14 Aug 2019

Irish REITs: Green REIT FY19 results

Green REIT this morning released its FY19 results covering the 12 months to 30th June.

The group’s annual rent roll increased to €79.4m at period-end, from €71.7m as at 30 June 2018, although the running total is higher at €83.0m once rental income from lettings with terms agreed are included. The headline WAULT is now 8.5 years, from 8.8 years a year earlier. The EPRA vacancy rate is 5.7%, but this reduces to 1% if leases with terms agreed are included. EPRA NAV increased 5% y/y to 187.1 as at 30 June.


In terms of specific activity, Green has agreed terms for the retail space at One Molesworth Street, at an annual rent of €0.505m, which will bring the building to full occupancy and deliver a total rent of €5.85m p.a. At Building I in Central Park, Sandyford, Genesis Aircraft Services has signed a lease for the top two floors of the building (comprising 2,410 sqm of space) with a term of 20 years and 12 years certain. Green has also agreed terms with another party for the balance of space (7,260 sqm) which would bring the annual rent roll here to €3.5m – 13% ahead of guidance in February this year. Planning was recently submitted for 47,360 sqm of new office space over three new blocks at Central Park, which is a 27% increase on the group’s previous estimate of lettable space at this plot. At Horizon Logistics Park, Green has signed a 20-year lease with Vortex Aviation at an annual rent of €0.43m, begun constructing an extension to Kuehne+Nagel’s premises which will bring in c.€0.71m of additional rent and received planning consent for a 15,300 sqm unit. The total rent roll at Horizon will be €7.0m once the under-construction units are completed and assuming D6 and D7 are rented at ERV.


Regarding the sales process, the independent committee of the Board of Green REIT has now reached agreement with Henderson Park and the Bidco “will imminently announce a firm intention to make an offer for Green REIT under Rule 2.5 of the Irish Takeover Rules”.


Chinese data disappoints as Trump backs down

July’s set of Chinese economic activity numbers, released earlier this morning, was disappointing. Industrial production rose by 4.8% on the year (consensus 6.0%) from an increase of 6.3% in June, the slowest annual pace of increase since 2002. Retail sales were similarly lacklustre, posting a gain of 7.6% y/y (consensus 8.6%), down from June’s 9.8%. Meanwhile, fixed asset investment growth remained relatively stable, showing year-to-date annual growth of 5.7%, close to June’s 5.8%. Averaging out this morning’s data with June’s more robust outturns implies no significant slowdown since the start of the year. 


Overnight, Beijing remarked that the economic impact of the trade war with the US was containable. Cynics could however, point out that the latest batch of numbers has prompted China to go back to the negotiating table with the US, with a high level phone call between the two countries taking place yesterday and a renewed expectation that Beijing will send a trade delegation to Washington next month. That phone call seemed to have softened Mr. Trumps trade stance somewhat, with Chinese stocks rallying on the news that the US will delay the imposition of new tariffs on a wide array of consumer products (laptops, cell phones etc.) until after the Christmas shopping season. 


The Shanghai index is up by 0.6%. Similarly, the Yuan (CNY) strengthened modestly against the US dollar, moving to CNY 7.0188.


Brexit update

One development over the past 24-hours is that Speaker of the House of Commons John Bercow has said he would not allow PM Johnson to close Parliament to push through Brexit. Note that no-deal Brexit does nevertheless remain the default option, whether Parliament is open or not. 


On the subject of suspending Parliament, there was the first court outing yesterday to try to limit this, with Scotland’s highest civil court set to hear a bid by approximately 70 lawmakers in an attempt to stop PM Johnson suspending Parliament to force through Brexit. 


Another big theme of the past 24-hours is election planning, after one Conservative politician accidentally published a draft email about his “GE2019 team.” Indeed, with each day that passes, there are increasing signs that PM Johnson and his team are prepping to go to the polls over the next few months. This is not hugely surprising given that with a majority of just one currently (with the DUP) the Johnson government is going to find the passage of legislation a very tall order.


TOTD

UK unemployment rate rises

The UK unemployment rate nudged up unexpectedly yesterday to 3.9% in (the three months) to June. Consensus and Investec forecasts had been for a steady rate of 3.8% for the fourth consecutive month but barring the period of sub-4% unemployment over the first half of this year, the jobless rate remains at four decade lows.  


We have long remarked that the various labour market series are often ‘noisy’, due to the nature of the samples used by the ONS in computing the data. This makes it more difficult to identify trends and turning points. Indeed, yesterday’s print shows conflicting features but on balance, we take the view that collectively the numbers confirm the pattern of the past few months, which is of some cooling in labour market conditions. 


Overall, our conclusion is that labour demand is softening modestly, but that historically low levels of unemployment are likely to prevent a significant dip in pay growth. Of course, if the UK leaves the EU without a deal, this scenario becomes far from assured. From an interest rate policy and market perspective, fundamentals including yesterday’s figures, are playing a subsidiary role to Brexit developments.


Economic Releases

09.30 UK CPI

09.30 UK PPI

10.00 EZ GDP

13.00 US Export Price Index

15.30 US Crude Oil Inventories