IREIT Global: Repositioning to bear fruit in FY27
- 1H25 DPU of 0.71 Ects, in line with of our projections due to backfilling of vacancies
- Initial tranche to fund repositioning of Berlin Campus to be sourced from retained earnings and recently issued bonds
- Earnings to face pressure from limited income and rising financing costs, before anticipated rebound in FY27
- Maintain HOLD with revised TP of SGD0.30
Impacted by the vacancy at Berlin Campus. IREIT's 1H2025 results were primarily impacted by the full vacancy at Berlin Campus as the manager begins its repositioning project. Gross revenue for 1H2025 decreased by 27.5% y/y to EUR26.6mn, while net property income (NPI) fell by 33.3% y/y to EUR18.0mn. The decline in both metrics was a direct result of the vacancy at the Berlin Campus following the expiry of the main tenant Deutsche Rentenversicherung Bund (DRV)’s lease on 31 December 2024.
The results are in line with our expectations given the well-communicated repositioning strategy. DPU for 1H2025 was 0.71 Ects, a 26.0% decrease from 0.96 Ects in 1H2024. This was mainly due to the lower NPI from the vacancy at Berlin Campus. Distributable income was computed after the retention of 10% for working capital and capital expenditure. The dilapidation cost of EUR5.2mn from the former Berlin Campus tenant was also retained for the repositioning project, which further impacted distributable income.
Occupancy at rest of the portfolio improved 0.8ppt q/q. Portfolio occupancy, excluding the vacant Berlin Campus, was 89.5% as of 2Q25. The Spanish portfolio saw a positive trend, with its occupancy rate increasing from c.77% to c.80% after securing new leases at Sant Cugat Green and Parc Cugat Green. The office space at Parc Cugat Green is now fully occupied for the first time since its acquisition.
The WALE for the portfolio, excluding the Berlin Campus, improved slightly to 5.8 years from 5.7 years q/q. The increase was a result of new leases and lease extensions signed in 1H25.
Portfolio valuations improved c.0.5% y/y. The portfolio was valued at EUR859.8mn as of 30 June 2025, based on a fair valuation. Although cap rates remained relatively stable y/y, the new lease commitments, especially those at the Berlin Campus and Darmstadt Campus, led to a c.0.5% valuation uplift. This offset the marginal dip in valuations in Spain and France.
Gearing increased to 41.1% following the issuance of SGD85mn in notes. Aggregate leverage stood at 41.1% as at 2Q25, up from 37.7% at the end of the previous quarter. This increase was due to the issuance of SGD85mn in green notes in May 2025. The weighted average interest rate increased to 2.5% from 1.9% as at 2Q25, attributed to the new green notes and higher margins on bank borrowings. The manager is in advanced discussions with incumbent banks to refinance the German and Spanish portfolios and expects to finalise the agreements by 3Q2025.
Repositioning of Berlin Campus underway. The repositioning of Berlin Campus is the key development within IREIT’s portfolio. Construction commenced in 2Q25, subsequent to unitholder approval and building permit issuance. The total projected capital expenditure for the project is between EUR165mn and EUR180mn. The manager successfully raised funds for the initial phase through the issuance of SGD85mn in green notes. The manager is in discussions with two potential office tenants, targeting a lease commitment for a substantial portion of the space by 1Q26, which would significantly de-risk the project.
We understand that IREIT may look to divest part of their interest in the Berlin Campus once the office leases are secured. This is to ensure that IREIT will be able to extract maximum value from the repositioned property. Proceeds would be used towards funding the remaining capex requirement of the project and pare down debt. The potential divestment of a stake in the Berlin Campus will also enable IREIT to manage gearing and other capital management metrics such as ICR, which is expected to decline in the coming quarters as financing costs rise and earnings decline due to the absence of income from the Berlin Campus.
Potential litigation from former tenant. IREIT received a legal claim from its former tenant at Berlin Campus, DRV, seeking EUR8.4mn as partial repayment of a EUR15.5mn dilapidation cost. The manager's legal counsel advises that the claim is unlikely to succeed, with a high probability of a successful defence. IREIT has formally rejected the claim and is currently unaware of any further actions from DRV.
Our views
The forward-looking view is largely centred on the success of the Berlin Campus repositioning. A key upside is securing a major office tenant for a substantial portion of the space by 1Q26, which would provide earnings visibility. We expect weakness in earnings in the interim, due to the absence of income from Berlin Campus as it undergoes repositioning. The property will only gradually resume income contribution from FY27 as redevelopment is completed and the two hospitality leases commence.
We have revised our numbers to account for the better-than-anticipated performance of the underlying portfolio, especially backfilling at the Darmstadt Campus and the Spanish properties. We also adjusted for the recently issued SGD85mn in green notes carrying at coupon rate of 6.0%, which will be capitalised rather than contributing to higher interest expenses (as previously assumed).
As a result of these upward revisions in FY25 projections, our TP has been increased to SGD0.30. Despite this, we remain cautious on FY26 earnings as we anticipate a >4% decline in DPU due to higher cost of debt from refinancing in January 2026, and the expiry of interest rate hedges. Based on our estimates, we expect IREIT’s borrowing costs to rise by a further c.110 bps in FY26, and gearing to remain elevated. As such, we will be maintaining our HOLD recommendation despite the higher TP of SGD0.30.
FY Dec | 1H2024 | 2H2024 | 1H2025 | % chg y/y | % chg h/h |
Gross revenue | 36.6 | 38.9 | 26.6 | (27.5) | (31.8) |
Property expenses | (9.7) | (12.4) | (8.6) | (11.3) | (31.0) |
Net Property Income | 27.0 | 26.5 | 18.0 | (33.3) | (32.2) |
Other Operating expenses | (3.5) | (3.3) | (1.3) | (61.0) | (59.0) |
Other Non Opg (Exp)/Inc | (0.2) | (9.8) | (6.3) | nm | (36.1) |
Associates & JV Inc | 0.0 | 0.0 | 0.0 | - | - |
Net Interest (Exp)/Inc | (3.3) | (3.1) | (3.4) | (2.7) | (8.9) |
Exceptional Gain/(Loss) | (19.9) | 0.0 | (4.8) | 75.9 | nm |
Net Income | 0.13 | 10.3 | 2.18 | 1,551.5 | (78.8) |
Tax | 0.07 | (1.9) | (1.5) | nm | (23.0) |
Minority Interest | 0.0 | 0.0 | 0.0 | - | - |
Net Income after Tax | 0.20 | 8.40 | 0.72 | 252.9 | (91.4) |
Total Return | (0.6) | 0.0 | 0.0 | - | - |
Non-tax deductible Items | 0.0 | 0.0 | 0.0 | - | - |
Net Inc available for Dist. | 0.20 | 8.40 | 0.72 | 252.9 | (91.4) |
Ratio (%) |
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Net Prop Inc Margin | 73.6 | 68.1 | 67.8 |
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Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
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