Peter Viens, the new CEO of IREIT Global UD1U ’s manager, has outlined his ambitions to expand the REIT’s footprint and scale. Viens became the CEO of the manager on Nov 5 while former CEO Louis d’Estienne d’Orves was redesignated to become a non-executive director on the REIT’s board.
Speaking at his first results briefing for the 3QFY2024 ended Sept 30 on Nov 13, Viens noted that IREIT Global was “too small” and said that it needed to grow in order to enter indices and subsequently “open the road” to institutional investors.
Expansion and diversification
However, diversification remains a key focus for the REIT manager.
As at Sept 30 this year, the REIT has 53 properties across Germany, France and Spain. A bulk of the REIT’s portfolio is in France with 44 properties, including the 17 retail properties the REIT acquired in June 2023.
While this is an improvement from the REIT’s initial portfolio of four German offices when it listed on the Singapore Exchange S68 ’s (SGX) Mainboard in August 2014, the REIT manager feels it could do more.
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During his time as CEO, d’Estienne d’Orves said that diversifying its portfolio minimises concentration risk while having a more sustainable distribution per unit (DPU).
In the 3QFY2024, IREIT said it signed three new leases for its Darmstadt Campus in Germany and secured three new tenants for its properties in Madrid, Spain, among others. It also signed 20-year lease agreements with two hospitality operators (for short- and long-term stays) for 17,000 sqm of its Berlin Campus.
In June this year, the REIT announced that its key tenant, Deutsche Rentenversicherung Bund (DRV), would not be expiring its lease, when it expires on Dec 31. DRV contributes around 20% of IREIT’s total gross rental income and is a main tenant of its Berlin campus. Upon DRV’s departure, the REIT manager said it plans to reposition the campus into a mixed-use urban precinct that has an office space, hospitality space, retail, conference facilities, health and wellness.
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“The departure of DRV presents the unique opportunity for us to revitalise the property and enhance its value proposition in the market. We believe the repositioned Property could benefit from substantially increased rent rates (as compared to its current rent)," said d’Estienne d’Orves at the time.
"We are also in exclusive discussions with a leading hotel brand and long-stay operator to lease about a quarter of the total lettable space," he added.
In September this year, the REIT submitted a building permit application with the permit expected to be obtained by 2Q2025. The leases are expected to be signed by 1Q2025.
“What is interesting to have in mind is that we would have secured nearly half of the previous rent. So 25% only of the building let to tenants represent half of the previous rental income, because this asset was under rented, the rent was far below the ERV (or estimated rental value),” says Viens, adding that about 25% of the building’s tenant income is from the hospitality operators, 7% from retail, with the rest coming from its office site.
“The upside really of this project, beyond de-risking it with having multi-tenants and multi-usage, is to increase the income. Our objective is to double it at the end of the project. And all is going on very well,” he continues. “The town is very supportive of the project. The area is being transformed. There are many development projects around our buildings, and this is a district in Berlin which may become very attractive in the near future.”
After securing the two hospitality operators, Viens says the REIT manager will find its first office tenant for the building. He adds that this is something that the REIT manager is quite confident will move ahead in the first half of 2025 as office tenants begin looking for other premises some 12 to 18 months before their current leases expire.
The practice somewhat matches the time needed for the works at the Berlin campus to be completed. When that’s completed, Viens says the REIT manager will, “for sure”, start to see interest.
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“We are already starting to see interest from tenants but we expect things to increase in terms of interest at the beginning of next year,” he says.
Beyond its current geographies, Viens also indicated that the REIT was looking at the Benelux member states of the European Union (EU), which comprises Belgium, the Netherlands and Luxembourg, particularly the Netherlands. In addition, the REIT could also explore properties in Italy and the UK. “[The UK] remains the biggest market in Europe, and there is a lot of liquidity in this market, and there are quite good opportunities.”
“The window of opportunity is there, so you can buy really good assets, at good yields,” says Viens. “This window will not last for forever, of course, but I think that [the opportunities] will be there for a few years, and we wish to participate in this market.”
In March, d’Estienne d’Orves also said that the REIT was to be looking into potential purchases to expand into the logistics sector as well as other mergers and acquisitions.
Tapping on joint sponsor pipelines
With two sponsors, pan-European asset manager Tikehau Capital and Singapore-listed developer City Developments Limited C09 (CDL), Viens says the REIT manager has the opportunity to tap into its joint sponsors’ strength and local market expertise.
When asked whether it would seek the help of its sponsors for its Berlin campus, Viens said that the REIT manager will seek their support if needed.
DPUs
As the REIT embarks on its asset management strategies, including the revamping of its Berlin campus, its distribution per unit (DPU) is expected to be “affected” by the absence of income from DRV. However, this will be mitigated by higher occupancy at its Darmstadt campus, says Anne Chua, chief financial officer (CFO) of IREIT’s manager.
Viens also admitted that the REIT will experience a “significant drop” in its DPU, although this is an inevitable outcome while the project is underway. “We will try to make it as short as possible, but we cannot hide the fact that [DPU] will drop,” he says, adding that the REIT manager is also not planning to top up its DPU with capital in the interim.
Finance strategies
With its aggregate leverage of 37.7% as at Sept 30, the REIT is one of the lowest geared Singapore-listed REITs (S-REITs) with the sector averaging around 39.4%. Within the office sub-sector, the average gearing is around 43.6% as at Sept 30.
IREIT also reported a weighted average interest rate of 1.9% as at Sept 30, with no debt maturity until January 2026.
According to Viens, the REIT manager intends to diversify beyond bonds and mortgage loans.
“Our strategy is to start to unencumber our assets to make this possible because our assets today are quite unencumbered,” he says.
Looking ahead, Viens believes the REIT will see better days with the improving macro situation in Europe.
In the last two years, Europe has been in quite a “difficult situation”. “But with the start of the decrease of interest rates, we feel that the worst is over, and we have now good prospects,” he says.
“Of course, it's the beginning of the rebound, so we do not expect [anything soon], especially when we talk about real estate that comes tomorrow, but we are [seeing a] good trend,” he adds. “The real estate market is stabilising in terms of value. We see less and less decrease in the value of asset or portfolios in Europe and in some geographies and in some typology of assets.”
In addition, Viens says the REIT manager has seen real estate values beginning to increase.
Furthermore, he believes that with more companies changing their minds about their employees working from home, there is a kind of “rebalancing” in Europe.
While working from home will not disappear, the CEO believes that the average number of days spent at home will fall to one or 1.5 days per week.
“It means that the need for real estate, for office buildings, is still there and will increase… Now that companies are better [able to] see what their needs are in terms of occupancy, with regard to now the stabilising work-from-home trend, they are moving,” he says. “And so this is quite positive for our portfolios.”
As at Nov 13, IREIT Global has a market capitalisation of $387.28 million. For the FY2020, FY2021, FY2022 and FY2023, IREIT’s distribution per unit (DPU) stood at 3.21 Euro cents (4.6 cents), 2.93 Euro cents, 2.69 Euro cents and 1.87 Euro cents respectively. In Singapore dollar (SGD) terms, IREIT’s DPU for the four years are at 5.03 cents, 4.48 cents, 3.89 cents and 2.75 cents respectively
