Stoneweg Europe Stapled Trust ($SET)

Good afternoon, and welcome to the Stoneweg Europe Stapled Trust Q1 2026 briefing. We will begin with remarks from the CEO of the Manager, Simon Garing, followed by a presentation from the management team. We'll then open the floor for Q&A. [Operator Instructions] Now, I will hand across to the CEO of the Manager of the Stoneweg Europe Stapled Trust, Simon Garing. Simon, over to you.

Thanks, Kara, and thank you to you, the investor, dialing in at your busy lunch time today. Joining me here is, Hui Chen, our Head of Finance; and Elena as our Chief Capital Markets Officer. Today, I'm going to briefly reflect on our performance for the quarter. I'll outline some of the key drivers behind the results and provide an update on how our strategy remains focused on delivering stable, sustainable income and long-term NAV growth and shareholder growth for our security unitholders. So to recap, the property portfolio is predominantly Western European freehold logistics and light industrial, underpinned by nearly 800 tenants with a long lease duration of 5 years. The property portfolio is currently valued at around EUR 2.2 billion over SGD 3 billion. The Netherlands is our largest country exposure deliberately at close to 30%, reflecting its role as a strategic European logistics hub and a strong high-tech-led economy. Our focus remains on gateway cities, including Amsterdam, Paris, Milan, Frankfurt and Copenhagen. We now also have a defined data center strategy aligned with the sponsor's expertise and pipeline, and we'll expand on all of these later in the presentation. So turning to Slide 4, which shows a snapshot of the first quarter performance, setting SERT up well for the year ahead. First quarter '26 indicative DPS is over EUR 0.034 over SGD 0.051, which is 1.5% higher than the prior corresponding period. SERT's logistics and light industrial sector continues to deliver strong results, reinforcing our increased allocation to this sector. We also made good progress on capital recycling during the quarter, selling lower-yielding Polish office and investing in higher-yielding logistics and data centers. Against the backdrop of the ongoing Middle East conflict and the associated risk of higher interest rates and inflation, we have proactively extended our interest rate hedges in the quarter through now to late 2028. So that provides, again, some cushion, and we'll have Hui Chen explain about that in a minute. So if we look at where SERT is trading today, the slide on Page 5 highlights its attractive valuation relative to its Singapore and European listed peers. SERT offers one of the highest distribution yields of almost 8.6% and is trading at a large 22% discount to NAV. So while we've had a good run over the last few years, we still have a lot more work to do. We have sold over EUR 430 million at an 11% premium, further highlighting the discount at which SERT securities trade as compared to the crystallized value from the actual asset divestments that we've had in private markets. And so this supports also our decision to continue unit buybacks with another EUR 3.2 million deployed this year already. One of the key outcomes of last year's refinancing is illustrated on Page 6. We issued EUR 800 million of 6- and 7-year duration bonds. Almost 80% of our portfolio debt portfolio is now very long dated, which fully refinanced all of our debt maturing in '25, '26 and '27 with now no significant refinancing required until 2030. The only short-term expiry is our evergreen revolver, which generally is extended at the end of each maturity. Today, 87% of SERT's debt is either fixed or hedged over the next 1.5 years, providing strong downside protection and a high degree of visibility over interest and borrowing costs in what remains a volatile environment. As a result of our active capital management, SERT's exposure to the current upward movements in interest rates is limited with only an 18 basis point lift in effective borrowing rate over this quarter versus the pcp. So virtually, all of our debt is sustainability linked, which enhances our financing and capital access. As you can see on this slide, for 2025, we have met or exceeded all sustainability-linked KPIs embedded in our finance agreements, including increasing the green lease proportion to over 50% of our leases now assigned to the green principles with our tenants and a growing number of our assets are certified BREEAM or LEED very good or above. These operational efficiency improvements, they reduce operating costs for tenants. And importantly, they support lower financing costs for SERT, reinforcing cash flow resilience and sustainable distributions. It, therefore, makes sense for us to embark on these initiatives. Based on the asset sales made at the end of last year when we exited out of a development in Rome at a material profit as well as exiting out of Slovakian portfolio, we made 2 quality investments this quarter on a combined 6.7% yield. The logistics investment in Waddinxveen, near Rotterdam was acquired at a 6% yield with a long lease to a major food distribution tenant needing to be near the port of Rotterdam for their business, marking our first direct asset acquisition since 2022. It was sourced off market and executed at an 8% discount to valuation -- 8% discount to valuation, which highlights the strength of Stoneweg's local transaction executives. We have about 25 of them. We call them truffle hunters. Responding to our investors' wishes for increased exposure to more data center development returns, but without diluting near-term distributions, we negotiated with our sponsor exclusively for SERT to invest into a 7-year mandatory convertible loan issued by AiOnX. The investment provides SERT with a fixed 7.25% annual cash coupon from day 1, with conversion into AiOnX equity at a material discount to the then future NAV. This structure provides SERT with immediate tax effective interest income that is accretive to distributions while preserving meaningful long-term tax-effective capital upside, and I'll explain more later on today. So with that, I'd like to hand over to Hui Chen to give you more details on the financial performance. Thank you, Hui Chen.

Thank you, Simon. Good afternoon, everyone. I'm pleased to report that for the first quarter, NPI on a like-for-like basis was 2.3% higher than prior corresponding period with logistics, light industrial up by 3.7% and other sector was 26.1% higher due to previous rent dispute arrears payment received from a tenant. NPI margins maintained at 62.5%, and we have not seen any material impact to the property operating costs in the current geopolitical situation with electricity contracts normally 1 to 2 years in length. Gross revenue was slightly lower as we had a gap between selling Slovakian assets at the end of last year and reinvesting in the first quarter this year. Despite this, distributable income remained stable compared to prior corresponding period and indicative EPS was 1.5% higher due to the positive impact of securities buyback. Slide 11 shows 5 consecutive years of like-for-like income growth, demonstrating consistency of income from active asset management and embedded income resilience. Europe's CPI-linked indexation clauses in most leases provide inflation protection, an important advantage as we come into another period of war-induced inflation. The portfolio is currently deemed 8% under-rented while the valuers' own forecast of NPI growth leads to a substantially higher reversionary yield. The quality of SERT portfolio is supported by a highly diversified tenant base, comprising nearly 800 tenants across nearly 1,000 leases. More than 90% of SERT's tenants are large multinationals or government-related entities, providing strong credit quality and minimizing doubtful debts. No single tenant accounts for more than 4% of headline rents. And our top 10 tenants represent only 21%, limiting tenant concentration risk across the portfolio, an important advantage amid heightened geopolitical uncertainty. In the context of the ongoing Middle East conflict and the associated energy market volatility, our historical experience gives us confidence in the resilience of SERT's earnings. A review of the 2021 to 2025 period shows that utility costs across the portfolio are overwhelmingly borne by tenants through service charge mechanism. As you can see from the chart on this slide, even during the Russia-Ukraine energy drop, where geopolitical tensions drove a sharp rise in energy prices, the impact on SERT was minimal. Service charge utilities, which make up around 22% to 26% of operating expenses remained overwhelmingly paid by the tenants, while the nonrecoverable utility costs stayed consistently below 0.5% of total OpEx. Overall, an average of 98.4% of utility cost inflation was structurally passed through to tenants. As a result, geopolitical-driven energy price drops have had only a very minor impact on our NPI. So we expect a similar outcome in this current situation. SERT's balance sheet remains robust with total assets of EUR 2.4 billion and a strong cash position of EUR 47 million. Adjusted NAV per security was stable at EUR 1.96, with EPRA NRV declining to EUR 2.14. We remain investment grade BBB stable outlook by Fitch and BBB- stable outlook by S&P. I will now hand over to Elena, who will discuss the first quarter 2026 portfolio and asset management highlights.

Thank, Hui Chen. Good morning, and good afternoon, everyone. I'll start with the portfolio where occupancy was 92.8%, with Western Europe at a strong 93.7%, while Central Europe remained stable at 85.4%. Moving on to the light industrial and logistics sector. Occupancy there remains very high at 95.1%, almost full house -- the WALE of 5.1 years provides good income visibility. Rent reversion momentum remains positive, up a strong 7.6% this quarter, while vacancy remains low. During the quarter, the team signed or renewed around 30,000 square meters of leases, representing 2.6% of the portfolio. Tenant retention was 45%, reflecting a balanced approach and protecting occupancy while retaining the ability to capture rental upside. As shown on the top chart of this slide, both occupancy and rent reversion have remained resilient across logistics and light industrial segments of the sector. Rent growth sits within normal historical ranges and the portfolio remains under-rented. We remain on track to maintain at least 95% occupancy through most of 2026. As you can see from the leasing highlights on this slide, within logistics and light industrial, first quarter leasing activity was focused on a small number of high-quality transactions across The Netherlands, Denmark and France, the team achieved strong rent reversions where market conditions allowed, while also extending lease durations and removing break options to enhance income security. These transactions highlight disciplined asset management and our continued ability to give rental growth while improving cash flow certainty and asset valuations. More broadly, industrial and logistics demand in the Eurozone has softened during the Middle East conflict and high energy prices, while which have weighted on industrial production. This is reflected in the Eurozone composite PMI falling to 48.6% in April 2026, indicating contraction, which is mainly driven by weaker services activity. However, manufacturing remains a bright spot with PMI rising to 52.2%, a near 4-year high, showing continued resilience in core industrial sectors. Despite macro uncertainty and slower and delayed tenant decisions, rent growth remains intact. This is supported by a limited new warehouse supply and steady demand for manufacturing and B2B distribution. Green Street forecasts 3.2% rent, 2.2% annual rent growth over the next 4 years, outperforming both retail and office sector. The first quarter of 2026 saw relatively subdued office leasing activity with approximately 7,000 square meters of leases signed. Despite this, occupancy remained high at over 90% across our core office portfolios in The Netherlands and Italy. The office WALE increased to 5.1 years, up from 4.9 years in the previous quarter, driven primarily by a significant long-term lease renewal at Paryseine in France with a tenant Kaviari. Rent reversion for the quarter was slight minus 2.8%, largely attributable to one lease renewal in Poznan, Poland, where rent was adjusted for over rent to market rents to retain the tenant. Overall, the office portfolio remains approximately 9% under-rented, giving us embedded upside as we continue to focus on rent growth through active leasing initiatives and targeted asset enhancement works. Office supply growth is set to slow as the Middle East conflict and AI-related shifts weigh on job creation, while higher energy and construction costs constrain new development. As a result, supply growth is expected to ease to around 0.6% to 0.8% annually over the next 5 years. Rent growth is also projected to moderate to 2.3% per annum, supported by ongoing demand for well-located prime assets. Overall, we do expect transaction volumes to pause, while markets adopt a wait-and-see approach to the impact from the war. Given cap rates have not reduced with the ECB rate cut in the past 11 -- 18 months, we don't expect cap rates to increase further from here. As in my last slide for this section, we continue to focus on larger equity enhancement initiatives to further improve portfolio quality. Key examples include the ESG-led repositioning of Bastion in The Netherlands into a multi-tenant office anchored for long-term leases with Essent and ASML, the ongoing expansion with Thorn Lighting in the U.K. and De Ruijterkade development in Amsterdam, where we now have an irrevocable master plan for 20,600 square meter GLA office project. And we are making good progress on the milestone ahead of construction in the second quarter of 2027, which is lining up nicely to when the sitting tenant lease expires. We are working up alternate uses for other noncore assets such as student accommodation in Paris to add value to aid more profitable exits such as Maxima, Rome last year, where we sold an older office asset to our hotel developer. We continue to use these initiatives as means to enhancing the sustainability of the portfolio and ultimately extracting higher value for SERT. Thanks for your attention, and over to you, Simon.

Thanks, Elena. I'll now turn to our data center strategy, which is an additive pillar to SERT's long-term growth. We have set a clear and deliberate target to grow our data center exposure to between 15% and 25% of the total portfolio by the end of 2028. This is not the pivot away from our core logistics platform. Instead, it is a measured extension into a sector with strong structural demand drivers that can take advantage often of our own industrial property. Our sponsor has the pipeline and expertise to support this strategy, positioning SERT to generate higher recurring income and capital gains. Over time, this strategy supports a potentially meaningful REIT valuation re-rating attracting more investors and delivering higher TSR for security holders. And we're pursuing this strategy through a dual-track approach, which I'll now take you through. So data centers represent one of the most compelling structural growth opportunities within the European real estate landscape. Like most developed economies, data center demand is being driven by accelerating adoption of cloud computing, AI and data-intensive applications. Unlike traditional real estate sectors, demand for data centers is closely linked to the digital infrastructure requirements rather than discretionary consumption or enterprise operations. In Europe, this demand growth is occurring against the backdrop of significant supply constraints, including limited power availability, lengthy planning processes and increasing environmental regulation. As a result, well-located sites with secured power and zoning are highly sought after by hyperscaler tenants and operators. This imbalance creates the potential for long-term income streams supported by strong tenant covenants and long lease terms. So the first pillar to increase SERT's data center exposure is through converting a select number of SERT's own existing assets. We have now completed initial feasibility studies in our portfolio and have found around 10 sites across 4 European countries, which could serve as credible data center conversion sites. Such repositioning could unlock material value in both income and asset values, adding to the NAV even before projects commence. Importantly, any such initiatives would be pursued selectively and subject to a series of risk return-based criteria. Parc des Docks, Paris is SERT's flagship conversion project. It has recently received positive planning feedback and attracted interest from major hyperscalers. The high-quality design elements that you can see now on the renderings on this screen is aided by the unique Central Paris location. And again, on the right-hand side graphic, you can see that we're very much adjacent to an already operating waste-to-energy power plant and to the right-hand side, the predominant Paris City central district heating supplier. These elements lead the project design to be carbon negative, making it one of the most environmentally progressive data center proposals in Western Europe, which is an attraction for accelerating the municipality and planning process, and also to attract the large AI hyperscalers. So while we negotiate with the various stakeholders, we continue to collect substantial rental income. This is not a unique strategy to SERT. And in fact, you can see 1 or 2 other European REITs such as Merlin Properties, undertaking the same sort of transformation that we can take our older stock and we can convert using the power access that we have into data center opportunities where the rents and the valuations tend to be materially higher. So the second pillar, which is to increase our data center development exposure is directly alongside the sponsor in its AiOnX fund. AiOnX provides unique access to private equity style investment returns, which typically require investors to have substantial sized investments with a long duration lockup and is normally out of reach for many listed equity investors. AiOnX is a 10-year life data center development fund managed by our sponsor, meaning that development gains are ultimately crystallized and converted into cash upon exit rather than remaining embedded indefinitely. AiOnX comprises 5 early-stage data center projects with around 1.7 gigawatts of power secured, scaling to potentially 2.2 gigawatts. That's almost 20% of the total size of the European data center market today. The first phase of the Dublin data center is about to complete with rentals for 16 megawatts of immediate power commencing in late 2026. The entire 179 megawatts is leased to a major U.S. hyperscaler. The AiOnX team continues to work on pre-leasing at the other sites. We're on track as power and planning are secured and time lines are firmed up. So how does that impact you? Well, SERT's initial EUR 50 million investment in June last year to acquire a 7% stake in the fund has already been revalued up 41% higher directly to the NAV, reflecting development milestones achieved post our investment and prior to any completion of project. And I've already discussed earlier, the savient features of SERT's follow-on March this year's investment also into AiOnX, but by the way of a convertible loan, and that also supports our income and growth objectives. We are very attracted by the high 12% to 15% yield on costs typically delivered by the development of data centers. The ownership of these assets, if you buy them in the market, tends to be around 5%. But if you develop them, then you can get materially higher yields. And this is across AiOnX, which has a EUR 30 billion GDV once it's built out across the 5 projects. Stoneweg's strong alignment and complementary priorities with its 28% investment in SERT and its 200-plus European staff and with their value-added track record are all key differentiators for SERT. With the sponsor's recent listing on the Amsterdam Euronext Exchange, you can now follow it too, reinforcing the governance, the transparency and the institutional discipline that we are known for. Switch listed at the end of February at EUR 3.75 per share, EUR 3.75 per share and is now trading around EUR 5.5, a 50% premium to NAV. Now it has 2 large investments being AiOnX and its 28% stake in SERT. So this is a very good read-through for you here in Singapore to look at how the European investors are marking the same assets as we are. One is at a 50% premium, that's the parent company and us as the REIT sitting here at a 25% discount. So access to Stoneweg's broader ecosystem, including digital infrastructure platforms, provides SERT with optionality that would be difficult to replicate independently. This alignment translates into improved deal flow, operational expertise and governance standards, which again supports our long-term objectives. So if I can move on to our strategy and outlook as we move into the next phase with now our stabilized distributions, a growing income base with a defined logistics and data center adjacent strategy that is already generating benefits for investors. The slide on Page 29 shows the last 5 years of distribution history. And we now know that this has stabilized. It's rebased from the impact of the prior massive increase in interest costs that the ECB and other central banks put on the economy back in '22 and '23. So we've absorbed that now. And we've also delevered through the asset sales as we've combated the rise of cap rates, again, not having to raise any equity in the last 5 years. We continue to make the point that our distributions are not supported by the capitalization of management fees or bonus top-ups. At the same time, approximately EUR 41 million of realized capital gains have been retained over the last few years, providing flexibility to supplement distributions, fund investments or support debt management if required. The Stapled Trust, which unitholders voted overwhelmingly for a year ago, this enables a structure to maximize TSR for security holders. So what we have on this chart is we have the REIT's EUR 2.2 billion of logistics and commercial assets, which provides a stable and predictable rent growth. And this adheres to the Singapore market policy of distributing at least 90% of distributable income. That's what's delivering the EUR 0.133, EUR 0.134. The business Trust follows a slightly different trajectory where cash flow growth may be slower upfront as development milestones are executed, but growth then should accelerate once projects are completed or our redemption in the AiOnX fund is returned or tenant leases are secured and profits are crystallized. And over the medium term, this should result in a more substantial uplift to NAV with realized capital gains recycled into reinvestment, further projects, debt reduction or enhanced distributions. So together, the stapled structure of the REIT and the business trust combines income stability with higher growth potential over time. So in conclusion, our strategic focus remains on driving superior risk-adjusted returns to investors. You won't see in any of your management team here any KPIs about the size and growing for growth's sake. You will see our focus on dividends and NAV growth and share price performance. We continue to prioritize Western European logistics and data centers as our highest conviction sectors and strongest long-term income and share price growth drivers that reflects that alignment with you. While rates remain well below our property yields, i.e., our property yields are at 6.2% and our cost of debt is sub 4%, we have a big gap between the 2. And our debt now has very long duration. So we do expect to operate towards the upper end of SERT's 35% to 40% net gearing range, while continuing to reduce exposure to noncore assets, in particular, the office portfolio, which supports disciplined capital recycling, almost like an ATM. We will continue to invest in selective value-add redevelopment initiatives to enhance portfolio quality, earnings resilience and sustainability of earnings. Approximately EUR 200 million of projects, of which we've mentioned a few of them, are expected to receive permitting and pre-leasing over the next 12 to 18 months. Plus, we have the in-house digital infrastructure expertise within Stoneweg to then add to our data center conversion projects. The SERT Board expects FY 2026 distributions to security to be broadly in line with that of last year, barring unforeseen circumstances. Based on today's share price, this implies a distribution yield of approximately 8.6%, again, driven by high yields of the property and lower debt costs, providing that higher return to you. So thank you for your attention. And now Kara, we'll hand over to you to help moderate for us to address any questions that the investors might have. Thank you.

Thank you, Simon. [Operator Instructions] Our first question comes from David, who asks, in the time I have held search, formerly known as Cromwell back then, DPU has dropped 22% from about EUR 0.1719 in 2022 to EUR 0.1339 in 2025. Do you foresee a recovery to 2022 levels in the near foreseeable future, especially given the current headwinds of Ukraine and Iran?

Thanks, David, for the question. And yes, the headline is it is disappointing that the distribution has declined. But the simple response is back in 2022, our average interest rate was 1.5%. So in the last 4 years, we've had to manage a rise of interest rates to now just under 4% in total borrowing costs. So we've had effectively EUR 25 million of additional interest expense through no fault of the management team other than the stock market and the bond market and the price of debt has gone up from those historical lows. So if you add that EUR 25 million of pain of that reversion to more normal interest rate environment, our distribution would be close to EUR 0.18 today. What we made sure we did over that period, as I mentioned in the preprepared remarks, is we managed to keep our LTV below 40% through the sale of EUR 400 million. So as cap rates went up with the response of those interest rates, we didn't, unlike other REITs, have to cut our payout ratio or raise dilutive equity. So the math shows that it's just the rise in interest expense and roughly EUR 1 billion of debt that has caused that decline. Now at the same time, we've actually pivoted from being a minority of logistics portfolio to now a majority of logistics. So that actually helped us improve the overall quality of the portfolio, setting ourselves up for the nice growth. So while I'm not necessarily going to answer the specific question, do we think we can get back to EUR 0.17. So the simple response would be if the ECB cut rates to negative again, then we could go back to that environment. So that would be tick, yes. What other things could we do to get there? Well, as I mentioned, we're trying to build up this strategy through developments that can produce substantial development gains that can be added into the security of the distributions coming out of the REIT. So this is us trying to accelerate the return to the higher dividends from which we used to pay. So we're not just going to rely on the ECB or other central banks. We're actually going to take some of our capital and invest it into AiOnX, potentially convert some of our existing assets like Parc des Docks into much higher and better use value through alternate uses that can help generate a lot more cash flow and therefore, drive either higher distributions or a reduction in debt that then enables us to go and invest into other assets. So we certainly have a strategy for growth as well as providing a resilience on the income. And so that's why we wanted to put up this chart in our preprepared remarks to give you that confidence that the Board through its public guidance, which, as you know, is very rare in Singapore to actually give that indication that we think that given the work that we've undertaken in the last 4 years, while it's been painful on the way down, we're certainly stabilized and looking very much forward to reap the returns of what we're now setting in stage. So thank you.

Thanks, Simon. Our next question comes from The Dividend Uncle, who asks, is SERT able to invest more in AiOnX to further expand its data center exposure? One possibility is to reduce the unit buyback and shift the resources to AiOnX. The higher growth potential may help reduce the discount of unit prices to NAV, perhaps more so than the impact of the unit buyback.

Thank you very much for the question. Multiple questions. So there's a lot in, I think, in the concepts of what you've raised. The first is that since we started the buyback just over a year ago, a couple of points. One, we're not borrowing money to buy back stock. We are using liquidity from our asset sales. Two, it's a fairly moderate buyback. In total, we've only invested around EUR 11 million back into our stock, whereas we've invested EUR 100 million into AiOnX and that EUR 100 million is now already valued at EUR 120 million. So you're definitely right to point out that there has been to date more accretion from investing in data center developments than buying the stock back. And having said that, Hui Chen showed you in our preprepared remarks that even the EUR 3 million that we bought back in the quarter added 1% to dividend growth. So we do get a lot of bang for the buck for investments back into the stock. The bigger picture is that, we will continue to assess a number of opportunities, both on our own balance sheet like Parc des Docks or indeed further investments into the sponsor's pipeline either directly through AiOnX. And we think we've got a really strategic structure that we have exclusively negotiated for you as an investor, which is this convertible loan where we get income from day 1 as well as the potential to convert into future NAV at a material discount. So we are able to participate both in income and profit upside. And as you know, the fund is a 10-year life fund. So at some point, that profit will come back as cash. So please be patient. But in the meantime, we are trying to help you bring forward some of that cash flow through this convertible loan. So we've got a combination of ordinary equity as well as a convertible loan investment. In terms of the buyback itself, we don't do it to drive the share price higher. I think that's an important misnomer in the Singapore market. It's there to show the Board's support of the intrinsic value of the REIT at the time. Sometimes, as you know, there's dislocation, sometimes there's not as much liquidity in the market. So there's what's known as an air pocket or a big bid-ask spread. So if that opportunity arises, then we will certainly look to step in and provide that intrinsic recognition of the value. So we have the Board providing guidance, and we have the Board buying stock back. We've got the AGM this afternoon. So we certainly look forward to engaging with many investors. One of the resolutions is obviously the share buyback. So we certainly believe that it's a very advantageous capital management tool for the SERT Board to have as we will prepare and propose to the AGM this afternoon. But thank you for your question.

Thank you, Simon. Our next questions come from David who asks, what are your long-term plans with regards to Finland given the occupancy and drag on performance? And given the long-term possibility, the long-term structural implications, for work-from-home headwinds on the office rental, do you foresee a pivot to fully or almost fully industrial portfolio?

Thanks, David. And yes, this is the worst investment we made back in 2019. So we have unfortunately seen a material decline in the value of this portfolio in Finland. It's 2.5% of the portfolio. I wish the circumstances were different. What did we get wrong? Well, unfortunately, it's a second ring, outer ring suburban business park portfolio that before COVID was quite an attractive product for businesses. Post-COVID, we know that there's now a move by tenants, employees back into the cities. And so the market vacancy in business parks, not just in Helsinki, but around -- around the world is much higher than back into the prime core CBD. So I'm pleased that the majority of our office portfolio is in where tenants want to be. It is in the major gateway cities, where we are seeing occupancy, for example, in the Netherlands, which is our largest office portfolio at around that 95% mark, which is very substantial and reflects overall prime office vacancies in the core cities that we invest in. The vacancies are 3% to 4%. So we have an outlier in Helsinki Suburban Park at 25% vacancy. But in the core parts of the inner cities through Europe, we're at 3% to 4%. That's where we want to be. I think in the second part of your question, which is how do we think of the long-term ownership of these assets. Well, we've been selling our noncore office assets. So tomorrow, we will cash settle on a EUR 22.5 million sale of a Warsaw asset at a 5% premium to WALE. That's been sold to a medical school. Previous asset -- office assets that we've been selling in Helsinki and in Poland, again, are for alternate uses. So that is something that we will continue to look at. Now having said all of that, even at the 70% occupancy, having written down the value of the assets, the yield on these -- on the finished portfolio is now over 7%. So a lot of the pain has already happened. So yes, it's unfortunate, but we've got a very strong rest of the portfolio that's doing well. So we're -- yes, we're looking to exit.

Thank you, Simon. Our next question comes from Arthur who asks, with respect to Parc des Docks, what would be the time line for an increase in the NAV valuation as a result of the conversation? Would you also consider a sale of the site as you move through the development process to crystallize value at a higher price?

Arthur, very insightful questions. Thank you. We expect that given that we've got one of the world's leading data center design teams on this project, and we have Stoneweg's very influential French team working with us that we have very good access now into most of the levels of bureaucracy and planning within Paris. So I'm certainly feeling very confident, which is why we're showing you now the schemes as we're working through our milestones. As you rightly point out, the property is currently valued as a very old 1970s, 74,000 square meter industrial property, very workhorse property. It's providing very good yield. Tenants continue to pay much higher rents. We've gone from EUR 90 a square meter at the IPO to now EUR 180 per square meter. So don't tell me there's no rent growth in Paris. We've just shown you there's double in this asset. So we're not under time pressure from a cash flow perspective. And I know your question is not aimed at cash flow, but I did want to make the point that while we're going through this planning process, we're still collecting a lot of rent with very little incentives being provided. In terms of the milestones, what we've tried to do is provide you with sort of a 1- to 2-year guidance that as we hit some of these milestones, we can then go to the valuer and say, rather than just valuing it as is as an older style in the city logistics last mile property, now start to look at the potential to convert this into a data center and quite a material data center depending on the amount of power that we can secure. So I would say 2 to 3 years, that would then start to flip through into NAV growth. In terms of then what do we do in terms of building this out, I mean, this could be a EUR 2 billion project. This is not something that we have the capital for. So you're indeed right in expecting us to have to bring in some sort of either sponsor program or third-party joint venture for us to be able to actually deliver this. We do have the business trust, which enables us to undertake developments, as you know, and is able to undertake fast turnover developments unlike the REIT where you have to develop to own for 3 years in the business trust, there's not the same Singapore regulation. So we have a lot of flexibility within our own structure to try and maximize the return for you as the investor without necessarily flooding us with the amount of capital that we may need to deliver this project. This is the advantage of being within Stoneweg, they already have a EUR 30 billion GDV fund in AiOnX, which is an obvious partner of ours. So lots to do. We want to try and crystallize as much of the early initial milestones as possible for you, the investor, before then handing over or joining or participating in the actual construction costs. The next couple of years, not a lot of money has to be invested. It is mainly consultants, planners, et cetera. It's not a heavy capital requirement over the next couple of years anyway. Thanks, Arthur.

Our next question comes from Brian who asks, did the sponsor invest into AiOnX besides the investment that SERT had made into the fund?

Absolutely, Brian. This is a real classic case of the sponsor has put their money where their mouth is. They own around 80%. So we're very fortunate to be 1 of only 4 other independent investors alongside the sponsor. And this is partly why the sponsor's share price since it IPO-ed 2 months ago is up 50% because the investors in Europe who are starved for data center development opportunities as we are here in Singapore, very difficult in Singapore to get access to data center developments. There's obviously a lot of opportunity to buy very mature data center portfolios, but the people making the money are the developers. And this is a rare opportunity for a Singapore investor alongside SERT to get access to the developments that otherwise you wouldn't get access to, while you also get liquidity through us being traded on the stock exchange, while we also pay a dividend. Most of these development funds don't pay dividends and this convertible loan that we've structured specifically for SERT is a great alignment of interest of the manager to understand that we need to balance both the stability of income as well as getting access to the substantial development profits. Thank you.

Our next question comes from HB, who asks, are the management fees entirely paid in cash and not units?

Correct. There's only 2 or 3 of us in the 44 REITs that do that. It's -- we treat management fees generally as an expense, not capitalization. We did do that for the first two years. There was obviously as part of the prospectus period, which is another reason why our distributions dropped after the distributions because we moved away from topping up the distributions from management fees. So yes, our yield of 8.6% is a real yield and not a topped up one. JPMorgan thought it's worth do very good research on this, and they show that most REITs yield is 80 to 100 basis points higher because of this practice. Our dividend is sustainable.

Thank you, Simon. Our next question comes from Arthur who asks, can you please explain or confirm the tax treatment of the interest income from the convertible bond? Why is the income not taxed?

Arthur, I'm not sure if you're with IRS, but it is a very acceptable foreign offshore income stream. We've had it signed off by our tax consultants, as you would expect. It's a very tax effective both income and capital.

Our next question comes from Terence who asks, I would like to ask some clarifications on the indexation and rent revision. Are the indexation adjustments already included in the rent revision? Or is it on top of the rent revision? Typically, what are the indices used for the indexation adjustment?

Yes, great question. So the rent reversion that we publish is just on the new leases. So it's on new leases compared to the old lease. So the pool of leases in each quarter varies depending on what we have expiring and what we're renewing. So the data set is always different. But generally, we're trying to give you a view as to what's happening between passing rent and new rent. And so this is why we say we are approximately 8% under rented. Now with a staggered lease expiry, you can't get access to that every year, but it underpins future growth. And this is why Hui Chen showed the chart that we have an initial yield of 6.2% and a reversionary yield of 7.6%. No other REIT gives you that, right? So they're giving you the value of 5-year income forecast. So reversionary yield is their view, the independent view of income 5, 6 years out divided by today's valuation versus the initial yield or initial cap rate, which is just today's income divided by today's valuation. So there's already a 20% embedded growth in the valuers' income expectation in their own valuation assessment of each of our properties. In terms of the indexation, it varies from country to country, and we've previously published, and I'm happy to send to you or put back up on our website. So for example, in Italy, we only get 75% of inflation. So if inflation is 4%, we get 3%. And so this is on all the leases that just haven't been renewed. So if we've -- this year, if we renew around 8% of our portfolio, then the other 92% of our portfolio will go up on that indexation. Some markets like Netherlands will cap the inflation. So if inflation goes over, say, 5%, then we don't get any more growth above 5%. And in Germany, it's actually over a 5-year period. So if inflation is 2%, 2%, 2%, 2%, you get to the 5 years, we then get 10%. So it's an accumulation in Germany. So it's a little bit lagged. And in France, they don't use the CPI index, they use a construction commercial index, which tends to be slightly lower than inflation. So if inflation is 4%, then this index might be 3%, 3.5%.

Our next question comes from Joshua who asks, SERT first tapped on the SGD credit markets 5 years ago. Can you share your observations and whether it remains a feasible source of funding for the REIT?

Sure. Elena, do you want to tackle the perp?

Perpetual security. Thank you, Simon. Thanks for this question. Obviously, the market has been very, very interesting recently. We indeed tapped the perp 5 years ago at a rate of 5%. We are monitoring this market very closely. We work with a number of bankers and explore options. At the moment, if we were to reset the price of the perp at current rates, that will be at a circa 5.4% -- 5.3%, 5.4%. Obviously, if we were to go to the market and raise another perp, that also remains an option. But for now, we are just monitoring it. It remains -- maybe just to respond to question, it remains a very viable capital option for us. We have -- the Board set up a target for us to potentially have exposure to perpetual securities between 15% to 20% in the long term. It's treated as 100% equity by one of our investment-grade rating agencies and a 50% equity by the other. And of course, but we are very, very sensitive to cost of the perp, because it does impact distribution. So all factors will be considered before we make a decision whether we should be tapping the market.

Thank you. We've got a couple of questions from Terence. The first being, how does the strategy or direction change now that Stoneweg took over the reins from Cromwell?

Thanks, Terence. Well, firstly, we have a very engaged European-based experienced sponsor and major investor with their 28%. So that gives us a lot more connections through either the tenants or through the capital markets or through the planning processes that we have senior executives at Stoneweg that have been operating in these markets for a long time rather than the Australian group. Secondly, as you know, back in 2020, we did try and do a development of a data center in Frankfurt. We spent most of that year trying to get a very successful project up and running. Now someone else got it up and running, but Cromwell just did not have the skill set and we had a joint venture partner. And at the end, we sort of parted ways -- what we have with Stoneweg now is a really dedicated infrastructure, digital infrastructure. Recently, they have acquired a majority stake in one of the few German NVIDIA cloud providers and partners. I mean, this is a very big moment for us in that our sponsor is really throughout the digital ecosystem and is doing some fantastic work that has some second derivative impact on us, which we didn't have under the previous sponsor. The third is that from a mindset perspective, they're very much aligned with you in the way they think about driving the share price. So if you read the annual report that was out a couple of weeks ago, you'll see very clear KPIs set in the remuneration corporate governance section of the annual report that really shows you that the sponsor is and our Board is putting the pressure on us to deliver the DPS growth. And we had an earlier question about can we get back up to 2022 distributions. I mean that's what our sponsor wants us to deliver for you is growing distributions, growing NAV and ultimately growing the share price. So I would say they're more focused and European than our previous sponsor. Certainly, we're very excited and happy to be part of this process.

Terence's next question is with SERT debt having long maturities and mostly hedged in an environment where ECB cuts rates again in the near term, will you be able to benefit from the lower interest rates?

Sure. So we -- typically, in our hedging strategy, we will use caps and collars. So while we say we're 87% fixed, that means on the upside risk if interest rates go up, we are protected. But what we don't show in this slide is that if interest rates do come down, then we have a little bit of participation on the 87% that is hedged. So I'll just make that point that we do have the participation on the downside. but capped on the upside. And the second part of your question really is around interest rate expectations. And so while at the beginning of this year, we agree with your premise that the ECB was set to cut rates further, perhaps with the rise in inflation from the Middle East conflict, I think you'll find the interest rate expectations are actually for interest rate increases from the ECB over the next 6 to 9 months from which we're protected. And then we would then expect interest rates to come back down again. So we think we're pretty well positioned. The cap rates in our portfolio are very high at 6.2%, while our average cost of debt is 3.9%. So there's a big gap, which is good for you because it generates dividend on the back of the yield spread between cost of borrowing and the income that's being returned from the assets. Thank you.

And our final question from Terence is, Germany last year announced a EUR 500 billion special infrastructure fund, which is expected to drive demand and GDP in the country. Is there any similar policy tailwind in the countries that you operate in?

Yes, it's a really good question. And this is something that we've been noticing for the last couple of years that with -- really started from COVID, the European Union is getting closer together, and it's almost banging around a few concepts. And obviously, you can see the impact of tariffs, the U.S. policies on Europe, NATO having to invest more in defense. So there's a number of policies being implemented. One that we mentioned 2 years ago was the European Chips Act. That's a EUR 43 billion investment to get European chip manufacturing from around 9% to 10% of current chip production to around 20% of European supply of chips from a world supply chain perspective. So they're investing in defending their own supply chains. And so we can see this in Czech, in our logistics portfolio in Czech, for example, we're starting to see more European countries bringing back from Asia, their plants, their manufacturing capabilities. So the onshoring effect is certainly helping the markets around Germany. Germany is known for a slightly higher salary, wages costs. So either you automate the German factories, or you use cheaper labor in the countries around Germany. And that's why we're in some of the peripheral markets like Czech is to take advantage of that particular theme. I mean, we've got one property that is halfway between Prague and Dresden, so you can be a German executive and have local Czech Republic employees and be half an hour drive away. So that's part of why we're in those specific locations. So there's a lot of policies. And defense, yes, NATO is going to go to 5% of GDP, then we're going to see 37 million square meters. It's just mind-boggling that there's that sort of leverage of demand for warehouse space. So let me just say that again. Savills put out a research report that if NATO goes from 2% to 5%, that increases demand for warehouse space of 37 million square meters. That's for more supply chain for building tanks or drones or uniforms or more condensed milk. There's a whole requirement for more space. Now to put that into context, that's around 4 years of natural demand. So without an increase of supply, there's already starting to see a lot more demand coming through from just the defense industry. So you're absolutely right. We've got not just the old e-commerce tailwinds that we had coming out of COVID. We've now got very specific fiscal responses to a number of issues that's uniting Europe, both on the defense front, on the supply chain front and countering the tariff situation. So very much longer term, we get through this Middle East conflict, and we can look at economic forecasters like Oxford, and you can see 2% to 3% real GDP growth, which for Europe, as you know, is a very high level, and that would be good for us and good for our investors.

Thank you very much. That does bring our Q&A session to a close. Simon, I'll now hand back to you for any closing remarks.

Yes. Again, thank you very much to everyone for dedicating both your own time and interest and in your investment alongside us here at Stoneweg European Stapled Trust. Our strategic focus remains on driving the superior risk-adjusted return to investors. We continue to prioritize Western European logistics and data centers as our highest conviction sectors with the strongest long-term income and share price growth drivers. We're not doing this just to get bigger. We're doing this to ultimately drive higher returns to you. So we're available for any other questions that you may have. I hope some of you can join us this afternoon at 4:00 at our AGM at the NTUC center here next door in Collyer Quay. It would be our delight to meet and discuss anything with you personally. Otherwise, catch up with you shortly. Thank you.