Stoneweg Europe Stapled Trust: Resilient income, data centre strategy gains traction

Table 2: Transactions in 1Q26

Capital management: no near-term refinancing risk

SERT extended a EUR 160 million interest rate hedge from 30 November 2026 to 30 November 2028 during 1Q26, increasing the proportion of interest exposure that is hedged or fixed to 87% through late 2027. The average all-in interest rate was 3.84% in 1Q26, up from 3.66% in 1Q25, reflecting the roll-off of earlier lower-rate hedges.

Figure 1: 87% of debt is hedged or fixed through late 2027

Pro-forma net gearing stood at 42.7%, 1 percentage point higher than 1Q25 but below both the Board's 45% policy ceiling and loan covenants. SERT also addressed that projected valuation gains and further planned asset sales are expected to reduce leverage to the upper end of the 35-40% range.

There is no debt maturity until 2030, other than the evergreen revolving credit facility maturing late 2028. With 80% of debt issued as six-to-seven year euro bonds in 2025, the weighted-average debt maturity exceeds five years. NAV per stapled security stood at EUR 1.99 on an adjusted-for-distribution basis, unchanged quarter-on-quarter.

Implications of the Middle East conflict

• Potential cap rate expansion

The transmission of oil-driven inflation into European real estate financing conditions is not immediate, but the direction of impact is clear. Elevated energy prices sustain inflationary pressures, prompting central banks to maintain restrictive policies for longer. This, in turn, keeps sovereign yields elevated and compresses the spread between risk-free rates and property yields.

For SERT, the most critical balance sheet sensitivity lies in potential cap rate expansion. 

Table 3: Sensitivity table of potential cap rate expansion and net property income against leverage

Based on our sensitivity analysis anchored to FY2025 data, a 50 basis point increase in cap rates would raise implied leverage from 42.4% to 45.5%. While this remains below the MAS regulatory ceiling of 50%, it reduces the available buffer. For context, cap rate expansion during the 2022–2023 rate hiking cycle amounted to approximately 40 basis points.

Beyond balance sheet considerations, the softer occupier environment introduces near-term earnings risk. With 12% of leases expiring in 2026, leasing outcomes carry greater uncertainty than at the time of our initiation. While SERT’s logistics portfolio continues to exhibit structural under-renting, with approximately 8% rental reversionary upside, the office segment (38% of portfolio value) is likely to face a more challenging renewal environment as higher interest rates weigh on occupier expansion.

Accordingly, we have modestly reduced our occupancy assumptions for 2026 (from 95.0% to 94.2%), while maintaining expectations of a gradual recovery through 2027 and 2028 as the portfolio mix shifts further toward industrial assets.

• Execution delayed, not derailed

We expect a delay in SERT’s ability to reach its target mix of 70% industrials from end-2027 to end-2028. This shift reflects a moderation in execution pace rather than a change in strategic direction. In a higher-rate environment, asset recycling naturally becomes more measured, as financing costs rise and price discovery takes longer.

Nevertheless, SERT’s track record provides confidence in its ability to execute. Since 2022, the trust has divested approximately EUR 411 million of non-core assets at an average premium of 11% to book value. This demonstrates disciplined capital recycling, which, while not guaranteed, provides a basis for our assumption that recycling can continue at or near book value. Moreover, NAV upside potential from its existing data centre exposure may also drive its shift towards its target.

Logistics and light industrial: structural tailwinds intact

The logistics and light industrial portfolio delivered a strong quarter, with 95.1% occupancy, a weighted average lease expiry (WALE) of 5.1 years, and positive rent reversion of +7.6%. Approximately 30,033 sqm of leases were signed or renewed in 1Q26, covering 2.6% of the portfolio.

Macro conditions remain mixed. The Eurozone composite PMI fell 2.1 points to 48.6 in April 2026, driven by a decline in services. However, the manufacturing PMI rose 0.6 points to 52.2, near a four-year high — a constructive read for logistics demand. Third-party forecasters remain constructive on the medium-term rental outlook:

• The industry projects 3.2% p.a. annualised rent growth for European industrial assets over the next four years, ahead of retail (3.0%) and office (2.3%)
• New warehouse supply is decelerating, with sustained demand from manufacturing onshoring and business-to-business (B2B) distribution providing a structural floor

Figure 2: Average net rental income growth of industrials looks to outpace most categories

Data centre strategy: dual-track execution with early returns

SERT is actively executing a dual-track data centre strategy targeting 15%–25% of the total portfolio by 2028, up from approximately 7.1% as of 31 March 2026 (EUR 120.5 million).

• Track 1: Portfolio conversion: Initial feasibility assessments are complete across 10+ sites in four European countries.

SERT is selectively repositioning part of its portfolio toward data centre conversion, in partnership with its sponsor, SWI Group. More than 10 assets across four European countries have been identified as viable candidates, targeting structurally resilient demand, improved income visibility, and stronger risk-adjusted returns. The strategy offers embedded optionality, as securing planning consent for even a subset of sites could unlock meaningful valuation upside without additional acquisition cost. Initial feasibility has been completed, with planning and power access approvals underway to support potential conversions within 2–4 years.

Notably, Parc Des Docks has received positive planning feedback and attracted hyperscaler (massive cloud computing providers) interest, supported by its carbon-negative design. In the interim, SERT continues to generate rental income while progressing key milestones, with valuation uplift likely to be recognised upon planning approvals.

• Track 2: AiOnX investment: SERT deployed an additional EUR 50 million into AiOnX in March 2026 via a mandatory convertible loan (MCL) bearing a 7.25% annual cash coupon with a seven-year tenor.

This is income-generative and accretive to pro-forma DPS by approximately 2%. The initial EUR 50 million equity stake has already been revalued 41% higher since the investment (as of 31 December 2025), before any data centre becomes operational.

Figure 3: Key information of the AiOnX data centre development fund

Source: Stoneweg Europe Stapled Trust. Data as of 31 March 2026.

AiOnX currently holds five development sites with 1,696 MW of secured power capacity (up 250 MW since June 2025), targeting 2,259 MW across Dublin, Madrid, Varde, Milan, and Cambridge. Management expects the first 16 MW phase in Dublin to remain on track to generate rental income from a major US hyperscaler in late 2026. At full build-out, the five sites could support a gross development value of approximately EUR 30 billion.

Office market: stable but non-core; recycling continues

The office portfolio maintained 86.8% occupancy in 1Q26, up 1.3 percentage points YoY. Rent reversion was marginally negative at -2.8%, driven by three small leases (1,095 sqm) at identified non-core assets in Poznan, Helsinki, and Paris. Office WALE is 5.1 years, providing near-term income stability.

Figure 4: Average net rental income growth of European offices

Structurally, SERT is managing its office portfolio toward divestment or repositioning. Proceeds are being recycled into logistics assets and data centre investments. The industry forecasts office net rental income growth averaging 2.3% p.a between 2026 to 2030, supported by moderating supply growth (declining from 1% to 0.6%–0.7% over five years) as construction costs rise.

At its current price of EUR 1.57, SERT trades at approximately 0.78 times forward book value, compared to a peer median of 0.96 times. This valuation discount does not fully reflect SERT’s balance sheet strength, earnings visibility, and structural growth drivers.

Table 5: Peer Comparison

Its average dividend yield of approximately 9.1% over FY2026–2028E remains significantly above the peer median of 6.7%. Based on our stress test, even under a 10% EUR depreciation against the SGD, which is in line with the decline during the 2022 EU energy crisis, our FY26 to FY28E FX-adjusted dividend yield for SERT would decline to 8.2% (in SGD terms). We still view this as attractive relative to the peer median of 6.7%.

Table 6: Stress-test incorporating FX risk

Based on our estimates, our target price of EUR 1.87 implies a potential price return of 19.3% through end-2028, alongside an average annual dividend yield of approximately 9.1%. We reiterate our Buy recommendation, with the view that SERT's fixed-rate debt profile and extended maturities provide a buffer against near-term rate volatility.

Figure 5: SERT’s share price vs DPU

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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