the equity it has raised from a supportive shareholder base so far.
“The market has moved a lot quicker than anyone anticipated. If yields hadn’t come in at such a breakneck speed, Green REIT would have undoubtedly gone for a third equity raise, but it’s simply not the right time to be buying,” said a source close to the company.
The “next logical step” would be for Green REIT to focus on asset management and development, rather than making further acquisitions, says Ray Crowley, analyst at Davy Research.
The company has around €6.5m of equity remaining, and is currently in talks with local and alternative lenders to secure around €300m of corporate debt, taking gearing up from 10.9% to its 35% threshold.
This would be used for capital expenditure on existing projects, rather than acquisitions, with the €311.5m Central Park office-led development, which Green REIT and Pimco own in a 50:50 joint venture, is expected to be the first project to receive investment.
Alongside the 691,000 sq ft of mixed use buildings on the site there is 7.4 acres of development land that is earmarked for further offices.
Veteran investor Vernon, executive chairman of parent company Green Property, has a strong track record of calling the Irish market correctly.
Green Property itself was previously a listed company, but Vernon took it private in 2002, and was a net seller in the years 2004-06 – a decision that came just in time to protect the company from the worst of the fall-out from the Irish property crash.
Much of Green REIT’s success in the coming year will depend on whether its manager can once again exercise its strong judgment of the market.
sophia.furber@estatesgazette.com
