CapitaLand Ascendas REIT (SGX:A17U), or CLAR for short, is Singapore’s first and largest industrial and business space REIT back when it was listed on the Singapore Exchange in November 2002. It was also the first REIT that I added to my long-term investment portfolio back when I first embarked on my “portfolio building journey” in November 2019 (you can check out a list of all the companies I have investments in here), at S$2.93 – however, I have recently averaged down at S$2.57, and my average invested price for the REIT is at S$2.76.

As at 31 December 2023 (which is the financial year end for the REIT), the REIT owns a total of 232 properties valued at a total of S$16.9 billion across 3 segments: (i) business space and life sciences; (ii) logistics; and (iii) industrial and data centres. The properties are located in the developed markets of Singapore, the United States, Australia, as well as in the United Kingdom/Europe.

Last Friday afternoon (26 April 2024), the REIT conducted its AGM for FY2023, which I have attended online (a big thank you to the REIT for making this option available; not only that, online attendees were also allowed to ask questions online via the chat box provided, and also vote “live” for the resolutions tabled).

For the benefit of those who did not manage to attend the meeting, in this post, you can find my summary of the presentation by the REIT’s CEO, Mr William Tay, responses to questions raised by fellow AGM attendees, and results of the 4 resolutions put to vote during the meeting.

Let’s begin:

Presentation by CapitaLand Ascendas REIT’s CEO, Mr William Tay

• From an asset under management of about S$0.6 billion with properties in Singapore, CLAR has grown to an asset under management of S$16.9 billion now with properties in Singapore, Australia, United States, United Kingdom/Europe, with focus on the technology, logistics, and life science sectors; Singapore remains the REIT’s largest market with 64% of its assets under management.
• Net property income surpassed S$1 billion for the first time (where it was up by 5.6% year-on-year to S$1,032.2m), attributed to new acquisitions completed in FY2022 and FY2023, along with positive rental reversions recorded in its properties in Singapore.
• In FY2023, the REIT have made 3 acquisitions (in 622 Toa Payoh Lorong 1 in Singapore, 1 Buroh Lane in Singapore, The Shugart in Singapore, and The Chess Building in United Kingdom), and 1 property currently under development (in MQX4 in Australia, which is newly completed). The new acquisitions have tenants in large MNCs and leading players in their field (examples include Philips and Cold Storage), and have a net property income yield of between 6-9%.
• The REIT have also embarked on several redevelopment projects at S$540m, which will be completed within the next 4 years, including:
  • 6055 Lusk Boulevard (US) to convert from a tech office into a life science property, which will see its valuation improve by 86%.
  • 1 Science Park Drive (Singapore) to convert from a tech building into a world-class life science and innovation campus.
  • 5 Toh Guan Road East (Singapore) to convert from a cargo warehouse to a modern ramp-up facility.
  • 27 IBP (Singapore), with development at new specifications, which will see the property’s gross floor area increase by 100%.
    
• Robust Capital Management:
  • Aggregate leverage at a healthy level of 37.9%, and a debt headroom of S$4 billion.
  • % of borrowings at fixed rates at ~79%, which can help the REIT moderate interest expenses.
  • Debt maturity profile well-spread out at around 13-14% of borrowings due for refinancing per year to reduce refinancing risks.
    
• Profile of CLAR’s Portfolio:
  • Portfolio valuation was up by 3.0% compared to last year to S$16.92 billion, contributed by the 3 acquisitions in Singapore and 1 property under development in Australia (which has since been completed).
  • Overall portfolio occupancy at 94.2%, with occupancy rates in all geographies at above 90% (i.e., Singapore at 92.7%, Australia at 98.7%, United States at 90.4%, and United Kingdom/Europe at 99.3%).
  • Rental reversions for FY2023 was at +13.4%, an improvement from a positive rental reversion of +8.0% in FY2022.
  • With 1,790 tenants coming from more than 20 industries, there are no tenant concentration risks. Its top tenant is SingTel, which contributed 3.2% of the REIT’s monthly gross revenue.
    
• Highlights on CLAR’s Sustainability Efforts:
  • Green properties currently comprises 46% of the portfolio’s total gross floor area.
  • 22 properties in Singapore are installed with solar panels, with the solar power generated able to power more than 5,000 4-room HDB annually; CLAR also has one of the largest combined rooftop solar installations in Singapore among the S-REITs.
  • REIT currently has more than S$2.0 billion of green financing.
  • Among the latest achievements received include 4-Star Real Estate Assessment, and ‘A’ Rating for Public Disclosure for 4 consecutive years by GRESB, along with AA ESG ratings by MSCI due to improvements in its corporate governance practices.
    
• Looking Ahead:
  • CLAR will continue to tap onto opportunities in the secular trends such as in technology and e-commerce, among others.
  • Mr Tay expressed his confidence in healthy supply-demand dynamics moving forward.

Responses to Questions Raised by AGM Attendees

• A unitholder raised a concern about the REIT’s relatively high all-in borrowing cost compared to some S-REITs and questioned the management’s approach to managing these costs. In response, the CEO explained that CLAR operates in developed markets where interest rates are typically around 4% in Singapore, and between 5-6% in Australia, the United States, and Europe, leading to an average interest rate of approximately 3.5%. To mitigate the risks associated with the current high interest rate environment, CLAR employs a strategy of refinancing its borrowings to longer debt maturities, which generally secure more favourable rates. Additionally, it adopts a strategy where it has no more than 13-14% of its borrowings up for refinancing each year. At the same time, the management optimises the REIT’s operating metrics like gross revenue and rental reversions to minimise the impact of rising interest cost have on the distribution payout to unitholders.
• Another unitholder inquired about the REIT’s expected interest rates for FY2024. Ms. Yeow Kit Peng, the Head of Capital Markets and Investors Relation, responded that the rates started at approximately 3.8% at the beginning of FY2024. With around S$900 million in borrowings set for refinancing this year, she projected the REIT’s all-in borrowing cost would be about 4.0% or lower, barring any significant shifts in benchmark rates.
• When asked about the REIT’s strategy for properties with zero or low occupancy rates (i.e., under 50%), the CEO addressed the current status of several properties. He noted that 30 Tampines Industrial Avenue 3, which has zero occupancy and is limited to the semiconductor industry, is seeing renewed interest as the industry recovers. He also mentioned the possibility of redeveloping this property into a ‘build-to-suit’ facility. For some of the REIT’s properties with low occupancy, such as the International Business Park (IBP), which is under redevelopment, he highlighted that its connection to the upcoming Jurong Town Hall MRT station is expected to attract more tenants. Additionally, the CEO stated that the Acer Building will be demolished and redeveloped following the completion of the IBP project, and it will also be linked to the new MRT station. Furthermore, a bridge will be constructed to connect the IBP, Acer Building, and 31 International Business Park (formerly known as Creative Resource), creating a cluster that should enhance tenant interest.
• Another unitholder wanted to know if the REIT would expand its holdings in data centre properties. Chairman Mr. Beh Swan Gin expressed openness to such opportunities but noted that they are scarce in Singapore due to the high demands these properties place on energy and water. The REIT’s Non-Executive Non-Independent Director Mr. Mahohar Khiatani further explained that the data centre sector is relatively nascent, with few properties currently available for purchase because many are still under construction. Consequently, when the chance to acquire 11 data centre in Europe presented itself in 2011, the REIT seized the opportunity.
• One unitholder wanted to know if the data centre properties under CLAR’s portfolio are equipped to handle the demands of artificial intelligence. The Chairman clarified that the REIT simply offers the space and infrastructure. He explained that any capital investments needed to adapt the data centre for artificial intelligence usage would be the responsibility of the tenants. Nonetheless, he noted that space and energy requirements could be a limiting factor.
• In response to an question about acquisitions outside of Singapore, the CEO explained that the REIT strategically invests in developed markets similar to Singapore’s profile. Additionally, the REIT concentrates on the technology and logistics sectors, where there is strong demand for such properties and rental terms are typically favourable.

Results of Resolution Put to Vote during the Meeting

• Resolution 1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of CLAR for the financial year ended 31 December 2023 and the Auditors’ Report thereon, was passed with 99.23% of the votes for, and 0.77% of the votes against.
• Resolution 2, which is to appoint Deloitte & Touche LLP as Auditors of CLAR to hold office until the conclusion of the next annual general meeting of CLAR in place of the retiring Auditors, Ernst & Young LLP and to authorise the Manager to fix their renumeration, was passed with 99.98% of the votes for, and 0.02% of the votes against.
• Resolution 3, which is to authorise the Manager to issue Units and to make or grant convertible instruments, was passed with 89.98% of the votes for, and 10.02% of the votes against.
• Resolution 4, which is to approve the renewal of the Unit Buy-Back Mandate, was passed with 98.90% of the votes for, and 1.10% of the votes against.

Closing Thoughts

Aspects about the REIT that I like include its ability to continue to take on acquisitions amid the high interest rate environment (where in FY2023, it has acquired 4 properties – 3 in Singapore and 1 in Australia). On handling of high interest rate environment, I like how the management manages this headwind, where they have long debt maturities (together with its high credit rating of A3 by Moody’s, it allow the REIT to secure borrowings at more favourable rates), and at the same time, not having more than 13-14% of borrowings due for refinancing in any given year. Portfolio occupancy were also at very high levels of above 90% for all the geographical locations.

Another thing to note that the REIT has managed to record a rental reversion of +13.4% for new and/or renewed leases in FY2023 – which will contribute positively towards its gross revenue and distribution payout (however, it will be offset by higher borrowing costs) in the years to come.

With that, I have come to the end of my summary of CapitaLand Ascendas REIT’s AGM. As always, I hope you have found the contents presented in this post useful.

Related Documents

• CEO’s Presentation Slides
• Results of AGM

Disclaimer: At the time of writing, I am a unitholder of CapitaLand Ascendas REIT.

The post CapitaLand Ascendas REIT's AGM for FY2023: Key Highlights to Take Note of first appeared on The Singaporean Investor.