Wednesday, 6 August 2014

IREIT Global



IREIT Global ("IREIT" or the "Fund") is the first REIT established with the investment strategy of investing in a portfolio of income-producing office-related real estate in Europe. The initial portfolio will be in Germany and the Fund is offering 167.733m units @ $0.88 per unit to investors subject to over-allocation of 11.36m units. The public offer will end on 11 August 2014 at 12pm and starts trading on 13 August 2014 at 2pm. The public tranche will have 11.36m and the placement tranche 156.373m units. The market cap will be $536.1m  


The 4 offices are located in 4 different cities in  Germany and the details of the initial portfolio are listed in the table above.


Yield



Given the stability of rental income, the financial statements and forecast is highly predictable which is the beauty of commercial REIT.


The Fund is projected to yield 7.6% in FY2014 based on annualised basis and increase to 8% in FY2015 and FY2016. There will be two distributions each year with the first distribution happening before 31 March 2015 for the period from the listing date to 31 Dec 2014.

ABBA Strategy


The manager will adopt an ABBA strategy where it will seek A class properties in B class cities and B Class properties in A grade towns.

Shareholders


The shareholding is 79% controlled by Mr. Tong from Summit and Mr. Lim from Soildbuild with balance 21% float for the public. Mr. Tong is really the Mr S-REIT and now he wants to conquer Europe as well.

What i like about the Fund

  • The offices are strategically located and are rented out to blue chip clients such as Deutsche Telecom, T-Mobile, Allianz, Ebase and St Microelectronics.
  • Freehold properties that are 100% rented out
  • Long WALE (Weighted Average Lease Expiry) means the income will be very stable
  • Germany has one of the strongest economy in Europe and will continue to lead the recovery there.
  • Management Fee structure is directly linked to the Annual Distributable Income, which creates a strong alignment of interest vis-a-vis a % of NAV for most REITs. 
  • Manager holds about 60% of IREIT
  • 100% payout.
  • No funny financial support or engineering
My Concerns
  • Exposure to Euros given the Singapore investors base
  • Selling at premium to NAV of $0.78 (implying a price to book of 1.128x)
  • Unfamiliarity with German regulations and tax rules may change in Netherlands and Germany regarding taxation and repatriation.
  • Rising interest rate environment
Valuations

It is interesting to have a pure European REIT listing here. It actually provides an alternative for REIT lovers to diversify out of Singapore REITs. However, as you can see from Croesus Retail Trust, it is not easy for Singapore investors to accept "foreigners". :@P 

Our office REITs in generally, is trading between 6%-7% but i don't think they are truly comparable per se given the differences. I would believe that investors here will impose a "premium" requirement on foreign REITs and expect them to yield between 7%-9% at least.

If that is the expectation, the fair value range for IREIT will fall between $0.81 and $0.98. My personal guess is that IREIT will debut between $0.88 to $0.92 on its first day but don't expect much firework as we are all talking about REIT here and this is an yield play and the counter is listing at a premium to its book value.

I will give it a one chilli rating. Buy only if you like the assets in German or support the German team in World Cup. ^_^ and hopefully the world cup fever is still lingering. Please note that i am asked to take 20 lots. 

Happy IPOing

19 comments:

Cherub said...

hmm bro, wanted to get this IPO but decided not to, coz 1 chili rating is really low...

just curious, why did u still want to take 20lots?

Mr. IPO said...

That is because I agreed to take all the IPOs. Cannot just take starburst placement and reject this lor....

Anonymous said...

Hi Mr IPO,i really like ur blog. A question. May i know if this reit's dividend need to pay income tax? Can include this on ur future blog. Thanks.

Mr. IPO said...

Thanks for visiting. Usually income from REIT is tax free to investors.

Anonymous said...

Hi Mr IPO, in view of the current Russia/Ukraine situation developing more intensely with threat of Russia invading Ukraine. how will this affect the German REIT sector? From your view, how will iREIT react upon trading start on 13th Aug?

Mr. IPO said...

Unfortunately I have no idea.... My guess is a muted debut close to IPO price.

Anonymous said...

mr ipo, how come u can get lots for every ipos?

Cherub said...

hahaha so it is package deal with Starburst.
ok la.. win some!

I feel like getting this REITS, but seeing ur 1 chili.. think i better skip :D

AMOS said...

Maybe investors can see how previous REITs performance that Mr 童 has substantial shareholding in.
Moreover, with this being a 'foreign' asset reit, expect singapore investors to demand some premium.

With 20lots to'suck it up' since the ipo club member usually has to take (not only the good ones), i think mr ipo will run road at first instance at even 89cents.

Good luck people.

Den said...

Hi Mr IPO, I've been an avid reader of your blog since last August.

I have a question and I hope you enlighten me (as I am unable to get the values).

May I know how did you derive the following fair value range?

"If that is the expectation, the fair value range for IREIT will fall between $0.81 and $0.98."

Thank you for your help!

Mr. IPO said...

It's just based on the expected trading range using the yield. Nothing too scientific la. Higher yield expected means the price has to trade lower. If investors are happy with the yield, then they will bid up the price which then lowers the yield.

Mr. IPO said...

Amos, you hacked into my computer ? :-P

Janice said...

Hello,

Would like to ask in your opinion is IREIT better than Accordia since both of it you gave 1 star?

Mr. IPO said...

If you really need the 50 shades of Chilli ratings, Ireit will be ranked higher than Accordia ^_^

Fame Glory said...

Hi Mr IPO,

Thank your for the great analysis.

I did a quick valuation of IReit at my blog and hope that you can add my URL.

I will link back to you thanks.

Fame Glory said...

Sorry my URL is

http://rosesyrupresearch.blogspot.sg/


Thank you

Mr. IPO said...

Sure, tell me whenever you had added the link and i will do the necessary.

Fame Glory said...

Done!

Looking forward to your link back.


Thanks

Mr. IPO said...

ok noted...done.

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