IREIT poised for more growth thanks new properties in Germany: DBS

It offers exposure to the most robust economy in Europe.

Mainboard-listed IREIT Global recently revealed its new acquisitions in Germany, which DBS says will boost the firm’s prospects for growth.

DBS notes that its initial portfolio of four German office properties located in key cities of Bonn, Darmstadt,
Münster and Munich, offers investors exposure to the most robust economy in the Eurozone and a market that is on the cusp of recovery.

“With an improvement in business activities, moving forward we expect an upturn in rents with the potential for further cap rate compression. Furthermore, execution of IREIT’s ‘ABBA’ investment strategy, which is to invest in ‘A’ assets in second tier cities and to invest in ‘B’ assets in first tier cities, should deliver additional upside to DPU,” noted DBS.

Here’s more from DBS:

Inbuilt growth pegged to CPI. More than 95% of IREIT’s leases (by gross rental income for March-2014) have rental adjustment clauses that are pegged to German CPI.

We estimate that 25% of portfolio NLA is likely to be re-indexed to the CPI in FY14 and a further 33% could hit the watermark in FY15, translating to a steady 2.9% CAGR in distributions over FYP14F – 16F.

Visibility over the group’s income base is also underpinned by a long WALE of 7.6 years and a tenant base consisting of blue chip firms as Allianz, Deutsche Telekom and ST Microelectronics.

We believe IREIT offers a cyclical recovery story with German office rents and property values at the start of an upcycle. Key risks include a global economic slowdown and depreciation of the Euro.