Stoneweg Europe Stapled Trust (SET.SI) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Stoneweg Europe Stapled Trust First Half 2025 Results Call. We will begin with remarks from the CEO of the managers, Simon Garing, followed by Q&A. [Operator Instructions] Now, I will hand across to the CEO of the managers of the Stoneweg Europe Stapled Trust, Simon Garing. Simon, over to you.

Thank you, Kara, and good morning, and good afternoon, everyone. Thank you very much for joining us today for our first half results briefing. The [indiscernible], we're going to run through the presentation that we uploaded to the SGX this morning. We're on Page 2 of that presentation. The photomontage here highlights the selection of our assets, and these range from really core prime assets to some with more value-add components, demonstrating our barbell approach to portfolio construction. Almost 93% of the portfolio is held under freehold title. Nearly all the leases feature inflation-linked rent escalation, supporting steady annual income growth. SERT's portfolio delivers stable, predictable and diversified cash flow without reliance on any one single tenant, geography or industry. We invest mainly in at least AA- rated or higher countries with 86% weighting to Western Europe and the Nordics. We invest only where we have local Stoneweg teams on the ground. We focus on gateway cities such as Amsterdam, Paris, Milan, Copenhagen. There is a low exposure to any single country or city, with the Netherlands, the largest exposure at 27%. SERT's portfolio is now 59% weighted to Logistics/Light Industrial and data centers. We have, for the first time here, split out data centers, reflecting our recent investment in the AiOnX Fund and our 2 previously held DCs. Office accounts are now less than 40%. Underpinning SERT's strong asset quality is the strength of our tenant roster with over 800 tenant customers and more than 1,000 leases. SERT's top 10 tenant customers now account for just over 20% only of the headline rent, with no single tenant exceeding now 4% of the total rent roll. This limits concentration risk across almost 1.7 million square meters of NLA. Over 93% of tenants are large multinationals or government-related entities, providing a strong credit profile during periods of economic uncertainty. And the portfolio overall is assessed to be about 7% under-rented by the recent valuation. A brief stopover on this page now highlights the latest external endorsement of our governance and transparency. We are proud to receive 2 awards at the recent ASEAN Corporate Governance Standard Awards with notably a top 5 out of all public listed companies in Singapore. So, let me start with some of the first half highlights. We made excellent progress in the first 6 months with our new sponsor, Stoneweg, who are very aligned and supportive of our strategy. Our asset management team stayed fully engaged with local teams leasing nearly 9% of the portfolio, extending WALE to 5.1 years and driving 4.9% like-for-like NPI growth. A highlight of the period was the renewal of a major 20-year lease with our largest tenant, Nationale-Nederlanden, securing a 50% rent uplift from its previous rents, alongside a commitment from us to upgrade their premises in Haagse Poort in The Hague. The most prominent investment we made in the half was SERT's initial EUR 50 million investment into the sponsor's European Data Center development fund, AiOnX, formerly the Icona Data Center fund. This has already delivered significant upside for SERT investors. We are progressing further sales to recycle into value-accretive investments and development projects, such as Ruyterkade in Amsterdam, which are achieving important development milestones. We also took the opportunity in the period to future-proof SERT, adding a business trust and creating a stapled REIT. SERT trades now at an attractive annualized 8.3% yield and a 23% discount to its NAV, which also increased this period as well as the overall shares are underpinned by our high level of governance and transparency. We were excited to announce on the 24th of June that we invested EUR 50 million into our sponsor's private data center development fund that at that time owned 4 projects, supported by 2 independent valuations completed earlier in the year. After we invested, AiOnX then acquired a fifth data center project site in Cambridge on the 29th of June. Additional power was secured by the platform during the due diligence period of Cambridge, which was then reflected in its 30th of June valuation being materially above the purchase price. So in total, SERT's 6.7% share of this private fund recorded a EUR 24.8 million or 50% valuation uplift on the initial investment, which was almost immediately accretive to SERT's NAV, not bad for 6 days. The fund has a 10-year life, offering prospects of significant tax-efficient cash returns upon redemption. The portfolio comprises now 5 early-stage data center development sites in Ireland, Spain, Italy, Denmark and England, with a total land area of approximately 310 hectares. We have secured a reserve power of just under 1.5 gigawatts, plus visibility for an additional just over 500 megawatts, giving a total projected supply of 2 gigawatts. The Irish property is already fully leased and the first phase is under construction. The estimated potential gross development value of the whole 5 projects exceeds EUR 30 billion over more than 15 years. This is a unique opportunity for SERT investors to participate in a private development fund delivering a powerful new growth engine to complement our core rental properties in logistics and light industrial. And for those not familiar, Europe's data center market offers a distinct growth opportunity as key industries and consumer behavior increasingly shifts towards higher data and cloud dependency. The global AI market, as you know, is set to expand at around 37% per annum until 2030, reaching almost USD 2 trillion, demand that will require significant new capacity for hyperscalers as well as investors looking to enter into this space. Savills estimate that Europe needs to triple the current capacity in Europe from 10 gigawatts to 30 gigawatts in the next 3 years. That puts our 2 gigawatts into a very powerful context. Yet Europe's current capacity is only about 1/3 of that in the U.S., constrained more by scarce development land, strict energy use regulations and slower project approvals, driven by the stringent environmental standards. In this context, early movers with secured land and power, like AiOnX, are positioned to capture outsized returns in a supply-tight, high-demand growth market. Another major milestone in the first 6 months was the creation of a stapled REIT comprising the existing REIT and a newly established business trust. The stapling was approved with overwhelming support by our unitholders. 99.8% voted in favor at the April AGM. The strategic context is to future-proof our structure in a market facing economic shifts, regulatory changes, investor appetite and tax amendments. All these put pressure on traditional Singapore REIT model, which mostly depends on passive income. It's important to again highlight that our overarching investment strategy remains unchanged. Our long-term focus still remains on resilient income-generating European real estate, but now we have greater flexibility and a wider investment scope. This positions SERT to deliver stronger long-term value, stay competitive and seize new opportunities. Now to touch on the first half of the '25 financial and operational performance. We are pleased to announce a EUR 0.07 pick-up in our NAV per security to now EUR 2.05. We reported asset value growth for the third half year in a row, reflecting the stabilization in the cycle in Europe, led by the ECB rate cuts. The 11.9% positive rent reversion and 92.4% occupancy supported the growth in our portfolio valuations. SERT's financial position remains appropriate for this improving part of the cycle and comfortably within our rating agency expectations and indeed substantial headrooms in our covenants that Shane will demonstrate. Our first half '25 DPS was EUR 0.06553, which is 7% lower than the same time last year, but in line with market expectations as we roll off the 0 rate bonds and replace with more current debt, and Shane will cover the results in more detail shortly. For the 30th of June valuations, which we announced in July, it was pleasing that prior to accounting for CapEx, the like-for-like valuations were 1.1% higher than 6 months ago, mainly as a result of market rent growth and slight yield compression [ which sore ] about 10 basis points. SERT's industrial valuation was up 1.5% over the last 6 months on a like-for-like basis and up 4% year-on-year. The office portfolio also lifted in value driven by rising market rents. The right-hand chart on this slide shows the widespread between SERT's net initial yield versus the proxy for funding costs here, the 5-year bond. This drives the relatively high level of return on equity and the high level of interest cover. Based on DBS research, we produced the fourth highest normalized DPU yield from our NAV, a good proxy for ROE and one of the advantages of investing in Europe. Page 12 shows 4 of SERT's best-performing assets, active asset management, significant rent reversions from new leases, rising market rents and yield compression underpin their valuation growth. In Parc des Docks in Paris, positive indexation and new leases with strong rent reversion were now hitting the EUR 180 a square meter mark for that well-located position, adding value still over the last 6 months. That property has gone from EUR 96 million to about EUR 165 million since we've acquired it. In our 150,000 square meter distribution facility CLOM in Italy, positive indexation and a new 6-year lease with one of the tenants was at a 42% rent reversion, and that generated a EUR 2 million gain in value. At Haagse Poort in The Hague, valuers market estimate -- rent estimate grew from EUR 185 a square meter to EUR 200 per square meter after we leased some recently refurbished floors to a new Danish IT tenant who took all of the available space and this added EUR 7 million in value. And finally, in Nervesa in Milan, in Italy, the exit yield improved there 10 bps following major asset enhancements and achieving full occupancy, and this resulted in a EUR 2 million uplift. So, I'll now hand over to Shane to run through the financials and capital management highlights. Shane?

Thank you, Simon, and good afternoon, also good morning to everyone. This is the first period we have delivered results of both the REIT and the BT as a combined Stapled Group. This slide provides an amalgamation of the P&L. The more detailed financial statements released today provide greater detail for the REIT and the BT. At present, the only asset in the BT is the investment in the data center fund, which is not yet distributing income. I am pleased to report first half gross revenue was up by 1.1% and net property income was up by 2.2%, higher than the prior corresponding period. This was mainly due to higher income from completed developments. We had 2 developments in Milan: Nervesa21; and [ Via dell 18 ], as well as a benefit from the reversal of the historical bad debt provision from tenant customers who eventually settled their dues. On a like-for-like basis, NPI was almost 5% higher than PCP, with the Logistics/Light Industrial sector up by 7.4%. Office was up 1% and our other sector was up almost 20% due to turnover rent we received in our hotel in Milan. Net interest cost was up 23.9% due to the higher interest rate on the EUR 500 million bond issued in January this year, partially offset by lower short-term interest rates in the 3-month Euribor and the STR. Average all-in interest rate for the first half of the year is 3.86% compared to 3.23% in the first half of last year. Distribution per security, as Simon mentioned, was 7% below the first half. This is within market expectations, and it was mainly due to those higher interest costs offset by the higher net property income. This waterfall chart clearly shows the key drivers of the half year distributable income compared to the prior corresponding period. The completed development in Milan added almost 0.4% and the income growth from Logistics/Light Industrial sector providing almost 0.3%. Together, these 2 items almost offset the higher interest costs from the bond, which impacted DPS by almost 0.7%. On the negative side, office sector income, excluding Nervesa, was impacted by vacancies in Poland and Finland, and there was also EUR 1.2 million of one-off income recorded in the prior year from an Italian property that's now being sold. This page shows the upcoming first half distribution timetable for the stapled securities. The last day of trading cum entitlement to the DPS is the 19th of August, with the payment date being 26th of September. As a reminder, for those investors electing to receive the distribution in euros, election forms need to be sent in by the 9th of September. We have kept the distribution reinvestment plan turned off given the discount between the unit price and net asset value, although we note that this continues to narrow. The distribution policy of Stoneweg European Business Trust, or SEBT for short, is to distribute as much of its income as practicable, similar to other listed business trusts. SEBT does not form part of the DPS of the stapled entity this time as it did not generate distributable income during this half. This page shows a summary of the balance sheet with the REIT, the Business Trust and SERT, the Stapled Group balance sheet. A highlight for the 30th of June balance sheet is the fair value gain of EUR 24.8 million recorded in the Business Trust as a result of the increase in the valuation of the AiOnX data center fund investment. This resulted in the net asset value of the Business Trust increasing from EUR 0.03 to EUR 0.07, improving SERT's overall net asset value to EUR 2.05. Note that the REIT's EUR 35.5 million loan to the BT is shown in other non-current assets for the REIT and corresponding non-current liabilities for the BT. On a combined basis, these intra-group balances and transactions are eliminated. Moving to the debt maturity profile, which continues to be derisked with the first expiries not until October and November next year. In June, EUR 50 million was drawn from the RCF to fund the investment in the AiOnX data center fund. The balance sheet remains strong with over EUR 200 million in undrawn RCF and cash available. We are, therefore, well-positioned to pursue the next phase of organic and inorganic growth, leveraging further opportunities at the bottom of the European real estate cycle, and another quarter of credit metrics remaining comfortably within bond loan facility covenants and within credit rating agencies metrics for an investment-grade rating. Although net gearing is a little higher at 41.8%, we will continue to bring -- to focus on bringing it back down with the long-term policy range of 35% to 40%. We continue to consider non-strategic asset sales and on a pro forma net gearing would be below 40% after accounting for divestments that are either in advanced due diligence or under sale and purchase agreement negotiations and are expected to close in the second half of this year. Interest coverage ratio on a trailing 12-month basis is 3.2x, and that's calculated using the definition from the EMTN Program. And using the MAS definition, which includes coupons on perpetuals and amortized debt establishment costs, the ICR is a touch lower at 2.8x, but still considerably higher than the MAS limit of 1.5x. SERT's all-in interest rate dropped at the end of the period from 4.16% at 31 March to 3.97% at the 30th of June. And with that, I'll now pass back to Simon.

Thank you, Shane. So turning to Page 21. The quality of SERT's portfolio and the strength of Stoneweg's on-the-ground teams delivered almost 150,000 square meters of leasing in the half, which provided SERT with a long WALE in both asset classes, which also provides that cash flow visibility and security. Turning to Page 22. New leases in Denmark, Finland, France, Poland and Slovakia lifted total portfolio occupancy up to 92.4% in the second quarter, up from 92% in the first quarter. Western Europe occupancy remained high at 93.3%, while Central Europe occupancy rose slightly to 87.4%, driven by lease-up at Business Garden in Poland and some logistic assets in Slovakia in the second quarter. Turning specifically to the industrial sector. Portfolio occupancy grew to 94.4%, almost 40 basis points from last quarter. This was driven by a temporary lease with Hella Lighting Company for 3,500 square meters in Slovakia in a unit. They'll be moving into a new unit we are building for them in the third quarter, with a new, longer permanent lease. In Denmark, occupancy improved almost 2%, driven by 2 new leases at [ Netherland ], a 9-year lease for 1,600 meters and a 6-year lease for 1,200 meters. In France, we saw a smaller uplift of 0.4% to almost 90% occupancy, mainly from a 9-year lease at Parc des Docks. And as I mentioned, we're now hitting EUR 180 a square meter in rent. Across the rest of the portfolio, occupancy remains stable. The Dutch assets are almost fully let and both the U.K. and Italy are fully occupied. With good visibility on our leasing pipeline, we're confident occupancy will improve further through the remainder of the year. In the first half, we achieved a positive rent reversion of 8.1% across the industrial portfolio while still keeping vacancies low. As you can see in the top chart, rent growth has stayed within our normal band over the last 5 years. The portfolio is 6% under-rented. During the first half, we signed 77,000 square meters of new or renewed leases. Some industry sectors are stalling their growth plans while the new tariff impact is being assessed, which is translating currently into higher retention rates. Overall, we're on track to lift occupancy in the logistics and light industrial portfolio to 95% by the end of the year. This slide on Page 25 shows the broader market data in European logistics, specifically in locations where we operate. In the first half, the rolling 6-month take-up was lower than the same period last year, but still 53% higher than in the sequential half of last year. Market rents grew in line with inflation on a rolling 6-month basis. Market vacancy across the 8 logistics and light industrial markets that we invest in, edged up slightly to 4.8% in the second quarter, but remains comparable to the pre-pandemic range of 5% to 6% in 2020, 2019. 6-month rolling take-up was down slightly compared with the previous period. Turning to the Office sector on Page 27. Overall portfolio occupancy rose by 50 basis points in the second quarter to 86.2%. While this is slightly down from December, as mentioned earlier, the change is mainly due to Nationale-Nederlanden's space optimization as part of signing a new lease for almost 30,000 square meters in Haagse Poort, which temporarily reduced the occupancy in the building, which we have now subsequently filled. So you'll see that occupancy step back up in the third quarter as we signed for all of that space that was handed back by NN to a Danish tech company, again, at substantially higher rents than what NN was previously paying. UBS vacated 5,000 square meters in Krakow in the first quarter and no other material vacancies in Central Europe in the last quarter. And in fact, in Finland, we're pleased to see the first half occupancy actually increased the first time in a few years, even at this low level of the vacancy. However, at 73%, even at this low level, the current yields coming from these tenants remains accretive at over 8%. So we've already taken a substantial [ haircut ] in our valuations. So even 25% vacant, we're still delivering an 8% yield, giving us the flexibility to hold for a little bit longer to provide for a medium-term exit at the best achievable price in Finland. We also saw growth in other challenging markets. In Poland, occupancy rose. And in France, leasing at [ Paryseine ] also lifted occupancy there over 80%. In the first half, overall office leasing activity for us totaled approximately 73,000 square meters, with the majority completing in the second quarter. Taking into account some of the great deals in the Netherlands, total rent reversion was strong at 18% for the quarter and 13.6% for the half. I'll say that again, office rent reversion was strong at 13.6% for the half. Beyond the 2 major new leases at Haagse Poort, other office leasing highlights include extending Motorola's lease, a green office in Krakow in Poland for 5 years. While this renewal came with a rent reduction of around 16%, this was predominantly due to an over-renting situation before the renewal. The new rent now is aligned with the current Krakow market levels. In Finland, some renewals were signed at a negative rent reversion also to help mitigate the vacancy risk in the soft market there, where market vacancies are over 20%. However, overall, the office portfolio remains 8% under-rented, and we continue to focus on securing long-term leases at higher rents, strengthening the portfolio's income profile over time. And more broadly, market data for the office sector in our key city shows that the rolling 6-month take-up in the first half of the year was broadly unchanged from the same period last year. Overall, office vacancy remained steady at 8.5% with office attendance continuing to rise across European markets despite the existence of hybrid work. Bifurcation between prime and secondary office continues. Prime locations where we're predominantly invested are benefiting from higher pre-commitments to new developments and stronger demand, which is keeping Grade A vacancy much lower at around 3.9%. So Grade A office in our markets, 3.9%. And so this office trend is continuing throughout our own portfolio and also more broadly where we see investor interest now in CBD offices rising strongly, up between 29% and 47% observed by CBRE. And this is driven by both healthier tenant demand, recovering occupancy, stable vacancy rates and a resetting of capital prices over the last 4 to 5 years. So despite some uncertainty around U.S. tariffs, prime office yields have remained stable now across most markets, with expectations starting to creep in for investors to actually now start to see yield compression in many of these European prime locations. And confidence is also returning to the lending market. Lenders are increasingly comfortable financing prime European office assets, as reflected in lower all-in debt costs. And we certainly have got some exciting news to come around some office secure loan facilities. So appetite is definitely coming back. And SERT's office portfolio is strongly positioned for the future, supported by key structural trends like the tenant flight to quality and the rising demand for energy-efficient buildings. Our recently completed Nervesa project and our planned EUR 60 million upgrade at Haagse Poort in The Hague shown on this slide, are prime examples of how we're delivering modern, sustainable and high-performing assets that meet evolving tenant needs. So across all of Europe, high-quality ESG-certified offices remain in short supply with CBRE estimating that only roughly 20% of existing office stock meets current tenant demand. But in comparison, an impressive 84% of our office portfolio is rated BREEAM or LEED, very good, gold or higher, placing us well ahead of the market and ideally positioned to capture this demand. So looking ahead, we have over EUR 200 million now of short to medium-term development and enhancement projects that will further strengthen and future-proof our portfolio. We are making steady progress at our large project in Amsterdam in Ruyterkade, passing some important permitting milestones recently, including an UNESCO heritage sign-off of our project and now moving into public consultation and appointing agents to prepare for pre-leasing. So watch this space for next year. So on the macro front, Oxford Economics has upgraded its Eurozone 2025 growth forecast to 1.1%, up from 0.8% earlier, helped by the limited EU retaliation and the potential grace period on some pharmaceutical tariffs after Trump's and the U.S. administration's recent announcements. This supports a more favorable near-term inflation outlook as well. July/PMI rose to 51, marking a second monthly gain and nearing a 1-year high, although we know that the German industrial production is relatively weak. However, longer term, Eurozone GDP growth is expected to accelerate from '27, particularly in Germany, where a EUR 1 trillion infrastructure and defense investment package should boost economic momentum. And certainly, that's a positive for both the tenant side and on the asset pricing side, and we're seeing that reflected obviously in the equity markets and the strength of the euro in the last 6 months. Savills research also suggests that the U.S. tariffs may soften demand in manufacturing-heavy countries, which could weigh on some industrial and logistics demand. But there again is some positive upside to this, as I mentioned, with some of the pro-growth policies. We're also expecting at least one more ECB rate cut, which will continue to support the yield compression. And for SERT, limited near-term supply and potentially lower debt costs puts us in a strong position to offset some of these headwinds. And CBRE data shows European real estate transaction volumes reached around EUR 95 billion in the first half of this year. Logistics continues to grow year-on-year about 4.8% and office sector attracted about EUR 20 billion worth of demand, now roughly -- of investment transactions, roughly about 20% of total volume, reflecting emerging interest back into the sector. So now to wrap up. Our focus for the remainder of 2025 is clear. We're staying close to our tenants, helping to ensure resilience amid the geopolitical and tariff uncertainty, while keeping occupancy rates high and WALE long. Our key asset enhancements and redevelopment projects such as Haagse Poort, Ruyterkade, Parc des Docks and our AiOnX, remain firmly on track, positioned to deliver higher yields and uplift in SERT's NAV. The 50% gain already recorded in AiOnX also reflects the strong alignment and support from Stoneweg. We continue to assess the pipeline for other value-adding opportunities. On the capital front, we continue to operate with discipline, safeguarding SERT's investment-grade ratings and preserving liquidity. Strategically, we're actively recycling out of non-core assets into opportunities with stronger risk-adjusted returns, advancing our repositioning towards logistics and more gradually to data centers. And anchoring all this is our commitment to sustainability with governance excellence recently recognized, placing us among the top 5 companies in Singapore and top 50 in all of ASEAN. These pillars, active asset management, discipline in capital management, active portfolio recycling and a clear strategic pivot towards logistics and data centers, ensure we are not just preserving value but creating. Together, they position SERT to navigate the uncertainty, seize emerging opportunities and delivering enduring risk-adjusted returns. This is how we lead, adapt and grow as Stoneweg in a rapidly changing global landscape. Thank you for your time and continued support. And, Kara, let's open up the call now and happy to take analysts and investor questions. Thank you.

[Operator Instructions] Our first question comes from [ Aon ] who asks, why are the fees for data center investment higher?

[ Aon ], thank you very much for the question. So there was a 1% acquisition fee, which will be paid in units after the ex-date to Stoneweg as part of our normal fee schedule. Other than that, the fees are the same.

The next question comes from [ Krishnan ] who asks, what is your outlook on the future asset acquisitions in the next 12 months? And what is the expected investment?

Thanks, [ Krishnan ]. It's a good question. So we're juggling a number of opportunities. As you can imagine, we have to also be mindful of our credit metrics. So we're in pretty good -- we've got pretty good visibility on asset sales in the next few months as well as some opportunities to reinvest. So we don't see a material change roughly around that 40% LTV mark, but our recycling from higher-risk non-core, non-strategic assets into more core opportunities with stronger risk-adjusted returns. We can sort of imagine in the next 9 to 12 months, you'll get to see some good progress on that front. AiOnX was obviously something that we really wanted to pursue early in the relationship with Stoneweg because we could see the substantial milestones in the next 2 to 3 years and getting in early on the 25th of June also meant that we were able to then benefit from the purchase of the fifth asset after we became an investor. So look, we'll continue to look for opportunities, both within the pipeline of Stoneweg, but also into the broader market.

Our next question comes from Rajiv who says, great results, congratulations. We again see the Paris asset not in the highlighted redevelopment. Rajiv had an opportunity to visit the site briefly this year and so it's a great site. Could you give a broad level update for this asset?

Yes. So we -- there's a couple of sensitivities around this due to the political election cycle in the district. So we've just been a little bit quiet now. But we're very excited about the plans. We gave the Board an update yesterday. It's a little bit early to comment on the slight change in the direction of our plans. But needless to say, each 6 months the value continues to increase on an as-is basis. So we're certainly not under any rush. As one of our other investors who visited the site 1 year or 2 ago mentioned to us a Chinese proverb that translates roughly into, don't pluck the fruit from the tree until it's ripe. And in this case, we're certainly heeding the advice and making sure that we have all of the stakeholders lined up before announcing what should become quite an exciting project. But you're right, the location, 3 kilometers from Central Paris with a waste-to-energy plant literally next door to us and Paris's largest central heating service being also right next to us. So there's some fantastic ingredients there, but I just don't want to really say too much more. Just watch this space over the next year or 2. In the meantime, the rents continue to go up. So again, we're in no rush.

Our next question comes from Dale.

Can you hear me?

Loud and clear, Dale.

Yes, congrats on the results. Just 2 questions from me. I think, firstly, with regards to the investment in the AiOnX. Could you remind us what's the ultimate plan there? How much are we going to bring up the investment in the fund? And it's a 10-year fund, right? So when should we be expecting income to start?

Dale, again, we wanted to get set early while some of these projects were early phases. One project now has a pre-lease on 179 megawatts, which will make it one of the largest data centers in Europe, second or third biggest at the moment. So there's lots of opportunities over the coming years to convert some of the other assets into even larger innovation campuses. But we wanted to get set early and give our investors and analysts some time to get to know the team, get to understand each asset, to understand the benefits of each location, some of the regulatory benefits that we have already achieved. So we've got plenty of time. So that's the first point. Second point is, and it's really back to [ Krishnan's ] question. Again, we're mindful of our credit investment-grade rating. So we certainly don't want to go and become a development vehicle. That's not what the Board wants. We made that very clear when we started with the Business Trust that we still want to stay within that 10% cap to GAV. So we're having to sort of manage that matrix. The other aspect, obviously, is that in the near-term, any rent collection starts to happen once the first phase of Ireland is up and running, that cash is clearly to be better reinvested back into the other projects than to be distributed to us. So we also have to be mindful of the dividend of the REIT. We're on an 8% yield, and we want to grow that. We don't want to shrink it. So we're also looking at alternate capital, part of the capital stack within the AiOnX fund. So you could imagine, for example, we'd be interested in, say, some sort of convert or pref equity where there is a coupon. Again, that's not to preannounce anything. I'm just giving you an imagination of what that could look like. We are at 6.7% of the equity. There is only equity in this fund. There's no significant debt that's been drawn yet. So we don't need to top any more equity in just to maintain our stake. There will be a lot of self-funding within this private equity fund. So we don't have to top up equity, again, if we don't want to. So there's a lot of pieces here. But in the meantime, we're just really enjoying our current EUR 50 million investment and watching it grow substantially. And hopefully, we'll have more milestones every 6 months to show that each of the 5 assets -- each of the 5 projects have fantastic value in their own right. I mean there's EUR 30 billion worth of GDV in here. We've got more than 20x the power available than NTT recent IPO. So the quantum here is substantial. It is a 10-year fixed life fund. So there will be an exit at some point or other options could be listing in other markets or listing something larger here. So still a lot of way to go in the next 10 years. But in the short-term, we're just focused on watching our EUR 50 million grow.

Okay. Okay. Got it, Simon. So just to recap, so I think what you're saying is at least in the near to medium term, whatever income that's generated will be reinvested into the other developments within the fund?

Yes, I think that's a good point because some of our projects such as Ruyterkade, we directly control. We have great visibility on the value that we can create in some of these projects on our own balance sheet. And obviously, the earlier question on Parc des Docks, I mean, that could be one of the most exciting developments in the REIT sector. But again, it's -- we're going to take some time over that.

Okay. Okay. Got it. The next question I have is with regards to some of the comments talking about how you're going to manage your gearing, some mention of some potential divestments, right? Are you able to share a bit more on those divestment plans?

It's probably not in SERT's best interest to give you too many specifics. We're a public REIT, and we're dealing with buyers in the market that have access to what we say. So I'd just prefer just to give you a broad strokes, but they won't be assets or markets that you would be surprised given of us to exit, given our focus that we've continued to reiterate here.

Okay. Okay. Fair enough. But just wanted to get an idea on divestments. These divestments are mainly -- I mean, the proceeds were mainly used to pay down debt. And I mean, just wondering how would this impact your earnings or your distribution? I'm assuming that some of these divestments could lead to a little bit of dilution in earnings?

We've got some pretty clear reinvestment opportunities as well. So really, it will come down to sort of months, not years of reinvesting.

[Operator Instructions] Our next question comes from Rajiv who asks a follow-up question to his earlier question. Would the power plant next door create any obstruction or redevelopment, or redeveloped marketability of the Paris asset, please?

Rajiv, good question. So it has -- you might recall, it has a 30-meter exhaust tower. So that sets fantastic height precedents for us in our project. As you know, they've tried to tidy it up and make it look a little bit more presentable. Again, the town hall really wants our project to provide more public amenity and improve the overall aesthetics of the location. So, this actually means that the town hall is far more supportive of our project because we will improve the overall habitat of this region. So that's the first part of the answer to your question. The second part is, many tenants in new buildings, doesn't matter if it's data centers or logistics or office, require green energy and having a waste-to-clean energy power plant right next to us is a fantastic benefit for our future tenants on that site. So we see it as a positive in both fronts. And then the reason for talking about district heating is, as you'd be aware, many new buildings now in France require that any heat that escapes from your building needs to be captured. And having someone right next door to you whose business model is to take that heat and send it through the district heating system, is a net positive for us.

We'll just take a brief pause to see if there are any additional questions from our attendees. [Operator Instructions] We do have a follow-up from Dale.

Sorry, just a quick follow-up question. Shane, just wanted to check on the borrowing costs. I know you have no more refinancing for this year. But looking at where the ECB rates are currently, what should we be expecting for the rest of this year and as well as going into next year?

Yes. Thanks, Dale. So, we reported a 4.16% last time, and it dropped a little to just below 4%, mainly due to the unhedged borrowings where we see the 3-month Euribor and STR down dropping quite a bit from their highs at 4%, 3 months Euribor down to about 2% now. So, there is room for that to fall further, but I think limited. I think if you look at the interest rate forecast, we see 3-month Euribor at the end of this year, maybe around 1.8%. So I think around these levels is where we see the interest cost to be on average.

Okay. So not looking forward to more cuts?

We absolutely are looking forward to any cuts, not just from the debt side, but also what that means for increasing property values. So we're in a good cycle, which we're happy to be in this valuation cycle. I think the other point is the margins are starting to come down as well, Shane. So we're in -- yes, so it's not just the base rate, also the margins. It's a shame that we've gone from negative interest rates to positive, and that's really the key negative in these results is that rise in rates based on our refinancing of the old 2020 bond, and that's now in this distribution. So we've now recycled all of the negative interest rate facilities and bonds that we had back in 2019, 2020. So that negative impact of rolling to now more normal rates, that's now in this year's result and we don't expect any further impact in the following years.

Okay. Okay. So -- but I guess it's safe to assume that given the expectations of the Euribor rates going forward, we should be able to maintain just below 4% all-in cost for at least the rest of this year moving to [ next year ]?

You're asking Shane for a forecast. I think that's a safe assumption based on all the information we've given you. I think that's a safe assumption.

Our next question comes from Alex who asks, can management share with us what are the growth drivers for the DPU going forward?

Yes, sure. So the first one is that all leases have an inflation indexation. The second is that we are around 7% under-rented. So on lease expiry, we tend to also pick up rent reversion. In this particular period, logistics has been relatively consistent over the last 3 or 4 years and office was a standout, but mainly that's due to the third pillar of our growth, which is the repositioning of some of our office assets where we're seeing 40% to 50% rent increases. Admittedly, we're having to upgrade buildings as a result, to get these higher rents, but that's still delivering a 6.5% to 7.5% yield on the cost that we're investing in these buildings to then deliver that rent growth. So the AEI, the asset enhancement initiatives, we've got a track record. We can show you what we've done in office and logistics to provide that. And then from reinvesting, so we've got a number of recycling opportunities. But again, we're looking to put forward depending on some asset sales that are coming up. With the cost of equity where we are at an 8% yield, today, raising equity to buy a normal asset in Europe is not accretive for us. So the fifth element to our distribution growth has been a share buyback, which we started a couple of months ago. And so that was also -- you can see in this result even with 1.6 million units acquired, did start to add to DPU.

Thank you, Simon. That brings our Q&A session to a close. I'll hand it back to you for any closing remarks.

Thank you. So look, our key pillars, as I just alluded to there, active asset management, discipline in our capital management, active portfolio recycling and a clear strategic pivot towards logistics and data centers, which -- we're not just preserving value, but we're trying to create it. We're trying to give investors enduring risk-adjusted returns, creating some [ alpha ]. And we're trying to set up a stapled -- or we have set up a stapled trust where we also see from a business trust perspective some flexibility and some wider scope for -- opportunity for growth as well. So, thank you for your time and continued support. We're available, obviously, for further questions offline and happy to take any further meetings that you would like. Again, I wish you a very good afternoon or morning. Thank you.

Thank you.