SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

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Equity Bottom-Up

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    <div class='content-caption'>5 sreits with lower gearing ratios</div>
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<p>The iEdge S-Reit Index declined 3 per cent in total returns in 2022 year to date (YTD), amid geopolitical escalations, macro uncertainty and increasing expectations of a potential rate hike.</p>

<p>Despite the decline, it remained one of the most defensive Reit indices globally, with the FTSE EPRA Nareit Developed Index declining 7 per cent during the same period.</p>

<p>Interest rates have always been a key driver for the sector, given the impact on yield spreads and borrowing costs.<br><br>
S-Reits have been actively managing their interest rate exposures.</p>

<p>On average, close to 75 per cent of S-Reits' current debts are entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps.</p>

<p>S-Reits currently have an average gearing ratio of 37.4 per cent, based on latest company filings, well below the regulatory threshold of 50 per cent.<br><br>
This translates into approximately S$24.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions.<br><br>
The five S-REITs that maintain the lowest gearing ratios are Sasseur REIT, Digital Core REIT, SPH REIT, IREIT Global and Lendlease Global Commercial REIT. Sasseur REIT reported a gearing of 26.1 per cent as of 31 Dec 2021, lowest amongst all S-REITs.<br><br>
The Reit noted that this demonstrated strong fundamentals of the portfolio as well as prudent capital management, with an expanded debt headroom to pursue potential acquisition opportunities.</p>

<p>With an average debt maturity of 1.2 years as at Dec 31, 2021, the Reit is actively exploring refinancing opportunities with a view to de-risk the current debt profile by staggering its debt maturity and amount.</p>

<p>Sasseur Reit posted FY2021 distribution per unit (DPU) of 7.104 Singapore cents, up 8.5 per cent year on year. The Reit's 4 outlets in China recorded total sales of almost 4.2 billion yuan in FY2021, representing a growth of 12.3 per cent year on year.</p>

<p>The Reit also observed continued robust consumption trends in the cities where its outlets are located, coupled with intensive promotional efforts in close collaboration with tenants which led to the higher sales.</p>

<p>Listed in 2021, Digital Core Reit is a pure-play data centre Reit with an initial public offering (IPO) portfolio of 10 quality freehold data centres located across the United States and Canada.</p>

<p>The Reit reported a gearing of 27 per cent as at IPO, noting ample debt headroom and potential to fuel outsized growth prospects.</p>

<p>In its FY2021 financial release, SPH Reit reported a gearing of 30.3 per cent with revolving credit facility lines of S$225 million undrawn as at Aug 31, 2021, providing ample debt headroom and additional liquidity if needed.</p>

<p>The Reit noted that its loans were refinanced in FY2021 at a lower interest rate, resulting in lower average cost of debt of 1.84 per cent, compared to 2.66 per cent in FY2020.</p>

<p>As at Nov 30, 2022, the Reit's average cost of debt is at 1.68 per cent and has a weighted average term to maturity of 2.7 years. <br><br><strong><em>REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/green-shoots-for-retail-and-hospitality-s-reits-amid-new-pandemic-phase"> </a><a href="https://www.businesstimes.com.sg/companies-markets/s-reits-hedge-against-rising-interest-rates-0">read </a>the original version.</em></strong></p>
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    5 sreits with lower gearing ratios


The iEdge S-Reit Index declined 3 per cent in total returns in 2022 year to date (YTD), amid geopolitical escalations, macro uncertainty and increasing expectations of a potential rate hike.

Despite the decline, it remained one of the most defensive Reit indices globally, with the FTSE EPRA Nareit Developed Index declining 7 per cent during the same period.

Interest rates have always been a key driver for the sector, given the impact on yield spreads and borrowing costs.  
S-Reits have been actively managing their interest rate exposures.

On average, close to 75 per cent of S-Reits' current debts are entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps.

S-Reits currently have an average gearing ratio of 37.4 per cent, based on latest company filings, well below the regulatory threshold of 50 per cent.  
This translates into approximately S$24.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions.  
The five S-REITs that maintain the lowest gearing ratios are Sasseur REIT, Digital Core REIT, SPH REIT, IREIT Global and Lendlease Global Commercial REIT. Sasseur REIT reported a gearing of 26.1 per cent as of 31 Dec 2021, lowest amongst all S-REITs.  
The Reit noted that this demonstrated strong fundamentals of the portfolio as well as prudent capital management, with an expanded debt headroom to pursue potential acquisition opportunities.

With an average debt maturity of 1.2 years as at Dec 31, 2021, the Reit is actively exploring refinancing opportunities with a view to de-risk the current debt profile by staggering its debt maturity and amount.

Sasseur Reit posted FY2021 distribution per unit (DPU) of 7.104 Singapore cents, up 8.5 per cent year on year. The Reit's 4 outlets in China recorded total sales of almost 4.2 billion yuan in FY2021, representing a growth of 12.3 per cent year on year.

The Reit also observed continued robust consumption trends in the cities where its outlets are located, coupled with intensive promotional efforts in close collaboration with tenants which led to the higher sales.

Listed in 2021, Digital Core Reit is a pure-play data centre Reit with an initial public offering (IPO) portfolio of 10 quality freehold data centres located across the United States and Canada.

The Reit reported a gearing of 27 per cent as at IPO, noting ample debt headroom and potential to fuel outsized growth prospects.

In its FY2021 financial release, SPH Reit reported a gearing of 30.3 per cent with revolving credit facility lines of S$225 million undrawn as at Aug 31, 2021, providing ample debt headroom and additional liquidity if needed.

The Reit noted that its loans were refinanced in FY2021 at a lower interest rate, resulting in lower average cost of debt of 1.84 per cent, compared to 2.66 per cent in FY2020.

As at Nov 30, 2022, the Reit's average cost of debt is at 1.68 per cent and has a weighted average term to maturity of 2.7 years.   REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - S-Reits hedge against rising interest rates

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<h2>IREIT Global</h2>
<h3>Occupancy-improvement and M&amp;A prospects</h3>
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<li>1H21 NPI and DPU in line, at 49.6%/51.7% of our FY21e estimates. No rent rebates or deferrals in 1H21. Portfolio valuation up by 3.9% HoH, led by a 7% increase for Berlin campus.</li>
<li>Positive leasing in Germany and Spain to improve occupancy in 3Q21.</li>
<li>We tweak FY21e DPU by 0.5% after a modest lift to revenue. Upgrade to BUY from ACCUMULATE with higher DDM TP of S$0.75, from S$0.68. Cost of equity lowered from 7.85% to 7.3% to reflect resilience of European office asset class. Catalysts expected from potential occupancy improvements and M&amp;As.</li>
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<p><strong>The Positives<br></strong><strong>+ Stable.</strong> 1H21 NPI and DPU were in line, at 49.6%/51.7% of our FY21e estimates. Gross revenue and NPI increased 31.6% and 23.4% YoY following its acquisition of a remaining 60% interest in the Spanish portfolio on 22 October 2020. Property expenses jumped as its Spanish properties are multi-let and have lower NPI yields. DPU fell 21.4% YoY from an enlarged unit base following IREIT’s rights issue on 18 September 2020 There were no requests for rental rebates or deferrals from tenants in 1H21 – a good sign.</p>
<p><strong>+ Higher valuations.</strong> Portfolio valuation was raised by 3.9% HoH, led by a 7% HoH increase for IREIT’s largest property, Berlin campus. Apart from lower discount and capitalisation rates applied across its portfolio, Deutsche Rentenversicherung Bund, its major tenant at the Berlin campus, did not exercise its break option in June 2021 to return part of its leased space to IREIT in 2022. As a result, its entire lease will now only expire in June 2024, raising Berlin campus’ income visibility. This bumped up the property’s valuation.</p>
<p><strong>The Negative</strong><br>- Nil.</p>
<p><strong>Outlook</strong><br>Leasing uptick. Office leasing in Germany and Spain has improved in recent months. In July 2021, IREIT successfully secured three lease extensions and two new leases in Spain. It is also in advanced discussions with a few tenants who have break options and lease expiries in 2022. Portfolio occupancy remains high at 95.9%. FY21 expiries will remain minimal at 2.4% of portfolio GRI. We expect the leasing momentum to benefit occupancy in 3Q21.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.






IREIT Global
Occupancy-improvement and M&amp;A prospects





1H21 NPI and DPU in line, at 49.6%/51.7% of our FY21e estimates. No rent rebates or deferrals in 1H21. Portfolio valuation up by 3.9% HoH, led by a 7% increase for Berlin campus.
Positive leasing in Germany and Spain to improve occupancy in 3Q21.
We tweak FY21e DPU by 0.5% after a modest lift to revenue. Upgrade to BUY from ACCUMULATE with higher DDM TP of S$0.75, from S$0.68. Cost of equity lowered from 7.85% to 7.3% to reflect resilience of European office asset class. Catalysts expected from potential occupancy improvements and M&amp;As.







The Positives + Stable. 1H21 NPI and DPU were in line, at 49.6%/51.7% of our FY21e estimates. Gross revenue and NPI increased 31.6% and 23.4% YoY following its acquisition of a remaining 60% interest in the Spanish portfolio on 22 October 2020. Property expenses jumped as its Spanish properties are multi-let and have lower NPI yields. DPU fell 21.4% YoY from an enlarged unit base following IREIT’s rights issue on 18 September 2020 There were no requests for rental rebates or deferrals from tenants in 1H21 – a good sign.
+ Higher valuations. Portfolio valuation was raised by 3.9% HoH, led by a 7% HoH increase for IREIT’s largest property, Berlin campus. Apart from lower discount and capitalisation rates applied across its portfolio, Deutsche Rentenversicherung Bund, its major tenant at the Berlin campus, did not exercise its break option in June 2021 to return part of its leased space to IREIT in 2022. As a result, its entire lease will now only expire in June 2024, raising Berlin campus’ income visibility. This bumped up the property’s valuation.
The Negative - Nil.
Outlook Leasing uptick. Office leasing in Germany and Spain has improved in recent months. In July 2021, IREIT successfully secured three lease extensions and two new leases in Spain. It is also in advanced discussions with a few tenants who have break options and lease expiries in 2022. Portfolio occupancy remains high at 95.9%. FY21 expiries will remain minimal at 2.4% of portfolio GRI. We expect the leasing momentum to benefit occupancy in 3Q21.













(Non-SGX Report) IREIT Global: Occupancy-Improvement and M&A Prospects

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    <div class='content-caption'>Steady Performance</div>
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<p>In a previous publication of Reit Watch, we noted that the average occupancy rate of the sector (excluding hospitality Reits) decreased from approximately 96 per cent as at March 31, 2020 to 95 per cent as at March 31, 2021.</p>

<p>The pandemic had varying degrees of impact on individual retail and office S-Reits, which were sub-sectors that saw the biggest dips in average occupancy rates of 2.1 and 1.9 percentage points (ppt) respectively.</p>

<p>However, there were three retail and office S-REITs that maintained or saw a boost in occupancy rates (based on reported data and barring methodology differences): IREIT Global (+1.2 ppt), Elite Commercial REIT (unchanged) and Frasers Centrepoint Trust (unchanged).</p>

<p>IReit Global (IReit), the first S-Reit with a Europe-focused mandate to be listed, has a portfolio of five office assets in Germany and four office assets in Spain, valued at approximately 719.6 million euros.<br><br>
IReit was the only office S-Reit that saw a year-on-year increase in occupancy rate in Q12021. The Reit had a portfolio occupancy rate of 95.9 per cent as at March 31, 2021, up from 94.7 per cent at at Mar 31, 2020.<br><br>
It noted that the pandemic had limited impact on its portfolio in Q12021, with no requests for rental rebates or deferrals from tenants and that all tenants continued to pay rents for Q12021.</p>

<p>In April 2021, IReit announced plans to add retail assets to its portfolio.</p>

<p>The acquisition consists of 27 retail properties located across France, based on a sale &amp; leaseback arrangement with Decathlon for approximately 110.5 million euros.</p>

<p>The acquisition will create an enlarged portfolio of 35 properties across Europe, valued at 833.5 million euros, and boosting the portfolio occupancy further to 97.0 per cent.</p>

<p>Elite Commercial Reit (Elite), an office S-Reit with assets in the UK, maintained full occupancy over the year. It attributed its portfolio resilience and stable cashflows to the unique nature of its tenants.</p>

<p>The Reit derives over 99 per cent of gross rental income from the UK government, of which 92.6 per cent is contributed by the Department for Work and Pensions.</p>

<p>Following its maiden acquisition of 58 properties across the UK in March 2021, Elite further extended its exposure to UK sovereign credit and welcomed a new substantial unitholder - the European Institution Partner Reinsurance Company (PartnerRE).</p>

<p>Frasers Centrepoint Trust (FCT), the only S-Reit with 100 per cent retail assets in Singapore, was the sole retail S-Reit which did not report a deline in portfolio occupancy from a year ago.</p>

<p>The Reit's retail portfolio occupancy rate stood at 96.1 per cent as of Mar 31, 2021. <br><br><strong><em>REIT Watch is a weekly column on The Business Times, <a href="https://www.businesstimes.com.sg/companies-markets/defying-gravity-retail-and-office-s-reits-with-higher-occupancy">read</a> the original version.</em></strong></p>
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    Steady Performance


In a previous publication of Reit Watch, we noted that the average occupancy rate of the sector (excluding hospitality Reits) decreased from approximately 96 per cent as at March 31, 2020 to 95 per cent as at March 31, 2021.

The pandemic had varying degrees of impact on individual retail and office S-Reits, which were sub-sectors that saw the biggest dips in average occupancy rates of 2.1 and 1.9 percentage points (ppt) respectively.

However, there were three retail and office S-REITs that maintained or saw a boost in occupancy rates (based on reported data and barring methodology differences): IREIT Global (+1.2 ppt), Elite Commercial REIT (unchanged) and Frasers Centrepoint Trust (unchanged).

IReit Global (IReit), the first S-Reit with a Europe-focused mandate to be listed, has a portfolio of five office assets in Germany and four office assets in Spain, valued at approximately 719.6 million euros.  
IReit was the only office S-Reit that saw a year-on-year increase in occupancy rate in Q12021. The Reit had a portfolio occupancy rate of 95.9 per cent as at March 31, 2021, up from 94.7 per cent at at Mar 31, 2020.  
It noted that the pandemic had limited impact on its portfolio in Q12021, with no requests for rental rebates or deferrals from tenants and that all tenants continued to pay rents for Q12021.

In April 2021, IReit announced plans to add retail assets to its portfolio.

The acquisition consists of 27 retail properties located across France, based on a sale &amp; leaseback arrangement with Decathlon for approximately 110.5 million euros.

The acquisition will create an enlarged portfolio of 35 properties across Europe, valued at 833.5 million euros, and boosting the portfolio occupancy further to 97.0 per cent.

Elite Commercial Reit (Elite), an office S-Reit with assets in the UK, maintained full occupancy over the year. It attributed its portfolio resilience and stable cashflows to the unique nature of its tenants.

The Reit derives over 99 per cent of gross rental income from the UK government, of which 92.6 per cent is contributed by the Department for Work and Pensions.

Following its maiden acquisition of 58 properties across the UK in March 2021, Elite further extended its exposure to UK sovereign credit and welcomed a new substantial unitholder - the European Institution Partner Reinsurance Company (PartnerRE).

Frasers Centrepoint Trust (FCT), the only S-Reit with 100 per cent retail assets in Singapore, was the sole retail S-Reit which did not report a deline in portfolio occupancy from a year ago.

The Reit's retail portfolio occupancy rate stood at 96.1 per cent as of Mar 31, 2021.   REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - Defying gravity: Retail and office S-Reits with higher occupancy

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<h2>IREIT Global</h2>
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<h3>The French Evolution</h3>
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<li>We initiate on IREIT with an OUTPERFORM and a target price of S$0.69.</li>
<li>Fairly stable European office market – While office property investment has slowed down substantially in Europe and vacancy rates are trending up, rents have held firm, and IREIT has managed to collect on due rents. IREIT should see positive news into the future as inflation rates climb in 2021.</li>
<li>Staying active with French entrée – The proposed acquisition of 27 Decathlon properties will provide IREIT with further reduction of its tenant and geographical concentration risk, while potentially achieving both DPU and yield accretion.</li>
<li>Room for yield premiums to compress. Foreign office REITs on SGX tend to trade at a dividend yield premium to local office REITs. This yield premium has widened since the pandemic begun, and we expect it to narrow as office markets stabilise in the future.</li>
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<h3>Investment Thesis:</h3>
<p><strong>European office market holding up.</strong> Office leasing activity is currently weak, as vacancies trend up from a global shift towards work-from-home arrangements. IREIT has fared relatively well in the recent pandemic as the company was able to promptly collect on rents, while settling new lease agreements with its key tenant, GMG, a wholly owned unit of Deutsche Telekom.</p>
<p><strong>Inflation trends beneficial for IREIT</strong> – Similar to the US, Europe is now experiencing above average inflation, and the European Central Bank (ECB) has adopted an identical “wait- and-see” approach, maintaining a loose stance on monetary policies. A temporal spike in inflation could be beneficial for IREIT, as they can lock in earlier-than-expected rent increases with their tenants.</p>
<p><strong>The French Evolution</strong>. The proposal to acquire 27 Decathlon properties represents IREIT’s first foray into France, and first foray into retail properties. We see the acquisition to be beneficial as it reduces key tenant, geographical and sector concentration risk, while being potentially DPU and yield accretive.</p>
<p><strong>Dividend yield premiums at a high.</strong> IREIT, together with other foreign office REITs listed in SGX, often trade at a dividend yield premium to local office REITs. The yield premium has steadily risen over the years from around 1% to over 2%, as local investors demand a larger risk premium to hold onto foreign office property. We expect stabilisation in global office markets to reduce this risk premium, and for IREIT to benefit when foreign REITs become attractive again.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.






IREIT Global









The French Evolution




We initiate on IREIT with an OUTPERFORM and a target price of S$0.69.
Fairly stable European office market – While office property investment has slowed down substantially in Europe and vacancy rates are trending up, rents have held firm, and IREIT has managed to collect on due rents. IREIT should see positive news into the future as inflation rates climb in 2021.
Staying active with French entrée – The proposed acquisition of 27 Decathlon properties will provide IREIT with further reduction of its tenant and geographical concentration risk, while potentially achieving both DPU and yield accretion.
Room for yield premiums to compress. Foreign office REITs on SGX tend to trade at a dividend yield premium to local office REITs. This yield premium has widened since the pandemic begun, and we expect it to narrow as office markets stabilise in the future.




Investment Thesis:
European office market holding up. Office leasing activity is currently weak, as vacancies trend up from a global shift towards work-from-home arrangements. IREIT has fared relatively well in the recent pandemic as the company was able to promptly collect on rents, while settling new lease agreements with its key tenant, GMG, a wholly owned unit of Deutsche Telekom.
Inflation trends beneficial for IREIT – Similar to the US, Europe is now experiencing above average inflation, and the European Central Bank (ECB) has adopted an identical “wait- and-see” approach, maintaining a loose stance on monetary policies. A temporal spike in inflation could be beneficial for IREIT, as they can lock in earlier-than-expected rent increases with their tenants.
The French Evolution. The proposal to acquire 27 Decathlon properties represents IREIT’s first foray into France, and first foray into retail properties. We see the acquisition to be beneficial as it reduces key tenant, geographical and sector concentration risk, while being potentially DPU and yield accretive.
Dividend yield premiums at a high. IREIT, together with other foreign office REITs listed in SGX, often trade at a dividend yield premium to local office REITs. The yield premium has steadily risen over the years from around 1% to over 2%, as local investors demand a larger risk premium to hold onto foreign office property. We expect stabilisation in global office markets to reduce this risk premium, and for IREIT to benefit when foreign REITs become attractive again.











(Non-SGX Report) IREIT Global: The French Evolution

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<h2>IREIT Global</h2>
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<h3>Growth spurt</h3>
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<li>1Q21 likely in line as portfolio occupancy was stable at 95.9%. No rent rebates or deferrals were provided.</li>
<li>New sale and leaseback of Decathlon portfolio in France to increase scale and diversification. Greater income stability from longer portfolio WALE of 4.5 years.</li>
<li>Maintain ACCUMULATE with lower DDM TP (7.85% discount rate) of S$0.68 from S$0.70. FY21e DPU dips 7% to reflect impending equity fund-raising. Our TP implies 7% yields and total prospective returns of 14.1%.</li>
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<p><strong>The Positives</strong></p>
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<li><strong>1Q21 likely in line.</strong> Portfolio occupancy inched up from 95.8% to 95.9% following expansion of an existing lease at Concor Park. Despite lockdowns in Germany and Spain, Covid-19’s impact on IREIT’s portfolio was limited. There were no requests for rental rebates or deferrals from tenants. All paid their rents in 1Q21.</li>
<li><strong>27 Decathlon properties in France to increase scale,</strong> diversification and WALE. IREIT’s AUM is expected to grow by 15.8% to €833.5m after its acquisition of 27 properties from Decathlon. The acquisition is expected to reduce its reliance on Germany, with the French portfolio expected to contribute 16% to portfolio GRI. The acquisition will also add a new trade sector – sports &amp; leisure – and one of the world’s largest sporting goods retailer to IREIT. GRI contribution by IREIT’s largest tenant, GMG, will drop from 39% to 33%. The 27 properties are 100% leased to Decathlon on triple-net leases with a WALE of 10 years and WALB of 6 years, extending its current WALE from 3.5 years to 4.5 years. We believe IREIT will be also able to benefit from strategic partner Tikehau Capital’s (TKO FP, Not Rated) market presence and expertise in the French real-estate market.</li>
<li><strong>Strategic stakeholders demonstrated support.</strong> IREIT intends to raise funds for the acquisition cost of €122.3mn via a private placement and/or a preferential offering. If the fund-raising includes a preferential offering, Tikehau Capital, CDL (CDL SP, BUY, S$10.68), AT Investments and IREIT - which collectively hold 56% of IREIT - have undertaken to subscribe for their full allotments. CDL will also subscribe to excess units to bring its total subscription to S$59mn. The balance will be funded by a bank loan of €51.4mn. IREIT’s market capitalisation is expected to increase by 20.7% to S$737mn. Should market conditions be unfavourable, IREIT may draw down a bridge loan facility from Tikehau Capital of up to €79.0mn.</li>
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<p><strong>The Negative</strong></p>
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<li>P<strong>ortfolio NAV to fall 6.2% after French acquisition</strong>; lower FY21e DPU by 7%. Assuming the rights issue and its Spanish and French properties were acquired on 1 January 2020 and operated through 31 December 2020, the French acquisition would have increased IREIT’s adjusted NPI yield from 5.5% to 5.7%. Adjusted DPU would have risen 1% to 2.84 € cents. This assumes €79.0m equity funding in the form of 212mn new units at S$0.596 a share and €51.4m of new debt. However, assuming the Spanish acquisition was completed on 22 October 2020, pro-forma FY20 DPU would have fallen by 2.2%. Aggregate leverage would have climbed by 1.2% to 36% while NAV would have fallen by 6.2% to €0.44. We lower FY21e DPU by 7% to factor in the impact.</li>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.




IREIT Global




Growth spurt





1Q21 likely in line as portfolio occupancy was stable at 95.9%. No rent rebates or deferrals were provided.
New sale and leaseback of Decathlon portfolio in France to increase scale and diversification. Greater income stability from longer portfolio WALE of 4.5 years.
Maintain ACCUMULATE with lower DDM TP (7.85% discount rate) of S$0.68 from S$0.70. FY21e DPU dips 7% to reflect impending equity fund-raising. Our TP implies 7% yields and total prospective returns of 14.1%.





The Positives

1Q21 likely in line. Portfolio occupancy inched up from 95.8% to 95.9% following expansion of an existing lease at Concor Park. Despite lockdowns in Germany and Spain, Covid-19’s impact on IREIT’s portfolio was limited. There were no requests for rental rebates or deferrals from tenants. All paid their rents in 1Q21.
27 Decathlon properties in France to increase scale, diversification and WALE. IREIT’s AUM is expected to grow by 15.8% to €833.5m after its acquisition of 27 properties from Decathlon. The acquisition is expected to reduce its reliance on Germany, with the French portfolio expected to contribute 16% to portfolio GRI. The acquisition will also add a new trade sector – sports &amp; leisure – and one of the world’s largest sporting goods retailer to IREIT. GRI contribution by IREIT’s largest tenant, GMG, will drop from 39% to 33%. The 27 properties are 100% leased to Decathlon on triple-net leases with a WALE of 10 years and WALB of 6 years, extending its current WALE from 3.5 years to 4.5 years. We believe IREIT will be also able to benefit from strategic partner Tikehau Capital’s (TKO FP, Not Rated) market presence and expertise in the French real-estate market.
Strategic stakeholders demonstrated support. IREIT intends to raise funds for the acquisition cost of €122.3mn via a private placement and/or a preferential offering. If the fund-raising includes a preferential offering, Tikehau Capital, CDL (CDL SP, BUY, S$10.68), AT Investments and IREIT - which collectively hold 56% of IREIT - have undertaken to subscribe for their full allotments. CDL will also subscribe to excess units to bring its total subscription to S$59mn. The balance will be funded by a bank loan of €51.4mn. IREIT’s market capitalisation is expected to increase by 20.7% to S$737mn. Should market conditions be unfavourable, IREIT may draw down a bridge loan facility from Tikehau Capital of up to €79.0mn.

The Negative

Portfolio NAV to fall 6.2% after French acquisition; lower FY21e DPU by 7%. Assuming the rights issue and its Spanish and French properties were acquired on 1 January 2020 and operated through 31 December 2020, the French acquisition would have increased IREIT’s adjusted NPI yield from 5.5% to 5.7%. Adjusted DPU would have risen 1% to 2.84 € cents. This assumes €79.0m equity funding in the form of 212mn new units at S$0.596 a share and €51.4m of new debt. However, assuming the Spanish acquisition was completed on 22 October 2020, pro-forma FY20 DPU would have fallen by 2.2%. Aggregate leverage would have climbed by 1.2% to 36% while NAV would have fallen by 6.2% to €0.44. We lower FY21e DPU by 7% to factor in the impact.


















(Non-SGX Report) IREIT Global: Growth Spurt

Singapore

IREIT Global is the first Singapore-listed real estate investment trust with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets.

IREIT Global’s current portfolio comprises 5 freehold office properties in Germany, 5 freehold office properties in Spain and 27 freehold retail properties in France, with a total lettable area of approximately 384,000 sqm and a portfolio valuation of approximately €974.9 million.

IREIT Global is managed by IREIT Global Group Pte. Ltd., which is jointly owned by Tikehau Capital and City Developments Limited ("CDL"). Tikehau Capital is a global alternative asset management group listed in France, while CDL is a leading global real estate company listed in Singapore.

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