Green Reit predicts office oversupply in Dublin by 2018

‘Golden period’ for commercial property probably over, says executive chairman

Central Park office park in Leopardstown where Green Reit is reporting full occupancy and has construction underway on Block H. Photograph: Alan Betson/The Irish Times

Central Park office park in Leopardstown where Green Reit is reporting full occupancy and has construction underway on Block H. Photograph: Alan Betson/The Irish Times

 

Listed property investor Green Reit believes that there is a risk that Dublin’s office market will be oversupplied from 2018 as new developments now under way begin to come on stream.

The company on Monday said it had delivered a total return of 24.4 per cent in 2015, sending the stock soaring by 2.7 per cent in early morning trading, although it closed slightly down at €1.47.

Green Reit said its 24 properties were worth €968.3 million at its year end on June 30th, 24.2 per cent more than 12 months earlier. The fund produced a portfolio income yield of 5.2 per cent and investment yield of 5.4 per cent, while the fund’s earnings per share rose by 23.6 per cent to 23.5 cents.

Speaking after the publication of its results on Monday morning, Pat Gunne, chief executive of Green Property Reit Ventures, said that the capital’s office market is facing “ possible oversupply” from 2018 onwards.

He pointed out that five million square feet of new space is under development. “One million is pre-let and we would expect the other four million to be funded over the next 12 months,” Mr Gunne added.

Executive chairman, Stephen Vernon said that the “golden period” of returns for Irish commercial property is probably over, and that Green Reit is unlikely to see another year of 24 per cent growth.

He added that, based on current prices, he is not “terribly optimistic” that the company, which has bought 24 properties since it floated two years ago, will find more acquisitions.

However, if it does, analysts say that it should have the funds to do so. The company had cash on hand at year-end of € 37 million and its debt amounted to 9.5 per cent of its assets, up by 3.3 per cent on 2014.

Davy Stockbrokers estimates that Green has capacity of about €350 million to invest into its development projects and any acquisition opportunities that might arise.

Both Mr Gunne and Mr Vernon stressed on Monday that the company is now focusing on managing its existing offices and completing work on those under development.

Green also intends to to keep its debt-to-assets ratio conservative, 25 per cent rather than 35 per cent. Completing the purchase of One Albert Quay in Cork and the cost of the development projects now under way is likely to increase its current ratio considerably.

Pre-tax profits rose to €156.7 million from €43 million in the same period in 2014, as rental and related income soared from €12.2 million in 2014 to €45.9 million. Green Reit said it will pay a dividend of 1.6 cent per share in the fourth quarter of 2015, a total dividend of € 10.5 million.

Green’s portfolio now comprises 24 properties with a Dublin focus (95 per cent by portfolio value), including Central Park in Leopardstown. Mr Gunne said that the fund is now moving from the portfolio assembly stage to the active management and development phase.

“The Irish commercial property cycle has advanced significantly since our inital public offering in July 2013, as witnessed by our full year results. Maintaining leverage ratios at below industry average and closely monitoring the Dublin development cycle, as we aim for early participation, are central to our strategy of delivering attractive risk adjusted returns,” Mr Vernon said.

Green Reit plc

Net Asset value: €899.3 million +23.6%

Net profit: €156.7 million +264%

Earnings per share: 23.5 cent +89.5%

Dividend: 1.6 cent per share