Trade War

25 Nov 2019

Irish REITs: Cedar sale back on?

The Irish Times reported over the weekend that Starwood’s Cedar portfolio, a collection of five prime Dublin office assets with an indicative value of €535m, looks set to be sold to Blackstone, with that firm having notified the Competition and Consumer Protection Commission (CCPC) of its intentions.

This prospective sale has turned into something of a saga in recent weeks with media reports two weeks ago stating that Starwood had cancelled its sale plans after the final round of bidding. Prior to that, it is understood that six parties had made offers for the portfolio. Distributed across Dublin’s central business district, the portfolio comprises a number of landmark properties, including 75 St Stephen’s Green and Iveagh Court, with the total portfolio size topping 600,000 sq ft of office space and 45 residential units. The largest component (by size and rent) is Iveagh Court in the south city centre which has 221,000 sqft of office space, generates €10.4m in rent and has been ascribed a value of c.€200m by the selling agents. The entire portfolio has a current rent roll of c.€29m. 

The prospective sale was prompted by an unsolicited approach to Starwood from Irish fund IPUT earlier this year and would come shortly after the closing of the Green REIT transaction for €1.3bn.

UK this week 

Observers in the UK are unlikely to shake off their winter pre-election fever, as 12 December approaches. The past week has seen some variation in the polls but on average the Conservatives still lead Labour by 11%-12%. Interestingly, a constituency poll by Survation showed the Conservatives on course to capture the former Labour stronghold of Great Grimsby with a 10% swing and this despite a strong showing by the Brexit Party candidate (almost 70% of voters in NE Lincolnshire voted to leave the EU in the 2016 referendum). These results would suggest that Boris Johnson is on course to win an overall majority but much can happen in three weeks, as we saw in 2017. 

After Friday’s leaders’ debate was deemed a draw we have further televised debates due on Thursday and Friday. The Conservative Party’s election manifesto was unveiled over the weekend, following Labour’s launch on Thursday. By comparison this week’s economic data are second tier but we will see official Bank of England credit data on Friday.

US this week

Towards the end of last week the US/China trade negotiation pendulum has swung back towards deadlock. President Trump stated that China was not ‘stepping up’ to the level that he wanted. In response the Chinese Commerce Ministry, typically Beijing’s ‘bad cop’ in trade matters, insisted that it would strive to strike a ‘Phase 1’ deal. Even so, the latest impasse could result in an expectation that an accord will not be struck until 2020 and with it, an adjustment in risk appetite in global markets. 

While investors will seek out developments over the next week, the news flow may be curtailed by Thursday’s Thanksgiving holiday. Indeed US indicators will see their usual seasonal bunching, with a crowded schedule on Wednesday. The pick here will be first revisions to Q3 GDP and the Fed’s Beige book, the latter giving us some anecdotal indications on conditions in the economy. Of course Black Friday will follow Thanksgiving, with markets paying attention to various reports related to the retail sector. 

Lastly, Jay Powell speaks from Rhode Island on later this evening. It is likely that the Fed Chair will reiterate the message that the central bank is in ‘pause mode’.

Europe this week

In the Euro area, ‘flash’ HICP inflation estimates for November are published on Friday. ‘Core’ inflation rose to 1.1% in October, a four month high. The Account from October’s ECB Governing Council (GC) meeting hinted that this was a technical move, related to the weight of package holiday prices in the index, so this might be the driver behind a further rise, rather than a genuine pick-up in price pressures. That said, conditions in the manufacturing sector may have bottomed. In that respect, we will look closely at various measures of industrial confidence released next week, especially the German IfO index on Monday. 

Similar to the Fed, divisions on the GC have contributed towards the ECB adopting a ‘watch and wait’ strategy, at least for the time being. We do suspect though that the GC will bring the Deposit rate down by another 10 basis points at some stage over the coming months.