IREIT Global - Phillip Securities 2021-03-01: Another Year Of Resilience


IREIT Global - Another Year Of Resilience

  • IREIT Global (SGX:UD1U)'s FY20 NPI and DPU at 102%/103% of our forecasts, in line.
  • Rental collection exceeded 99%. FY21 lease breaks/expiries minimal at 3.7%/3.3%.
  • Portfolio occupancy remained high at 95.8%. Portfolio valuation increased by 1.2% with high occupancies anchored by blue-chip tenants in German portfolio. 
  • Maintain ACCUMULATE on IREIT Global with raised DDM target price (7.85% discount rate) of S$0.70, from S$0.68.
  • Our target price implies yields of 7.3% and total prospective returns of 14.2%. FY21e DPU has been raised by 7% for better operational performance.

The Positives

FY20 better than expected, rental collection high.

  • IREIT Global's gross revenue and NPI in FY20 were up 7.2% and 7.3% y-o-y respectively, following consolidation of its Spanish properties after their acquisition on 22 October 2020. FY20 NPI, distributable income and DPU were slightly better than expected, at 102%/104%/103% of forecasts.
  • Rental collection exceeded 99%. Outstanding were rental rebates and deferrals granted to a few tenants.

High portfolio occupancy, minimal FY21 expiries, stable portfolio valuation.

  • Portfolio occupancy remained high at 95.8%, though down 0.5% from a quarter ago as two tenants exercised their break option at Delta Nova IV. FY21 lease breaks/expiries are minimal at 3.7%/3.3% by gross rental income (GRI).
  • Despite COVID-19, IREIT Global's portfolio valuation increased by 1.2%.
  • High occupancy of 99.6% anchored by blue-chip tenants led to a 2.3% valuation increase for its German portfolio. This constituted 82% of its total portfolio valuation. Valuation of its Spanish portfolio, in contrast, was down 3.5% due to longer vacancy assumptions.

The Negative

Chunky FY22 expiries, 5% likely de-risked.

  • About 32.5%/24.6% of IREIT Global's leases by GRI will be due for lease breaks/expiries in FY22. About 5% of the lease breaks are attributable to DRB (Deutsche Rentenversicherung Bund) for its lease at Berlin Campus due in June 2022. DRB is likely to keep its lease as rental rates are attractive.
  • IREIT Global recently leased a new building adjacent to Berlin Campus for more than double Berlin Campus’ passing rents.
  • Other properties up for lease breaks/expiries are IREIT Global’s Darmstadt and Munster Campus, leased by Deutsche Telekom (DT). IREIT Global has started to engage Deutsche Telekom for early renewals.


  • With lockdown extensions and strict social-distancing restrictions in several economies, a sustainable recovery in the European real estate remains largely uncertain. Though work-from-home is taking roots, it remains too early to predict the direction of office demand as work arrangements are still in a flux. To date, physical occupancies in its portfolio amount to 30%.
  • After IREIT Global's rights issue in 4Q20, its aggregate leverage improved to 34.8% in FY20 from 39.3% a year ago. Weighted average debt to maturity was 5.3 years, with all borrowings due to mature only in 2026. This provides IREIT Global with the flexibility to pursue M&A growth opportunities.
  • IREIT Global is looking at office, retail and logistics assets in Europe, particularly in countries where Tikehau Capital has a foothold such as France, Italy and the Netherlands.
  • To provide more options to its unitholders, IREIT Global is exploring the possibility of implementing dual-currency (€/S$) trading. Although its S$ trading liquidity may be compromised, we believe dual-currency trading will help to attract European investors looking for exposure to a pure Western Europe office portfolio.
  • IREIT Global is also considering changing its distribution currency from S$ to its functional currency, €. If implemented, it will not need to hedge future distributions. This is more efficient, in our view, as IREIT Global can focus purely on operational metrics.

Maintain ACCUMULATE with raised target price of S$0.70.

Tan Jie Hui Phillip Securities Research | 2021-03-01