"IREIT is likely to then monetise part of the asset de-risking debt concerns and unlock capital for potential acquisitions. Overall leasing demand is showing signs of a pick-up although lead time remains high," says Natarajan.
Furthermore, the REIT, trading at a 50% discount to book value, is attractive from a valuation perspective.
The REIT is now in active talks with two major tenants looking to take the majority of office space equal to 70% in the repositioned Berlin campus. According to Natarajan, these tenants are “AAA” rated and are planning to take up a very long lease, with IREIT planning to secure a tenant by 1Q26.
To recap, the Berlin campus was vacated at the end of last year by former tenant Deutsche Rentenversicherung Bund.
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The REIT has been redeveloping it into a multi-let mixed-use asset for office, retail and hospitality. The redevelopment will cost between 165 to 180 million euros and is slated for completion by 2QFY2027.
The hospitality portion has already been leased out to two tenants, Stayery and Premier Inn, on very long master leases.
The REIT recently refinanced a 200 million euro debt, which extends the maturity from Jan 2026 to July 2029.
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However, overall interest cost has increased. Margins on the new loan increased considerably to 2.5% mainly due to the pricing of redevelopment and leasing risks for the Berlin campus.
Overall interest cost as a result rose to 3.1%, up 50bps q-o-q and is expected to rise to 4.4% next year when the existing interest rate swaps are replaced with new ones.
In 3QFY2025, the REIT's portfolio occupancy dipped 0.5 ppt q-o-q to 89% as some space at Madrid was not renewed, while there was some "slight downsizing" at the Darmstadt campus.
It is in talks with federal tenants seeking a sizeable space in Darmstadt campus. It is also actively negotiating with key tenant Decathlon, which takes up 21% of the total space, to remove the lease break option due in 2027.
Natarajan expects IREIT Global's FY2025 and FY2026 DPU to decline due to the ongoing redevelopment and will sharply improve from FY2027 onwards upon the completion of the Berlin campus redevelopment.
IREIT Global units, as at 4.42 pm, was up 1.75% to 29 cents. It is up 3.57% year to date.
