IReit Global sees risk of losing potential lawsuit as ‘remote’, takes no action for now

[SINGAPORE] The manager of IReit Global does not plan to take any steps to mitigate the impact of a potential lawsuit from its main tenant for now, citing the “remote” chance of the case succeeding. If the dispute proceeds, however, it could take “several years” to resolve.

The manager of the Europe-focused real estate investment trust (Reit) was commenting on the possible litigation involving Deutsche Rentenversicherung Bund (DRV), the main tenant of its Berlin Campus asset, during the briefing on Friday (Aug 8) of the Reit’s financial results for the first half of the year.

DRV is seeking a partial repayment of dilapidation costs amounting to 8.4 million euros (S$12.6 million), out of a contractually agreed 15.5 million euros, for what it claims are “unjustified” charges. The claim represents about 1.6 per cent of IReit’s net asset value and 11.1 per cent of gross revenue for FY2024.

“We have yet to even receive a payment order from the court, so there’s nothing much to talk about,” said Kevin Tan, the manager’s chief financial officer. DRV had sent a legal letter to IReit’s subsidiaries on Jun 12, to which a formal response rejecting the claim was sent on Jun 25.

The Berlin Campus is being repositioned from a single-use property to a mixed-use, multi-let asset. The manager is in talks with two potential office tenants and aims to secure a long-term lease of at least 20 years without a break option from one of them by the first quarter of 2026.

The manager’s chief executive officer Peter Viens said that once a tenant is secured, the Reit plans to divest at least half the asset to fund the remaining capital expenditure without issuing new securities.

The planned divestment is also in line with IReit Global’s strategy to reduce its exposure to the office sub-sector from more than 80 per cent currently to around 50 per cent of its portfolio. Viens noted that the office sub-sector in Europe has “suffered” in performance since the Covid-19 pandemic.

He added that the manager is exploring the sale of its remaining office assets in Germany, as well as some in Spain, as part of its rebalancing plans.

At the same time, IReit Global will increase its exposure to the retail sub-sector, which Viens described as providing “one of the best combinations of diversification and performance”. He noted that brick-and-mortar retail properties have remained resilient despite the growth of online shopping during the pandemic.

On Thursday, IReit Global posted a 26 per cent fall year on year in distribution per unit (DPU) to 0.71 euro cent for the half-year of FY2025 ended June mainly due to the absence of rental income from the Berlin Campus under repositioning.

Revenue decreased by 27.5 per cent to 26.6 million euros, and net property income slid 33.3 per cent to 18 million euros.

IReit Global units were unchanged at S$0.295 on Friday.