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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?
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