CapitaLand Ascendas REIT (A17U) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to the full year 2024 Results Briefing of CapitaLand Ascendas REIT or CLAR for short. We thank you for joining us in person and online today. As always, this briefing will start with a presentation by management on CLAR's financial and operational performance for 2024, after which there will be a question-and-answer segment. So for those in the audience, you may raise your hand, and I will call your name or identify you by your company, and a microphone will be brought to you by one of my colleagues. If you're attending this briefing online, you can submit your questions via the Q&A function on Zoom anytime during this briefing. And then we will address any questions that have not been asked by the audience after. So before we begin the session proper, let me introduce the management on the panel. First, we have Mr. William Tay, CEO of CLAR. Second, we have Ms. Koo Lee Sze, CFO of CLAR. Next, we have Ms. Yeow Kit Peng, Head of Capital Markets and Investor Relations. And finally, we have Mr. James Goh, Head of Portfolio Management. King, Head of Capital Markets and Investor Relations. And finally, we have Mr. James Goh, Head of Portfolio Management. And with that, I will hand the time over to Kit Peng, who will begin the presentation. Thank you.

Thanks, Andrea. Happy New Year, everyone. I believe last year, 2024 has been a very interesting year for all of us. There were uncertainties around inflation trend, geopolitical tensions and changes in administration. So despite all of this, we are pleased to present a resilient set of results for FY 2024, which will enable CLAR to start this year in a strong position. Okay. Key highlights. Distributable income increased 2.2% to $668.8 million. DPU increased 0.3% to $0.15205. Investment properties held steady at $16.76 billion. The portfolio occupancy remained high at 92.8%, and we achieved high rental reversion of 11.6% for leases renewed during the year. Gearing is healthy at 37.7% and the cost of debt is stable at 3.7%. On the sustainability front, CLAR is now included in 2 more indices that is the FTSE Good Developed Index and FTSE Good ASEAN Index. So let's take a closer look at the details. So full year 2024 versus full year 2023, gross revenue increased by 2.9% to $1.5 billion, and this is mainly due to the contribution from -- full year contribution from properties that were acquired in 2023. So the properties are the Chess Building in the U.K., The Shugart in Singapore. As well as the completion of MQX4, which is a development in Sydney, Australia and also this convert-to-suit property in Lusk Boulevard in the U.S. So as a result, NPI increased by 2.6% to $1 billion and distributable income increased by 2.2% to $668.8 million. DPU increased 0.3% to $0.15305 (sic) [ $0.15205 ] due to the issuance of some new units for base management fees. When we compare second half of 2024 versus the first half of the same year 2024, gross revenue declined 2.2%, and this is mainly due to the divestment of 4 properties in Brisbane and Singapore as well as lower utilities income. NPI decreased in tandem with the decrease in revenue, but partially offset by lower operating expenses. Distributable income increased 2.2% to $338 million due to lower interest expense. DPU increased 2.1% in tandem with the increase in the distributable income. So when we compare second half of 2024 versus the second half of the year before, 2023, gross revenue declined 1.1% to $753 million due mainly to the decommission of Welwyn Garden City and the divestment of the 4 properties in Brisbane and Singapore. However, NPI increased by 1.4% due to lower operating expenses. So distributable income increased by a higher 3.4%, and this was boosted due to the lower interest expense. So DPU increased 3.2% to $0.07681. We adopt a semiannual distribution frequency. So for the second half period of 1st July to 31st December of 2024, a distribution of $0.07681 will be made. So you'll be receiving the dividends on the 11th of March. Moving on to investments. So this year, we put more investments into U.S. and focusing on the logistics sector. We acquired Summerville Logistics Center and DHL Indiana Logistics Center for about $248 million at very attractive NPI yields of 7.2% to 7.4%. So these 2 modern properties and very strategically located properties will complement what we already have in the U.S., and they are all basically located in major logistics hub. Our investment strategy focuses on established industrial markets in the key growth cities, which are expected to see increasing demand for quality logistics assets driven by onshoring and reshoring trends in the U.S., okay? So following these 2 acquisitions, our logistics footprint in the U.S. will expand to 20 properties in 4 cities that you see in the map. So it's Kansas City, Chicago, Indiana, Charleston. So AUM is now $570 million, and the GFA is sizable at 475,000 square meter. So by the way, our existing U.S. logistics property are doing well. The occupancy rate is 100%, okay? We continue to optimize returns from our existing properties by repositioning or upgrading them. So $3.9 million worth of AEIs were completed during the year at Pacific Tech Center, which is an industrial property located in Jalan Bukit Merah vicinity in Singapore as well as one at Changi City, which is a business park property in Changi Business Park, which is located just next to the Expo MRT. Occupancy rates for both properties have increased to 89.5% and 99.5%, respectively, in December. On divestment -- sorry. So on divestment, all together, 4 properties were divested in Australia and in Singapore. Total amount is about $177 million. They were divested at about 38% premium to the total valuation as it yields very attractive at 3% to 4%. Moving on to capital markets. Gearing remains healthy at 37.7%. For debt maturity profile, it continues to be very well spread out. If you were to -- if I can refer you to the first 3 or 4 bars, you can see that about 13% or 14% will only come due in each of the year. This is a summary of our financial ratios. Just want to highlight a few items here. So the ICR, the interest cover ratio is healthy at 3.6x. Fixed rate debt is high at 83%. The weighted borrowing cost is stable at 3.7% despite the high interest rate environment. And we secured very tight spreads for some of our loans and bonds, right, to manage the interest expense. So the A3 Moody's credit rating is maintained, and this is important. It provides us with a lot more financial flexibility and strong access to capital. This time, we added a new sensitivity table, which is at the bottom. So this is the ICR sensitivity table. So the -- you can see here that the ICR remains very robust even under stress scenario. So a 10% decrease in EBITDA, the ICR will be about 3.3x. And assuming 100 basis points increase in interest rates, ICR is 2.8x. And both these numbers are clearly above the threshold of 1.5x, okay? To minimize the effects of any adverse exchange rate fluctuations, we have a high level of natural hedge of 76% for our overseas investment, which totals about almost $6 billion, okay? So NAV will be safeguarded against any adverse exchange rate movement. Assuming hypothetically, all the currencies, all these overseas currencies, they declined by 15% all together at the same time, the impact on NAV is less than 3%, okay? Okay. Valuation, very interesting slide. So the total valuation for our 225 properties in the 4 geographies, the developed markets was $16.8 billion. On a same-store basis, the valuation was stable at $16.76 billion. So the stable portfolio valuation was mainly due to the increase for Singapore, which offset some decrease in the U.S. and in Australia, okay? So there was some adjustment in the capital values in U.S. and Australia due to the higher cap rate applied by the independent valuers. So that is by geography. So now by segment, for the Business Space and Life Science segment, same, the valuation was stable at $7.7 billion. For the Industrial and Data Center segment, valuation was higher by 1.3% at $4.82 billion. And for the logistics property, stable at $4.24 billion, okay? Occupancy. The portfolio occupancy remained high at 92.8%. Improvement were actually achieved, right, with Singapore rising to 92.5%, the U.S. increasing to 88.9%, Australia also improving to 92.5% and the U.K., Europe region remained high at 99.3%, almost full house. okay? So I will then give some color on the demand -- the new demand that we saw in the 4Q. So in Singapore, the largest sources of new demand by gross rental income were the engineering sector, the electronics as well as the distribution and trading sectors. For the overseas market, it's the IT and data center, the lifestyle, retail and the biomed sectors that were the largest sources of demand, okay? Rental reversions. A positive rental reversion -- positive rental reversion of 11.6% was achieved for leases that were renewed in multi-tenant buildings in FY 2024. So I suppose this met our guidance, right, for the high single-digit positive rental reversion. Okay. So the average rental reversions were 11% for Singapore, 21% in the U.S., 13% in Australia and about 11% in the U.K. and Europe. So all the geographies achieved positive rental reversion. So looking ahead for FY 2025, we expect rental reversion to be in the positive mid-single-digit range. WALE continues to be stable at 3.7 years. So this is the portfolio. All the geographies put together the lease expiry for this coming year. So this coming year, we have about 17% of our rental revenue that will be due for renewal, okay? So 80% of it will be in Singapore, the balance in Australia, U.S., U.K., Europe, okay? We have come to my last 2 very important slides on redevelopment and development plans. We will embark on a new redevelopment project for Logis Hub at Clementi. So this logistics property is strategically located in Clementi Loop, well connected to the major expressways, right, as in the AYE and the PIE and very short driving distance to the CBD Port of Singapore and [indiscernible]. So what we are going to do here is to maximize the plot ratio. And by maximizing the plot ratio to 2.5x, the GFA doubles to 58,820 square meters. The new property will also -- we have modern features. So it will be 7 storey high with the [indiscernible] facility, and there will be like 106 loading base power extension provision for cold storage and large floor plates, good ceiling heights of up to 12 meters, okay? So we are also targeting to obtain a Green Mark Gold Plus certification for the new property. Now with the addition of Logis Hub, we have $800 million worth of projects on hand. So this financial year, we'll be completing about $500 million of projects. So they are Summerville, the first row in the U.S., 1 Science Park Drive and 5 Toh Guan East. So on a stabilized basis, they are expected to generate additional income of about $30 million, $40 million per annum. So this is an ongoing process to rejuvenate and revitalize our portfolio and to generate more income stream, okay? So this comes to the end of my presentation. We look forward to 2025. Thank you very much.

Thank you, Kit Peng. Now we will move to the Q&A segment of this briefing. May I have the first question from the audience, please? Dale from DBS.

Just as a few quick questions from me. I think with regards to this Logis Hub sounds exciting. What is the estimated ROI here? And are there any in-place tenants or commitments?

We're expecting on cost for 8%. No tenants as yet, but we believe that given that the strong demand for logistics space, you look at our portfolio is most full, and there's strong demand out there in the logistics space. So we believe that even a speculative build will be taken up quite well.

Okay. Got it. And on to your other 1 Science Park redevelopment, how is that coming along? Expected to be completed this quarter, right? So what about pre-commitments there as well?

Same answer to you, Dale. TOP will be soon. If it's not this month, it will be next month. Once after TOP, you will come along with information with regards to the occupancy. But rest assured, it will not be zero, but also don't put your hopes too high that it will be 100% on day 1. Given that this is 1 million square feet, we are comfortable with what is start off, and we have very strong demand for the rest of the year. If you remember, we have mentioned that the overall stabilization period, we project for such a big project is between 3 to 4 years. And at this point, looking at the pipeline and the discussions that we have, we believe that we are -- we will likely to do better than that.

Okay. Okay. Got it. Can I take one more question?

Okay.

I just wanted to talk on the valuations part. You're saying that there's a bit of cap rate movements for the overseas portfolio. Can you talk us through that? Has there been a change in valuers or has there been a cap rate expansion?

Okay. Cap rate expansion mainly in Australia and U.S. We see compression here in Singapore. The reason given is that if you look at compared to 2023, the cap rate expansion has been very, very moderate. A year ago, we see up to 100 to 200 bps of expansion. But now, for example, in U.S., Australia, it's about 50 bps. And we believe that this is also a strong showing of the performance as well. The performance will actually leave the valuation, not just the cap rate. And then in Singapore, if the compression, you probably know that last year, there was a huge number of transactions in the market. So despite us divesting 21 Jalan Buroh, our valuation has gone up. So it's quite healthy here in Singapore. This also will lead us to our believe that if there's the right time, I think we can consider divestment as one strategy going forward to make sure that this is the right time in terms of the market cap rate and our performance is strong. We've delivered some divestment in last year, and we continue to see some interest in our properties.

Thank you, Dale. We'll move to Derek from DBS.

Two questions from me. William, I was looking at your vacancy. So I noticed there's some in U.S. and Australia. I'm just wondering whether you reckon those are sticky stubborn vacancies? Or is there opportunity for you to close that gap towards a more higher level? Maybe that's my first question. Then my second question is on rental reversions. I think you've done -- the team has done a great job. And I'm just wondering whether what has been done over the past year was also because you renewed COVID leases. So going forward, do you reckon that there is more pressure? And if you look across your countries, while mid-single digit is a nice number, which countries do you think you need to have a bit more work? So these are my 2 broad thoughts around 2025.

So you are right in terms of the occupancy challenges in U.S. and Australia. Australia, we have -- okay, U.S. logistics a year -- a quarter ago, we had some vacancies, and we have backfilled them. So now they're 100% in the 2 portfolios that we have in Chicago and Kansas. Business Park continued to be a challenge. There are some uptick in terms of certain assets, but general trend, we are seeing negative absorption. So we are losing tenants because of downsizing, and we are not refilling them as fast. But as you compare us to the general market, I think 80% occupancy is fairly healthy and strong compared to what we see in the market. In relation to Australia, Business Park has been doing fairly well. To be honest, I think I also mentioned that over the quarters, we have seen rental reversion as well as occupancy. Primary reason is because they are suburban locations, much better than where we see the challenges. The real challenge is in CBD as the most one -- most depressing one is probably the more fringe offices. given the fact that if there are supply availability in central area and rentals are well below COVID, I think it's just encouraging for tenants to move to the central CBD area, especially the Grade A ones. So suburban location nearer to amenities, nearer to where employees are living, especially, for example, Macquarie is near university and other ecosystem. We see healthy demand in that location. The surprising bit is Australia logistics. We now have 2 vacant units. It's surprising that the filling -- backfilling is not fast enough. But if you look around the market, it's probably not a sign of a market that is softening to a level that is critical. I think it's just transition. And we do see some RFPs as well as interest to acquire our assets. So I think this is just transitioned. With regards to rental reversion, we have guided mid-single digit. Key reasons, as you have heard me mention a few times, why we say post-COVID, we do enjoy strong rental reversion, low base, which is showing up in our numbers. But over time, we have improved our assets also helps to get in the rental reversion. And if you look at across the board, not just in Singapore, in U.S. We're also trying to do AEI in U.S. So that's also helpful for us. Why mid-single digit is not just a number that we feel that we can deliver, but I think that is a number that where the market rents are. We've been asked whether we continue to see under-rented in our portfolio. We still believe so. Even in Singapore, when occupancy is fairly high right now, that will allow us to be able to push rent. So I wouldn't go into detail which country give us, which require more work. I think it's all across that we still need to pay attention to leasing efforts, expanding our network as well as improving our facility. More so in the U.S., given the fact that we improved our facility, it gives confidence to our tenants that our assets are well managed as compared to many other landlords who may be tight on their budget and their CapEx, they do see that this landlord here, CLAR is here to stay and have the capacity in the balance sheet to be able to improve the assets. You also heard us mention about white boxing, which helps tenants to make the decision faster. There's a lot of movement out there. Decision may be slower, but at least when it's white box, they know they can move in almost as soon as they want to, and that's helpful for them to make the decision. So we will continue all this effort. We will make sure that where we need to do AEI, we will do the AEI, where we need to be strategic in terms of getting our networks out talking to different parties, we will do that as well. And then if there's any redevelopment opportunities, especially locations or countries that we believe that it will be helpful to introduce a new asset, we will do that to make sure that we can reposition our portfolio over time.

Thank you, Derek. Can I have the next question please? Vijay from RHB.

I think I have 3 questions, maybe. My first question is in terms of Changi Business Park. Maybe can you give some color in terms of where the occupancies are, valuation trends? Have you seen it bottomed? Or you still expect some impact from Punggol Digital District as it is? And in the last quarter, you guided government is open for repurposing some of their assets in that area. Is there any progress on that front?

Thanks, Vijay. Changi Business Park, we are very pleased to say that we have crossed the 80%. A year ago, we have about 76%, and we have actually improved our overall occupancy across the various buildings that we own. It may be quite a different story as you go around Changi Business Park. But we believe that what we are placed in terms of our response is to open up new channels, new industries. You have seen that we have brought in aviation engineering. We continue to work on education, and we brought education institutions into Science Park. We're also exploring medical. So these are adjacent industries that we believe can be housed in the Business Park building without requiring too much of a change of use kind of application. That allow us to be able to bring in new industry, which are not the traditional Business Park user. But having said that, we do see demand coming up or interest, not demand -- interest coming out from similar trades like semiconductor, design, such companies. The question then is whether we -- Business Park can meet their needs and how much of this changes to a Business Park building is required. Some companies may -- not just design and assembly, some require some kind of light manufacturing. So these are just boundaries that we hope to be able to obtain from the government. In relation to -- just to add on, just now you asked about valuation across the board in terms of Business Park in Singapore, the valuation has been quite strong, driven by the transactions that we see in the market. I think you probably know which are the few ones that has been driving cap rates in the market that was transacted last year. So overall Business Park is healthy in terms of value. And in terms of occupancy, I think we have done fairly well to push our occupancy. And competition with regards to Punggol, we believe that there are offerings that is very different. I think Punggol is one district that we do see that it's able to grow, it probably be helpful for the entire country. Why so is because they're also not doing too much of speculative demand. It's all targeted. And just like one-north, if you remember about 20 years ago, when we first started, the government like [indiscernible] need to see [indiscernible], and that's how brought about demand in other industries. But I think what's important for us is to be able to tap on other industries beyond just a normal business park. If I allow me to just go on to other parks like IBP, we continue to believe that with the infrastructure investments of the MRT, we believe that, there will be a turnaround for IBP. And we are going to, as I mentioned, other than 2027 IBP, we are waiting for opportunity to redevelop the other 2 buildings that we have right near the MRT.

My second question is in terms of U.K. Welwyn Garden. Any updates in terms of power capacity or redevelopment plans? Have you formalized any CapEx requirements for that?

Yes, nothing has changed really. Power is there. We have been working on the customer. So I think we have mentioned that we prefer to be on a build-to-suit kind of arrangement than to be a speculative build. So we are concurrently working with the authorities. So the planning permission has been there. We already had the schemes as approved. Now we are talking to some prospects to refine the design. At the right time, we will announce those actual CapEx and the customers that we have.

Any idea of what time it would be maybe by middle of this year?

Hopefully, this year, I won't say it's middle of this year, but this year.

Sorry, one last follow-up. In terms of acquisitions, I think you have done a lot of redevelopments and you're also doing a forward purchase. Is this something the way which we should expect forward in terms of extracting yields by forward purchase and redevelopments and less of completed acquisitions?

Well, it seems it's not a surprise to you, right? Yes, I think last year, we have been fairly quiet on the investment front, but acquisitions or development is one area that we want to be able to leverage on given the fact that we can introduce modern specs into our portfolio as well as the yield on cost that is more attractive than a straight-up investment of income-producing asset. Just now, I think keeping mentioned from a start that we are on a good footing for this year. Just writing on your question, just allow me to just explain a little -- this year actually gives us a strong understanding of our portfolio. We believe that our portfolio is very well managed and is attractive -- continue to be attractive for tenants. We have shown in our occupancy, our rental reversion. So organically, we believe that this is the base that we can deliver. And with this base -- so let me say that this is the foundation. With this as a key foundation, I think we can push the envelope and to build up capacity for redevelopment and to reposition our assets, which is why we wanted to introduce the new development Logis Hub. This is just not a simple redevelopment of untapped plot ratio. The plot ratio is 1.6. You can check it up. We went to URA and asked for higher plot ratio of 2.5. So we're still going to do all the analysis, tracking and all this to be able to get additional plot ratio beyond the master plan approved. We introduced this time around, we want to have a constant flow of redevelopment so that during this time, while investment is a bit tougher environment, we are refreshing our portfolio, repositioning our portfolio. So I would say perhaps in the next 2 to 3 years, we'll be looking at if time and the plans do turn out in our way, we'll be targeting about $1.5 billion of redevelopment. And as we turn on the assets, so Kit Peng mentioned, we have about $800 million announced today for this year in terms of development, we will have $500 million. So SPRINT project Geneo [ 541 ] and Summerville for $500 million will be turned on for income this year. So we believe on a recurring basis, if we can develop about $1.5 billion, we should be able to achieve completion of $1 billion within the next 2 to 3 years. So this will give us based on our yield on cost, a good bump in terms of revenue, perhaps between 3% to 4%. So this is our second strategy in our key strategy given our strong base to do more development work and to push our need to do repositioning of our assets. Then the third piece in order to make sure that we have a stronger balance sheet. Our balance sheet is strong. Leverage is 37%, healthy all-in cost, and we are A3 rated. The third front is to -- just I sort of mentioned it about divestment when answered Dale. We probably want to do more about divestment so that we can actually prepare our balance sheet for any acquisitions that may come along the way. So I think given a strong foundation, we can push our envelope to be more aggressive in terms of development, redevelopment as well as preparing for acquisition that may come.

Thank you, Vijay, and thank you, William. For convenience, we will first move to [ Rachel ] from Macquarie, then we move to Derek from Morgan Stanley. And then finally, we move to Joy.

Maybe just the first question. In terms of interest rate outlook, I think you have kept interest rate very flat this year. So what's your outlook for FY 2025?

Short answer, you want her to answer. I think there was another question about interest rate. Just, okay. Is it? Yes. So 3.5% to 3.7%, that's what we have done. We believe, given the rates today, small increment, but likely to be below 4% for the end of the year. If there's any bright spot, there was another question about whether we receive Fed rates, I don't think we need to go into prediction. But if we look at where we are today, it's quite clear the loans that we have compared to what is available, what the new refi loans, we are going to pay more. We're going to pay high interest. So I think in terms of -- recognizing the higher interest is granted, I think we believe that we -- with our rental reversion, occupancy and our fundamentals in terms of performance of our assets, we will be able to withstand all the interest. And we have shown in our -- since this year, we don't have additional new investments to show up revenue. It was really more organic than anything, and we can improve our DPU. So it does show that by doing the right things, controlling costs and forecast is also help in a sense, positive for us, utility rates, electricity rates is we have factory hedged and is coming down. We have done all our needs to improve or increase our service charges. We have also looked at all our cost aspect. I think this is one aspect that we are working on to make sure our performance continues strong to withstand any uncertainty of interest rate movement.

Then my next question is a follow-up from Vijay. I think you spoke a lot about organic redevelopment, divestments. But what about acquisitions? Are you putting that in the pause? I mean, last year, you've done small acquisitions and mostly in U.S. logistics. So what's your thoughts for this year? Is it still the same? Or are you looking at bigger acquisitions this year?

Definitely, we hope to be able to do more investments and acquisitions. But given where the market is today, regardless of where we are in terms of ability to raise funds or our ability to get loans, I think this is not an issue really for us. But what is out there in the market seems to be still quiet. There's still a lot of uncertainty. If you ask me 2 months ago, well, 3 months ago, we thought that this year will be a good year for us to restart our investments. But at this point in time, we believe that this market will continue to be there, except that we may not be in a position to acquire in terms of big portfolio. If there's small ones that comes along, for example, we had opportunity to acquire DHL facility at above 7%, which is very rare. And we'll continue to hunt deep and wide to make sure that we can source for the good acquisition targets for the trust. But I think right in front of us where there's more opportunity is development. We still like to be able to deploy capital and development because we can then look at the type of facility, the cities that we want, the type of facilities as well as the tenants that we can bring in, instead of just buying a portfolio or an asset, we then can determine exactly what kind of specs, where is the location, and we can then look at development to supplement the existing portfolio. While we may see that development give us higher yield, obviously, because if we do development, there comes higher risk. But what we've been trying to do is to be prudent, look at the developers that we work with, the locations that we are in, study the market to make sure that all these risks are well mitigated. And if you look at the opportunity at the projects that we have announced are still mainly in Singapore, we want to be able to do more here in Singapore as well as U.S., where there's a lot more opportunities and we hope to be able to do more of that in these 2 places.

In terms of target acquisitions, are you still looking at U.S. lots? Or would you be looking at some properties in Singapore?

We are open for business, to be honest, Singapore, U.S., Europe, I still think that Australia is tougher for us given where interest cost is and the cap rates that's trading. You look at our numbers, we are probably up 5% or 6% in terms of cap rate for Australia portfolio. So I think for acquisition in those markets continue to be challenging. But U.S., given it's a large market, continue to trade between 4% to 7%, we believe we still can find deals and hunt well if we can. Europe becomes more interesting right now. We do see some development opportunities, and we hope to be able to do some in Europe.

Okay. And my last question is what's -- any updates on your plans for the Singtel data center? And for FY 2025, do you need to do any top-up with the potential loss in income?

Okay. I think maybe we'll address the Singtel. There's also another question about Singtel. Three data centers we've asked, I mentioned that expiry is between this year to 2030. I'll be -- I will just tell you right now, in a matter of 1 or 2 months, the Singtel DC in Tampines, we expired. So -- but having said that, I think it's probably unknown to many, the underlying land use is commercial. So we are fairly excited with this opportunity to explore developing it or redeveloping the commercial property. If you know location, you know location, location is Tampines. So it's exciting for us to relook at our plans there, obviously, including other options like divestments or just finding a new tenant. But since the underlying asset is commercial, we will definitely look hard into our options to extract more value from there.

Do you need to top up any -- if let's say you choose to do a redevelopment, do you need to do any income top-up to cover some of the income loss?

We will think about that honestly. In terms of where we are, we haven't done a top up, to be honest. So we just want to be very clean in terms of our DPU. We will approach that and see where it goes. But having said that, the impact of that income is not that great. It's 3%, my #1 tenant, 3%, even with that loss of that one building, Singtel is still top 10 on our list. So we believe that we should be able to explore trying to push our performance to see whether we can cover those.

Thank you. Can we move to Derek from Morgan Stanley.

So just a couple of follow-up questions. On the U.K. DC redevelopment opportunity, are we still looking at about 60 megawatts in terms of power capacity?

Yes, 60 megawatts.

60 megawatts. And that's -- you're in the midst of securing right? You haven't gotten that secured yet.

Technically, we have this power. It's the timing of delivery that we are still uncertain, and we still need a commitment before we can move on to development. So given how data center work, right, even with the max power is phasing because after you deliver the asset, the operator will need to phase out. They will not take 60 megawatts on day 1. So there is flexibility for both parties. Both parties, I mean, the delivery on the supply side where the government got to make sure the network is delivered on site as well as customers' business plan.

But the contractual agreement is there, you have that contract.

We have 60 megawatts.

Right. Okay. It was great. And I guess on the tenant profile, has DeepSeek changed the way you approach potential tenants like -- are you still looking at hyperscalers for BTS or I guess, more smaller tenants, any change?

So the customers that we've been talking to hasn't changed. They continue to be on the table to discuss with us, given that location and the power, it's not your mega scale data center customers. So we believe that cloud players or whoever that needs about 60 megawatts continue to be our target market, and they are still there on the table for us to discuss.

And just one follow-up on the divestments that you mentioned. I think it seems just more U.S. centric or did I get wrong?

No. In terms of divestment, we explore all countries, U.S., Europe, Australia and Singapore. Singapore, as I mentioned just now, there's cap rate compression and valuation is strong. Performance of assets is very well. They give us some opportunity to look at divestment as well in Singapore.

Is there a number that you have in mind, a quantum for divestments this year?

So last year, we delivered over $100 million. I think typically, that's about the size that we have been delivering. But if we were to be able to prepare our balance sheet in terms of reducing our leverage, perhaps we need to look a bit bigger than that, maybe $300 million, $400 million.

That's prep for, I guess, the U.K. Would you...

All-in. Yes, all-in. All the countries and all the countries that we are in or any projects that we have received interest in.

Thank you, Derek. Now we will move to Joy from HSBC.

Just a few follow-up. When you mentioned about development. Could you just share a little bit about how we should think about return or how you think about return, the profile of the development and we've seen most of your development being spec builds. Is that still the model going forward?

The returns, you probably also have seen that we have announced returns above 7%. So that's where we want to be able to look at to give us ability to not just introduce modern specs, modern facility, but we want to be able to deploy capital to cities or assets in terms of redevelopment that we can get the kind of returns. Why so is because we need those numbers, not just to make the numbers work in terms of returns, not just to make the numbers work, but we want to be very certain that we can deliver those primary reasons because they are speculative in nature. And it's not speculative risk that we are taking, that we are delivering asking for 7% or more. But if you look at even our portfolio, it's not too far away given that our portfolio is probably 5%, 6% overall, 50 to 100 bps increase to be able to deliver, I think it's still a fairly comfortable risk that we take. The profile hasn't changed. We have introduced in our logistics. U.S., we have introduced logistics. So if you think that going forward, it's likely to be -- continue to be logistics, you are probably not far from there. So that is probably where we are heading. Of course, the other development includes the U.K. data center overall, where we want to be able to develop. So it's likely to be more logistics and data centers.

Okay. My second question is on your -- there's one slide on the tenant demand, right? And it's very interesting that Singapore manufacturing is almost half of your demand. And I think DC is about half of your overseas demand. Is this just a factor of your expiring leases? Or this is actually a shift?

Not surprised. You got it almost there. So James.

Yes. Just to echo what William said, I think which is your point that it really depends on the type of assets with leases expiring in that financial year and the concentration. So it just so happened that the bulk of the expiries happen to be in those industries.

Okay. So there is not something that is more like...

We don't see it as a macro shift in the demand from our tenants.

Okay. And then just lastly on Singapore particular developments. We've seen a lot of sort of foreign investments into the country, but we've not heard about build-to-suit for a long time.

I have talked to.

And you talked about development and a lot of it is redevelopment. So is government willing to relook at the underlying land use and redevelop instead of doing actual build-to-suit? Or where are these projects going?

Let me try to understand. Build-to-suit is a solution, right? And what we are seeing right now, while we are doing redevelopments, if there is a customer in mind that we can do the development for, just as we talk about U.K. DC, our preference is to work with a customer that we can build-to-suit for the customer. But you're right, in Singapore, CLAR has built up a brand name to be able to do build-to-suit for customers. But in today's context, we haven't -- that's why I say I haven't heard that as well. We do hear a lot of foreign investments contracting to build on their own, which likely not to be the market that's open for us. I suppose when it comes to build-to-suit is our cost against their cost. If they can get a better cost of funding, if their WACC is lower or if they can given that real estate could also be a smaller part of their entire investment, and they need to have a better control. And given the fact that some of the investments, especially if you see some of the investments are in fabs, semi-con industries, they are very, very specialized, which we may also not want to get into unless we have a very long lease in those assets. So it could also be a preference of the manufacturers, investors who have preferred to build on their own. Where we are building today, if you look at our announced projects, are still fairly industries that we feel comfortable to find tenants, logistics, there is strong demand out there and the occupancy overall in Singapore is still healthy. And we believe that the 2 locations that we have introduced, Toh Guan and Jurong East, very prime location. And in Logis Hub, we have power to even be able to find coastal tenants. So that actually opens up the opportunity for us to be a solution provider for some of these industries.

Thank you, Joy. Are there any questions from the floor? Okay, Dale.

Sorry, back to this Logis Hub, right? I noticed you're saying that the decommissioning is only end of this year. So it continues to generate income until end of this year?

Yes, it is. So as we announced today, our next thing is to work with the tenants to move them out. And then once the tenants are out, then we can decommission and start our construction. So typically, that gives us -- we require about 5, 6 months to be with tenants, which is why end of the year is the construction time.

Okay. And then another follow-up is back to the Singtel data centers, right? I mean I get it that you're saying that it's at Tampines Mall and MRT there. But isn't data centers something that is really hot right now and demand is really strong. There's a lack of supply. Wouldn't you want to keep it as a data center?

Timing is probably not on our side. For data center, number one, I mentioned it is additional new power, we will have to work with the next CFA operators who have been given additional power. The first batch of CFA has already landed the power, which we have actually sold one our warehouse to one of the CFA awardee. So if the government were to open up soon, it could be an area that we want to work with. But we are not saying that this is closed. I rightly pointed out, it could be a site potentially to be reused as data center. But given the fact the underlying land use is commercial, we also do not want to just wait on it. We want to be able to explore and at least the path on the commercial side, there is no other restrictions.

So it doesn't mean that given that it is an existing data center, you'll continue to be able to use it as a data center with the park.

Yes. So in terms of any of this redevelopment, I think it's open to us whether we want to develop as an existing data center, but to develop as a redevelop as the existing data or redevelop as a data center, now we have to work with operator. So there's really no speculative element of what Joy was asking. If we develop into a data center and wait for customer, it's not possible right now here in this country. So we've got to work with operator. But that's one way. But each of the site has underlying land users, it's industrial or commercial, and we can explore other facilities. There's other users for that site.

Thank you, Dale. If there are no questions from the audience, perhaps we can just move to 2 questions online. We are almost on the hour. So I think these are the final 2 questions. The first one is what is our headroom for development or redevelopment in view of the development caps for REITs.

Yes. I'll take this question. So currently, we are using about 5% of our development limit. I think once Geneo achieve the TOP that will drop to about 3 -- less than 4%. So there's definitely enough headroom for development opportunities.

Thank you, Lee Sze. We go to the final question, which is how does CLAR see the Johor-Singapore SEZ as competition to Singapore's business parks and logistics assets? And will CLAR be looking for redevelopment opportunities in Johor?

Thank you for that question. I think we look at it as both. Yes, you see that there is some competition. I think it's probably healthy for us as well. It opens up new opportunities for new FDIs. I think Singapore continues to be a high cost of investment for many investors and FDIs who are considering Singapore as a destination of their manufacturing. If we can have access into Johor SEZ, I think we can then look at investments, not just typically in your Tier 1s in the industries, probably your top 3 or 5 in the industries. I believe the EDB will probably look at more than that. And the EDB has delivered all the FDI targets in the past years. At a peak, they were delivering $22 billion of investment in Singapore. I think with this additional resource of SEZ, I think that will be beneficial for the country as well as Johor. Logistics, that actually is uncertain. Why I say that is because if the challenge is seamless, I think companies or investors will look at whether logistics will be in Johor will be alternative to Singapore, but we do not know whether the movement of goods will be seamless. If so, it just allow maybe a reclassification of -- in terms of their trade flows of their cargo flows. In the past, we have seen some of those that has been stalled up in Johor has been cargoes that is not time sensitive. So it has happened in the past. I think it will continue to be so. Less time sensitive will be in further location. But Singapore is small. As we have mentioned previously, we like last mile location. So I think if that happens, Singapore will become a last mile. And because of access to ports, I think it will continue to be a prime location for logistics. And we think that, that actually be helpful for us perhaps with better asset, we can capture all this demand that can stay in Singapore. So I think there is opportunity and competition. So we will still continue to monitor and see where this bring us to.

Okay. With that, we have come to the end of the briefing. Thank you, everyone, for joining us online as well as physically. We wish you a good evening ahead.

Thank you. Happy New Year. And I wish to thank the REIT managers, staff, asset managers, property managers and our leasing staff who has delivered this beautiful set of operational metrics. Thank you.