Also, the REIT's NAV has been lowered "unexpectedly" too by 13% in euro terms. A new valuer, citing significantly higher discount rates, lowered the valuation of the REIT's key assets, the Berlin campus by 18% y-o-y, and the Concor Park by 38% y-o-y.
"With higher drawdowns expected to fund the Berlin campus redevelopment in FY26-27, the higher associated interest expense without a lack of income will have a negative near-term impact," reasons Natarajan.
In 4QFY2025, IREIT's portfolio occupancy rate rose 0.4ppt q-o-q to 89.4% and is likely to inch up higher, with a few active leasing discussions underway. The REIT also achieved a 4% portfolio rent escalation in FY25.
He notes that the REIT remains in talks with two potential "high quality" AAA-rated office tenants to secure sizeable leasing commitments and that the leases are likely to be signed by the second quarter of the year, which is a "slight delay" from its earlier guidance of 1Q.
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Natarajan notes that both these tenants are looking to sign very long leases of over 10 years, while the hospitality portion of the Berlin Campus has already been leased to Stayery and Premier Inn, on very long master leases.
IREIT is also in active discussions with its key tenant, Decathlon, which contributes 21% of total income, to remove the lease break options, due in 2027, and expects a positive outcome – with the majority of these options being extended. It also does not expect any negative impact from ongoing potential litigation based on its legal counsel’s advice.
Factoring in additional interest costs, adjusting for NPI margins, and also increasing the cost of equity by 10 bps to factor in development and market risks, Natarajan has cut his FY2026 and FY2027 DPU by 21% and 17% respectively.
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"While valuations are cheap, with the units trading a 0.5 x P/BV, we await greater clarity and certainty on the Berlin campus lease signing," says Natarajan.
IREIT Global units last traded at 27 cents.
