Stoneweg Europe Stapled Trust: Resilient income, data centre gains momentum

Company Update
Stoneweg Europe Stapled Trust (SGX: SET)
BUY: EUR 1.79 (+15.0%)

• Stoneweg Europe Stapled Trust (SERT) delivered resilient 1H26 results, with like-for-like Net Property Income (NPI) rising 1.3% year-on-year (YoY) and Distribution Per Share (DPS) growing 1.4% YoY to 6.642 Euro cents. Management reaffirmed a FY2026 DPS broadly in line with FY2025.
• Portfolio fundamentals remain sound: The logistics and light industrial portfolio continues to drive performance, achieving 95.2% occupancy and +9.6% rent reversion. 90% of interest exposure is hedged through late 2027, no significant debt matures before 2030, and NAV held steady at EUR 2.02 per security.
• SERT's dual-track data centre strategy is gaining tangible traction. An additional EUR 50 million was invested in AiOnX via a mandatory convertible loan bearing a 7.25% annual coupon, generating immediate income. The AiOnX investment has contributed about 5.6% to 1H26 DPS, 0.369 Euro cents.
• Middle East conflict to keep inflation threat alive: With rates expected to remain elevated, SERT could face potential cap rate expansion. Based on our stress-test, a 50bps cap rate increase could raise leverage to 46.8%, narrowing headroom, while a softer leasing environment and 2026 expiries pose near-term earnings risk; partially mitigated by logistics/light industrials rental reversion.
• We maintain our BUY rating but with a lower target price of EUR 1.79. At the current price of EUR 1.56, SERT trades at 0.77x P/NAV (a meaningful discount to peers) and offers a projected distribution yield averaging 8.8% over FY2026–2028E.

Earnings: resilient income growth despite headline revenue drag

SERT reported 1H26 gross revenue of EUR 105.1 million and net property income of EUR 65.4 million, both down 2.2% and 2.3% YoY respectively. The decline was attributable to impact of asset divestments undertaken as part of the portfolio optimisation strategy. On an underlying basis, like-for-like (which excludes the impact of the divestments and acquisition completed in FY25 and 1H26) NPI grew 1.3% YoY.

Segment NPI drivers on a like-for-like basis:

• Logistics / light industrial: +2.7% YoY, reflecting healthy rent reversion and healthy occupancy
• Others: +10.2% YoY, supported by recovery of previously outstanding rent arrears
• Office: -0.9% YoY, an immaterial and anticipated drag from selective non-renewals at non-core assets

NPI margin held largely stable at 62.2% (1H25: 62.3%). Distributable income of EUR 36.9 million was broadly flat (+0.3% YoY), and indicative DPS rose 1.4% YoY to 6.642 Euro cents. The DPS uplift exceeded distributable income growth, reflecting the accretive impact of ongoing securities buybacks that have reduced units in issue.

Table 1: Key financial highlights

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 43.6% to 46.8%. 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 14% of leases expiring in 2026, leasing outcomes carry greater uncertainty than at the time of our initiation. While SERT’s light industrial, logistics and data centre portfolio continues to exhibit structural under-renting, with approximately 8% rental reversionary upside, the office segment (35% of portfolio value) is likely to face a more challenging renewal environment as higher interest rates weigh on occupier expansion.

Looking ahead, management targets a further shift in the portfolio mix towards logistics, light industrial and data centres, with these sectors expected to account for at least 80% of the portfolio by 2028, up from the previous target of 70% by 2027.

• Execution delayed, not derailed

Taking into consideration the Middle East conflict, we believe execution will take an additional year beyond management's guidance, pushing the target to end-2029. 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 95.2% occupancy, a weighted average lease expiry (WALE) of 4.9 years, and positive rent reversion of +9.6%. Approximately 96,000 sqm of leases were signed or renewed in 1H26, covering 8.2% of the portfolio.

European logistics property demand remained relatively resilient in 2Q26, with a clear trend toward consolidation as occupiers rationalised fragmented networks into larger, single-user facilities, reinforcing demand for modern, well-located warehouse space. This is reflected in continued rental growth: prime logistics rents rose 0.6% QoQ, bringing YoY growth in 2Q26 to 2.4%, even as Eurozone GDP growth remained below 1% and elevated energy prices continue to sustain inflationary pressures. Third-party forecasters remain constructive on the medium-term rental outlook:

• Green Street 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 7.2% as of 30 June 2026 (EUR 122.2 million).

• Track 1: Portfolio conversion.

SERT continues to selectively reposition part of its portfolio toward data centre conversion, in partnership with its sponsor, SWI Group. The strategy offers embedded optionality, as securing planning consent for even a subset of sites could unlock meaningful valuation upside without additional acquisition cost. SERT is progressing approximately EUR 205 million of value-add and redevelopment opportunities that are expected to receive permitting within the next 6-12 months, at a targeted 6.3%-6.6% yield-on-cost/IRR hurdle. Notably, SWI Group's recently agreed acquisition of a majority stake in Polarise, an Nvidia preferred partner and cloud provider, strengthens the Sponsor's digital infrastructure ecosystem and is expected to accelerate execution across the AiOnX pipeline.

• Track 2: AiOnX investment.

SERT deployed an additional EUR 50 million into AiOnX in March 2026 via the mandatory convertible loan (MCL), bearing a fixed 7.25% annual cash coupon with a seven-year tenor and mandatory conversion into equity at a material discount to NAV. This is fully income-generative from day one and accretive to indicative DPS. The AiOnX investment contributed about 5.6% to 1H26 DPS, 0.369 Euro cents. Additionally, the initial EUR 50 million equity stake (a 6.65% ownership interest in the fund) has already been revalued approximately 41% higher (as of 31 December 2025), before any data centre becomes operational, reflecting development milestones achieved post-investment.

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

Source: Stoneweg Europe Stapled Trust. Data as of 30 June 2026.

AiOnX is a fixed 10-year life private development fund controlled by SWI Group, holding five early-stage data centre development sites across Dublin, Madrid, Varde, Milan and Cambridge with approximately 1.7GW of secured power capacity, scaling to a targeted 2.2GW.

Management expects the first 16MW phase in Dublin to commence generating 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 against total future development capex of over EUR 20 billion. The fund's fixed-life structure is designed to crystallise development gains on exit rather than carry indefinite embedded gains, targeting a 12%-15% yield on cost. 

SERT's combined EUR 100 million investment spans the risk-return spectrum: the equity stake targets a projected pre-tax, pre-fees IRR above 25% through fund maturity, while the MCL targets 12-17% via its fixed coupon plus capped capital gain. AiOnX is revalued biannually and recorded within the Business Trust, with governance protections designed to align SERT's interests with the Sponsor's.

Office market: stable but non-core; recycling continues

The office portfolio improved to 90.3% occupancy in 2Q26 (1Q26: 89.7%), aided by new leasing in Poland and the reclassification of Paryseine (France) out of the office segment into logistics/light industrial as it became the property's predominant economic use. Rent reversion, however, weakened further to -4.1%, driven by occupancy-focused leasing strategy at non-strategic Finnish assets earmarked for sale.

Figure 4: Average net rental income growth of European offices

Structurally, SERT is managing its office portfolio toward divestment or repositioning. Office exposure has been reduced to 35.1% of portfolio value (1Q26: 38%), with a target of 15-25% by 2028; the Warsaw office divestment (completed 29 April) and two further office/logistics assets now held for sale continue this capital recycling programme. 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.

We forecast FY2026E DPU of 13.08 Euro cents, a modest 2.2% decline versus FY2025A, before DPU growth resumes in FY2027E (+0.4%) and FY2028E (+9.6%) as the portfolio mix shift achieve its initial target of 70% logistics / light industrial and data centres, higher cost of equity and stable overall occupancy rates as rates remain higher for longer. This diverges slightly from management's "broadly in line" guidance.

Our more cautious full-year view reflects the Middle East conflict’s potential impact on the interest rate and cap rate environment discussed under Outlook.

Negatives:

• Sustained energy-driven inflation could keep the ECB restrictive for longer, raising SERT’s all-in interest costs as hedge coverage steps down from 90% to 76% by October 2027.
• Under our cap rate expansion stress test, this could also narrow leverage headroom, with leverage rising from 43.6% to 46.8%, potentially slowing the pace of accretive recycling through 2H26-2027.
• A higher rate environment would also raise SERT’s financing costs as hedges roll off.

However, we think SERT’s core portfolio exhibits pockets of resilience, extended debt maturities providing some cushion against the higher for longer rates environment and NAV growth potential from its AiOnX investment.

Positives:

• Capital from 2025 divestments fully recycled into higher-yielding assets by end-March 2026, including the EUR 35 million Waddinxveen logistics acquisition at a 6.0% NOI yield and the EUR 50 million AiOnX mandatory convertible loan at a 7.25% coupon
• Inflation-linked indexation across 930 leases with no single tenant contributing more than 4% of income provides substantial diversification
• Portfolio’s reversionary yield of 7.6% is above the initial yield of 6.2%. Reversionary yield is the projected yield once all leases revert to the Estimated Rental Value (ERV) (current market rent). It is calculated as ERV divided by the property value, so it provides the yield SERT would achieve at full market rent. In short, the spread between initial and reversionary yield reflects the potential for rental reversion - a visible medium-term NPI uplift driver as leases roll.

Overall, we view the negative factors as a modest and delayed drag rather than a reversal of SERT’s underlying growth trajectory.

At its current price of EUR 1.56, SERT trades at approximately 0.77 times forward book value, compared to a peer median of 0.95 times. We believe this valuation discount does not fully reflect SERT’s balance sheet strength, earnings visibility, and structural growth drivers.

Table 4: Peer Comparison

Its average dividend yield of approximately 8.8% over FY2026–2028E remains significantly above the peer median of 7.0%. Based on our stress test, even under a 7.5% 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 8.1% (in SGD terms). We still view this as attractive relative to the peer median of 7.0%.

Table 5: Stress-test incorporating FX risk

Based on our estimates, our target price of EUR 1.79 implies a potential price return of 15.0% through end-2028, alongside an average annual dividend yield of approximately 8.8%. We reiterate our Buy recommendation.

SERT's fixed-rate debt profile and extended maturities (over the next two years) provide a buffer against near-term interest cost volatility, supporting DPS visibility even as base rates stay elevated.

This does not, however, insulate SERT from cap rate expansion risk on the asset side; as discussed above, a 50 basis point cap rate increase would narrow SERT's leverage headroom from 43.6% to 46.8%, still within the MAS ceiling of 50% but with less room to absorb further shocks. We view the current valuation discount as adequately compensating for this risk.

Figure 5: SERT’s share price vs DPU

iFAST Research rating system

iFAST Research employs a five-tier rating system: Buy (material upside potential, favourable risk-return); Accumulate (moderate upside, selectively add on weakness); Hold (limited upside, maintain existing positions); Trim (upside insufficient to justify a full position, reduce exposure on strength); and Sell (material downside risk, exit position).

Disclaimer

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.

This research report is produced under the Grant for Equity Market Singapore (“GEMS”) Scheme. iFAST Financial Pte Ltd receives financial compensation for the preparation and publication of this report. For more information regarding the GEMS scheme and its objectives, please refer to this infographic. iFAST Financial Pte Ltd maintains editorial independence regarding the analysis and conclusions presented herein.