SINGAPORE (July 2): Analysts are taking a second look at the Europe-focused IREIT Global (IREIT), for its resilience during the Covid-19 pandemic that has caused deep wounds in several real estate operators.
“IREIT’s predominantly blue-chip tenant base has minimised the impact from the ongoing Covid-19 pandemic,” observe UOB Kay Hian analysts Nicola Ho and Jonathan Koh in an unrated July 1 report.
IREIT is the first REIT listed on the Singapore Exchange that is focused purely on European properties. Its portfolio comprises nine freehold office assets in Germany and Spain which account for 91.2% and 8.8% of its assets under management.
Collectively, this gives it a total attributable lettable area of 230,000 sqm, and a valuation of €630.2 million ($988.95 million).
Its blue-chip tenants include telco Deutsche Telekom, pension insurance operator Deutsche Rentenversicherung Bund (DRV), Financial services firm Allianz, digital finance firm Ebase and ST Microelectronics.
Deutsche Telekom and DRV are considered IREIT’s key tenants and 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,” observe Ho and Koh.
So far, 98% of the REIT’s portfolio rents for April and May have already been collected, while the remaining 2% - mainly from its Spanish properties – have requested for rental rebates and/or deferments. It has not faced any early termination from existing tenants thus far.
IREIT has a long weighted average lease expiry (WALE) of 3.9 years. For now, only 3.5% of leases are slated for expiry between 2020 and 2021.
Looking ahead, Ho and Koh say IREIT can leverage on City Developments (CityDev) and Tikehau Capita – which collectively have an over 50% stake in it – to grow.
Specially, they say the REIT can leverage on CityDev’s funding capabilities and Tikehau Capital’s local expertise to deepen its presence in Europe. It can also tap on their extensive networks and sponsors’ pipelines for future acquisitions, they add.
For now, the duo observe that IREIT provides attractive distribution yields of 8.8% for 2020 and 8.8% for 2021. Yield spreads meanwhile are 9.3% for 2020 and 2021 – above the -0.5% yield for 10-year German bunds.
“IREIT deserves to trade at a lower yield given that Germany and Spain have successfully contained the spread of COVID-19,” they point out.
As at 1.32pm shares of IREIT were flat at 73 cents.
