RHB Bank Singapore Vijay Natarajan has kept his “neutral” call on IREIT Global UD1U with a lower target price of 53 cents from 55 cents previously, even though he likes that the REIT has proposed to acquire out-of-town retail parks in France. The REIT's latest acquisition will further diversify its geographical spread and asset class mix while mitigating tenant concentration risks, notes the analyst.
However, the acquisition will see minimal accretion to the REIT’s earnings although the equity funding mix of around 60% will boost stability, he adds.
On June 1, IREIT Global announced that it was acquiring 17 retail properties for a total sum of EUR76.8 million ($112.2 million). Including fees, the acquisition is estimated to cost the REIT a total of EUR90.9 million.
The properties have a long weighted average lease expiry (WALE) of 6.8 years with the REIT seeing a potential for the leases to be extended since the properties’ tenant, B&M Group, has seen its sales growing by double digits across the country.
“Some assets have been tenanting buildings since mid-2000, while the French government has put restrictions on the establishment of retail parks. There is also a potential upside from plans to install solar panels and an electric vehicle (EV) charging network that will generate additional income, while there is an untapped commercial gross floor area (GFA) of 5,000 sqm,” notes Natarajan.
To fund the acquisition, IREIT has stated that it intends to raise $75.4 million in equity via a preferential unit offering that’s estimated at 45 cents per unit. Its sponsors Tikehau and City Developments (CDL) are expected to subscribe for their pro-rated stakes. CDL will also be the underwriter for the remaining units.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
On a pro forma basis for FY2022, IREIT’s distribution per unit (DPU) is expected to be flat if the acquisition had been completed by the end of the latest financial year. The acquisition also has a net asset value (NAV) dilution of 7% although its gearing post acquisition will grow slightly to 33.3% from 32%.
To factor in the new units as well as changes to the REIT’s debt and occupancy levels, Natarajan has trimmed his DPU estimates for FY2023 to FY2025 by 4% to 5%.
On the rest of IREIT’s portfolio, the analyst notes that the key near-term risk is the uncertainty surrounding its Berlin campus. The campus, which has the largest tenant lease at 24% of the REIT’s income, is set to expire in the middle of 2024.
As at 1.11pm, units in IREIT Global are trading 0.5 cents higher or 1.09% up at 46.5 cents.
