IREIT Global is the first Singapore-listed real estate investment trust with the investment strategy of principally investing in a portfolio of income-producing real estate in Europe, which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets. IREIT’s portfolio comprises five freehold office properties in Germany, four freehold office properties in Spain and 44 retail properties in France, with a total lettable area of 425,000 sqm.
1. In FY2024, IREIT’s revenue rose 16.3% and net property income climbed 7.2% year-on-year to EUR75.6 million ($109.7 million) and EUR53.5 million, respectively. What were the key drivers of this performance?
IREIT’s resilient performance in FY2024 was mainly driven by:
Full-year contribution from B&M Portfolio in France: Acquired in September 2023, the portfolio is fully leased to leading European discount retailer B&M Group, which continues to generate stable and resilient income.
Higher rental income: Healthy CPI indexation at Decathlon Portfolio in France and rent revision and dilapidation cost at Berlin Campus in Germany supported the income growth.
IREIT successfully secured well-established tenants for 49,450 sqm of new leases in 2024, surpassing the new lease take-up of 13,900 sqm in 2023.
See also: CapitaLand India Trust capitalises on India's tech growth
IREIT is committed to building a diversified portfolio across different asset classes and Western European countries to deliver sustainable returns for unitholders.
2. In 2H2024 and FY2024, property operating expenses surged over 40% y-o-y, outpacing revenue growth. Could you share more on the reasons for the elevated expenses and the steps being taken to manage expenses?
The rise in property operating expenses was mainly due to incremental costs from the addition of the B&M portfolio and a one-off feasibility study cost of EUR4.1 million for the repositioning of Berlin Campus. Without the feasibility study costs, the increase in expenses would be more in line with the revenue growth.
See also: Emperador embracing premiumisation for global expansion
The feasibility study has played a significant role in the proposed repositioning of Berlin Campus from a single-use, single-tenant asset into a multi-let, mixed-use asset with strong upside potential.
Looking ahead, the manager will continue to employ a disciplined approach towards asset management and portfolio optimisation to manage expenses effectively and drive long-term value creation for unitholders.
This includes driving steady income growth through operational efficiency, rental escalation and reversion and asset enhancement initiatives while strategically divesting low-yielding, non-strategic properties to recycle capital and rejuvenate IREIT’s portfolio.
3. How does IREIT approach capital management in the current high-interest-rate environment?
IREIT adopts a proactive strategy to manage the group’s capital structure, ensuring financial resilience through:
Prudent capital management: Maintain a healthy aggregate leverage and debt maturity profile while ensuring access to capital resources at competitive costs.
Diversified funding sources: Explore different funding options to enhance flexibility in financing sources and maintain a healthy credit profile.
For more stories about where money flows, click here for Capital Section
Effective interest rate hedging: Implement strategic hedging measures to mitigate impacts from market volatility and optimise the risk-adjusted returns to unitholders.
As at Dec 31, 2024, IREIT’s aggregate leverage of 37.6% remained lower than the S-REITs office sub-segment’s average of 44.4%, with 97.2% of its bank borrowings hedged with interest rate swaps and caps.
4. IREIT plans to reposition Berlin Campus asset into a multi-let, mixed-use asset. What is the impact on distributions per unit (DPU) in the near term, as well as the opportunities for the asset in the longer term?
While the absence of income from Berlin Campus is expected to have a significant impact on IREIT’s distributions during the repositioning period, the transformation of Berlin Campus into a multi-let and mixed-use property will unlock its long-term value by enhancing leasing flexibility and market appeal.
Strategic integration: The mix of hospitality, retail, and office space is poised to attract a broader tenant base, increase foot traffic, and create a landmark location in the district.
Strategic location: Situated next to the Ostkreuz main railway station, the second-biggest hub in Berlin, Berlin Campus is also well-positioned to capitalise on the strong growth in its surrounding area.
While the divestment of Berlin Campus was considered, repositioning was deemed to be more value-accretive, leveraging the asset’s potential of transforming into a landmark property. Divestment may be revisited when its office spaces have been committed by tenants.
5. Please share more on the manager’s views on macro trends affecting European real estate and how it is managing IREIT’s assets and portfolio to drive DPU growth.
While European real estate investment and leasing volumes improved in 2024, they remained below the 10-year average due to ongoing geopolitical uncertainty, persistent inflationary pressures and more expensive debt and capital. Real estate values in Europe seem to have reached a trough and may start to recover again in the future.
To drive DPU growth, the manager has proactively secured new leases and lease renewals totalling a lettable area of 49,450 sqm across IREIT’s portfolio assets. Notably, two hospitality leases for approximately 20,948 sqm of gross floor area or 24% of the net lettable space at Berlin Campus have been secured, well ahead of its repositioning.
Looking ahead, the manager remains focused on optimising IREIT’s portfolio occupancy and yield by securing new leases and lease renewals and considering capital recycling to strengthen IREIT’s portfolio value proposition.
6. What are some of the market trends that could affect IREIT’s operations? How is IREIT prepared to mitigate potential risks or capitalise on emerging opportunities?
Economic downturns and adverse leasing trends could impact IREIT’s portfolio performance. To address these challenges, the manager proactively monitors the economic developments and market trends across the geographies in which IREIT operates to stay ahead of potential risks.
The manager also actively engages IREIT’s tenants to understand their leasing needs, ensuring tenant retention. By leveraging the real estate expertise and local presence of its joint sponsor, Tikehau Capital, the manager can better navigate market fluctuations.
In addition, IREIT has a healthy aggregate leverage of 37.6%, positioning it well to capitalise on attractive investment opportunities that may arise.
7. Given that IREIT’s operations are all based in Europe, how does it manage concentration and currency risks?
IREIT has made inroads into the resilient retail park (out-of-town) asset class with the acquisition of the Decathlon portfolio and B&M portfolio in France. This has provided it with diversification into the retail sector in France, which has significantly added stability and breadth to its rental income while reducing its risk exposure to large single-office tenants.
To mitigate its currency risks, IREIT uses euro-denominated borrowings as a natural hedge to match the currency and cash flows of its assets. In addition, IREIT distributes its DPU in euros.
8. IREIT’s portfolio currently comprises retail and office assets. What other sectors would be of interest to IREIT, and what steps are being taken to expand its mandate?
IREIT has a portfolio of 53 office and retail properties valued at EUR857.3 million across Germany, Spain and France. In 2024, IREIT expanded its investment strategy to include hospitality, hospitality-related, accommodation and/or lodging assets, which will add diversification and provide long-term sustainable growth in distributions.
Furthermore, the expansion of IREIT’s investment mandate will expose it to different pools of tenants and operators, reducing IREIT’s sector and tenant concentration risk. This will strengthen IREIT’s resilience against risks such as market volatility and sector-specific challenges.
9. Are there any ESG initiatives being taken in IREIT’s properties?
Sustainability is integral to IREIT’s core business and strategies. As at Dec 31, 2024, IREIT have 35 green certifications, including three Platinum and one Gold Leadership in Energy and Environmental Design (LEED) certifications for its Spanish portfolio and 27 Building Research Establishment Environmental Assessment Method (BREEAM) certifications for its Decathlon portfolio in France.
Additionally, in December 2024, IREIT established a Green Financing Framework to integrate its sustainability commitments and priorities into its core business and strategies.
As a responsible real estate owner and investor, IREIT aims to fund projects and investments under the Green Financing Framework to achieve 100% green certifications across our portfolio assets.
The repositioning of Berlin Campus is designed with full consideration of the sustainability aspects, ensuring strong ESG (Environmental, Social and Governance) credentials.
10. Why should investors take a closer look at IREIT?
IREIT is a unique pure play in the Western European commercial real estate market that benefits from the collective expertise, strong brand name and extensive local network of its two sponsors, Tikehau Capital and City Developments. Both sponsors are highly regarded in their respective markets in Europe and Asia.
IREIT’s strategy is built upon its mandate to deliver regular and stable distributions to unitholders while creating long-term value through a multi-asset-class diversified portfolio.
The manager’s active asset management approach is tailored to achieving a balanced mix of quality tenants and a well-staggered lease expiry profile. It also pursues disciplined acquisitions of quality and well-located assets to drive sustainable growth.
Prudent capital management remains a priority, with a focus on mitigating exposure to interest rate fluctuations through hedging strategies. In addition, IREIT currently trades at over 50% discount to its book value, providing investors with an attractive entry point.
Raphael Lim is an associate director of FinLit and research at the Singapore Exchange Group
