Yet another real estate investment trust (REIT) is going to be listed in our shores. IRET Global, Singapore’s first REIT with office assets in Germany, will be debuting on 13 August 2014 at 2pm. Its offer price is at S$0.88 and the public has until 11 August 2014, 12 pm, to apply for the units.
Other REITs that went public this year include OUE Commercial Real Estate Investment TR (SGX: TS0U) and Frasers HTrust (SGX: ACV). OUE Commercial REIT currently owns one office/retail building each in Hong Kong and Shanghai; Frasers Hospitality Trust on the other hand, got listed in June 2014 with a portfolio of six hotels and six serviced residences scattered across Australia, the United Kingdom, Japan, Malaysia, and Singapore.
IREIT Global’s initial portfolio of four office properties, which have an aggregate net lettable area of 121,506 square metres, are located in four key German cities, namely Bonn, Darmstadt, Munster and Munich. The assets all have freehold leases in addition to full committed occupancy as of 31 March 2014.
At the offer price of S$0.88, IREIT Global’s forecasted annualised distribution yield for the period covering 1 July 2014 to 31 December 2014 would be 7.6%. In 2015 and 2016, the REIT’s projecting distribution yields of 8% based on its offering price. IREIT Global would distribute 100% of its annual distributable income from its listing till 31 December 2016. Thereafter, it would distribute at least 90% of its annual distributable income; it should also be noted that for a listed entity to be qualified as a REIT in Singapore, it would have to distribute at least 90% of its distributable income.
A total of 167.7 million units will be sold in the offering. Out of which, international investors have been allocated 156.4 million units while the general public will be offered 11.36 million units. All told, IREIT Global would have 419.4 million units outstanding immediately following its listing.
Mr Tong Jinquan, one of China’s richest property tycoons, will buy 251.6 million units out of the 419.4 million as part of a separate deal. Interestingly, Mr Tong has stakes in other locally-listed REITs such as Suntec Real Estate Investment Trust (SGX: T82U), Soilbuild Business Space REIT (SGX: SV3U), Cambridge Industrial Trust (SGX: J91U), Viva Industrial Trust (SGX: T8B), Lippo Malls Indonesia Retail Trust (SGX: D5IU) and OUE Commercial REIT.
The manager of IREIT Global also intends to borrow S$162.6 million from DekaBank Deutsche Girozentrale. The total proceeds of S$531.6 million, which include the S$162.6 million in borrowings and S$147.6 million expected to be raised in the public offering, will go towards the purchase of the four German properties, related transaction costs, and working capital.
With a net asset value of S$0.78 per unit following its listing, the price-to-book (PB) ratio of IREIT Global would be at 1.13 at its listing price. The REIT would have a gearing ratio of 33.2%.
A Major Risk
The gross rental income earned by IREIT Global’s initial portfolio of four German properties has a really high tenant concentration: The REIT’s top five tenants collectively accounted for 98.9% of its gross rental income as of March this year. In fact, one tenant, Deustche Telekom, contributes 79.5% of IREIT Global’s gross rental income. It will be troubling for unit-holders if the REIT’s important tenants go bust or pulls out of the properties.
To sum up, IREIT Global will have a portfolio of four office assets located in Germany and its offer price is at S$0.88, which translates to a PB ratio of 1.1. Potential investors have to note the major risk of the REIT having a very concentrated tenant base. The prospectus of the REIT can be found here.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.