CapitaLand Ascendas REIT (A17U.SI) Earnings Call Transcript & Summary

[Technical Difficulty] Our portfolio occupancy remained high at 91.8%, and we achieved high rental reversion of 9.5% for leases renewed in the first half. Gearing is healthy at 37.4%, and cost of debt is stable at 3.7% Diving into the financials. Gross revenue in the first half decreased by about 2% to $755 million. And some of the reasons were due to the divestment of some properties in Singapore, Australia and the U.S. However, the contribution from newly acquired DHL Logistics property in the U.S. helped to mitigate the decline. NPI declined slightly by 0.9% to $1 billion due to lower operating expenses and distribution income was stable at $331.1 million. DPU declined slightly to $7.477 due to an increase in the units. When we compare first half 2025 versus second half of 2024, gross revenue increased slightly to $755 million, mainly attributable to the acquisition of DHL Logistics property in the U.S. and partially offset by the divestment of 21 Jalan Buroh in Singapore and Parkside business space property in the U.S. So NPI increased in tandem with the increase in the revenue. Distribution income decreased 2% to $231.1 million due to higher interest expense and DPU increased 2.1% in tandem with the distribution income to $0.0761. Distribution in -- on June, 30 of June, we paid an advanced distribution of $0.6479 per unit for the period of 1 Jan to 5 June. So for the remaining period of 6 June to 30 June, a distribution of $0.0998 will be made and you'll be receiving the dividends on the 4th of September. Moving on to investments. We completed the acquisition of DHL Logistics Center in Indianapolis in the U.S. in the first half. We also completed the redevelopment of 1 Science Park Drive. You are here today. And we completed a total development cost of about $884 million. Very solid plan is set to add another $725 million of interim producing assets in Singapore, which is 9 Tai Seng Drive data center and 5 Science Park drive business-based property next door. So the total acquisition comes for the 4 properties comes up to almost $1.2 billion. If you recall, all these properties were acquired at attractive NPI use of 6% and to as high as 7.6% for the DHL property and they are all accretive and will contribute to our income stream in the long term. So this slide you have seen before. Moving on to divestment. So this is new. We have divested Parkside business-based property in the U.S. partner for about $26.5 million. The property was sold at a 45% premium to market valuation. It was sold to an end user. On capital management, remains healthy at 37.4% after the equity fund raise in May, you will also note that the debt EBITDA numbers have also improved. And if you look at some of the numbers here, ICR is still very healthy at 2.7x and the cost of debt remains stable at 3.7%. And on the debt expiry profile, we had about $6.7 billion worth of total debt. And you can see here, they are very well spread out. So in the next 2, 3 years, we have about $900 million or so due for refinancing per annum. Natural hedge, we continue to have this high level of natural hedge for our overseas investments. So on a portfolio basis, it's about 76%. Occupancy. The occupancy rate for the portfolio was stable at 91.8%. So this is on the right-hand side of the slide. The occupancy rate for Singapore was 91.2%, U.S. 87.3%, Australia increased to 93.1% U.K. Euro stable at 98.9%. So let's take a look at the details. In Singapore, the occupancy dipped slightly to 91.2%. And this is mainly due to a nonrenewal at an industrial property. When we look at within the Singapore portfolio, occupancy rates for the business base properties and the logistics properties were stable. In the U.S., the occupancy declined 0.7% to 87.3%, and this is mainly due to an expiry of a lease in a logistics property in Kansas City, but offset by higher occupancy for business park property in Portland. Australia. Australia improved by 3.9% to 93.1% driven by higher occupancy rates in Sydney. So we backfilled 2 logistics property and the tenants have signed long leases of 7 years -- 7 years in 94 Lenore Drive and 16 Kangaroo Avenue. As for 197 Coward Street, business-based property in Sydney, it also attracted a few new tenants. Occupancy rate improved from 85% to 94%. Overall, occupancy rates for both the logistics and business park properties have improved. In the U.K. and Europe, as usual, the occupancy remained high at 98.9%. No demand in the first half. For Singapore, the largest sources of new demand by gross rental income were the logistics and supply chain management industry. Many of these tenants are moving into our logistics properties. The next large source of demand in the first half is the IT and data center sector, many are moving into our high-spec industrial properties. And education and media is the next group, many of them are also moving into our business-based properties. As for our overseas portfolio, the largest source of new demand was the logistics sector. Rental reversion. For these renewals in 2Q the column -- the first column, 2Q, at about last row, you will see 8%. So the total portfolio achieved a positive rental reversion of 8%. And if you were to look at the various geographies, so Singapore, 7.8%, U.S. 10.9%, Australia, 3.5%. For UK Europe, we see a dash there, and that's because there weren't any lease renewals during the period. WALE, stable at 3.7 years. On expiries for the whole portfolio, all 4 geographies put together. We have a balance of 8.9% of rental income that will be due for renewal for the rest of the year. Currently, we are working on 6 projects, including 1 development, 3 redevelopments and 2 AI. So these projects are scheduled for completion between 3Q 2025 and 1Q 2028. We will continue to add to this list. So the last slide in this uncertain economic situation. I think it will continue to be with us in the near future. However, we are confident to ride through this period, right, given our well-diversified portfolio, good tenant base, good operational management and prudent financial management. So we will continue to adapt to the changing market conditions. Thank you very much. Back to you, Andrea.

Thank you, Kit Peng. We will start with the Q&A segment. And the first raise-hand will be from JPMorgan.

I'm Terence from JPMorgan. Congrats on a good set of results. Since we are here at this beautiful building, perhaps I could ask a little bit more about Geneo is there anything further you could share in terms of who are the major tenants coming into Geneo, what some of the signing rents are? And perhaps when the cash flow contributions could start? That's the first question for me.

JPMorgan always the first question. The -- we have not any further updates. We have mentioned we have about 95% precommitted and in advanced negotiation. About 75%, 76% already be committed. Just now we are talking about whether tenants have moved in, the retail tenants are already in just got after you asked, I just got update. First tenanticipate is going to move in, in mid-August and end August, September, October, right all the way to July next year. We will progressively update the directory when the tenants move in, so you can catch who are the tenants that's moving in -- and the signing rents, as you have heard me mention about Shopee building next door, Shopee's building, we believe they are 15% underrented. And we are not even talking about the rents that Geneo has achieved. So Geneo actually has achieved much higher rental. There are -- if you use gauge against 1 North region and Science park, Typical signing is about $5, $6. Geneo is above $7. We believe that this is -- this sets the benchmark because of the quality of the building as well as the offering in terms of retail and the catchment and it directly connected to MRT station. You can walk around, it's all covered. So this is actually quite a good rent for us. We believe these regs set where asking rent is for other renewals, whether is it in Shopee across the road in Ascent and this would be the this was set the expectation of rents.

And I just do have a question from Client. Basically, the client is asking, is there a risk that like when tenants move into Geneo, is there a risk that they could be leaving some of the existing assets, particularly for Ascendas for class properties.

Moving from Ascendas.

For class properties to into Geneo.

Existing tenants. I think there's only one tenant that's moving from Ascendas property. are all expansion and relocation outside of CLAR properties.

That's very, very good to hear. And maybe on my second question, if I could ask on an update on data centers from Singtel and the company's redevelopment opportunity?

We are still evaluating our plans. We are likely to look at commercial development, as I mentioned, that's probably what we are guiding towards.

And final question, maybe any changes to the cost of debt guidance for this year and next year. What's the cost of debt guidance?

We expect the cost of debt to be -- to hover around current levels, the 3.7%, all things being equal.

We move to Rachel from Macquarie.

Thank you. Wee Leong and team. Thanks for the briefing and inviting us to your building here. My first question is on the vacancies that I have seen. I think this quarter, we have seen a few properties that single tenanted has been vacated. So what are your plans on this? And you do have some lease expiries that's coming up. Are we going to expect to see any single tenanted vacancies coming through?

Thanks, Rachel. I think it's part and parcel for a large portfolio when we have got single-let properties as the leases expire, we might not get a back to back tenant to replace. I think that's quite common. The one that has just expired in Serangoon it's actually a B2 side, pretty centralized. Just that -- so the location is good. Specs might be a bit dated. But nonetheless, we don't think it'll be an issue to find a replacement tenant, maybe not immediately, but we are pretty confident of that site. I think for the rest, again, they are just part and parcel because they are logistics assets. And I'm quite happy and pleased to report that 16 Kangaroo. I've got a lot of questions about that over the last couple of quarters. We have found a tenant. We had a couple of tenants who are very close to signing the lease, but somehow they just slipped through the cracks. I really do not know why it really baffles me. So I'm very happy to report that the lease occupancy has now improved to above 93%.

So for overseas, I think you see the details here. We have 2 in the U.S., 1 in Melbourne. Logistics single-let building is typical. Once the tenant leave, is either you can back to back have a new tenant. If not the current environment require us to at least 3 months, 6 months, while James mentioned Kangaroo took us about a year but at least we have -- we do see demand in the market. In Singapore, other than Singtel building in [indiscernible] , this is the other one. It's a B2 site actually is very attractive, given where the current demand is for B2 locations. Even before the tenant leave, I mean, some brokers really got wind that they are moving and we actually have some unsolicited offers to see whether we're interested to divest. We are still evaluating options. But because the B2 site, I think, is quite a good location as well as suitable for manufacturing much better than the B1 site. So we will evaluate options and see where we can close this as soon as possible.

For the 16 Kangaroo, do you have to give additional incentives to get the new tenant in?

Generally, incentives in Australia has gone up, but it has helped that headline rents have also gone up aggressively. So you are still seeing a positive at effective rent level improvement over the previous rents.

Escalation as well has gone up. We have signed about 3.5% to 4%.

Okay. And then for the U.S. and the Melbourne properties, the expiring rents -- how is it compared to the market rents?

I'll take that question. Generally, if you look at U.S., we are still underrented. Although that gap is narrowing, but you see even in our latest reversion, we are reporting close to double digit. So we are somewhere between mid-single to like a low double-digit kind of underrenting below market right now.

Okay. And just one, second question from me. I think in terms of your Telepark, I think you spoke about converting to commercial looking at commercial, are you likely to do it yourself? Or are you likely to look for another party to do it for you the main divestment? Do you have any interest?

All options are being considered.

So you have started to market property?

No. We are still looking at our plans in terms of the development options, yes. So whether we divest, bringing a partner or what, I think these are all options that are still open.

Next we have Dale from DBS.

Just a few quick questions for me. I think with regards to the acquisition, I mean, with regards to your recent acquisitions and these are 1 Science Park Drive, right? I mean, in this first few months, there will be a little bit of drag to earnings because of the placement and things like that. But how soon should we expect this additional contributions to start driving DP, driving earnings back up?

We expect to close within next 1, 2 weeks. This week or next week.

Okay. Sounds good. Sounds good. And next question is on Shopee I know it's still some time to November, but how are negotiations looking or what are our expectations? Has it changed? Are we still expecting that 15% upside in negotiations?

Still early, but that sets the expectation. As I mentioned, I think with 15% it sets the expectation of what we think is the floor, and to Terence's question earlier, the signing rents that we have achieved and asking rent is much higher. Given it's a full single building I don't think it's possible to be honest, it's possible to sign at the max rent that Geneo can achieve. I mean Geneo is multi-tenanted. We bring in different tenants of different sizes and this is a single-let building. So I think there will be a negotiation. We have not started. But given where we understand from our existing negotiation on Galaxis and their movement with regards to the business unit that has been moved to Rochester Commons, we got a good sense of where are their business plan. So once all this is settled, I think this is the next stage of negotiation. And it's still November next year, 1.5 years.

Sorry, last question, if I can squeeze in one. I think in terms of the borrowing cost, I think Kit Peng you're saying that you expect it to remain around this 3.7%. This is including the refinancing that is due for the next half of the year.

Yes. So we are left with Aussie dollar loan Yes, that we need to refi. So taking that into account you should be able to achieve around 3.7% for the for the full year.

We'll move to Vijay from RHB.

Yes. Hi, good evening. Thanks for the opportunity. I have a couple of questions. Firstly, in terms of the U.S. divestment, it was a good premium surprise, a 45% premium. Considering the challenges in the market how did you manage to get such a good premium for this asset? And are there any such opportunities available in the U.S. portfolio for future? And maybe also, I can guide on divestment target for this year, divestment has been a bit slow so far.

Thanks, Vijay and thank you for asking this question because I think our team did really well. Kudos to my U.S. asset management team. To be honest, all options are always on the table, particularly for challenging markets like U.S. So we look at various ways, including whether we can enhance the value of the property by doing selected AEIs, which we have done and we continue to do. And if we could then selectively also divest assets and try to extract maximum value for our portfolio. So in this case, the end user is pretty unique. It's a local government entity that runs parks around the Portland area, and they were looking for a flagship HQ to move into -- now just to give a bit of context, this property used to be occupied by Nike. And when they left the occupancy went down to about 20.5% and has remained that way for a while. And so it was active kind of like combing of the market that we managed to find this potential user -- and while at first the discussion was about leasing, but it very quickly pivoted to a sale process. And we are very happy that through this entire process, we were able to get very good value for this asset and to return that value back to our unitholders by selling that property.

Are there any such opportunities and maybe divestment target for this year?

Divestment target, we think since 4Q last year, I did mention that this year, we probably look at about $300 million to $400 million of divestments in Singapore, in Europe and U.S. as well as Australia. So just what James mentioned, I think all options are open for us. Especially such noncore assets like the one that we just divested in Portland, given that it's actually a government-related company or other entity, it took some time for us to close that, but there is a value to them because it's near where the operations are. So which is why I think helps us to get a premium. The other one is Australia. I think you've also seen us demonstrated in the past, last year, we divested 3 assets that we can get about 3%, 4% of exit yield. So I think Australia, even when we will have, for example, some of the vacancies, we do entertain customers who are prepared to acquire their assets. If that they do not want to lease. So we will work on that. In Singapore as well. Singapore, given the -- there are some assets that we believe that as assets that we want to keep actually are those that we have redeveloped opportunities. I think since 4Q I also mentioned of red target about $1.5 billion. This includes not just the data centers in overseas, but Singapore as well, especially near MRT stations, as I mentioned of IBP. So those assets that is potentially not able to achieve either higher ratio or redevelopment opportunities. And in Singapore's case, if there's still existing good lease on the asset, I think it's where we can find buyers for Singapore assets. So these are the few things that we will do. So hopefully, we can close them in the second half of this year.

My last question, in terms of occupancies, can you give us some more color in terms of the vacancy of the U.S. logistics assets, considering this has been acquired recently. And also in Singapore, the reason for the tenant exiting the Serangoon asset, broadly, is there any tariff impacts so far you have seen in any of your tenants or your portfolio?

First, I'll address the U.S. question. I think U.S. logistics, there was a very strong tailwind right after we did the acquisition because it was post-COVID and there was the entire supply chain disruption. So that led to a lot of 3PLs sticking on more space than they required because they were holding buffer stock. But now that things have normalized it's going -- it's reverting back to the mean where there will be some downtime. So I don't expect the U.S. logistics occupancy to vary too much. It wouldn't be like your high 99%, 98% kind of a range, it will probably moderate a bit, but it shouldn't move too much. I'd just like to add that the U.S. office continues to be challenging. And we do see in the second half some potential downside there. And your last question was on Singapore?

Tariff.