Ascendas Real Estate Investment Trust

SGX:A17U

Earnings Call Transcript 2020-Q2

[Kit Peng Yeow, executive]

Good afternoon, ladies and gentlemen. Today, there'll be 2 presentations. The first one will be on Ascendas REIT 2Q FY 2019 results. The second presentation will be on the $1.66 billion proposed acquisition in the U.S. and Singapore. After the 2 presentations, we will wrap up with a -- having Q&A session.

Okay. So let's begin. Despite a very uncertain market condition in 2Q, Ascendas REIT continued to achieve a steady set of results. Gross revenue, NPI, DI, DPU are increased, respectively, the 5.3%, 12%, 7.6% and 2.3% year-on-year.

The newly acquired 38 logistics properties in U.K. in the end of 2018, contributed positively to our performance.

Operationally, during the quarter, we achieved a positive rental reversion of 4% for leases that were renewed. Portfolio occupancy remains stable at 91%. Gearing improved to 36.2%. We will now elaborate on some of these highlights.

Q2 FY 2019 versus to 2Q FY '18/'19. So gross revenue increased 5.3% year-on-year, and this was mainly driven by the higher contribution from the U.K. logistics portfolio as well as liquidated damage that we received from a tenant in Australia.

Net property income increased 12% to $178 million, boosted by the effects of the FRS 116, pertaining to the land rent exclusion. So excluding the effects of the FRS 116, NPI would be an increase of 6.8%. So DPU increased by 2.3% to $0.03978 due to an enlarged number of units in issue.

2Q versus 1Q. Revenue is maintained at about $229.6 million. The low occupancy in Singapore was more than offset by high occupancy in Australia, and to some extent, the liquidation -- liquidated damages in Australia helped, so the same dynamics apply to the NPI, DI and the DPU numbers. We adopt a semiannual distribution frequency. So for the period of 1st April to 30th September, we'll be paying out $0.07983.

Some important dates here. The book's closure will be on the 11th of November, and the distribution payment is 3rd December. During the quarter, one light industrial property in Loyang was divested to streamline our portfolio further. The divestment proceeds was $27 million, and it was divested at 14% above the NAV.

After the 2Q results, we announced an acquisition of a suburban office in Melbourne, Australia. This will be our fourth suburban office property in Australia. It is well-located within the Monash Tech Precinct, which houses some of the country's most prestigious research organizations and some high-tech industries. The construction of this 8-storey building will complete sometime 2Q next year. NPI yield is 5.8%, and is DPU yield accretive.

Income stability is strong, anchored by Nissan's very long lease term of 10 years with annual rental escalation. So it is already 65% preleased to Nissan, and Nissan will be using it at as their head office and training center. So this brings our investment in Australia to $1.6 billion, very improved to 36.2%. As at September, we have a total borrowings of $4.1 billion. And as you can see here, the debt expiry profile is very well [ distributed ], such that in any 1 year, no more than 20% of the debt will come due for renewal.

Our key funding indicators are summarized in this table. The financial metrics are very healthy by exceeding the required minimum limits set by any bank loan covenant. As the Moody's A3 rating is maintained and that provides us with a lot of financial stability and very strong access to capital.

Currency hedge, we continue to have in place a very high level of natural hedge in Australia as well as in U.K. to minimize any adverse impact from the exchange rate movement.

So this slide shows -- gives you an overview of our occupancies. Portfolio occupancy is 91%. For Singapore, occupancy is 88.1%. This is an improvement year-on-year but a decline Q-on-Q. For Australia, occupancy improved to 80 -- to 95.4% as of September. For U.K., there's a decline to 97.7%. So let's come back to some of these numbers.

In Singapore, occupancy is hovering at about the 88% level. We are still experiencing some transitional movement in the market. Australia occupancy improved to 95.4%, and this is mainly due to the DB Schenker in Sydney, 94 Lenore Drive. So a 3PL is taking up the whole property for 5 years. Rental rate is about 2% higher than of the previous tenant. 62 Stradbroke Street also saw better occupancy, a new transport company has signed up for 5 years, with a 3% escalation a year.

In U.K., due to the expiry of some rental guarantees, we experienced a slight dip in the U.K. occupancy. We believe that this is a temporary situation.

So in 2Q, we saw new demand from the biomed sector, the financial sector as well as the precision engineering sector.

On a portfolio basis, the average rental reversion was 4% for 2Q. So in Singapore, we were able to renew leases at higher rents for all the clusters. You can see here for logistics, particularly, we have a high 7% increase, but this was -- this outlier in this number, the rental that we got for that lease is exceptionally high. However, if we were to strip that out, then the logistics segment increase would be about 4.2%, still good, and that translate into a 3.5% overall Singapore portfolio, positive rental reversion.

Ongoing projects, about $240 million worth of projects are ongoing. This includes the development of the built-to-suit for Grab in the one-north location. Overall, the projects are on track and on time.

So in conclusion, Ascendas REIT's performance is still stable. We can attribute this to our large and diversified portfolio with a strong tenant base. We are confident to ride out the current global uncertainty should it persist in the medium term. So this brings us to the end of our 2Q fiscal year 2019 results presentation.