IREIT Global Review @ 18 August 2023

Basic Profile & Key Statistics

• Main Sector(s): Office & Retail
• Country(s) with Assets: Germany, Spain & France
• No. of Properties (exclude associate/fund): 37

Key Indicators

Performance Highlight

Gross revenue, NPI and distributable income declined YoY mainly due to the vacancy in Darmstadt Campus and one-off rent-free period in Bonn Campus, Münster Campus and Sant Cugat Green.

Rental Reversion

Rental Reversion is at 0% for 1H 2023.

Acquisition

In July, IREIT completed the preferential offer and received approval at EGM for the acquisition of B&M portfolio. The acquisition is expected to be completed by 3Q 2023.

Related Parties Shareholding

• REIT Sponsor's Shareholding: Above median by 20% or more
• REIT Manager's Shareholding: Below median by 20% or more
• Directors of REIT Manager's Shareholding: Above median by 10% or more

Lease Profile

• Committed Occupancy: Below median by 5% or more
• WALE: Above median by 20% or more
• Highest Lease Expiry within 5 Years: Above median by 20% or more; Falls in 2024
• Weighted Average Land Lease Expiry: 100% freehold properties

Debt Profile

• Gearing Ratio: Below median for more than 10%
• Cost of Debt: Below median for more than 20%
• Fixed Rate Debt %: Above median for more than 20%
• Unsecured Debt %: 0%
• WADM: ± 10% from median
• Highest Debt Maturity within 5 Years: Above median for more than 20%; Falls in 2026
• Interest Coverage Ratio: Above median for more than 20%

Diversification Profile

• Top Geographical Contribution: Below median by 20% or more
• Top Property Contribution: Above median by 10% or more
• Top 5 Properties' Contribution: ± 10% from median
• Top Tenant Contribution: Above median by 20% or more
• Top 10 Tenants' Contribution: Above median by 20% or more

Key Financial Metrics

• Property Yield: ± 10% from median
• Management Fees over Operating Distributable Income: Below median by 20% or more; $10 distribution for every dollar paid 
• Operating Distributable Income on Capital: ± 10% from median
• Operating Distributable Income Margin: Above median by 20% or more
• Operating Distribution Proportion: 100%

DPU Breakdown

• TTM DPU Breakdown:
• 100% from Operation
• TTM DPU = 90.1% of Distributable Income

Trends

* DPU and NAV per Unit are in Euro

• Uptrend: NAV per Unit
• Slight Downtrend: Interest Coverage Ratio
• Downtrend: DPU from Operation, Committed Occupancy, Property Yield, Operating Distributable Income on Capital, Operating Distributable Income Margin

Relative Valuation

• Dividend Yield: Above +1SD for 1y, 3y & 5y
• P/NAV: Below -2SD for 1y, 3y & 5y

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Low REIT Manager's Shareholding
High REIT Sponsor's Shareholding	Low Committed Occupancy
Long WALE	Concentrated Lease Expiry
100% Freehold Properties	0% Unsecured Debt
Low Gearing Ratio	Concentrated Debt Maturity
Low Cost of Debt	High Top Property Contribution
High Fixed Rate Debt %	High Top Tenant & Top 10 Tenants' Contributions
High Interest Coverage Ratio	DPU from Operation Downtrend
Low Top Geographical Contribution	Committed Occupancy Downtrend
Competitive Management Fees	Property Yield Downtrend
High Operating Distributable Income Margin	Operating Distributable Income on Capital Downtrend
100% Operating Distribution Proportion	Operating Distributable Income Margin Downtrend
NAV per Unit Uptrend

Year on year, gross revenue declined 5.5% (€ 1.64 mil), NPI declined 10.1% (€ 2.47 mil) and income to be distributed declined by 24.3% (€ 3.99 mil). Let's explore what is the reasons for the huge decline in income to be distributed.

The finance costs and administrative costs and other trust expenses increased, while management fees went down. The rise in administrative costs and other trust expenses is due to a one-off adjustment for non-recoverable value-added taxes, which has no impact on the distributable income. Still, when looking at the net income before taxes and the fair value change for both periods, there's a difference of about €2.73 million, which is nearly the same as the decline in Net Property Income (NPI).

Next, let's check out the distribution statement and match those items in the income statement, offset them to get the adjusted income statement.

Below is the adjusted income statement:

Here, the main culprit would be the decline in gross revenue (after offsetting the straight-lining effect of the rent-free period) and the rise in property operating expenses. The decrease in management fees helps balance out the higher finance and tax expenses. From the presentation, the rent-free period for Bonn Campus, Münster Campus and Sant Cugat Green is one-off. 

Nonetheless, the income is expected to improve after the rent-free period and completion of the acquisition of the 17 Retail Properties in France. However, DPU might not be back to the previous high due to a larger unitholder base and the manager continuing to take 100% of management fees in cash.  The finance expense should stay steady since 96.2% of debt is at fixed rate and there is no refinancing requirement until Jan 2026.

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my own findings and should not be considered as professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.