1H 2023 Financial Results Briefing

[00:00:03] On-Site Opening at 622 Toa Payoh & 1H 2023 Results Presentation

Terrence (IR), Yeow Kit Peng (Head CM & IR)

Terrence opens the on-site briefing at 622 Toa Payoh and hands over to Yeow Kit Peng, who presents 1H2023 results: distribution income down 1% to $327.5 million, DPU down 2% to 7.72 cents, gross revenue up 7.7% to $718.1 million, portfolio occupancy stable at 94.4%, rental reversion of 14.2%, gearing at 36.7%, and a new $107.4 million redevelopment of 5 Toh Guan Road East.

[00:01:29] Yeow Kit Peng (Head CM & IR):

“The distribution income for the first half of 2023, uh, is 1% lower at 3 2 7 $0.5 million.”

[00:15:53] Q&A - Question 1: Strong Singapore Rental Reversions & Full-Year Guidance (Mervin Song, J.P. Morgan)

Mervin Song (Analyst, J.P. Morgan), William Tay (CEO)

Mervin Song asks what is driving healthy Singapore rental reversions in logistics and business parks, about a possible drop in electricity costs, and about US office exposure. William Tay attributes Singapore logistics reversion of 39% to a persistent supply-demand imbalance and a shift toward just-in-case inventory strategies, and says US properties make up about 14% of the portfolio, with office exposure further reduced once logistics and SOMA properties are excluded.

[00:16:04] Mervin Song (Analyst, J.P. Morgan):

“congrats on the very strong rental reversions and, uh, outward guidance for the full year.”

[00:16:41] William Tay (CEO):

“the Singapore Reversions, uh, as you can see, is mainly driven out of, uh, logistics, uh, 39%.”

[00:29:03] Q&A - Question 2: Debt Expiries & 5 Toh Guan Road East Redevelopment (Derek Tan, DBS Bank)

Derek Tan (Analyst, DBS Bank), Khoo Li Sun (CFO)

Derek Tan asks about the 5 Toh Guan Road East redevelopment and refinancing the roughly 668 million dollars of debt expiring this year. Khoo Li Sun explains the redevelopment converts a cargo-lift warehouse to a ramp-up facility, targeting a yield on cost of six to 7%, higher with a cold-storage tenant. Average borrowing cost is currently about two percent, and refinancing at prevailing rates could roughly double it.

[00:29:48] Khoo Li Sun (CFO):

“we probably looked at, um, six to 7%, depending where we can land in terms of the interest.”

[00:31:16] Khoo Li Sun (CFO):

“the average cost for, for these borrowings, um, currently is about two odd percent.”

[00:36:08] Q&A - Question 3: Acquisition Integration & Sponsor Pipeline (Chen, Analyst)

Chen (Analyst), William Tay (CEO), Joy Wang (Analyst, HSBC)

Chen asks whether the second-half deal-flow pickup applies to CLAR; William Tay confirms an active pipeline with about 1 billion dollars of headroom, subject to closing deals successfully. Chen also asks how rental reversion is calculated; Tay confirms it covers renewed leases only, excluding new-tenant leases. Joy Wang asks about new markets; Tay cites Japan and Korea as considered, noting each market has scaled to 1.5-2.5 billion dollars.

[00:36:33] Chen (Analyst):

“We are 1 billion of hit room, uh, which is quite good for us to be able to use when an opportunity to arise.”

[00:39:12] William Tay (CEO):

“Each of the market now is between 1.5 to 2.5 billion, which is quite substantial for us, uh, to manage”

[00:52:06] Q&A - Question 4: US Metro Market Leasing Dynamics (Joy Wang, HSBC)

Joy Wang (Analyst, HSBC), William Tay (CEO)

Joy Wang notes 2024 US lease expiries, including Raleigh, San Diego and Portland, with talks not yet begun, and asks about Australian expiries versus market rents. William Tay explains Australian leases historically carried three to 4% annual increments, and record-high market rents over the past three years, driven by near-zero vacancy in Sydney, Melbourne and Brisbane, have caught up to in-place rents, so average reversion for Australia stays positive.

[00:52:06] Joy Wang (Analyst, HSBC):

“the UX expires in 24. Um, so next year there will be another chunk of, uh, roll leases coming up for expiry next year.”

[00:52:47] William Tay (CEO):

“there will be in place, uh, annual increments anywhere between three to 4% on average.”

[01:00:38] Q&A - Question 5: Pinterest Early Lease Pre-Determination at San Francisco Asset (Derek Chang, Morgan Stanley)

Terrence (IR) [Reading Question], William Tay (CEO)

Terrence relays a question about Pinterest SEC filing referencing a lease pre-determination at the San Francisco asset. William Tay says the filing is not new, CLAR contacted Pinterest when it appeared, and Pinterest intends to honor obligations on the remaining 10 year lease. He notes pre-termination talks did not progress to discussing compensation, and Pinterest keeps paying rent on time, an accounting write-off rather than a legal predetermination right.

[01:00:38] Terrence (IR) [Reading Question]:

“This filing has been out for many months now.”

[01:01:00] William Tay (CEO):

“there's a 10 year lease left on that, uh, building, I'm gonna collect every single cent of their 10 year lease.”