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Yew Grove REIT finds sweet spot of Irish property market

The trust joined AIM in June last year, raising €75mln to capitalise on the bullish trends
Ireland
Brexit has seen companies shift from the UK

Irish commercial property is a good place for investors currently believes Jonathan Laredo, chief executive of Yew Grove REIT PLC (LON:YEW).

Brexit has helped, with companies that traditionally used the UK as a bridge into Europe now shifting to Ireland.

WATCH: Yew Grove REIT focused solely on property outside of Dublin's CBD

“We are in that sweet spot of a growing economy and growing rents (plus we are investable),” he says.

The trust joined AIM in June last year, raising €75mln to capitalise on these bullish trends.

Almost a year on, Yew Grove is now fully invested with 20 buildings on 16 properties and Laredo sees little reason why it should not achieve its ambitious target value of €300-500mln within three years.

Yew Grove’s focus is well-tenanted office and industrial property outside of Dublin’s central business district.

A screening process assesses the strength of the local economy, if the building will appeal to large corporations or government bodies and if the yield is high enough for the risk taken.

Yew Grove has found plenty of properties that fit the bill.

LIttle competition

One reason is that its optimal size of property costs between €5-15mln, which is generally too expensive for high net worth investors but too small for direct investment from a property institution.

That has left a clear run for Yew Grove, especially as market volatility last year has made it even harder for private groups to raise funds.

One property in Letterkenny in Co Donegal in the north-west of Ireland, for example, is let to Optum, a subsidiary of US giant United Health.

Yew Growth is receiving around a 9% annual yield, but a similar property rented to Optum in the centre of Dublin is generating around 4.3% for its owner.

“So we get double the yield for the same credit.”

Dublin commuter belt

Around 45% of the portfolio is in the Dublin commuter belt, an area defined by Laredo as a 40-minute drive from the centre.

Here and in Cork, rents are rising faster than in places such as Letterkenny and Waterford and leases are shorter to catch the reversionary uplift from new agreements at higher rates.

One property south of the docks in Dublin has deliberately short leases as rental growth here is especially strong.

Laredo believes Ireland is further along the property cycle than the rest of Europe and as rental growth slows, leases will get longer.

Occupancy was 96.5% at end 2018, with a reversionary yield of 8.7%.

At present, the average lease length is 4.9 years to the next break point and 7.4 years to their end, but Laredo can see the length increasing to ten years eventually.

By that time, Yew Grove itself might be a completely different vehicle.

First mover advantage

“We have a significant first mover advantage and three of years growth (to get to €500mln).

“As long as we execute the plans, at that point we will attract someone’s attention and become a consolidation play or else, become a consolidator ourselves.”

For now, though, Yew Grove has significant attractions for income investors, says Laredo.

Euro-backed property investments usually are lucky to earn 2%, he says, but with Yew Grove, you get a 6-7% yield for a high-quality portfolio.

For property investors, Laredo says, it is a growth story.

Ireland’s highly educated and young population will also keep corporations and multi-nationals heading to Ireland and while initially, there might be a little illiquidity, Laredo expects its portfolio to grow 7-8% a year.

For retail investors, it is a powerful combination, especially for anyone topping up a self-invested pension.

Small European market

Laredo adds he is working with the Irish authorities to improve the transparency of property yields outside of the centre of Dublin.

The aim is to make non-Dublin “a classic small European regional market”.

“That’s what we want.”

At €1.01, Yew Grove is valued at €65mln or roughly on a par with NAV at the end of December.

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“We believe that our NAV forecasts are conservative and the shares are significantly under-valued given the company’s track record and growth prospects.”

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