Housebuilder Cairn Homes’s seemingly insatiable appetite for land deals – and calls on shareholders for cash to help fund them – seem to be at an end for the moment at least.
The company floated in June 2015 after raising €440 million, and subsequently brought its total investment from investors to €720 million, as it opportunistically acquired assets such as residential property loans from Ulster Bank and, in recent months, a prime site at RTÉ’s Dublin 4 headquarters.
"We're very happy with the size and scale of our land bank today and what we paid for it, so we're unlikely to – unless something extraordinary happens in our sector that we'd have to react to – be going back looking for more capital," Cairn chief executive Michael Stanley said at a press conference on Tuesday accompanying the company's first-half results.
The fledgling company expects to be churning out cash at pace from next year as its house sales reach 850 – more than double its target for 2017 and a multiple of its 105 completions in 2016.
“It is more likely, as we become cash-generative, we’ll look to return dividends, etcetera, to our shareholders, but it would be too early to come out with specific numbers on that – or timing,” Stanley said.
Land bank
After building up a Dublin-centric land bank capable of delivering 12,700 homes – with a net development value of €4.25 billion, split 70:30 between houses catering mainly for first-time buyers and high-end city apartments – Stanley signalled Cairn had more than enough to be getting on with.
Meanwhile, the company raised more than €14 million in the first half selling unwanted land, mainly subscale plots acquired as part of the €378 million Ulster Bank deal, which closed last year. It has a further €40 million of further non-core land earmarked for sale over the next 18 months.
Cairn pitched the flotation to investors a little over two years ago on the basis that it would give a well-capitalised housebuilder a once-in-a-lifetime opportunity to buy development land at low prices from “unnatural owners”, such as banks, who were left holding the assets as a result of the crisis.
But, if anything, the supply-demand imbalance since then has grown, as the industry – grappling with limited access to bank funding, lapsed planning permissions and rising development costs and regulations – has so far failed to ramp up supply. The Construction Industry Federation projects that the sector will deliver 18,000 units this year, up from 12,666 in 2015, but about half of estimated demand.
The opportunity couldn’t be better for a well-funded housebuilder such as Cairn.
Shares in the company rose as much as 1.2 per cent on Tuesday to an all-time high of €1.74, valuing it at almost €1.33 billion. However, Cantor Fitzgerald analysts cautioned that a recent surge by the stock leaves it trading a premium to "what the market believes is fair value" and that its clients should look elsewhere for opportunities, for the moment, at least.
