IREIT GLOBAL (SGX:UD1U)
IREIT Global - Resilience From Quality Tenants; Keep BUY
- IREIT Global’s 3Q updates shows that its office portfolio occupancy has remained steadfast so far, with signing of a new long lease at its Spanish asset. A key strength of IREIT Global lies in its high quality blue chip tenant profile, long lease tenure and strong sponsor support which we believe positions it well to tide through the COVID-19 period.
- IREIT Global's valuations are attractive at a 0.8x P/BV with a FY21 yield of 7%.
- Keep BUY with a revised target price of S$0.70 from S$0.83, 11% upside and c.7% FY21 yield.
Occupancy uptick in Spanish assets despite COVID-19.
- On 22 Oct, IREIT Global (SGX:UD1U) completed the acquisition of the remaining balance of a 60% stake in the four Spanish assets from sponsor. Post-acquisition, its Spanish portfolio accounts for 19% of its total assets up from 9%, with Germany accounting for 81%.
- Occupancy at IREIT Global's assets has so far remained stable with new leases still being signed, despite a severe COVID-19 pandemic in Spain and Germany. At the end of 3Q, at Il-Lumina, Barcelona occupancy increased to 90.2% (2Q: 82.9%) with the signing of five year lease for AREAS (a global leader in food and beverage services).
- Since the start of the year, the Spanish portfolio occupancy has increased 6ppt to 86.8% demonstrating an active asset management and continued office demand despite COVID-19. The passing rents of Spanish portfolio are on average still 15% below market rents.
- Occupancy at its German portfolio remains stable at 99.6%.
Minimal rental impact so far from COVID-19.
- At the end 3Q, IREIT Global received minimal rental assistance requests and has granted rent deferrals and rebates to < 2% (rental rebates of 0.8% of total) of its total income. These reliefs have been provided mainly to café operators as part of its Spanish assets, with no requests received yet from German tenants.
- Rent collections have been healthy at 98% since Mar 2020. Despite a second round of lockdown measures implemented in both Germany and Spain, the manager doesn’t expect further rental assistance requests from tenants.
- IREIT Global noted it is still early to assess the full impact of working from home trend and potential non-renewals or downsizing of leases. Management remains fairly confident that its two key tenants are likely to stay and extend their leases as they have been long-term tenants and the buildings house key employees.
- IREIT Global's weighted average lease to expiry (WALE) stands at 3.7 years with 96% of leases due for renewal only in FY22 and beyond.
Gearing lowered to 35%
- IREIT Global's gearing lowered to 35% post recent rights issue, raising EUR88.7m (S$ 142.8m) thus presenting a good headroom for acquisitions. Management remains on the active lookout for opportunities mainly in Western Europe and is open to other asset classes too (logistics, retail etc.) depending on pricing and asset quality.
- We lower our IREIT Global's FY20-22F DPU forecast by 4%, 20% and 20% after factoring in the rights issue. We have also lowered our COE by 30bps in our DDM model.
- See IREIT Global Share Price; IREIT Global Target Price; IREIT Global Analyst Reports; IREIT Global Dividend History; IREIT Global Announcements; IREIT Global Latest News.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-17
SGX Stock
Analyst Report
0.70
DOWN
0.830
