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Edited Transcript of A17U.SI earnings conference call or presentation 29-Apr-19 10:59am GMT

Full Year 2019 Ascendas Real Estate Investment Trust Earnings Presentation

Singapore May 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Ascendas Real Estate Investment Trust earnings conference call or presentation Monday, April 29, 2019 at 10:59:00am 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

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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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A warm welcome to Ascendas REIT FY '18/'19 Results Presentation. We will have a 15-minute presentation followed by Q&A. This will be checked by our CEO, William Tay.

Key highlights. We have here a very stable set of results, despite the very uncertain market condition in FY '18/'19. Gross revenue, NPI and the amount available for distribution increased 2.8%, 3.2% and 3.8%, respectively. The numbers were generally underpinned by new acquisitions in U.K. and Australia as well as the completion of 2 redevelopments in Singapore. However, in these numbers, there are some one-off items. DPU grew by 0.3% to $0.16035 due to an enlarged number of units in issue.

Total assets has now surpassed the $11 billion level. This is an increase of 10% due to acquisitions during the year in U.K. and Australia.

Operationally, we achieved a positive rental reversion of 3.7% for leases that came due for renewal. The portfolio occupancy increased to 91.9%.

Annual valuation. Same store valuation improved. Cap rates were firm in Singapore. In Australia, cap rates compressed.

On capital management, Moody's A3 credit rating is maintained. Gearing is healthy at 36.3%. The average interest cost was maintained at 3%, despite a rising interest rate environment. And we also put in place a very high level of natural hedge for our overseas investments.

We will now elaborate on the above-mentioned highlight.

Financials. Full year gross revenue increased by 2.8% to $886 million due mainly to higher contribution from newly acquired properties in U.K. and in Australia as well as maiden contribution from 2 redeveloped properties. In Singapore, we are referring to Schneider Electric, which is in Kallang; and 20 Tuas Avenue 1, which is a logistics property. However, contributions from Singapore declined due to non-renewals and lower occupancies.

Net property income as well as the amount available for distribution rose in tandem with the revenue by 3.2% and 3.8%, respectively. The increase included some one-off items, property tax refund as well as a rollover adjustment.

DPU increased by 0.3% to $0.16035 due to the enlarged number of units in issue.

Q-on-Q comparison. So when we compare 4Q to 3Q, gross revenue was quite flat at $225 million, but NPI declined 2.7% to $163 million due to higher property tax in the quarter. The amount available for distribution increased 3.8% to $129 million due to a one-off rollover adjustment. As a result, DPU increased 3.8% to $0.04148.

On distribution. We adopt a semiannual distribution frequency. So for the period of 1st October 2018 to March 31, 2019, a distribution of $0.08146 will be made.

Some important dates here. Book closure is on the 8th of May. Distribution payment is on 30th of May.

Investments. FY '18/'19 was a very busy year for us. We expanded our overseas investments to include U.K. to achieve a more diversified and sustainable income stream. We bought a total of 38 freehold properties in U.K. for about SGD 832 million. NPI use ranged 5.3% to 5.5% with a long will of about 9, 10 years.

In Australia, we continue to expand, and we bought 4 more freehold logistics properties in Melbourne and Brisbane for a total of $116 million. NPI used here ranged 6.7% to 7.8%. So as of March 2019, we have invested a total of $2.4 billion overseas, and this accounts for about 21% of our total portfolio value of $11.1 billion. Details of these acquisitions can be found in the appendix.

Redevelopment and AEI. A total of $98 million worth of redevelopment and AEI were completed on time and on budget. We would like to highlight that 20 Tuas Avenue 1, which is currently about 91% occupied, we do have a good inquiry pipeline. And if they're accepted, we should be 100% occupied soon.

On divestment, which is at the bottom of this slide, 2 properties were divested to streamline our portfolio further. Together, they generated total proceeds of almost $38 million. And they were divested at more than 15% above their respective book values. Again, details of all these projects are in the appendix.

Capital management. We ended the financial year with a strong balance sheet. Gearing stood at 36.3%, giving us the required headroom to pursue our expansion plans. We have a total borrowings of $4.1 billion.

As you can see here, the debt maturity profile is quite well staggered. And to minimize any refinancing risks, not more than 20% of our borrowings, or about $800 million at the most, will be due for refinancing in any single year. Note that the debt maturity has improved and lengthened to 4 years versus 3.2 years in the previous financial year, and this is after we issued 2 bonds that are of 7 years' and 10 years' tenure. And we also secured a 7-year bank loan in Australia.

Our key funding indicators are summarized in this table. The financial metrics are at very healthy levels. They are way above the bank loan covenants. A3 ratings -- Moody's rating is maintained, providing us with a lot of financial flexibility and very strong access to capital at very attractive rates.

We put in place a high level of natural hedge for our overseas investments. So in the case of Australia, 76% of our AUD 1.6 billion investment is matched with Australian dollar denominated borrowings. In U.K., the full GBP 0.5 billion investment is also matched with sterling pound denominated borrowings. So this is to minimize the effects of adverse exchange rate fluctuations. To mitigate interest rates volatility, about 83% of our debt is fixed for an average term of 3.6 years.

Valuation. After the annual revaluation exercise, the total valuation for the 171 properties that we own is $11.1 billion. On a same-store basis, there is an increase in value of about $108 million for the same set of 129 properties to $10.22 billion.

Some other observations here. The weighted average cap rates for Singapore and U.K. stayed quite firm. Singapore is 6.18%, the first highlighted row. And U.K. is right at a bottom, 5.77%, whereas the cap rates for Australia, they have compressed to 6.08% versus the year before. So the compression is about 24 basis points.

Portfolio occupancy. This is a glimpse of the portfolio occupancy. On the extreme right, you will see occupancy rate for the overall portfolio that has improved to 91.9% when compared to the previous quarter as well as year-on-year. For Singapore, on the left, occupancy is 88.3% as of March 2019. This is an improvement Q-on-Q, but a decline year-on-year. Australia occupancy remains high at 98%. U.K. portfolio is 100% occupied. We will have more color in the next 2 slides.

Singapore occupancy, it improved quarter-on-quarter to 88.3% due mainly to big improvements in 3 logistics properties: 40 Penjuru; 4 Changi South Lane; and 9 Changi South. So all 3 buildings are more than 90% occupied currently.

Australia occupancy remains high at 98%.

U.K., they were quiet with an occupancy of 100%.

So new demand in the 4Q, we saw, other than logistics demand, there were new demand from the furniture household-related companies, biomedical health care companies.

For the full financial year, our portfolio continues to attract many other industries, such as the electronics, the biotech medical industries, furniture, home furnishing products-related company.

Rental reversion. On a portfolio basis, we achieved a 3.7% positive rental reversion for the full year. In Singapore, we were able to renew leases at higher rents for all the clusters.

For the coming year FY '19/'20, rental reversions are expected to be flattish in view of the current global uncertainty and the ongoing new supply of industrial property space.

Portfolio will is now 4.2 years. Lease expiry on a portfolio basis, so the first part on the left shows that 16.3% of our gross revenue is due for renewal in FY '19/'20.

For Singapore, 18% will be coming due for renewal. This includes 4 single-leased buildings. They are mainly the light and high-specifications properties with total NLA of about 42,000 square meters, so generally smallish building. One of the SLB has been renewed for a 5-year lease term and at a very positive increase in the rental REITs as well.

Australia, we have about 17 leases before renewal. And together, they account for about 8% of gross revenue. Still work in progress. They're talking to the tenants, engaging them. They are mostly in Sydney, whereby the leasing activity, the market is still very healthy.

U.K. One lease is due for renewal. We are working on some inquiries there.

Ongoing projects. As previously announced, we are building Grab's headquarters in the One North Business Park in Singapore.

In the immediate term, we will kick off 4 new redevelopment and AEIs totaling about $56 million. Let me elaborate on them in the next few slides. This is Grab, built to suit. It is quite a sizeable property with a GFA of 42,000 square meters. Grab has signed a long lease of 11 years with us, and we will provide a REIT with a stable income stream. Costing $181 million, the property will complete in 4Q 2020.

25 and 27 Ubi Road. The purpose of this redevelopment is to reposition this 2 light industrial properties into a high-specification building given its good location, which is 1, 2 minutes' walk to the Ubi MRT station. The cost is $35 million to redevelop.

Serangoon North, we're spending about $8.5 million to utilize some remaining plot ratio, so we will have an additional 2,000 square meters of additional floor space in level 5.

Plaza 8. The plan is to enhance the connectivity and to improve on our offerings to tenants. Same also for ONE@Changi City.

So AUM has surpassed the $11 billion. We have about 79% of the investment in Singapore, Australia 14% and U.K. 7%. And we are diversified also in terms of the property type, business and science park, 36%. Logistics accounts for 29%. And we have the rest of the industry space at 35%.

Tenant base is also very diversified across more than 20 industries. Our top 10 tenants include renowned companies, like Singapore Telecom; DSO, which is a Singapore government agency; Citibank DBS Bank, just to name a few.

And no single property accounts for more than 5.3% of our gross revenue.

So despite the continuing global uncertainly, Ascendas REIT, we have the benefit of a very large diversified portfolio with a strong tenant base. So we expect our performance to be stable in the coming year.

So this brings us to the end of the presentation.