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).
Valuation:
- 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
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Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-05-18
DBS Vickers
SGX Stock
Analyst Report
0.77
Same
0.77
