IREIT Q4FY16

Debt

IREIT is currently geared around 41.6% (I think it should be 43.6% instead of 41.6%) with the current debt profile which should not be a concern at the moment till 2019.

There is no much room for IREIT to acquire property to be fund via debt so probably the next one either a combination of debt and equity or just equity. The question is how much the shareholder will need to fork out? With the current gearing, I estimate it only have around €10 million additional debt to hit 45% and likely the dividend earn in the past 2 years will need to go back to IREIT plus additional capital need to invested in IREIT.

Current debt profile

• 23.6m due to mature in August 2017. Credit approval received from the lending bank to extend the maturity date of the facility by one year with partial amortization.
• 96.6m due in Aug 2019
• 78.4m due in Aug 2020

Effective Interest currently is 2% with Interest Cover Ratio of 8.3 times which is pretty high cover and use of EUR denominated borrowings acts as a natural hedge to match the currency of assets and cash flows at the property level.

Lease Profile

Münster South lease will be extended to Sep 19 however Deutsche Telekom will vacate one of its floor and the Manager is in the process of repositioning the Münster South building as a multi-tenanted property, and is concurrently in discussions with third parties to lease the vacant space.

I would expect temporary drop of the occupancy rate however this will be mitigated by Bonn Campus that will enjoy 10% increase in gross rental income effective from Dec 2016 on-ward.

Based on 2015 AR,
Bonn Campus rental income was €6.3 million and with 10% increase it will go up to €6.9 million
Münster Campus rental income was €3.8 million and Münster Campus are has two building Münster North (18,404 sqm) and Münster South (16,337sqm). Lazy way I divide each building has €1.9 million and as 1 floor will be left empty, the increase from Bonn Campus should be able to mitigate the drop.

Next to look out will be Concor Park lease profile (In 2015, Gross rental income €4.4 million)

Darmstadt Campus – Sep 2022 (In 2015, Gross rental income €5.9 million)
Bonn Campus – March 2023 (In 2015, Gross rental income €6.3 million)
Munster campus where the North building will expire in March 2022
Berlin Campus – June 2024 (In 2015, Gross rental income €4.6 million - This should be higher in FY16 as it is only acquire in Aug 2015)

The below picture is what I like about this IREIT despite the 40% over gearing.

Dividend

FY2016	FY2015
€0.0414	€0.0339
S$0.0633	S$0.0524

• 2015: Berlin Campus which was acquired in August 2015 with the right issues of 45 rights units for every 100 existing units at S$0.468 each unit. (Which mean if take it the lazy way, you would have earn around $8 dividend but need to reinvest $20)

Management

No activity from Tikehau Capital, I will need to monitor this as after all Tikehau Capital is asset management company for institutional and private investor. IREIT can be their dumping ground to realize the profit, the question is will it destructive or  yield-accretive.