CapitaLand Ascendas REIT (A17U) Earnings Call Transcript & Summary

Good evening, everyone. This Wylyn from the Ascendas REIT Investor Relations team. Thank you for joining Ascendas REIT's FY 2021 Financial Results Briefing. Today's session will include a presentation followed by a question-and-answer session. Please be informed that today's session is recorded, and a recording will be made available on the Ascendas REIT's website after this briefing. We will start off with a presentation of the FY 2021 results by Ms. Yeow Kit Peng, Head of Capital Markets and Investor Relations. Kit Peng, please.

Thank you, Wylyn. Happy Lunar New Year to everybody. On behalf of the Ascendas team, I wish all of you good health and a successful year ahead. Let us now commence on Ascendas REIT full year results FY 2021. For FY 2021, we achieved steady growth. Some key numbers here: Distributable income grew 17% to $613 million. DPU grew 3.5% to $0.15258. Investment properties increased 19% to $16.29 billion. On a same-store basis, valuations increased 3.3%. Gearing is healthy at 35.9%. Portfolio occupancy rate improved to 93.2%. Rent reversions grew 4.5% in FY 2021. Year-on-year performance, so full year 2021 versus full year of 2020: Gross revenue increased almost 17% driven mainly by full year contributions from the 2 San Francisco office and a suburban office in Melbourne as well as contributions from new acquisitions in 2021 particularly the 11 data centers in Europe as well as Galaxis, a business park property in Singapore. Net property income and distributable income increased in tandem with the increase in revenue. FY 2021 distributable income of $630 million includes a performance fee of $7.4 million. The performance fee of $7.4 million took into consideration the COVID-19 rental rebates mandated by the Singapore government that resulted in a lower DPU in FY 2020. The manager has voluntarily made a one-off waiver of its entitled performance fee to the extent of the effect of rental rebates. Hence, the unitholders will receive SGD 0.15258 instead of SGD 0.15058 for FY 2021. Second half versus first half performance. Gross revenue at $640.5 million is 9.3% higher driven mainly by contributions from the 75% acquisition of the Galaxis Business Park in Singapore, 11 data centers in Europe, Grab Business Park property in Singapore and the 11 logistics properties in Kansas City, USA. Net property income grew in tandem with gross revenue but was partially lowered by higher utilities cost and property tax. Distributable income increased 2.6% to $319 million after performance fee and an increase in nonproperty operating expense and tax expense for the new acquisitions. DPU was stable at $0.07598. DPU before performance fee would have been a higher $0.07778 or a 1.5% growth half-on-half. When we compare second half 2021 versus second half 2020, the growth in gross revenue, NPI and DI is largely driven by acquisitions completed in 2021 and 2020. Net property income and distributable income grew in tandem with gross revenue. Second half DPU increased 2.4% to $0.07598 after performance fees. As you can see from the results, the impact of COVID-19 on Ascendas REIT has been minimal. We continue to distribute fully the taxable income available for distribution to unitholders. We adopt a semiannual distribution frequency. So for the period of 1st July to 31st December of 2021, the distribution of $0.07598 will be made. Books closure date is 16th of February, and we will be receiving the dividend on 11th of March. In the last financial year, we declared over $2 billion in capital to invest in properties across our 4 existing markets. The most significant increase is in Europe, where we acquired 11 data centers for SGD 905 million. The acquisition of the 11 data centers in Europe also marked Ascendas REIT's first foray into the overseas data center market. Two business space properties, Galaxis and 1-5 Thomas Holt Drive, located in the technology precincts in one-north, Singapore, and Macquarie Park in Sydney, respectively, were also acquired for $818.4 million. We expanded our logistics portfolio by acquiring 11 last-mile logistics properties in Kansas City, U.S.A. for $207.8 million. You will observe that all these new investments are in technology-focused business spaces, data centers and logistics specialities. These assets will enable AREIT to ride the growth in the new economy. Properties in this new economy such as technology, life science, data center, logistics now represent a significant 81% of AREIT's total AUM and contributed 78% to FY 2021 total gross revenue. We continue to streamline our portfolio. In FY 2021, a total of 5 properties were divested in Australia and Singapore for $247.9 million, at above valuation. Post the close of the financial year 2021, in January, just last month, UBIX, a high-specification industrial property in Singapore was completed for $38.2 million. The five-storey premium industrial property is well located, just right next to the Ubi MRT station and features modern workspaces with large floor plates of up to 4,300 square meters. We are confident of leasing out the property by end of the year. Moving on to capital management. We ended the year with a very sound capital profile. Gearing is healthy at 35.9%. So there is plenty of growth. It looks out to be about $4.8 billion to reach MAS' aggregate leverage limit of 50%. We have a total borrowings of $6.1 billion. The average debt maturity is 3.5 years. Financial metrics are healthy, far exceeding the required minimum level set by bank loan covenants as well as Moody's rating. FY 2021 interest cost declined to 2.2% versus 2.7% a year ago. So during the year, we expanded our sources of funding with an inaugural issuance of a EUR 300 million Eurobond, 7 years at 0.75%. We also locked in attractive U.S. dollar denominated loans. So the proportion of fixed rate debt as a percentage of the total debt has increased to 79.4%. So we have this A3 Moody's rating, it is maintained and that provides us with a lot of financial flexibility and a very strong access to capital. Here is an interest rate sensitivity table. So about 79% of our debt is fixed. So the balance, 21%, is on floating rate. And the impact of higher interest rates of, say, 20 basis points will result in a 0.4% decline in DPU and, say, a 50 bps decrease that will result in a 1.2% decline in DPU. Still maintaining a high level of natural hedge of our overseas investments, it is about 76% for the portfolio. The valuation. Overall, our portfolio achieved higher valuation. Same-store valuation increased 3.3% to $13.95 billion due mainly to cap rate compression. Cap rate compressed the most in Australia for logistics properties as well as the suburban office there as well and also in the U.K. for our logistics properties. Overall, the portfolio occupancy improved to 93.2% Q-on-Q as well as year-on-year driven mainly by improvement in the Singapore, Australia and U.S. portfolios. In Singapore, we saw sizable pickup of 4,000 -- 6,000 square meters by new tenants in our logistics and business properties. We also achieved a long signing of 5 to 6 years. In Australia, occupancy remained healthy at 99%. Occupancy of the U.S. portfolio rose to 94.5% taking into account our newly acquired 11 logistics properties in Kansas City, which following the acquisition very soon after, we achieved full occupancy versus the 92.6% at the point of acquisition. In U.K./Europe, also healthy occupancy of 96.7%. During the quarter, there were some tenant movement in a logistics property. We are currently putting in some CapEx works. And we have secured a tenant to lease up the space once the AEI is completed. In FY 2021, based on new leases signed, tenants are mainly from the info tech and data center sector that contributed to the 25.5% followed by the biomed and agri sector at 24.6%. Rental reversions. Overall, the portfolio achieved an average rental reversion of 4.5% for the full year, and this is in line with our guidance throughout the financial year. So as you can see in the first column in that green bar, in Singapore, we were able to renew leases at higher rents for all the clusters. In U.S., we achieved a 22.6% positive rental reversion. In U.K./Europe, 6.2% positive rental reversion. WALE 3.8 years. Portfolio expiry for this current financial year is about 18.7%. There are 6 ongoing development and AEI projects for $647 million. The largest ongoing project would be the joint redevelopment of 1 Science Park Drive through our 34% stake, and it is expected to be ready in 2025. And this transformative redevelopment will unlock value of the prime site and create a world-class life science and innovation campus within Singapore Science Park 1. A quick update on COVID. So in FY 2020, just to recap, we successfully navigated the difficult period with limited impact. We supported tenants with $17.8 million in rental rebates, which accounted for 1.7% of our gross revenue. We did not have to record any dividends at any point in time. So similarly, in FY 2021, the impact is minimal. We continued our support with an additional $1.8 million in rental rebates, and we did not withhold any dividends as well. Turning to conclude. More and more countries are planning to open up in 2022 and intend to live with this pandemic. So based on this, we believe the demand for our asset class will grow and remain healthy. Properties in the new economy such as technology, life science, data center and logistics now represent a significant 81% of Ascendas REIT AUM and contributed 78% to our gross revenue in FY 2021. So we believe 2022 will bring us more balance and predictability in our business. Thank you very much for your attention.

Thank you, Kit Peng. Before we proceed with the Q&A, I would like to invite our CEO, Mr. William Tay, to make some opening remarks.

Good evening to all, and a Happy New Year to you. Before we go to Q&A, maybe I'd just like to introduce two personnel change to the management team. I've been joined today by James. I suppose you know him. He was the Head for International Portfolio. And he has been promoted to the Head of Portfolio Management, responsible for Singapore and international portfolio. I'm also joined by Ram. He is a key member of the investment team, for the past 3 years, helping us to acquire the assets that you have -- you are familiar with. He has been promoted to the Head of Investment. So I'd just like to welcome these two gentlemen into the management team. And we will take you all to Q&A right now. Wylyn?

Thank you, William. [Operator Instructions] We can take the first question now from Dale at DBS.

Yes. Okay. I just wanted to check with regards to this UBIX redevelopment. Could you remind us what is the ROI on that as well as what is the committed occupancy like?

Thanks, Dale. When we first started, we were looking above 7%, probably about 7.3%. The COVID has caused increase in construction cost. So we ended with the final project about 10% higher cost than was budgeted. It ends up now about -- between 6.6% to 6.7%. In terms of occupancy, we are very pleased to report that upon TOP, we have precommitment of close to 20%. In fact, rental has been held -- holding up very well to pre-COVID numbers. We expect our stabilized occupancy to hit about 70%, 80% by the end of this year, which is actually faster than what we have budgeted when we first started the project.

Okay. Okay. Sounds good. Okay. The next question is with regards to the upcoming expiries for next year. Could you give us a bit more details on where the expiry is coming from? And should we be expecting this kind of single-digit positive rent reversions as well?

Okay. Well, we can go through perhaps each of the country. Maybe Wylyn can switch to Singapore first? Okay. Anyway, generally, I think in Singapore, there are still challenges despite that we have actually delivered a very high occupancy in 4Q -- ending 4Q this year. It's probably one of our highest in many years that we have 5, 6, 7 years that we have experienced. Primary reason is that -- you probably have heard me mentioned the key driver of the demand comes from biomedical, ICT as well as engineering companies. In fact, in 4Q, we saw a huge takeup coming from Science Park. As mentioned in the slides that we have actually captured some higher demand from Xilin's as well as FMGC as well as Science Park properties. You won't be surprised to see that the 13 University will be moving the campus to Science Park. So this is probably good for them as they're into health science and information system kind of causes. So being in a technology and science campus will probably help in their positioning. I also mentioned before in the 1 half that there was a biomedical company, 1 of the top 3 biomedical companies that Singapore government has announced. The lender, we found in one of our facility in Jurong. The -- in the same company, a different division has expanded, a very large expansion in Science Park. So these are helping us in terms of occupancy. But moving forward, we looked at the lease expiry. It's as usual, about 20%, 25% because of the wear is 3.4 years, so no surprise there. But we do expect that the trend will continue, that we'll continue to see demand from biomed technology as well as engineering company. Logistics also were featured quite strongly because, as you all know, 3PLs actually renewed their leases between 2 to 3 years as their contract expires in each of these 2 or 3 years. Rental reversion. We continue to believe that we will be around the low single digit. Despite this year, we delivered 4.5% overall, but this is mainly driven by overseas. And we believe that in Singapore, currently what we experience today, our renewal rates, our NTU rates, our new take-up rates, by and large, slightly higher than what we have seen in the market. So we are happy that some of our assets, when we reposition, it fits well and then we can command the kind of rental. So AEI and repositioning is important for us, and we'll continue to increase our CapEx into that space. Maybe you go down to Australia. Australia, we are in a very good position in 2022. If you look at the chart right there, majority are in Sydney. We probably have less than 15 leases due and there are more in Sydney. In fact, when we looked at the growth of our rental, it's strong for the logistics. Demand is strong. We have actually 2 assets to be completed, 1 in Sydney and 1 in Brisbane. In fact, they have been pre-committed despite we have a rental guarantee on them. U.K. -- yes, U.S., okay. U.S. is a mixed bag. But if you look at 2022, we have about close to 20% come due. That works out to be about less than 30 leases. Majority is in San Diego as well as Raleigh. So these are actually growth cities. Some challenges that we do see in Portland. But in terms of the vacancy in Portland, in fact, we are talking to some new demand right now. And we hope to be able to close that for Portland. And rent growth in Raleigh and San Diego has been strong. Portland, in terms of rental growth, I will probably say that it's obviously still flattish right now at 4.9. Next one, U.K./Europe. U.K./Europe, you'll see that there's about only 7.6% comes due and majority is in the Netherlands, which is a data center. In U.K./Europe, less than 5 leases will be due. We are now still negotiating with the data center user for the renewal, and I think we are in a good shape for that.

Next, we have Vijay from RHB.

Just a couple of questions. Firstly, on the acquisitions, I think last year was quite a good year in terms of acquisitions. You made some $2 billion worth of acquisitions. What's your outlook for 2022 with interest rates rising and capital rate seems to have compressed? And possibly, which markets still look attractive at this point of time in terms of acquisitions ahead?

Thanks, Vijay. Yes, it was a good year. We did about $2 billion -- over $2 billion of investment. And if you look at valuation uplift, we also see that in our portfolio. So in terms of what you mentioned, cap rate compression, we have experienced that largely in Australia, a huge amount of cap rate compression, which I also mentioned previously. What we have seen in Australia in terms of ability to acquire, we probably will be quite constrained given the fast pace of cap rate compression. But nonetheless, we continue to look at investment in Australia via fund-through as well as development. The last one year, we have been looking at -- we have announced logistics development as well as our fund-through in Macquarie Park. So this is a way to capture some acquisition in Australia. For U.K./Europe, we continue to focus on data center and logistics. Despite interest rate increasing as well as some challenges in terms of lending ourselves with good portfolio, we believe there is still opportunity in the logistics sector as well as data center given the fact that the cap rate is a very wide range, probably between 4% to 7% in the Europe region. So we need to be able to hunt well, perhaps even looking at secondary locations. So long as there are good specs, we are able to then capture those demand and those assets in those locations. U.S., we have gone in into logistics. I think that is one area that still continue to be attractive for us. Given the fact that the size of the market in U.S. for logistics investment as well as the debt is strong, we believe that we continue to be able to hunt in the right location. It could also be a secondary location. But if you look at the asset classes or the asset specs that comes along, they are in a very good location even though it could be a Tier 2, Tier 3 location like Kansas City that we've acquired. The other one that continues to play out well is the tech offices. We have done investment into San Francisco, but we continue to see opportunities in the tech office, which we were a little bit prudent, I would say, after the SF acquisition. And you have seen in our valuation that there are some expansion of cap rates in the U.S. tech space. I think that actually plays out well for us to acquire into the tech office in U.S. I hope I've given you some context, Vijay.

Got it. Got it. Maybe if you have to rank among your markets in terms of attractiveness and opportunities at this point of time, how would you rank it? And probably, can you give a ballpark phase, which you might be looking at for this year and maybe, say, $1 billion to $2 billion? Is that the right way to look at it? Or do you think you can exceed last year's acquisition this year?

I would say we'd have to exceed last year's $2 billion. But $1 billion, $2 billion is something that we want to be able to work toward in a sense that -- it has to be, first of all, meaningful, as I mentioned before. But we will not be shy from even small single acquisition and bulk up in certain locations that we find is attractive. We are working towards that. You've seen our track record in terms of our acquisitions. Between $1 billion or so will probably be something that we'd be interested to at least increase over the course of 1 year. You asked me to rank. I don't think I can given the fact that I mentioned the cap rate ranges for U.S. logistics, Europe logistics, the range between 4 to 7, which means we are still able to hunt. We need to be able to hunt correctly and acquire meaningfully and accretive. So we hope to close this year with good acquisitions and work towards the $1 billion acquisitions that you are familiar with.

Okay. Okay. One more just clarification. In terms of the performance fee adjustment, which you have shown in the DPU, does it relate to last year, there was no performance fees, and this year, you have taken $7.4 million performance fees. Is that correct? Is my understanding correct?

So last year, I mean, quite naturally, the DPU went down. There was no performance fee. So what we have done is to adjust back the rental rebate given the fact that rental rebate was mandated by the government, which actually caused a lower base as a DPU in 2020. So we have taken the rental bit. It's almost like putting back the rental bit as though there was no rebate. And then we actually factor that as our share of the performance fee to be with.

Next, we have Tan Xuan from Goldman.

I have three questions. I'll ask them one by one. First is your thoughts on divestment -- more divestments given cap rate compression?

At this point, Tan, The assets that we have right now, I would say they are healthy. While there's cap rate compression, we believe that holding on to some of these assets, especially in Australia. But we have done some divestments last year. But the rest of the assets are in, well, good location. Tenancy is strong. We believe that holding on will give us a better leverage in terms of returns. In regards to U.S., U.K./Europe, the acquisitions was done recently. So we will go through our usual wholesale to determine whether there is a need for us to rightsize some of this portfolio -- or rather some of the assets within the portfolio that we have acquired. And that could be something that we will do, but it won't be a big divestment exercise you expect. And in Singapore, as you have heard me mention before, we are sitting on very good locations in terms of assets. COVID hasn't helped by -- helped us because of the higher construction cost. If not, we would have pushed out more redevelopment opportunities and a lot more of this potential of these assets. So divestment may not feature strongly in Singapore as well. In fact, because of a large base, we are able to attract some of these new demand. As I mentioned, some of these new demand are actually new to AREIT, new to Singapore, which is able to help us in terms of listing our occupancy. As well as -- I may say that some of these in terms of location, they are very -- in very good locations. For example, I think there could be a question about data center moratorium. Some of these actually are sitting on very good hotspot data center location. We hope to be able to capture some of these demand -- or rather some of these licenses that the government will give up.

And my second question is on any pressure on NPI margin given cost inflation?

Yes, there will be. In fact, we also experienced some increase in terms of our OpEx cost given the fact that there is huge -- high electricity cost that comes along since last year. We have already done all our renewal. But you're probably very familiar with the way the retailers have actually gone about the renewal. There wasn't any fixed rate or discount of tariff that we are able to renew. Most of them are actually now on fuel base. But given the fact that it's a higher cost because of fuel cost, we do expect electricity cost to go up perhaps between 50% to 70% of our base in 2021 average. But electricity is only about 20% of OpEx. We will find ways to contain this via other savings in OpEx. But we are still monitoring this. But if we really can't, then we will have to increase service charge along the way. And that will actually cater to a lot more -- I mean, cater to other cost increase, not just from electricity but from other maintenance services that we will contract in the year. And we do expect some of this to go up given the fact that there is a higher labor cost requirement as well as material cost, supply chain disruption. So we do see that there will be some cost impact in terms of OpEx. But we will find ways to make sure that we are able to continue this.

Yes. And then just one last question on DPU, right. If you look at the DPU before or after performance fee, it still seems quite a bit below 2018 and 2019 level of $0.15. But since then, I think cost of debt has come down, portfolio metrics were broadly positive, and there have been several rounds of acquisitions. So can you help to explain what's the main factor driving this? And when should we see it going back to that level again?

Okay. Tan Xuan, thanks for that question. Give us a chance to clarify you. If you remember some of these DPU numbers in the past, almost every year in the last few years pre-COVID, there was one-off adjustment. That was inside the DPU. So that was -- probably the entire number was -- up to about -- close to $0.16. But the entire BAU business is probably hovering between about $0.15 odd. So that is the key explanation. I hope you've capture that, Xuan Tan.

Can you help -- what is driving that? What was driving the one-off adjustment?

Maybe Lee Sze will explain that.

Yes. So one-off fee...

Of tax.

Yes, of tax and also one of rollover adjustments. So definitely we took a step was what -- it wasn't deductible. And we work that in a plateau, we actually had an impact of rollover adjustments. So that contributed to the higher DPU in those years.

Up next, we have Joy from HSBC.

Two questions from me. Just -- first just on sort of the portfolios that you have acquired over the years in terms of your Aussie log, UK log and U.S. business parks. If you look back in terms of performance, was this in line with what you projected at the time of acquisition? And if you can just share some color in terms of performance versus initial projection, that would be very helpful.

Thanks, Joy. We do 12 months as well as 24 months after action review of the investment. By and large, all the acquisitions are aligned -- in line with our budgeted -- or rather, our FS assumptions. The key driver behind the performance -- I mean, for example, U.S. is varied. There's rent growth that we have seen in Raleigh, offset by some occupancy challenges in Poland. But by and large, as a portfolio, they are in line with our budgeted assumptions during our acquisition. Even so for data center, we have a whole year after our acquisition, we had a miss. Probably it's the last month of our transition from our operator to our owned operations. And we are ready. During these past 6 months, we have continued to be involved in the operation. We have renewed, for example, the property contract as well as the electricity cost contracts. And they are all in line with our assumptions. Kansas City that we have done recently, we have acquired some vacancy. I would say it surprised us that we were able to lease out the vacancy within a month of our acquisition. So we are very pleased with the acquisition.

Sure. And maybe just a follow up on what you mentioned. And we've seen portfolio occupancy up and downs within different assets. Were the sort of gap period longer than what we normally see in sort of local assets? And do you need to give a bit more incentives versus what we see in Singapore?

You're looking at overseas in terms of incentives?

Overseas, yes. In terms of incentives, was this also sort of in line? And I guess partly to Xuan Tan's questions as well because I think we're trying to compare the accretion that we were looking for when you first acquired -- and I guess COVID has affected. But on a normalized basis, was this also because of occupancy fluctuations and the downtimes that maybe we didn't incorporate?

Okay. If you want to look at it from that angle, yes, there will be assets that fluctuate given -- it's huge. For example, U.S. business park, the number of properties that we have -- definitely, there will be assets that do better as well as some assets that will have some challenges. And COVID doesn't help in terms of getting people back to office. In U.S., back to work -- back to office is probably about 20% to 40% right now. The past 1, 2 years is only about 10%. So viewing has been challenging. But by and large, it's not different from what we have guided. If you look at our rental reversion for our overseas assets, they continue to deliver double digits as what we have mentioned that -- for example, U.S. portfolio was under rented. And within the portfolio, there are leases that have fixed escalation, whether CPI or per annum basis. So this -- some of the differing performance of the assets, which is why you see some -- certain quarters, you will see that occupancy may be down in the midst of backfilling some of these vacancies or -- whether new vacancies or nonrenewal, we are not experiencing any longer. For example, in U.K., just now keeping as mentioned, there was a nonrenewal. But we have already filed a tenant for the logistics space. And we are in the midst of doing AEI. So in a market of such size, there are still demand. And the typical incentive hasn't really gone up substantially. Rental will be flattish. But since our properties are under rented, we are still able to capture the rental reversion. And when we are able to lease out with a new demand is of better rental than the previous leases that we formed.

Got it. And just moving on to my second question. We've seen quite good demand in Singapore, Science -- especially around Science Park. Could we expect more sort of build-to-suit or convert-to-suit opportunities and sort of the returns that we can look at around that -- for those opportunities? And also in Singapore, I think Changi BP, we've seen a little bit of weakness just in the recent quarter. Maybe if you can just share some colors?

Okay. Demand in Singapore is fairly healthy right now. As we speak right now, we are working on a few deals, whether they convert-to-suit or BTS though BTSs is new. We hope to be able to close them at least this year. This all comes from new demand into Singapore, whether it's in biomedical, chemical companies or even in IT space. Convert-to-suit we continue to work on them. We have seen a few RFPs that come up. They are looking at some of these opportunities in the business park area. We are responding to them. Hopefully, we get some of this demand into our space. You probably have also followed that this new demand, not just into the business park space. In the last 1 year, we have captured 2 very big demand into our bigger buildings, 1 in Woodlands and 1 in Jurong. And actually, this helps to lift our occupancy higher. We continue to be able to offer this because of the large size portfolio that we have. And we are prepared to walk hand in hand with all these new customers that we come into contact with in terms of customizing the solution for them. Your question about CBP. CBP occupancy is still healthy. We've been looking at some of the AEI as you have seen in Hansapoint and some smaller building to make sure that the building remains attractive as we look at some of the renewals in those buildings.

Let me take a few questions from the online webcast first. There's a question on what is the company's direction on data centers? What is the plan for renewable energy in office buildings? And is the company considering listing the data centers?

Okay. Data center featured quite strongly last year because of acquisition in Europe. In Singapore, we are probably the largest provider in terms of data center GFA. And in fact, when we know about the moratorium, even prior to the moratorium, we had drawing plans ready to convert some of these assets into data center. But now that moratorium has been lifted, we want to be able to capture some of this new demand or the new licenses that the government will give up. And the government has mentioned that this is not one-off, it's a pilot phase. So we hope to be able to capture this, if it's not this year, at least in the next few years to come. And they are sitting on very good location. I mean the -- we have 2 data center in -- near Tai Seng leased to our -- SingTel. And we still have a light industrial asset in the Tai Seng area, which essentially is the CBD of the data center. Not far from that, we have assets in Serangoon. We have assets in Tampines. These are all light industrial, which you have heard me mention, just like UBIX, the opportunity comes where we can reposition light industrial to a higher-spec building, whether it's a high-spec industrial or data center. So these are assets that we have and we hope to be able to work with and as well as attract some of these new license that the government give up, to land them in our portfolio. So we want to be able to grow this portfolio here in Singapore. And responding to overseas in terms of data center, while we like data centers in Australia, in U.S., we find that we want to be able to focus and grow meaningfully. So we have decided to venture into the Europe market. For example, London market in U.K. market, this is the second-largest in the world after Virginia, sizable demand for data center. Even in other Europe countries, for example, Netherlands have listed a moratorium. So we will continue to see supply going up. And the locations that we have obtained in our last acquisition, they are near city centers, which means that they can be converted over time. When new leases become expired, we want to look at redevelopment into each data center because latency is important for these data centers. And we want to be able to continue to grow there. Perhaps I'd also like to share most recently, because we have operation on the ground right now, we've been invited to participate in RFP for sale and leaseback because we have a data center operator experience right now. So we want to be able to leverage on this operational expertise as well as ability to scale up in the locations that we have selected meaningfully. And we want to grow those data center portfolio that we have. In regards to listing of data center, it's not on our plans right now. I think it's still a small proportion of our entire AUM. But we recognize that some investors have asked us that is a sort of sizable AUM to be listed. But we believe that the Ascendas REIT offers a very resilient portfolio, a multi-asset, cutting across from business park, life science and data center as well as logistics, which now accounts for about 80% of our AUM. And we have seen this resilience in the last few years in COVID. Tenant base has been very strong. Technology, life science, logistic 3PLs as well as government sectors will give us very resilient revenue income stream. In regards to renewable energy, we continue to monitor in terms of the reward as well as the investment into renewable energy. We have done that via some of these assets that we have. Right now, we have 7 assets that is generating green energy for us. We have probably the largest solar farm on a rooftop in Singapore. And we continue to explore to deliver more of these rooftop solar energy for our green buildings. So we also have put in place greening our own buildings. So we have done that with 1 building in 2020. So we have one that's going to be online in 2021 once we finalize all the RECs that we have and we are able to convert that into a green consumption building, there will be a second building. And in time to come, we have, in 2022, the third building to be able to tap on the green energy. Perhaps good to let the Royston know that the green energy in the data center that we have in Europe, the energy that we have procured are all green energy.

I'll take one more question on the online platform. This is somewhat related, so I think we can take this. Are there any plans to completely divest off the light industrial building from Singapore given that these are older in general and do not have much upside? I think the second question on greening of properties across the [indiscernible].

Yes. So light industrial, while the term light industrial seems to be more old economy or less attractive given that it may not be a fit nicely into the newer economy or knowledge economy, but the locations that they are in are very good. Just I mentioned a few of them, whether is it in the Tai Seng area, in Serangoon, in Tampines, it offers opportunity for us to capture some of these convert-to-suit. If it's not a data center, it could be a high-spec building. We want to be able to convert some of this light industrial, as you have pointed out, perhaps older in nature. But if we can, we can redevelop them. And then we can capture at a higher rent term. So for example, UBIX it was too light industrial, rental rates between $1 to $1.50 per square feet. We tore it down, amalgamate the site, put in a new high-specs building, larger floor plate. And rental we are capturing is above $3 right now. So these are ways that we want to reposition the assets instead of divesting these other assets.

Next, would you have any guidance with regards to gearing and CapEx for 2020 -- 2022, sorry?

Okay. Gearing frankly is healthy right now. Depending on acquisitions, we are able to, of course, tap on gearing to the scale of almost close to $4.85 billion. We want to stretch it to 50%, but we have to be mindful and prudent as well as the interest rate is rising. So in terms of CapEx, typically, in terms of AEI, we spend about $100 million, $200 million a year in terms of AEI. And another area of CapEx that we are prepared to deploy is for build-to-suit. For example, you have seen us deploying CapEx into build-to-suit for Grab which has turned out very well for us. Despite COVID, higher cost of construction, the NPI yield is still very strong at 6%. Prior to that, we were low on construction, maybe about 6.1%, 6.2%. So build-to-suit is one opportunity for us to capture some of this new demand. And we are working with customers on prospects. They are familiar with our ability to deliver as well as knowing very well the higher cost of construction. And they have to capture that within their visibility to look at whether they can invest into Singapore. So this is real demand. Hopefully, we can capture some of these via some of these BTS.

Moving back to MS Teams, Brandon from Citi.

Just 3 questions, I will just start them one by one. Just back to the business, the Science Park comment, right? Can we say that the occupancy improvement for your Science Park properties is sustainable, or is it a one-off? And also, how much will it impact any potential redevelopment plans in the next year or so?

Yes. Okay. For the Science Park, perhaps one outlier -- in terms of demand, Brandon. In terms of demand, perhaps one outlier is, as mentioned Curtin University. They are educational. But the rest of the demand that comes into our Science Park, for example, we have 2 chemical companies that went into new clause. I mentioned one of the biomedical company that took our manufacturing facility with us, have expanded into Science Park in a big way. You also have seen here in the numbers the new acquisition, Galaxis, has increased occupancy though Shoppee has expanded. We are happy to be able to capture the new demand. So this segment, if you look at the past few quarters, biomedical, IT technology has been driving all the new demand. And R&D, I would say, R&D sector is probably one of our top performing in terms of rental reversion. So biomedical, IT technology companies continue to feature strongly. As we have come to terms with COVID -- whether you are not, I think you continue to drive the demand, whether it is COVID or a new way of life into digitization, e-commerce and many other platforms. And we believe that this will continue to grow and -- as a source of demand for our spending. In relation to impact, I suppose you're asking in relation that if it's strong. Just let me clarify, if it's a strong occupancy, we hold back redevelopment Science Park. Is that what you're asking?

Yes. That's right. That's right. I mean we are sitting with to-suit, right? Then obviously, I don't think anyone really expected the jump in your buildings like Acer, Capricorn, Aries and buildings like that. So I mean they are relatively older compared to your other Science Park properties. So I was just wondering.

So the Science Park properties -- okay, I look at Science Park first. Given the fact that we are not developing to suit into a new campus, there will be substantial space to fill when it's completed. So fair to say that unless there is a demand that comes that require us to turn down and be nonspeculative in nature to redevelop any building in Science Park, then we will do it. If not, we are just competing a building that's next to the MRT station with a building that's farther away. So it may not make sense for us to take any speculative redevelopment in the Science Park location. But in regards to other locations that you have mentioned in IBP, yes, we started with iQuest. First, we did AEI for Nordic. Occupancy has gone back up strong in above 75%, 80%. We are able to find a tenant, a government agency to take up Techquest, the entire building. And then we follow on to do the iQuest development. We have pushed back iQuest development by a year because now we have completed a tender. We are doing the value engineering to make sure that we are able to contain some of these costs and see how we can work around in terms of efficiency to capture higher demand and better returns. Follow on that, yes, you are right. Then we looked at the opportunities for Acer as well as Creative. So it has to be timed to make sure that we don't cannibalize ourselves in terms of the timing of the development. Hope that makes sense for you, Brandon.

Yes. That seems very, very good. Just one last one. I think you mentioned about the DC conversion for some of your existing Sing properties, right? I think given what the pilot phase encompasses in terms of the limit on megawatts and how many projects the government is willing to give, and we have seen a lot of your peers wanting to go in as well, how competitive do you think A-REIT is compared to the other competitors? Yes.

Okay. I will say that we not at least -- not disadvantaged. At least, we internally have a group that manages or operates data center. As you look at our Europe acquisitions, we are able to work with a sponsor for them to deploy manpower and hire new people to make sure that we as a group, A-REIT, together with the sponsor can manage this data center. So in Singapore, I'm sure there will be properties and many landlords will want to be able to offer their facility for all these new licenses that the government will give. But end of the day, yes, there will be a lot of opportunities. But the location will probably speak for itself, where we have locations like in Tai Seng as well as in Serangoon, which is a very good location. And these are the key CBD of the data center. So there will be opportunity as mentioned. If it's not this year, at least the next few years as the government looks at how to improve both -- for example, the PUE, the efficiency. And they have given a very nice 10 to 30 megawatt, which is suitable for some of these sites that we have, right? If it's too large, obviously, you're targeting a hyperscaler. Perhaps, we have been too small in terms of our site area. But given the context and the criteria, some of our sites are very suitable. So it will be a hotly competitive market, Brandon.

Next, we have Derek at DBS.

Derek here. Yes, I've got a few questions. So firstly, on Singapore. I think we know that there's a fair amount of suppliers entering the market. I'm just wondering whether -- based on your discussions, are tenants more willing to, let's say, stay at current premises? And you'll probably be more shielded in one than what -- the supply that's incoming? Just your thoughts on that.

We still have a mixed bag of requests, whether you have downsized or they want to move out. The number speaks for itself. Our retention ratio is very high, in Singapore 75%. Overall, depending on building, it ranges between 60% to 90% retention. So perhaps you have been spot on, more likely to stay. They may look at downsizing. But overall, I think the right sector will give us the renter that we require. I mentioned our rental reversion. By rental reversion, key industries that actually do very well, R&D. Of course, the government sector give us a huge rental reversion. And the other is logistics. I think logistics supply is out there. But with a good location, right specs, we are able to continue to renew at a higher rent term.

Okay. Sounds good. And I'm just wondering whether the -- when you did the redevelopment of Science Park Drive and you're talking about capturing life science kind of demand. I'm just curious whether are you also capturing the same kind of demand in your other properties across Science Park.

They are likely -- those properties that we have are likely demand that we can capture right now.But Science Park -- One Science Park Drive is going to be ready in 2025. We are talking to some demand right now, hoping that they will pre-commit to a space take-up in a few years' time. So it's different timing, but we believe that the growth of biomedical and life science as well as technology innovation will continue to drive the demand for business park. And the site is next to MRT, near One-north new university. It's a very good location. We have a new campus environment. Of course, with new features and all these, naturally, when it comes online, chances are we will be attractive. But attractive property also don't come cheaply, right? MRT will definitely command a better renter compared to the rest. So the price point may fit well with different criteria of the companies. And we hope to be able to capture some of these in a existing property, which is why you have seen that our business and Science Park properties has shot up from last quarter by 81% to 87%.

Okay. That's really a good performance. Okay. Just a follow-on, I just want to look at U.S. Have you captured all your under-rented kind of leases really? So going forward, are we looking at a more normalized kind of reversion? Yes.

I would say the number of leases that comes due are not substantial. We have some that comes every year about 10% to 20%. We don't go to U.S. light -- U.S. yes. So we see about 10%, 20% lease that comes expiry for each year. Retention there is probably holding about 60%, 70%, which means that those leases will continue to give us higher rental reversion. Some cities, for example, I mentioned, Portland has been flattish. There could be some rental decline in some properties, but it's fairly flattish. Raleigh continue to have rent growth, a very resilient city. San Diego, we are experiencing rent growth right now. So there could be a stop in terms of rental growth in the past 1, 2 years. But we are able to still continue to capture the high rental reversion. As the market moves and opens up, I believe the range will start to come back in. More people will come back to office and work. Then, the under-rented situation will probably be continued for a while. Until we have the existing leases -- every year 20%, all the existing leases that has been renewed in the next 4.4 years that you see on the screen.

Okay. Sounds good. Sounds good. Sorry, last one for me. I'm just wondering, as you look for your next $1 billion of acquisition, right, can we assume that you are looking to deepen your current exposure while not looking at new markets like Japan or, let's say, Korea? These are not featuring at this point in time, right?

Yes. We will continue to look at our existing market. As I mentioned, U.S., Europe, they are big markets. We have enough opportunity to scale up. So we want to be able to scale up and be meaningful instead of opening up another new market, whether it's Japan or any other mature market. So we continue to like the -- as I mentioned before, Australia, U.K., U.S., these are markets that we are familiar Clear rule of law, we are able to operate in those markets. Transparent as well as operation, it's easy for us to make sure that we have boots on the ground. Even the past 1, 2 years, when there's COVID, we can't travel, but the boots on the ground are able to make sure that we are able to acquire meaningfully as we do all the due diligence, talking to consultants and making sure that we are able to perform in terms of acquisition as well as asset management. So we are comfortable with the markets that we are in and not to open up another new market. I hope that gives you some comfort.

Next, we have David Lum from Daiwa.

Just one question from me. The one takeaway I have from your results is that it seems like your occupancy rate has been -- is really gaining traction. If I'm not mistaken, it's probably one of the strongest quarters that our peers have seen. So that's a positive trend. Whether it's sustainable or not, that's anyone's guess. But I also recall over the last like 5 years, you've had periods where your occupancy rates haven't gone anywhere, yet you're still reporting positive rental reversion. So is it possible that if the occupancy rate is sustainable and you're gaining traction, could you surprise on the upside with your rental reversions for this year? Because you are guiding very conservatively. I think you mentioned low single digit. So is it possible that with all the demand that you're mentioning, that we could actually have a very strong reversion for this year?

David, thanks for the confidence.

I didn't express any confidence. I'm just putting it out. Yes. Okay.

Yes. In terms of rental reversion, as I mentioned, even you look at the statistics, we have market rates you can compare to JDC. In terms of occupancy, overall, as the market JDC, in Singapore, the occupancy is over about 89%, 90% depending on which asset clusters. We are able to now -- in fact, most of our clusters has outperformed the JDC's occupancy. And not forgetting that market rates, if you look at our market rates, we are closing them higher than what, for example, some of the major consultants have showed, which means that if you're looking at a huge upside in terms of rental reversion and new take-up rates, it will probably quite a stretch. I think we want to be able to continue at this performance, at this pace. And this is meaningful for us to make sure that, overall, as AREIT has the right resilient industries that we are capturing. Rental rates are strong. Occupancy is strong as well as able to continue to look at AEI to make sure that we continue to be able to get a retention. So there are a few factors here. So not necessary if you push rental reversion to too high, obviously, in these times, we may then lose some of this demand, which then also impacts the overall performance.

Next we have Mervin from JPMorgan.

Congrats on the occupancy performance. My first question in regards to the logistics strategy. Obviously, the cap rates for stabilized properties around the world is quite low. Just wondering your thoughts, are you looking to do more greenfield developments for purchase agreements or looking more secondary locations? That's my first question. Second question, maybe more on the big picture. I think it probably relates to some of the questions that people have been asking, the spin of the data center portfolio. How should we think about capital structure given cost of equity is quite high? Are you willing to push it further in terms of asset allocation? Last year, despite the DPU-accretive transactions, the market hasn't really responded positively partly due to interest rate fears. But just running your thoughts in terms of maybe reflections over the Christmas period, how you want to position the REIT going forward.

I'm not quite sure that I hear your second question. Maybe I'll respond to your first question first. In terms of logistics, yes, you have seen the cap rate compression very much so in Australia. But in terms of cap rates, has still been the 4% to 7% whether it is in Europe or in U.S. So will we do more? Yes. We will look at the secondary location I mentioned. We do development. If there are assets that comes along with part income, part development, perhaps we can look at it given the fact that in these 2 markets, we already have operators on the ground, asset managers who are able to run some of these development in AEI. And as I mentioned, when we acquired the portfolio, we definitely got to look and reposition some of these assets over time, putting in CapEx or looking at certain assets performance as we -- in the next 1, 2, 3 years, whether it meets to our expectation before we look at divestment. So we are prepared to do some development. But it may not be a big way that you see us doing in Singapore, where we can take on $100 million, $200 million, $300 million of development. If we need to, it could be multiple projects at one go in Singapore. So it will still be very much acquisition-driven for overseas logistics.

Yes. My second question is maybe I wasn't clear. Just the cost of capital is very high, which I don't think is quite right. But I'm just thinking, asking aloud what are your main thoughts in terms of how you can drive it lower from here? Because despite the accretive transactions last year, the market hasn't responded positively. So I'm wondering whether you have any consideration in terms of the change in asset allocation in logistics business parks, office or suburban office, data centers? Yes. I know it's a very difficult question. And I'm a keyboard warrior, so I don't know the answers. But you probably will explore -- more experienced than I am on this front.

I mean, end of the day, they are still accretive acquisitions. In the past 2 years, you've seen us deploying into technology, I call it tech and lock, tech buildings, data center. Whether it's in this park here in Singapore, Galaxis, logistics. These are the 2 key industries that we see, the asset classes that supports the driver in each of this economy. And it's not just about the immediate returns. We know that as a large REIT, as we acquire -- in terms of acquisition, it may not be huge and that most will look at but at least -- it's at least moving in the right direction. Whether it is 0-point something percent, at least in the right direction. And what we hope to capture is over time as we can unlock some of these brand growth in the portfolio, we start to see later years the DPU as well as the income increasing. So it's a necessary time to deploy to make sure that over time, the REIT is more resilient. As you have seen now, we have a nice mix of multi-assets cutting across from business space, data center, logistics as well as industrial. And each of the markets, for example, in U.K., Europe, it's quite focused, data center and logistics. In U.S., it's biz park as well as logistics. These are the new areas that we have gone into, and these are big markets. And we hope to be able to deploy more capital into these 2 markets. And over time, the REIT can also become -- have a better balance in terms of overseas exposure. Singapore is now about 61%, not forgetting that Singapore is a leasehold country. So we need to be able to, over time, build in ability to recycle or redevelop this property before they become too short a lease, right? But overseas, freehold properties, rental escalation in data, we hope to be able to increase our overseas exposure. It may not be a direct answer, a different angle. So hopefully, you are comfortable that in terms of the growth, we continue to like the growth industry, which is technology and life science as well as logistics.

No, I think the shift overseas for freehold has been very important and necessary to be done. I think there was some criticism, first of all, to Australia for logistics. But with benefit of hindsight, has been a fabulous decision with rents and capital growth. So I must commend you and the team on that. And I think many people should also commend you in terms of the wave of the -- partial wave of the performance fees. I think that's what investors have been asking for as well. So I must commend you and congratulate you in terms of your responding to investors' frequent demands. Anyway, all the best for this year. It looks like a stronger year with high occupancies and your rental reversions. Hopefully, you can beat or achieve David's expectations.

Thank you, David.

I'll move on to the questions online. How much of the rentals are in arrears in Singapore and other countries?

Rental arrears is not high. In fact, our rental collection is very strong across all markets. In the past, maybe it used to hover around 90%. But as of last year, all our markets are doing very well. The lowest is probably Singapore at 94%. Overseas is 97%, 99%, 100% kind of range. Unfortunately, for Singapore, as you have seen, our numbers for COVID about $1.7 million, $1.8 million of rental rebate. Part of it, as I mentioned, less than $1 million is because of the half a month that the government has requested the landlords to give up to F&B industries. Probably about $300,000 to $400,000 was out of pocket for us to help our tenants. The other bit that came out was some of the leases that were restructured due to realignment framework. Some of the tenants were not able to meet the restructured installment. They have to hold, which means that we have to write off some of this, above $600,000. So this is a small impact but in terms of helping our tenants is probably on our key driver behind some of these ad hoc repeats.

I have 2 questions from Nicholas. So the first one is can you remind us if there were instances in the past where you waived your performance fee and took a lower portion in the past?

No, Nicholas.

The next question is how much of the $86.5 million tax expense for 2021 is cash expense that impacts DPU?

I'll take that. 30% of the number.

Okay. Next, I'll move on to another question on utilities. What's the utilities bill for EV in FY '21? Using FY '20 as a reference, utilities bill was about $52 million or about 10% of distributable income. Does that mean that we could see the increase in utility scale of 5% to 7% of distributable income for FY '22 as a result of the higher energy cost? And how much of your utilities bill can be passed through and how quickly?

Percentage-wise, decent. Okay. Utilities has a few components. This is -- and if you're looking at the entire REIT, it's probably between Singapore and overseas. Let's confirm that. If it's overseas, utilities are usually passed through, right? In Singapore, it's landlords bear the utility costs. And the recovery is, of course, via service charge for all the common space and the other cost of maintaining the property. So just on electricity, utilities is probably about 20% of OpEx. We have not come to the end of 2022 to know exactly the impact of that. I mentioned 50% to 70%. This is a projection from the very low utility cost that we have experienced in the last 1 year. We have actually hedged all our utilities right up to June this year. So whenever there's ability, we know that we can hedge, continue to be able to hedge for the rest of the year. So we have actually factored in about 50%, 70% increase given the fact that we have not fully hedged all the utilities in the year. But as mentioned, we continue to see that the utility has not shot up the way it has gone up last year. So we believe that we'll still be able to contain them. But we are monitoring this to see how we can then recover some of these via service charges. If you're looking at how quick, yes, our leases do allow us to adjust our service charge. But it will impact in terms of tenants' overall cost structure. But giving enough time to tenant, perhaps a few months ahead to plan for that, at least in terms of advance notice, we should be able to then increase service charge if we need to.

Okay. Next question. Inflation rates have been relatively high globally. How much of this do you think can push through to tenants in the form of higher rents?

Yes. There's a correlation, but it's not direct correlation in terms of inflation. Over time, rental rates should be able to reflect the CPI, the inflation rate. Overseas, some of the leases are directly packed, linked to CPI, which means that there's inflation. Of course, we can actually capture them. But open market like Singapore, I think end of the day, other factors, supply/demand, location attributes, all this come into play. But with inflation, we do see that there is opportunity when eventually rental rates and most costs would actually be higher. So in terms of rental, we are today are able to capture much slightly above market for most of our asset classes. And with that, we are actually above market right now. And adding on inflation, it has to be a market-driven rental base.

Right. And another question on investments. So in the longer term, 5 to 10 years, will investors be expecting AREIT to continually prioritize opportunities overseas instead of in Singapore?

In terms of priority, I would say that overseas market do give us better opportunity right now. You have seen us acquiring more overseas in the past 1, 2 years. Today, Singapore is about 61%. We will take a lot of overseas investment to bring Singapore 1% down to about 40%. Today, we are 40% overseas. So you've got to swing it the other way, you'll be a lot of investment overseas. But given the size of the REIT, even it will deploy in the same proportion to overseas more in overseas than Singapore, you will still see that Singapore is still a big base. Today, Singapore is about 61%. It will take a lot of overseas investment to bring Singapore 61% down to, what, 40%. Today we are 40% overseas. So you are to swing it the other way, you'll be a lot of investment overseas. So even as a REIT, as we deploy more overseas, we can see that Singapore, probably from 61%, moving down to the 50%, 150% range. It will still be a very much Singapore-based, Singapore-focused REIT. And not forgetting, there are still opportunities here in Singapore. For example, our Science Park Drive development, the sponsors. They have assets that we are keen to acquire. So Singapore will still feature quite strongly in our portfolio.

So I think that's all of the questions we can take today. Before we close, William, would you like to just have some closing...

Okay. Maybe a short one since we have covered most of our points. As I mentioned, this is quite good results given that occupancy has hit the 9th in Singapore, which we've been hoping to achieve for a while. And we've been hoping about 88 -- 87, 88 for many years. This is a good achievement for us. The positioning that we have in terms of our portfolio has been our key driver. We want to make sure that we are able to pull in the right enhancement, redevelop the properties. And for Singapore, we want to be able to do it before the leases run out. We continue to like the -- park in Singapore. And you know that the sponsor there has a few assets that we are keen to acquire. These are very good quality assets. As we start off our One Science Park redevelopment, I think we were in a very good shape to capture new demand. This is the strength of the REIT, which is why we are able to capture some of this very new demand that come into Singapore. Rental reversion. We've been guiding low single digit. But in terms of our performance this year, about 4.5%. As we have -- as you have seen, driven very much overseas because of double-digit under-rented in some of our portfolios, some of the assets. Singapore, we continue to be able to drive rental reversion and now coupled with higher occupancy. So this is all good for us, and we hope to be able to keep up this performance over time. You may see some fluctuation within quarters, but this is just transition to make sure that assets can be turned around, space can be turned around if we need to backfill some of this demand. We continue to like the biomedical technology sector, which has given us a very resilient income as well as data center. And for the next -- this year, this will probably still be the acquisition targets, the tech and lock that we are very familiar with. And we want to be able to continue to deliver the acquisition in this sector. Thanks, Wylyn.

Thanks, William. I would like to thank everyone for joining us today. Please take care, and goodbye. Thank you.

Thank you. Bye.