CapitaLand Ascendas REIT

Good evening, ladies and gentlemen. Welcome to the FY 2023 results briefing of Capital Land Ascendas REIT, or CLAIRE for short. We thank you for joining us in person and online today. But before we begin, let me just give you a few housekeeping notes. This briefing consists of a presentation by management, as well as a Q&A session. If you are attending this briefing online, you may submit your question via the Q&A feature on Zoom anytime during this briefing. For those in the audience, you may raise your hand during the Q&A session and a microphone will be brought to you. So before we begin the session proper, let me just introduce the management on the panel. First, we have Mr. William Tay, CEO of Capital Land Ascendas REIT. Second, we have Ms. Koo Lee Sze, CFO of Capital Land Ascendas REIT. Next, we have Ms. Yao Kit Bing, Head of Capital Markets and Investor Relations. And finally, we have Mr. James Goh, Head of Portfolio Management. And with that, I will now hand the time over to Ms. Yao-Ki Ping, who will begin with the presentation. Thank you.

Hi, good evening everyone. Thank you for attending this briefing. Okay, some highlights first before we dive into the details. Portfolio occupancy remained high at 94.2% and we achieved a high rental reversion of 13.4% for leases that were renewed in FY 2023. Gearing is healthy at 37.9% and we continue to have a high level of natural hedge of 81%. Distributable income declined 1.4% to $654 million and DPU declined by 4% to 15.16 cents. Investment properties grew 3% to $16.9 billion. On the same store basis, property valuation declined about 1.8% to $16 billion. Financial performance, full-year FY23 versus the previous FY22. Gross revenue increased 9.4%, driven mainly by full-year contributions from new acquisitions in FY23, i.e. the data centre in Wofford, UK, One Borough Lane, Topayo, Lorong Wan and the Stuttgart in Singapore. So full year contribution from properties acquired in FY2022 that is the seven logistics properties in Chicago also contributed and as well as better performance from existing properties. NPI rose 5.6% to $1 billion despite some cost pressures. Total amount available for distribution declined 1.4% to $654 million due to higher interest expense resulting from the high interest rate environment and higher borrowings as we acquire more properties. DPU declined 4% to $0.1516 because of lower distribution and a larger unit base. So when we compare second half versus first half performance, gross revenue increased 6.1% to $761.7 million. And this is boosted mainly by the newly acquired data center in Wofford, UK. as well as full period contribution from newly acquired properties in the first half of the financial year, i.e. the Stuttgart 1 Borough Lane and 622 Toa Payoh Lorong 1. At the net property income, it was flat due to higher operating costs and property tax. Distribution income is stable at $326.9 million. DPU declined 3.6% to 7.441 cents due to a larger unit base. second half 2023 versus second half 2022 the growth in the gross revenue is largely driven by the new acquisitions in 2023 so the four properties that we mentioned earlier as well as better performance of existing properties so net property income increased 4.6 percent to 514.3 million despite higher operating expenses. Distribution declined 1.9% to $326.9 million due to higher interest rates and borrowings as we acquire more properties. So in the second half, DPU declined 6.1% to 7.441 cents. Some distribution details, we adopt a semi-annual Distribution Frequency For the second half of the year, a distribution of 7.441 cents will be made. You will be receiving your dividends on the 6th of March. Investment highlights. So despite the challenging market, we were able to expand the business. This table shows a series of acquisitions and development during the year. Three acquisitions in Singapore were made as well as one in London, the CHESS building, which is the data center in Wofford, UK. Development in Australia, MQX4 was also completed. So all together, the total value is $885.3 million. We continue to ensure that we acquire only quality properties with strong tenant base and have promising long-term potential. The NPI yields for these acquisitions range from about 6% to as high as 9.4%. We also continue to optimize the returns from our existing properties by repositioning and upgrading them. So take for example, 6055 Last Boulevard, which we have completed. We converted the property to a live science property. So not only the rents are higher, the valuation of that property also increased. divestment. So during the financial year, we divested KA Place which is an industrial property in Singapore at a 55% premium to the market value of the property. You have seen these two slides already. More recently in December, we continue to streamline our portfolio. We announced the divestment of these three logistics properties in Brisbane for a total of $64.2 million at 6.2% of our valuation. We received a good offer for them. The exit cap rate is about 3%. It is attractive. These three properties, if you remember, they were part of a portfolio that we acquired in 2015. So after stabilising the portfolio, it is opportune time for us to sell them as their returns are not expected to improve much further. Capital management, total debt you can see it has increased to $6.7 billion as we continue to acquire new properties. However, with the equity fundraising in May last year, we raised $500 million. Gearing is maintained at a healthy 37.9%. Our emphasis in this very uncertain business environment is to ensure that our gearing levels are healthy. In financial year 2023, we term out. almost $1 billion worth of debt with fresh tenure of 5-7 years. So the debt maturity profile can see is quite spread out with less than maybe 15% of the debt due for renewal in the next 3-4 years. So despite the high interest rates globally, The gearing is 37.9% and a high proportion of the fixed rate debt is 79%. So that helped to moderate our interest expense. The weighted average all-in debt cost is 3.5%. The strong balance sheet standing also provides us for buffer against uncertainties, ensuring resilience of our financial ratios and compliance with bank governance. The A3 credit rating by Moody's is maintained and this is very important. It will provide us with financial flexibility and strong access to capital. We have here some interest sensitivity tables. On the left is sensitivity table based on the proportion of borrowings on fixed rate debt. and then on the right is a sensitivity table for the refinancing in FY 2024 so in this coming year we have about 900 million of borrowings that will be due for refinancing so if they are say refinanced at 50 basis points higher then the impact on Distribution will be 0.7%, all things being equal. Natural Hedge continues to be high at 81%. So for our $6 billion worth of investment overseas. Valuation. At 31st December 2023, we own 227 properties and the value is $16.9 billion. Now on a same store basis, the valuation is $16 billion. So when we compare with the year before, the value was $16.3 billion. So the difference is a 1.8% decline and this is mainly due to lower valuations in the US and in Australia. However, the decrease in these two countries were offset by higher valuations in Singapore and in the UK and Europe. By segment, the decline in the same-store property valuation was mainly due to lower valuation for business space, but partially offset by higher valuations for industrial and data centres and logistics. So although the valuations of the business space properties in the US and Australia decline, these properties only account for about 14% of our total asset value of $16 billion. Same stock basis. Moving on to our occupancy. On the extreme right, you can see that the portfolio occupancy is stable and high at $94 So on the left, you will see that Singapore, Australia and the UK, Europe portfolio, they are all stable at above 90%. Occupancy in the US is lower at 90.4%. Okay, some details follows. So in Singapore, very stable at 92.7%. And this is higher than JDC island-wide occupancy rate of 89%. Also very pleased to highlight some notable improvement in the Singapore portfolio, particularly in some industrial properties such as Ubix. It is now 96.5% occupied, Tentoguan 92.1% occupied and Tampines Business Hub 98.1% occupied so these three properties we saw sizeable take-car and the signings are for like five year lease term right so pretty good panel In the US, there is a decline to about 90.4% and this is due to lower occupancy rates in Portland and largely attributable to the downsizing by Nike. So Nike reduced their space by about 10,000 square m. But it remains a tenant in some of our other properties in Portland. So we will continue to source for new tenants. And in the meantime, we are improving the amenities in the area to retain and to attract new tenants. Australia portfolio occupancy remains very high at 98.7%. UK, Europe similarly 99.4%. Moving on to where demand came from during the financial year. So in the fourth quarter in Singapore, it's tenants in the engineering, electronics industries. For the overseas market, tenants from the biomedical and government agencies. On a full year basis, for both Singapore and overseas properties, the tenants are mainly from logistics, engineering and biomedical industries. Rental reversions. The portfolio achieved a 13.4% positive rental reversion for FY2023, so that beats our guidance for the year. You can see that we achieved positive rental revisions for all the markets. and also all the segments. However, perhaps for data centers, you see a minus 5.1% for the FY2023. And this refers to the 4Q that is 6.6% decline. And that's mainly due to a data center in UK. whereby it was over-rented, it had a very long lease and during that long lease period, there was 3% escalation throughout. So now it's renewed at a slightly lower level. I also want to highlight that the retention rate in FY23 is higher than that in FY22. will steady at 3.9 years. And in terms of expiry on a whole portfolio basis, we will have to work on about 15% of our gross rental revenue this year. And in Singapore, it is also about 14.5% due for renewal. In the US, also about 14 or 15%. Australia 21%, UK, Europe is about 10%. There are a total of five ongoing developments or redevelopment AEIs worth $551 million. And they are scheduled to complete between 2025 and early 2026. In the fourth quarter, we have kickstarted some AEIs at two industrial properties, Pacific Tech Centre and 18 Pandemia Road. We will continue to add to this list. In fact, in the first quarter this year, we will be decommissioning a data centre in the UK, Welling Garden City. It will be redeveloped into a 60 megawatt powered shell data center and targeting hyperscalers. Most of our business based tenants are on this work from home policy of two or less days. So to support our tenants, We try to improve the experience and the work environment with us. In Singapore, we organize community engagements such as Oktoberfest, health talks, wellness talks, and treats for tenants. In Australia, we upgraded the amenities such as terraces, pool, tennis courts, barbecue area. And in the US, we are constructing in an amenity center in Portland. To conclude, the uncertain inflation trend, geopolitical tensions and weaker than expected recovery in China continue to pose some challenges to tenants' businesses and Claire's operating costs. We cannot stand still. We will proactively reshape class, financial and portfolio management and to adapt to the changing market and tenant requirements. Okay, so with that, thank you very much. And on behalf of the management, I wish you good health and a successful year ahead. Thank you.

Thank you, Keeping. So now we'll head into the Q&A session. Let's start off the Q&A by getting some questions from the audience. And we have the first, Mervin from GPM.