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Broker's take: Phillip Securities initiates coverage on IReit Global with 'accumulate'

PHILLIP Securities Research has initiated coverage on IReit Global Group, a Europe-focused real estate investment trust (Reit), with an "accumulate" call and target price of S$0.885, citing attractive dividend yield.

As at 2.43pm, the mainboard-listed Reit's counter was trading at S$0.825, up one Singapore cent or 1.2 per cent.

Phillip Securities analyst Tan Jie Hui said in a Wednesday report that the Reit has an attractive dividend yield of 6.9 per cent for fiscal 2020 and fiscal 2021. 

It is also supported by stable leases due to its portfolio weighted average lease expiry of 4.4 years and average occupancy of 99.7 per cent. The Reit’s interest rates are hedged for seven years and no refinancing is needed until 2026.

IReit Global is also able to leverage the financial support, expertise and acquisition deals from investors Tikehau Capital and City Developments Limited (CDL) – which jointly own the Reit’s manager. Tikehau Capital owns 16.3 per cent of the Reit's units, while CDL owns 12.3 per cent.

The Reit, through its joint venture with Tikehau Capital, recently acquired four freehold office buildings in Spain. This will allow it to add scale, growth and diversification to its portfolio, Ms Tan said. IReit Global has a 40 per cent stake in the joint venture, with a call option from Tikehau Capital to buy the remaining 60 per cent. This option will help spur growth for IReit Global, the brokerage added.

One of the key risks to the view includes the Reit having less organic growth opportunities. This is because rental escalations for most of the Reit's Germany properties - except for Berlin Campus - are based on an inflation mechanism tagged to Germany’s consumer price index (CPI). 

Germany’s CPI remains muted, averaging at 1.1 per cent per annum over the past seven years which can weigh on rental escalation rates, the report noted. Moreover, most of the leases are locked in until 2022.

Phillip Securities is currently the only brokerage covering IReit Global. The brokerage’s report was prepared under the Research Talent Development Grant Scheme where the Monetary Authority of Singapore provides co-funding to groom research talent to initiate research coverage primarily of mid-small cap Singapore Exchange-listed companies.