Rental income likely to stagnate at State’s largest landlord, says report

Growth in rental income at the State’s largest landlord is likely to stagnate this year, while building projects will be delayed due to the Covid-19 pandemic, according to a new report.

The report from Investec noted that recent half-year results for Ires Reit revealed a resilient operating performance in light of unprecedented challenges. Rent collection was 98.4 per cent, while occupancy appeared unaffected at 98.9 per cent on a like-for-like basis.

The stock has rallied 49 per cent from its low and 32 per cent since Investec’s last update, and the group said it was maintaining its “buy call” to potential investors.

However, net rental income margin was impacted by higher costs associated with the pandemic and, at 79.2 per cent, dropped below 80 per cent for the first time since early 2017.

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Portfolio valuations also took a hit, and the 2 per cent decline in the half-year translated into a 3.2 per cent fall in net asset value in the period.

Market indicators have been “relatively reassuring”, however, and suggest the impact on market rents has been limited to date, while it is “difficult to see any impact” on residential capital values at this stage.

“Although we are mindful that the full effect of the hit to employment and earnings may take time to emerge, the strong underlying demand for housing will persist and work against any downward pressure,” the report said.

Investec said it was “comfortable” with its forecast for 0 per cent like-for-like rental growth in 2020, and now assumes that rents will also remain unchanged next year.

Ires’ portfolio average monthly rent was effectively unchanged in the first half of the year at €1,599.

The standardised average rent in Dublin in the first quarter was €1,735 per month, while the average asking rent in Dublin in July was €2,030 – respectively 9 per cent and 27 per cent higher than Ires’ average rent.

Reassurance

“While this under-renting will be difficult to capture given the presence of rent-setting restrictions, it provides reassurance about the resiliency of Ires’ average rent should market rents come under renewed downward pressure,” said Investec.

Forecasted rental income from next year is also reduced by the prospective disposal of 151 units across nine properties which is aimed at improving operational efficiencies.

Assuming an average monthly rent at these units of €1,500 reduces gross rental income by €2.7 million (3.6 per cent of total) in a full year.

Looking further ahead, the report said it was clear that Ires’ development projects would not come on stream as soon as previously envisaged.

In line with construction activities across the economy, Covid-19 has caused delays to Ires’ active sites, including Bakers Yard (61 units now expected to be delivered at end-2021) and Merrion Road (69 units with expected delivery in 2022).

Ires has further growth opportunities via new developments which have yet to break ground, most notably at Rockbrook where planning permission was granted for 428 units in August 2019.

“However, a timeframe for the commencement of this development has not been indicated by the company, and we now do not expect these units to be delivered before the second half of 2023,” the report said.