Bank of England

20 Dec 2019

Yew Grove REIT: €25m office acquisition in Naas

Yew Grove has acquired a portfolio of six office buildings at Millennium Park, Naas, a development approximately 30km from Dublin city centre and adjacent to the M7 motorway to Cork, which has recently undergone significant upgrading.

The portfolio has 141,000 sq. ft. of modern office space across six buildings, as well as 773 car parking spaces and a six acre greenfield site, and came at a cost of €25.3m. This represents a net initial yield of 5.8% after costs, but the portfolio is expected to have reversionary potential in excess of 9%. Five of the buildings are let to FDI or large Irish enterprises and one of the buildings is vacant. The current annual rent roll is c.€1.6m and the WAULT to break is 2.5 years (and 5 years to expiry).

Yew Grove raised gross proceeds of €25.8m from a placing of 26.6m shares earlier this month, so these funds have effectively now been invested in this acquisition following just a short lag period. Although the net initial yield on the acquired portfolio is below Yew Grove’s existing portfolio, the reversionary potential is attractive. With more than €60m of its share placing programme still available, and having talked of potential near-term acquisitions of €72m (before this deal) as well as a pipeline of €130m, we would not be surprised to see Yew Grove draw more funding from shareholders in the new year as it grows its portfolio further.

Irish Economy: Slow month for overseas visitors to Ireland

The latest travel statistics from the CSO show a 7.1% y/y decline in the number of overseas visitors to Ireland in November, with the YTD increase reducing from 2.2% last month to 1.5% now. 

Lower numbers y/y from Britain, Europe (ex. Britain) and North America all contributed to the disappointing outturn in November with these markets -7.4%, -6.8% and -9.5% respectively. While there is still decent YTD growth in the European market and the British market is close to flat, the trend in the North American market since the middle of the year is concerning given the importance of such visitors (from an expenditure point of view) to the overall tourism industry. The significant decline in this segment in November follows a 2.7% y/y decline in Q3 and an 8.8% y/y decline in October.

Although the country looks set for another record year in terms of overall visitor numbers, growth is becoming harder to come by. This chimes with Dalata’s comments earlier this week of a “tougher than anticipated” Dublin hotel market.

No change BoE

As expected the Bank of England’s MPC voted 7-2 to hold Bank rate steady at 0.75%, with external members Jonathan Haskel and Michael Saunders both maintaining their call for an immediate 25bp cut. Meanwhile, the committee voted unanimously to hold the stock of gilts and corporate bonds at £435bn and £10bn respectively. Minutes of the meeting showed that the MPC judged that global growth had seen “tentative” signs of recovery over the past six weeks. 

Meanwhile, the Bank’s Agents survey suggested that some investment plans put on hold since the Brexit referendum could be reinstated in light of the general election result. However, the MPC cautioned that it was too early to tell how much policy uncertainties for companies and households had declined. Also, Bank staff lowered their forecast for UK GDP growth in Q4 from 0.2% (q/q) to 0.1%. 

Brexit blues

At this point we view the recent evidence on a possible manufacturing upturn to be somewhat unconvincing. Moreover, the UK government is set to legislate against an extension to the Brexit transition period beyond 2020, which may dampen any improvement in business sentiment. Hence, the MPC is likely to maintain a de facto easing policy bias for at least a while longer. Indeed while a rate cut does not form part of our baseline case, we judge it very unlikely that the economic cloud will be lifted sufficiently rapidly to justify a hike in the Bank rate over 2020.

Sterling slide continues

Overall, the minutes appear modestly less dovish than in November with the MPC reiterating that Bank rate could be lowered if global growth fails to stabilise or if Brexit uncertainties remain entrenched. 

Sterling recovered from some pre-MPC jitters and rallied back across the board immediately after the decision was published. However it has subsequently been subject to renewed selling pressure. Short-term interest rate markets have seen a modest sell-off. SONIA markets are now pricing a 60% chance of a 25bps cut in the Bank rate next year. 

It’s probably worth noting that the FT contains a story this morning which says that current FCA chief Andrew Bailey will be named as the successor to Mark Carney, perhaps as soon as today. Bailey has worked at the BoE for over 30 years, latterly spending three years as the chief executive of the PRA.


Economic Releases

UK 09.30 GDP

US 13.30 GDP

US 15.00 PCE Price index