SINGAPORE (May 24): DBS is maintaining its “hold” on IREIT Global with a 75 cents target price even as a new sponsor comes on board.
While offering an attractive yield of over 7.5%, uncertainty over the acquisitions to be made by IREIT’s new sponsor Tikehau Capital, a European investment manager, will likely cap IREIT’s near-term share price performance.
DBS says it is more cautious about IREIT’s near-term outlook mainly due to its high gearing of 42%. This is higher than S-REITs’ average of 35%. The REIT also has relatively short debt maturity of 2.6 years as 49% of debt will be due in 2019.
Any acquisitions therefore are likely to entail an equity-raising exercise, which may be DPU dilutive in the near term, says DBS in a Wednesday report.
IREIT Global currently invests in a portfolio of office properties based in Germany. With a weighted average lease expiry (WALE) by gross rental income of around six years, IREIT provides strong cashflow visibility.
The strength of its cashflows is supported by its blue-chip tenants, such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics.
Since Tikehau Capital acquired the majority stake in the manager of the REIT, IREIT has been undergoing major senior management movements.
Tikehau has announced its plans to broaden IREIT’s investment mandate to expand beyond office properties to include retail and industrial properties across Europe.
DBS says a larger and more diversified portfolio in the medium term may attract more investors resulting in a re-rating of the stock.
“This re-rating will also gain momentum, once concerns over IREIT’s gearing is addressed,” says DBS.
Units of IREIT Global are trading at 76 cents.
