CapitaLand Ascendas REIT (A17U) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. My name is Terence Lim from Investor Relations. Welcome to 622 Lorong 1 Toa Payoh, a property that we just recently acquired earlier this year. Thank you for attending CapitaLand Ascendas REIT Financial Results Briefing for the period ending 30th of June 2023. We have management representatives from the CapitaLand management today. They are Mr. William Tay, CEO; Ms. Koo Lee Sze, CFO; and Yeow Kit Peng, Head of Capital Markets and Investor Relations; and Mr. James Goh, Head of Portfolio Management. Today's briefing will consist of a presentation followed by a Q&A session. Please note that today's session will be recorded and will be available via webcast. Before we start, let me brief you those present on the fire evacuation plans. These are the fire evacuation routes for you to take to the assembly area. The next slide shows you the assembly area besides this building. We will now proceed with the presentation of our financial results for the first half period ended June 30, 2023. You'll be presented by Ms. Yeow Kit Peng, Head of Capital Markets and Investor Relations. Kit Peng, please?

Good evening, everybody, and welcome to CapitaLand Ascendas REIT First Half 2023 Results Briefing. Key highlights, financial performance, the distribution income for the first half of 2023 is 1% lower at $327.5 million. Distribution per unit is SGD 0.07719, 2% lower year-on-year. Investment properties, SGD 17 billion, 2.5% higher than 30th June 2022. On the asset management side, portfolio occupancy was stable at 94.4% and a positive rental reversion of 14.2% was achieved. For capital management, leverage was 36.7% and we continue to maintain a high level of natural hedge at 75%. Let's dive in. So this is first half '23 versus first half 2022, gross revenue is up 7.7% to SGD 718.1 million and this is mainly driven by the 3 acquisitions in Singapore in the first half of the year. So the 3 properties are this Toa Payoh property, 1 Buroh Lane, as well as The Shugart that were acquired in the first half, right? Net property income increased 6.7% to SGD 508.8 million and its corresponding to the gross revenue, however, offset by slightly higher operating expenses. The total amount for distribution declined 1% and this is mainly due to the increase in borrowing costs on rising interest rates as well as a higher loan quantum as we buy more properties. DPU fell by 2% to SGD 0.07719. And this takes into account the lower distribution and as well as the enlarged unit base following the issuance of new units during the private placement in May. So this is first half 2023 versus second half 2022, same reasons here. So gross revenue is up 4.7% and that is driven by the contribution of the 3 Singapore properties and for net property income, similarly, also driven by the new acquisitions as well as partially offset by an increase in the operating expense. So distribution fell by 1.7% and mainly due to higher borrowing costs. DPU fell in tandem. And of course, due to the enlarged number of units following the private placement in May. Okay. Distribution for the period of 25th May to 30th of June, we'll be distributing SGD 0.01578 and you'll be getting the distribution on first September. Moving on to investment management. So these are the 3 properties that were acquired in the first half. They are all in Singapore. The total acquisition cost amounted to almost SGD 515 million. These are very well located and good quality properties and very importantly, they are accretive. So during the same period, we also divested a property, KA Place for SGD 35.4 million and at a very high premium of 55% to the valuation. So this is overall in line with our strategy to deploy capital towards value-adding opportunities, thereby improving the quality of our portfolio. We have seen this. So capital management, okay. As we continue to acquire properties, the total debt increased to about SGD 6.6 billion as at 30th June, 2023. However, Gearing is healthy at 36.7% following the successful equity raising in May, so we raised SGD 500 million. Our emphasis is to ensure a healthy gearing level during this uncertain business environment. The -- our debt is well spread out. In any 1 year, we have 15% or less of our total borrowings that will come due for renewal in the next 5 years. The interest cost for as at June is 3.3%. So this is the same level as March 2023 during our first quarterly business update, all right? Compared to December 2022, it was 2.5%. So the high level of fixed rate debt that we have, 82% is circled, 82% that helped us to maintain and have that gradual increase in the interest costs. So the rest of the financial metrics are at very healthy levels, exceeding -- by exceeding the required minimum levels by bank covenants, okay? We continue to enjoy the Moody's A3 credit rating, which is very important. It provides us with a lot of flexibility and also definitely stronger access to capital. Okay. So we have 2 sensitivity table here. On the left is on the percent of fixed rate, 82%. So for the balance 18% that is on variable rate. So based on 100% -- 100 basis point increase in interest rates on the variable rate debt, then the impact on DPU would be a minus 1.8% for distribution, all right? And on the right, it is on our refinancing for the second half of this year. So we have about SGD 668 million that's coming for refi and assuming a 100 basis point increase in interest rates, then the impact would be a minus 1% on the distribution and pro forma basis. Okay. Natural hedge. So to minimize any impact from adverse exchange rate fluctuations, we have a high level of natural hedge of 75% for our overseas investment, which accounts for about 40% of our investments, right? Okay. Portfolio occupancy. Very stable at 94.4%. So if you were to look at all the other countries -- all the countries that we are operating in, they are all above 90%, okay? We have some details here for Singapore, stable at 92.3%, right? United States declined slightly to 92.1% and this is mainly due to movements in Raleigh business parks. Australia improved by 20 basis points to a high of 99.5%. And this is due to the high occupancy at cargo business park, which is a logistics property in Brisbane, okay. U.K., Europe, happy to report that all our 38 logistics property and our 11 data centers are very full, right, 99.5%. In terms of new takeup in Singapore, we saw demand from tenants in the logistics, IT and engineering -- financial services industry. Most of the leases that were signed are for 3 to 5 years, right? Although we had a lease that was as long as 8, 9 years by a bank. Overseas, new pickup. We saw demand from companies in the IT data center logistics industries. There was a lease in the data center space for as long as 15 years. So all these long leases will certainly provide care with a long-term stable income stream. Rental reversion. So in 2Q, we achieved an average rental reversion of 18%, so if you were to zoom in on to Singapore, it is 19.5%. And for U.S., it's 11%, Australia, 12.9%. And with our full year -- half year, half time, 14.2% increase in the rents, we will be guiding for a positive high single-digit range for this year. Okay. So the WALE is 3.9 years. For the rest of this financial year, we have 6.9% of our gross rental revenue that will be up for renewal. So -- then I will come to this ongoing project. So we have -- we are working on almost SGD 800 million worth of projects that's undergoing development, redevelopment, asset enhancements and compared to suit. So this quarter, we have a new addition -- so this is 5 Toh Guan Road East, which is the logistics property. Here, this property is -- we're going to be spending SGD 107.4 million to redevelop 5 Toh Guan Road East. It is very strategically located in the prime Toh Guan LogisPark with double frontage of the PIE and Toh Guan road. Now we will be maximizing the plot ratio and the GFA will increase by 71% to 50, 920 square meters so quite a size of logistics property. So the new property will have -- will be 6-storey high with ramp-up facility. Some key features include 82 dedicated loading base, power provision for whole storage usage, very large contiguous floor plate with ceiling height of up to 12 meters. So we will also be adopting sustainable construction, green concrete and sustainable products that will be used, and it will be targeted to obtain the Green Mark Gold plus or higher certification. So the completion will be in 2025. Okay. So finally, to conclude, our well diversified and resilient portfolio is generating a steady stream of income, as you can see. We will continue to acquire quality properties with good returns potential. So given our very healthy gearing of 36.7% and our strong A3 credit rating, we are confident to ride out this economic uncertainty, right? So with that, I end my presentation.

[Operator Instructions] I believe, Mervin, you have the first question.

Mervin from JPMorgan. Congrats on the very strong rental reversions and output guidance for the full year. Maybe you can start on Singapore. Can you just touch on what's driving the healthy reversions? Is it very strong demand from relocations expansion? Let me touch on logistics and business parks, which I think has been worry for some investors. Second question is regards to electricity. CDL Hospitality Trust was talking about quite a material drop in electricity costs heading to next year. Maybe you can touch on what rates you can lock in for, let's say, second half this year and next year? And then finally, third question, now investor concern has been U.S. office that maybe you can address those investor concerns given that you being able to maintain occupancy at this park.

Let me just start. Thanks, Mervin. The Singapore reversions, as you can see, is mainly driven of logistics. 39%, this is really a strong number that we have delivered. The supply-demand imbalance is still there. There's hardly any supply right now. You can see that even ourselves, we have actually decided to turn down 1 warehouse and to rebuild into a new ramp-up facility. The reason why we didn't close that earlier is because we are talking to our tenants to move them to our own facility. And we have already landed the anchor tenant into our own facility. It shows that logistics is a movement from just in time to just in case. And I don't think it is stopping right now. I think it's probably still a need and many companies are still planning in terms of just in case, that's actually driving the demand. And because of that the supply is not turned on that fast. Overall, in the industrial and logistics and even BP market here in Singapore. This year, another 500,000 square meter space to be available, another SGD 1.9 million next year. But if you look at the precommitment are all very high between 60% to 70%. Business part, if you look at the supply and demand for the next 3 years, actually together with the sponsor, we are probably the one that is driving a lot more supply in science part including our transformation IBP. So if you see the chart, most of a 0% not occupant. Occupancy at 0% precommitment is mainly from our own properties, but there are still 2 to 3 years away to go. So we are fairly confident that we should be able picked up from there. And also mentioned previously that the business park space actually has surprised us a little. I guess all of us were concerned over the movement of work from home, banks moving up, but you're not surprised that there's still downsizing, which is a norm right now. But successfully, first Q, we have brought in one new financial institution into CBP. And second Q, we also brought another financial institution -- new financial institution into CBP. So we see this as BAU given the fact that there will be relocation, there will be downsizing, but as well as expansion and new takeup in our space. Industrial has been doing very well, which is also driving the growth. I would let James touch on maybe anything to add on.

Sure. Okay. Thanks, Mervin, for the questions. So first off, on the elec, we see similar trends as well. So our second half rates that we have contracted is about 9% lower than what we contracted for the first half. For next year, our formula has been locked in, but we have not locked in the contract. The base components of that formula would include cost of your crude oil, FX, et cetera. So that tends to move. But based on where prices are today, we would see a further decline in next year's elec cost as well. So again, that's just to provide some guidance. Moving on to U.S. office. I appreciate the concern about the U.S. given all of the negative headlines that you have seen with COVID accelerating the work from home and phenomenon but I'd just like to put things in perspective, if you look at U.S. as a proportion of the entire portfolio, they make up of 14%, of which 2% of that -- this is in AUM terms, but it roughly translates to NPL as well. About 2% goes to logistics. So we're down to about 12%. Then out of this 12%, if we carve it out further about 5% belongs to the SOMA properties. And those SOMA properties, they are very good trade A properties with a fairly long rail. One is leased for the next 10 years, another for -- another 4 years. And for the building that is currently has 4 years to run, that tenant has subletted one of the largest IT companies and they invested a substantial amount to retrofit the building to their requirements. So we are, again, very confident that building will continue to be leased even after the fourth year. So if I take out SOMA, which is another 5%, we are down to about 7%. And so this 7% would really be the 3 initial portfolio that we acquired when we went into U.S. So that would be Raleigh, Portland and San Diego. And if I were to break down the dynamics for these 3 cities, San Diego stands out, it's high 90 -- well, mid-90s kind of occupancy currently. It's really anchored by your tech, your defense tech life sciences. San Diego is one of the top 3 overall markets in the U.S. for life science companies. So there's a lot going on, a lot of good that's coming out of San Diego. So we are fairly confident with San Diego. Next, we move on to Portland. So Portland, I think many of you would have been aware that it's been a bit bumpy and that occupancy has come down since our original acquisition. And that's sort of like a reflection of where Portland is. It's never been a Tier 1 kind of city but it has its own chance and we continue to see deal flow in terms of leasing, but it tend to come from smaller kind of tenants but we have -- if we just observed for the last 2 to 3 quarters, we have more or less maintained occupancy there. So it's come off, but I'm still fairly okay with Portland. Next, I move on to Raleigh. So Raleigh this year, there was a big chunk of our leases coming up for expiry. And quite a few of them are IT kind of companies and many of them have downsides, which again is no surprise. So I think for Raleigh, the worst is probably behind us. We are through most of the lease expiries for Raleigh. So I think overall, the message that I'd like to just pass on is while U.S. definitely isn't positive, as you can see from the headlines, but on overall impact to the portfolio, that's not too bad as in we are not overly concentrated and that's where the beauty and the advantages of having a very diversified portfolio is SGD 17 billion worth of AUM, 230 properties across 4 continents helps because at any point in time, there will be some markets that will be doing better than others. Case in point being in logistics in Singapore 3 years ago, rents were coming off quite badly. And today is the darling of the markets, right? So while I'm not saying that's going to happen to U.S. in 3 years' time, but I'm just sharing based on past experience, at least we have gone through cycles like that. And the other thing that we have going on for us in U.S. is currently, our rents are still below market, which is why you see that in terms of rental reversion, even for business park space in U.S., we are still checking up fairly healthy kind of reversion. So that helps to slightly mitigate some of the losses that we get due to the lower occupancy. So I hope I've answered your question.

So in summary, the U.S. office is probably Raleigh that is the one that is probably we need to do some work. First quarter, the weak occupancy came down because of Raleigh, second quarter as well for Raleigh. Portland, there is downsizing, but we managed to find new tenants, which is why if you look at our Portland even for second quarter, the occupancy actually climbed up slightly. So all in all, I think that is a market that we find that the flat from CBD locations to our urban location in Portland is still a feeling factor for people to move. Raleigh being a more of a research. It requires, if you like, our state investment into Raleigh, which probably we need some time to work on those vacancies.

Just 1 question on the acquisition front, right? Can you update us on the EU acquisition that you were supposed to be doing duty? Is that still in the process? Or is there a delay, what's the reason for the delay? That's the first question. And also on the acquisition price that your perspective vendors are looking at, have you seen any interesting expansion in cap rates that we see more deal flows coming through over the next 6 to 12 months? Those are my 2 questions.

We are still on track. No delay. Just to update the duty has been completed. So we are just finalizing the documents and the rest of the details. We should be making announcement soon. In relation to cap rates, actually, in terms of various asset classes other than U.S., which we see some movement in cap rates, Australia, Europe, the cap rate has been quite stable. Even for our own assets, you probably have some time to look at the valuation later. Our valuation has been fairly stable, small movement, 1%, 2% in each of the country. Singapore, actually, the valuation went up. U.K. also went up by about 3%. I don't see any big expansion movement in Europe. We probably will expect more transactions in second half across the countries that we operate in. So that may give indication to valuers exactly where should the cap rates be in the next 6 months. So we will watch that -- watch out for that in our December valuation. What we hope to see is that now when the interest rate is more or less, I would say, for some of these countries that we operate in is probably quite peakish in ready. We do see more interest to transact, which is why I think the market is expecting more transaction in the second half.

Just 2 questions from me. I think, firstly, with regards to redevelopment of One. Are you able to share what is the expected ROI, I mean you mentioned about moving off the anchor. And are you saying that you have an anchor tenant there or the anchor tenant from the building we look at...

Moved to another location.

Okay. Okay. And my second question is on the debt. So you have that 600-plus are expiring this year. I believe you are probably in quite advanced stages of negotiations already. Just wanted to know what should we be expecting in terms of cost of debt by year-end?

Yes. I'll take a second question. For the first question, so there's the anchor channels existing there. We have moved them to another location of our property, of our portfolio. What is driving the redevelopment is actually a transformation from a cargo leaf development to a ramp-up facility. Typically, a cargo leaf warehouse at rental right now, probably about 120 -- 110, 120 but a ramp up for city is actually much more easily 25%, 30% higher than a cargo lift. We only have a few [indiscernible] in the West. The rest of the cargo leaf warehouse are all in the East. So this is in a very good location as untapped out ratio. So it's not just the rental that is driving the interest for us to redevelop but the 71% increase in GFA is quite huge for us. You won't be able to -- I mean you will see 0.5 million square feet building coming up in that location is quite huge. In terms of U.S. side, you're not asking about NPI, we probably looked at 6% to 7%, depending on where we can land in terms of the interest possibly higher if we can lend co-storage, which we managed to get higher electricity to be able to fit a co-store, if we need to. So just a close up. We don't have any tenants right now, but there is interest out there. We know there are some RFP that we are working on and we are able to improve yield if we can land in a coastal.

Yes. So on that SGD 668 million of borrowings coming due, some of it is maybe August, September and then some of them are in December. So the average cost for these borrowings currently is about 2-odd percent, so when they come due for refinancing, I mean assuming the same panel, all right, all things being equal, then the cost could go up to around the 5-ish percent, right? But put it in perspective, SGD 668 million is 10% of our total borrowings. Yes. So for the full year, I think at half time, the average cost is 3.3%. So for the full year, we think it's going to be around this level, it could be 3.3%, 3.5% there about based on current benchmark as.

And for your question David.

Have you done a study for your end tenants that moved from just in time to just in case, how much more space would they need? Do you have any idea?

I don't think we had that idea. But conversations around has been more on meeting of own tenants or their clients' requirements. And the -- I would say even for COVID, when during on COVID, we do see some of these stocking up of inventory. It has reduced in terms of number of providers to provide all this inventory, but the amount of space that was taken up for all these additional stocking up and just in case has been the same. So for example, the number of customers who given the mandate to help the government stock up at that point in time was about 4 to 5 logistics players who were supposed to help with all these national mandate. The 4 or 5 has reduced to 1, but the size of inventory is still required is still the same. So I don't think we could clearly see whether is it a just in time or just in case, but you do see that a lot more expansion requirements out there. Even right now, they were asking about whether it's a tenant I mentioned it's RFP out there. We are responding to some of its RFP and 0.5 million square feet is in the location of Toh Guan is very attractive. I can't give you an exact number.

Okay. Another question is, can you discuss why the NAV dipped half-on-half, because it seems like your placement was way above 4?

So you look at the adjusted NAV is actually quite similar SGD 2.31.

And I guess my final question is going back to the refi. Do you think mentioned that the -- you're going to refi from like 2-odd percent to up to 5-ish percent. So when we look at your sensitivity tables, we use the 300 bps as the best indicator for sensitive?

No, that's all things being equal. So I cannot -- I mean there will be other moving parts right. Yes? And for -- I think I should also add -- some of these headline numbers, right. Some, we have to consider what currencies are in also. Singapore debt is -- will be cheaper, maybe around 4% for 5 years, okay? And then maybe for the selling bonds would be around 5, 5 plus. So it depends on what currencies we are talking about, okay, and the panel.

This is Tanshin here. First question is on acquisition, right? I think William mentioned you expect second half to see more deal flow. Does that apply to care as well?

We've been quite active -- we -- I believe we still have enough pipeline to work on, whether we can actually successfully land them or not, I can't give a clear indication to hit 40%, we have SGD 1 billion of headroom, which is quite good for us to be able to use when an opportunity do arise.

The second question is on reversion, right? I understand it's on average on average, but can you give more color? Are there leases is excluded if it's renewed for a separate tenant or does it include all leases as renew?

All leases renewed for multi-tenanted building.

Okay. Okay. Got it.

Yes. So if it's a new tenant, it's separate -- it's considered new takeup.

Also multi-tenanted building, but to new tenant is excluded.

Yes.

If we include that, does the number change materially?

In terms of the market rental right now?

The reversion number.

Reversion number won't be that higher. Won't be that high. So if it's a new tenant who comes in, they be likely given the supply-demand right now in Singapore, they're probably quite similar to where we renew. So a new tenant comes in probably the same as where we renew. But our existing tenant, we compared to the previous lease average, right? And it's 3 years. So it's last 3 years' average. So a new tenant comes in, the others looking at a market rate. But in terms of contractual, they are likely to be same as our renewed tenants. You catch that. Yes. There was one period or renewal was stronger than market rent, but now they are more or less the same.

Anything to add, James?

No.

Joy from HSBC. Two questions. First of all, on acquisition, would you be explore other new markets to tap into your spreads?

I think we are fairly busy in our -- the markets that we are in right now. I think we've been -- I mean, we talked about, for example, other mature markets, which is what we've been more keen on includes, say, Japan, Korea and all this. But we find that it's a very different market from where we are right now, volume may get better use spread, but we want to make sure that we are able to execute them, enter at a sizable AUM or acquisition and then subsequently be able to scale up. So that's why we want to hope to achieve, some of these markets may be able to allow us to scale up that fast. If you look at our track record from Australia to U.K. to U.S. once we enter, we are able to scale up each of the market now is between SGD 1.5 billion to SGD 2.5 billion, which is quite substantial for us to manage, and we hope to be able to deepen ourselves there.

And then second question is to follow up on Singapore, your redevelopment. Will the land lease being able to extend it on the back of redevelopment?

Not at this more point in time. It's not part of consideration right now.

And just to confirm 6% to 7% is your cost.

Yes. .

And if I may just follow up, just amongst your market, do you think it is still more higher return to redevelop? Or would it be more attractive to actually acquire?

Actually, I would say the redevelopment allow us if there's opportunity for us to unlock plot ratio or change the usage to be able to tap on the higher rental, I think it's probably be more attractive given that construction cost has -- is still high, but it has more or less stabilized as well as in the markets that we are in, we have started looking at much more AEIs probably what James can explain also in U.S. because of changes in occupancy, give us more comfort to invest into AEI, that also attracts tenants to come back. I mean, tenants at their employees to come back to work. It helps them and there's more amenities. We are doing more quite boxing as in preparing the space to be leased out so that it becomes cheaper for them, easier for them to decide. Once that is done, I think it's probably easy for us to get it leased up. That's primary results because construction costs vary contractor has more or less stabilized right now.

Any further questions from the floor? In the meantime, I think there were some questions that are posted online, but I believe most of the questions have been addressed. Does anybody else have any other questions? Wola?

Just wondering, okay, so there's a large expiry coming up in the U.S. in 2024, just wondering what it is and whether you've started negotiating because with this from the first acquisition that you made in those 3 regions? And then also in Australia, you've got a couple of expiries so other passing rents or your NPH rent a lot higher than the market rent because that tends to happen in Australia after a while. I'm just wondering whether those things would impact those expiries, then the 3 properties that you acquired recently, and I said this before. They're only on 20-year leases. So what do you plan to do when last table kicks in. I'm just wondering because there'll be some -- will they start to be written with the valuations in terms of form? And did the valuations that MUST make in the middle of the year -- this year, does that have any impact on your own valuations? Do you think that you should? And also in Australia, there was a large -- there was a transaction on the -- the Texas one, yes. Does that have any impact on your Australian vote? I know is it more or less a different with the asset class. And then the last question is, we have kicked in when you said that there were -- that you had 2 tables, 1 on the left side and 1 on the right side, would both of them kick in this year when we -- because you've got some floating rates, right, that you said and then your SGD 600 million is going to be renewed at that high level. So the 100 basis points still be at the same time 2% to 3% of DPU is there?

Well, okay, it's not meant to guide on DPU, it's really stand-alone, all things being equal?

That's pro forma basis.

Yes, it's pro forma FY '22. So what possible impact it might have, yes? But I think the point is that we want to highlight that because of the high level of fixed that will really help to minimize the volatility of our DPU yes. And although when this SGD 600, SGD 700 million loan borrowings come due, there are many ways how we can save money, right? I mean we're not limited to the same structure for the existing ones, we can always look at alternative options like take on a different currency and then you swap it to another currency that result in a cheaper, more competitive rate, right? But this is just a very ballpark guidance like-for-like, the same loan, if it was a 5-year loan, then we apply a 5-year loan looking forward what the cost might be, okay? Yes.

So your left and right, Teva, I think if you looked at the unfixed portion, it's been moving up, right? So in terms of impact, it's not that huge for us even that we have been able to fix now at 82%. You're right Teva, it seems like I gave away what to look out for by a pro forma basis. And there's no surprise. I mean, just what Tanshin asked about the question about average. These were loans that were signed 5 years ago. I mean they definitely were much lower refi you were on the numbers, what kind of rates that we will be looking at. And then you will know what's the jump in terms of the change in interest rates. Moving up to your valuation question. If you look at our valuation, our U.S. is negative 2.8%. So what we did is a in-house revaluation exercise where we look at operational performance margin, occupancy, the rental rates that we achieved without touching other variables that the value was done, example, cap rate discount rate. This was done by third party. So this is an in-house valuation just to adjust the performance for the 6 months, right? With that, U.S. came up to be about 2.8%. We find it as we also have a conversation with our valuers. The indication to us, if we were to do a valuation exercise today, evaluators will guide probably in the market is about 25, 30 bps expansion for the assets, locations that we are in. Dexus came out organize for Australia. So Manulife came out much higher. I think in terms of numbers, about 75 bps, which I think they themselves will say that this a surprise with the valuation. So we are quite different in terms of the locations that we are in. Occupancy has been fairly stable, while there is movement, but yet rental rates has been strong for U.S. For Australia, the movement is about 1.2% down, which also adjusting for occupancy, margin, the rest of the operation numbers. If we talk to our -- when we talk to our valuers for Australia properties, they also guided, if there's any movement in cap rate, it's probably about 25 to 30 bps. Dexus has moved between 31 to 32 bps, I think that's quite in line. So no surprise there and Australia is also as well as that we have a very strong logistics as offsetting the numbers that came out from office, okay? So I think we are fairly aligned in terms of where we see the numbers are even without adjustments of revaluation exercise by the part. Maybe I'll touch on a 20-year lease. We are in a building that we bought in '21. I don't think there is -- we looked at various factors what it was used before this, it was also a Philips factory. This is brand new. They rebuild this. If you look forward, I think the land use has still been in industrial. The likelihood, obviously may convert to residential, but as is when we look at how the industrial landscape has been executed here in Singapore, there will always requirement for employment in residential estate, so they will not take out every single industrial site in the residential estate to convert to residential and simply put all employment facilities out into the West or the East. So every residential estate, there will be employment requirements. If you look at -- I think I was talking to David just now, if you look at where there's a hint of any change in the land use is when you change an industrial or a site to reserve our site, right? So [indiscernible], you will know there will be a change in time to come in a concept plan we have 5, 10, 15 years, this has stayed been industrial site and has been here for the past 30 years, 40 years. So we believe there's a good chance that we will be able to talk to JDC when the lease do expire to extend this space. But bearing in mind that while there is opportunity to extend JDC today for all any new leases is 30 years. So it will be a norm. I think it's probably at a stage where we are able to buy in the past 30-plus years because the lease was 30 plus 30 as new leases now is allocated at 30 years, you will then be able to buy maximum 27 years. Why? -- sorry, 23 years. Why? Because there's 5 years moratorium and 2 years construction. So 7 years is taken out of the lease. So maximum is 23 years. So that will be a norm. I think we've got to get familiar with that. We definitely want to be able to continue, hopefully, owning this site beyond that 20 years, but if there is an opportunity for us when the risk does show up that we can't renew or they can't extend, obviously, we look at divestment. And in Singapore, short leases, also has a life of its own. 10 years plus/minus there is still a buyer pool. Small and medium enterprises who are not able to find themselves qualified for direct land allocation. They will look at secondary market and it probably will be a cheaper source to buy a short lease so that in continued operation for 7, 10 years. Even at 10 years actually, it's a few cycle of tenants here. Every 3 years, so at least you'll be 3 years of tenancy. So even there is -- there will be a good use for even a short lease.

I think the first question is the U.S. expiries in '24. So next year, there will be another chunk of Raleigh leases coming up for expiry next year. And typically, we engage our tenants about 6 months in advance. So substantially, we haven't really started that negotiation process for leases expiring in '24. We have much clearer visibility in terms of what's going to happen in the second half. Besides Raleigh, there's also quite a few leases coming up from the other legacy cities, which is San Diego and Portland. If I move on to the second question, which is on Australian expiries and where would they stand versus market? And what kind of reversions we're going to get, it's true. In the past, say, 5 years back, right? Typically, in Australian lease contract, there will be in place annual increments anywhere between 3% to 4% on average. And if you talk about a 5-year lease after that period of compounding increases, it will typically be higher than market. But what has happened over the last 3 years, particularly accelerated by COVID is that with the very tight supply and vacancy is almost at 0% in most of the major metro cities that we are in, which is Sydney, Melbourne and Brisbane. We've seen record high rentals being signed and that is prevalent in our portfolio as well. So while the in-place rents are no doubt high, but market rents have actually caught up. The other thing to note is the way we calculate our reversions is typically an average. So we don't take the ending rents versus the starting rent. So the ending rents from the previous lease and starting rent. So we look -- if you look at average to average, there would still be positive rental reversion for Australia.

I just want to follow up on my electricity question. I appreciate that you haven't locked it in, but what can you lock in if you decide to lock in for 2024 in terms of cents per kilowatt hour.

I can't give you more precise yes because until we lock it in, that number will move every day depending on the FX and the crude price.

Will be below SGD 0.3 at least?

We can't guide you on that. Historical -- given historical 2021, we probably was less than SGD 0.2; 2022 less than SGD 0.3. Now is above SGD 0.3 right now. So we are looking at lowering these numbers from 2022 to 2021, it was about 60% jump based on our utility, I think you know the numbers. '23, I mentioned we probably look at between 30% to 50%. First half is probably a 40-plus percent increase. Second half as what James mentioned is lower than first half. So we expect full year 30%, 40% compared to 2022. So '24, we do expect the numbers to come down further, but we have not locked in. So we hope to be able to catch that window, which we have done so for our second half as well as our first half.

Just a follow-up question on the U.S. portfolio. Can you talk about TIs? Are they starting to stabilize? Or is still increasing. And in terms of the new leases signed, are you still getting into escalations of that 3-ish percent or is it flat line? Or what's happening to escalations?

Yes. Okay. I'll take that question. I think generally, TIs have remained stable, even though I think that increasingly, tenants are asking for more. So I think it comes down to the process of negotiation, how attractive your assets are, how much supplies they are out in the market. So to cut the answer short, it's stable, but it's increasing. Sorry, you had a second question in -- all right. Okay. So the annual escalations, they are more or less there still. So we are typically looking at about 3%. I think maybe just to run out on U.S. is -- and William mentioned this earlier, I think to keep our assets competitive. So even in Portland, which is, like I mentioned, not a Tier 1 city. We are trying to get the best bang for our part. So we do very selective AEIs. One example is in Portland that this building we call Atrium, which is multi-tenanted and we are putting in a new amenity center inside there. So you're going to get gym, there is going to be a cafe, there's like breakout rooms, meeting rooms and all that. So that's going to serve as an anchor for all of the buildings, which is around their part. We're going to spend about SGD 1.5 million on debt alone in U.S. dollars. And in Raleigh, the parameter part where our properties are -- we're going to spend about SGD 900,000 to pay outdoor tariffs amenity for our tenants, again. So there will be landscaping, there will be barbecue and will be bringing like food trucks during the day to encourage people to come and make use of that outdoor amenity space. Separately, we are looking at spending up to about USD 2 million on white boxing. So what white boxing means is, in the U.S., typically in the lease, there's no reinstatement requirement for the tenant. They leave, when they leave is as is condition, they don't have to turn down the walls, they don't have to remove their stuffs. So in the past, what would typically happen is we'll try to lease it as is -- maybe just shampoo the cup boards, maybe bringing some new partitions, but typically keep it the same configuration. And in the past, tenants are quite happy to take those. But as the market has changed and tenants are a bit more demanding in terms of wanting more brand new specs. That's where we are putting in this kind of CapEx to white box the space, carry it down, put in like new carpets, new lights and all that refresh the whole place so that when people come in, it would be a lot more enticing for them. So those are the kind of things that we have been doing on the site as well to try and improve and make ourselves more competitive.

Okay. We have a question from Derek from DBS. Will you be able to -- why you be keeping your current interest rate hedging strategy given that interest rates have likely pick up.

So yes, we will have to be very nimble on this, right? So now we are at 82%. So given the high level, we do have the flexibility to have it at a lower level, okay? So we will have to watch closely and be flexible. Yes.

And while we speaking, but we also see that the longer-term rates are more favorable...

Cheaper than the chart floating ones.

Yes. And we also -- I mean getting a cheaper loan shipment rates right now despite being a 5 years or 6 years up, also allow us to catch up in terms of revenue, rental growth, reposition our assets so that we can actually be able to sustain the higher rates for long kind of scenario. Okay. Maybe also...

Okay. We have a question from Gary from Morgan Stanley regarding interest in SEC filing as you mentioned about pretermination obviously. So have we been in dialogue with them.

Can you take that?

Yes. So yes, this is actually not a new development. This filing has been out for many months now. In the initial period when this notice first came out, we got in touch with Pinterest as well. We'll find out exactly what's happening. And it's very clear that they intend to honor all of the applications that they have, which is why I'm very confident when I say that there's a 10-year lease left on that building, I'm going to collect every single cent of the 10-year lease. They did -- so there were preliminary thoughts between outside and Pinterest but that didn't really go very far in terms of even coming to some numbers in terms of if they were to preterminate what kind of compensation would they be offering. So we didn't even get to that stage. And as of right now, we continue to honor the applications and they continue to pay their rent on time. So our understanding is this is more accounting kind of treatment that they have because they need to put that out in order to do some write-offs on their accounts. But legally, they are still down, and they continue to pay their rents. So we don't think that that's a problem for us.

So there's no pretermination right. And they mentioned in their filing, they will honor that lease, including potentially looking at subleasing or then mention about pretermination is to raise a request to us, but we didn't have anything further to add on that.

Any last questions from the floor?

I think acquisition I've answered. Divestment, we're probably still opportunistic for us as we have -- you have seen, we have divested one property here in Singapore. I think when there's opportunity to look at divestment, we will look at that. But at least in Singapore, we find that a question about redevelopment acquisition. I think in Singapore, there's still more opportunity for us to redevelop. We believe the location that we are sitting on a very good location. And if we can find the right usage to be able to get a higher rental that will help us to reposition our assets.

Any further questions? If not, I think that concludes today's briefing for our first half 30th of June numbers. Thank you for coming and have a good evening.

Thank you.

Thank you.