Alternatively, you can submit text questions via the Q&A feature. Now, I will hand across to the CEO of the Manager of the Cromwell European REIT, Simon Garing. Simon, over to you.
Thanks, Kiara, and good afternoon to everyone, and thank you for joining us today, particularly as everyone's very busy in the first day of back from leave yesterday. So as at the end of March, Cromwell European REIT consisted of 109 predominantly freehold properties across 10 countries, valued at EUR 2.2 billion. Our portfolio is now more than 53% weighted to logistics and light industrial, 45% to office, and 2% to others, totaling around 1.8 million sq m , providing diversification and income resiliency, with scale and value-add opportunities throughout the portfolio, which is managed by a team of 200 Cromwell locals across all of our locations.
We are pleased to start the year with a resilient operating performance, reflecting a stabilizing European market, albeit we still feel the impact of rising borrowing costs and our defensive actions in trimming the sales of the portfolio in these choppy seas to keep net gearing below 40%, which has had a slight drag on the indicative DPU to EUR 0.03505 for the quarter. However, however, even at this lower annualized DPU, the yield at today's unit price is still over 9.5%. A couple of highlights for the quarter on this page include that our net property income was high at +5% on a like-for-like basis. The occupancy did drop 1% over the quarter, with the inclusion, however, of three new projects which are yet to be fully leased following their completion.
Post the March statistics, the leasing of these three buildings continues and will add a further 1.3%, once they're fully leased, which we expect in the coming months, and take us back towards the 95%, and clearly starting to contribute more NOI growth from their lease-up. Reversion was a pleasing +9.2%, and this was spread both in logistics and office. While our NAV remains above EUR 2 a unit at EUR 2.08, and again, at today's unit price, we're trading at about a 35%-40% discount to that very solid EUR 2.08.
One of CEREIT's key strengths is its size and scale, with over 1,000 leases across 1.8 million sq m, with no concentration risk in any one country, building, industry sector, or tenant. In fact, most of our top ten tenants are either global MNCs or government agencies with high credit ratings. Our top ten tenants now account for less than 23% of the total headline rent, with no one tenant exceeding 5%. This is particularly notable because just four years ago, our top ten tenants accounted for around 40% of the total headline rent. This is a statistic in particular that our credit investors enjoy.
Following on the next slide, the left-hand chart shows the evolution of our portfolio since IPO as we execute our capital recycling program over the last couple of years, with CEREIT ending April a couple of days ago with 107 assets in a total portfolio, as I said before, of EUR 2.2 billion. The right-hand chart shows how our sales program has been instrumental in managing our net gearing over time, and even in the higher growth phase of the REIT, again, we maintained our REIT below that 40% or within our board policy range of 35%-40%. Our sales program puts us in a competitive position to other asset owners, and along with our five-year revolver facility of EUR 200 million, we have no difficulty in funding our tenant incentives or CapEx programs.
Two years ago, we initiated a EUR 400 million asset sales program as a proactive measure to offset the impact of rising interest rates on valuation and gearing levels. We are ahead of our sales schedule, having embarked on this divestment program early. More recently, in the first quarter of this year, we sold Grójecka 5 in Warsaw for just under EUR 16 million, or just over 7% above the most recent valuation. And in the last couple of days, we've divested two more assets, one in Italy and one in Finland, for a total price of just over EUR 7 million at a blended 2% premium to the latest valuations. So in total, we've sold around EUR 260 million euros over the last two years at a blended 14% premium to the most recent valuations.
We expect another EUR 150 million or so to be sold by the end of next year, with approximately EUR 60 million currently in exclusivity and due diligence with various buyers. We intend to use divestment proceeds for the partial repayment of our debt facilities and for funding redevelopments and our asset enhancement initiatives. To put our divestment program in context, this slide shows the reduction in investment activity in 2023, and indeed, in the first quarter of this year, the stats have recently been released. This slowdown has been obviously in response to the rise in interest rates and the widening bid-ask spread in Europe and the geopolitical uncertainty more broadly.
The first quarter activity shows stabilization, with Savills forecasting on the right-hand side, a pickup in the second half of transaction volumes as the ECB rate cuts begin to positively impact the investment activity. So now I'll hand over to Shane to run through the financial performance. Thank you, Shane?
Thanks, Simon, and good afternoon. So first quarter 2024 net property income was 2.7% below the first quarter last year. This was mostly due to divestments, in particular, two large assets that were sold in Italy, Bari Europa in November and Piazza Affari in June. On a like-for-like basis, excluding divestments and developments, NPI was actually 5% higher. It was pleasing to note also that the first quarter NPI margin was slightly higher than the full year last year, notwithstanding that OpEx reconciliations were done taking place in some countries. Finance costs were 20% higher than last year, as the average all-in interest rate increased from about 2.4% to just over 3%. It was pleasing to note that other costs and income tax were both lower than the same period last year.
All in all, due to asset sales and the higher interest costs, the indicative DPU for the first quarter was 10% below last year. Now looking at the waterfall chart, so this really helps to show the key drivers to the first quarter result. The two large asset sales and the higher finance costs are the key items that are driving the lower DPU. There was a one-off item, being EUR 1.2 million of dilapidation income from the property called Padova in Italy. The portfolio income on a like-for-like basis grew more modestly in the first quarter of this year, as revenue growth from indexation and new leases, particularly in Haagse Poort in Netherlands, were partially offset by slightly higher vacancy, as Simon mentioned.
The first quarter indicative DPU result annualizes to a yield of 9.6% based on the closing price last Friday. We highlight the consistencies in our DPU during COVID and during this current interest rate-induced recession-like period. We have also not paid our management fees in units since 2019, while we also have realized capital gains of around EUR 31 million that we can potentially draw upon. Moving on to capital management, and capital management initiatives or activities were a little quieter in the first quarter of this year, after an extremely busy FY 2023. After all of the refinancing last year, we now have a clear runway through to the bond expiry that happens in November 2025.
Management of the bond expiry remains the key capital management focus for this year, and further buybacks could be considered subject to asset sales. In the first quarter, a small drawdown from the RCF to fund ongoing capital expenditure and operations occurred. A sensitivity, if the all-in interest rate were to increase from 3.28% currently to 4%, the interest expense net of hedging income would increase by around about EUR 6.9 million. And the focus remains on asset sales to bring the aggregate leverage down between 35%-40%. However, the net gearing, which takes into account the cash in the balance sheet, is at 39.7%. Given the drawdown in the first quarter, the all-in interest rate increased a little bit to 3.28%.
At the end of the quarter, we had over EUR 200 million of liquidity, which supports CEREIT's investment-grade credit rating of BBB- with a stable outlook. And now I'll pass back to Simon to continue with the portfolio and asset management.
Thanks, Shane. So portfolio occupancy remained high at 93.4% after re-leasing over 70,000 sq m or 4% of the portfolio in the quarter. The 9.2% positive rent reversion was well above the Eurozone inflation of 2.4%, continuing to reflect the low vacancies and good market rent growth in the areas that we operate, plus some of our asset enhancement initiatives. Tenant retention was at 74%, which is slightly above our long-term average of 66%. We note from our market research that lower amounts of projected supply is starting to impact with reduced competition, which assists with our tenant retention. The lease expiry schedule shown here shows that we only have a moderate number of leases expiring over the next two years, averaging around 10% of the portfolio each year.
In addition to the new leases closed this quarter, we have de-risked almost 70% of the next six months of lease breaks and expiries, as at the end of March. A large part of the upcoming light industrial vacancy risk is the expiry in our largest estate, CLOM, in Italy, with various long-standing tenants having leases with a six-month rolling break option. We're pleased that we're well progressed to replace such rolling break options with new longer-term lease agreements, with, in particular, a large fashion tenant, Tod's, who would then also benefit from a new solar panel solution on the roof of their warehouse.
Advanced discussions are also underway for our key 2025 office lease expiries or breaks across our well-located Grade A Dutch office assets, and generally reaching higher rents to fund accompanying AEIs and energy-saving measures. In our logistics and light industrial portfolio, drilling down, we continue to see good rent reversion of 5% in the quarter. And you can see, apart from the depths of COVID, we've managed to average around this 5% mark. Tenant retention was slightly lower than our past averages, which is due primarily to two lost leases in Copenhagen and the Czech Republic. Two lease renewals, however, for larger units, particularly in Copenhagen, did have rent reversions of between 5% and 12%.
While new leases in smaller units than 1,000 sq m attract even double-digit rent reversions in Copenhagen, Paris, and Amsterdam. The sector WALE remains unchanged at 5.1 years. If we break down the light industrial logistics occupancies by country, in a slightly more complex chart, you can see the two gray lines, which represents both Czech Republic and Slovakia, where we've now, in this quarter, included two new developments which have completed there, and these vacancies of 15,000 sq m are now included in the March statistics. However, we are progressing well on leasing these vacancies post the March statistics, and we expect to contribute close to 1% increase over the coming months as we lease up post the completion of those projects.
The Dutch occupancy rate has dropped by 2%, mainly due to two lease expiries at the Schiphol Airport, with a new tenant already securing one unit post-March. Really pleasingly, the incentives remain very low. We're well progressed in re-leasing our Priorparken 800 warehouses in Copenhagen. While the remaining vacant space at Sognevej 25 proves more difficult to lease up due to the higher share of office space in this particular estate. On a more broader topic, the logistics sector is sensitive to economic activity, so the cyclical weakness that occurred in Europe last year has caused relative decline in the amount of leases that were secured across Europe in 2023, and certainly down from the 2021 peak. Although CBRE forecasts that vacancy is near its peak and poised to decline below 2023 levels from this year.
Numerous issues are also restricting speculative development in Europe, therefore limiting the new stock and supporting relatively low vacancy rates, which you can see here with CBRE's forecast of vacancy rates coming down over the next few years. And this continues to support our investment case to pivot more towards logistics and light industrial within CEREIT's portfolio. And finally, in industrial, the key lease in the quarter was a 20-year lease renewal to our data center operator in Copenhagen, with almost a 6% increase on already high rents, with no incentive package. Turning now to our office portfolio. Leasing activity in the sector in the first quarter totaled 45,000 sq m . New leases and renewals in the first quarter were signed at a + 10.3% higher rent than the previous passing rent.
Now, this was driven primarily by demand for our Grade A offices, including the three new leases in Nervesa , which is our recently completed platinum building in Milan. Tenant retention rate was very high at 89%, as we de-risked some of the leases with 2025 expiries, not just 2024. What this meant was it's extended our weighted average lease to expiry now to 4.5 years, and many of you will recall that only two years ago, our WALE in our office portfolio was a lower 3.6 years. So we've managed to extend many of our leases.
Turning over to the next page, the overall occupancy cost levels by country has decreased moderately to a tad under 90%, and this is mainly due to the completion of Nervesa in Milan, which is now coming into our occupancy statistics with a 30% vacancy, given it's only just been completed. Similar to our two logistics warehouses, we expect signing of leases for the remaining space of this project this quarter at rents well above our original projections. Occupancy in Poland pleasingly has stabilized around 90% due to the sale of the vacant office asset in Warsaw.
While we're in discussions for renewals with our larger tenants, particularly in Poznań and Kraków, with 2025 and 2026 expiries, occupancy unfortunately fell slightly in Finland, explained by peripheral locations and the older building age of these assets, attracting less tenant interest. We continue to look to sell down our Finnish exposure, and again, on Monday, we announced the sale of our second Helsinki asset. More broadly across the press and analyst coverage, we've seen a lot of discussions around the poor state of the U.S. and China office markets. For comparison, the left-hand chart here shows the recent take-up of office space in Europe. So while last year's leasing was lower than in the prior two years post-COVID, it is still a substantial 12 million sq m of new leases, or around 4% of the total office stock.
Looking at the three bar charts for this year out to 2026 that have been hashed, these illustrates CBRE's forecast that leasing activity is expected to pick up in the next few years, in part in line with the recovery in economic growth. The right-hand chart shows CBRE's forecast of pan-European office peaking vacancy this year at the current 9%. Let me say that again, European total office vacancy peaking at 9%, in stark contrast to the other two large advanced economies. And we continue to see the bifurcation between the premium modern upgraded office stock, with Grade A vacancy across all of CEREIT's core cities remaining around 3%. That's lower than here in Singapore. So we can take advantage of this, in part by renewing our existing tenants to our upgraded buildings.
We're delighted to have renewed our largest tenant in the portfolio for a further five years in The Hague, shown here on the left-hand side of this chart. We are well progressed in our plans to undertake a major repositioning project to lift Haagse Poort to a Paris Proof energy rating and other attractive amenities. We are working with our key tenants at this building in a unique partnership approach as we share a common vision to improve the energy efficiencies, reduce the carbon emission, and improve staff amenities and the local environment. We expect to see a substantial uptick in rents and valuation as a result. In the meantime, we don't expect to have to vacate this building to be able to do some of our very complex additions. So again, that will result in NOI not falling.
Turning over to our recent projects. I've mentioned most of these already, having completed the EUR 60 million on time and on budget. Really pleased that Universal Music Group, as the anchor tenant in our Milan building, has now moved in. Efficient floor plates, rooftop terraces, plenty of parking and public transport access options, and a LEED Platinum certificate have been the main ingredients to achieve headline rents well above our business plan. This speaks for Cromwell's in-house development team capabilities, supported by our in-house local project managers, who have worked closely with all of our on-the-ground experts. And with this confidence, the board will continue to roll out a number of these projects. So looking ahead, we now have over EUR 200 million of development pipeline opportunities.
As mentioned earlier, we are well progressed in our plans for Haagse Poort , targeting planning consents in the next 12-18 months, with a key pre-lease to an anchor tenant expected this year. This project will include a very advanced thermal heating system, removing us off fossil fuel heating and cooling systems, and delivering a Paris Proof energy rating to be one of the most efficient office buildings in the Netherlands. We are also in discussions with two large pre-lease tenants at Maxima in Rome, which is now fully stripped out and ready to redevelop into a LEED Platinum building, only the third in Rome, and meeting the high demand from international corporate occupiers, given Grade A vacancy in Rome is 1%. I'll repeat that again, Grade A vacancy in Rome, 1%.
The main two projects in De Ruyterkade in Amsterdam and Parc des Docks in Paris are unfortunately more complex and require longer consultation periods, with multi-layers of approving stakeholders and political agendas. We expect the Amsterdam project approvals to be ready in the next couple of years, ready for construction, while the timeline for the larger scale Parc des Docks project remains further out. Now, in the meantime, we enjoyed very high levels of income returns from both assets, effectively both are current cash cows. So now moving on to the macro situation in Europe. As you can see on this chart, inflation has fallen markedly through back end of last year and into this year. Oxford Economics is now forecasting average Eurozone inflation to settle down around 2% in the next three years, in line with the ECB targets in the medium term.
Now, while we've seen in the last couple of days some commentary out of the U.S. Fed, on the monetary side in Europe, the fixed interest market is expecting lower interest rates, which should generally be supportive for the real estate sector. Although the exact timing and amount of interest rate cuts has become slightly more uncertain, German ten-year Bunds are still 200 basis points lower than the current Euribor, again, with market expecting rate cuts to happen from this summer. Now, the last couple of days, the Eurozone growth seems to have also troughed, as we've seen, with the 0.3% GDP print for this quarter having just been released yesterday.
That's really captured in this chart on the next page, which shows the flash PMI results for April, showing broad-based signs of recovery through Europe. In other words, the economic growth, as we come out of the cyclical slowdown, is more broad-based and is not just on the back of the consumer. And again, we saw the April GDP, the April inflation print low at 2.4%. So, in conclusion, we will continue to focus on unlocking value in our portfolio and providing confidence to investors to help close the wide price gap that CEREIT currently trades to NAV, and bridge to the high 10% annualized DPU growth, DPU yield, I should say.
So in spite of the recent rally of the share price, we still remain heavily discounted with a high dividend yield of 300 basis points above the Singapore REIT average. So managing for the tail end of the higher interest rate environment remains a key task. So the three key priorities for us remain: firstly, our local Cromwell teams on the ground continue their excellent asset management initiatives. We are working diligently to keep the portfolio occupancy high while fully capturing the rental reversion opportunities and inflation indexation in almost all of our leases. We are progressing with various green initiatives to enhance the sustainability quality of our assets, and we continue to plan further upgrades and redevelopments to further future-proof the portfolio and to grow NAV and DPU. Our second priority is to maintain disciplined capital management to avoid unnecessary and dilutionary equity raisings.
While we believe that most of the interest rate increases are behind us, we do remain vigilant to the headwinds and continue to identify opportunities to offset related financial and valuation risks brought about by the tighter credit conditions and the softer environment. We are conducting a number of work streams towards the refinance or reissuance of the November 2025 bond, which Shane mentioned. Third priority, we're gonna continue to progress the asset recycling program and keep net gearing below 40% over the medium term. Executing further on our remaining EUR 150 million of divestments remains a priority, and as you can see in the earlier slide, we're currently under negotiations and exclusivity on a further EUR 60 million of that EUR 150 million.
So this will free up capital to fund our CapEx and our refinancing, buyback programs without tilting us to having to raise dilutionary equity. We'll continue to grow our logistics weighting and our Grade A office in the Netherlands. Overall, we're cautiously optimistic that the European cycle has stabilized and that CEREIT is well placed to capture the opportunities ahead as the cycle turns. So thank you for your investment and support, and we'll now turn back to Kiara to moderate Q&A. Thank you.
Thank you, Simon. We'll now begin the Q&A session. As a reminder to the audience, if you'd like to ask a question, please select the Raise Hand button to be placed in the virtual queue. For those who have dialed in, please select star nine to raise your hand and star six to mute or unmute. Alternatively, you can submit text questions via the Q&A feature. Both of these options can be found at the bottom of your Zoom screen. We'll start with some questions that have been submitted by David. This first question also helps to answer a couple of others further along. Do you expect all-in interest rates to increase from 3.28% to 4%?
So the answer to that question really comes down to the timing of our bond refinance. So in the Q&A from the AGM on Tuesday, we provided a sensitivity based on a scenario of just looking at the impact if interest rates were to come through at 4%. So we're not necessarily gonna provide guidance other than explaining that our bond, which expires at the end of next year, we are enjoying the benefits of that having been put in place at a coupon yield of 2.12%.
So the longer we leave the refinance of that bond with the expectation of interest rates to decline, and with the expectations of our future proofing of our portfolio to improve the Fitch credit rating, should actually see our overall cost of new refinancing coming down.
Another question from David: Assuming Cromwell manages to divest another EUR 400 million and interest rates increase to 4%, what will be the net impact on the DPU?
Okay, so look, to be clear, the EUR 400 million of sales we commenced in the middle of 2022. So we're currently about EUR 100 million, about EUR 260 million through that sales program, of which we have about EUR 150 million still to go. Now, part of the, proceeds are being used to, buy back, and reduce our debt, buy back our bond, reduce some debt, and keep that gearing below 40%, and also to free up capital to reinvest back into our portfolio to add, more, more growth and valuation prospects, particularly in upgrading some of our well-positioned but slightly older office buildings. And as a reminder, you know, 77% of our office buildings are BREEAM certified versus the whole of Europe office at only 20%.
Yet 50% of office leases now are targeting energy-efficient buildings, and it's prepared to pay the higher rent. So the asset sale program, yes, we're trimming the portfolio, but in part, that's to fund future developments. While we're trading at such a large discount to NAV and high dividend yield, it's more beneficial for investors that we sell assets rather than raise capital, and that's certainly been our plan for the last couple of years.
Next up, we have a question from Graham, who says: Thank you for the presentation. Given the discount to NAV, are buybacks not the best investment you can make today?
Yeah, it's a good question. So our share price at these lower levels is in part because of this risk around debt and, you know, the market's aversion to investing in rates that they perceive to be higher risk from a gearing perspective. So we believe, as we've seen in the last six months, our unit price is performing well on the back of us maintaining that discipline below 40%. So what we've said previously is, if we were to manage to sell more assets than we bargained for, and we have excess capital, then we would look to buy back units. But at this point, we think best for our equity that we actually reduce some of that bond refinancing risk and see that risk premium that we're currently trading on.
The second aspect to that is, we do have EUR 31 million of retained earnings, which is roughly a quarter's worth of distributions. The board at this point has deemed it not in the best interests for unit holders to pay out that realized capital gains. Again, adding an extra couple of cents in a one-off payment, we don't think goes to the longer term issues that's currently in our price. Now, we again expect to revisit that decision based on our refinancing of the next 18 months. But yeah, we certainly believe in unit buybacks, share buybacks. But at this point, we just feel that reducing our credit risk helps to drive the share price higher.
We do also have a follow-up question from Graham, who asked: Could you please help us to understand why managers' fees are up 10% when the net income and distributable income are down by 10%?
Shane?
Yes. Actually, the disclosure that we've made, we've incorporated management fees, trust expenses, and other, and that's actually a 10% positive variance. The way we show our variances are positive and negative, so if it's a positive number, that means it's a benefit to the bottom line. Those combination of expenses were down by 10%, not up by 10%. I guess it's sort of in line with the DPU.
What page of the business update is that for those that?
Page 10. That's the financial highlights, the P&L summary on page 10.
Thank you. Our next question comes from Brian, who would firstly like to express their appreciation to the team for taking the time to do this quarterly briefing. So the question is, if my calculations are correct, the fourth quarter in 2023 DPU was approximately EUR 0.04, versus the first quarter in 2024, indicative DPU of EUR 0.035. What was the cause of the decline with the extra comment of all interest rates seem only higher by 10 bps between these two quarters?
Yeah. So, Okay, firstly, the interest costs. If we compare to the fourth quarter last year, interest costs were actually up by 8%. So that reference to the all-in interest rate at the end of the end of each period is not going to explain the actual interest cost. So that's the first point. Second point is that we sold. We mentioned about disposals when we sold Bari Europa in November. So there was two months of income from that relatively large property, which we sold at EUR 94 million, and two months income in the fourth quarter and none in the first quarter. So all in all, the net property income was 2.3% lower than the fourth quarter last year, mostly due to that divestment. Yeah.
Thank you.
This is comparing to the first quarter. I think the question was in relation to the fourth quarter. So yeah, there was a reduction of 2.3% in the NPI for that comparison.
Our next question comes from Michael. Last night, the Fed signaled it is likely that the rates will stay higher for much longer. While the ECB decision might, may or may not mirror the Fed decision, is it likely to have some impact on the ECB thinking on whether to keep or lower interest rates? And when do you think the ECB will begin its first rate cut?
I should go back to my previous role as the head of research for Bank of America to answer that one, rather than as the CEO of this REIT. Look, the ECB Euribor is roughly 100 basis points lower than the U.S. Fed Fund. You know, US Fed's at 5.5, ECB's at 4.5, yet U.S. Treasuries are 200 basis points above German Treasuries. In other words, the market is anticipating greater cuts in Europe than they are in the U.S., and from an inflation print perspective, that's also playing out, with only two days ago, the April inflation for Europe being a low 2.4%. So very much, you know, getting close to that 2% target, whereas the U.S. is still stuck above 3%.
So, from a macro perspective, we certainly see the fixed income markets predicting interest rate cuts in Europe to occur from this summer in Europe, which is June, July. We wouldn't be surprised with that to happen.
Our next question comes from Bart: What is the status of the Parc des Docks redevelopment?
Yeah, so as we mentioned in our prepared remarks, Bart, we are disappointed in the slow progress that we're making. We have a number of different stakeholders in Paris that are required to sign off on our very complex EUR 1 billion project. This location is right in the middle of all of the infrastructure works occurring for the Paris Olympics, which kicks off in the next few months. The mayor, in particular, has just requested that there is a moratorium on new projects to allow literally the dust to settle. For those that have been in Paris for the last few years, you know, there's a lot of construction around.
So we expect this planning to be on hold for the next 12 months as the city sorts its way through all of the recent infrastructure works that have occurred in Paris. In the meantime, the property is still performing exceptionally well. We're at 93%-94% occupancy. The property is valued at EUR 162 million. We paid EUR 96 million for it six years ago. Rents six years ago were EUR 90 a square meter, and we've just struck a lease at EUR 180 a square meter. So in six years, the rents in this location, excuse me, have doubled. So we continue to earn a double-digit yield on our acquisition of this property with many tenants in the estate.
So yes, it's disappointing that we're slower, but in terms of the consequences for the REIT, still receiving very high yield on what is a very rare piece of real estate in the north part of Paris.
A second question from Bart, who asks: What the status of the data center developments in Germany are that were announced a few years ago?
Yeah. So a few years ago, 2020, seems like a long time ago now. We had to stop our negotiations after 12 months, for the simple reason that the U.S. hyperscaler that we were negotiating with turned our involvement from being a traditional core and shell owner and landlord of the simple building structure, to then being a very complex operator of the data center, which would require a substantial amount of new capital to be invested. So we went from being sort of a EUR 50 million investor, to then having to contribute, you know, EUR 200 million-EUR 300 million. And at the time, the board felt that the operating risk and the development risk was too high for the REIT to take on board.
So it's still a segment that we keep an eye on. We, we obviously have a number of data centers in our portfolio, but unfortunately, that particular project that you're referring, we, we had to pull out at the end of 2020.
Next up, we have a question from Michael. In Q1, the DPU annualized gives the FY DPU of EUR 0.14 or dividend yield of around 9%. Not much dissimilar to the IREIT 8% dividend yield. Would you consider, would you still consider your shares relatively undervalued or now trading in line with your peers?
Michael, I'm not gonna comment on individual REITs, but what I would like to say is that, you know, with the rally in our unit price in the last six months, we're obviously one of the stronger performing REITs, but we're still not satisfied. The discount to NAV that we're trading at now is a lower discount than all of the office REITs listed in Singapore. So at least we can tick the box to say we are now at least being viewed by investors, more towards being logistics, which is in line with our strategy.
While we're not quite there yet, given that most logistics and industrial REITs are trading much closer to their NAV, we do feel that we've got that transition coming through in our relative rating from being priced discount office to getting closer to our industrial peers. One of the reasons our yield is higher than most REITs, even though our discount to NAV may not be as great, is because our return on equity is much higher. What do I mean by this? Well, our average yield on our portfolio is 6%. So we're able to generate a higher dividend yield, all things being equal, with the same amount of leverage at the same cost of debt to our peers, because one of the, you know, original thesis of investing in Europe is that it's a higher yield.
Yes, slightly lower growth, but certainly a higher yield market than, say, here in Asia. Therefore, we would expect at the same NAV, a higher dividend yield, and that proposition is still very much intact. I hope that answers your question. You know, we, as management team, very heavily personally invested in the REIT, and certainly every day, you know, work to improve the rating of the REIT and drive the risk return profile of the REIT higher, and that hopefully then gets reflected in the unit price.
Next up, we have a question from Bart, who asks: "Are there any upcoming expiries of contracts with the Italian state agency? And if there are, will those assets be redeveloped or divested? And then if you could also talk to the expected rental reversion, if redeveloped.
Yeah. Thank you. So we do have five assets left that are leased to the Italian government. Some of those are on rolling six-month leases or breaks with leases out to 2028, 2029. We are in discussions for further sales of a couple of these buildings. And I guess it's a case of watch this space over the coming six months as we move those assets on. In terms of us doing developments within these buildings, that's unlikely. Similar to our position in Finland with those older assets, in that we are not a residential developer, and often in these older buildings that are in these second-tier cities, their value really is in converting to residential rather than upgrading as office buildings.
It's not on our radar to redevelop these Italian government assets ourselves, but it's certainly on our radar to either sell the assets back at a premium to the Italian government, as we did with, say, Bari Europa, or to other residential developers, as we recently did on Monday at Padova.
Thank you. And then Bart also has a follow-up question, is: "Has the indexation sufficiently compensated for higher interest rates?
The simple answer is no, it's not. When you see the waterfall chart, while we've had good income growth, it hasn't been able to offset the rise in borrowing costs. What's complicated the answer to that question is obviously we are selling assets as well, so we lose some of the income that we had from those assets as we look to keep our gearing below 40%. Again, our strategy over the last two years is to not be in that bucket of REITs, where analysts or investors worry that you're close to covenants or you might have to raise equity.
We've been very proactive, and since 2022, when the interest rate cycle was predicted to turn, to ensure that we can provide that confidence to investors that we are able to continue to pay a very high level of distribution, and we can have a lot of headroom to our loan covenants, such that we don't have to be in that bucket of those other REITs that have seen, you know, a lot of value get wiped out.
Yes, it's unfortunate that some of our dividend has taken a trim as a result of those actions, but relative to the growth in our market cap, where that risk has come out of our share price, well, you know, a lot of it's come out of our share price, we think that's been more advantageous to investors than artificially topping up our dividend. That's been our, our key focus for the last couple of years.
The next question comes from Alex, who asks: "With the significant divestment plan, how is management planning to make up for the loss in income and consequential fall in DPU?
Yeah. So as we've been saying through this presentation, you know, to try and provide that confidence to investors that the equity is preserved, that the unitholder value is largely preserved, we've undertaken the asset sale program over the last couple of years. We have moved. All of us have moved out of the era of free money. So all of us, not just the REITs, but a lot of corporates, are moving from that transition of low interest rates to a more normal interest rate environment. And that is playing out through everyone's refinancing. So this particular issue for CEREIT is more generally based.
Now, I know that doesn't help you as an absolute investor, that our distribution has fallen, but it has certainly not been at risk as it has been with many of the other REITs. We're also using this opportunity to future-proof the portfolio. So we've taken the opportunity to not just sell anyhow assets, but to be quite targeted at the higher risk assets or those assets where we expect the longer term returns over the next five years to be less than the portfolio average.
So while it might have had an impact today, if we'd held onto those assets over the longer term, particularly with this move by tenants out of the older, high-yielding office buildings and into the new, more retrofitted, lower-yielding buildings, we think our portfolio would have been in worse shape in five years' time if we had not taken the actions today to trim the portfolio and curate it to, today's tenant needs, rather than, of the tenant needs pre-COVID. So yes, there's been a short-term impact, but we think longer term, it's to the betterment of, of unitholders. In terms of when do we go back and start acquiring again, well, again, our cost of capital is not quite where we would like it to be to do that.
The recent rally in the unit price is certainly helping to close the gap, and we certainly see a lot of opportunities in Europe to make acquisitions, but at this point, it's the trade-off between risk/return and our cost of capital is not quite there yet for us to go back in and acquire. What we do expect over the next couple of years, and it's not just us, and we can show you forecasts from other market participants, as interest rates do start to come down in Europe ahead of that of the U.S., we do expect valuations at some point to increase. Now, clearly, when you start to get into a revaluation up cycle, then naturally your gearing comes down. Even without having to sell, your gearing will come down as asset values go up.
So at that point, the board will be more confident to perhaps go back in and start acquiring assets with the use of debt, even if our equity has not recovered sufficiently to make an accretive acquisition from an equity perspective. So, you know, again, hopefully that's, you know, we've been quite transparent over the last couple of years, and hopefully our execution of our strategy is playing out with the improved performance of our unit price. Albeit, we're not satisfied where it is today. We're working hard to improve it.
Our next question comes from Raymond, who asks if the war in Ukraine still has negative impacts on the CEREIT?
Not directly. So we don't have any tenants that have been impacted directly, either in Slovakia, Poland or Finland, which are the three countries that we invest in, that share a border with either Ukraine or Russia. What it has impacted, I think, is the sentiment in the direct property market of foreign investors moving into those border countries. We do see GDP growth in Poland in particular, and Slovakia to a slightly lesser extent, being, you know, higher than Western Europe. To these border countries, that's obviously created more demand in those countries. And as you know, the reconstruction efforts will inevitably have to begin, clearly a lot of the goods required to rebuild Ukraine will again come through these border countries.
So, you know, there's a weigh-up of sentiment versus, you know, the economic reality that in the next few years, the GDP growth of these countries will actually be stronger than that of Western Europe. But again, our, you know, we're mindful, you know, of the suffering of the local population in Ukraine through this, you know, horrible war. And no one likes to make money out of it, and we're so we're certainly not here to say that, other than just, you know, to pass our condolences on to everyone that's impacted by warfare.
Next up, we have a question from Sean. The question is: Management, the management mentions that we are currently benefiting from the low of 2.12% interest out of our 2025 bond. Can you please provide an indication, if we were to issue bonds today, what will be the indicative interest rate? And can you also then talk to what the plan is to refinance the EUR 450 million in maturing bonds in 2025?
Yeah, it's a good question, and we got that question ahead of the AGM. So we actually published a number of these answers, Q&A, on Tuesday. So, certainly recommend to go back and have a look at the answers. But very simply, we provided a scenario that said, as of last week, the bond would probably be 300 basis points higher than the 2%, which, all things being equal, would be roughly EUR 13 million of higher debt. Now, that's in isolation. Clearly, over the next couple of years, we will continue to get income growth, and we expect that refinancing to be at a lower rate. But as a bookend, as of last week, we published, thirteen million.
Next question comes from Graham, who asks: Going back to the question on buybacks, if you're confident about your ability to maintain gearing and refinance the 2025 bond, doesn't that make this an even better time to buy back units before they rerate?
So there's a difference between being confident and actually executing on the asset sales and the refinance. So we just need to see a little bit more of our assets being sold. We need to get through, you know, and actually see the ECB cut rates, so that we are a little bit more confident than we are today. But as we get through this year with the refinancing of the bond, we hope to be in that position. But right now, we haven't executed those sales that we need to do.
Next up, we have a question from Terrence. Terrence, if you'd please like to unmute yourself to ask your question.
Hi, can you guys hear me? Hello?
Yes, we can hear you.
I just wanna check on the financing costs for this quarter. At least on a Q- on -Q basis, do you mind helping us understand the key drivers?
So, if you're talking about the all-in interest rate, there was just a small drawdown on the RCF, so that's the difference there. So from all-in interest rate increased from 3.19% at the end of last year, to 3.28% at the end of this quarter. That's just the drawdown on the RCF impact.
Is that all? Because it seems like the, the absolute movement is quite a bit more. So I'm just wondering whether there have been any other factors. If you could correct my understanding, does the bond buyback, I think EUR 50 million, have any implications towards this financing cost?
No, not in this first quarter.
Okay.
Not materially, anyway.
It's only 10, it's only 10 basis points, I think, in that last chart that Elena threw up.
Okay, maybe I'll take this offline. Thank you.
Okay, thanks, Terrence . And I guess that goes to Graham's couple of questions on a unit buyback. I should have said that it is not our intention to draw down on any of our debt facilities to buy back our equity. That would, w e think that would be counterproductive.
Our next question comes from Michael, who asks: Do you think the election in the U.K. will impact the property market in the U.K. and your properties there?
Yeah, we have three single-tenanted assets in the U.K. with no major leases or no lease expiries in the near term. So we don't expect any change in economic situation or political situation to impact the earnings out of these properties. Unfortunately, we bought these assets prior to the Liz Truss events or chaos of September 2022 where we've seen a 16%-17% decline in our valuations already from when we acquired those assets in 2020 and 2021. So any change in the government, we think, now, is not gonna have a material impact to what we've already taken in terms of the medicine from the valuation impact from a couple of years ago.
That brings our Q&A session to a close. Simon, I'll hand it back to you for closing remarks.
Thank you, Kiara, and again, thank you to everyone for participating in today's call. We really value the questions in particular, and everyone's time and effort to better understanding what it is that we're striving to achieve. We obviously have three key priorities, which we'll continue to execute. The first obviously being the active asset management with the local teams on the ground to retain that high level of occupancy and maintain that resilient income out of the portfolio. The second is around ensuring this transition from the free money days to the more normal borrowing costs is as painless as possible, albeit, you know, based on a number of the questions today, it does have an impact on our DPU.
And then finally, on the asset recycling, again, this is to provide investors confidence of our ability to keep the gearing below the 40% level, and ensure that we've got plenty of liquidity and facilities to be able to continue to roll out our AEI and development program, while managing our bond refinance, as well. So, thank you very much for your time, and look forward to speaking or meeting many of you in the next couple of weeks at the symposium. Thank you very much.