Wexboy
29 Dec 2016
TGISVP - Green REIT 2016 – The Great Irish Share Valuation Project (Part IV):Company: Green REIT (GRN:ID)Last TGISVP Post: HereMarket Cap: EUR 926 MillionPrice: EUR 1.341Back in 2014, I pegged Green REIT’s fair value equal to its initial EUR 0.967 NAV. Looking at the share price today, that might seem like an awful call…but I’d disagree. Because GRN’s a good example of a mistake too many investors make: No matter how confident you might be about a company’s prospects, overpaying doesn’t just reduce or even eliminate your margin of safety, it may also rob you of expected future returns. Case in point: While I expected Green’s NAV (& in turn, my fair value estimate) to appreciate, I’m impressed to see a total NAV return (inc. dividends) of almost 60% (18.6% pa) here since early-2014! Unfortunately, investors were happy to pay up at the time, so they must look back & reference a EUR 1.20 market price (which inc. a significant NAV premium) for performance purposes. Almost inevitably, that premium’s now evaporated, leaving GRN trading at a discount…so instead, shareholders barely realised an 18% gain (6.1% pa, again inc. dividends), less than a third of the underlying NAV return! On average, you’d expect a better return from the market itself (in fact, the ISEQ was a far better bet)…so much for capitalising on a great stock/story!?Overall, my valuation perspective hasn’t changed. Prime office yields in Dublin have moved lower (4.65%, per latest CBRE updates), with Green REIT close behind on a 5.2% portfolio yield. Obviously, Brexit presents a potential economic threat (& has clearly knocked sentiment)…but then again, the harder the Brexit, the more attractive Dublin likely becomes as an EU relocation/investment destination. And GRN looks well placed anyway, with 93% of its portfolio focused on Dublin, a 98% occupancy rate, and total gearing of just 19%. Applying a 1.0 Price/Book multiple, and adjusting for the recent annual dividend payment, we get
EUR 1.52 Dil EPRA NAV – 0.046 Div) * 1.0 P/B = EUR 1.47Green REIT looks marginally under-valued here. And I don’t consider the recent NAV discount swing cause for alarm – experienced investors should be used to a 10-20% premium/discount appearing on a regular basis, presuming underlying NAV looks realistic (which it does, based on current yield/other metrics). However, progress will be tougher from here on – not to denigrate the Irish REITs, but gains to date were primarily derived buying in bulk from the banks & NAMA at 7-8.0% yields & then progressively marking down portfolios towards a 5.0% yield. More active portfolio management, reversionary rent potential & development opportunities/gains will now become far more important. But despite this recent (& extraordinarily biased) Phoenix article, shareholders here can draw comfort from having Stephen Vernon as Chairman (of GRN’s Investment Manager) – his reputation in the Irish property market precedes him…Price Target: EUR 1.47Upside/(Downside): 10%For related links/graphs/files & other TGISVP analyses/price targets: Google the Wexboy investment blog.
