French acquisition at an opportune time
- FY23 DPU of 1.87scts c.30.5% lower y-o-y; slightly below projections
- Portfolio valuations declined by c.13.5%, largely offset by the addition of B&M portfolio
- Leasing shows some progress; c.27% of lease expiries in FY24 continues to pose a near-term risk
- Maintain HOLD with a slightly revised TP of S$0.44
FY23 NPI of EUR49.9m 2.3% higher y-o-y. In FY23, IREIT’s NPI experienced a 2.3% increase, primarily attributed to the acquisition of the B&M portfolio on 5 September 2023. The B&M portfolio, acquired at a total cost of EUR76.8m, comprises 17 fully leased retail assets to B&M, a prominent discount retailer in Europe. The acquisition boasted an appealing yield of approximately 7.9%, and is estimated to contribute to a DPU accretion of slightly over 1%. The funding for this strategic acquisition was facilitated through a preferential offering.
FY23 DPU of 1.87Ects, slightly below our estimates. FY23 DPU of 1.87Ects was c.1.6% below projections and marked a y-o-y decrease c.30.5%. This decline was mainly attributed to an enlarged unit base resulting from preferential offering, along with vacancies at the Darmstadt Campus and rent-free periods granted for GMG’s lease extension at the Bonn Campus. Rent-free periods amounted to EUR0.4m and EUR2.5m for tenants at Bonn Campus and Darmstadt Campus, respectively.
The dilution in DPU was exacerbated by the timing difference between the issuance of units from the preferential offering in July 2023 and the B&M acquisition in September 2023.
Portfolio occupancy remained stable at 94.0%. In 4Q23, IREIT Global reported a stable occupancy rate, with the French portfolio fully occupied, and the German and Spanish portfolios at 87.7% and 79.7%, respectively. Approximately 26.8% of leases are set to expire in FY24, primarily driven by the DRV’s lease at the Berlin Campus, scheduled to end in December 2024. IREIT intends to reposition the asset if DRV vacates the property.
The signing of a 10-year lease with a major mobile roof antenna provider for two office floors at Munster North Building is notable, replacing Deutsche Telekom. Moreover, lease extensions at B&M properties and the commencement of rent payments from the data centre tenant at Sant Cugat Green are expected to contribute positively to income. B&M’s lease has been extended by an average of 3.8 years, leading to the portfolio’s WALE being lengthened to c.7.7 years. The entire France portfolio also underwent CPI indexation on 1 January 2024, resulting in c.EUR0.7m in additional income.
Overall, FY23 recorded an average of 0.5% positive rental reversions, and the overall portfolio enjoyed an average 4.6% in rental escalation during the year.
Gearing inched up to 37.9%, mainly due to valuation decline. IREIT’s portfolio reported a decline of c.5.4% in valuations during the year, primarily attributed to lower valuations for the Germany portfolio (-18.2%) and Spain portfolio (-4.7%). As a result, gearing increased 3.5 ppt q-o-q to 37.9%. Excluding the acquisition of the B&M portfolio, IREIT’s French portfolio would have also reported a valuation decline of c.0.3% y-o-y, and overall portfolio valuations would have declined by a much larger c.13.5%.
IREIT’s all-in borrowing costs remained relatively stable at 1.9%, reflecting a 10 bps improvement q-o-q, likely influenced by the peaking of interest rates in Europe and the repayment of c.EUR14.9m of loans from the successful divestment of II.lumina on 31 January 2024. The divestment of EUR24.5m was a 6.1% premium to valuation, and proceeds were utilised to repay loans due in FY26. Currently, no loans are due for refinancing until January 2026, and c.96.5% of all loans remain hedged to fixed rates and interest rate caps.
