Date: April 10, 2019
Not one to shy away from adversity, real estate veteran Aymeric Thibord views setbacks and obstacles as opportunities for creativity and growth.
“What excites me is developing the entrepreneurial spirit – embracing challenges and finding solutions to address these challenges,” the Chief Executive Officer of the Manager of SGX-listed IREIT Global said.
Thibord, who spent nearly two decades of his career in real estate asset management with financial institutions ranging from Goldman Sachs to Societe Generale and most recently TIAA-CREF, firmly believes in life-long learning.
“We should never stop improving ourselves,” said the French national, who holds a Bachelor of Economics with Honours from the University of Rennes and a Master of Finance with Honours from the University of Montpellier.
“It’s important to have an open and curious mind. There’s always room to think more innovatively, stretch our capabilities, and exercise more creativity in solving problems.”
And these are the fundamental skills that have stood Thibord in good stead at IREIT Global, a role which he assumed in 2016.
IREIT Global, which made its trading debut on SGX in August 2014, is managed by IREIT Global Group Pte Ltd, an 84.5%-owned subsidiary of Tikehau Capital. Tikehau, a pan-European, alternative asset management and investment group with total assets under management (AUM) of 22 billion euros, is listed on Euronext Paris.
IREIT aims to invest, directly or indirectly, in a portfolio of income-producing real estate and real estate-related assets in Europe, used primarily for office, retail and industrial (including logistics) purposes.
Its current portfolio comprises five freehold office properties in the German cities of Berlin, Bonn, Darmstadt, Munster and Munich, with a total net lettable area of approximately 200,600 square metres and 3,400 car park spaces.
IREIT has a current market capitalisation of about S$480 million. In the 2019 year-to-date, the trust has generated a total return of 7.4%, compared with total returns of 4.6% for the benchmark Straits Times Index (STI) and 5.6% for the broader FTSE ST All-Share Index.
The European-based REIT continues to maintain healthy operating metrics, underpinned by its blue-chip tenant base and long leases. The portfolio’s overall occupancy rate improved to 98.6% at the end of 2018, from 98.3% a year ago.
No leases are due for expiry this year, while about 91.4% of its leases will be up for renewal in 2022 and beyond. Its portfolio valuation also increased to 504.9 million euros at end-2018, driven by a further strengthening of the German real estate market.
Robust Fundamentals
And over the past year, IREIT has continued to strengthen its footprint. “The real estate business is all about having a strong local presence, looking after the assets in your portfolio well, and developing long-term relationships with key stakeholders,” Thibord noted.
“So we’ve been doing a lot of work on the ground with tenants, and that has resulted in extensions and renewals of key leases.”
He has also focused on enhancing the REIT’s credit profile and financial position. Last month, IREIT drew down new loan facilities of 200.8 million euros maturing in January 2026, to repay existing bank borrowings of 193.5 million euros. The euro-denominated loan acts as a natural hedge to match the currency of assets and cash flows at the property level.
If the refinancing exercise had taken place on 31 December 2018, its pro-forma weighted average debt maturity would be 7.1 years, and aggregate leverage ratio would be 37.8%. This compares with a weighted average debt maturity of 1.9 years, and aggregate leverage ratio of 40.3%, a year ago.
Next on Thibord’s to-do list is to diversify IREIT’s exposure in terms of its geographical spread and tenant mix, as the REIT’s current coverage of a single market and relatively small asset size remain a risk.
“While diversification may bring some yield dilution, it would be instrumental in broadening the scope of the REIT, and building up longer term sources of income. That’s where we need to strike a balance.”
While Germany was IREIT’s starting point – and a good choice given its robust fundamentals – the next logical and complementary target would be France, which is also a very sound real estate market, he said.
“The office segment is the easiest and most logical focus, due to scalability based on our existing portfolio,” he added.
“Paris is also in the process of transforming itself into an international city, and this would have a long-term positive impact on its office sector.”
Apart from commercial assets, IREIT is also exploring properties in the retail and industrial/logistics sectors.
“It’s important to keep your options open and have an opportunistic mindset,” Thibord pointed out.
“We’re not shunning the retail space, which is currently under pressure. Although we’ve not found the right opportunity yet, we expect prices to decline, and there could be a chance to acquire the right asset at the right price,” he added.
Key selection criteria include the asset’s capacity to produce long-term income, its location, ability to weather economic cycles, and the amount of capital expenditure required to maintain or enhance its characteristics over the longer term.
“An investment that makes sense today must also be an investment that makes sense 10 years later.”
Healthy Outlook
So far, the outlook for European real estate remains fairly upbeat. Leasing activity in the German office market has remained healthy, with 2018 take-up rates for office space in seven key cities reaching 4.0 million square metres, just shy of the 2017 all-time high of 4.2 million square metres, JLL data showed.
Office markets in Europe are expected to see positive, albeit slower, growth in leasing levels this year, having expanded by an estimated 5%-10% in 2018, according to CBRE data. Low unemployment rates, coupled with muted new development completions, are expected to underpin another year of healthy demand, CBRE noted in its EMEA Real Estate Market Outlook 2019 report.
Striking a more cautious note, Thibord cited risks in the European economy that could skew growth to the downside – a potential escalation of US-Sino trade tensions, a sharp deceleration in China’s economy and the impact of rising interest rates.
“The European economy may still grow above its 15-year average rate this year, but domestic risks are mounting,” he added, pointing to negative repercussions of the ongoing Brexit process, weakness in the automotive industry in Germany, and sovereign risks in Italy.
Not surprisingly, developing a solid strategy to grow IREIT in a sustained manner over the long term is always at the back of Thibord’s mind.
“Finding sustainable, long-term sources of income and balancing all the risks out there – that’s what keeps me awake at night,” the 44-year-old confessed with a grin.
“It’s not about growing at any cost or looking for immediate yields. It’s about remaining disciplined and focused on the fundamentals of opportunities that come up.”
When he’s not managing the trust, Thibord can be found in the company of his daughters, aged seven and 10.
“What keeps me going is my family – I enjoy seeing my kids grow up,” he said with a smile.
Interacting with his daughters also reminds him of some of life’s key lessons. “Develop a curious mind, and learn to be flexible,” he noted.
“As adults, we have our habits and set routines. But we need to learn to think of different ways of doing things, especially in an environment that is constantly changing.”
Outlook & Risks
- Over the past year, the Manager has successfully secured lease extensions for a few key tenants, leaving the portfolio with no lease expiry for 2019, and over 90% of the leases due for renewal only in 2022 and beyond.
- On the capital management front, the Manager has also taken advantage of the current low interest rate environment to refinance IREIT’s existing borrowings at favourable rates over the long term. This provides certainty on the financing cashflows, and cushions IREIT against any negative impact from rising interest rates.
- In 2019, European economic growth is likely to moderate compared to 2018, but is still expected to be higher than its 15-year average rate. Coupled with low unemployment rate and muted new development completions, this is expected to herald another year of healthy demand for commercial real estate (CBRE EMEA Real Estate Market Outlook 2019).
- There are, however, mounting risks to the European economy, which may skew growth to the downside. This includes lingering worries over a potential escalation of US-China trade tensions, a sharp slowdown in Chinese economy, and the impact of rising interest rates. In Europe, the possibility of a no-deal Brexit, weakness in the automotive industry in Germany, and sovereign risks in Italy have also resulted in uncertainties and poorer market sentiment.
- In view of the uncertain business climate and to better position the properties for the long term, the Manager will continue to undertake various initiatives to upkeep the properties as they age. This will involve repair and maintenance costs, as well as appropriate capital expenditure on an ongoing basis.
- In order to ensure continuity of leases by retaining existing tenants or securing new tenants, the Manager will also consider other initiatives in line with market practices. These measures are necessary in maintaining sustainable long-term income to unit holders.
IREIT Global
Listed on SGX in August 2014, IREIT Global has the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe, which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets. IREIT Global’s current portfolio comprises five freehold properties strategically located in the German cities of Berlin, Bonn, Darmstadt, Münster and Munich, with a total net lettable area of approximately 200,600 sqm and 3,400 car park spaces.
IREIT Global is managed by IREIT Global Group Pte Ltd, a subsidiary of pan-European asset management and investment group Tikehau Capital.
The company website is: www.ireitglobal.com
Click here for the company’s StockFacts page.
For the three months and full year ended 31 December 2018 financial results, click here
First published on SGX website on 29 Mar 2019
About kopi-C: the Company brew
Text: Jennifer LH Tan
Photo: Company file
kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.
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