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IREIT Global: Update and buying more?

Wednesday, November 9, 2022

This blog on IREIT Global will build on the blog I published on 16 Sep 22.

In the earlier blog, I said that IREIT Global was a bargain and I will say the same in this blog.

One of the biggest fears in a rising interest rate environment for REIT investors is how badly it would impact financing cost.

IREIT Global allays this fear as it has a relatively low gearing level of 30.6%.

Also, it is insulated from rising interest rate for the next 4 years as their borrowings are on fixed rates till 2026 and beyond.







The other important thing which I talked about in my blog of 16 Sep 22 was the ability of the REIT to increase asking rents.

I said that IREIT Global would be able to increase asking rents and in a timely manner too.

As reported by the REIT, a 4.2% year on year rental escalation supports this point.

I also expect rental escalations to continue in the coming months as higher inflation stays sticky.

Being able to command higher rents while keeping financing cost low for the next 4 years is something any REIT would be envious of. 

So, IREIT Global is in such a sweet spot.




The biggest bugbear now for IREIT Global is its Darmstadt property which will be vacated by the current tenant by end of this month.

It is encouraging to see that the REIT has not 1 or 2 but 12 potential tenants who have made enquiries which show how desirable the property is.

However, I am going to stay pragmatic as the leasing environment in Germany has become challenging.

Maybe, the REIT is trying to manage investors' expectations and I don't blame them because I would do the same if I were in their shoes.




As the property in question accounts for 10.5% of the REIT's income, in the most pessimistic scenario, we might see full year DPU declining from 2.8 Euro cents to 2.5 Euro cents per year.

This is pretty unlikely as positive and more rapid rental escalations in the other properties in the REIT's portfolio will pick up some of the slack in the meantime.

This is just me being a pragmatist.

The property in Darmstadt will be leased out in one way or another (i.e. master tenanted or multi-tenanted) but it might take more time compared to how quickly vacated space was backfilled before.

Investors have to be realistic and we just have to be more patient, given the circumstances.

Of course, patience is sometimes the hardest thing.




2.5 Euro cents is about 3.5 Singapore cents if we use an exchange rate of 1.4x which gives us a distribution yield of 7% at 50 cents a unit.

I would remind myself that this is the most pessimistic scenario and that such a scenario is unlikely to be durable.

IREIT Global is already trading at less than 50c a unit and I have increased the size of my investment because I eat my own pudding. 

Of course, I do not know how Mr. Market is going to react to the business update.

However, if Mr. Market should offer me a lower price, I will probably be buying more, everything else being equal.

Reference:
IREIT Global is a bargain.




4 comments:

garudadri said...

Dear AK
Nice post. In fact, I added at 50.5 cents last month and was mulling over adding more today but did not go ahead
Agree fully with the rationale and your conservative accounting . The Decathlon franchises in France will be good and once Darmstadt is filled, I would expect upward move in unit price
The main risk is the unlikely but not impossible chance of Putin upping his ante drawing NATO into conflict
This can damage badly and the Euro will plummet. The interest rates might actually be plateauing soon and are less likely to pose a threat. When the ten year falls, all REITS will get a reprieve
I will most likely add tomorrow if the price stays here but it might not if tonight CPI figures show a fall
Regards
Garudadri

AK71 said...

Hi Garudadri,

I doubt very much that NATO would participate directly in the war since Ukraine isn't officially a part of NATO but I know what you mean.

Putin appears to be somewhat unhinged and it is hard to say what he might do next.

If he goes totally mad, all unfriendly nations are fair targets and that includes Singapore, I suppose.

Just have to hope for the best.

Other than this wild card, given the environment that we are in, strong balance sheets and better than average operational cash flow are more pertinent considerations than ever for investors.

Too many have been burnt chasing growth without considering the cost.

Rising interest rate has certainly brought things down to earth and some have crashed harder than others.

I am hopeful that I-REIT Global would be able to make some progress leasing out the Darmstadt asset by end of the year.

We might have some good news when they next provide an update in February 2023.

Alf said...

Hi AK

Any thoughts on United Hampshire ? Can u talk to yourself? Haha

AK71 said...

Hi Alf,

I have no interest in any US REITs.

To get around the withholding tax, have to jump through hoops.

Seems like a loophole to me. ;p

See:
https://investor.uhreit.com/tax_information.html


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