Yew Grove REIT has announced its annual results for the seven month period ended 31 December 2018. Jonathan Laredo, the company’s CEO describes these as a “strong set of inaugural results for the Group”. He also says that the net proceeds from the IPO have now been fully invested and the properties that have been acquired have enhanced the rent roll and tenancy mix of the overall portfolio. The financial and strategic highlights from the results are detailed below.
Financial Highlights
- EPRA Net Asset Value (“NAV”) per ordinary share (pre-dividend payment) increased by 3.6 cents to 100.18 cents as at 31 December 2018
- The Company’s properties benefit from attractive leases:
- Current weighted average unexpired lease terms of 4.9 years to break and 7.4 years to expiry
- Very strong occupancy of 96.5% across the estate
- Strong tenant covenants with 38.7% Government and other State Bodies tenants, 58.7% FDI / Corporate tenants by income)
- yield of 8.07% at year end valuations with an estimated gross reversionary yield exceeding 8.7%
- Annualised passing rent roll of €6.3 million as of 31st December 2018
- Uncommitted headroom under the Group’s €19.9 million debt facility of €13.7 million as at 31 December 2018.
Strategic Highlights
- IPO in June 2018 raising gross proceeds of €75 million.
- Full deployment of the IPO proceeds
- €25.9 million in the seed portfolio acquired at admission; and
- a further €50.4 million on the acquisition of 6 new buildings
- A three-year, revolving credit facility with an initial total amount of €19.95 million has been signed with AIB Group plc.
- Positive Irish commercial real estate market supporting the strength of the Company’s potential acquisition pipeline.
CEO results summary
“Pre-tax profits for the period were €2.3 million including a net valuation gain of over €1.6million. The valuation gain was partially driven by growth in value of the seed portfolio, but more substantially by the increase in value of properties acquired since the IPO in June 2018. The Company has tripled the size of its property portfolio since IPO, and the valuation gain recorded for the period represents a significant achievement given the market assumption that Irish commercial property investments have an associated cost (including stamp duty, legal, surveying and other fees) of 8.46%.
As a result, EPRA NAV per share increased to 100.18c as at 31st December 2018, from 96.55c in June 2018. This means that, not only has the Company covered the acquisition costs of the new properties, but also the costs of flotation. This is a remarkable achievement. for a company in its first seven months of activity.
The agreement of a revolving credit facility with Allied Irish Banks has increased the Company’s funds available for investment and will allow us to pursue some attractive opportunities in the near term.
The annualised rent roll as at 31st December 2018 was €6.3 million with excellent opportunities to increase that on the existing portfolio both through asset management as well as generally increasing rental levels driven by the backdrop of strong demand from tenants in our geographic target market.”
CEO’s Review of activity
“In the period from our April incorporation to year end, we successfully completed a €75M IPO in June and have grown our portfolio to 18 buildings in 14 properties. This includes 12 buildings in the 10 seed portfolio properties acquired at IPO.
In July, the Group acquired two office buildings (Building One and Three Gateway, together the “Gateway buildings”) on East Wall Road, Dublin 3, just north of the Dublin docklands. The two buildings were acquired for €29m (plus costs). In October, the Group acquired Blackwater House in Mallow for €1.85 million (plus costs). In November, the Group agreed terms with IDA Ireland and a tenant in its Athlone property to acquire land and begin construction of a car park adjacent to that property. That work which will cost c €0.5 million is expected to be completed in February. In December, the Group completed the acquisition of three buildings, on an IDA park outside Letterkenny in Donegal, for an aggregate purchase price of €16 million (plus costs). The costs are detailed in note 13 to the accounts below.
In November, the Company was granted permission by the Courts to write down its share premium account and as a result when the Company accounts for the period ended 31st December are filed with the CRO, the Board will be able to announce the payment of the interim dividend.
Finally, in December, the Company agreed a revolving Credit facility with AIB secured on some of its properties. The facility has a three-year initial term and has an initial principal amount of €19.95 million. At year end the Group had uncommitted facilities of €13.7 million and continues to pursue a number of attractive investment opportunities.”
CEO’s Property valuation review
“Lisney valued the property portfolio at 31st December 2018 including the initial valuation of all properties acquired since the IPO. The portfolio was valued at €77.9 million recognising a valuation gain of €1.6 million.
As at 31st December 2018, the portfolio had an annualised rent roll of €6.28 million representing a yield to the Company of 8.07%. The expected reversionary yield on the portfolio is in excess of 8.7%.
The portfolio has a WAULT of 4.9 years to break and 7.4 years to final maturity. Given the current state of the market, i.e. that demand for property in our geographic target market is driving rent levels up, the Company is currently happy with a slightly shorter WAULT to break/rent review where it can increase rental earnings more quickly.”
CEO’s Finance review
“Borrowings at 31st December stood at €6.2 million with further available facility of €13.7 million. Total Debt to equity gearing and LTV at 31st December were 7.96% and 8.26% respectively. Details of the facility and the amount drawn can be seen at note 19to the accounts below.”
CEO’s Irish Commercial Real Estate Market review
“The strength and depth of the Company’s potential acquisition pipeline is a reflection of the positive Irish commercial real estate market, as well as its first mover advantage as the only publicly quoted vehicle focusing predominantly outside of the- Dublin CBD. The Irish economy has performed strongly in recent years and this has been reflected in the volume of property investment transactions. 2018 was one of the strongest years on record with total transactions of €2.56 billion in the first 9 months of 2018. Of this €1.1 billion was in the office sector. More significantly for the Company, approximately 63% of those transactions happened outside of the Dublin CBD1, i.e. within the Company’s geographic target market. The prognosis for the economy remains positive despite underlying concerns relating to Brexit and other macro-economic headwinds.
On current trends, demand for office space is increasingly being driven by the requirement from multinationals for large footplate, grade A or modern space. In addition the Irish Government has a proactive policy focused on balanced regional development which is encouraging the growth of regional centres. With current rent rates for prime space outside of the CBD at half of the CBD levels or lower, multinationals and other tenants attracted by suitable space are driving demand and falling vacancy rates. For the past 3 years take up has been stronger in Dublin’s secondary and suburban areas than the CBD, and in 2018 vacancy rates in those locations fell, whilst vacancy increased in the CBD (principally in older, poorer quality buildings). Vacancy rates have fallen in Cork, Limerick, Galway and the other key cities and towns in which large corporate FDI companies are increasingly looking to site their businesses. Rising rents have seen the beginnings of development outside of the CBD, with over half a million sq feet under construction2.
Transactions in industrial property are far more constrained as a severe shortage of suitable properties makes secondary transactions expensive and fairly infrequent. The market accounted for only 3% of all commercial real estate investment transactions in the first 3 quarters of 20183. However, the demand for space is driving rents upwards and there are increasing numbers of forward funded development for tenants. The Company expects to see that continue in 2019 and beyond.
These trends align with Yew Grove REIT’s differentiated strategy, targeting well-tenanted commercial real estate located outside of central Dublin and I and the Board look forward with a high degree of optimism to our first full year of active operations.”
About Yew Grove REIT
Yew Grove REIT is an Irish REIT investing in office and industrial properties primarily outside Dublin’s central business district. Its shares are listed on AIM and on the Enterprise Securities Market of Euronext Dublin. The directors intend to build a portfolio of properties which is focused on commercial real estate assets in Ireland, with a particular focus on office and industrial assets let to Irish government entities and other State Bodies, IDA Ireland supported and other FDI companies, and larger corporates principally located:
- in Dublin city (other than the Dublin Central Business District);
- within the wider Dublin Catchment Area;
- in major regional cities and towns (especially those identified as hubs for industrial development under Project Ireland 2040)
- in IDA Ireland Business and Technology Parks
Yew Grove REIT maintains a pipeline of sites and deploys capital in accordance with this policy, spreading risk across property and tenant types, focussing on commercial-only property acquisitions and limiting exposure to the geographic target market. The investment policy is guided by macro-economic factors, commercial property trends, FDI (foreign direct investment) patterns and tenant requirements.
Ireland’s inward investment promotion agency, the IDA, is a non-commercial, semi-state body promoting Foreign Direct Investment into Ireland through a wide range of services. It partners with potential and existing investors to help them establish or expand their operations in Ireland.