Ireland Gears Up For A Second IPO Gold Rush
Like a phoenix rising from the ashes, Ireland’s property market is buoyant once again, with interest from investors around the world.
As a result many companies are examining whether to float new companies on the stock market in the hope they can tap into investor appetite in Irish property.
Last week, York Capital, a U.S. hedge fund, announced plans to float its Irish subsidiary, Core Industrial REIT, on the Irish ESM and U.K.-based AIM stock exchanges in March.
Other companies will be looking to follow the example of York, and those in the first wave of REITs like Green and Hibernia, while the economic forecast is positive for Irish real estate.
One company being closely monitored as a potential initial public offering candidate is Sigma Retail Partners.
With eight major retail parks in their portfolio worth €300M, the company has a retail presence across Ireland.
Sigma Retail Partners Managing Director Marcus Wren said, "There is a lot of speculation at the moment ... I can't confirm or deny it."
Research from CBRE shows the retail industry performed well in 2017 with continued strong demand this year on the best retail high streets, shopping centres and retail parks throughout the country.
Ireland vs U.K. and Europe
The confidence and desire to invest in Dublin and Ireland can be seen with Green REIT and Hibernia REIT, both of which were floated on the stock market in 2013 and are now trading at an average discount to net asset value of about 5%.
According to listed company research specialists Green Street, U.K. listed companies trade at roughly 10% discount on average. For closer U.K. peers such as British Land, Landsec, Great Portland and Derwent London the average discount is about 18%.
“Investors are posting more confidence in Ireland than the U.K.,” Green Street Managing Director Hemant Kotak said.
In addition to trading at smaller discounts both REITs have better shareholder returns than the wider property market. According to Green Street Advisors, since 2013, Green REIT has generated 41%, Hibernia has generated 40% and the wider property sector has only managed 25%.
“Dublin office REITs still have the edge over European peers with Hibernia and Green still in a NAV growth phase of approximately 5%,” Goodbody Analyst Colm Lauder said.
Goodbody predicts NAV growth for Irish REITs will continue through 2018 and 2019 as development profits feed through. NAV growth will be further boosted by another year of stable rents and asset specific yield compression. “This prolongs growth in the cycle where previously we had expected a degree of moderation to occur,” Lauder said.
Goodbody research also shows that Irish REITs NAV growth will be higher than European and U.K. counterparts with EPRA Europe generating 4.1% growth in 2018 and EPRA U.K. generating 1% growth in comparison to Green’s 4.7% and Hibernia’s 5.1%.
According to Kotak, the benefits of going public are twofold; access to a constant stream of capital and the ability to trade at premiums when the market is doing well.
“Companies are then able to raise new equity at a premium, it has a positive impact on the NAV and it affords them the ability to grow,” Kotak said.
Many concerns that investors would normally have are not a big concern in Ireland's property market.
“There is volatility in the market but investors take comfort in the fact that institutional developers are less willing to develop speculatively and developers' leverage levels are nowhere near the levels we saw before the crash.”
“These two together plus the positive macroeconomic outlook gives a reassuring look forward basis for investors,” Kotak added.
Commenting on York Capital’s move to float Core Industrial REIT on the stock market, Lauder said that the older, less valuable stock in the portfolio may not do as well on the market as some of its rivals.
“The granularity (small lot sizes) of the Core portfolio has surprised us," he said. "These will be predominantly lower-grade, older assets, often with outdated access options, potential structural and environmental issues associated with older stock, and generally higher risk tenancies. The ability to scale-up seems limited given the small market size.”
With such a positive economic outlook and the success stories of the REITs, IPOs could become a common move for property companies with Irish assets.