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IREIT Global and T-bill ladder strategy.

Saturday, August 12, 2023

IREIT Global reported lower net property income for 1H2023.

I remind myself that if the current weakness is temporary in nature, then, staying invested is what I want to do.

Portfolio occupancy has improved from 87% to 88.7% as 25% of the vacated Darmstadt asset was taken up by the German government.

However, together with the rent free periods for newly signed leases in Bonn Campus, Munster Campus and Sant Cugat Green, contribution to property income will only be visible in 2H2023.

There is also the fact that the REIT has more units in issue after the recent rights issue while the funds raised have yet to be utilized.

The acquisition of out of town retail parks leased to B&M will make a meaningful contribution to property income when it is completed.

All these point to a higher level of distributable income in 2H2023.




Staying invested in IREIT Global for income also gives me peace of mind unlike being invested in some other REITs like Elite Commercial Trust, Manulife US REIT and Prime REIT because of its very strong balance sheet.

Gearing level will be at around 34% post acquisition of the B&M portfolio.

Even if the value of properties in their portfolio should see a decline of 10%, gearing level would not exceed 40% unlike some of the other REITs mentioned above.

IREIT Global also has almost 100% of its debt on fixed interest rate which is at around 1.9% p.a. and they do not need refinancing until 2026.

I particularly like their Berlin asset which recently saw an extension of its master lease till end of 2024 at a significantly higher asking rent.

This confirms reports that that the said asset is under rented.




Although there could be a vacancy period if the master lease is not extended beyond 2024, I expect that it would be more quickly backfilled than the Darmstadt asset.

IREIT Global seems to be suffering collateral damage as well due to Mr. Market's pessimism about some overseas REITs.

However, when I look at the details, IREIT Global is in a stronger position.

I keep saying to myself that during tough times, having a strong balance sheet will ensure survival.

This could be lost on Mr. Market. 

So, opportunities to buy IREIT Global even cheaper could present themselves.

This brings me to the next point of this blog post, T-bills.

Regular readers know that I have a T-bill ladder which was completed in April this year.

I have not only been maintaining the ladder but I have also been strengthening it whenever I could.

I would add a thousand dollars or two to my application in every T-bill auction.

Only an extra thousand dollars or two?

Yes, AK is a retiree without a lot of spare cash. Sadness.




I also talked about when I might dismantle my T-bill ladder.

Well, if Mr. Market should become even more irrational than usual, I might just have to dismantle my T-bill ladder to buy more of IREIT Global.

The next T-bill auction is happening on 17 August which is just next week.

I will be putting in a non-competitive bid using money from a T-bill which matured plus some spare cash on hand, as usual.

No need to think hard about how much to bid competitively unless I am using CPF-OA money.

Of course, this is just me talking to myself.

If AK can do it, so can you!

Reference:
T-bill ladder is attractive.

34 comments:

KC said...

Hi AK,

Could you talk to yourself about position sizing? I understand that you have abt 10 large positions. Would you set a max position size/percentage and not go over it even if the price of the stock is enticing (i.e IReit in my mind)?

Also, could you talk to yojrself abt IREIT's chat movement?

DL said...

hi AK,

The share price of IREIT has dropped to 40~41 cents. When will you add? :)

By the way, It looks like an RSS feeder/ reader is the only way to catch up on the comments.

AK71 said...

Hi KC,

I don't want to say what to do exactly when it comes to position sizing other than we should size our speculative positions very conservatively.

In the case of IREIT Global, it is not a speculative position but an investment for income.

So, I am allowing it to grow into a larger position in my portfolio.

How large would depend on how comfortable we are with the investment?

I wouldn't want it to grow to be larger than my investment in OCBC, for example, because REITs do need to raise funds from time to time.

As for the chart, 40c is the immediate support and it should also be relatively strong.

If that were to break, we could see the lows formed during the COVID-19 pandemic retested.

I hope I would be smart enough to buy more then. ;)

AK71 said...

Hi DL,

See my reply to KC above. ;p

The RSS reader is still working?

Oh, good! Thanks for letting me know. :D

Jon said...

Hi AK,

Can you talk to yourself about what you think about Sabana Reit now?
Would it be something that is attractive for income investing?

AK71 said...

Hi Jon,

Sabana REIT has good assets and a strong balance sheet.

Still one of my largest investments.

The unknown now is the internalization of the manager.

I can only hope that it proceeds smoothly although that might be too optimistic.

ESR wants to hang on just like how Donald Trump didn't want to leave the White House. ;p

mysecretinvestment said...

Hi AK,

Just last Sept, I was a green horn to T-bill investing. Recalled I was very tentative and unsure of the process and risks involved. I told my wife I will try it out first and I bought my first ever tranche of T-bill in Sept 2022 with $50K cash. The yield was 3.32% and at that point, it was considered very good already, seeing that UOB was giving around 2.8% for their one year FD. There was long queues of people at UOB branches anxiously waiting to place their money into that FD. In stark contrast, buying the T-bill could be done with a few clicks of the mouse in the comfort of your home.

Fast forward to today, we are into our 2nd cycle of the T-bill investment having used all manner of funds from cash, SRS to OA.

Embarrassingly the interests that we earned from the T-bill is making the dividends that we received from our stocks look bad and underperforming.

For the same period covering Sept 2022 to Jul 2023, the interests we received from T-bills came up to $86.9K versus $77.6K of dividends collected.

So yes, if the T-bill yield stays elevated, we will continue to recycle the funds for a 3rd cycle of T-bill investment.

AK71 said...

Hi MSI,

Thanks for sharing your experience with us here. :D

I was not interested in T-bills for the longest time, no thanks to the low interest rate environment.

That was even though fixed income should have a place in our portfolios as investors for income.

The exception was the CPF, of course. ;)

Things have certainly changed, and it is a good thing for risk averse savers and investors alike. :D

Yv said...

Thanks for sharing!

Failed consecutively in last two T-bills auctions in my competitive bids.
After falling down from my broken T-bill ladder, I think I will 乖乖 go for non-competitive bid this coming round.

AK71 said...

Hi Yv,

Too stressful to put in competitive bids. (TmT)

Non-competitive bids work for me. :)

Only put in competitive bids when using CPF-OA money, AK reminds himself. ;p

Betta man said...

Ireits global dropped below 40 cents. Probably a good chance to accumulate ?

KC said...

sigh. 40c support breached.

AK71 said...

Hi Betta man,

I am waiting to see if I could get more at a lower price.

39.5c isn't that much lower than the recent rights issue.

37c was the pandemic low, if I remember correctly.

I will beg my war chest which is still recovering to release some funds if that ever happens.

So cheap! AK is cheap! AK must buy! ;p

AK71 said...

Hi KC,

Why the sigh?

It isn't the end of the trading day yet.

Must see if it is able to close at or above 40c.

To be honest, I hope it does not.

Then, I will be able to buy more on the cheap. :)

KC said...

Hi AK,

On one hand, my rational mind would like it to go lower so i can buy more, on the other, my irrational mind dont want to see my position going deeper into the red.

AK71 said...

Hi KC,

Being AK the Mental, I can understand your situation very well!

I have been working on a new YouTube video which is related to the subject.

However, I have been having technical issues.

AK the IT dinosaur is trying to figure things out. (TmT)

IREIT can take care of itself. ;p

KC said...

Thanks AK. Liked the video!

AK71 said...

Hi KC,

You Liked the video, AK is happy! ;p

Of course, I am also happy that I managed to figure things out. :D

yuhui said...

hello ak,

please could you babble garrulously to yourself if you had to plonk your cpf- oa in t-bills on competitive bids? ps. i wish this had come up earlier but que sera sera

i can't seem to do rss feed. sadly

AK71 said...

Hi yuhui,

Very odd that the feed works for some people and not for others. :(

Yes, I used my CPF-OA funds to buy T-bills earlier in January and also in March, if I remember correctly.

See:
CPF in T-bill university.

For these, I did competitive bids because I didn't want to take the chance of possibly having to accept a cut-off yield which was lower than 3.33% per annum.

Including interest lost for possibly a couple of months when the money is neither in the CPF nor a T-bill, we need a minimum of 3.33% per annum cut-off yield.

Mammoth Cheong said...

Hi AK,

I am always curious for those rare Reits that pays out only 90% of their income, nothing much is revealed on what was done to the 10% retained. I would imagine that the amount retained may have gone into funding AEIs, reducing debt/gearing or offset part of future acquisitions costs. Is my understanding correct as I often do not find subsequent evidence of those mentioned in future financial reports? Maybe u can use some examples within IREIT Global's past usage of their 10% retained to share your thoughts for my understanding?

In addition, do you have a list of those Reits or Business Trusts that doesn't pay out 100% of their income?

You often mentioned only invest in Reits with good balance sheets. How do u tell between good and bad?

Thanks.

AK71 said...

Hi Mammoth,

IREIT Global has been paying out only 90% of its distributable income for some time while retaining 10% for working capital and CAPEX.

CAPEX took place in one of their Spanish assets before they could lease out the space to become a data center. It is also happening now for the Darmstadt property which was vacated late last year.

It is rare to find REITs which do not pay out 100% of their distributable income and I do not keep a list of these.

When a REIT distributes only 90% of its distributable income, it helps to strengthen their financial position.

We want to have more assets than liabilities and money is one of the best assets to hold for businesses.

We want to have as little borrowings as possible especially during bad times and IREIT's gearing level is relatively low compared to its peers.

If we invest in REITs, this is important to bear in mind.

Steven said...

Hi AK,

Hope you are well. I am always happy to hear your thoughts on the market. Those thoughts are very valuable to me :) Keep doing what you are doing and stay happy :)

Best Regards,
Steven

AK71 said...

Hi Steven,

Glad you still enjoy my blogs. :D

Hope you Like my latest YouTube videos too. ;)

AK's YouTube videos voiced by AK!

Good luck and have fun! :D

Mammoth Cheong said...

Hi AK,

Thanks for your reply to my earlier message.

I would like to seek further clarification on the differences between CAPEX and AEI. My understanding is AEI results in the need for CAPEX. In the case of IREIT, CAPEX also included major reno/refitting/repurposing of a property when a major or sole tenant vacates, am I correct?

I noted in IREIT business update that despite the income retained, it had to do a drawdown of €2.4m capex facility probably to fund the CAPEX u mentioned, and this resulted in a slight increase in gearing. Since almost all Reits carry out AEIs and also need working capital, how do they do that without retaining 10% income like IReit? Is it some form of accounting methods that differs between them? I am aware that some Reits like Mapletree Ind Tr does DRP to generate some cash for their AEIs.

Would u be able to also share your thoughts on Cromwell Reit in comparison to IREIT Global, of which both are Europe centric? Understand Cromwell had already pivoted towards a balance 50-50 office & light industrial/logistic portfolio plus a sizeable AEIs on hand for execution, while IREIT is 83% office + 17% retail after its recent retail properties' acquisition plus also a sizeable ongoing CAPEX. Based on the wisdom from your years of investing, can u help to peek into your crystal ball (bowling ball) to see how both Reits would perform going forward in view of the current high interest rate environment and expected gradual interest rate decrease from 2Q24 or beyond onwards?

Thanks.

AK71 said...

Hi Mammoth,

AEIs require CAPEX, of course, and reno etc. is part of AEIs in my book.

How else do we make a vacated property attractive to prospective tenants which is what AEIs aim to do primarily?

As for taking on debt in order to do AEIs, that is pretty normal for all REITs especially if they distribute 100% of their operation income to their investors, and in IREIT's case, obviously the 10% distributable income retained was insufficient in recent times.

It is either take on more debt or issue more units through DRPs or rights issue.

Imagine if they did not retain 10% of the distributable income, they would have had to borrow more money.

No interest in Cromwell REIT but I did compare their numbers with IREIT's before and IREIT's numbers were decidedly better.

You can go to their respective websites and pull up their financial statements to do a side by side comparison to see for yourself.

I only have a mental bowling ball that thinks it is a crystal ball. LOL.

So, I will have to disappoint you when it comes to fortune telling. ;p

ynwen said...

Hi AK,

Thank you for sharing your detailed updates and thoughts on Ireit. I enjoyed reading all your posts on Ireit.

Just to clarify why gearing ratio will increase if asset properties reduced in value. Is it due to smaller equity base (A-L)? Is asset write down a genuine yearly expense in reits industry or is it a one time event? Will it affect FCF?

Thank you and appreciate your time to read this and reply :)

kind regards,
wendy

AK71 said...

Hi Wendy,

Glad you are enjoying my blogs. :D

Imagine a property that was $100 in value and there was a $40 loan taken to buy that property.

The loan to value or gearing ratio would be 40/100. 40%.

Imagine if that property should be valued at only $80 now today because of a lack of demand and/or oversupply but the loan is still $40 because it isn't amortizing like for most REITs.

The loan to value or gearing ratio would be 40/80. 50%.

Usually, when a property value reduces in such an instance, it is because its ability to generate income is compromised.

This means that operational cashflow would have declined.

ynwen said...

Thank you for your lightning fast response AK!

I really like your examples to make understanding much easier and faster!

arrigato :)

kind regards,
wendy

AK71 said...

Hi Wendy,

I check my blog for comments at least once a day and sometimes twice a day.

Just lucky that I checked not long after you commented. :)

Happy that talking to myself has been helpful to you. :D

wx said...

Hi AK,

Could I ask if you did a comparison of IREIT Global vs Lendlease Global Commercial REIT? I think both are trading at quite an attractive yield. I am guessing the market might not like the gearing for Lendlease REIT and also they have perps which make their balance sheet look healthier than in reality. My opinion is that the properties in Lendlease REIT are of very high quality and unlikely to suffer a lot of write down in valuation, also there is no refinancing risk until FY2025. Not sure if I am missing out any major things in my analysis, hope you are able to share your opinion by talking to yourself.

AK71 said...

Hi wx,

No interest in making any comparison between the two.

My plate is pretty full but I can point you to some of my recent videos to have an idea of what I might say. ;)

See:
1. https://www.youtube.com/watch?v=R98UBCYBTrw&t=14s
2. https://www.youtube.com/watch?v=g_MDx72JW0Y&t=804s
3. https://www.youtube.com/watch?v=SzH3uU4Qy2M&t=76s

AK is lazy lah. ;p

C said...

iREIT global forget to pay dividend yesterday.. today is PH, so probably have to wait till coming Monday :)

AK71 said...

Hi C,

That is so funny!

ROFL! ;p


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