SINGAPORE (Nov 25): DBS Group Research is cautious over IREIT Global maintaining a “hold” call with a target price of 75 cents, citing uncertainty with its new sponsor, Tikehau Capital.

Lead analyst Mervin Song notes that IREIT offers an attractive yield of over 8%, however, coupled with uncertainty over its sponsor, might cap the REIT’s near-term performance.

“Furthermore with IREIT’s gearing at 42%, any growth plans is likely to entail an equity-raising exercise to fund the acquisition of new properties in Europe, with may be DPU dilutive in the near-term, given IREIT’s already high distribution yield,” says Song.

IREIT however does have a strong cashflow visibility. Song notes that its weighted average lease expiry by gross rental income of 6.2 years, supported by blue-chip tenants such as Allianz, Deutsche Telekom and ST Microelectronics.

The Berlin acquisition should also give a boost to IREIT’s earnings, with a full-year contribution, notes Song, with a proforma 7.1% net property income yield. Song projects 21% uplift for FY16 DPU.

Key risks for the REIT includes significant depreciation of the EUR to SGD, with Song projecting every 10 cent change in the EURSGD FX rate resulting in a valuation change of 6%.

“In addition, a weaker-than-expected inflation rate would also delay any increase in rents,” says Song.

Units of IREIT Global are trading flat at 72 cents.