This morning (28 April 2022), Ascendas REIT (SGX:A17U) held its annual general meeting (AGM) for the financial year ended 31 December 2021 (i.e. FY2021.)
As a precautionary measure to keep Covid transmissions to a minimum, the meeting was held virtually. I’ve attended the meeting as a unitholder to receive the latest updates from the REIT’s management and in this post, you’ll find my summary of the CEO’s presentation, responses to questions raised by fellow AGM attendees, as well as results of the resolution put to vote during the meeting.
CEO Mr William Tay’s Presentation
Growth Journey of Ascendas REIT:
- Mr Tay shared that this year is Ascendas REIT’s 20th year anniversary since its listing back in 2002, where they are Singapore’s first publicly-listed industrial REIT.
- From just 8 properties worth S$600m in its portfolio during its listing, its total investment properties have grown to S$16.3bn (with 61% of concentration in Singapore, 14% in Australia, 14% in the United States, and 11% in the United Kingdom/Europe.)
- Its portfolio composition can be broken down into 3 key segments – with Business Space and Life Sciences constituting 48% (with properties built to suit the tenants’ specific requirements), Logistics constituting 24% (where they are located near airports, seaports, and major highways), and Industrial and Data Centres constituting the remaining 28%.
FY2021 Performance Highlights:
- Distributable income climbed 17.0% to $630.0m (FY2021: $538.4m), mainly attributable to contributions from newly acquired properties and completed developments during FY2020 and FY2021, and distribution per unit growing by 3.9% to 15.258 cents (FY2021: 14.688 cents) – the growth was due to the Manager voluntarily making a one-off waiver of a part of its entitled performance fee; without the waiver, its distribution per unit would have grown by just 2.5%.
- Portfolio occupancy remains healthy at 93.2%, with a positive rental reversion for new/renewed leases at +4.5% (which is in-line with guidance provided through the year), with top 10 customers (some of them being SingTel, Stripe Inc., DSO National Laboratories, SEA Group, Pinterest Inc., and DBS Bank) accounting for about 18.3% of its monthly portfolio gross revenue.
- Balance sheet have also remained healthy with an aggregate leverage of 35.9%, providing the REIT with an available debt headroom of approximately S$4.8bn before it reaches the regulatory limit of 50.0%; Mr Tay also pointed out that Ascendas REIT is one of the few S-REITs that have maintained an ‘A’ level rating over the years. Also, in terms of debt maturity, the REIT maintains a profile where no more than 20.0% of the borrowings will be due for refinancing in a single year, with 79.4% of its borrowings on fixed rates to minimise impacts caused by interest rate hikes.
Acquisitions & Developments Completed in FY2021:
- A record of S$2.1bn of investment was completed in the financial year under review, and they are:
- USA (11 logistics properties in Kansas City)
- UK/Europe (11 data centres across London, Amsterdam, Paris, Manchester, and Geneva)
- Singapore (acquisition of Galaxis, and completion of built-to-suit Grab Headquarters)
- Australia (1-5 Thomas Holt Drive in Sydney – a campus style business space property)
- Mr Tay added that the REIT will continue to stay disciplined, and focused on acquiring properties in the logistics and technology sectors, which continues to grow and have a healthy demand.
- Mr Tay updated the REIT continues to make good progress on its sustainability efforts, where it has:
- The largest number of BCA Green Mark certified properties amongst S-REITs at 40;
- The largest number of Electric Vehicle charging points in Singapore by a S-REIT at 76;
- One of the largest combined rooftop solar installations in Singapore for a real estate company at approximately 11,600 mWh of solar power generated;
- Raised approximately S$1.2bn via Green Bond, Green Perpetual Securities, Green Loans (which accounted for about 20% of its total borrowings.)
- Moving forward, it will continue to decarbonise its operations to build a greener portfolio.
Responses to Questions Raised by AGM Attendees
- On concerns relating to whether the REIT’s growth will be able to cover the current rising inflation, Mr Tay said that while there is a genuine concern over the rising inflation (such as rising electricity tariffs) and interest rates, but the REIT’s net property income growth have also remained resilient (as a result of its active acquisition efforts over the last 10 years, along with embedded rental escalation in its contracts.) He added with about 20% of the leases due for renewal every year, it provides flexibility for the REIT to negotiate re-contracts at favourable terms. This is on top of the REIT’s efforts to install solar panels to generate their own energy, hence minimising the impact that rising electricity tariffs have on its operating costs.
- A fellow unitholder was concerned on pressures currently faced by pure-play data centre REITs due to rising energy costs, and wanted know the REIT’s exposure level on such properties, and whether there are any caps placed (in terms of the level of exposure to the particular sector.) In response, Mr Tay said that Ascendas REIT’s exposure on data centres is currently about 9%, and the REIT have not imposed any caps on the exposure to such assets, citing its rising demand as a result of the proliferation of cloud computing and e-commerce, which fits very well to its overall growth strategy. That said, he assured the unitholder that the REIT will continue to be prudent in their acquisitions.
- Another unitholder noted that the REIT only has one data centre property in Switzerland (acquired in FY2021), and wanted to know if there are any economies of scale for the REIT to maintain just one property in the country, along with any possible currency risks (of Swiss Francs.) Mr Tay explained that the data centre in Switzerland was part of the 11 data centre assets being acquired, and that the particular data centre is currently leased to a single tenant with a long lease which expires only in 2043. Also, payment is made in Euros and as such, there are no additional currency risks faced by the REIT.
- Responding to another question raised by a fellow unitholder who highlighted concerns about 3 properties which the REIT has which are currently unoccupied at the moment, Mr Tay explained that the REIT is still engaged in discussions with a customer (but in finalisation stages) for its property 35 Tampines Street (which will be converted to suit the customers’ requirements.) As for the vacant property in 1 Changi South, Mr Tay updated that negotiations have been completed and occupancy will be back to 100.0%. Finally, Mr Tay also shared that the vacant property in the United Kingdom is currently under asset enhancement works but they have already secured a lease pre-commitment.
- Pertaining to another question on how rising electricity costs will impact the REIT’s data centres in Europe, Mr Tay said that most of the energy cost are being “passed through” to its tenants. He also shared that the data centres are also running on renewable energy at fixed prices.
- On a question relating to a 30% rise in audit fees, Mr Adrian Chan from the Risk Committee explained that this was due to the REIT’s increase in assets under management, which led to the increase in terms of scope of work, along with complexity. He added that while the REIT have been in negotiations with the auditor to moderate costs, but it has to be one that is fair and reasonable.
- Another unitholder wanted to know whether or not the war in Ukraine have any impact on the REIT. In response, Chairman Dr Beh Swan Gin said that the situation in Ukraine certainly injected more uncertainty in the economy (particularly in terms of rising energy, commodity, and food costs), and in turn, negatively impacting the REIT’s current and potential tenants. However, he shared that the direct impact is minimal, as amid the uncertainties, sectors which the REIT are focused on are still expanding to build resilience in their operations.
- One unitholder asked if there are any possible acquisitions made by the REIT through ROFR (Right of First Refusal) from its Sponsor coming up. The REIT’s Real Estate Investment Manager, Mr Manohar Khiatani explained that there is a healthy pipeline of around 7-8 properties worth S$1.5bn in value to which the REIT have a ROFTR to over the next few years. He also highlighted the REIT’s good track record of acquiring properties through ROFR from its Sponsor in that over the last 5 years, they have acquired S$2.7bn worth of properties through the channel.
- Responding to a question on why occupancy rates in Singapore tend to be lower compared to the other developed countries, Mr Tay shared that for the REIT’s overseas portfolio (which mainly comprises of logistics and data centre properties) have a long lease expiry. Also, one of the prerequisites when it comes to acquiring overseas properties is that they must have an occupancy rate of at least 90%. As for the occupancy rate of properties in Singapore, Mr Tay shared that there are challenges where occupancy rate have been at 86-88% over the past few years, before an increase in demand (particularly in its logistics properties due to Covid) saw its occupancy rate increased to 90% last year. That said, he cautioned that the occupancy rates in Singapore will continue to remain under pressure in the coming years ahead, due to the incoming supply of industrial and logistics properties in Singapore. However, he reassured the unitholder that the REIT intends to repurpose some of its properties to increase income (he cited an example of a repurposed property in Ubi, where it was into a high-tech space.)
- On a question as to whether the REIT is looking at expanding to other countries, such as North Asia, Mr Beh said that while the REIT is open to new markets, but there are currently no plans to expand in the particular geographic location. Its focus remains in developed markets.
Results of Resolution Put to Vote during the Meeting
- Ordinary Resolution 1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of Ascendas REIT for the financial year ended 31 December 2021 and the Auditors’ Report thereon, was passed with 99.84% of the votes for, and 0.16% of the votes against.
- Ordinary Resolution 2, which is to re-appoint Ernst & Young LLP as Auditors of Ascendas REIT to hold office until the conclusion of the next AGM of Ascendas REIT, and to authorise the Manager to fix their renumeration, was passed with 99.75% of the votes for, and 0.25% of the votes against.
- Ordinary Resolution 3, which is to authorise the Manager to issue Units and to make or grant convertible instruments, was passed with 86.94% of the votes for, and 13.06% of the votes against.
- Ordinary Resolution 4, which is to approve the renewal of the Unit Buy-Back Mandate, was passed with 99.97% of the votes for, and 0.03% of the votes against.
Catch the CEO of Ascendas REIT “Live” in REIT Symposium on 21 May 2022
Jointly organised by InvestingNote (where I am a member of, you can find my profile here), Mr William Tay, CEO of the REIT, will be one of the attendees of the upcoming event (he will be in a live chat session between 12.50pm and 1.20pm.)
If you like to hear more from him and learn more about the REIT, you can sign up for the event (you have the option to attend the event offline, as well as online), which will be held on Saturday, 21 May 2022 from 9.00am to 6.15pm, here (by the way, the event is FOC.)
Apart from Ascendas REIT, you can also learn more about 11 other Singapore-listed REITs direct from their management in this one-day event, which I recommend if you are available on that day.
The Singaporean Investor is proud to be selected as one of the media partners for the event.
Disclaimer: At the time of writing, I am a unitholder of Ascendas REIT.
The Singaporean Investor is now on Instagram! Follow the page here for pictorial summaries of company analyses, along with investment and trading ideas.
Click here to join The Singaporean Investor's Telegram group to receive updates whenever a new post is added to the site.