IREIT Global

IREIT Global (IREIT) is a Singapore real estate investment trust established with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office purposes, as well as real estate-related assets. IREIT completed its initial public offering (IPO) and was listed on the Main Board of the Singapore Exchange Securities Trading Limited on 13 August 2014. IREIT’s IPO portfolio comprisesfour office properties in Germany, strategically located in Bonn, Darmstadt, Münster and Munich with an aggregate net lettable area of 121,506 sq m (1,307,878 sq ft). The IPO portfolio consists of the following properties:
(i) Bonn Campus
(ii) Darmstadt Campus
(iii) Münster Campus
(iv) Concor Park

IREIT is managed by IREIT Global Group Pte. Ltd. On 6 August 2015, IREIT completed the acquisition of Schreiberhauer Straße 2, 4, 6, 8, 10, 12, 14, 16, 18, 20 and 22, Berlin 10317, Germany. The Berlin campus has a net lettable area of 79,097 sq m (851,392 sq ft) comprising two connected office buildings of eight and 13 storeys respectively. The Acquisition was financed by a renounceable rights issue of 189,607,567 new Units in IREIT and external bank borrowings.

IREIT’s distribution policy is to distribute 100% of its annual distributable income for the period from the Listing Date to 31 December 2016 and thereafter, at least 90% of its annual distributable income for each financial year. Distributions to Unitholders will be made semi-annually based on the half-yearly results of IREIT and the next distribution will be for the period from 1 July 2015 to 31 December 2015.

IPO shares were offered at 76.2 cents on 13 August 2014. An offer of 45 for 100 right issue at 46.8 cents were ex-dated on 6 July 2015.

IREIT released its FY 2015 result on 17 February 2016. Gross revenue increased by 19.5%, net property income increased by 19.7%, distributable income increased by 18.3% but DPU decreased by25.2% compared to the forecast result. DPU for 4Q 2015 is 1.62 cents. If the same DPU is maintained for every quarter in FY 2016, the DPU will be 6.48 cents, which translates to a yield of 9.39% based on the last closing price of 69.0 cents.

In view of the foreign currency fluctuations, management has taken the decision to hedge a large part of the forecast distributable income for 2016. 80% of the forecast distributable income for 2016 has been hedged at an average exchange rate of approximately S$1.52 per Euro. The Manager will continue to implement hedging strategies where appropriate as part of its proactive currency risk management strategies.

Competition for office assets in Germany is intense, with yield compression expected to continue. Nevertheless, the Manger believes that its “ABBA” strategy remains the optimal strategy to grow IREIT’s portfolio by acquiring yield accretive and strategic properties. In line with the investment mandate of IREIT, the Manager will also continue to explore other European markets for suitable acquisition opportunities.

The key financial ratios for IREIT are as follow:
Share price – 69.0 cents
DPU – 6.48 cents (extrapolated)
Yield – 8.78%
PER – 13.17%
P/B – 1.06
Gearing – 46.2%

The yield of IREIT is decent at 8.78%. As the gearing is already 46.2%, there is little potential for more acquisition without a right issue. Share price will normally fall during a right issue. In this connection, I will continue to hold this counter and acquire more when there is a right issue.