The Lowdown on Two of Ireland’s Leading REITs
Pierce Byrne, CFA
Pierce Byrne, CFA

A REIT, or Real Estate Investment Trust, is a type of real estate company modelled on mutual funds. They were created by the US Congress in 1960 to give all investors, not just the affluent, the opportunity to invest in income-producing real estate in a manner similar to how many individuals invest in stocks and bonds through mutual funds.

As part of Budget 2013, it was announced that there would be legislative changes facilitating the establishment of REITs in Ireland and for investors to directly hold property through shares, making them a tax-efficient investment with the benefit of transparency and liquidity from their quotation on a regulated stock exchange.

By purchasing equity shares in a REIT company, the average investor gains exposure to large scale, commercial real estate enterprises which can include offices and shopping centres as well as commercial sites for development opportunities.

Whereas in the past, the private and unregulated nature of property investments resulted in minimum protection, REITs are publically traded companies in which their shares can be bought and sold the same way as other shares. REITs are designed to generate investment returns through capital growth and rental income.

The Irish Stock Exchange Website Lists Some of the Main Features of REITs as:

  • Allowing investment in a property portfolio as if investors owned property directly
  • Allowing investors to hold a portion of a larger property portfolio, achieving diversification and reducing risk
  • Being bought and sold just like shares with no minimum investment amount, making it easier to gain access to property investments with more liquidity than direct property investment
  • Having low gearing: Irish REITs must have a loan to market value of ≤ 50%
  • Distributing a high percentage of their rental income – Irish REITs must distribute 85% of property related income

As we retain a favourable view on the outlook for the Irish commercial property sector, we take a look at two of Ireland’s biggest REITs.

Green REIT Price: €1.55 | NAV: €1.79 (as of 30/06/18)
Green REIT published full year results towards the end of August that saw strong uplift in EPRA NAV* to 178.9c. Green’s management team has built an impressive portfolio of assets, located amongst the most desirable addresses in Dublin and Cork, with very high calibre tenants. This should add additional security for investors and reduce the risk of rent defaults and vacancy rates.The team has proved effective on the development aspect, with a significant portion of NAV appreciation since inception being attributed to its flagship developments in Molesworth Street, Central Parks, and Harcourt Road. Asset management has also provided a source of NAV appreciation with management’s strategic switch out of retail assets over previous years. Yield compression, in conjunction with strong rental growth, has also been a major driver of capital appreciation for real estate assets.

We recognise the changing investment case for Irish REITs. Green now offers less potential on the development side, while a rising rate environment will also act as a headwind to capital appreciation. We expect investors considering Green REIT to value the yield potential of the portfolio, security of income and the diversification benefits of holding real estate in a portfolio. On the dividend front, the stock is paying c. 3.5% or 5.3c for FY18. Management is guiding building the dividend policy to 4% of NAV, which would imply a full year dividend target of c. 7.20c.

Hibernia REIT Price: €1.44 | NAV: €1.59 (as of 30/03/2018)
Hibernia’s latest set of results were published in March, with the company posting EPRA NAV* of 159.1c representing 2.4% growth on its H217 figure. This is impressive growth considering an estimated 7.7c decrease in NAV due to stamp duty changes. The Hibernia portfolio is heavily focused on Dublin city centre offices and is quickly maturing as major prime development projects conclude. 1 Sir John Rogerson’s Quay and 2 Windmill Lane are both scheduled for completion in Q4 2018. Confirmation of tenants should provide further upside to NAV as the projects de-risk on signing of long term leases. The Hibernia portfolio also contains c. 10% residential exposure as well as a number of well-placed retail units as part of larger office developments. Management has pursued a strategy of clustering properties to improve shared services across assets, the Windmill Quarter being a prime example. The strategy has proved successful with high demand from both the TMT (technology, media and telecom) and Co-Working sectors. The Hibernia portfolio has reaped significant benefits from yield compression, asset development and rental growth. All of which have contributed to Hibernia’s strong NAV accretion since inception.

Along with Green REIT, the core investment case centres on diversification and income. There are some different features to be considered when comparing the Hibernia and Green portfolios. Hibernia’s development is marginally behind Green, we expect Green to mature to a +4% yield quicker than Hibernia. However, the Hibernia portfolio has more development uplift and significantly more medium to long term prime office development potential in the existing portfolio.

Our October Investment Journal features a more detailed look at both Green REIT and Hibernia REIT. To speak with a Portfolio Manager or Account Executive today, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.

* EPRA is the European Public Real Estate Association and is a governing body promoting best practice and representing the sector. The EPRA NAV is the net asset value per share that is calculated in accordance with EPRA’s methodology.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.