Cantillon: Two strategies but which Reit is wrong?
Two real estate investment trusts appear to be developing contrasting approaches
At the recent Hibernia Reit AGM: chief executive Kevin Nowlan, chief financial officer Tom Edwards Moss and chairman Daniel Kitchen. Photograph: Aidan Crawley
Despite operating the same business in more or less the same market, the stock exchange’s two main real estate investment trusts – Reit – appear to be developing contrasting approaches.
Green Reit said in a management statement yesterday that it would be selective about new acquisitions and would buy only on the basis that the property fits its strategy and boosts its value. Chairman Gary Kennedy noted that it would keep its debt-to-asset ratio “prudent”.
The tone more or less echoed that of September’s full-year statement, when the company made it clear it was shifting focus from buying properties to managing and developing what it has.
In fact, at that time, it all but ruled out adding to its existing portfolio in the near future.
By contrast, Hibernia Reit, which published interims just days ago, has agreed a new €400 million, five-year loan with its banks and plans to remain very much in the hunt for new acquisitions, with a particular focus on Dublin’s central business district.
There are differences between the two: Green was first out of the traps, floating six months before Hibernia; Green has one property outside Dublin, Hibernia is unlikely to stray outside the capital.
However, the similarities, right down to structure and regulation, far outweigh these, so why the contrast?
The answer is that their managements have different views of the same thing: the Dublin office market.
This is where both have their biggest exposures. Hibernia’s Kevin Nowlan (pictured) said last week that potential tenants are seeking three million sq ft in office space in Dublin, but there is just 2.5 million sq ft under construction.
In September, Green’s Pat Gunne said that the city could be facing oversupply from 2018.
Only time will tell which is correct but for now their approaches mean that one is a useful hedge against the other. After all, the two Reits can’t be wrong.