EfTEN Real Estate Fund AS: A Contrarian Gem in Europe's Stagnant Real Estate Landscape

The European real estate sector has been mired in stagnation, grappling with rising interest rates, shifting tenant preferences, and economic uncertainty. Yet within this gloomy backdrop, EfTEN Real Estate Fund AS has quietly built a case for resilience. Its May 2025 net asset value (NAV) rose 0.7% to €19.7782, while its EPRA Net Asset Value (NRV) climbed to €20.6479—a rare bright spot in an otherwise lackluster market. For contrarian investors, this could be a signal to accumulate a position in a fund that's outperforming its peers through strategic focus on logistics, disciplined financing, and operational execution.

The Drivers of EfTEN's Resilience

EfTEN's May performance was fueled by three pillars: logistics growth, reduced vacancies, and declining interest costs. The logistics segment, a key growth driver, contributed significantly to rising rental income. The Paemurru logistics center in Estonia—the fund's largest recent acquisition—delivered its first full month of revenue in May, boosting consolidated rental income by €33k to €2.643 million.

While the fund's overall vacancy rate dipped to 4.0% in May (down 0.7 percentage points from April), the improvement was driven by new leases in its Tallinn office portfolio. Though logistics vacancy rates aren't explicitly disclosed, the logistics segment's revenue growth suggests robust demand for high-quality warehousing space—a sector increasingly critical as e-commerce and supply chain efficiency dominate corporate priorities.

Meanwhile, interest costs remain under control. The fund's weighted average interest rate fell to 4.09% in May, matching its 2023 rate, and refinancing efforts have cut consolidated interest expenses by €768k year-to-date. This cost discipline, combined with rising rental income, has bolstered cash flow metrics: adjusted cash flow (EBITDA minus loan repayments and interest) rose to €1.148 million in May, up €138k from April.

Valuation: Undervalued by EPRA Metrics, but Cash Flow Speaks Volumes

EfTEN's EPRA NRV of €20.6479 exceeds its NAV by nearly €0.87, a discount that underscores its contrarian appeal. Historically, such a gap often signals a mispricing in the market—a buying opportunity for investors with a long-term horizon.

Even as EBITDA dipped 2.7% year-over-year (due to office vacancy-linked utility costs), free cash flow grew 5.4% in the first five months of 2025. This resilience is notable, given that the fund's April dividend payout of €12.7 million (1.11 euros per share) caused a 5.3% NAV drop—a temporary hit that May's rebound has already offset. The fund's ability to recover so swiftly suggests strong capital management, even in a sector where peers are struggling to maintain dividends.

Why Accumulate Now?

The case for EfTEN rests on three factors:
1. Sector Underperformance as a Tailwind: With European real estate valuations broadly depressed, EfTEN's outperformance could be magnified as sentiment improves.
2. Logistics as a Safe Haven: The sector's structural demand—driven by e-commerce, just-in-time manufacturing, and geopolitical reshoring—is a hedge against broader economic volatility.
3. Value for Money: The fund's NAV is 4% below its EPRA NRV, a discount that leaves room for revaluation.

Critics might point to the office segment's drag on EBITDA, but this is a temporary issue: new leases in Tallinn's prime office market (as seen in May's vacancy reduction) suggest the fund is stabilizing its higher-risk assets. Meanwhile, logistics—a segment with minimal vacancy risk—anchors its revenue growth.

Risk Factors and the Bottom Line

No investment is without risk. EfTEN's exposure to Estonia and the Baltics could amplify volatility if regional growth falters. Additionally, rising office vacancies elsewhere in Europe could pressure valuations. Still, the fund's focus on high-quality, income-generating assets—coupled with its declining leverage and interest costs—provides a buffer against these headwinds.

For contrarians, the math is compelling: EfTEN is trading at a discount to its intrinsic value (per EPRA metrics), has demonstrated cash flow resilience, and is positioned to capitalize on logistics' enduring demand. With European real estate prices still below their 2022 peaks, this could be a rare chance to buy a fundamentally strong fund at a price that reflects broader sector pessimism.

Investment Thesis: Accumulate EfTEN Real Estate Fund AS on dips, targeting entry points near its May NAV of €19.78. Monitor for further refinancing wins and logistics portfolio expansions, which could narrow the NAV-EPRA gap and unlock upside.

In a market where “value” is scarce, EfTEN offers a disciplined, data-backed contrarian bet—a rarity in today's European real estate landscape.