PhillipCapital analyst Tan Jie Hui has retained her “accumulate” rating for iREIT Global with a higher target price of 70 cents from 68 cents previously following the REIT’s announcement of its FY2020 results.
“Our target price implies yields of 7.3% and total prospective returns of 14.2%. FY2021 distribution per unit (DPU) has been raised by 7% for better operational performance,” she writes in a March 1 report.
iREIT Global’s overall performance for the FY2020 ended December was better than Tan expected, with revenue and net property income (NPI) growing 7.2% and 7.3% y-o-y to 37.8 million euros ($60.6 million) and 32.9 million euros respectively. The growth follows the consolidation of the REIT’s Spanish properties after acquiring them in October 2020, combined with high rental collection exceeding 99%.
SEE:PhillipCapital downgrades iREIT Global to 'neutral' on rights issue to fund acquisition
Correspondingly, iREIT Global’s DPU for the full-year grew 5.5% y-o-y from 4.77 cents to 5.03 cents.
Tan also notes that despite Covid-19, iREIT Global’s portfolio valuation grew by 1.2% as a result of high occupancy, particularly in its German portfolio of properties which are anchored by blue-chip tenants.
Looking forward, Tan maintains a cautious outlook on European real estate.
“With lockdown extensions and strict social-distancing restrictions in several economies, a sustainable recovery in the European real estate remains largely uncertain. Though work-from-home is taking roots, it remains too early to predict the direction of office demand as work arrangements are still in a flux”, she writes.
She also cautions that iREIT Global has a sizeable portion of leases up for breaks or expiries in FY2022 (about 32.5% and 24.6% respectively), though to date 5% of that is likely de-risked.
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“About 5% of the lease breaks are attributable to Deutsche Rentenversicherung Bund (DRB) for its lease at Berlin Campus due in June 2022. DRB is likely to keep its lease as rental rates are attractive”.
“Other properties up for lease breaks/expiries are IREIT’s Darmstadt and Munster Campus, leased by Deutsche Telekom (DT). iREIT Global has started to engage DT for early renewals,” she adds.
But Tan notes that iREIT Global is in a good position to pursue M&A growth opportunities given its improved debt position following its rights issue in 4Q2020, with the REIT currently looking at office, retail and logistics assets in Europe.
The REIT is also exploring other possibilities including dual-currency trading that will offer more options to unit-holders and changing its distribution currency from the SGD to Euro which Tan views as more efficient given that it bypasses the need to hedge future distributions.
Tan’s higher target price follows a 7% higher forecasted FY20201 DPU to reflect better operational performances.
As at 4pm, shares in iREIT Global are down 0.5 cents or 0.76% down at 65.5 cents.