On Aug 7, IREIT Global’s manager announced it plans to exercise the call option to acquire the 60% of four Spanish properties it does not own from Tikehau Capital, for around €47.8 million. The transaction is subject to unitholders approval where Tikehau Capital cannot vote. Although City Developments is a major unitholder and also owns a 50% stake in the REIT manager, it can vote because the portfolio was jointly acquired by IREIT and Tikehau Capital.
On Dec 7, 2019, IREIT partnered with Tikehau Capital and City Developments (CDL) to acquire 100% interest in the Spanish portfolio comprising four freehold multi-tenants office buildins in Madrid and Barcelona for €133.8 million on a 100% basis. At the time, CDL extended a €32.0 million loan to IREIT to fund its 40% investment.
To fund the transaction and to repay CDL, IREIT Global’s manager has announced a renounceable non-underwritten rights issue of new units in IREIT, to raise €90 million. The ratio has not been announced but units will be issued to existing unitholders on a pro rata basis. Tikehau Capital, CDL and AT Investments have provided undertaking to subscribe for all of the rights units, with CDL (through City Strategic Equity Pte Ltd (CSEPL) and AT Investments taking up excess units. As a result of the undertakings provided by AT Investments, there may be a transfer of controlling interest in IREIT to AT Investments.
“The rights issue will be underwritten by the substantial shareholders which will take their pro rata share and excess rights. We’re trying to deliver a message of confidence to minority unitholders that the quality is good and the substantial unitholders are able to back this,” Louis d’Estienne d’Orves, CEO of IREIT Global’s manager.
The impact of the rights issue is both distribution per unit (DPU) and net asset value (NAV) per unit dilutive.
However, d'Estienne d'Orves, says the Spanish properties are under-rented, with a strong tenant base. “We are slightly below market rents in Spain and in Germany as well. We are in a safe position. The top two contributors representing 35% of the total income of the Spanish portfolio are DXC Technologies, listed on NYSE and Roche. We are able to add to the strong tenants in Germany and it’s very important to have these kind of [tenants] to pay rent,” he says.
The German portfolio comprises of campuses in Berlin, Bonn, Darmstadt, Münster and Munich where its largest tenants are Deutsche Telekom, Deutsche Rentenversicherung Bund, Allianz and ST Microelectronics.
The rights issue is likely to lower IREIT’s gearing ratio from 39% to 35%, giving it some debt headroom should opportunities arise. “In line with the strategy of looking at Western European countries excluding UK, [our focus is] Spain, Germany, France and Italy, making sure we’re in places where value remains stable,” d’Estienne d’Orves says.
IREIT Global reported a 1.4% y-o-y increase in 1H2020 net property income mainly to higher gross revenue from the new lease at Münster South Building which commenced in Jul 2019 and the positive effects arising from the finalisation of prior year’s service charge reconciliation. However, income available for distribution for 1H2020 fell marginally y-o-y to €11.7 million translating into a 2.7% decline in DPU to 2.85 cents.
“The portfolio has been very resilient and valuation is at the same level as Dec 30 2019 thanks to tenants that pay rent and asset management initiatives. Overall we have increased NPI by 1.4% which reflects annualised DPU yield of 7.9%. We will be ale to distribute a DPU of 2.85 cents versus 2.93 cents a year ago,” d’Estienne d’Orves says.
