24 Jun 2019

Irish REITs: GRN trading statement

Green REIT (GRN) has today issued a trading update covering the period since 1 January. 


The group says that its contracted annual rent has grown to €79.4m (€83.3m when rental income from lettings with terms agreed and in advanced discussions are included), up from €75.5m at end-December. The headline WAULT is 8.5 years or 8.7 years after adjusting for lettings with terms agreed or in advanced discussions, with the latter in-line with the end-December position. The EPRA vacancy rate is just 5.0% or 0.7% after making the aforementioned adjustments, versus 3.5% at end-December.


In terms of specific letting activity, GRN has signed one new letting and agreed terms on a further two lettings at George’s Quay Estate, bringing that asset to full occupancy and delivering additional annual rent of €1.8m (in line with end-December ERV). GRN has also agreed terms for the vacant retail space at One Molesworth Street at an annual rent of €505k, bringing that building to full occupancy and delivering a total annual rent of €5.85m from it. Apart from a bolt-on purchase of four acres of land at Horizon Logistics Park, GRN has made no acquisitions or disposals since end-December.


On developments, GRN completed the Block I office scheme at Central Park in April ahead of budget, with one letting now complete for the top two floors (by Genesis Aircraft Services) and advanced discussions taking place regarding the remaining space, “at a total annual rent of approximately €3.5m, 9.4% ahead of the most recent projection”. A build-to-order unit of 115,000 sq ft at Horizon for Bunzl commenced in February and is due for completion in Q120. It is now expected to cost €13.1m (versus €15.1m previously) and deliver annual rent of €1.14m. Kuehne + Nagel has triggered its option for an extension to its unit at Horizon by 80,000 sq ft, again due for completion in Q120, delivering incremental annual rent of €0.71m (a tenth of the €7m construction cost). Vortex Aviation has leased the 44,800 sq ft unit D4 at a rent of €0.43m on a 20 year lease (break clause at year 10) with nine months’ rent free. GRN completed units D6 and D7 during the period at cost of €7.5m, delivering 58,000 sq ft of extra space at Horizon. On the planning front, GRN secured consent for a new 165,000 sq ft unit at Horizon and intends to submit an application in Q319 for three new blocks at Central Park totalling in excess of 400,000 sq ft.


Turning to the sale process, GRN says that it is pleased with how this is progressing and the level of interest expressed to date. Media reports (Bloomberg, June 21) indicate that the deadline for second round bids is July 25.


GRN’s share price has increased by 14% since management initiated a sales process for the company in April, with the outperformance relative to all other Irish REITs (shares -2% to +6% over the same period) indicating to us that the market is optimistic about the likelihood of a deal being agreed. GRN closed at €1.754 on Friday, 4% below the end-December EPRA NAV of €1.829 while the positive comments in today’s trading update suggest an uptick in the NAV is very likely when the end-June 2019 accounts are released, widening this discount.


Bank of Ireland Group: Acquisition of corporate loan portfolio closes

KBC Bank Ireland this morning announced that it has closed the transaction announced on April 12th to sell its legacy performing Irish corporate loan portfolio of c.€260m to Bank of Ireland Group (BIRG).


For BIRG, we view the transaction as an incremental positive which shows the Group is keen to look at all options to add performing loan volume in the current market. With respect to KBC, the sale allows the bank to focus on its core SME and retail clients in Ireland and it notes that the transaction will have a negligible impact on its P&L and capital levels.


In its Q1 Interim Management Statement released last month, BIRG reported that the transaction would consume 5-10bps of CET1 capital.


US this week

Global markets are still digesting the big news from Wednesday’s Federal Open Market Committee meeting that 8 of the 17 FOMC participants now expect a reduction in the Federal funds rate this year and 9 saw rates lower next year. That was a seismic shift from the position in March when no participants saw a reduction. Coupled with a move away from patience to a firm commitment to “act as appropriate” to “sustain the expansion”, markets added to their bets over the extent of policy easing which might be forthcoming this year. The S&P closed 0.3% higher on Thursday after Wednesday’s communications and on Friday set a new record high. After spending a few hours under the pivotal 2% level (not seen since 2016) the 10-year Treasury yields are sitting just above 2% as European markets open this morning.


UK this week

UK data releases continue to be of secondary importance for UK focused investors as they consider the path Brexit takes to be of more critical importance. After a wobbly weekend for Boris Johnson in particular, we saw the launch of the Conservative party wide hustings, Mr. Johnson and Jeremy Hunt are put to the full party for selection. Results will not be clear until the second half of July, although Boris remains the firm favourite. As such, investors will be scrutinising Mr Johnson’s appearances for any clarity on his plan to secure a revised Brexit deal and about his fall back/no-deal intentions if it turns out he was over-optimistic in his ambition to do so before the 31 October deadline.


G20 this week

Attention will surely now shift to the G20 Summit which takes place in Osaka, Japan on 28 and 29 June. This has been eyed as critical meeting for some time now amidst worries that the US-China trade dispute is applying an increasing drag on global growth momentum and amidst concerns that the trade dispute was escalating rather than moving to a resolution.


The key event here will be an “extended” meeting between Presidents Trump and Xi. Hope of a quick return to the position of a couple of months ago, when it looked like a trade deal was imminent, have faded and as such any such a lurch forward would come as a huge surprise to markets. Realistically, expectations are for the Trump-Xi relationship to be rebuilt so that talks can slowly get back on track. Needless to say, the outcome of the meeting will have consequences for central bank policy stances far and wide, but particularly for the US Federal Reserve, where Chair Jay Powell stated the importance of trade war news last week, amidst much speculation of a possible Fed rate cut as soon as 31 July.


Data this week

Aside from focusing on trade developments, central bankers in several geographies (not least the US and Eurozone) also look to be paying more due attention to inflation and the persistence of it in undershooting inflation goals. This looks to have reinforced dovish market bets for both of these geographies over the past few weeks. In this context flash HICP inflation figures for the EU19 and PCE inflation data for the States will be watched even more closely than usual. In other top-tier data releases, we will also see the publication of ‘final’ Q1 GDP figures for the UK and US, a whole host of other US releases (consumer confidence, new home sales data and trade balance figures). And amidst worries over China’s economy losing momentum, ‘official’ PMIs for the manufacturing and non-manufacturing sectors will be tracked closely over the subsequent weekend.


Tory leadership contest

Attention has been focused even more squarely on Boris Johnson over the past couple of days, following an alleged altercation between the former Foreign Secretary and his partner at her home. At the first Conservative Party hustings at the weekend, BoJo refused to answer questions about the incident, attracting a certain degree of criticism from various third parties. Boris remains the bookmakers’ clear favourite to enter number 10, though his odds have drifted slightly from 1/10 to around 1/6 now. His opponent, current Foreign Secretary Jeremy Hunt, is currently 4/1. There are also media reports over the weekend speculating that a Boris victory could result in a vote of parliamentary no confidence in the government being called by the opposition for late-July.