IREIT Global announces SGD 3Y senior unsecured notes at IPG of 6.25%

IREIT Global (“IREIT”) plans on issuing new SGD 3-year  senior unsecured notes at the initial price guidance (“IPG”) of 6.25%. The new notes are expected to be issued on 22 May 2025, with a maturity date of 22 May 2028. The proceeds will be used for the repositioning of the Berlin Campus to a multi-let and mixed-used property (“Project RE:O”). This Project RE:O is targeted to attain a minimum Leadership in Energy Environmental Design Gold certification for the upgraded property, which would meet the criteria for an Eligible Green Project under IREIT Global’s Green Financing Framework. We wish to highlight that the new issuance is made available only for accredited and institutional investors.

About the Company

IREIT is a pure-play Western Europe-focused REIT with real estate assets located in Germany (61%), France (24%) and Spain (15%). Its portfolio includes office properties in Germany and Spain and retail properties in France (mainly Decathlon and B&M) as of 31 March 2025. IREIT is also jointly owned by Tikehau Capital and City Developments Limited. Each sponsor owns 50% of the manager.

As for its tenant mix, the company has five key tenants comprising a total of 63.1% of the overall tenant mix based on gross rental income as at 31 March 2025 (excluding Berlin Campus which is planned for repositioning* this year).These key blue-chip tenants are Decathlon (20.7%), GMG – Deutsche Telekom (17.5%), B&M (17.4%), Allianz (3.8%) and ST Microelectronics (3.7%).

*Repositioning refers to converting the asset from a single-use and single-tenanted to multi-use and multi-let

Financial highlights

For the financial year ended 31 December 2025 (“FY24”), gross revenue is up 16.3% year-on-year (YoY), amounting to EUR 75.6 million. This is mainly due to (i) the acquisition of B&M Portfolio in France in September 2023, (ii) recognition of dilapidation cost payable by the main tenant at Berlin Campus, (iii) higher rental income from Darmstadt Campus and higher rental rates at Berlin Campus with effect from 1 July 2024.

With regards to (ii), the large contribution recognised from dilapidation income of the Berlin Campus amounts to EUR 15.5 million, which is ~16 months of rent. Dilapidation income is a one-time payment made at the end of a lease from the tenant to the landlord. It is to ‘reimburse’ the landlord for restoring the property post-lease.

In terms of costs, property operating expenses are up 46.3% YoY mainly because of the recognition of feasibility study costs of EUR 4.1 million (FY23: EUR 0.3 million) in relation to the repositioning of the Berlin Campus and the acquisition of B&M Portfolio in September 2023. Also as expected across the industry, finance costs rose 8.6% YoY to EUR 7.4 million mainly due to the new term loan for the acquisition of the B&M Portfolio, interest expense on lease liabilities arising from leasehold properties, as well as higher interest rates on the unhedged borrowings.

Before tax, IREIT’s profit rebounded from a loss of - EUR 123.0m in FY23 to a profit of EUR 10.4 million in FY24. The rebound is due to a smaller decline in fair value loss of investment properties in FY24. Fair value of IREIT’s investment properties fell by EUR 19.4 million. Distribution Per Unit (“DPU”) also rose slightly to EUR 1.90 in FY24 from EUR 1.87 the previous year.

Key information to note

In light of more recent developments, we wish to highlight the following:

(i) Firstly, for the quarter ended 31 March 2025 (“1Q25”), its portfolio occupancy rate, 88.7%, is marginally higher than the previous quarter, 88.5%, due to new leases committed within the Spanish portfolio (1Q24: 91.5%). Though, this number appears slightly smaller on a YoY basis. We are not surprised because its largest asset, Berlin Campus, had been excluded from the computation as it is vacant due to the ongoing repositioning project. Overall, we think IREIT’s portfolio occupancy rate remains at a healthy level amid macro uncertainty in the region.

(ii) Secondly, further developments involving Berlin Campus also shed light into future cashflow prospects for IREIT. To start, the repositioning project of the Berlin Campus would transform the single-use and single-tenanted asset into a mixed-use and multi-let. The upgraded Berlin Campus would also fulfill greater sustainability standards and attract a broader tenant mix, capitalising on the location near Berlin’s second busiest train station, Ostkreuz, and the Mediaspree district. The company also expects construction works to begin in 2Q25 as the building permit has been recently granted in April 2025. In 4Q24, the manager has also secured long-term (20-years) leases with two hospitality operators namely the Premier Inn and Stayery.

While these two tenants would only be taking up about 24% of the lettable area, the total annual rents secured from these two tenants made up ~45% of Berlin Campus’ original annual rental income. This may indicate healthy market confidence among tenants and may suggest that IREIT could secure more favourable lease terms for the remaining lettable area once the upgrades are completed. They also shared that the total projected capital expenditure ranges between EUR 165 million to EUR 180 million – which is expected to be funded by this bond issue.

As highlighted above, this is the company’s largest asset by value. To put things into perspective, this asset represents 27% of the portfolio value and forms 25% of the gross rental income in FY24. Hence, during this construction period, we could minimally expect a drop in rental income for this year and the following year. However, we wish to point out that the dilapidation income mentioned earlier may partially offset this decline. The company also expects rents to start coming in Q3 2026 – 2027.

(iii) Last but not least, aside from the repositioning project, IREIT continues to secure new leases and renewals in 1Q25, amounting to 8,400 square metre (sqm), about 2% of its entire portfolio lettable area of 425,116 sqm. They include a 10-year new lease signed with a major German bank for its Münster Campus. Also the lease renewals of Delta Nova IV & VI were secured with two major tenants for three and five years respectively.

Credit highlights

In terms of credit profile, as of 1Q25, IREIT’s aggregate leverage is at 37.7% (4Q24: 37.6%), lower than the office S-REITs average of 44.4% and broader S-REIT average of 39.6%. This came as a result of its voluntary partial loan repayment of EUR 5.0 million in relation to its Spanish portfolio, partially offset by lower cash balance due to distribution payment and loan repayment. The company also has a relatively high interest coverage ratio (ICR) of 6.7x in 1Q25 (4Q24: 7.6x) as they managed to lock in loans at a low average interest rate of 1.9%. Moving forward, we expect leverage ratios and ICR to weaken as the company takes on greater financing for its repositioning project. Overall, we think that IREIT has a healthy debt headroom and is well able to comply with MAS’ regulatory leverage limit.

On the other hand, borrowings fell slightly from EUR 359.1 million in 4Q24 to EUR 354.1 million in 1Q25 (All the borrowings are secured and denominated in EUR). Looking at its debt maturity profile, we see a substantial amount maturing in January 2026 (Figure 1), suggesting a higher near-term refinancing needs. To address this concern, the REIT have shared that ongoing negotiations with incumbent banks to refinance borrowings due in 2026 are taking place. In our view, IREIT could also tap into a potential bond issuances for financing needs. Moreover, operating cash flows have improved in recent periods and if this sustains, the improved cash position could remain supported and strengthens IREIT’s ability to repay its debt.

Figure 1: Most of its debt is maturing in 2026

Our recommendations

Table 1: Comparable SGD REIT papers

Overall, we find IREIT’s credit profile stable. We find IREIT’s IPG of 6.25% attractive as compared to other SGD REIT issuers with similar tenors which are yielding 2.8-3.3%. Many of the SGD REIT peers have lower yields due to tighter credit spreads, which are a reflection of the investment grade ratings they hold. IREIT’s new issuance is expected to be unrated. That said, we do expect the final price guidance to adjust downwards from the IPG, but we think the FPG (“final price guidance”) of the new issue should remain relatively attractive.  We think IREIT’s new issuance is suitable for investors who are looking for higher yielding options within the SGD bond space and are comfortable with slightly higher risk (than other SGD REIT papers).

Interested investors should be mindful of certain risks. In the first year of the bond’s three year tenor (FY25/26), we expect higher refinancing risk for the REIT (as explained above). That said, we do not think it is a big problem since IREIT likely has various avenues to refinance its debt, as highlighted above. In its final year (FY27/28), project risk relating to the success of securing rents for the repositioned Berlin Campus - Project RE:O could either improve or dampen cash flow visibility.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report holds an NIL position in the abovementioned securities.

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