• Keep BUY, with lower TP of SGD0.34 from SGD0.40, 19% upside with 7% FY25F yield. IREIT Global is undergoing a major transition with the upcoming redevelopment of its largest asset, Berlin Campus (BC). While near-term (FY25-26F) DPU will be impacted as a result, we believe this redevelopment offers the best path to unlock long-term value and diversify its income base. IREIT's share price has plummeted due to uncertainties, but it is likely bottoming out - trading at a 50% discount to book value, and further share price declines could attract privatisation bids from its sponsor.
• Project RE:O: off to a good start. BC's sole tenant - Deutsche Rentenversicherung Bund (DRB), Europe's largest pension fund - will be vacating the space post lease expiry in end-Dec 2024. DRB is IREIT's largest tenant, and accounted for 22% of its 1H24 rental income. Considering BC's prominent location in the city centre, the significant under-rented nature of the asset, as well as the changing office market landscape, IREIT plans to reposition BC into a mixed-use facility comprising offices (70% of GFA), two hospitality operators (c.12% GFA each) and retail (5%). In this regard, IREIT has already signed two long hospitality leases (20 years each, with no break option) with Premier Inn and Stayery. Premier Inn, the UK's largest hotel chain, will operate a 270-room hotel (10,438 sq m of GFA), post the completion of repositioning in 1H27, with annual rental of EUR2.2m that will be stepped up to EUR2.6m after four years with annual indexation. Stayery is a modern-concept serviced apartment project that will operate 255 guest rooms by 1H27 with annual fixed rent of EUR2.7m (which will increase to EUR3m at the end of the 3-year step-up period). The combined rents would be equivalent to ~45% of rental income now paid by DRB while occupying only ~24% of GFA, underscoring a significant income uplift. IREIT expects healthy demand from office tenants for its repositioned integrated campus.
• Estimated likely capex of ~EUR130-160m which includes a committed EUR82m for two hospitality assets in the buildings and the remainder for office and retail podium upgrades. Management noted that capex will be deployed in phases, with a corresponding rise in asset value expected. This will be funded via debt and potential asset disposals over the years. Gearing, as a result, could creep up to ~40% levels but may come down if asset values start to recover from the anticipated lower interest rates for the EU.
• FY25-26F DPU impacted, uplift from FY27F onwards. Earlier we expected management to top up FY25-26F DPU during the transitory period, but management has now guided that this will not be so. As such, we forecast FY25F DPU to decline by 34% YoY from the loss of a top tenant, as well as higher financing cost for the additional debt. As IREIT's ESG score is 3.2 (out of 4.0), our TP includes a 2% ESG premium.

Source: RHB Research - 2 Jan 2025