One of the fastest growing economies in the developed world, Ireland’s GDP (gross domestic product) grew by 3.4% in 2020 despite the COVID-19 pandemic and although the outlook for the Irish property market was bleak in the beginning of 2021, things have turned around. Strong demand along with a scarcity of homes in the market has driven up residential property prices across the country, with these now 11.1% higher at a national level and 9.4% higher in Dublin than they were in June 2020.
Likewise, Irish REITs also suffered amid the pandemic, yet, traditionally, these are considered stable assets, delivering competitive total returns based on high and steady dividend income and long-term capital appreciation. For instance, while the S&P 500 achieved average returns of 9.07% over the three years to 2021, the FTSE NAREIT Equity REIT Index’s reruns were 11.25%. What’s more, their relatively low correlation with other assets makes them an excellent alternative for diversifying your portfolio.
A popular way to gain exposure to the housing market, here we nosedive into REITs and take a look at top Irish REITs that underpin the strength of the country’s economy and have much to offer.
What are REITs?
A REIT is a real estate investment trust and it is essentially a company that owns, operates or finances income-producing real estate. This income may come from the properties themselves, from debt or mortgages and such loans, while they invest in all sorts of real estate properties or related assets be it commercial properties like office buildings, shopping malls, hotels, resorts, warehouses and self-storage facilities or residential real estate, such as houses or apartment buildings. However, unlike other real estate companies, a REIT doesn’t develop real estate properties to resell them. Instead, it develops properties with the primary goal to operate them as part of their own investment portfolio.
Serving as an easy way to own a share in income-producing real estate, through a REIT you can invest in a large-scale real estate without having to actually purchase that property. Traded just like stocks, they are often selected by those who are looking to boost their portfolio’s yield since they often distribute a large chunk of their taxable income in the form of dividends, providing investors with a steady stream of income. At the same time, seeing that they enable retail investors to access real estate in the same way they would any other financial market, this means that they offer the opportunity to diversify their holdings.
How do REITs work?
In order for a company to qualify as a REIT, it must fulfil certain specific requirements. Here are some of these:
- Must hold at least 75% of its total assets in real estate.
- Generate around 75% of its income from rent, interest and sales from real estate.
- Pay at least 90% of its taxable income to shareholders each year.
- Should be managed by one or more trustees or directors.
- Have at least 100 shareholders, with no more than 50% of its shares held by five or fewer individuals.
What are the advantages of investing in REITs?
While REITs often offer lower yields compared to corporate bonds for example, only 50% of the returns for the REIT investor comes from income, since the other 50% comes from capital appreciation. As a result, REITs can be an appealing investment, particularly for those that can handle the risks.
Here are some more benefits:
Liquidity – shares of publicly listed REITs are readily traded on major stock exchanges, so they are an ideal means of eliminating liquidity risk.
Long-term performance – similarly to stocks, REITs have the ability to provide long-term total returns.
Stable dividend yields – REITs offer a steady stream of income through a variety of market conditions.
Diversification – with access to the real estate market typically in low correlation with other assets like stocks or bonds, REITs offer instant diversification.
What are the disadvantages of investing in REITs?
As mentioned above, seeing that REITs are traded on the stock market, they carry similar risks to stocks. Real estate prices can rise and fall due to several factors, underlying fundamentals and a variety of other market forces, so REITs will reflect any weaknesses on prices. And while generally speaking, REITs have offered long-term and good returns, there have been instances when this was not the case. For example, when the real estate bubble burst in the U.S. between 2007 and early 2009, the price of shares in the iShares Dow Jones U.S. Real Estate ETF dropped a staggering 72%, from a high of $61.04 on January 4, 2008 to $25.14 on February 27, 2009. At the same time, they can produce negative total returns when interest rates are high or are rising. In contrast, when rates are low, investors tend to move out of safer assets to find income in other market areas, such as real estate.
What are the different types of REITs?
REITs tend to focus on a specific part of the sector as follows:
- Residential – these consist of residential properties such as houses, apartments and other buildings, as well as modular houses and they generate money through rental income and sales.
- Retail – these REITs centre on shops and other retail units, while the make an income from the rent charged to businesses.
- Office space – these include office buildings and they generate income through the rent collected from long-term leases.
- Healthcare – a handful of REITs focus on healthcare, in other words, real estate like hospitals, medical centres and nursing homes, while they make money through operations and occupancy fees.
- Mortgage – these invest in mortgages and they are often known as mREITs, whereby they use mortage or loans directly or mortgage-backed securities (MBSs) indirectly.
Having said that, not all REITs are highly specific. Some can be quite diversified, owning a combination of two or more types of properties, such as for example, a combination of retail centres and office buildings.
Top Irish REITs
Hibernia REIT p.l.c. (HBRN)
One of the largest REITs in Ireland, with a portfolio valued at €1.5 billion, Hibernia owns and develops property, mainly of a commercial nature in the Irish Dublin market, while it specialises in city centre offices. It operates through six segments, namely Office assets, Industrial assets, Residential assets, Office Development assets, Central assets and costs, as well as other assets, while some of its well-known projects include, The Forum, One Dockland Central, the Hanover Building, Marine House, Cannon Place and many others. With a portfolio mix of both redevelopment properties held for income and assets held for future repositioning, Hibernia upgrades buildings or delivers new ones, a move that helps grow its income through active asset management, while it also recycles capital by selling assets with limited future potential and reinvests in property with future redevelopment opportunities.
A recipient of numerous accolades, the company has been awarded the Best Practices Recommendations for both sustainability and financial reporting on numerous occasions by the European Public Real Estate Association (EPRA), while in 2017, it joined forces with Twitter to repurpose the offices at Cumberland Place. Eventually, the company was awarded a LEED Platinum award.
Hibernia appears to be little affected by the pandemic, which according to the company this is due in part to certain actions it has taken during the last three years, such as selling some assets and completing the majority of its active development pipeline, which meant that Hibernia ushered the COVID-19 crisis period with low leverage, a strong tenant base and little current development exposure.
It also managed to turn a profit. For the six months ended 30 September 2020, the company’s revenues increased 12% to €33.3 million and just like any REIT, its main income comes from Funds from Operations (FFO). By 2019, its FFO was that of €39 million, which made up 85% of its gross profit. This means that the majority of its earnings aren’t just high-quality, but they are also recurring. And the momentum has carried on into 2021. Some notable gains for the year so far ending March 31, 2021 include strong rent collection rates of 99%, while annual contracted rent stood at €67.1 million in March of this year, up 2.2% since March of 2020. As a result, thanks to an increase in rental income, the EPRA EPS so far is that of 6.3 cent, up 13.4% from last year.
And while the company’s stock was trading at £75.56 on March 20, 2020 on the London Stock Exchange during the height of the pandemic, shares have since been on an upward trajectory, trading at £112 on July 13, 2021. Hibernia is also a leading dividend payer, making it an appealing investment. According to the latest annual report, the company has proposed a final dividend per share of 3.4 cent, taking the total in respect of the financial year to 5.4 cent, an increase of 13.7%.
Interested? Head over to Moneybase Invest to add HBRN to your portfolio.
Yew Grove (YEW)
A REIT that centres exclusively on Irish Commercial Property, Yew Grove is the only one that also specialises in commercial property outside of Dublin, an uncharted market which has the potential to provide great returns. With a strategy and business model to invest in office and industrial buildings attractive to both multinational companies and government bodies and an investment process that is driven by local knowledge, tenant requirements, commercial property trends, macroeconomic trends and foreign direct investment (FDI) patterns, Yew Grove’s portfolio valuation stands at €141.9 million, up from €115.8m at the end of 2019.
Another REIT that has managed to hold strong despite the pandemic, Yew Grove experienced 100pc rent collections for both the final quarter of 2020 and the first three months of this year according to annual results from the company. In fact, it has seen rents increase by over 15pence in the past two and a half years, particularly in its regional properties, while it expects its rent to increase by a similar amount outside of Dublin over the next two years. Yew Grove’s properties benefit from attractive leases, with about two-thirds of its rent coming from multinationals, while a further 26 pence of rent originating from the Irish government and other state bodies. The remaining 4pence comes from large businesses.
A dividend paying REIT, Yew Grove offers a consistent and sustainable quarterly dividend. On June 30, 2021 the company announced a dividend of €1.30, an increase from the previous dividend payout which stood at €1.25.
With nothing stopping it from building a rich portfolio, so far 2021 has proven to be a busy year as the company has made a number of commercial property purchases. In May, Yew Grove bought an industrial building in Dundalk, as well as two office properties in Dublin for a combined total of €19 million. In Dundalk, the recently constructed industrial building of 86,451sq ft known as Tanola House was acquired for approximately €8 million, with a current annual rent of €601,000, which is expected to increase to €631,000, representing a net initial yield of 6.9% and increasing to 7.3%. Meanwhile, the two office properties in Dublin were purchased for €11 million and are already fully tenanted by three multinational tenants paying a current annual rent of €984,000, which represent a new initial yield of 8.2%. The purchases are not only set to diversify the REIT’s portfolio even further and increase its properties to 24 with a gross asset value of about €162 million, but the move is also anticipated to boost trading activity.
It’s time to buy Yew Grove (YEW).
Irish Residential Properties (IRES)
Ireland’s largest private landlord with over 3,688 properties under its belt and a portfolio valued at €1,380.4 million, Irish Residential Properties is a multi-unit residential letting company and REIT, with a strong focus on the Dublin property market, as well as that of other major Irish urban centres. As a growth-oriented REIT, it is focused on acquiring, holding, managing and developing investment primarily centred on private residential rental accommodations.
With 98.4% occupancy as of December 31 2020, Irish Residential Properties is a heavyweight at what it does. Despite the ongoing pandemic, the company delivered continued growth for much of 2020. Rental demand remained strong across its portfolio, which reflects its resilient operating performance. Residential rent collections rates were stable at approximately 98.9% for the year, with the average monthly rent per unit at €1,624, representing an increase of 1.8% driven by the addition of new units at market rates. What’s more, the company marked an 18.3% increase in net rental income at €59.8 million thanks to the completion of the 2019 Marathon acquisition and the further addition of 173 new units during 2020. Meanwhile, adjusted EPRA EPS increased to 7cents.
A constituent member of the ISEQ 20 and with listings on the Euronex Dublin and a secondary one on the London Stock Exchange, the company floated on the Irish Stock Exchange in 2014 and was largely funded by the Canadian listed company CAP REIT whose subsidiaries still manage the company. With a market cap of Є849,58 million on July 21, 2021, since the stock market crash in March of 2020, Irish Residential Properties REIT’s share price has had significant positive movement. Currently trading at €1.59, this is far higher from its lowest point reached in March of 2020 when shares fell as low as €0.9.
With an attractive portfolio delivering sustainable long-term returns, resilient financial and operational performance and a clear investment and growth strategy, the company is well positioned to generating value for investors.
Click here to buy Irish Residential Properties (IRES).
How to invest in Irish REITs?
Ready to buy one of these top Irish REITs? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.
- Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
- Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the company name or ticker symbol.
- Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
- On the New Order page hit the Place Buy Order. The REIT has been added to your portfolio.
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