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3Q 2019 passive income: IREIT Global.

Wednesday, October 2, 2019

I shared my passive income numbers in my last blog and also revealed that I significantly increased my investment in IREIT Global.

Now, I will explain why I chose to increase my investment in IREIT Global in 3Q 2019:

1. It seems to me that the negative interest rate will persist for some time to come as ECB just made it even more negative recently which means that IREIT Global's low cost of debt will remain low and, if we recall, the REIT actually refinanced at a lower interest rate of 1.5%, down from 2% not too long ago.

See:
ECB negative interest rates deepen.






2. Although the REIT used to have a relatively high gearing ratio which might have worried some investors, it has come down to 36%, but I have said before that what was more important was its interest cover ratio which was very healthy

Now, related to point #1 on deepening negative interest rates and refinancing at a lower interest rate, IREIT Global has an even higher interest cover ratio of about 11x which, if I am not mistaken, no other REIT here is able to match and compared to gearing ratio, this matters more.





3. CDL bought a 50% stake in IREIT Global's manager earlier this year in April and they also bought a big chunk of IREIT Global itself at around 75.5c a unit, if I remember correctly, which we could use as a guide as to what CDL might have thought as a fair price to pay for an investment in IREIT Global.



4. With CDL and Tikehau (the joint-owners of the REIT's manager) having relatively meaningful stakes in IREIT Global aligns their interests with those of other, including minority, unit holders which helps to give me assurance that they would most likely not do anything value destructive as they would end up harming themselves too in such an instance.





5. The original 8% distribution yield requirement was based on a 100% payment of the REIT's distributable income but the REIT has been paying out only 90% which reasonably means a 7.2% distribution yield today would be the lowest that is acceptable to me. 

Any higher distribution yield simply makes the REIT more attractive which was very much the case when I added to my investment as its unit price plunged in 3Q 2019.

I shall not detail the REIT's numbers, portfolio and future direction here because the REIT did a presentation to investors just last month and the slides can be accessed on their website. 


Look for:
SGX-DBSV-REITAS Corporate Day Investor Presentation In Bangkok. 

(Published on 5 Sep 19.)





I believe that IREIT Global has great potential and it seems that conditions are right for it to grow.

Of course, I do not know for sure whether the new management team is going to grow the REIT but it is a reasonable assumption that CDL would not have invested so much in the REIT if they had expected it to stagnate. 


To be quite honest, the status quo is not all that bad either as IREIT Global is a relatively stable and attractive investment for income in the S-REIT universe.






By having a much larger investment in IREIT Global which has shown reliability and predictability in its DPU over the years, the income investing focus of my portfolio should strengthen and this should result in higher passive income generation in the future.

For those who might have missed it, I am providing the link to my passive income numbers for 3Q 2019 below.

Related post:
3Q 2019 passive income: Numbers.

12 comments:

Invest Sg said...

Hi AK, thank you for posting on IREIT. Happy to have nibbled a little around CDL price too :)

AK71 said...

Hi Invest Sg,

So important to be happy. ;)

Eddy said...

https://www.businesstimes.com.sg/companies-markets/cdl-pays-s777m-for-124-of-ireit-global-and-50-of-trusts-manager

Thanks for heads up, AK! ���������������� “)

AK71 said...

Hi Eddy,

What did I do?

I am innocent.

Really, I am.

O_o

Joe said...

Hi AK,

Has your sentiments towards IREIT change over the course of the last few months ? Picked up quite abit of this reit as it go down for what i believe is long term value.

AK71 said...

Hi Joe,

I have been adding to my investment in IREIT Global.

From a TA perspective, I should be waiting and not adding.

However, I just could not resist nibbling as its unit price plunged fast and furious.

I have been careful not to use the funds in my war chest yet as there is still no sign of IREIT Global bottoming.

When the COVID-19 situation is history which one day it will be, IREIT Global will still be around to generate income for us. ;)

Joe said...

Hi AK,

IREIT was not in my plans initially but couldn’t help nibbling when it went down so fast. Glad to know that you felt the same way. Time to focus on my banks and comfort stocks 😁

AK71 said...

Hi Joe,

Yeah, I know the feeling. :D

The local banks and ComfortDelgro are definitely on my shopping list. ;p

JH said...

Hi AK

Mr Tong had been selling for the past week, would this be an opportunity or risk signal? Thanks for talking to yourself again ;)

JH

AK71 said...

Hi JH,

I think he needs the money, maybe. ;p

Kidding. :D

I don't know why he is selling. :)

Elaine said...

Hi AK

Outrage in Germany as Adidas, H&M halt rent payments! Oh my, can like that one ah! Big companies using their muscles for no-good.

https://www.straitstimes.com/business/companies-markets/virus-closures-outrage-in-germany-as-adidas-hm-halt-rent-payments

Wouldn't it be scary if more follow suit?

AK71 said...

Hi Elaine,

Extraordinary times.

Extraordinary behavior.

-.-"

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