Green Reit portfolio puts company in prime position for post-Brexit world
Green Reit chief executive Pat Gunne has said that it's too early to make any calls on the potential benefit for Ireland of the UK's decision to vote in favour of Brexit, or the implications for foreign direct investment (FDI) of the European Commission's €13bn Apple tax ruling.
Speaking to the Sunday Independent, along with his management team partner Stephen Vernon, following the release of Green Reit's annual results last Monday, Gunne said it was premature to form a view on either issue, given the uncertainty and complexity surrounding Brexit, and the absence of detail in the case of the Apple ruling.
While acknowledging Brexit was a "key question" for UK analysts and for Green Reit's shareholders, he said: "The key point we're trying to get across is that it's quite premature [to talk about companies relocating to Ireland].
"Ultimately, you've got uncertainty around the timing of Article 50 [of the Lisbon Treaty] being invoked [by the UK government]; you've got uncertainty in terms of how many jobs are going to be at issue in terms of accessing the EU passporting rights, and then you've got further uncertainty on the allocation of jobs within Europe, never mind within Ireland."
Asked for his views on the potential impact on the future flow of FDI into Ireland arising from EU competition commissioner Margrethe Vestager's ruling that Ireland had granted illegal state aid amounting to €13bn to Apple, Gunne didn't seem overly concerned.
"Like anything on the tax side, it's premature [to form an opinion]. There's not enough detail coming forward. And on the Apple case, it's being appealed, and an investigation on it had been launched at the time of our IPO, so I think it's been a discussion point for the last 10 years and will be for the next 10 years," he said.
Both Gunne and Vernon were more definitive, however, on Green Reit's performance since its 2013 launch on the Dublin and London stock exchanges, and on its current strategy and future direction.
Vernon is particularly pleased with Green Reit's numbers. With a €1.24bn portfolio valuation, the company has managed to deliver profits of €145m, a performance which equates to about 21.5 cent per share.
Referring to Green Reit's borrowing levels, Vernon said: "Our gearing is within where we wanted it to be. We thought 25pc would be a good level; we're at 19pc now but we've got development expenditure to go out. But we've modelled [it] so we'll stay within the 25pc, given that we've done some sales and we've had some NAV (Net Asset Value) growth."
"On the two main metrics; NAV analysis shows that we're up to €1.52 which is a 15pc increase year on year in NAV per share while our earnings are 3.7 cents per share; that's about 137pc of an increase which allows us to move to the key point which is the dividend."
Commenting on the strength of Green Reit's dividend relative to its peers, he said: "We're able to declare 4.6 cents per share which is about a 3pc dividend. That compares with a global Reit dividend average of about 2.5pc. We're making serious progress on our original commitment to drive it up to between 2.5pc and 4pc.
"That assumes income from the developments which we haven't yet got, but we still managed to get to 3pc. It's kind of a coming of age for us as a Reit, because Reits are very much about dividends."
Taking up the matter of Green Reit's strategy, Gunne said: "The big focus for us has been on managing our own portfolio and extending the security of incomes from our tenants. If you look at our top 30 tenants which account for 80pc of our rent roll, 75pc of that rent roll is from international covenants and our average unexpired [lease] term with those tenants is up to 7.9 years.
"So in overall terms of within the portfolio, we've increased the term by 56pc. That's a good place to be given that we've another €250m in end value going through the speculative development process. We're anticipating a return on capital of 39pc."
Highlighting the relative shortage of investment grade property coming to the Irish market relative to the amount of capital coming in, Gunne expressed satisfaction at the quality of the Green Reit portfolio, noting that the ratio of its prime to secondary assets had gone from 72pc prime to 28pc at the end of June 2015 to 93pc prime and 7pc secondary at the end of June 2016.
Asked if Green Reit was considering further acquisitions, Vernon told the Sunday Independent: "We're inherently opportunistic investors. We look in the market, but I have to say in recent times, we haven't seen too much that would actually really attract us at current pricing levels."