abrdn European Logistics Income – Negotiating choppy waters

It appears that high interest rates have hit the share price of real estate companies, with those in sectors with low investment yields, such as logistics, particularly impacted. abrdn European Logistics Income (ASLI) is no different and the market turmoil has seen its discount widen to 34.0% – in line with its UK peers despite the spread between yields and cost of debt being far wider in Europe (which the manager suggests will mean values in Europe will be less impacted).

The fundamentals of the European logistics sector remain strong, the manager says. A chronic shortage of supply (below 3% across Europe and as low as 2% in prime markets) and robust demand could see strong rental growth remain. ASLI’s income is linked to inflation, with 66% of it uncapped, which could feed through to stronger rental growth this year and next. This should off-set inevitable valuation declines as investment yields soften, the manager adds. Meanwhile, ASLI’s debt is fixed for an average of four years at around 2%.