Europe-focused IREIT Global is doubling down on its growth strategy, even as sectoral challenges continue to plague REITs in its home market of Singapore.
In 2014, IREIT became the first Europe-focused REIT to list on the Singapore Exchange. Today its portfolio consists of five office properties in Germany, four office properties in Spain and 44 retail properties in France. The portfolio has a valuation of approximately €874.5m (US$981.9m), according to the company’s website. The REIT’s manager is jointly owned by Singapore’s City Developments and French alternative asset management firm Tikehau Capital.
“We are a bit too small today, we know that. We want to be bigger, to be more visible in Singapore, to engage more with the financial system in Singapore,” said Peter Viens, chief executive officer of IREIT. Becoming bigger, he said, will allow the REIT to obtain a credit rating and thereafter tap international institutional investors for its funding needs.
As part of these efforts, IREIT printed a debut Singapore dollar bond in May, raising S$85m (US$64.8m) through a three-year green deal priced at par to yield 6%.
The company decided to print a green bond to appeal to a wider pool of investors, especially those who focus on sustainability and ESG, the company said. Printing in Singapore dollars was only natural for a Singapore-listed company, it said.
Proceeds from the new notes, which were swapped to euros, will be used to fund capital expenditure for the repositioning of its Berlin campus from a single-use, single-tenanted property into a multi-let and mixed-used property, with the aim of achieving a LEED gold certification after the upgrade. The sole office tenant, pension insurance provider Deutsche Rentenversicherung Bund (DRV), moved out at the end of 2024. DRV was IREIT's top tenant by rental income and its lease accounted for 20% of the REIT's gross rental income, according to a SGX filing in June 2024.
Though issuing a local currency bond allowed the issuer to raise funds at a “favourable” post-swap rate, Viens said that the main objective was not to save on funding costs but to establish itself in the market.
“It’s because we want to raise money in Singapore from now on. This is more market practice from our REIT’s standpoint,” he added.
Chief financial officer Kevin Tan said that the debut bond was also part of IREIT’s broader objectives to reduce the encumbrance ratio of its portfolio, meaning the company will refinance existing secured debt on its properties with unsecured debt so that the REIT can better access other types of funding and appeal to a wider investor pool.
The S$85m raised will only partly fund Phase 1 of the Berlin Campus project, which is expected to cost approximately €90m. The remainder will come from its balance sheet as well as other lines of credit, such as loans, which the REIT has already secured.
IREIT disclosed in an earlier circular that it was in talks with two high-quality tenants to lease out a substantial portion of the office space in the upgraded Berlin campus. It expects to secure at least one contract by early next year, which is also when IREIT will begin fundraising again, through various means including a bond offering in Singapore.
REITs in Singapore have been affected by several headwinds in recent years, including higher-for-longer interest rates, as well as depressed valuations. S-REITs traded at an average price-to-book ratio of 0.84 times as of January this year, a 16% discount from the longer-term average, according to a Singapore Exchange report. Of the 40 Singapore-listed REITs, three are European-focused REITs, including IREIT.
The lower valuations led to the delisting of Paragon REIT from the SGX on June 6, while Frasers Hospitality Trust last month received its second offer in three years from Frasers Property to take the trust private.
IREIT, however, assured investors at its annual general meeting that it does not have any plans to delist.
Viens acknowledged that the real estate sector, particularly office space, has been in a market downturn, but remained confident of a recovery.
The REIT will also reduce its exposure to office buildings and mainly turn towards retail spaces to drive growth, Viens said.