S-REITs Weekly - UOB Kay Hian 2020-07-06: 2.4% Gain Due To The Gradual Easing Under Phase 2 Of Re-opening

IREIT GLOBAL (SGX:UD1U)

S-REITs Weekly - 2.4% Gain Due To The Gradual Easing Under Phase 2 Of Re-opening

S-REITs gained 2.4% due to the gradual easing under Phase 2 of re-opening with tourist attractions scheduled to reopen from 1 Jul 20 and cinemas from 13 Jul 20.
We turn our spotlight to IREIT Global (SGX:UD1U), a pure play on office properties in Europe that provides a distribution yield of 8.5% and yield spread of 9.0%.
Maintain OVERWEIGHT.
BUY
- retail REITs CapitaLand Mall Trust (SGX:C38U) (Target: S$2.60) and Frasers Centrepoint Trust (SGX:J69U) (Target: S$2.85),
- hospitality REITs Ascott Residence Trust (SGX:HMN) (Target: S$1.16) and Far East Hospitality Trust (SGX:Q5T) (Target: S$0.62), and
- office REIT Keppel REIT (SGX:K71U) (Target: S$1.30).

The government has allowed tourist attractions, such as the Flower Dome at Gardens by the Bay, the River Safari, Singapore Zoo, ArtScience Museum, Sands SkyPark and Observation Deck, the casino at Marina Bay Sands, Universal Studios Singapore, the S.E.A. Aquarium and the casino at Resorts World Sentosa, to reopen from 1 Jul 20 (restricted to 25% of operating capacity). Cinemas will be allowed to reopen from 13 Jul 20. Seats are reconfigured to ensure safe distancing of at least 1m and a maximum of up to five persons can be seated together.
See
- S-REITs Share Price Performance;
- S-REITs Target Price & Rating.

Retail REITs Starhill Global REIT (SGX:P40U) and CapitaLand Mall Trust (SGX:C38U) gained 5.8% and 3% respectively.
Office REITs CapitaLand Commercial Trust (SGX:C61U) and Keppel REIT (SGX:K71U) also gained 2.9% and 2.8% respectively.
Elite Commercial REIT (SGX:MXNU) increased 3.7%, buoyed by the drop in daily new confirmed cases of COVID-19 in the UK.

US REITs ARA US Hospitality Trust (SGX:XZL), Keppel Pacific Oak US REIT (SGX:CMOU) and United Hampshire US REIT (SGX:ODBU) lost 2.4%, 2.1% and 0.8% respectively, troubled by a second wave of COVID-19 infections in the US.
Retail REITs Lendlease REIT (SGX:JYEU) and SPH REIT (SGX:SK6U) dropped 1.5% and 1.1% respectively.

IREIT Global (SGX:UD1U) is a pure play on office properties in Europe. It has nine freehold office assets in Germany and Spain, which accounted for 91.2% and 8.8% of asset under management (AUM) respectively. Its portfolio has a total attributable lettable area of 230,000sqm and valuation of €630.2m.

IREIT Global’s two key tenants, Deutsche Telekom and Deutsche Rentenversicherung Bund (DRV), accounted for 77.4% of gross rental income as of Mar 20. They are sticky tenants as the Berlin campus and Bonn campus are built-to-suit to cater to Deutsche Telkom and DRV’s specific requirements.
Deutche Telekom is a global telco player, while DRV is Europe’s largest pension insurance company. Blue-chip tenants, including Allianz, ST Microelectronics and Ebase, accounted for 87.8% of gross rental income. Only 3.5% of leases will expire in 2020-21. The portfolio has a long WALE of 3.9 years.

IREIT Global’s predominantly blue-chip tenant base has minimised the impact from the ongoing COVID-19 pandemic. There has been no early termination by any tenants due to the pandemic. 98% of portfolio rents in April and May were already collected. Requests for rental rebates and deferrals accounted for only 2% of IREIT Global’s total rents and came mainly from its Spanish portfolio. Germany and Spain have started to ease lockdown restrictions, having successfully flattened the curve and contained the spread of COVID-19.

IREIT Global is managed by IREIT Global Group (IGG), which is jointly owned by City Developments (SGX:C09) and Tikehau Capital. City Developments and Tikehau own over 50% of IREIT Global.
IREIT Global is able to pursue its growth strategy by leveraging City Developments’s funding capabilities and Tikehau Capital’s local expertise and deep presence in Europe. IREIT Global can tap on City Developments’s and Tikehau Capital’s extensive networks and sponsors’ pipelines for future acquisitions.

Consensus estimate for IREIT Global’s DPU is 4.0 € cents for 2020 and 4.0 € cents for 2021, implying attractive distribution yields of 8.5% for 2020 and 8.5% for 2021. Yield spreads are 8.9% for 2020 and 8.9% for 2021, above the yield for 10-year German bunds of -0.4%.
See more details in report: IREIT Global - UOB Kay Hian 2020-07-01: Resiliency From Blue-Chip Tenants.
IREIT Global deserves to trade at a lower yield, given that Germany and Spain have successfully contained the spread of COVID-19.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-07-06

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000