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Edited Transcript of A17U.SI earnings conference call or presentation 31-Jan-20 9:30am GMT

Full Year 2019 Ascendas Real Estate Investment Trust Earnings Presentation

Singapore Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Ascendas Real Estate Investment Trust earnings conference call or presentation Friday, January 31, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kit Peng Yeow

Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited

* Wee Leong Tay

Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM)

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Conference Call Participants

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* David Lum

Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance

* Mervin Song

JP Morgan Chase & Co, Research Division - Head of Singapore Property

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Presentation

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [1]

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Happy Lunar New Year. On behalf of A-REIT, I wish everybody good health and a successful year ahead.

Let's commence on our results for FY 2019. We are pleased to announce that our results are stable.

As you are aware, we have changed our financial year from 31st March to 31st December. In the 9 months from April to December 2019, Ascendas REIT achieved distributable income of $375.4 million, DPU of $0.1149. Total assets increased 26% to $13.9 billion. Operationally, portfolio occupancy held steady at 90.9%. And for leases that were renewed during the period, we achieved a 6% positive rental reversion. Gearing is healthy at 35%. Valuation -- or our property valuation is stable to slightly positive.

Nine months period comparison year-on-year. Gross revenue increased 5.7%, due mainly to contributions from the new acquisitions in U.K. and to a smaller extent, the U.S. and the Singapore business park properties that were acquired in December 2019.

NPI increased by a higher quantum of 10.6%, due mainly to the exclusion of land rent, which amounted to about almost $25 million, and this is following the adoption of the new Singapore Financial Reporting Standard, FRS 116, which took effect from 1st April 2019.

Now stripping out the effects of FRS 116, NPI would have increased by 5.6%, and in line with the revenue growth.

DI increased 5.2% to $375.4 million. However, DPU declined 3.3% to $0.1149 and that's due mainly to the increase -- a 9% increase in the applicable number of units following the December rights issue.

3Q FY 2019 versus 3Q FY '18/'19. Gross revenue at $240 million is 6% higher again driven by the contribution from the U.S. and Singapore business parks that were acquired in December. NPI at $182.3 million is 8.5% higher, boosted by lower land rent expenses. So strip that out again, NPI growth will be more in line with the revenue growth.

Distribution income increased by a lower 2.1% to $126.9 million because some rental guarantees fell off in U.K. and Australia.

DPU declined 12% to $0.03507 due to a 16.4% increase in the number of units, again following the rights issue in December, and also because there was only about 20 days worth of contribution that came from the U.S.-Singapore acquisitions. So in short, there is a timing difference.

3Q versus 2Q. The growth in the gross revenue, NPI and DI is largely due to the acquisitions of the business parks in U.S. and Singapore in December. DPU however, declined 11.8% to $0.03507 due to the 16.3% increase in the applicable number of units and also, again, there were only 20 days of contribution from the new acquisitions in December.

We adopt a semiannual distribution frequency. Earlier for the period of April to September, we already distributed $0.07983. Therefore, for the remaining 3 months, October to December, we have another $0.03507 to make. The book's closure date is 10th of February 2020.

Okay, moving on to investments. In 2019, we acquired $1.8 billion worth of properties. This is the highest on record since A-REIT was listed 17 years ago.

We also made our first entry into the U.S. This brings our overseas investments to about 28% of AUM.

Singapore investments accounts still for a majority at 72%.

During the year, AEI at ONE@Changi City was completed. A new lounge and discussion areas were created, adding more [bus] into the property. In Loyang Way, a light industrial property was also divested. It generated proceeds of $27 million, and it was sold at 14% above book value.

In 1Q this year, we continue to streamline our portfolio with the divestment of Wisma Gulab and 202 Kallang Bahru. Together, they generate proceeds of about $105 million. They were divested at above their respective book values.

Wisma Gulab was sold at 6% above NAV; 202 Kallang Bahru, at 13% above.

We ended the year with a very sound capital profile. Gearing is healthy at 35% following the rights issue in December, which successfully raised $1.3 billion. The adjusted NAV increased to 2.13% because of higher unitholders funds. The debt maturity profile improved to 4 years from 3.6 years previously. And based on our total debt amount of about $4.7 billion, we have a policy to stagger it and not have more than 20% of debt or $940 million or so due in any 1 year.

Funding indicators are summarized in this table. The financial metrics are at very healthy levels, far exceeding what is required -- set by bank loan covenants.

A3 Moody's rating is maintained, providing us with financial flexibility and strong access to capital.

We continue to put in place a high level of natural hedge for all our overseas investments. And of course, the objective is to minimize the effects of any adverse exchange rate fluctuation. So for example, in Australia, we have AUD 1.7 billion worth of total investment. So about 40 -- 74% of the assets here are matched with Australian dollar debt.

So in U.K., it is 100%; in U.S., it is 76%. About 76% of our borrowings are on fixed rate for an average term of 3.3 years. Overall, our property valuation is very stable to actually slight positive. Of all our 4 markets, we see the highest compression still in Australia.

Occupancy. On the right-hand side of the chart, you will see that portfolio occupancy held steady at about 90.9%.

Singapore is on the extreme left. It is lower at 87.2%; Australia, 97.4%, an improvement Q-on-Q; U.K., very strong at 97.7%; and of course, U.S., which we just acquired is 93.9%.

Let's go back to the Singapore occupancy. During the quarter, there was some movement of tenants, especially in Wisma Gulab, 40 Penjuru Lane and Pioneer Hub.

If anything, Wisma Gulab, as highlighted earlier, has been divested. We are working on some active pipeline for the rest of the properties.

On a portfolio basis, the average rental reversion was 6% for the full year.

In Singapore, we were able to renew higher rents for all the clusters. WALE is 3.9 years.

On a total portfolio basis, 19.4% of our gross rental revenue will be due for renewal in this current financial year.

Zooming into Singapore. There will be 23.3% due. In the blue bar -- the blue shaded bar, debt would be 6 SLBs. They are coming due for renewal, 2 are likely to renew, and we are working on the rest.

Australia, 10.4% are coming due mostly in Melbourne. One -- there are about 4 leases, one has already renewed.

U.K., 3.7% coming due. They are mostly located in the West Midland area, which is quite an attractive site for distribution.

Okay. U.S., 8.8% coming due mostly in San Diego. If anything, a large lease with CareFusion has been renewed.

Okay. Ongoing projects. This quarter, we will kickstart a few new AEIs and redevelopment projects. For AEI, in Science Park, for example, we are incorporating new collaborative spaces, enhancing lobby areas and other improvement in Capricorn and Galen.

In International Business Park, we will be developing iQuest. So some details on iQuest. The government has announced the Jurong Regional Line, which will have one of its stations, the Jurong Town Hall Station, sited next to iQuest.

As such, we are taking this opportunity to redevelop iQuest and also to maximize the plot ratio there when completed in 2022. NLA will double to about 19,700 square meters. The new property will also have sustainable features, lush greenery to achieve the highest Green Mark standard of Platinum rating.

It will also feature facilities, such as a gym, a sky deck and a food court as well.

On outlook, although we are experiencing stable return and -- but however, there are some uncertainty worldwide. We are, nevertheless, confident to ride it out in the longer term. So this brings us to the end of our FY 2019 results presentation. Please feel free to ask any questions that you may have.

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Questions and Answers

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Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [1]

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Yes. I am Mervin from JPMorgan. Maybe we can start with the rental reversions since progressively got stronger here every quarter. This is, I guess, somewhat cautious start to the year. I'm just wondering maybe some color on what's driving that? Is that existing plans looking to expand or have some relocations or this is -- particular leases that were so under-rented that you've got very strong uplifts?

And then flowing onto that, I guess, heading into next year or this year, sorry. Your thoughts on rental reversions? Is it more flattish? Or you do -- you still think you can drive it maybe lower single digits or something like that?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [2]

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Thanks, Mervin. For rental reversion, yes, when we started the year, we were looking at flat reversion. First quarter, we came in at 3%, second quarter, 4%. And the third quarter was a very pleasant surprise. It came in at 8.8%. In fact, the drivers are actually more business park space. You have seen the numbers, the largest is rental reversion. In fact, the team has worked very hard to get all positive renewal in our business park leases.

The second is actually logistics, about 3%. Again, this is -- it doesn't represent an industry or a trend forward. Why? Because on the flipside, our occupancy dropped from -- mainly from the logistics sector, 40 Penjuru are key ones. So this is not a trend. And logistics continue to be a challenging asset class given the supply. And primary industry demand still comes from 3PLs and contract manufacturing -- and contract logistics industry players.

Looking at 2020, we potentially be looking at low single-digit number. We are not taking into account the Coronavirus impact, if any. We -- in Singapore, its light, we're low single-digit overseas, we do see a stronger number, possibly in the high-single digit.

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Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [3]

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I'm sorry, just one final question. Just the rental reversions. I think you just said you renewed the CareFusion using guidance, those are rental reversions for that? And maybe update us in terms of the difference between market rent and the passing rent?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [4]

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CareFusion and Nike, which are the 2 largest in the next year, actually both has renewed. We are working on documentation. We will make available announcement when this -- we report in the quarter that comes in. Okay.

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Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [5]

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(inaudible)

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [6]

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Yes, positive, positive.

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Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [7]

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(inaudible)

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [8]

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We will make available those information when a quarter comes for reporting.

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Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [9]

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(inaudible)

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [10]

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Yes, both.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [11]

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David Lum from Daiwa. I know you only have 20 days contribution from the new acquisitions. But just based on the 20 days observation, is it tracking above your forecast or below forecast? Is there any color you could add to those newly acquired assets?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [12]

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The 20 days is -- follows the forecast. When we made the acquisition, we mentioned that given the accretive assets that we're acquiring as well as the effects of a rights issue. And also, we have actually raised 76% of equity instead of 60%.

The accretion to pro forma was about 0.7%. And as well as the DPU accretion to 5.3%. So this is in line, given that it's 20 days.

So if we were to do a simulation, which we have done, assuming the entire U.S. portfolio and Singapore portfolio were to be acquired for entire quarter, I mean, in terms of revenue contribution for entire quarter, it's about the same -- close to 0.7% increase for the quarter. So this is in line with our forecast.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [13]

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And just a follow-up. With regard to the iQuest redevelopments. Any guidance in terms of the yield on development cost or the ROI of that project?

And can it be considered a speculative redevelopment?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [14]

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A lot of attention has been placed on IBP. I will bring attention back to Nordic, when we first announced last year about AEI. It had given us very good results. It was about 60% occupancy, but now we're across 70%.

The AEI has given us confidence in terms of the IBP as a location. Inside this redevelopment is about $85 million. The strength there is because of the upcoming MRT line that we connected to [ASE] as well as iQuest. And iQuest, we have worked on it for a while. In fact, the tenant -- if you see the 31st December occupancy, it's got 30%, but the tenant has left. In fact, we have handed over the building to the contractor for redevelopment.

We are actually increasing plot ratio, plot ratio of 1.4, now we are building up to 2.5. In the old scheme, when it was iQuest in old scheme, it was less efficient because it was purpose-built for the tenant. And now when we are redesigning this into a -- your other question about speculative, yes, it's built for speculative. But the floor plan has increased to about 2,900 square meters. Efficiency is higher and it's new built to be able to attract industries in the IT, medical, research, even technology research.

We are also trying to see whether there is a fit towards smart advanced manufacturing. Given that IBP traditionally has been built as a corporate HQ for the Jurong and (inaudible) Industrial Estate.

So in the past, you do see a lot of engineering, project management, oil and gas companies, right? So this is one industry in smart manufacturing that we are trying to target. The other point is that we also have actually built in all the features in terms of green. It's Platinum, Green Mark as well as future-proofed the asset. If the country were to go towards a car-lite nation, we can actually convert 2 of our carpark into BP space. And that's assuming the government were to allow a further plot ratio intensification to support the car-lite initiative of the nation, right? So in built-in site, yes, cost is a bit higher to be able to future-proof, but we are happy to look at, in terms of initial yield on cost, above 6%.

But I would like to draw attention that IBP dislocation because of the MRT, we do expect rent to uplift when MRT station is ready. So in terms of year on cost, on average of 10 years, it will probably be 8% and above. So this actually tried to address the -- our -- the IBP as a cluster. Thanks, David.

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Unidentified Analyst, [15]

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This is [Derek] from Morgan Stanley. The Singapore occupancy softened somewhat in the quarter, about 1 percentage point. Just wondering when you would see the occupancy in Singapore turning around? And any plans or strategy to improve that going forward?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [16]

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The occupancy in Singapore, yes, declined slightly, about -- yes, about 1%. But bearing in mind that there is -- basically, there's 2 asset inside. There is 0 occupancy. One is to 202 Kallang and the other one is iQuest. So if you strip that out, it's actually an increase of occupancy to 88%. We look at this as business as usual. I think 87%, 88% is probably healthy in Singapore's context.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [17]

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We have a question here from the webcast. The question is, "With more clarity over Brexit, are we expected to see a more active acquisition pipeline in U.K. and what potential cap rates are we looking at and cost of local debt?"

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [18]

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Yes, with this Brexit more clarity, I think what we do expect there will be a lot more activities. In the past, we do see funds on the sideline trying to acquire, the -- in terms of vendors' interest, and the buyers, probably there's a little mismatch when buyers like to wait and probably negotiate tougher.

The vendors are aware that you're probably very difficult when Brexit is quite -- a lot more uncertain in last year. And we do see that the importance for asset management, which is why I mentioned that in the past 1 year, the emphasis was more on asset management. We have acquired the U.K. asset originally without anybody, without any staff and colleagues on the ground. We have since set that up. So the team is on the ground right now in terms of managing the asset, they are getting familiar with the assets, and I think we can now actually look at expansion of our U.K. portfolio.

We will continue to look at logistics as our primary interest but not forgetting that U.K. continues to be a country that is probably one of the birthplace for business park. So that's one of the other asset class that we will be looking at as well. I think cap rate hasn't really been -- has been stable for U.K. as seen in our valuation as well, slight dip in terms of our valuation. Primary reason is because of the reduced lease WALE, if you like. When we acquired, it's a very long WALE of 9.3 years, and now it's come down to about 8.8, and that reflects -- is reflective of the valuation.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [19]

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Yes. And on the cost of debt, it is still hovering at about 2.6%, 2.7% level.

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Unidentified Analyst, [20]

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This is [Derek] from Macquarie. Just to check on the much talked about Science Park rejuvenation. What level of plot ratio uplift must there be in order for economics to work before you can embark on this? And for [Galaxis] itself, can I check if you're still under moratorium?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [21]

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IBP or referring to iQuest?

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Unidentified Analyst, [22]

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Not iQuest, Science Park.

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [23]

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Oh, Science Park. It's a continuous conversation with the authorities. We definitely wish to have as high as possible, given comparison to where one-off is.

So in terms of one-off plot ratio, being very near MRT, I think the progression is much higher. We don't expect to be able to hit the kind of plot ratio in one-off. But as I've mentioned some time back before, it's a constant conversation with the authorities. We have requested for those higher plot ratio. And it depends on whether they are able to grant us those higher plot ratio. The challenge here in that is actually the traffic. So it's the traffic impact that they have to be comfortable with, if there's increase in plot ratio.

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Unidentified Analyst, [24]

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Galaxis? You have a Galaxis Moratorium?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [25]

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Okay. Galaxis Moratorium will end this quarter. And again, same as last year, we again will continue our conversation with the sponsor to see whether they are prepared to divest any of the assets that they have on their balance sheet.

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Unidentified Analyst, [26]

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Is one reason that you've raised a little more equity than required in the previous fundraising, is that to prepare you for like a Galaxis or something else? Or will that require more...

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [27]

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We'll be ready for any acquisition that comes to us.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [28]

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Maybe we can switch topic. So the question we have here is, "Will you continue with quarterly reporting?"

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [29]

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We actually welcome the change to semiannual reporting. So our base case is to go on semiannual. But we will look at how we will continue this continuous disclosure. So we'll be looking at what to disclose and announce on the quarter 1 and quarter 3.

So the base case is that. But we are still pending some of the clarification that we have from our [record] and we'll see where we can land on this. But the direction is towards semi-annual reporting.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [30]

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Another question from the webcast, "Can you comment on the leasing demand for business parks? Reversions have been strong, but occupancy rates are still below the industry average. Do you see good potential for business occupancies to increase?"

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [31]

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I think the leasing demand for business park is strong, as you have seen in our rental reversion numbers. But we do recognize that there are aging assets, which is why we also have actually announced AEI to Galen and Capricorn in Science Park 2. And we see that this AEI will give us the potential to increase the stickiness so that we can renew better as well as attract new tenants. So we are working on increasing the attractiveness of assets that may not be in new or upcoming locations.

So we do recognize that in the future, there will be business park supply coming up in, for example, Punggol Digital District, which JDC has announced a groundbreak, about 1.6 million square feet of space to be released. So we are actually doing AEI, and we will look at opportunities for redevelopment if it makes sense financially, so the assets can be renewed and future-proofed.

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Unidentified Analyst, [32]

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Sorry. Just a follow-up to the business park question. In terms of the demand, is it coming from tenants expanding from the existing building or they're coming from a different location or they're moving from some of the torn down buildings in the CBD?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [33]

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More tenant expansion is the driver behind the occupancy.

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Unidentified Analyst, [34]

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Is there any particular sector they can highlight that -- was it broad range for the asset expansion?

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [35]

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Quite broad, yes.

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [36]

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Quite broad in terms of business parks, yes.

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Unidentified Analyst, [37]

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Just in terms of the U.S. acquisition, are you able to disclose your final borrowing cost for that portfolio?

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [38]

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For the U.S.?

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Unidentified Analyst, [39]

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Yes.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [40]

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I think no change to what we indicated last year, which was under 3%.

Okay. We have another question from the webcast. "Can you explain a bit about the lower rental guarantee income from U.K. and Australia? What's the underlying occupancy for U.K. and Australia?"

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [41]

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The rented guarantee that fell off from U.K. -- well, we bought a portfolio that was 3 vacant, 2 vacant, and 1 under construction. That's why there was 3 rental guarantee, 2 fell off. So the only, if you like, in terms of underlying physical occupancy in U.K. is that 3 units that is supported by rental guarantee.

In Australia, we do have 1 rental guarantee in Ferntree Gully. They also fell off. And so in terms of physical occupancy, it's the same to what we have announced, about 97%.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [42]

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Okay. A question from CLSA. "Can you talk a bit about acquisition for FY '20? Where do you see more opportunities? Also on the sponsor's pipeline, can you share if Galaxis, [Axon], Nucleos and Icon and IBP, which of these are ready for acquisition?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [43]

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I think for the sponsors, I said, again, back to the answer that -- this continuous conversation. We hope that they are able to divest the assets on their balance sheet. But what we looked at in terms of overseas, probably, right now, we will focus more on U.K. and Australia for new acquisitions. U.S. is a new acquisition that we just made.

Our emphasis for new acquisition right now is asset management. We really want to be able to do well for the assets that we've acquired. So which is why for U.S., we make it a point to update investors and analysts, like yourself, that we have actually renewed Nike and CareFusion. And this is renewal in advance. We are here in advance of their renewal. So we do want to make sure that the underlying portfolio will stay stable, at least for the next 12 months. But I do recognize that U.S., there will be nonrenewal, as expected in a market like this.

Typically, in a market, as I mentioned, and when we bought it, we were presenting the acquisition. The retention ratio is very similar to Singapore, 60%, 70%. But now we are confident that the 2 major lease that is in the renewal has actually signed, agreed to the renewal, and they are on positive reversion.

Maybe 1 last question? You know we can go for [low] here.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [44]

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Okay, we have one. For redevelopment opportunities in Science Park, would you redevelop alone or partner with the sponsor?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [45]

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This actually -- again, back to continuous conversation with the sponsor, where, if the higher plot ratio is awarded, if it's on the parcel that we owned. Definitely, we want to be able to redevelop on our own but we don't rule out working with the partner, like our sponsor because they do have a joining land that is -- continue to be vacant right now. Especially in Science Park 1. In Science Park 2, they also vacant land. We don't rule out a partnership if there are 2 of them.

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Unidentified Analyst, [46]

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Alvin from CIMB. I just wanted to check. I think noted from the 4Q market report in -- from JTC, there's quite a bit of supply coming up, is from JTC themselves. I'm just wondering whether you have any color on what their leasing strategies like and how that would impact your own properties?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [47]

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The supply location -- actually quite good location, (inaudible). I think they will want to be able to look at how they can support SMEs upgrading and increasing productivity. So this is an area that they continue to have interest to grow the SME sector, to support the new industry that may come into Singapore.

So in terms of how is their leasing strategy, I believe they also do it through third-party agents and do the marketing themself. But the asset class that they have does include more of the mixed-use kind of elements. So that is actually one area that they have been looking at in their past development. So they may look at how the supply chain for the industry makes sense and they can actually create the same type of supply chain within the development. So that is probably their direction in terms of their industry and marketing.

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Unidentified Analyst, [48]

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Do you think some of your tenants might end up relocating to their spaces given there are quite a bit of expiries coming up in Singapore as well?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [49]

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I think this is one trend that we have to watch, given that there's still uncertainty in the market. So you have seen in our rental reversion numbers being strong. One driver behind is that tenants who wants to stay, given that coming up with new CapEx for relocation may not be easily obtained, so there could be a tug-of-war. Well, one hand is a newer facility but you will have to be able to raise capital to relocate. So I think there will likely, in our past, at least 9 months in FY, we do see that the tenants are more prepared to stay because of that reason. It -- probably across industry, there could be a sentiment across the tenants when they evaluate whether they want to relocate or stay.

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Kit Peng Yeow, Ascendas Real Estate Investment Trust - Head of Capital Markets & IR of Ascendas Funds Management (S) Limited [50]

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So we have another question on rental reversion. A minus 9.9% rental reversion in Australia is not very meaningful given that it was for a small lease, and they are not -- there were not too many renewals. Mentioned that overseas market expected to see high single-digit reversion in FY '20. Does this apply for Australia, U.K. and Australia -- that is repeated, Australia and U.K.?

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Wee Leong Tay, Ascendas Real Estate Investment Trust - CEO & Executive Non-Independent Director of Ascendas Funds Management (S) Limited (AFM) [51]

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Yes. So to answer the next part of the question, the high single-digit will cut across the 3 markets that we are in: Australia, U.K. and U.S.

Yes, we do recognize that 9.9% positive rental reversion comes out from Brisbane, one small space that came up for renewal. And we did highlight that, that wasn't a trend that you should see. It's actually because of one small space that actually twisted the numbers. So yes, it'll probably be not meaningful as a comparison.

Why we say that there's still high single-digit even for Australia, is because if you looked at our leases that comes due next year, they are majority in Melbourne. So again, if you compare with Brisbane 9.9%, it was an exception. But looking at the location like Melbourne and Sydney, continued growth cities in Australia, we believe that we will be able to achieve a better reversion next year, for Australia, at least.

And then for U.S., I think -- which is point us by Melvin and David, there is under-rented, about 10% to 15% in our U.S. portfolio. So we do believe that we should be able to work towards a higher level of high-digit rental reversion.

Okay. Thank you so much for coming. And again, Happy New Year.