Tuesday, February 28, 2017

Ireit Global - FY16 Results & Thoughts

Ireit Global announced their full year results expectedly much better with a 20.8% yoy increase in the DPU to 6.33 cents for FY16. At the current share price of 75 cents, this represents a dividend yield of 8.5%. Do also note that from FY17 onwards the management can exercise their discretion to distribute up to 90%, so they might just reduce the level of distribution.




Gross Revenue and Net Property Income both grew double digit as the contribution from the Berlin campus kicked in this year. Gross revenue of EUR 34.4m was 28% higher than previous year of EUR 26.9m. Net Property Income of EUR 30.8m was also 28.4% higher than previous year of EUR 24m.

Against Forecast, DPU actually performed better operationally from EUR point of view but was lower when converted to SGD due to forex reason. They hedged 100% of the income at $1.53 for 2016 but at a higher $1.55 for 2017. So we can almost expect a higher DPU for 2017 just based on the exchange rate alone.

Nothing that was surprising from their balance sheet. They still geared heavily at 41.6% at a low effective interest rates of 2% with a interest coverage ratio of 8.4x. I suspect with the elections looming next year in the Europe with countries such as Germany and France, the rates might remain low for quite a while more. In this regard, it's good that they geared optimally at an attractive rates for now.

WALE is at 5.9 years as at 31 Dec 2016.

Operationally, there was an update on the Munster building as Deutsche Telekom will be vacating one of the six floors from 1 April 2017 and the management will seek to find new multiple tenants to occupy the vacated space. We'll probably have to go to the agm to find out more on these updates.

There was also a 10% increase in the rental income for the Bonn campus, which is CPI linked activated. The building is currently occupied by GMG on a 6.3 years lease left so this is a good news.

The management started to introduce Tikehau capital network and will likely be injecting new assets in the retail or industrial sectors into the portfolio shortly. Given the high gearing they are in at the moment, a placement or rights issue is imminent and only a matter of time and not if.

It's a hold for me for now and I'll be seeking to understand the prospective better once I have attended their agm.




14 comments:

  1. 41.6% is a pretty high gearing. Possible issuance of preference shares to repay the debts like what happen to Soilbuild and OUEHTrust.

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    Replies
    1. Hi SR

      Everytime I blog about Ireit, everyone seems to point out the worry on the high gearing.

      The high gearing should be seen as an advantage because the cost of debt is so cheap. There's only two ways to fund your assets and that is via debt or equity financing and usually the latter would require a high 8 to 9% like how you do your WACC in discounted cash flow method.

      Delete
  2. Sorry, I wish to clarify. "Do also note that from FY17 onwards the management can exercise their discretion to distribute up to 90%" I always thought REITs are required to distribute at least 90% of taxable income?

    ReplyDelete
    Replies
    1. Sorry for the poor English. yes you are right, its 90% or more.

      Delete
  3. Should be at least 90%. Above and beyond will be at manager's discretion

    ReplyDelete
    Replies
    1. Thanks, thats the right thing.

      Delete
  4. I have been thinking about divesting IREIT because of the high gearing.

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    Replies
    1. Hi My Investment Machine

      The high gearing is seen as an advantage as the cost of debt is cheap so its wise to gear it as high as possible.

      you are only going to get 2 way to fund your assets, cost of debt or cost of equity. In this particular case, it'll be insane if they would have gone for the equity because costs of debt is way too cheap not to use it to finance.

      High gearing may not necessarily always be bad.

      Delete
    2. Hi B

      because they might issue another rights issue. They had just done 1 round recently. I am not a huge fan of rights issue. It (rights issue) can be advantageous too. But if they use this as a tool frequently (e.g. every 2 years), then I am not too happy as I am essentially giving back what I have collected.

      Delete
    3. Hi MIM

      I do have a different thoughts to that but I understand your concern of.not wanting to have more cash calls from your end. I think.reits might not suit you given their profile of having to distribute out almost all of their earnings.

      Theres a few others with lower payout and strong fcf yield like straco which might suit you better.

      Delete
  5. 8% yield, Nice!
    at this kind of growth 20%, and yield of 8%, no wonder you're hitting the half a million dollars marks so quickly.

    ReplyDelete
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