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performance.
For further information about the investment products mentioned in this presentation, you may contact QUARZ CAPITAL
MANAGEMENT Ltd., Clifton House, 75 Fort Street, P.O. Box 1350, George Town, Grand Cayman, KY1-1108
Germany
Real Estate
Bloomberg
IREIT SP
SGD 0.66
12M Hi/Low
SGD 0.79/0.64
Recommendation: Buy
Price Target
SGD 0.92
Shares in Issue
611.0 mn
29.3%
Market Cap
SGD 403m
57.4%
13.1%
1M
3M
12M
-4.4
-5.3
-14.8
0.80
0.78
0.76
0.74
Undervalued and trade at attractive Dvd Yield of 7.6% / 9.4% in 15E / 16E (P/E of 11.7x 16E) versus Germany
listed peers which are trading at Dvd Yield of 3-4.5%. Main reasons are:
- Singapore imports US monetary policy which currently has a tightening bias
- REITs with domestic assets are yielding 5-8%, investors demand premium to invest in REITs with foreign
property portfolio
- Fear of further EUR depreciation and general perception of weak European economies (e.g. PIIGs)
- Weak investor communication and low public float
- Portfolio conservatively valued at 438m (SGD 700m) vs NPI of 30m (SGD 49m), Cap Rate of 6.8%
Potential Catalysts
Current Situation
Ramp up of QE programme by the ECB to further drive yield compression (particularly in Germany)
Sustained economic growth in Germany (driven by strong export sector)
~90% of rental income contributed by blue chip tenants (Deutsche Telekom, DRB)
Locked in long term lease of +7 years with inflation adjustment, no break option (income visibility)
Mispricing versus German listed peers to be eventually arbitraged away:
Share price appreciation (+40% upside potential factoring conservative Dvd Yield target of 6.5%)
Privatization / Takeover candidate relisting assets at a substantially higher valuation in Germany
0.72
0.70
0.68
0.66
0.64
0.62
0.60
Aug-14
Dec-14
Apr-15
1.3
1.2
1.1
1.0
0.9
Official
announcement of
QE by ECB
Discount
to close?
0.8
0.7
0.6
Aug-14
Sep-14
Oct-14
IREIT
Nov-14
Dec-14
Jan-15
Feb-15
Deutsche Annington
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
IREITs share price has exhibited higher correlation with SG listed REITs with majority of assets in SG
Share price did not rally in line with the peers in the German real estate sector (following the announcement of QE by the ECB)
Large divergence in IREITs stock performance and valuation vs peers listed in Germany
Potential discount which can be closed
IREIT trades at a substantial valuation gap vs its German peers as the stock did not benefit from the rerating of
German real estate stocks driven by ECBs QE Programme
Source: Bloomberg, IREIT Global
10%
9.10%
Compression of IREITs
Dvd Yield to a conservative
and still attractive level of
6.5% will drive a +40%
upside in IREITs stock
price
8%
6%
4.27%
4.53%
4%
2.61%
2%
0.07%
0.34%
0.71%
0%
-0.25%
-2%
DE Govt 1 Yr
D Annington
Alstria REIT
Hamborner
REIT
IREIT Global
Substantial upside potential for IREIT from the compression of yield to level in line with peers
Source: IREIT Global, Quarz Capital Management
Acquired in July 15
Asset Value: 49 mn
NPI: 3.6 mn
% of NAV: 11%
Key Tenant: GMG (Deutsche Telekom)
Asset Value: 81 mn
NPI: 5.7 mn
% of NAV: 18%
Key Tenant: GMG (Deutsche Telekom)
Asset Value: 61 mn
NPI: 4.2 mn
% of NAV: 14%
Key Tenant: ST Microeletronics, Allianz
Total Asset Value of 439m versus Mkt Cap and Debt of 262m / 202m respectively (45% LTV ratio)
Source: IREIT Global, Quarz Capital Management
NPI Contribution
Mnster
11%
Others
3%
Ebase
3%
Allianz
4%
ST MicroElectronics
5%
Concur
14%
Deutsche
Telekom*
48%
Darmstadt
18%
Bonn 19%
Darmstadt 18%
Munster -11.6%
DRB
37%
Berlin
34%
Bonn
23%
*Deutsche Telekom is Germanys biggest telco operator (mobile and fixed line).
The company is 32% owned by the German government. DT also owns 12% of
British Telecom and 65% of T-Mobile US (3 rd biggest mobile telco in US)
85.3%
75.8%
0.0%
2016E
6.9%
2017E
6.8%
4.1%
2018E
Pre-Acquisition
Post-Acquisition
5.9%
3.6%
2019E
Blue Chip tenant base which are locked in long-term leases (with inflation adjustments) to provide income
stability for IREITs unitholders
Source: IREIT Global, Quarz Capital Management
Largest Asset (34% of NAV) which is wholly leased to DRB (German Statutory Pension Insurance Scheme) with
lease period of 8.8 years (partial tenant break option in 2019/22)
Source: IREIT Global, Quarz Capital Management
Asset accounts for 23% of NAV. Sole tenant is GMG with L-T lease term of 7.3 years (CPI adjustment) and no
tenant break option
Source: IREIT Global, Quarz Capital Management
Asset accounts for 18% of NAV. Sole tenant is GMG with L-T lease term of 7.1 years (CPI adjustment) and
no tenant break option
Source: IREIT Global, Quarz Capital Management
10
Asset accounts for 14% of NAV. Multi-tenant property with average mid length lease terms of 4 years
Source: IREIT Global, Quarz Capital Management
11
Accounts for 11% of NAV. Sole tenant is GMG with mid length lease term of 4 years (CPI adjustment) and
no tenant break option
Source: IREIT Global, Quarz Capital Management
12
Financials
Stable dividend yield of > 9.1% (@current share price) till 2020 attributed to long-term leasing contracts
Source: IREIT Global, Quarz Capital Management
13
Conclusion
Investment Thesis
- Assets have long-term leases (no tenant break clause) with blue-chip tenant base
- Guarantee the stability of rental income and annual dividend (>9.1%)
- Well located and relatively new property portfolio (buildings <5 years old) : Proximate to HQ of main tenants, buildings
with high specifications
- Potential positive revaluation of property portfolio (decrease in cap rate) increases the ability of IREIT to undertake
more leverage to acquire income accretive properties
- Dvd Yield compression to result in potential share price upside
- Potential take out target able to relist property portfolio in Germany at a higher valuation or as a pure yield
investment for German institutional investors
Risks
- Limited ability to adjust current rent, occupancy rates have been fully optimized (already at 100%)
- Low float (2 key shareholders with ~70% shareholding)
- Risk of high vacancy rate if major tenants choose to vacate assets (>2020)
14
15
16
17
Jan F. Moermann
Managing Partner
E-mail
jfm@quarzcapital.com
Tel
Havard Chi
Quarz Capital ASIA (Singapore)
Director / Head of Research
hch@quarzcapital.com
Tel