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