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Yew Grove REIT plc

Strong strategy, tenants and total returns

13 Jul 2020 / Corporate research

Yew Grove invests in office and industrial assets in RoI. Tenants are creditworthy, 95% multinational or governmental; this RoI regional-income REIT invests in assets that support rising income streams, based on rents that are at a fraction of Dublin CBD levels. Macroeconomic conditions pre (and even more so, post) COVID-19 support Yew Grove’s selection of locations, which exclude Dublin CBD. Sharp historical rises in Dublin CBD rents and easier accessibility of offices on the fringe of the centre have pointed occupiers to these latter “core+” locations, while regional office and industrial attractions are increasing.

  • Resources for growth: In 2019, Yew Grove raised €35.8m equity and purchased €61.8m investment assets throughout 2019 to February 2020. The shorter-term deliverable acquisition pipeline stands at more than €120m. Two months ago, shareholders renewed authority for a further up to €100m new equity raise.
  • Asset strategy: Management has deep, specialist knowledge. The portfolio has upside from embedded asset management potential and letting two voids (that have already added value). One had voids when bought, the other paid an early-lease termination premium for an asset with good following demand.
  • Valuation: Strong accounting returns amount to 3.1% p.a. since the 2018 IPO, post all investment costs. Even excluding the special dividend, Yew Grove is 140% of the UK sector’s historical dividend yield, on a growing dividend. Return on assets (EPRA EPS vs. NAV) is the highest in the peer group.
  • Risks: WAULT (term to expiry) stands at 7.5 years. Most asset values are below replacement cost. Yew Grove has deployed in areas where rent rises and capital values have lagged Dublin CBD over the cycle: a good opportunity, with these market rents outpacing CBD in recent years.
  • Investment case: The well-located office assets offer value for money, both to FDI/government employers and their employees. The industrial assets are located where the IDA is promoting growth, which underpins market forces. The premium investment returns, underpinned by above-market yields, should prove more reliable in all potential market conditions.

 

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