Why Ireit?

In my last post, I mentioned that I bought Ireit and UOL on Monday. Some asked why Ireit …

I have Ireit on my portfolio for years already.  Hence, my purpose for buying it was to accumulate and my entry point was around 70 cents. It would help me to average down my cost. Bulk of my Ireit shares were bought at 70+ cents.

I managed to get some at 70.5 cents on Monday. It had retreated about 10% from its recent peak of 76 cents a week before and therefore, I thought it was a good opportunity to accumulate.

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It was unfortunate that I didn’t gather enough courage earlier to buy when it dropped to 40+ cents in late March. I only started the recent accumulation at 60+ cents when things appeared to be more stable. I know some fellow bloggers like AK managed to do so and I am happy for them.

In Sep last year, I wrote a blog and told the story why Ireit attracted me. I won’t repeat my story but offer you a link at the end of this blog so that you can access it if you are interested. However, I will mention a few new developments since then that made this company even more attractive to me today

(1) In April 2020, Ireit’s sponsor Tikehau Capital and strategic investor CDL increased their stakes to 29.20% and 20.87% from 16.64% and 12.52% respectively. AT Investments also emerged as a substantial shareholder after buying a 5.5% stake. All of them bought their shares from Mr Tong Jinquan, who was the biggest shareholder before all these transactions. Mr Tong is still a substantial shareholder with 6% stake today. Separately, Tikehau Chairman also purchased 200k shares in the open market at 60.5 cents per share. Like one of our fellow bloggers always say, there are many reasons why Insiders sell but there is only one reason they will buy – its because they believe the share price is undervalued.

This transition from Mr Tong to these 2 new largest shareholders is a major boost of confidence to retail investors on the outlook of Ireit, despite the dark clouds created by COVID-19.

In my view, with them in the driving seats now, Ireit will wake up from the slumber and be a more active player seeking growth in the market. Ireit had already acquired some new Spanish assets with the help of these 2 shareholders in early 2020, but it was unfortunate that it happened just before COVID.

(2) On basis of their 2019 Annual Report, Ireit’s Net Asset Value (in Euros) has also grown to 56 cents, the highest in the last 5 years. At current exchange rate of Euro$ 1 to SGD$ 1.56, it is equivalent to SGD $0.87. Assuming we take a pessimistic haircut of 20% asset value loss due to COVID, the NAV is still SGD $0.70. So, at 70 cents, we are not overpaying.

(3) Again on basis of their 2019 Annual Report, the interest coverage ratio is very healthy at 10.4 times (probably the highest amongst the SReit) and the cost of debt has dropped from 2% to 1.8%. Therefore, it should be relatively resilient to the current financial challenges.

(4) At 70 cents per share, the trailing dividend yield is 8.1%, which is on the top end of the last 5 years historical yield range of 7.0% to 8.5%. For Reits investment, I believe in reversion to mean.

So, this case, the mean historical yield is about 7.7%, which is what most investors would demand and the extremes are just a result of optimistic and pessimistic market sentiments.

Therefore, I see an opportunity to accumulate at 70 cents or below while waiting for yield to return to mean, i.e price to rise for the same DPU.

portfolio

In conclusion, I believe in the strong fundamentals of Ireit. It is without doubt that it will be impacted by COVID but I feel it is in a much healthier state than many others to overcome the current challenges.

Please note that I am buying to accumulate and to gain stable dividend income. I am also averaging downwards.

Everyone of us has a different investment objective. So, you have to judge for yourself if this is worth a place in your portfolio.

Have a safe and great investment week ahead.

Regards

Warriortan

Previous post on IReit

 

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