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This blog is my reply to a reader's comment on IREIT Global.
Unlike bonds which have fixed coupons, REITs are able to command higher rents in an inflationary environment but it is important to see if they can do this in a timely manner.
Most of IREIT Global's leases are linked to the CPI and higher inflation automatically leads to higher rental income while others are reviewed once cumulative inflation exceeds a 10% threshold.
So, IREIT Global is able to increase rental income in a timely manner.
In the meantime, higher interest rates will not impact IREIT Global's cost of doing business as their debt is fully hedged until late 2026.
Unlike most other S-REITs, IREIT Global only pays out 90% of its distributable income which is an important factor when we consider the resilience of the REIT which is reflected in its financial numbers.
So, for quite a while at least, these are not things to be concerned about.
The question to ask now is whether the backfilling at Darmstadt Campus which will be vacated by Deutsche Telekom in November 2022 is going well as that represents 10% of the REIT's income?
To be realistic, although IREIT Global has a very good track record at getting new tenants and filling vacancies, I expect the backfilling to be slower and possibly patchy in this instance with the situation in Europe the way it is.
With IREIT's relatively low gearing level of 30.8%, however, they can take temporary setbacks even of such a magnitude.
The REIT's numbers are strong and with everything else being equal, if the possibly reduced DPU of 3.5c or 3.4c which will give us a distribution yield of 6.53% to 6.73% at 52c a unit is attractive to an investor, then, it is a buy especially if it is just to get a foot in.
Personally, I am waiting to add to my position in the REIT at under 50c a unit which might or might not be rock bottom but I would consider any price under 50c to be a steal.
Of course, it might or might not happen.
I like to think that I know IREIT Global quite well.
Fear is driving people to sell at depressed prices and if it gets any worse, it is another great buying opportunity.
Short term pain for long term gain.
References:
1. What to do when down 25%?
2. Why AK invests in REITs?
Bloggy Award
26 comments:
AK manage to catch some at $0.495 at closing ?
Hi tcc,
Oh, I have been busy gaming.
Haven't looked. ;p
AT Group which held 5% of IREIT Global has been selling.
They are probably responsible for further selling down.
Unit price could go lower if they continue selling next week.
See if I can buy some at a lower price next week. :)
what is your guess of why AT group is selling? this remind me how ETH fell, when the ASAP Holdings start to dump the share
Dear AK
The local REITS are holding up reasonably well as compared to overseas asset holding REITS
Local investors have been shying away from them for the past several quarters and I can see this trend clearly
There is a dearth of buyers despite sound fundamentals as well
I hold IREIT as well as overseas REITS like Elire, KORE, Prime and Hampshire. As regards capital, there has been significant erosion on paper although their dividends, at least so far, have cushioned the impact
I foresee more pain ahead for these
Regards
Garudadri
Hi AK, the feedburner email subscription is not working. I have not been receiving email updates on your posts for months. The email subscription link now leads to error.
http://feedburner.google.com/fb/a/mailverify?uri=ASingaporeanStockmarketInvestorassi&loc=en_US
Hi AK - I was looking forward to your update on IREIT. How timely! Been following your blog for sometime quietly.
It would seem AT Group is a shareholder for both PRIME US Reit as well as IREIT. And in both cases they have just discarded enough shares to be less than 5%. For IREIT they went from 5.003% to 4.982%. Seems for more strategic than anything else. Have you picked up any additional selling by AT?
Thanks.
Hi PeachTea,
As Peter Lynch said before there is only one reason why insiders would buy but myriad reasons why they would sell.
So, your guess is as good as mine. ;p
However, in some instances, it could be a red flag such as in the case of Eagle Hospitality Trust and if you are interested, I blogged about it:
EHT: Financial engineering and selling...
Hi garudadri,
Most investors feel more comfortable investing in assets which are on home ground.
Saizen REIT was trading at depressed valuations too until it was finally delisted.
So, "foreign discount" is something I am pretty familiar with. ;p
Unfortunate but it is what it is. :)
Newer readers might be interested in reading this blog if they have not heard of Saizen REIT before:
Saizen REIT: Right prices and luck.
Hi cs,
Alamak.
Months?
That is a service provided by Google.
Terrible.
I don't know how to fix it but thanks for letting me know. (TmT)
Hi Suresh,
Ah, I didn't know they invested in Prime US REIT too.
Going under 5% means they can continue selling without reporting which is quite possibly what they have been doing.
I haven't increased my investment in IREIT Global recently but it is looking very attractive now.
Although I already have a very large position in IREIT Global, if price remains soft, I will probably be adding.
Cannot resist a sale. ;p
Hi AK. I have the same problem. Have to manual search whenever I remember. :(
Hi Henry,
Oh dear.
An easier way might be to bookmark my blog on your browser.
Then, just visit once a week or so?
Here's a "workaround" for people using Chrome browser.
Install this extension (RSS Feed Reader):
https://chrome.google.com/webstore/detail/rss-feed-reader/pnjaodmkngahhkoihejjehlcdlnohgmp
And then add this blog as a feed, when there are new posts, u will see a indication on the icon of the reader.
Yes, I only have ASSI in this extension. LOL
Hi ted,
All high tech and IT stuff are as impossible as Greek to me. LOL.
Thanks for sharing the "workaround."
Hi AK,
Currently the market is down and I am thinking if its a good time to increase my portfolio at a bargain. Would you be able to talk to yourself on AIM APAC REIT v.s IRET Global?
TIA
Hi Hxn,
I like both AA REIT and IREIT.
I published a blog comparing the 2 at the end of last year and apart from their unit prices then and now, everything in the blog is still pretty much true.
See:
AIMS APAC REIT or IREIT Global.
Of the two, I added to my investment in IREIT Global very recently because its unit price has plunged too much, in my opinion.
AA REIT is down in unit price but it isn't as dramatic a decline but I can understand that investing in AA REIT probably gives most people a greater peace of mind since they don't have properties in Europe which is facing a plethora of challenges.
So, which REIT to invest also has something to do with what's our tolerance level like?
Reference:
IREIT Global is a bargain: Short term pain.
Hi AK,
The track record of iReit doesn’t seem to be good. Their DPU per unit seems to be heading down over the years. Any thoughts?
Hi Alf,
Oh, I have many blogs on IREIT Global where I shared my thoughts.
Do a search and you will find them. :)
I will say that it is too superficial to say if DPU reduces, we strike it out.
More importantly, try to understand why the DPU reduced and where the value is.
I know my blog isn't the easiest to navigate, so, here is a little tool to help:
Blogs on IREIT Global.
Also, I have some videos in my YouTube channel on IREIT Global such as:
Buy AA REIT or IREIT Global?
Gambatte! :D
Hi AK, I have been looking at some of the HK property manager counters where many of them experienced 90% fall in share price but at the same time they are also recording strong growth in revenue and EPS. Many are also increasing their dividend as well. Would you even consider this a great opportunity to start DCA? Was wondering if you would consider this sector worth investing. There may be some gems worth digging for. There are many yields that are above 15%.
Appreciate if you can share your thoughts on this.
-Happy gaming.
Hi Mike,
Thanks for sharing this but I will have to disappoint you.
I don't invest in anything that is not listed on the Singapore stock exchange. ;p
I will say to look at their debt level and the cost.
Also see if their income is secure.
In tough times, a strong balance sheet and healthy cash flow are more important than growth.
Hi AK,
Happy New Year
Not sure if there is a mistake...
DPU 3.5 cents is in Euro but the price 50 cents is in S$.
Exchange rate is 1.42, hence DPU is $4.97 cents.
Yield is 9.94%?
:)
Ray
Hi Ray,
The estimated reduced DPU of 3.5 cents I blogged about are Singapore cents.
So, at 50 cents a unit, we are looking at a 7% distribution yield.
This is the worst case scenario which is seeing the Darmstadt asset staying vacant for a full year which seems pretty unlikely to me.
Also, I expect higher rents in the rest of the REIT's portfolio to have a mitigating effect.
IREIT Global has very conservative gearing level and can take the hit, in the meantime. :)
Happy New Year! :D
Hey AK, what's your take on IREIT Global now? Will you still add to your position?
Hi seanicasia,
You might have missed this video I produced:
This REIT is a "MUST BUY" but only at a 9% distribution yield.
Thanks AK. Appreciate it
Hi seanicasia,
AK is just talking to himself as usual, of course. ;)
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