IREIT Global: Pure-play Western Europe-focused REIT

Pure play Western Europe-focused REIT

Listed in 2014, IREIT Global was the first Singapore-listed REIT with a portfolio of income-producing real estate in Europe. 

The REIT currently has a focus on investing in real estate used primarily for office, retail and industrial (including logistics) purposes. 

Its joint sponsors are Tikehau Capital and City Developments Limited, both with a 50% stake in IREIT’s manager. 

Portfolio of 53 properties worth €855.6 mn across Germany, Spain and France

By geography, Germany represented 61% of the group’s property portfolio by valuation, with France and Spain representing 24% and 15% respectively. 

By asset class, office represented 76% of portfolio valuations (across Germany and Spain) with the French retail portfolio representing the remaining 24%. 

As of September 2024, the portfolio’s overall occupancy rate stood at 89.6%, with a Weighted Average Lease Expiry (WALE) of 4.6 years. 

3.2% DPU growth in 1H24 financial results

At its 1H2024 results, gross revenues rose 28.8% YoY to €36.6 mn. 

Net property income rose 22.8% YoY to €27.0 mn, driven mainly by the contribution from the B&M portfolio (French retail portfolio acquisition in September 2023), recognition of dilapidation costs paid by the main tenant at Berlin Campus and rental income from Darmstadt Campus. 

Overall, income to be distributed improved by 3.9% YoY to €12.9 mn and Distribution Per Unit (DPU) increased by 3.2% YoY to €0.96 cents. 

Continued occupancy improvements at Darmstadt Campus

In the first half of 2024, management secured new leases totalling 3,100 sqm at Darmstadt Campus with a weighted average lease term of ~10 years, bringing the property’s occupancy rate to over 36%. 

For context, the sole tenant at Darmstadt Campus vacated in November 2022, following which IREIT secured a 15-year lease with a German federal government body for approximately 25% of Darmstadt Campus in June 2023. Leasing initiatives remain ongoing. 

Repositioning of Berlin campus to impact near-term DPU, drive long-term growth

In June 2024, the main tenant at Berlin Campus, Deutsche Rentenversicherung Bund, provided a formal notice that it will not be extending its lease when it expires on 31 December 2024. 

A lump-sum of €15.5 mn (>16 months of its total current rent) was paid by the tenant as dilapidation costs in June 2024. 2024. IREIT plans to reposition Berlin Campus into a multi-let, mixed-use asset once it is vacated, and it is already in advanced stages to enter into 20-year lease agreements with a leading hotel brand and long-stay hospitality operators for approximately 9,500 sqm each. 

Another lease agreement is also expected to be concluded with a federal government agency for approximately 4,000 sqm of office space. When secured, these represent 28% of the property space. 

Healthy leverage of 37.7% as at September 2024

Aggregate leverage of 37.7% as at September 2024 was a 0.2 percentage point improvement from December 2023.

This compares favourably to the overall office S-REIT average of 43.6% and overall S-REIT average of 39.4%. 

The weighted average interest rate was 1.9% as at September 2024, with a 8.1x interest coverage ratio and a weighted average debt maturity of 2.0 years. 

Continuity despite management appointments

In July 2024, IREIT announced that CEO Mr Louis d’Estienne d’Orves will be relinquishing his role as CEO to assume a senior role in Tikehau Capital, while remaining a non-executive director on IREIT. 

Mr Peter Viens, a fund manager at Sofidy (and part of Tikehau Capital) has been appointed the CEO of IREIT.

Mr Emilio Velasco, currently head of Real Estate (Spain & Portugal) of Tikehau Capital has been appointed CIO to assist Mr Viens in the investment and asset management function. 

Key risks

Leasing risks as the current occupancy rate of Darmstadt Campus remains relatively low, while the current pre-commitments at Berlin Campus is estimated to be 28%. 

Any further tenant vacancies could further impact distributable income. Macroeconomic uncertainties in Europe could impact rents, occupancy rates and valuations. 

Trading at 9.7% forward distribution yield

IREIT is currently trading at a 9.7% forward distribution yield, higher than the overall S-REIT average of 6.3% and likely reflecting concerns over the upcoming vacancy and absence of income at Berlin Campus, which represented 25% of gross rental incomes in 2023. 

Key catalysts to lookout for include leasing progress of its key properties and further clarity on redevelopment timelines and investment metrics of Berlin Campus.

Join us at "SGX Discovery Series with Beansprout: Navigating the landscape of European S-REITs" on 19 November, where we’ll dive into the exciting prospects of investing in this dynamic sector. This event features exclusive insights from senior executives of leading European REITs, including Cromwell European REIT, Elite UK REIT, and IREIT Global. Register for free here. 

Related links:

• IREIT Global share price and share price target
• IREIT Global dividend history and forecast

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