IREIT Global - DBS Research 2016-05-18: Tailwinds from Europe

IREIT Global - DBS Research 2016-05-18: Tailwinds from Europe IREIT GLOBAL UD1U.SI 

IREIT Global - Tailwinds from Europe

  • 1Q16 DPU of 1.58 Scts (+42% y-o-y) in line
  • Boost from acquisition of Berlin campus in mid 2015
  • Forward renewal of Deutsche Telekom’s 2017 lease.

Prospects of further cap rate compression. 

  • We maintain our BUY call with TP of S$0.77. While IREIT has rallied over 10% from the lows in January, we believe there is further scope for IREIT to re-rate on the back of further cap rate compression and uplift in property values as negative interest rates in Europe push investors up the risk curve. 
  • In addition, investors would receive attractive 8.8% yield while waiting for property values to rise.

Strong cashflow visibility. 

  • With a weighted average lease expiry (WALE) by gross rental income of 6.7 years, IREIT provides strong cashflow visibility. 
  • The strength of its cashflows is also underpinned by its blue chip tenants, such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics.

Full year contribution from Berlin acquisition. 

  • Over the coming year, IREIT should benefit from the full year contribution from a Berlin property which was acquired in mid-2015 and on a proforma 7.1% NPI yield. 
  • We estimate this will translate to 22% uplift in FY16 DPU (SGD basis).


  • With 1Q16 results in line with our expectations, we maintain our DCF-based TP of S$0.77. 
  • With an attractive 8.8% FY16 yield and 7% upside to our TP of S$0.77, we maintain our BUY recommendation.

Key Risks to Our View:

  • The key risk to our view is a significant depreciation of EUR versus SGD. For every 0.10 change in the EURSGD FX rate, our DCF valuation changes by 6%. 
  • In addition, a weaker than expected inflation rate would also delay any increase in rents.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-18
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.77 Same 0.77