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Memo To REIT Chief Execs: If The Stock Market Undervalues Your Company, You Should Sell It

Pat Gunne, Green REIT Chief Executive
Green REIT Chief Executive Pat Gunne

During periods when the shares in listed property companies trade at a discount to the value of the company’s assets, REIT chief executives often spend time complaining that public markets undervalue their assets. But few, in Europe at least, take it as an opportunity and put the company up for sale to find a buyer willing to pay a premium to the share price.

But that is what Ireland’s Green REIT has done. It has appointed JP Morgan and CBRE to find a buyer for the company, in a sale that will test the appetite for Dublin real estate.

Green said it put the business up for sale because the company's shares have traded at a persistent discount to net asset value for about three years. Before the announcement of the sale its shares were trading at €1.50 against a net asset value of €1.83 a share, or a discount of about 18%.

On news of the sale process its shares rose 6% to €1.62. Green’s shares peaked at €1.66 in March 2015, at which point they were trading at a 28% premium to its net asset value per share.

Shares trading at a discount to NAV implies that public markets think a company’s assets are overvalued. But the value of Green’s assets rose by €22M in 2018, while Dublin offices in general rose by 3%.

It is not clear whether the veterans who set up Green, Stephen Vernon and Pat Gunne, will stay on after any sale — the company said that any buyer could keep the management on or sever the company’s contract with them.

Green is not the only listed company that invests in European real estate undertaking a sales process. Northstar Realty Europe appointed Goldman Sachs to run a strategic review of its $1.3B pan-European portfolio because its New York-listed shares trade at a discount to NAV. AXA and Schroders are among the bidders for the assets, according to Bloomberg.