Geneva, May 31th 2023
AB Alternative SICAV-SIF European Real Estate Fund (“the fund”), an open-ended Luxembourg based fund that invests in commercial real estate in Western Europe, has just released its Q1 2023 results.
After a shy performance end of 2022, and a quasi-stable total return YoY, the real estate team is pleased to share that the fund outperformed its target during the first quarter of 2023 with a total return increase of 2.58% for the AEUR1 serie, equivalent to an annual increase of 10.74%. The net IRR since inception is up at 7.6% and the Gross Asset Value (“GAV”) of the fund is reaching €300m with a Net Asset Value (“NAV”) at €160m. The weighted average lease term (WALT) of the portfolio stands at an impressive 6.52 years, due to selective lease renewals, and careful asset management performed in Q1 2023.
The portfolio fair market value now stands at €250.2 million for the first quarter of 2023, with a noticeable increase on some of our assets, despite the current economic turmoil.
On the transaction side, we are targeting an acquisition of an asset in Switzerland to be completed in Q3 2023, which will be a development in the FoodTech sector with all most up-to-date ESG features, as Switzerland is at the cutting edge of research in agriculture and agronomy. Interest rates in Switzerland are far lower than in the European Union, and the portfolio management team is already in close contact with local banks to finance this project.
We are staying the course of our underlying investment strategy, supported by big economic megatrends: the transition to e-commerce and ESG transformation. Therefore, the portfolio management focus still lies on the highly sought-after logistics sector with a particular demand for last-mile logistic assets, for which there is a lack of available land and an all-time low vacancy rate in Europe. The overall vacancy rate in Europe indeed fell from 3.6% at the end of 2021 to 3.1% at the end of 2022, its lowest point ever (source: KnightFrank, March 2023). Competition for this limited stock has intensified among occupiers as the vacancy rate has declined in recent years. This gave property owners the opportunity to command higher rents for their properties, particularly for modern stock, which has been in critically short supply.
According to the MSCI Quarterly European Index, the European industrial net initial yield was 3.58% at the end of Q4 2021, expanding just 78bps to 4.39% at the end of Q4 2022. In comparison, our portfolio net initial yield for logistics stands at 5.71%, still leaving a substantial upside. Fundamentals of the logistics sector remain strong, and low vacancy rates will insulate the market from the impacts of any potential fall out in the occupier market, while the supply-side response remains stymied by build cost inflation, heightened financing costs, with high land entry prices and softer exit yields. These factors continue to put upward pressure on rents.
The intention of the real estate team remains to expand the portfolio through further investments in logistic assets linked to e-commerce, and in specific opportunities in dynamic cities, as well as continuing its hands-on management approach to yield positive results to its investors.
Daniel Deléchat, Head of Asset Management at Arab Bank (Switzerland) Ltd, the portfolio manager of the fund, comments on these excellent performance figures: “The current crisis has revealed a strong resilience of our portfolio and we intend to reinforce our presence in our key markets through additional acquisitions in 2023 and 2024. Having a good inflation hedge (via good indexation clauses), and active asset management will be crucial to drive returns over the next few years. That is exactly what we do every day since inception of the fund.”