Brokers’ take: Lim & Tan Securities initiates coverage on IReit Global with ‘accumulate’
Ilyas Salim
LIM & Tan Securities has initiated coverage on Europe-focused real estate investment trust (Reit) IReit Global with “accumulate on weakness” and a target price of S$0.69.
The target price implied an upside of 40.8 per cent from the Reit’s unit price of S$0.49, derived from a dividend discount approach based on an 8.1 per cent cost of equity and 2 per cent average dividend growth rate for the counter.
In the brokerage’s view, IReit’s valuation is currently cheap as it is trading at its highest discount to net asset value of 35.2 per cent since listing. It also liked the counter for its strong sponsor backing and robust financial position, particularly its low gearing compared to peers.
In a report released on Friday (Oct 21), analyst Ng Yong Rui said IReit has benefited strongly from its portfolio’s blue-chip tenants such as Allianz and Decathlon, as they possess good credit ratings. Ng added tenants such as these contributed to IReit’s portfolio stability amid the Covid-19 pandemic, and will “continue to contribute to high recurring income visibility and attractive dividend payout”.
Ng also liked IReit’s resilience as an “inflation hedge” in Europe as he thought the Reit is well-insulated from rising inflation rates in France, Germany and Spain. This is because utilities costs for the leased space and common areas are borne by the tenants, while the Reit’s borrowings are also hedged.
“We are optimistic in the continued escalation of rental rates in the next two years,” said Ng.
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IReit had also been actively marketing for the office space of its German campus property in Darmstadt, which is set to be vacated by its current tenant in Nov 22.
Ng also noted the firm’s strong financial position, pointing out that its gearing ratio of 30.8 per cent is the fifth-lowest among Singapore Reits, and its income available for distribution had risen significantly in H2 FY2022.
“IReit has the financial headroom to weather through economic uncertainty and capitalise on ‘fire-sale’ opportunities in a weak market. We expect distribution per unit (DPU) for FY2022 to decrease by 3.4 per cent from 0.029 euro in FY2021 to 0.028 euro in FY2022 due to the vacating of the Darmstadt campus and 100 per cent payment of management fees in cash (compared to 50 per cent in FY2021), despite higher rental rates and the France Acquisition,” said Ng, referring to the Reit’s acquisition of Decathlon properties in 2021.
As at Friday’s midday trading break, IReit Global was down 2.1 per cent or S$0.01 at S$0.475.
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