Green REIT has earmarked €114m in total capital expenditure across five development schemes which the Irish REIT will begin this year, forecasting an estimated profit on cost in excess of 30%.
After a prolific six months to end 2014 for the relatively young REIT, which saw the deployment of its entire equity capital, the Board’s attention this year will turn towards developing four prime Dublin offices and one logistics park, creating 313, 374 sq ft in new net lettable area.
Green REIT acquired the five sites –13-17 Dawson Street, 4 & 5 Harcourt Road, 32 & Rear of Molesworth Street, Block H, Central Park and Unit 1, Horizon Logistics Park, Dublin Airport – for a combined €48m.
The all-in build cost of €114m, excluding cost of financing, takes aggregate costs to €162m, which compares to a net development value (NDV) for the five schemes of €212m, based on securing an estimated €12.6m in annual rental.
First of the five schemes to get underway is Block H Central Park, which Green REIT owns a 50% stake in alongside PIMCO. Completion of the 147,000 sq ft office block, with a NDV of €63m, is expected by Q2 2017.
Development at the Logistics Park by Dublin Airport will get underway in the third quarter this year, while the three remaining schemes are all slated for fourth quarter starts.
Green REIT will fund the costs of development programme through its €150m, four-year revolving credit facility (RCF) with Barclays Bank Ireland in December 2014, with the exception of Central Park’s Block H, for which the REIT will seek ring-fenced funding facility.
The Barclays Bank RCF, priced at 200 basis points over three-month Euribor, is currently only €19.4m drawn – and Green REIT has an option to extend the facility up to €290m, providing total debt headroom of up to €270.6m.
Green REIT this morning reported an 11% increase in net asset value (NAV) per share to €1.21 or €807m, virtually reaching analyst JPMorgan’s for the full 2015 calendar year, driven by an extraordinary fast recovery in Ireland’s commercial property market.
The six month period to the end of 2014 was the most active since Green REIT’s inception, with its property portfolio increasing by 119% to €882m, including the €375m acquisition of the six-strong Project Sapphire Dublin office and retail portfolio from Cosgrave Property Group last October. The remainder of the investment portfolio increased in value by 12.5%.
Green REIT has since booked a 7.8% uplift in the valuation of the Sapphire Portfolio and 13-17 Dawson Street, acquired for €23m, to the end of last year, driven by yield compression, rental growth and active asset management. Gross rental income grew by 86% to €16.1m.
Pre-tax profit for the six-month period was €74.3m, comprised of €66.4m in fair value increases in the investment portfolio and €7.9m in rental profit.
The Board announced this morning that it intends to distribute its maiden dividend to shareholders, of €6.1 million, or 0.92 cent per share, for the period to 30 June 2014.
The Irish commercial property market was the star performing in Europe last year, with annual total returns reaching an eye-watering 40.1% on an all-property basis, according to IPD/SCSI Ireland Quarterly Property Index. Offices in Ireland led the market in 2014, returning 45.3% year-on-year compared with 18.3% in 2013.
This stunning investment performance is more than double the total returns for UK commercial property, with delivered a 17.9% in 2014, according to the IPD UK Quarterly Property Index.
All property capital values in Ireland rose by 30.7% year-on-year, led by capital appreciation for Irish offices (which predominantly are Dublin located) of 35.9% and 25.8% for retail.
Pat Gunne, chief executive, Green Property REIT Ventures Limited said: “The development side of our business will kick off in earnest in 2015 and marks the beginning of an exciting new era for Green REIT, in a market that has witnessed very little supply of new space since the market collapse in 2008.
“Ireland’s economy growing again and European interest rates remaining at historic lows, provide a positive backdrop for the period ahead.”
In its interim results statement this morning, Stephen Vernon, executive chairman, and Pat Gunn, chief executive, added: “While the continued Eurozone weakness and the uncertainty surrounding Greece are of concern, recent quantitative easing measures announced by the ECB and a continued weakness in the Euro and oil prices should impact positively on Irish exports, tourism and FDI, and consequently on GDP. This should lead to greater occupier demand, particularly for Dublin offices, where the Company’s focus is centred.
“The low level of supply of new offices in Dublin in the short term, combined with expected strong occupier demand, should lead to growth in office rental values, while the expected high levels of capital looking to acquire Irish property should lead to continued growth in capital values. The sector also continues to benefit from the prevailing low interest rate environment.
“The company is in a strong position to take advantage of supply constraints in the Dublin office market, and through its debt headroom has the means to deliver new buildings on those sites earmarked for development and to acquire further properties that fit with the company’s investment policy and which will be accretive to shareholder value.”