Stoneweg Europe Stapled Trust (SET) Earnings Call Transcript

We will begin with a presentation by the Stoneweg European REIT management team followed by Q&A. [Operator Instructions] Now I will hand across to the CEO of the Manager of the Stoneweg European REIT, Simon Garing. Simon, over to you.

Thanks, Kara, and good afternoon, and thank you to everyone for joining us today for Stoneweg European REIT's Financial Year '24 Results Briefing. This is our first result for Stoneweg, for known as -- we are formerly known as Cromwell. Stoneweg now is our new major investor and sponsor. We are excited with the opportunities ahead and the potential benefit from leveraging Stoneweg's extended European resources and networks -- we continue to remain a logistics light industrial-focused pan-European commercial REIT with high-quality assets with a barbell of long lease assets and those with value-add upside. And today, we thought we would start with this page to highlight the recent ratings that we've received from both ESG organizations such as MSCI, where we're one of the highest rated REITs in Singapore and from our more recent credit rating initiation by S&P, who have joined Fitch in again, reviewing us under Stoneweg and coming out with their BBB- investment-grade rating on the REIT's a very important part of our capital management as well as an endorsement of our policies and portfolio. Turning to the next page. This photo Montage showcases a selection of CEP's assets, typically Grade A office buildings and large and well-located logistics and light industrial sites ranging from both core to value-add and profile. Over the last few years, we delivered on our stated strategy to pivot to more than 50% weighting to the logistics sector with a target to be well above 60%. And we know that those logistics REITs trade at premiums or close to their NAV versus the slightly more negative sentiment of office REITs, which traded at bigger discounts. So you would have seen that we've closed partly that gap as we move more to being in that logistics camp. And this certainly compares favorably to the 32% weighting we had to logistics back in 2021. We continue to remain focused on the core Western European markets in the Nordics with a weighting just under 90% to those major markets. Our transaction and execution skills are showcased by our track record of buying 57 assets at a 3% discount to VA in the last 6 years, while divesting 25 properties for almost $300 million at a blended 12% premium to VA. So adding alpha on the way through. '24 and early '25 have been a meaningful and rewarding period for and our unitholders. Over the past 3 years, we have focused on strengthening the balance sheet and enhancing portfolio quality through the disposals, our AEI program and our green building initiatives, which really favors what the tenants are looking for. Like-for-like NPI growth has outpaced inflation, marking the fourth consecutive year of growth with office NPI increasing at an impressive 5% last year. While DPU did decline 10% year-on-year due to the asset sales of the prior year and the impact from rising interest rates, it remains stable between the first and second half. We delivered a further EUR 50 million in asset sales last year, which kept net gearing within the Board policy range of 35% to 40% and NAV above EUR 2 per unit. S&P Global's initial investment-grade rating and Fitch's shift to a positive outlook reflect the confidence in our sponsor, the portfolio quality and the tenant credit and balance sheet strength. CERP's debt profile is stronger than ever. Our weighted average duration of our debt is now over 4 years. It's nearly 2 years out until our next debt maturity. Our new 6-year green bond was nearly 5x oversubscribed, attracting over 100 institutional investors last month. This overwhelming response just weeks under the Stoneweg brand reinforces investor confidence and affirms the sponsor's positive impact on our strategy. Additionally, with $236 million in undrawn RCF and cash available, we are well positioned to pursue the next phase of organic and inorganic growth opportunities at the bottom of the European commercial real estate cycle. So while capital management is one element of success turning to Slide 6, another is the quality of the portfolio, and the skill set of the local asset management teams on the ground. We completed 330,000 square meters of new leases last year, taking CERP's weighted average lease to expiry to its longest on record at over 5.1 years. Notwithstanding the extra length we got on the leases, we also delivered 2.8% rent reversion, which contributed to the NPI growth. The portfolio overall is deemed 8% under-rented by the valuers, underpinning future rental growth. And as a reminder, no single tenant accounts for more than 4.5% of our income. Our largest asset is only 7% of the portfolio. And with over 1,000 leases, we have good predictability in our cash flows. We were pleased that Stoneweg Icona Capital Partners closed the transaction on the 24th of December last year to buy all of Cromwell's 28% stake in the REIT and the full ownership of the REIT and property manager, both here in Singapore and in Europe. Our new sponsor is a private real estate and alternative investment manager headquartered in Geneva, owned in part by a Swiss private bank, CBH, the 2 original founders and a large family office investor, Icona. All are well credentialed with deep pockets and broad capital and property networks throughout Europe, complementing our already established European roots. The new group has combined assets under management of EUR 10 billion and over 300 staff in 26 offices, double under that of Cromwell. We also announced that CERT has a ROFR over the Stoneweg investment portfolio and future pipeline. We have not wasted time to start exploring potential accretive opportunities for CER in both logistics, light industrial and complementary asset classes owned and developed by Stoneweg. Stoneweg has extensive experience managing listed capital as well, not just private capital, with 2 Swiss-based companies operating real estate successfully in Switzerland and the U.S. Their model built on strong local market presence has facilitated EUR 6 billion in transactions over the past decade. As a private Swiss firm, they take an entrepreneurial approach, co-investing with major partners like Bain & Co, M&G to achieve outstanding risk-adjusted returns. They have a strong track record of identifying market trends early demonstrated by their investment in SERP when we were trading at a 45% discount to NAV. Half of this gap has since closed following their preliminary deal with Cromwell, a good example. CERP was the equal best performing REIT in Singapore last year, outperforming the broader index and all major REIT subsectors. It also ranked fifth amongst the EPRA developed European property stocks in Europe. Local and global institutions now hold 25% of our register, highlighting strong global investor confidence. While European GDP growth may lag behind the U.S. and China, the favorable spread between real estate yields and funding costs in Europe supports the higher ROEs and sustained distribution yields, and Shane will take you through more specific details of this within our own portfolio. Additionally, the potential resolution of the Ukraine war and the subsequent rebuilding efforts are expected to drive significant investment and increased demand in the logistics sectors of the European economy. Europe equity markets have also had a really strong start to this year, augmenting our own confidence. So with that, I'll hand over to Shane to run through the financials. Thank you.

Thanks, Simon. This first slide shows key line items that form the distributable income for the second half compared to the first half of 2024. It's pleasing to note that the second half proved to be very stable as the derisking and rebasing of the balance sheet is largely complete with net property income being slightly higher compared to the prior corresponding period or PCP as we refer to it. Finance costs were 5.1% higher than the PCP due to commitment fees on the new facility set up to provide liquidity over the year-end as well as slightly lower interest income. It was pleasing to note again that our other expenses and income tax were in total slightly less than the PCP. All in all, the DPU for the second half was 0.1% higher than the first half. The full year FY '24, however, was impacted by divestments and higher interest costs. Gross revenue and OpEx were both lower year-on-year, largely due to these divestments. As Simon mentioned, on a like-for-like basis, excluding divestments and developments, NPI was actually 2.8% higher with a pleasing 5% growth coming from the office sector. Finance costs were 18% higher than last year as the average all-in interest rate increased from 2.6% to 3.2%, driven by generally higher rates and margins. Tax was higher, but this was due to a large tax credit of EUR 2.3 million in the Netherlands that was recorded in last year's result. All in all, due to the asset sales and the higher interest costs, the DPU for the full year was 10.1% lower than last year. And if we look at the waterfall chart on the next page, you can see the key drivers to the year-on-year numbers with the divestments impacting DPU by EUR 0.013 with much of this impact coming from the large divestments of Chiasa Safari and Bari Europa, which happened in FY '23. Interest costs impacted DPU by 0.9% due to both higher base rates and higher margins during the year. There were positive offsets coming from higher net property income on the existing portfolio and also Navassa contributing for part of the year after completion of the redevelopment. These in total added over 0.7%. This page shows the second half distribution timetable. The last day of trading income entitlement to the DPU is the 5th of March, with the payment date being 28th of March. As a reminder, for those investors electing to receive the distribution in euros, election forms need to be sent in by the 20th of March. We have kept the distribution reinvestment plan turned off again given the discount between the unit price and the net asset value. This next slide summarizes the year-end like-for-like valuation outcome, which we announced in early January. It was pleasing to note that prior to accounting for capital expenditure, the like-for-like valuations were 0.8% higher than 12 months ago. However, there was a fair value loss recorded in the accounts after taking into account the capital expenditure incurred throughout the year. The right-hand chart shows the widespread between CET's net initial yields versus the proxy for funding costs, which is the 5-year bond. This drives the relatively high level of ROE and also CER's high distribution yield. This slide summarizes cap rate trends in some of our markets. Cap rates across key Dutch office markets moved up around 200 basis points since 2021. In 2024, this trend stagnated with yields stabilizing at 5.5% in Amsterdam and 6.5% in Rotterdam and the Hague. In Poland, office market yields commenced rising a little earlier as a result of higher supply and stabilized a little earlier, demonstrating improved investor interest. Savills data shows Warsaw central yields at 6%, while secondary cities remained higher at 7.5%. Germany's big 5 logistics markets saw prime yields move up only 130 basis points to 4.4% by the end of 2024. French logistics have experienced higher yields since 2021, though this also slowed in the past year as investment activity picked up. Again, yields stabilized in 2024 with Greater Paris and Lyon at 4.75%. Our portfolio continues to focus on Paris, where we see longer-term demographics and premium rents for infill and last mile locations. Moving now to the balance sheet, which remained in a sound liquidity position at year-end with a new EUR 340 million bridge to bond facility signed in the fourth quarter of last year with a leading bank syndicate. Including the largely undrawn revolving credit facility, this provided ample liquidity at year-end to cover the bond due in November this year. The balance sheet now reflects stabilization with total assets of EUR 2.3 billion following the largely completed asset sales program over the past 2 years. NAV was slightly lower due to the fair value loss of investment property after taking into account capital expenditure incurred over the year. NAV is now EUR 2.03 and on an EPRA basis, which excludes deferred tax provisions is EUR 2.16 per unit. Credit metrics have remained comfortably within the bond and loan facility covenants and comfortably within credit rating agencies' metrics for investment-grade rating and below the MAS gearing limit of 50%. At the year-end, as I mentioned, we had ample liquidity to cover the bond due later this year with EUR 537 million of committed undrawn facilities available at year-end. ICR on a trailing 12-month basis is 3.3x, but it would reduce to 2.7x based on the 2 scenarios required to be disclosed by MAS, either unexpected declines in EBITDA or a rise in interest rates. This is still well above the MAS limit of 1.5x. The all-in interest rate is expected to increase following the recent bond issuance. The past 6 months have been busy with over EUR 900 million of capital management transactions. A key achievement was derisking the balance sheet through the new green bond, which refinanced the existing bond. Taking advantage of a strong bond market in January, we secured 195 basis point spread, a significant improvement to the over 260 basis point spread on our first bond back in 2020. This was supported by Fitch's positive outlook revision and S&P's new BBB- rating, which matches Fitch. Following the bond issue, the bridge to bond facility was canceled. Another milestone was the early PGIM loan refinancing following the Stoneweg transaction with ABN AMRO loan. This new loan had the same principle and security, but importantly, enabled the redevelopment or the future redevelopment of the Roya KaDee asset. While the new interest rate was higher, we negotiated a EUR 4 million payment from the old sponsor, Cromwell, ensuring CER no impact through to the expiry date of the original loan. The right-hand chart shows the current debt maturity profile and hedging position with 12 to 18 months of hedging over most of our bank debt with caps and collars allowing CER to enjoy some of the expected downward movement in short-term rates. The new green bond underpins over half of our debt at a fixed rate until January 2031. With that, I'll pass back to Simon to discuss the asset management highlights.

Thanks, Shane. And just as a recap, so having sold almost EUR 300 million of assets in the last 3 years, that was primarily to ensure that during that period of rising interest rates, we retained our gearing within that policy range of 35% to 40%. We did not want to go and raise equity. We did not want to see the share price fall with risks of covenants. So we took that decisive action. Unfortunately, the DPU did come down a little bit as a result of derisking the balance sheet. But I just wanted to put that into perspective that while we recognize our DPU has fallen over the last couple of years, it's at a much better state than the alternatives of not selling the assets, particularly at the premiums that we're able to sell them at. So I just wanted to reinforce that point. Now that we have our house in order, the stabilization of interest rates, in fact, the ECB being cutting rates. So this next part of the presentation is really designed to give you the confidence of what I've just described at the portfolio level. So our occupancy was just under 94% at the end of the year with our largest portfolio, the Netherlands, lifting occupancy up to 99%. The slight dip in our French occupancy is temporary and good progress is being made in releasing some of the recent departures. Italy has also been pleasing with steady office and logistics as we lease up the ABB industrial reconversion in Milan. Curt's Danish portfolio's occupancy also increased by almost 5% due to a new 6-year lease at our Pria parkin asset totaling almost 10,000 square meters in Copenhagen. We are in discussions with existing tenant in Loes in the Czech Republic, who is interested to expand into one of the 2 newly developed warehouses. Finland, while disappointing, is now only 2.4% of the portfolio and its current yield is close to 8%, even at this high level of vacancy. We have managed our longest WALE at year-end, increasing to 5.1 years, up from 4.7 years a year ago. So even with that year decline, we've managed to increase our WALE to the highest ever. And a couple of longer 10- to 20-year leases are currently being negotiated today, which should further improve the resilience of the income streams. In addition to re-leasing so much of the portfolio last year, almost 20%, 52% of the pending expiries over the next 6 months have already been derisked with good visibility on the remaining space. So the lease expiry schedule on the right hand -- sorry, on the left-hand side shows that we only have a moderate number of leases expiring over the next 2 years, averaging around 10% of the portfolio each year versus the 20% each year over the past 2 years. So good debt and good occupancy with long lease. In our logistics and light industrial portfolio, we continue to see good rent reversion of almost 5% in the second half, reflecting the still low vacancies even after some recent supply. The top chart shows that this 5% rent reversion growth is within a normal band over the last 4 years. The portfolio is still under-rented with passing rents estimated at 7% lower than the current market rent. This is our valuers' expectations. We have split in this diagram for the first time the occupancy of light industrial versus logistics, showing the stickiness of industrial tenants who typically have barriers to leave a premise based on capital invested or reliance on local R&D and skilled workforces. Both sub portfolios have tracked closely depending on the timing of developments and/or acquisitions of value-add assets. 175,000 square meters of new or renewed leases were signed in the second half. The Dutch portfolio is close to being fully occupied with the U.K. and Italy being 100% occupied. The French occupancy fell by almost 6% due to largely a single 15,000 square meter tenant vacating one of our assets in the Loire Valley. We were pleased to announce a large 42,000 square meter lease renewal in our U.K. asset, Spennymoor up in Durham, which also involved a new expanded warehouse to be built in addition to the tenant taking on a new renewable energy supply from us. We also secured 2 large lease renewals in our largest 150,000 square meter logistics park in Eastern Italy, which also includes the Fashion House Tods key logistics property. We are targeting to bring occupancy for the logistics and light industrial portfolio back to 95% during this year. Overall, the sector WALE improved to 5.3 years, half a year higher than the prior quarter alone. The broader European logistics market remains softish in the second half of '24 due to the sluggish GDP growth and e-commerce normalization to the pre-pandemic levels. The 6-month rolling take-up rates across all of Europe declined slightly compared to the previous period. Savills estimated 7.6 million square meters of industrial space take-up just in the fourth quarter, which brought the full year total to 28 million square meters, going back and surpassing pre-COVID. On the bottom chart, CBRE forecasts an almost 12% per annum total return for European logistics assets over the next 5 years. This is the highest among the asset classes of real estate in Europe. However, it is followed closely by office, just around 11% expected total return, reinforcing the strength of our office portfolio's potential as well. So still very much focused on logistics, but the office portfolio is also performing very well, both on an income and expected capital return basis. CBRE expects the prime logistics yields currently stable around 5% to compress slightly this year as interest rates obviously have come down quite substantially in the last 6 months. The next page highlights the greater online penetration rates directly correlate to stronger occupied demand. more parcel deliveries, more need for warehouses. A recent Savill survey of logistic tenants show that 53% of those tenants expect to need more space over the next 2 years after the excess space taken up post the COVID rush has now been largely absorbed with the new supply now coming on stream. And obviously, new business momentum will continue based on those forecasts. The key leases in the quarter are shown on this page, 15-year leases, as I said, up in Spennymoor and 2 6-year lease renewals in Italy and the one in Denmark. So turning to the office portfolio. Occupancies continued to improve up to 91%, which is mainly due to the lease-up of some vacant units in Paris and in our Central Plaza Rotterdam building. Our core exposure within office is to the Netherlands, which is over 50% of our office investment. We continue to record almost full occupancy in this portfolio, reflecting the prime nature of your Dutch assets. We extended the lease for another 2 years at Rutter kart, which is your Trophy Amsterdam site. This allows us more time to finalize the planning permits with the municipality and UNESCO Heritage Department of our proposal to develop a substantially larger prime asset with Paris Proof specs in the middle of Amsterdam. It going to be a great development. The Italian portfolio remains stable with negotiations ongoing at our Rome Maxima site. Occupancy in Poland remains stable post the sale of the vacant office asset in Warsaw in the first half of last year. We are in advanced documentation for a 17,000 square meter renewal with our anchor tenant, Motorola in our Krakow Green office asset, which will be a new positive market benchmark deal. We'll watch this space as they say. Office leasing activity in the second half in our portfolio totaled just under 50,000 square meters with a slightly positive rent reversion rate. This included a 15-year lease renewal in Bastion in Den Bosch at a positive 6.2% reversion, and that long lease also improved the office portfolio WALE to just under 5 years, up from 4 years a year before. Overall, the office portfolio is under-rented by about 9% with passing rents being 9% lower than current market rents. So again, augurs well for growth in the next couple of years. The top chart here shows that the prime vacancy rates in CER's 5 key gateway office markets being Milan, Rome, Amsterdam, Rotterdam and -- the Hague continue to remain at a very low level, only 3.7%. Let me say that again, only 3.7% vacancy in these key gateway office markets with prime assets, reflecting very much the 2-tiered office markets across Europe, where broader vacancy of B, C and D grade is getting closer to 9%, 10%. So really, that focus in the prime part of the market is where the tenant demand is. And according to Savills, Europe office take-up was 9% up on 2023. Office lease space take-up is now back to within 10% of pre-COVID levels. Savills also reported across their whole portfolio that they manage, which is obviously much larger than ours, is now only 10% lower. The physical occupancy is now only 10% lower than the pre-COVID levels. The Europeans are back in the office. We note also that office construction costs is now up 50% on 2019, including finance charges. So construction costs up materially, which has subdued new supply and leads to real rent growth if you've got the right assets. Average prime CBD office yields were stable in 2024 after the 3 years of increasing. So ending the year at roughly 5%, reflecting this improved outlook. And there's clearly bifurcation from buyers also looking for BEE certified high energy-efficient buildings. And that's where our portfolio is. CET's office portfolio is majority future-proof, benefiting from structural trends, in particular, the flight for quality. Turning to Page 31. Our successful Navassa 21 substantial refurbishment project in Milan is proof of concept that repositioning of a well-located office asset to the highest ESG credentials attracts significant demand from international corporate occupiers. The European office markets are significantly undersupplied for Grade A ESG offices with high EPC energy performance ratings or BREAM-certified assets in demand. CBRE estimates that only 20% of the total European office stock of around 300 million square meters is aligned to tenant demand versus our own office assets being 83% BREEAM rated very good gold or better. So 20% of office stock generally versus our 83% having this high BREEAM certification. And in fact, on this slide, Navassa 21 was awarded 91 points, making it the second highest rated energy-efficient office building in Italy. And we're pleased to show that this comes at a very high 6.6% yield on cost, including the value of the old building before we refurbished it. So again, demonstrating that it's profitable to do this. Looking ahead, we have EUR 200 million plus of short- to medium-term development pipeline opportunities in Ser's portfolio. To highlight 3 ongoing projects at Huger port in the Hague, our largest office building, we are in final documentation to agree the design for the Paris Proof upgrade Capex project with a new long lease with our anchor tenant with very pleasing returns. We'll keep you posted. Our intent is to keep this building largely occupied during the upgrade program, so no major gaps to DPU as a result of this project. In Nova Mesta 1 in Slovakia, one of our existing light industrial tenants requested an expansion of 5,500 square meters, which we're currently developing with delivery expected profitably in June this year. in Spennymoor in Durham in the U.K., a new 15-year lease over 47,000 square meters with the anchor tenant Thorne Lighting, includes the development of that 5,000 square meter adjacent warehouse, adding a rooftop solar panel with very high capacity. In addition to tenants demanding greener and more energy-efficient, less carbon emitting buildings, so do our financiers and our investors. This chart shows we are ahead of our targets set in our finance agreements. We have made good progress on preparing for ISB to be introduced to the accounting standards, IFRS, and we will be ready 1 year ahead of the SGX requirements becoming mandatory to adopt these new standards. This helps us with the monitoring of our action plans taken to date to meet our 2040 net zero operating carbon emissions target and was a very important component of our recent bond. So it makes good capital management sense to focus on green, not just about turning our buildings more profitably, but also getting lower and more access to capital. So a little bit on the macro. Turning to Slide 35. Eurozone grew by 0.7% from a GDP perspective. That was up on '23. There's obviously a lag from when ECB started cutting interest rates in July last year. And so again, we expect to see a slight increase in GDP this year and into next year as those interest rates take cut. Last year was impacted with the political and the fiscal uncertainties in Germany and France post Olympics, amongst others, leading to weaker investment activity during the year. However, going into the next couple of years, both consumption and fixed investment, in particular, will be key to the Eurozone's growth prospects with private consumption in the Eurozone forecast to be around 1.5% this year. So a better outlook and obviously, a bit more stability coming, as I mentioned before, with the prospects looking on a daily basis better in the Ukraine, which will also help refocus some rebuilding into Europe. Inflation coming down and ECB continuing to cut rates is the key point from this slide. Turning to what -- so what does that mean for European real estate transactions? Well, the data that just came out last week showed that we saw an 11% pickup in transaction volumes in Europe at around $56 billion for the quarter. The quarter was the busiest quarter in the last 2 years. Deal activity clearly focused on logistics and living sectors. And in fact, logistics sector investment grew by 11% last year to $40 billion, stabilizing at close to the pre-pandemic levels. So even in the transaction market, we're starting to see the cycle turn positively as early adopters, early investors start to really focus in on Europe. Even office still is the largest sought asset class, albeit not as much as it used to be, but it is still a very highly sought class. Turning to the next slide, looking at the positioning of the top 500 global investors in Asia, Europe and North America, we can see that focus has really pivoted towards these longer-term growth asset classes such as logistics, build-to-rent and data centers. Global investors are still very underweight European logistics. That's the blue column in this chart. versus their higher holdings in the U.S. and Asia. So again, we expect the cycle to be -- have some favorable tailwinds as global investors look to move into the European logistics, a sector that we already have a major exposure to. And we've already discussed the bullish forecast in logistics, both from Oxford and CBRE, who argue that the next 12 to 18 months will offer the best entry point this cycle on almost all European sectors, except for perhaps hotels, but industrial remains the most attractive sector, both absolute and relative terms. So in conclusion, with the actions we have taken over the past 2 to 3 years, the portfolio and balance sheet are in very good shape. We now have the longest WALE and debt duration since listing 8 years ago. So we have a house in order with a new deep pocketed sponsor and our truffle-hunting transaction team is now looking to take advantage of opportunities in the market, which lead to driving higher DPU and NAV over the medium term while helping to close the gap in our share price to the NAV, more in line with the more heavily focused logistics REITs. That's our focus. Let's get price, let's get valued like those other REITs are being priced and valued. Sustainability of our platform and portfolio is embedded in our processes, and it's pleasing that Stoneweg are aligned with us and well recognized by external agencies such as MSCI and S&P, both from an ESG and a credit perspective. So thank you for your attention today and your ongoing investment and support of the Stoneweg European REIT. Thank you. Kara, over to you.

[Operator Instructions] Thank you take a brief pause to see if any...

It's a very busy day up here in Singapore today, Kara. So maybe we can just again, unless you've got another question.

Apologies. We've had a couple of questions just come through. So our first question comes from TN who asks, moving forward, what is the DPU impact with the issuance of the 4.25% notes?

Thank you for the question. We obviously can't provide formal guidance, but I would suggest you take a look at the 6 stockbrokers that cover us with forecasts. So managing a portfolio is dynamic. Clearly, moving our old bond at 2.2% up to the new bond rate of 4.3% will have a negative impact this year. The question then is what else can you do to grow your income line to offset that impact on the interest expense line. So what we've tried to do in this presentation is show you that we've got good prospects of income growth. And we've also got some liquidity and taking advantage of some of the acquisitions out there. So a blend of both organic growth and inorganic growth. But rest assured, the management team are doing what we can to minimize the impact of that rise in the interest rate. We were comfortable to do the bond, notwithstanding the short-term impact because we now have that capital locked in for 6 years. Banks don't lend for that long. So to be able to get that 6 years, which now anchors our balance sheet, yes, we will take a little bit of a hit this year, but really, it derisks the balance sheet. And that's something that drives share price drives -- it's not just income growth or distribution growth, it's also the reduction on risk. So with our gearing in good shape, asset value starting to increase, income reasonably resilient, this presentation is just as much about growth and risk management, both very important to provide you those returns. And in the meantime, if you take last year's dividend of $0.141, including the $0.071 that we'll pay next month in a few weeks' time, -- at our current share price, that's a 9% yield. So even if the impact of interest expense was to eat into some of that DPU, it's still a very high yield relative to our peer group and that discount to NAV. Certainly, we would expect to close as more confidence comes in that the European economy is stable, the political situation is resolving itself, and we start to see the equity markets start to perform. And in fact, that's a really good indicator of the improving sentiment to Europe is by the great start to the year of the European stock markets like the German stock market or the French stock market. So it's a very insightful question. We're doing what we can to move our growth levers to reduce the impact of that longer-dated bond.

Our next question comes from WK who asks, what specific steps can you take to narrow the gap between the price and the NAV?

Yes. So part of my last answer helps -- hopefully helps set the scene for responding to this question. Last year, we were up 24%. So we were already off a very low base. We were trading as a foreign REIT with the other foreign REITs down at that sort of 40%, 50% discount. We've seen a substantial pickup in our indices on our register as they recognize both aspects of beta. So we're seeing a recovery in European markets. So as the largest REIT here in Asia exposed to Europe, that's also played a part in the recovery in our price. The second aspect is with Cromwell looking to have exited its position in our REIT over the past couple of years, that's had a bit of a ceiling on the share price, a little bit uncertainty who would be our new sponsor. And that's why we're really pleased to now have Stoneweg as a very deep enthusiastic European-based sponsor. So as the market becomes here in Singapore more confident and aware of Stoneweg's intention, Stoneweg's alignment and the benefits they bring to us, we think that familiarity will also help close the gap to NAV. And then we're moving more to logistics. We know that in -- globally, it doesn't matter if it's in the SGX or Tokyo or Australia, REITs with high proportion of their allocation to logistics or data centers trade at or above NAV. We know for whatever reasons you want to point to those that have a large office exposure trade correctly or incorrectly at a discount to NAV. So with our shift from being 30% logistics to now 55% and heading much higher, that in itself will lead to us being priced more as a logistics REIT than either as a diversified or previously as an office REIT. The alpha, if you like, the ability for us to generate additional returns is really through our significant AEI program. And that's why we had a slide to remind everyone what we did in Milan. We were able to convert an older building, deliver substantially higher rents and deliver a really good yield on cost. We now -- sometime this year, we'll get planning approval on both our Dutch assets in Amsterdam and in the Hague. -- and they will, in turn, deliver that type of return, but on a larger scale. Both of those projects amount to close to EUR 200 million. So those additional ADIs done within the REIT will generate returns within the REIT. And then the final aspect is on the inorganic side. And as, again, a large part of our presentation is to show that we're at the bottom of the cycle. Now is a good time to be buying assets in Europe. We're able to buy assets at high yields relative to where they have been in the last 3 years at a time when in the last 6 months, our interest costs have come down with the substantial cuts in the ECB. So we're on the hunt. Our truffle hunters, our acquisition team are out there looking for what we think will be value accretive for you as the investor me and Shane as investors to ensure that we can close the gap to NAV and deliver DPU growth over the medium term. We are aligned not just as fellow unitholders, but also if you look at the incentive plan that we disclose every year in our annual report, you will see that we're really focusing on the total return of the share price or the unit price, both price performance and dividend performance. So we're really focused on growing the dividend. So if we can grow the dividends after rebasing on now removing all of the legacy debt. So we're now at today's market debt for all of our debt. So now that, that pain is now behind us, we'll now be in a position in future years to start delivering the DPU growth, which has been absent for the last couple of years. And again, we don't -- we apologize for the decline in DPU, but we thought that the looking after the balance sheet was really important, showing to investors here in Singapore that we -- while we're not government-linked like some of the larger REITs, we are equally as focused at ensuring that we were being conservative in the way we were managing the REIT. And that's obviously now playing out in the performance of our unit price. So good question. Thank you. We'll keep trying. And we're open to ideas. Let us know if there's other ideas that you would like us to consider.

Thank you, Simon. We have 2 questions from [ Wei ]. The first question is, with the gearing at 40.2% and an ease of the asset sale program, how do you intend to finance the AEI for the 3 projects estimated at EUR 105 million?

Yes, we have $235 million of revolver and cash available. So we have the liquidity to do it. We do expect asset values to increase, which will reduce our gearing. And we expect to see high yield on costs above our portfolio yield on these projects, which will also improve the interest cover. So again, we've got a positive outlook from Fitch. They are very conservative when it comes to putting REITs on positive outlook. And that's, again, some of the things that they're also looking for. So we've got some good tailwinds and these projects that we're looking at will be very accretive for investors.

And the second question is, given the EU central banks has been cutting rates, -- any particular reason to keep the hedging at the current level? And how is the S3 -- sorry, benefiting from the rate cuts?