NAV rise validates an excellent strategy

Yew Grove invests in office and industrial assets in the Republic of Ireland (RoI). RoI GDP grew 3.4% in 2020, with 18.2% gross value added from multinational input. Yew Grove’s largest tenant segment is Life Sciences (35%), which benefits from Foreign Direct Investment (FDI) and, across the board, this macroeconomic attractiveness is being captured by the company. In the past four quarters, Yew Grove has achieved an average 99% rent paid on time. The valuation on its offices rose 1.9% 2020 and industrial assets by 5.5%. Two rent rises achieved 24% and 25% uplifts. Further reversion potential is evident for both offices and industrials.

• Resources for growth: In 2019, Yew Grove raised €35.8m equity, and it purchased €50.3m investment assets through 2019 to February 2020. It continues to deploy from debt finance (in part via a targeted forward-funding, together with an existing asset).
• Pipeline: Management has deep, specialist market knowledge. There is significant potential on top of a shorter-term €150m acquisition pipeline of office and, to a lesser degree, industrial assets. Over 50% of tenants are FDI. The reversionary yield is 9.0%.
• Valuation: To the COVID-19 low point of June, accounting returns amounted to 3.1% p.a. since the 2018 IPO, post all investment costs (which are significant). 2H’20 achieved 10.6% annualised returns (51% of that as income). As the portfolio grows and reversions accrue, the scope for DPS growth is clear and secure.
• Risks: Central costs have been flat through the portfolio growth from the IPO, but (halved) costs still equate to 2.2% of the portfolio value. The REIT is ready to scale further, and dividend payout growth would benefit from greater size. Offices are seen as facing uncertainty, but voids have been filled and rents raised.
• Investment case: High-quality office assets in locations attractive to both FDI/government employers and employees represent value for money. The industrial assets are located where IDA Ireland (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. We see significant dividend uplift scope in 2022.