RHB cuts IReit target to S$0.34; flags potential privatisation on further unit price declines

RHB Research has lowered its target price on IReit Global to S$0.34 from S$0.40 previously, as it expects the real estate investment trust’s (Reit) near-term distribution per unit (DPU) to be negatively impacted by the upcoming redevelopment of its largest asset, Berlin Campus.

In a report on Thursday (Jan 2), analyst Vijay Natarajan nonetheless believes the redevelopment initiative offers “the best path to unlock long-term value and diversify (the Reit’s) income base”.

Though he noted that IReit’s unit price has “plummeted due to uncertainties”, the analyst believes this trend is likely to be bottoming out, with the counter now trading at about a 50 per cent discount to book value.

Further unit price declines could also attract privatisation bids from the Reit sponsor, he added.

RHB had earlier expected IReit Global’s manager to top up FY2025 to FY2026 DPU during redevelopments at Berlin Campus. This assumption was, however, disproved by the latest management guidance, noted Natarajan.

The research house therefore now forecasts FY2025 DPU to decline by 34 per cent year on year mainly from the loss of its top tenant, as it was recently announced that the sole tenant’s lease at Berlin Campus would not be extended upon expiry on Dec 31, 2024.

RHB is also expecting the Reit to rack up higher financing costs for additional debt, with a total estimated capital expenditure of 130 million to 160 million euros (S$183.6 million to S$226 million) to be funded via debt and potential asset disposals.

“Gearing, as a result, could creep up to around 40 per cent levels, but may come down if asset values start to recover from the anticipated lower interest rates for the European Union,” said Natarajan.

Units of IReit Global were trading S$0.005 or 1.8 per cent lower at S$0.28, as at 10.30 am on Thursday.