At its results briefing for the 1QFY2024 ended March 31, the manager of IREIT said that it is still looking to diversify its portfolio but remain within Western Europe.
Among its plans is the repositioning of the REIT’s freehold Berlin Campus, which measures 79,097 sqm in total. The campus is currently 100% leased with a main tenant, Deutsche Telekom, whose lease will expire in December 2024.
Should Deutsche Telekom vacate the premises, IREIT plans to reposition Berlin Campus into a mixed-use asset that includes an office, retail spaces and a hotel. The hotel is likely to measure between 15,000 sqm to 20,000 sqm while the retail space is likely to measure around 3,500 sqm.
According to the REIT manager at its results call on April 30, the capital expenditure (capex) for the construction of the development could be between EUR1,000 ($1,453.08) – EUR2,000 psm for the hotel and between EUR200 – EUR300 for the retail space.
This puts the REIT’s total capex at a minimum of EUR15 million for the hotel and a minimum of EUR700,000 for the retail space.
Yet, in the short-term, the REIT manager is not looking to conduct an equity fund raising (EFR) for the refurbishment, says CEO Louis D'Estienne D'Orves. But the REIT manager may consider alternatives such as the bond or debt market, depending on which is more feasible in the interests of unitholders.
See also: IREIT signs 20-year lease contract with UK hotel chain, Premier Inn, in Berlin Campus
During the refurbishment, the REIT could also lose some income, considering the campus currently contributes about 20% to IREIT’s total income. However, the move is said to be worth it, with D’Orvest estimating the return on investment (ROI) to be in the teens (of 13% to 19%).
For the quarter, the REIT reported a set of positive operational updates, including the signing of some 7,100 sqm of new leases during the quarter.
These developments could well lead the REIT to deliver an improvement of around 11% to 12% in its distribution per unit (DPU) for FY2024, says the DBS Group Research team in its April 30 update.
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The DBS team has kept its “hold” call with an unchanged target price of 44 cents as it notes the key positives such as the strong rental reversions, the gradual occupancy improvement at Darmstadt Campus and improved gearing ratio.
However, it is looking out for the full cost of the repositioning of the Berlin Campus and how it will be funded as well as the vacancies in IREIT’s German and Spanish portfolios.
As at 4.14pm, units in IREIT are trading 1 cent higher or 3.08% up at 33.5 cents.
