Hibernia Reit shares drop as CEO sees ‘softening’ business sentiment

Shares in Hibernia Reit dropped by as much as 2.1 per cent on Tuesday as the property group's chief executive highlighted that Irish consumer and business sentiment has "softened" in recent months, while some small firms have been holding off on leasing space amid uncertainty over Brexit.

Commenting as the company unveiled interim results, Kevin Nowlan also noted that a move in Budget 2020, unveiled last month, to increase stamp duty on commercial property transactgions to 7.5 per cent from 6 per cent knocks about €22 million, or 1.6 per cent, off the value of its portfolio. The rate was trebled two years' ago from 2 per cent.

“To keep tinkering with things like this cause credibility issues long-term for the Government, particularly when it’s intent on attracting capital into the country,” Mr Nowlan told The Irish Times.

While legislation paving the way for real-estate investment trusts in 2013 left Reits exempt from capital gains tax on property value increases in their portfolios, Minister for Finance Paschal Donohoe clamped down on this benefit in the latest budget in cases where trusts are sold off the stock market within 15 years of being set up.

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This amounts to a “latent tax” for any bidder and would reduce the price it would be prepared to pay to buy Hibernia Reit, the company said. Still, Mr Nowlan said he has no intention of following in the footsteps of rival Green Reit, which put itself on the market in April and is currently in the process of being sold to UK property firm Henderson Park for €1.34 billion.

Hibernia Reit said in its interim report that it increased its dividend for the six months through September by 16.7 per cent to 1.75c per share as its rent roll increased on the back of new lettings and rent reviews.

Annual contracted rent rose by 7.6 per cent to €62 million during the period from March to the end of September, it said.

The value of its portfolio edged 0.6 per cent higher during the six months to €1.42 billion, though its total property return for the period of 2.4 per cent underperformed the MSCI Ireland Property Index's 3.1 per cent return.

The company had unlet space with an estimated rental value of €7.8 million at the end of the period, while its office vacancy rate stood at 12 per cent, unchanged from March.

While Mr Nowlan said that there was some evidence of smaller occupiers - including accountancy and solicitors firms - “deferring decisions on leasing space”. The CEO said that he expects this to ease as a “long-term solution” to Brexit emerges.

“Hibernia Reit’s results highlight a developing income story with earnings ahead [of expectations] and dividend growth delivered,” said Goodbody Stockbrokers Colm Lauder, adding that the stock is trading at more than a 20 per cent discount to its estimated net asset value.