Stoneweg Europe Stapled Trust divests Slovakia portfolio for 70 million euros

[SINGAPORE] Stoneweg Europe Stapled Trust (Sert) has divested its entire Slovakia investment in logistics and light industrial properties for 70 million euros (S$105.4 million), its manager said in a bourse filing on Tuesday (Nov 11).

The stapled group sold 100 per cent of its shares in five Slovakian property companies – and their underlying assets – through its wholly owned indirect subsidiary Stoneweg Europa 3. This comes as it lowers its Central Europe exposure to focus on Western Europe markets.

“The Slovakian divestment marks the near completion of our 400 million euro capital recycling programme, and reflects our continued discipline in optimising the portfolio,” said Simon Garing, chief executive of the manager.

“By exiting smaller and less liquid Central European assets, we are sharpening Sert’s focus on core Western European markets with deeper liquidity and stronger tenant demand.”

Garing added that proceeds from the divestment will “strengthen Sert’s balance sheet” and bring its gearing below 40 per cent, providing “flexibility to reinvest in higher-value add investments that drive future growth”.

Net proceeds will be used partly for immediate repayment of Sert’s revolving debt facility, which stood at 36.9 million euros as at Sep 30. The stapled group’s manager said the balance will be earmarked for a “modest acquisition pipeline”, working capital requirements and “any future security repurchase programme”.

The manager noted that the gross property price of 71.4 million euros represents a 1.3 per cent discount to the latest valuation of 72.4 million euros conducted on Jun 30 by Savills.

However, the 70 million euro consideration for the divestment translates to a premium of 3.5 per cent or 2.4 million euros to the five divested companies’ net equity of 67.7 million euros as at Jun 30.

The manager attributed this “slight premium” to the buyer “agreeing to pay for half of the deferred tax liabilities held by Sert’s entities, which (were) not captured in the property valuations”.

Rationale

The manager noted that the divestments align with Sert’s investment strategy announced in 2022, to “divest 400 million euros of assets over the next two to three years”.

It added that this was to maintain gearing within the board’s policy range of 35 to 40 per cent over the medium term; achieve a 70 per cent weighting to light industrial and logistics by 2027; reduce exposure to “non-core and non-strategic office and other assets and less liquid assets”; as well as to recycle capital into redevelopments and asset enhancement initiatives.

“The strategy is consistent with Sert’s primary purpose of providing superior risk-adjusted returns and driving long-term sustainable distribution per share (DPS), and net asset value and security growth,” the manager said.

It further noted that the divestments seek to reduce Sert’s Central Europe exposure, due to asset illiquidity in the region and greater geopolitical risks.

After the latest sale, Sert’s exposure to the region is expected to decrease by 290 basis points to 10.4 per cent, from 13.3 per cent previously.

Sert’s exit from Slovakia will reduce the number of countries in which it invests and “continue to drive scale in its core Western Europe markets”, the manager said.

The divestments will also improve the stapled group’s portfolio occupancy, which is set to rise to 93.6 per cent from 93.5 per cent after the divestment, due to the Slovakia portfolio’s slightly lower occupancy of 92.9 per cent.

Assuming the divestments were completed on Jan 1, 2024, and assuming a repayment of Sert’s debt from the entire proceeds at the cost of funding then, Sert’s distributable income would have fallen to 79.1 million euros from 79.3 million euros. Its DPS would have fallen to 0.1407 euro from 0.1411 euro.

Units of Sert fell 0.6 per cent or 0.01 euro to end Tuesday at 1.55 euros, before the news.