AS Euro Logistics celebrates full investment with fee cut – With the exchange of contracts on the assets in Zeewolde and Waddinxveen in the Netherlands, Aberdeen Standard European Logistics Income has committed the whole of the funds it raised in December 2017. The most recent addition to the portfolio (a warehouse in Meung-Sur-Loire in France) was announced on 23 November 2018 and the company is in the final stages of due diligence to acquire an asset in Poland. The addition of the Polish asset would see the portfolio increase to ten freehold assets, five of which are brand new high-quality warehouses, located across five countries with a total purchase value of over EUR265 million, an average net initial yield of 5.1% and a weighted average unexpired lease term (WAULT) in excess of ten years. As previously highlighted, the pipeline of investment opportunities remains strong.
With the manager at an advanced stage of due diligence on a number of potential acquisitions, the company is close to concluding the process of putting in place debt facilities, secured on certain properties within the portfolio, to provide financing for an additional asset and to fund stage payments that are required for forward funded projects expected to complete in mid-2019 in Spain and the Netherlands. The board and the manager are convinced of the high quality of the assets purchased to date, say Europe maintains a clear advantage over UK logistics assets in terms of yields and financing costs, and believe strong underlying fundamentals will drive further growth in logistics demand, ultimately supporting rental and capital growth.
Strong demand compresses yields
The board is conscious of the very strong market demand for logistics assets across much of developed Europe. This has resulted in a material degree of yield compression. At the same time, ongoing demand for assets like those in the portfolio is expected to result in a marked uplift in their capital value over time, adding to the total return. Discussions during the manager’s recent series of investor updates with leading shareholders, focused on the company’s total return characteristics and distribution targets, and, in particular, whether the current level of gearing and/or target return should be reviewed given the market conditions referred to above. Following shareholder feedback, the board has determined that it would be in the best interests of shareholders as a whole to maintain gearing at or around 35 per cent. of gross assets, rather than implementing a higher gearing strategy at this stage of the market cycle in an effort to counteract the effects of falling yields. The board will keep the level of borrowings under review and the aggregate borrowings will always be subject to the absolute maximum set at the time of the Company’s launch (50% of gross Assets).
Change in dividend target
As a corollary, the board has concluded that the current distribution target should be amended. This will ensure that the company can achieve a sustainable and fully covered dividend over the long term and maintain sufficient cash reserves, without compromising on quality. The company will therefore seek to target for an investor at launch an annual yield of 5.0% and a total shareholder return of 7.5% per annum (each in Euro terms). The board still expects to pay at least 3p per share in respect of the period from initial admission to 31 December 2018.
Future growth
The Board and the Manager remain confident that the market for European logistics assets will continue to offer many attractive investment opportunities in the future, and the intention remains to seek to grow the company through further equity issuance in the coming months.
Management fee cut
The board and the manager have agreed that the annual management fee applied to the first EUR500 million of assets will be reduced from 0.95% to 0.75% of NAV.
ASLI : AS Euro Logistics celebrates full investment with fee cut