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Ireit Global SGX: UD1U - Remains Operationally Resilient; Keep BUY

    Maintain BUY with an unchanged TP of SGD 0.74, 21% upside and c.8% yield. Despite macroeconomic uncertainties over the Eurozone area from spiking inflation and ongoing Russo-Ukrainian war, we note the portfolio of IREIT Global is well suited to deliver stable dividends based on its long stable leases, fixed debt (until 2026), and low gearing level. Valuations remain attractive with IREIT trading at a 25% discount to its book value and offering c.8% yield which is c.600 bps premium to the 10-year Eurozone central government bond yield.

    Bonn Campus leases extended for another six years. Deutsche Telekom (DT), the sole existing tenant occupying the entire building, has extended its lease tenure in the building for another six years until Apr 2029 (initially DT signed a 12-month lease extension until Apr 2023). The extension is another testament to IREIT’s good asset quality and is likely to result in an uptick in value of the asset which accounts for 13% of total. We understand that the rents are similar to those of current rents with rent escalations clauses tied to annual inflation. Overall portfolio weighted average lease expiry (WALE) will increase to 4.6 years from 3.7 years. IREIT is currently in active discussions with various tenants for Darmstadt campus (7% of portfolio value) which will be vacated by DT in Nov 2022.

    Inflation-linked rent escalation and 100% debt fixed until 2026. IREIT’s portfolio is minimally impacted by rising inflationary pressures and will - in fact - have a slight positive effect from rent escalations that are pegged to inflation rates. For assets in France and Spain rents are adjusted for inflation annually while for its German portfolio, the rental increase is on a cumulative basis once a certain threshold is reached. Similarly, the sharp spike in utility charges will also have a minimal impact as these are generally passed through and borne by tenants. On the interest cost side 100% of IREIT’s debt is fixed at 1.8% pa up until end of 2026 thus shielding it from sharp anticipated increases in overall interest rates.

    Among the lower geared SREITs with a gearing of 32% presenting healthy debt headroom of >EUR100m for potential acquisitions (assuming 40% levels). Management has noted that its target market remains Western Europe: Germany, France, Spain, and Italy. its preferred asset class is commercial, and is also potentially looking at adding some logistics assets. IREIT is backed by two committed sponsors: Tikehau Capital which has strong track record in European markets and City Developments (CIT SP, BUY, TP: SGD 9.75), a well reputed Singapore developer. The have demonstrated strong commitment in past by underwriting fund raisings and purchasing stakes in open market which provide support for share price.

    No earnings changes, ESG score of 3.0 out of 4.0 based on our proprietary in-house methodology. As this score is in-line with our median score we have applied a 0% premium to its intrinsic TP.

Source: RHB Research - 31 May 2022


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