In a detailed report into the sector, Goodbody opened its coverage on both Green REIT and Hibernia REIT by placing ‘buy’ recommendations on both stocks and 12-month share price targets of €1.50 and €1.32, respectively.
Green REIT closed at a price of €1.24 last Thursday, while Hibernia REIT closed at €1.01.
Goodbody analysts Eamonn Hughes and Colm Foley said the introduction of REITs as an investment model offers exposure to an Irish property market in growth mode.
“In our view, the opportunity for capital accretion and rental growth is significant in this cycle, particularly the latter. This is underpinned by domestic demand returning to growth in 2014, continued strength in foreign direct investment, and credit starting to become available, compounded by supply imbalances in the short to medium term. REITs, a new asset class in Ireland, provide direct exposure to the property market upturn,” they said.
While REITs have existed as an asset class in the US and Australia for some time, they are still relatively new in Europe and were only made possible here after legislation proposed in Budget 2012.
Last week’s listing of the Canadian-owned Irish Residential Properties REIT showed that the appetite is there.
The Goodbody report forecasts that both Green and Hibernia REITs — will be fully invested by the start of 2016 and could be paying dividends of 8.2c and 6.8c, respectively, within five years.
Green has invested over €513m on buying assets from the likes of Nama and Danske Bank, while Hibernia has invested €128m (34% of its IPO proceeds).
Goodbody said: “While not all of this is obviously ‘for sale’, Nama, Certus/Lloyds Ireland, Ulster Bank, and Danske are all in deleveraging mode in addition to the IBRC winddown. In addition, decomposition of portfolios may, in due course, throw up further investment opportunities for investors like the REITs.”