Should You Invest In IREIT Global [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of IREIT Global and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To March 24

Business Description

IREIT Global is an Office and Commercial REIT that was listed in 2014 and owns 54 office properties in Europe (5 are in Germany, 44 in France and 5 in Spain).

What I Like About IREIT Global:

Prudent capital control with significant improvement since 2017 - Low gearing and high-interest cover ratio. (Figure 5)
Clear acquisition strategy to further diversify portfolio
Overall portfolio’s WALE is high (Figure 11)
Most properties are on a freehold basis

What I Do Not Like About IREIT Global:

High tenancy concentration risk (Figure 12)
Debt maturity profile is in large chunks and not spread out evenly (Figure 6)
Managers are unproven with regards to their ability to deliver yield accretive acquisition and have a poor record of capital preservation as DPU had decreased considerably over the years
DPU has a 100% exposure to FX risk which may not be ideal for income investors

Updates From Recent Performance (FY 2023)

General Comments:

The bulk of the debt is due for renewal in 2026 of which, the interest rate should have peaked and decreased. That said, it is unlikely that IREIT can secure financing at their current rate which is why I expect the cost of debt to increase moving into 2026 despite a falling interest rate environment.
Full-year DPU decreased by 19.2% as a result of an enlarged shareholder base to facilitate the acquisition funding and muted top and bottom-line growth.

Positive Headwinds:

Improving the occupancy rate will help improve top-line performances.
Contribution from recently acquired 17 retail properties (completed on 5 Sept 2023) will be reflected in FY 2024 performances.

Negative Headwinds:

Economic headwinds in Europe may pose a risk to the recovery of the occupancy rate.
Operating expense is expected to remain high which will erode the bottom-line performances and hence the DPU.
The depressed property market and further deterioration of commercial property valuation in Europe may result in a higher gearing ratio which, though the risk is low at the moment, there may be a possibility that the gearing ratio may exceed the MAS guideline of 50%.

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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