There are a total of 4 REITs by CapitaLand, namely CapitaLand Ascendas REIT (SGX:A17U), CapitaLand Ascott Trust (SGX:HMN), CapitaLand China Trust (SGX:AU8U), as well as CapitaLand Integrated Commercial Trust (SGX:C38U) – among the four, 2 of them (in CapitaLand Ascendas REIT, and CapitaLand Integrated Commercial Trust) are constituents of Singapore’s benchmark Straits Times Index (STI), and I am invested in both of them (you can check out all the Singapore-listed companies I have investments in here.)

CapitaLand Integrated Commercial Trust held its AGM on 19 April, and you can check out my summary of the meeting here.

CapitaLand Ascendas REIT, or CLAR for short, held its AGM earlier this afternoon (28 April 2023), and I’ve chosen to watch the meeting online, as I do not have any questions to ask, and also the time saved on travelling to and from the meeting venue can be put into compiling this summary – where you’ll find the presentation by the REIT’s CEO, Mr William Tay, responses to questions posed by in-person attendees (those who attended the meeting virtually aren’t able to ask any questions ‘live’), and finally, results of the resolutions put to vote (again, those who attend the meeting online can only submit their votes beforehand.)

Let’s begin:

Presentation by CEO William Tay

20 Years of Growth:

• When the REIT was listed back in 2002, it was Singapore-focused, where it had only about S$600m worth of assets.
• In 2015, they expanded overseas to Australia, followed by the United Kingdom in 2018, the United States in 2019, and Europe in 2021.
• Today, its total portfolio is worth over S$16 billion.
• In terms of geographical concentration, 62% of its properties are in Singapore, with the other 38% of its properties are located overseas.
• The REIT’s portfolio is constituted in such a way that it has a good diversification in terms of risk, tenants, currencies, as well as in countries.

Key FY2022 Performance Highlights:

• Distributable income improved by 5.4% to S$663.9m (FY2021: S$630.0m), as a result of contributions from newly acquired properties in 2021 and 2022, a completed built-to-suit development in Singapore, and better performance from its Singapore properties.
• Distribution per unit climbed by 3.5% to 15.798 cents (FY2021: 15.258 cents), mainly due to the increase in net property income and absence of the Manager’s performance fee.
• Portfolio occupancy, as at 31 December 2022, was at a 10-year high of 94.6% (up from 93.2% as at 31 December 2021), with a portfolio rental reversion of +8.0% recorded, above the management’s expectation of mid-single digit range, and the highest recorded since 2015 (FY2021: +4.5%.) Tenant base was also well diversified at 1,720, and in terms of industry diversification, the tenants come from more than 20 industries.
• Aggregate leverage remains healthy at 36.3% as at 31 December 2022, along with a high level of natural hedge at approximately 74%. Also, because of its A3 credit rating by Moody’s the REIT was able to secure borrowings at attractive cost, and it has no more than 20% of borrowings expiring in any single year. A 100 basis point increase in interest rate will lead to an approximate 2% decline in distribution payout to unitholders.
• Unit price performance have remained firm even in a turbulent market, where it has outperformed the FTSE ST REIT Index.

Updates on Acquisitions/Redevelopments:

Completed:

• Singapore: S$38.2m of re-development of UBIX in 2022, along with acquisition of 622 Toa Payoh Lorong 1, and 1 Buroh Lane in 2023;
• United States: S$133.2m in 7 logistics properties in Chicago;
• Australia: S$90.2m in 2 logistics properties (500 Green Road in Brisbane, and 7 Kiora Crescent in Sydney.)

Ongoing Works (of approx S$630m to be completed between 2023 – 2026):

• MQX4, in Sydney, Australia, with acquisition to be completed in Q2 FY2023 (at S$161.0m);
• The Alpha, Singapore – refurbishment of main lobby, new collaboration spaces and upgrading of current facilities to cater to larger capacity of users (with estimated cost at S$15.5m, and it is scheduled to complete in 2023);
• Lusk Boulevard, San Diego, US – conversion into a LEED Gold-certified life science building (with estimated cost at S$56.4m, and completion in 2023) which will be leased to a clinical pharmaceutical company listed in NASDAQ;
• iQuest@IBP, Singapore – to be repositioned into a modern business space to double the gross floor area (with estimated development cost at S$84.3m), and the property will benefit from the convenience brought about by the new Jurong Town Hall MRT station up in 2027 (part of the proposed Jurong Regional Line);
• 1 Science Park Drive, Singapore – development of a world-class life science and innovation campus, which will see the floor area being tripled post-development (estimated development cost at 34%: S$300.2m.)

Sustainability Agenda:

• Number of green properties increased by another 21 to 70 in 2022 (from 49 in 2021.)
• CLAR has one of the largest combined rooftop solar installations in Singapore among S-REITs, with 17 of its properties installed with solar panels (up by 10 in 2022.) Moving forward, the REIT have identified another 30 buildings for solar panels to be installed.
• REIT will continue to work to decarbonise its operations, and at the same time, build a green portfolio.

Outlook Ahead:

• REIT will remain its focus on continuing to build a resilient portfolio to provide solutions for the “businesses for tomorrow”, and at the same time, deliver sustainable returns for unitholders.

Responses to Questions Posed by In-Person AGM Attendees

• Responding to concerns by a unitholder about the situation in the United States where it has seen an increasing number of properties going on auction, CEO Mr William Tay said that there are no signs of bankruptcies seen in the companies in its portfolio. He added that rentals in the country still remain very strong, along with arrears being low.
• On concerns relating to rising interest rates, CFO Ms Koo Lee Sze acknowledged that finance cost may continue to climb due to interest rates continuing to rise. However, she added that there are hedging policies in place, along with forward exchange contracts, interest rate and currency swaps to mitigate risks. Chairman Dr Beh Swan Gin also shared with the unitholder that the REIT’s average cost of debt as at 31 December 2022, at 2.5%, is very low in his opinion. On top of that, the REIT had 75% of its borrowings hedged at fixed rates at a term of 3.3 years, which will provide some buffer against potential risks.
• A unitholder wanted to know of the level of concentration which the REIT will have in Singapore moving forward, Dr Beh said that the management do not have a fixed percentage in terms of concentration levels, but it will continue to have a heavy concentration in Singapore, where it is the market leader in, and remain confident in maintaining its current position. Mr Tay added the REIT had further strengthened its presence in the country by acquiring 2 more properties (in 622 Toa Payoh Lorong 1, and 1 Buroh Lane) in 2023, and at the same time, exploring possible redevelopment opportunities in its existing properties to further unlock their values.
• Another unitholder pointed out the strong 29.2% rental reversion recorded for its United States properties for FY2022, and wanted to know the reasons for its strong performance. In response, Mr Tay said that for its logistics properties in the country, they are located at last mile locations where supply is extremely limited. This, coupled with tenants being very inclined to continue their leases, led to higher rental contracts upon lease renewal. For its office properties, because they are located in locations where there is an ecosystem there (such as its properties in Raleigh is located at the heart of the Research Triangle), along with tenants being very ‘sticky’ (meaning they sign long term leases and typically do not re-locate), the REIT was able to renew leases at favourable terms.
• A unitholder was concerned about continued rise in utilities cost impacting the REIT’s bottom-line, to which Mr Tay said there are 2 components for utilities costs – one is for tenants (which are being passed through), and the other is for the landlord (which is the REIT itself.) He explained that in terms of consumption, it has remained stable, but costs have been rising since Russia’s invasion of Ukraine last year. While utilities cost have spiked in FY2022 (compared to FY2021), Mr Tay expects the cost increase to stabilise this year.
• The same unitholder highlighted that only about 70 out of 227 buildings owned by Ascendas REITs are green certified, and asked about reasons for the low percentage. To this, Mr Tay explained that a large part of these buildings are industrial buildings, including logistics, where there are no M&E equipment (such as air conditioning.) As such, they did not achieve ‘green mark.’ That said, the buildings that have not achieved green certification do not use a lot of energy in the first place. However, the management is working together with the authorities to explore how these buildings can be green certified. Mr Tay also added that by 2030, all the buildings managed by CLAR will be ‘green certified’, and that all the acquisitions made will be ‘green’ – if they are not, capital expenditures will be used to make them so.

Results of Resolutions 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 2022 and the Auditors’ Report thereon, was passed with 99.36% of the votes for, and 0.64% of the votes against.
• Resolution 2, which is to re-appoint Ernst & Young LLP as Auditors of CLAR to hold office until the conclusion of the next AGM of CLAR, and to authorise the Manager to fix their renumeration, was passed with 99.80% 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 87.95% of the votes for, and 12.05% of the votes against.
• Resolution 4, which is to approve the renewal of the Unit Buy-Back Mandate, was passed with 99.86% of the votes for, and 0.14% of the votes against.

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

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