Property company Yew Grove seen as having plenty of growth potential

Yew Grove, the Irish real-estate investment trust (reit) that recently sold €75 million of shares and floated in Dublin and London, has "a good asset base, experienced management and plenty of room to grow," according to Investec.

The stock brokerage kick-started its research coverage of the country’s newest reit on Friday with a ‘buy’ rating and a price target of €1.32.

Yew Grove, which is chaired by former senior IDA executive Barry O’Dowd, is primarily focused on office and industrial assets outside Dublin city that are let to Irish state entities, IDA-supported companies and large corporates. The company has acquired about €57 million of assets to date with Investec forecasting it will deploy an additional €38 million in capital before the end of the year.

Overall, Yew estimates it can grow its property portfolio to between €300 million and €500 million over the next three years.

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“We are very positive on Yew Grove’s prospects given the solid fundamentals of the Irish commercial property market, its conservative funding base and low -cost model; and realistic growth plans,” Investec said in a note to investors.

“Its targeted dividend per share of 7 cents for fiscal 2019 is attainable, delivering strong near-term income returns. Over time, rising portfolio income and yield compression should see strong capital growth,” the analyst added.

Investec’s price target of €1.32 offers a forecast total return of 36 per cent.

It praised Yew for taking a different approach than other reits by focusing on assets outside of the capital, with real estate outside of central Dublin offering a yield pick-up. It noted that Yew is conservatively funded with a loan-to-value (LTV) ratio of no more than 25 per cent at the time of drawdown, and a low cost base. Furthermore it said that management interests “are fully aligned with shareholders.”

Investec projected Net Asset Value (NAV) growth of 50 per cent to the end of 2023 with “very strong” income returns expected for shareholders.

"Our forecasts are underpinned by the strong fundamentals of the Irish commercial property market and management's proven track record of delivering capital growth and distributions to the Yew Tree Investment Fund's shareholders," the analyst said.