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IREIT Global is going to Spain! Excelente!

Sunday, December 8, 2019

In early October, I shared my reasons for significantly increasing my investment in IREIT Global.

In that blog, I also said:

"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."

Well, IREIT Global is growing.

Yesterday, on 7 December 2019, IREIT Global did a presentation on a proposed acquisition of office buildings in Spain.

It is a portfolio of four freehold multi-tenanted office buildings in Spain, two in Madrid and two in Barcelona.

A joint venture between IREIT Global and Tikehau Capital, the REIT will have a 40% interest.

Total cost of IREIT Global's 40% interest in the joint venture is 57.6 million Euros.

IREIT Global will be funding the purchase of its share initially with the help of a bridging loan from CDL.

The loan has a tenure of 18 months and bears an interest rate of 3.875% above EURIBOR per annum.

Although EURIBOR rates are negative, the effective interest rate of the bridging loan is still pretty high.

I estimate it to be about 3.6%.

12 months EURIBOR rate is now negative 0.269%.

Source: EURIBOR rates

I feel that the bridging loan is pricey but it is the price we pay for speed as it has been stated that the acquisition requires speed and execution certainty.

No dilly dallying, please.

Buy it before someone else does kind of thing.


Anyway, IREIT Global will have to look into refinancing the bridging loan once the acquisition is a done deal.

The REIT should be able to secure a loan with a lower interest rate.

After all, the REIT actually refinanced at a lower interest rate of 1.5%, down from 2% not too long ago.

Moving along.

As an investor for income, I am particularly curious about the REIT's DPU after the acquisition.

Fully funded with debt, IREIT Global's 40% share of the acquisition will be mildly DPU accretive but gearing level will increase rather significantly from 36.5% to 42.9%.

If funded with a mixture of debt and equity, the exercise will become DPU dilutive while the gearing level will increase only slightly from 36.5% to 37.6%.

However, if the REIT should refinance the bridging loan successfully, post acquisition, there should be a positive impact on DPU.

It might be a small positive impact but it should be positive, nonetheless.

With IREIT Global's distribution yield already relatively high, realistically, it would be difficult to acquire without some yield dilution, especially in Germany where property prices are rising relatively quickly.

As rents are not rising nearly as quickly, the NPI yields are being compressed relatively rapidly.

This, I guess, is why the acquisition being presented here is for a portfolio of Spanish properties.

Spain is a weaker economy compared to Germany but the Spanish economy is still growing and unemployment is coming down.

The overall occupancy rate of the four freehold multi-tenanted properties being acquired is 80.9%.

So, there is much room for the management to work on filling unlike the REIT's German properties.

As the passing rents are lower than the market rate, we could also see positive rental reversions over time.

Of course, diversification to reduce concentration risk sounds like a good idea too.

Overall, I like the acquisition.


Chop chop.

Get it done.

Then, refinance the relatively expensive bridging loan.

If there is going to be any equity fund raising to do this, I would like for it to be a rights issue instead of a private placement.

The loan isn't a large one and I believe a 1 for 10 or a 3 for 20 rights issue, depending on the pricing of the rights, should be sufficient.

I am confident of IREIT Global's potential to grow well and I want to share in the benefits.

"BoquerĂ³n que se duerme, se lo lleve la corriente."

"People who do not act fast will not enjoy benefits or will lose the opportunity."

Source: Spanish proverbs.

Related post:
3Q 2019 passive income: IREIT Global.

Recently published:
Eagle Hospitality Trust: His plight and my philosophy.

IREIT Global's announcement:
Proposed Acquisition Of Four Office Buildings Located In Spain.


Your Ka-ki! said...

Hi Ak

CDL collaboration is bearing fruit for Ireit. I hold a small amount in this reit.
Look forward to more action from Ireit.

AK71 said...


I have no doubt that CDL is going to be an important part of IREIT Global's future growth.

With reputable sponsors who are experienced managers as well, IREIT Global can be so much more than what it is today.

Capricon said...

You are fast in putting up a blog with analysis after the news release on Friday. Read at another blog about the deal, neutral views as limited knowledge of the properties, based on the numbers, looks negative.

In general, Spain economy doesn't seem optimistic, if the reit manager is confident to boost up the occupancy, that will be great news.

Yet to invest in this counter. Looking for entry below CDL price. ��

AK71 said...

Hi Capricon,

Just talking to myself, as usual.

I have been invested in the REIT for many years and my older positions were mostly bought at under 70c a unit with some at 71c or so a unit, if I remember correctly.

A rather sleepy REIT but not complaining.

Happy just collecting dividends.

A confluence of factors made me increase my investment in the REIT at a higher price.

Time will tell if I made the right decision. ;p

Unknown said...

Nibbled a small position for Ireit today after waiting on the sidelines. The below was announced and it dropped 15%. In any given day, the note below would shoot the stock 15% up the other way. Confusing times! remains to be seen if i am an idiot or a genius LOL.

"From a financial standpoint, the Manager wishes to inform that there is limited impact to IREIT’s
performance arising from the COVID-19 outbreak to-date as the majority of its rental income is
derived from long-term leases with blue-chip tenants. As at 31 December 2019, the portfolio
weighted average lease expiry remained healthy at 4.2 years, with 97.7% of the total leases
due for renewal only from FY2022 and beyond. In addition, IREIT’s credit profile remains
healthy, as its total gross borrowings of €232.8 million had a weighted average debt maturity of
5.5 years as at 31 December 2019. Having refinanced its entire bank loans in February 2019
at competitive rates over the long term, IREIT’s existing bank loans of €200.8 million will not be
due for repayment until January 2026. The remaining borrowings relate to the term loan facility
of €32 million taken up in December 2019, which will only be due in May 2021. This should
provide a certain level of support and resilience to IREIT’s portfolio, income stream and financial
Pursuant to the announcement dated 24 February 2020 on the resignation of the Chief
Executive Officer (the “CEO”), the Manager also wishes to update that the Board of Directors
has identified and approved a well-qualified candidate to assume the new CEO position. Details
of the candidate will be announced once the process for the regulatory approval of his
appointment has been completed."

AK71 said...

Hi Unknown,

When the bear comes out of its cave, none is spared.

At the current price, IREIT Global is a fantastic bargain, I feel.

Of course, cheap could always get cheaper.

After all, Mr. Market could stay irrational longer than we can stay solvent.

F@ng said...

Hi Mr AK,

In recent 2 weeks, there seems to be a gentle bearish trend for IREIT. Would you comment on the recent slide in Ireit global prices?

AK71 said...

Hi F@ng,

My investment thesis has not changed and if the unit price falls significantly from here, I would probably be buying more.

IREIT's rights issue: Why did AK subscribe?

F@ng said...

Okay thank you! Hard as a nice investor but will take note to hold on good fundamental stocks at good entry points, and ignore short term fluctuations!

AK71 said...

Hi F@ng,

Of course, all of us should do our own research to be sure.

When in doubt, it might be better to stay out. ;)

Peace of mind is priceless. :)

Some might find this interesting:
Is Eagle Hospitality Trust worth it?

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