A strong Irish economy has helped property investor Yew Grove REIT (LON: YEW) to grow its NAV. There are opportunities to further increase valuations.
Both the Irish economy and Yew Grove have significant exposure to the life sciences sector – it accounts to 35% of Yew Grove’s rents. Ireland’s GDP grew by 3.4% in 2020, with pharmaceuticals and IT the fastest growing sectors.
Yew Grove focuses on commercial properties in Ireland that are let to good quality tenants, such as government departments and multinational companies. Management concentrates on property outside of the central business district of Dublin. There is a shortage of suitable properties in these areas and, at the moment, a lack of competition from other investors.
In recent years, more than 50% of jobs created through foreign investment have been created outside of Dublin. It is still possible to buy properties below their rebuild cost.
The Yew Grove portfolio is valued at €141.9m with a vacancy rate of 4.1%. In 2020, industrial properties increased in value by 5.5% and offices by 0.9%. The group NAV increased from 98.52 cents a share to 100.03 cents a share.
Yew Grove has collected 100% of rents in the past two quarters. The contracted rent roll is €10.9m and there is potential for additional income from rent reviews and letting vacant properties.
In 2020, total quarterly dividends were 5.15 cents a share. The next dividend should be announced in April.
Gearing was 27% at the end of 2020 and this could be increased to 40%. There is a significant pipeline of potential purchases but limited funds available – probably around €20m.
There is an immediate acquisition pipeline of 11 properties that would cost €153m in total and there is a similar level of medium-term acquisition opportunities. The immediate opportunities have an average net interest yield of 7.86% and reversionary yield of 9%.
Yew Grove has to move to a main stockmarket in the next year to retain its REIT status and it is likely to switch to the Main Market in Ireland during the summer. That could provide an opportunity to raise more cash.
At 92 cents a share, the discount to NAV is 8%. The dividend yield is 5.6%. The potential deals should provide further medium-term growth in NAV and dividends. Additional cash to spend on properties would make Yew Grove even more attractive.