Ireit Global is a Reit I used to own in the past due to the strong profiling of their freehold assets in Germany, high dividend yield, low borrowing costs and long WALE with concentrated blue chip tenant profile.
You would think that Germany is a strong powerhouse in Europe and they are too big to fail, so everything else equal, it’s something which is probably too good to be true, especially since they debuted and listed back in 2014.
I bought them in the past in the range of 63 to 66 cents when most people were skeptical about the relatively new manager at that time and managed to sell them when they were at around 73 cents. The main reason I sold was because Tikehau Capital came in and they kept harping about a possible inorganic growth through acquisitions in their investors presentation slides, which is pretty imminent at that time that they were going to do a rights issue since their gearing was in the 40% range back then.
Since then, 5 years after the listing, there’s not much acquisition stories that are developing and revolving around.
Most of the assets remained as what they were during the IPO, there were a few assets that appreciate in value which resulted in the lower gearing today (~36%) while dividend yield remained in range.
Costs of borrowings did went down further from 2% to 1.5% due to the drastic state of the European economy and we just wonder if we will start seeing more defaults or downsizing of their blue chip tenants. It’s probably one of the danger of concentration activities and you can see why retail investors keep harping into that as one of the potential risks.
Earlier this year, City Reit Management, a fund subsidiary of blue chip property giant City Development (CDL), came in to purchase a 50% stake in the Manager. CDL did that as part of their growth plans to secure a more recurring income platform through fund management activities.
You wonder why Tikehau wants to allow that since they are big enough players in Europe themselves who are able to grow their AUM if they want to do that.
And we’re all waiting for Tikehau to make it happen since they took over back in 2016 and kept harping about growing, but albeit no news so far. Surely, if they want to do that, they can easily find a good property with sufficient passing rent yield and appropriate capital structure to make the acquisitions DPU accretive, so am not sure what’s the further wait.
The arrivals of more than one stake in the manager with majority vote for decision making brings about more uncertainties because the plans could be skewed to one side.
CDL, in particular, was familiar with Europe but specializes more in hotel management and not commercial or logistics and Tikehau might be the big brother familiar with it. If so, one might wonder what sort of value does CDL brings to the table. At the worst scenario possible, they might be pressuring Tikehau to make the deal to grow the AUM, this especially if they are only interested in extracting management fees out of the AUM.
I’m still unsure if Ireit Global at this valuation brings anything to the table for investors, especially with so much uncertainties questioning both the European economy and the management’s direction of where the Reit is going to go. This has definitely been a lost 5 years opportunities for Ireit Global themselves to grow their assets and they might be in for a rougher ride when the global economy goes back into recession or slower growth over the next couple of years.
At this valuation, I certainly don’t find it attractive enough to put my money on it.
At the best, this probably gives you the current 7.7% yield returns per annum which you might get, but you shouldn’t expect too much from it, especially if you are gunning for double digit returns. At the worst, you might get into the perfect storm of a declining European economy which will increase the probability of a default or downsizing activity in tenants, a rights issue, and a wasted warchest opportunities.
Surely if you find the current profile attractive, you would similarly found their past profile attractive as well.
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