27 Mar 2019

Irish REITs: What’s in today’s paper?

The property section of today’s Irish Times contains two pieces, one on PRS and the other on office space, of interest to the Irish REITs.

Irish REITs: What’s in today’s paper?

The property section of today’s Irish Times contains two pieces, one on PRS and the other on office space, of interest to the Irish REITs.


To start with the PRS asset, a portfolio of 122 apartments in Tallaght, being marketed as The Acorn Collection, is being offered for sale with a guide price of €29.8m, which implies a gross yield of 7.0% off passing rents. Some 63 of the apartments are at the Arena Centre, which Green REIT (GRN) disposed of in 2017, with the other 59 at the Abberley Square scheme on Belgard Road. Those assets will have benefited from the yield compression and rental growth that has been a feature of the Irish PRS scene since when they last traded in 2017 (for €9.25m) and 2016 (for c. €6m) respectively.


IRES owns 564 apartments at Tallaght along with ancillary commercial space (some of which it intends to repurpose for residential use). To this end, it will almost certainly run the rule over The Acorn Collection, although we caution that there is a wall of capital (€7bn by one estimate) chasing PRS assets in the Irish market at this time.


Turning to the office sector, the European headquarters of Stripe on Lower Grand Canal Street (close to the South Docklands) has transacted in an off market transaction to an unnamed international vendor for €49.5m, which implies a reversionary yield of 5.4% - a keen price for a building that dates back to 1972 (and substantially refurbished to a high standard over 2014/15). This transaction also has supportive read-through for the value of GRN and Hibernia REIT’s (HBRN) office exposures, which comprise modern and well-located properties. The median equivalent yield for GRN’s central Dublin office assets is 4.65% (range 4.00-5.68%) while for its suburban Dublin assets the median is 5.39% (range 4.80-5.52%). For HBRN, the equivalent yield on its Central Dublin office portfolio is 5.0% (range 4.8% in the Docklands to 5.2% in the ‘Traditional Core’).


These pieces reflect the still hectic pace of activity in the Dublin market, which is creating acquisition opportunities for the REITs and/or helpful valuation pointers for their in-place assets.


Irish Economy: NTMA issues 26 year linker

Ireland’s NTMA announced yesterday that it has raised €300m through a placement of a new inflation-linked bond maturing in April 2045.


This is the second ‘linker’ that the agency has issued and followed the receipt of a number of reverse enquiries. The maiden issuance in April 2017 brought in €609.5m. As with its predecessor, the principal repayment will be linked to the HICP ex tobacco index for Ireland. It was issued at a negative real yield of -5bps (zero coupon).  


The NTMA is committed to diversifying the Sovereign’s funding sources. In addition to linkers, the agency has also issued amortising bonds, green bonds and century bonds in recent years.


This move brings funds raised from bond sales in the year to date to just over €5.5bn, which is a good start relative to the 2019 funding goal of €14-18bn. Importantly, these sales have been completed at a weighted yield of just over 1%, which compares favourably with the blended average cost of existing debt (2.4%), while the year to date fundraisings have been executed at a weighted average maturity of 11.6 years.


Brexit: Indicative votes


Today MPs will take control of the House of Commons agenda from the government in an effort to determine whether any alternatives to the Prime Minister’s Brexit deal can command a parliamentary majority. After the weekly Prime Minister’s Questions slot at midday, MPs will from 2pm hold a debate on the various Brexit options available to them, including those that would seek to overturn the UK’s departure from the UK altogether. Subsequently, the Speaker will then select which of these Brexit alternatives should be put to so-called indicative votes which MPs will indicate their support or opposition to by writing either “aye” or “noe” next to them on a single ballot paper. Voting is set to begin from 7pm, with the result expected around 9pm. There is then expected to be a second phase of voting on a short list on Monday. It remains to be seen whether any outcome can gain sufficient support to give clarity on how to take the Brexit process forward, which is something that would likely be required if the UK were to seek an extension from the EU taking Brexit beyond 12 April. Note that there is a meeting of the Eurosceptic ERG at 5pm, where there is much speculation the PM could provide clarity on her departure date in a last ditch effort to get her deal over the line in a third meaningful vote tomorrow.


There are various reports that the sands are shifting within the ERG, with perhaps only 15 hardliners now pushing against May’s plan. The DUP’s latest position remains unclear; Sammy Wilson yesterday indicated he would favour a further Brexit delay of 12 months over May’s deal, but reports indicate he does not necessarily speak for the DUP overall, which is interesting given he is the DUP’s Brexit spokesperson. If PM May did manage to pull off and succeed in gaining backing for her deal in a 3rd “meaningful vote” before the end of this week, this would set the exit date to 22 May, rather than 12 April.  However the arithmetic, even with the shift in the ERG, still looks challenging. Finally note that on the subject of the UK’s exit date, Parliament today will vote on the Statutory Instrument which would change this date in UK law. A rejection of this would not prevent the UK’s extension to 12 April (or 22 May) taking effect (as EU law has supremacy), but it would be a further blow to the already weakened PM and a disruption to today’s events in Parliament.


US-China Trade

Negotiations continue this week with an American delegation in China to kick start talks which may lead to a deal and could be the first step in the long road to an economic truce. However, recent comments from both sides have dimmed hopes for a quick resolution. China is still likely to push back and demand that tariffs are removed if a deal is reached, which could stall progress for now.


Economic releases

10.00 EZ ECB’s Lautenschlaeger Speaks

13.30 EZ ECB’s Merch Speaks

12.30 US Exports

12.30 US Imports