IREIT Global Has An 8.4% Distribution Yield: 4 Things Investors Should Know About Its Business Right Now

IREIT Global (SGX: UD1U) is the first Singapore-listed real estate investment trust that was established with the primary aim of investing in commercial properties in Europe. Its portfolio currently comprises five freehold commercial properties in Germany.

Right now, the REIT has a distribution yield of 8.4%, which is nearly thrice the market average. To the point, the SPDR STI ETF (SGX: ES3) has a yield of only 3%; the SPDR STI ETF is an exchange-traded fund that tracks Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

IREIT Global’s market-beating yield prompted me to take a closer look at its business. Here are four things I found that are worth noting for investors:

1. Business performance in 2016

Here’s a table showing IREIT Global’s gross revenue, net property income, distributable income, and distribution per unit for 2016 and 2015:

IREIT Global income statement 2016
Source: IREIT Global 2016 full year earnings presentation

We can see that all four metrics improved in 2016. In its earnings release, IREIT Global commented that the “leasing and investment activity of commercial space in Germany is expected to remain firm.”

The REIT also said that “the outlook for the European real estate market remains positive, due to sustained economic growth, decreasing vacancy rates and attractive yield spreads that will provide better returns.”

2. The occupancy rate

The occupancy rate of a REIT is an important metric to look at since it provides investors with a measure of the strength of the market demand for a REIT’s property.

As of 31 December 2016, IREIT Global’s overall portfolio occupancy level stood at 99.8%. In fact, four out of the REIT’s five properties were 100% occupied.

3. The tenant mix and lease expiry profile

The slide below, taken from IREIT Global’s 2016 full year earnings presentation, shows a breakdown of the REIT’s rental revenue by tenants. It also shows the REIT’s lease expiry profile.

IREIT Global tenant breakdown
Source: IREIT Global 2016 full year earnings presentation

There are two key observations here. Firstly, IREIT Global has a high level of concentration risk given that only two tenants accounted for nearly 87% of its total rental revenue in 2016. Secondly, the REIT has a long lease expiry profile whereby 83% of its leases will expire only from 2022 onward; the REIT’s long leases provide it with a stable revenue base.

4. A change in investment mandate

Earlier this month, the REIT’s unitholders approved a change in its investment mandate. Previously, IREIT Global was predominantly an European commercial REIT. The new mandate will include European industrial and retail properties, in addition to commercial real estate. This change in mandate was driven by Tikehau Capital, which acquired IREIT Global’s Manager in late 2016.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.