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IREIT Global - DBS Research 2016-08-11: Share price to take a breather

IREIT Globa - DBS Vickers 2016-08-11: Share price to take a breather IREIT GLOBAL UD1U.SI

IREIT Global - Share price to take a breather

  • 2Q16 DPU of 1.60 Scts (+45% y-o-y) in line.
  • Growth underpinned by acquisition of Berlin property.
  • Trimmed FY16-17F DPU by 1% each as we assume a lower EURSGD rate for hedging distributions. 



Uncertainty over IREIT’s manager. 

  • We downgrade our recommendation on IREIT Global (IREIT) from BUY to HOLD given limited upside to our TP of S$0.77. 
  • In addition, while there is potential for an increase in the value of IREIT’s portfolio as a result of further cap rate compression given negative interest rates in Europe, we believe uncertainty over 
    1. the potential acquisition of a 80% stake in IREIT’s manager by Tikehau Capital, an European investment manager, and 
    2. any new strategy for IREIT which may potentially entail an equity raising exercise to fund the acquisition of new properties in Europe, 
    will mean IREIT’s share price will likely take a breather after the strong share price rally this year.


Strong cashflow visibility. 

  • With a weighted average lease expiry (WALE) by gross rental income of 6.4 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. 

  • IREIT earnings this year 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 2Q16 results in line with our expectations, we maintain our DCF-based TP of S$0.77.


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/ 2016-08-11
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 0.770 Same 0.770


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