Positive rental reversion (+2.3%).

• The renewals were for leases in multi-tenant buildings in Singapore only, led by leasing demand from the transport and storage sector (ie accounted for 24.4% of new demand by gross revenue during the quarter).
• No leases were renewed for its UK and Australia portfolios. Management guided on rent reversion seeing a slight improvement in FY19.

Singapore occupancies challenged, declined to 87.1% (-1ppt qoq) amid uncertainties.

• Management observed that customers are downsizing operations, moving into their own facilities, or deferring their renewal plans, so as maintain flexibility amid uncertain market conditions. They responded by rolling out more attractive lease packages, incentivising agents (through partnership rewards) to bring about higher retention.
• Australia portfolio maintained a high occupancy of 98.5% (vs 98.6% in 1QFY19), while UK portfolio is 100% occupied.
• Overall portfolio occupancy remained stable at 90.6% (-0.1ppt q-o-q).

More Singapore redevelopments and overseas acquisitions.

• Management guided that they see some Singapore redevelopment opportunities, which are well-located and sitting on connections to new infrastructure (eg MRTs). Through redevelopment, they can improve an asset’s specifications, even though they are not ready for today’s industry. They also flagged interest in overseas markets, where they can find better quality tenants, longer WALE and quality assets.
• Management noted that as a start, their S$0.8b AUM base in the UK will allow them to also look into a single asset acquisition.

Maintain BUY with a target price of S$3.01.

• Our valuation is based on DDM (required rate of return: 6.7%, terminal growth: 2.0%).