CapitaLand Ascendas REIT (ACDSF) FY2023 Earnings Call Transcript

CapitaLand Ascendas REIT (OTCPK:ACDSF) FY2023 Earnings Conference Call February 1, 2024 4:30 AM ET

Company Participants

Yeow Kit Peng – Head, Capital Markets & Investor Relations

William Tay – Chief Executive Officer

James Goh – Head, Portfolio Management

Koo Lee Sze – Chief Financial Officer

Conference Call Participants

Mervin Song – JP Morgan Securities

Derek Chang – Morgan Stanley

Wong Yew Kiang – CLSA Singapore

Joy Wang – HSBC Global Research

Xavier Lee – Morningstar Equity Research

Operator

Good evening, ladies and gentlemen. Welcome to the FY2023 Results Briefing of CapitaLand Ascendas REIT or CLAR for short. We thank you for joining us in-person and online today. Before we begin, let me just give you a few housekeeping notes. This briefing consists of a presentation by management as well as a Q&A session. [Operator Instruction]

So, before we begin the session proper, let me just introduce the management on the panel. First, we have Mr. William Tay, CEO of CapitaLand Ascendas REIT; second, we have Ms. Koo Lee Sze, CFO of CapitaLand Ascendas REIT; next we have Ms. Yeow Kit Peng, Head of Capital Markets and Investor Relations; and finally, we have Mr. James Goh, Head of Portfolio Management.

And with that, I will now hand the time over to Ms. Yeow Kit Peng, who will begin with the presentation. Thank you.

Yeow Kit Peng

Hi, good evening, everyone. Thank you for attending this briefing. Okay, some highlights first, before we dive into the details. Portfolio occupancy remained high at 94.2%. And we achieved a high rental reversion of 13.4% for leases that were renewed in FY2023. Gearing is healthy at 37.9% and we continue to have a high level of natural hedge of 81%. Distributable income declined 1.4% to S$654 million. And DPU declined by 4% to S$0.1516. Investment properties grew 3% to S$16.9 billion. On the same-store basis, property valuation declined about 1.8% to S$16 billion.

Okay, financial performance, full year FY23 versus the previous FY22. Gross revenue increased 9.4%, driven mainly by full year contributions from new acquisitions in FY23, i.e. the data center in Watford, UK; 1 Buroh Lane, Toa Payoh Lorong 1, and The Shugart in Singapore. So full year contribution from properties acquired in FY2022, that is the seven logistics properties in Chicago also contributed, and as well as better performance from existing properties.

NPI rose 5.6% to S$1 billion, despite some cost pressures. Total amount available for distribution declined 1.4% to S$654 million due to higher interest expense, resulting from the high interest rate environment and higher borrowings as we acquire more properties. DPU declined 4% to S$0.1516 because of lower distribution and a larger unit base.

So when we compare second half versus first half performance, gross revenue increased 6.1% to S$761.7 million, and this is boosted mainly by the newly acquired data center in Watford, UK, as well as full period contribution from newly acquired properties in the first half of the financial year, i.e. The Shugart, 1 Buroh Lane, and 622 Toa Payoh Lorong 1. And the net property income, it was flat due to higher operating costs and property tax. Distribution income is stable at S$326.9 million. DPU declined 3.6% to S$ 0.07441 due to a larger unit base.

Second half 2023 versus second half 2022, the growth in the gross revenue is largely driven by the new acquisitions in 2023, so the four properties that we mentioned earlier, as well as better performance of existing properties. So, net property income increased 4.6% to S$514.3 million despite higher operating expenses.

Distribution declined 1.9% to S$326.9 million due to higher interest rates and borrowings, as we acquire more properties. So in the second half, DPU declined 6.1% to S$0.07441. Some distribution details, we adopt a semi-annual distribution frequency. For the second half of the year, a distribution of S$0.07441will be made. You will be receiving your dividends on the 6th of March.

Investment highlights. So despite the challenging market, we were able to expand the business. This table shows a series of acquisitions and development during the year. Three acquisitions in Singapore were made, as well as one in London, The Chess Building, which is the data center in Watford, UK. Development in Australia, MQX4, was also completed. So all together, the total value is S$885.3 million.

We continue to ensure that we acquire only quality properties with strong tenant base and have promising long-term potential. The NPI used for these acquisitions range from about 6 odd percent to as high as 9.4%. We also continue to optimize the returns from our existing properties by repositioning and upgrading them. So take for example, 6055 Lusk Boulevard, which we have completed. We converted the property to a life science property. So not only the rents are higher, the valuation of that property also increased.

Divestment, so during the financial year, we divested KA Place, which is an industrial property in Singapore, at a 55% premium to the market value of the property. And you have seen these two slides already. And more recently, in December, we continued to streamline our portfolio.

We announced the divestment of these three logistics properties in Brisbane for a total of S$64.2 million at 6.2% above valuation. We received a good offer for them. The exit cap rate is about 3%, it is attractive. These three properties, if you remember, they were part of a portfolio that we acquired in 2015. So after stabilizing the portfolio, it is opportune time for us to sell them as the returns are not expected to improve much further.

Capital management. Total debt, you can see, has increased to S$6.7 billion as we continue to acquire new properties. However, with the equity fundraising in May last year, we raised S$500 million. Gearing is maintained at a healthy 37.9%. So our emphasis in this very uncertain business environment is to ensure that our gearing levels are healthy.

Debt maturity. Last — in financial year 2023, we termed out almost $1 billion worth of debt with fresh tenor of five, seven years. So the debt maturity profile you can see is quite spread out with less than maybe 15% of the debt due for renewal in the next three, four years. So despite the high interest rates globally, the gearing is 37.9% and a high proportion of the fixed rate debt is 79%. So that help to moderate our interest expense. The weighted average all-in debt cost is 3.5%.

The strong balance sheet standing also provides us for buffer against uncertainties, ensuring resilience of our financial ratios and compliance with bank covenants. The A3 credit rating by Moody’s is maintained and this is very important. It will provide us with financial flexibility and strong access to capital.

We have here some interest sensitivity tables. On the left is a sensitivity table based on the proportion of borrowings on fixed rate debt and then on the right is a sensitivity table for the refinancing in FY2024. So in this coming year, we have about S$900 million of borrowings that will be due for refinancing. So if they are, say, refinanced at 50 basis points higher, then the impact on distribution will be 0.7%, all things being equal.

Natural hedge continues to be high at 81%, so for our S$6 billion worth of investment overseas.

Valuation, so as at 31^st December, ’23, we own 227 properties and the value is S$16.9 billion. Now on a same-store basis, the valuation is S$16 billion. So when we compare with the year before, the value was $16.3 billion. So the difference is a 1.8% decline and this is mainly due to lower valuations in the US and in Australia. However, the decrease in these two countries were offset by higher valuations in Singapore and in the UK and Europe.

By segment, the decline in the same-store property valuation was mainly due to lower valuation for business space but partially offset by higher valuations for industrial and data centres and logistics. So although the valuations of the business space properties in the US and Australia declined, these properties only account for about 14% of our total asset value of $16 billion in same-store basis.

Moving on to our occupancy, on the extreme right, you can see that the portfolio occupancy is stable and high at 94.2%. So on the left, you will see that Singapore, Australia and the UK/Europe portfolio, they are all stable at above 90%. Occupancy in the US is lower at 90.4%. Some details follow. So in Singapore, very stable at 92.7% and this is higher than JTC island-wide occupancy rate of 89%.

Also very pleased to highlight some notable improvement in the Singapore portfolio, particularly in some industrial properties such as UBIX, it is now 96.5% occupied, 10 Toh Guan 92.1% occupied and Tampines Business Hub 98.1% occupied. So these three properties we saw are sizable take-up and the signings are for like five year lease term, right? So pretty good tenor.

In the US, so there is a decline to about 90.4% and this is due to lower occupancy rates in Portland and largely attributable to the downsizing by Nike. So Nike reduced their space by about 10,000 square meters but it remains a tenant in some of our other properties in Portland. So we will continue to source for new tenants and in the meantime, we are improving the amenities in the area to retain and to attract new tenants. Australia portfolio occupancy remains very high at 98.7%, UK/Europe similarly 99.4%.

Moving on to where demand came from during the financial year, so in the fourth quarter, in Singapore, its tenants in the engineering, electronics industries, for the overseas market, tenants from the biomedical and government agencies. On a full year basis for both Singapore and overseas properties, the tenants are mainly from logistics, engineering and biomedical industries.

Rental reversions, the portfolio achieved a 13.4% positive rental reversion for FY2023. So that beats our guidance for the year. You can see that we achieve positive rental revisions for all the markets and also all the segments. However, perhaps for data centers, you see a minus 5.1% for the FY2023 and this refers to the 4Q that is a 6.6% decline and this mainly due to a data center in UK whereby it was over rented. It had a very long lease and during that long lease period, there was 3% escalation throughout. So now it’s renewed at a slightly lower level.

I also want to highlight that the retention rate in FY23 is higher than that in FY22. WALE steady at 3.9 years and in terms of expiry on a whole portfolio basis, we will have to work on about 15% of our gross rental revenue this year. And in Singapore it is also about 14.5% due for renewal. In the US also about 14% or 15%, Australia 21%, UK/Europe is about 10%.

There are a total of five ongoing developments or redevelopment AEI’s worth S$551 million and they are scheduled to complete between 2025 and early 2026. In the fourth quarter, we have kick-started some AEI’s at two industrial properties, Pacific Tech Center and 80 Bendemeer Road. We will continue to add to this list. In fact, in the first quarter this year, we will be decommissioning a data center in the UK, Welwyn Garden City. It will be redeveloped into a 60 megawatt powered shell data center and targeting hyperscalers.

Most of our business-based tenants are on this work from home policy of two or less days. So to support our tenants, we try to improve the experience and the work environment with us. In Singapore, we organize community engagements such as Oktoberfest, health talks, wellness talks and treats for tenants. In Australia, we upgraded tenants — the amenities such as terraces, pool, tennis courts, barbecue area. And in the US, we are constructing an amenity center in Portland.

To conclude, the uncertain inflation trend, geopolitical tensions and weaker than expected recovery in China continue to pose some challenges to tenant’s businesses and class operating costs. We cannot stand still. We will proactively reshape class financial and portfolio management and to adapt to the changing market and tenant requirements.

So with that, thank you very much and on behalf of the management, I wish you good health and a successful year ahead. Thank you.

Question-and-Answer Session

Operator

Thank you, Kit Peng. So now we’ll head into the Q&A session. Let’s start off the Q&A by getting some questions from the audience. We have the first Mervin from JPM.

Mervin Song

Hi William and team, congrats on the very strong rental reversions. Few questions, maybe we can start off with Singapore Business Parks. I know there’s been an investor concern given the increased supply, but can you talk about your outlook for occupancies for the coming year? I mean, we’ve seen job losses within the tech sector and unfortunately our finance industry is not doing so well at this point in time, so maybe touch on that. US, probably a victim of your — James’s success in the past, we saw some slippages. Are we expecting further slippages ahead?

In terms of borrowing costs, it’s picked to about 3.5%. Are we expecting further increases for this year, any guidance on that? And in terms of refinancing, can you give us some details in terms of split between the different currency we are seeing in US, the Europe? Thanks.

William Tay

Thanks, Mervin. First, I’d like to, before I start, I just want to thank you for taking time to attend this briefing in person. We have quite a number of people who actually dial in for the webcast. Thanks for joining us. The questions about Singapore Business Park, I think there’s no surprise as you have rightly pointed out. It’s not here in Singapore alone, it’s almost everywhere that we see, there’s no tech demand. Any tech demand that comes in comes in very small quantity or if you like very small space and very, I would say, specialized tech. They are not your big tech companies. The big techs are also looking out for shadow space to be leased out.

In Singapore, looking forward, I think the occupancy will likely to be similar to what we see today. While there is new supply coming up, no doubt we are a contributor. We’re actually a big contributor as a group, big contributor to the supply that’s coming up in the next two, three years.

As I mentioned previously, our Geneo development about a million square feet, we do have some inquiries and interest even very before we started work. It continue to be there. We are progressing well towards pre-commitment. I can’t disclose it right now, but we are progressing well. And it also helps that the new development that comes on stream that was completed last year, they were well occupied from the biomedical, some innovation company, but mainly from the biomedical industries. So if you ask about that, these are the replacements coming from biomedical, engineering company.

We also saw some success to find — helping tenants to find replacement tenants. If they want to give up space, pre-terminate, we do see some tenants, new tenants that came in from engineering, industrial engineering companies who took up, replaced the pre-termination. In fact, higher rent than previous as well as longer lease. So we are likely to see some musical chair, no doubt, but that will probably be what we will see here in Singapore.

Your borrowing cost, we will let Kit Peng.

Yeow Kit Peng

Okay. This year’s refi it’s for — will be in SGD and USD. A lot of it will actually be in the second half of the year. So based on today’s benchmark rates, just today’s rates, it is expected to gradually increase, possibly 4% or lower. I mean, I think what is important is that we do have healthy gearing and a lot of it is fixed, 81%. So I think that is very important to help to moderate that interest expense increase.

Mervin Song

The US?

William Tay

James?

James Goh

Before I go to US, perhaps I can also provide a bit more context for the Singapore BSP occupancy outlook. If we rewind back about 12 months ago and we look at what was the lease expiries for 2023, you have seen that in Singapore, about 55% of our gross rental income was due for expiry and or at least 55% of the leases that are expiring would have come from the BSP sector. And you see that we held our occupancy relatively well. In fact, we clocked in rental reversions of about 13% for the full year. So I think this is a very commendable result from the team, the asset management team. We’ve done pretty well.

If I were to look forward into 2024, many of the leases actually comes from the one-off and Science Park clusters. So I would be less concerned this year in fact, compared to last year, because last year we did have quite sizable leases that were coming due from CBP and in certain cases, IBP as well.

Moving on to US, I would say that we continue to face headwinds. This is a very market-wide macro trend that we continue to face the same challenges as our competitors. But I would say that we are not standing still, we are quite proactive. And this is something that I mentioned before, we invest tactically. So we’re not putting in flashy, big bang kind of AEIs, $15 million in one go. We put in very small amounts. So for example, the outdoor amenity in Raleigh, that cost us about $0.9 million. We have a broker event, it helps to create a marketing buzz. Separately, I also mentioned before we do white boxing. So in Raleigh, we did white boxing, we spent about $750,000.

Again, to explain what white boxing means, typically in the US, tenant wouldn’t need to reinstate their premise when they vacate, and usually it’s marketed on a [SE2] basis. We took the decision that we’ll tear down all of the cubicles, we replace the carpet tiles, we refresh the paints, maybe do a bit of upgrades to the lobby entrance, et cetera. And we were very happy that that particular space that we did the white boxing, readily secure tenant. And it’s a very substantial one. It’s about 41,000 square feet. It’s a biotech company. And if you were to pull out the statistics for Raleigh, for the whole of 2023, that ranks as a top five largest lease that was signed in Raleigh. So that lease hasn’t commenced. It will likely commence between 2Q to 3Q next year. So it hasn’t showed up in our occupancy, but this is just a demonstration of the kind of things that we are doing to try and improve our occupancy.

I think lastly, the last point that I’d like to add, I don’t want to belabor the point on US, but we continue to clock in very healthy rental reversions as well. I think this year we’re clocking about 10%, again, in a tough market. And if you look at our leases, which are expiring in 2024, they continue to be under the market. And we expect to still get close to double digit kind of reversions. So while it might be difficult to protect occupancy, at the NPI level, there’ll be some sort of moderations because we’ll be either signing new leases at higher rents than the pre-existing leases or we are renewing leases at higher rents.

Mervin Song

[Inaudible].

James Goh

Thanks for that. Yeah.

William Tay

The operational performance are very strong. Right, thanks.

Operator

Okay, we’ll move on to the next person. I saw your hand earlier, Derek.

Derek Chang

Good evening, William and team. So I think a commendable effort last year, like you did close to a S$1 billion of deals, right, when the market was so tough. So my question is on acquisitions. So I think, William, your thoughts on whether you think it’s time to get more active again this year. Is yields expanded to a point where you think you should be a bit more aggressive and maybe which part of the year and which jurisdiction? Then that’s my first question. My second question is on leasing spreads. I think James did give a good sense that US, we have a 10% kind of catch-up. How about in Australia, in your suburban office and logistics, is there still that gap that you can capture? So just these two questions, thanks.

William Tay

Thanks, Derek. Acquisition this year, we did about S$701 million. We did, including the development, S$885 million. Compared to 2022, we did only about S$200 million. We are still not back to the level that probably where you know us. When we first started going overseas, we only want to make sure that we enter well and scale up fast. So at one point in time, we were buying about over S$2 billion in a year.

Having said that, we have evaluated many deals, in fact, in 2023, the investment team has evaluated over S$6.5 billion of deals. We are selective looking at deals and make sure that is accretive to us. Good quality tenant, good location because over time, we want to make sure that the portfolio is strengthened. You know our strategy. We want to diversify across mature markets and focus on the asset classes that supports the driver in that economy. And we have been doing well as is shown in our valuation. While there’s a lot of stress over valuation, our numbers do held up, operational metrics are strong, occupancies are good. We continue to deliver rental reversion. What I mentioned is high single digit, is we achieve double digit.

In regards to where, you look at and where we have done in 2023. Europe, Singapore, we completed a development in Australia, but that was because it started two years ago. So I would say it would be the countries that we are in specifically except Australia. Given the fact that Australia, you talk about EU, talk about EU spread, it hasn’t come to a level that is accretive for us, even if you do development. We are prepared to look at development right now in Europe, in US. That actually gives us an opportunity to gain into certain cities or certain locations that we feel that there’s growth potential.

As you heard from Kit Peng, we are now evaluating a redevelopment in the UK to convert one of the data center from currently about 25 megawatt. We have put in applications and in principle, we have about 60 megawatt on hand. We are depending on the final letter of award, if you like, before we start work. That will actually give us opportunity to further increase our revenue in those countries.

In terms of catch-up rental, you’ve seen that our guidance towards rent reversion is mid-single digit. As of now, obviously, you’ve seen some leases has been renewed right now. You look at expiry trend, we have some leases that’s renewed. That gives us some confidence that we are still able to catch up to the market. I’ve mentioned before, we have very strong rental reversion, all thanks to the team, but it also started because of lower base. Two, three years ago, when leases were signed, now with higher rent and higher inflation, naturally the gap is huge. To the extent that the team actually surprised me with a huge rental reversion in logistics in the fourth quarter, so we believe that that will continue to be a trend. We still will be in a catching up and hopefully, that actually will translate to real results that we won’t disappoint.

James Goh

Thanks, Derek. I think again, I’d just like to mention that Australia, if you look at our numbers for FY23, which is about 19.4%, that is actually the highest that we’ve ever recorded since we acquired the portfolio. And these stellar results, I’m not sure if we can repeat this in ’24, but I’m definitely confident that we’ll continue to get a positive rental reversion. Similarly, if you were to look at, I just digressed slightly to Singapore. So Singapore, we locked in about 13.8% rental reversion for the full year ’23. This is the highest on record since March 2014.

So I would say that in ’23, we put ourselves on a very strong footing operationally. I think if you look at our occupancy and our rental reversions, we are firing on all cylinders. We are very well poised to take on the challenges in ’24. Hopefully, the economic conditions continue to remain benign. There’s no downturn or negative sentiments so that we can continue to carry forward this strong positive momentum into ’24.

William Tay

Maybe I’ll just add one more point. Our retention ratio came in very strong compared to 2022. That also shows that the quality of assets that we hold, as well as our ability to retain our tenants by way of whether is it through community development engagement. But we also realize that over time, as occupancy creeps up to a level that we are comfortable and we’re happy with it, that also means that what is left as vacancy are quite stubborn. It gets tougher to lease out. That will actually — in this market today, while we still see good demand, especially in industrial and logistics, we’ve seen that our occupancy is very strong. We still see good demand, but you will get increasingly challenging to close that final gap of that 1%, 2%.

But over time, with our ability to look at, because we’ve got a big portfolio, if we can, it has untapped plot ratio, redevelopment opportunities, AEIs, we hope to be able to continue on a better trend to retain the tenants first, and then of course to increase occupancy.

Operator

Okay, with that, we’ll move on to Yew Kiang from CLSA.

Yew Kiang

Hi, William and team. When I look at your responses, right, you’re still guiding for mid-single-digit rental reversions for this year, and then you’re also going to benefit from all the acquisitions you’ve done last year. And then in terms of cost pressures, these are also stabilizing, utility costs are stabilizing, refinancing rates is also peaking. So can we expect performance fees for this year for FY24? That’s the first question. And then second question is on acquisitions. You mentioned you wanted to do more, but given that your gearing is also trended slightly higher, but at the same time you’re still trading well above NAV, and then some of your peers are also tapping the market. So what are your thoughts in terms of funding preference, whether it’s debt or equity?

William Tay

Thanks, Yew Kiang. The rental reversion guidance of mid-single-digit, I suppose you acknowledge that’s possible to achieve. Perhaps you think that it’s very easy to achieve. I think we still feel that the market allows us to be able to increase over time our gross revenue with higher rental reversion. What we are facing right now is also increase in cost. While we say that cost is stabilized, but it’s still on the uptrend. If you look at our margin in 2023, primary reason because higher inflation for our maintenance cost, which is dragging down in terms of our margin. The other point that is probably not very well known as we move towards better occupancy and rental reversion, our prop tax went up. So that actually drags down whatever that we can on the NPI side.

Obviously, under the line is interest costs still going up. As Kit Peng mentioned, we hope to close the year below 4% based on today’s rates, right. That will continue to drag in terms of numbers. Definitely, I hope to be able to do performance fee, and if you know our numbers, it has to be 2.5% and above in terms of DPU growth before we can get performance fee. I’ll bear your comment in mind. We work towards that.

With regards to fundraising acquisition, to hit 40% right now, we are about S$600 million. If you want to push forward to beyond 40%, which we do hear noises that you know it becomes a norm right now that you can live with 40-ish, right? But our guiding principle is that we still want to maintain below 40%. So depending on acquisition target, ability to get it accretive and how accretive, or the pace of acquisition, I think we will leave our options open. Whether is it debt or equity funded? We definitely have a need for more CapEx of course for AEI, for redevelopment. We continue to look at opportunities here in Singapore. So that would actually take up whatever sum of this debt headroom that we have. So we’ll leave our options open and make sure that we are able to continue to deliver the results that investors expect from us.

Operator

Okay, may I invite more questions from the floor before we head on to the questions online? We have Joy from —

Joy Wang

Yeah, thank you. Yeah, thanks William and team. Just a question following up on your comment on development in US and UK. Would you be doing these on a speculative basis or you will source tenants first? And what sort of return are you looking at for the respective markets? And if you can just also elaborate a little bit more on the development CapEx you will be looking at for 2024?

William Tay

Thanks Joy. Development CapEx as in AEI, typically we do about S$50 million to S$100 million. I think we can push for more, given the fact that construction costs have gone up quite substantially. The two new AEI are small by quantum but I think this is a start in 2024. We hope to be able to do more. So S$50 million to S$100 is probably what we will work towards. So each year we probably look at six, seven projects to do.

In regards to development, perhaps I will say, okay I won’t touch on the DCFs, data center. For development, for example, if we were to be able to, we want to make sure that first priority of course is with tenants. As I mentioned, we are prepared to do some development right now because we want to get into certain cities that we feel that there is a growth potential. Some cities that have presented themselves to have almost no new build in the past three, four years and yet demand has escalated to a level that there is shortage in the market in those cities. So we can take some risks if you want to, in terms of speculative development, but actually — it actually comes with very high level of conviction that it may be pre-let even before completion.

As for the data center in Europe, as we now mention it up front right now even before we start, we have not even seen the decommission of their site. We obviously hope to get the word out and then we get ourselves a call up for potential inquiries. So if anybody who is hearing this is interested in a hyperscale data center in the UK, do give us a call. Thanks. Still early to tell. When I get the numbers in, as we make a formal announcement, I will share with you the returns that we expect.

But if you look at our track record right now in today’s context, we also look at it as it has to be accretive, has to be at least in the context of what we have seen in Singapore, 70%. We probably look at that probably more given that there’s higher costs in overseas

Operator

Okay, if there are any more questions from the floor? Okay, I’ll have Xuan Tan from Goldman Sachs.

Xuan Tan

Hi, hi William. Can you talk a bit more about assets that are sitting under CLD? Do you think those will be potential acquisitions this year? And then second question is, can you share more colors on the US valuations? Which specific assets and what kind of cap rate changes? Last question is on fundraising. In 2023, we saw forward fundraising and that actually, it dragged down DPU before acquisition came in. Is that something that you think could potentially happen again this year or would you think about it differently? Thank you.

William Tay

Thanks Xuan Tan. CLD has interesting and attractive assets. Yes, I mean it’s nice part data center. But if you look at their assets, unfortunately for us to make it accretive given the land tenure that they have, it’s probably still not accretive for us, easily 50 years and above. So it’s probably a stretch for us to be able to acquire from them. I would say that if there’s opportunities, third party, will probably be where we be looking out for in terms of our hunting ground. Looking at other assets that is owned by other owners will probably give us, and there’s a range of very good assets around in the market, that we can look at.

Xuan Tan

US valuation?

James Goh

Hi Xuan Tan. Okay, so regarding US valuations, it’s largely a function of increased cap rates, slightly tempered by higher assumptions for market rents and a slight decline in occupancy depending on the assets. So the biggest declines as you expect came from the office assets. And on average, we saw about 120 basis points expansion in cap rates for US offices. And in terms of the actual number, it moved from like a six [hander] to a seven, mid-seven kind of [hander] for US offices. For US logistics, there was a slight expansion, less than 100 basis points, and it moved from about five-ish to six-ish kind of cap rates. And again, the value was also increased the assumption for market rents as well.

Operator

Okay, I think we’ll move on to one question online first.

William Tay

One more question. I suppose you are referring to our last EFR that we upsized and we raised about S$100 million ahead. It came from a point that it was primary reason because we actually lay up all our projects upfront. We believe that that’s also a good thing for us to communicate the action plans, our business plan forward. We are happy that we are able to get it through to investors and they understand what we are trying to do, redevelopment opportunities here in Singapore in terms of logistics. But we obviously want to be able to strengthen our balance sheet so that we can remain nimble when there’s opportunity that arises.

Will we do that again or will we look at how we fund our future acquisitions? I think it’s still a little bit early to tell. At a point in time, if we do have an acquisition, we definitely look at our options to see whether there’s opportunity to raise equity or what other ways that we can do to fund those acquisitions. Thanks Xuan Tan.

Operator

Okay, we’ll move on to one question online. It’s asking about which data center in EU or UK has a cap rate of 10.21%? Any particular reason for the high cap rate?

James Goh

So it’s the Watford Data Center that we just acquired. While we can’t speak on behalf of the valuer but this cap rate is not too far from the NPI yield that we have mentioned as well. So that’s roughly in line with our own internal valuations as well.

William Tay

Maybe just to add, we mentioned the NPI is about 9.4% post-transaction. The implied cap then at the acquisition is about 9%, about close to 10%. So this is not far from where we have acquired the value this time round is applied at 10.2%. So it’s very close to the implied cap that we had during our acquisition.

Operator

Okay, there are a couple of questions online about 1 Science Park. So we’ll just group them together. Basically, the questions are asking about the pre-commitment at 1 Science Park and achieved average rent and if there’s any guidance on ROI for this development?

William Tay

We have actually announced the ROI for development is about 6.1% when we did the investment. I can’t share more details in regards to the pre-commitment and the achieved rent at this point in time. We have easily another 12 months to go before completion. We do not want to disturb all the negotiations and the finalizing of details with our customers. So bear with us. There are actually strong interests even before we started the construction. I think we are now close to signing this as we go towards closer to the DOP. Thanks.

Operator

We will just do one more question online. There was a question about the valuation decline for U.S. and Australia. What drove this? I think the one for U.S. has been answered. So perhaps we’ll just answer the one related to Australia.

James Goh

Okay, to provide a bit more context and background, it was a mixed bag of results for logistics and business park/suburban offices. Logistics actually went up. That’s notwithstanding the fact that cap rates did expand. It expanded about 90 basis points. It was about 4% and previously went up to about 5% plus. I think that’s very in line with market transactions and the kind of trends that we see. And even though there was the expansion, like I mentioned, the valuers actually increased market rents by a lot and they actually marked it to market. So as a result, that was able to largely offset the effects of expansion in cap rates.

For offices in Australia, we saw a similar increase of expansion in cap rates. But in this time round, the valuers didn’t move the market rents by much, neither did they really adjusted the occupancy. And as a result, you see the decline in overall office values.

Operator

Okay.

William Tay

I will just add, if you look at our slides and all the details, there is no surprise that cap rate expanded across the board. It all goes down back to your performance of the asset, the rent occupancy obviously, to be able to push valuation up. As James mentioned about our Australia logistics, our valuation still went up, given the fact that, yes, since 2022, we’ve been looking at strong occupancy and rents were pushing and we were looking at good rental reversions. So that actually helps in terms of logistics. In fact, logistics, slight decline in the U.S. logistics, but throughout where we have, they are all on the uptrend.

As the press release or even the announcement that we have made, Business Park was the one that actually drags us down, given coming from U.S. and Australia. As a bucket, as a segment, industrial logistics are all high valuation. So we take comfort that this construct and this diversified strategy works very well in our favor to make sure that overall and over time, we continue our resilience in our portfolio. And the assets that we have acquired in the past or continue to do AEI are the right assets that we have picked, right locations that we have picked to be able to attract these leases.

Occupancy, as James mentioned, they are all-time high and in this environment, we do expect the occupancy to be very stable and we hope to be able to push the rental reversion towards positive regions again.

Operator

Okay, we will head back to the floor. So can I have Xavier from Morningstar?

Xavier Lee

Hi, thanks William and team. My question is, on your 60-megawatt data center, you keep saying hyperscale tenant. And I’m just wondering, why are you aiming for hyperscale, why not AI? Is there a difference in the service standard that might be more challenging to fulfill? Yeah, that’s my first question.

William Tay

No particular reason, actually. Given the fact that the — we use — probably use hyperscaler too loosely, given the fact that today we have about 25 megawatt, if you can push towards 60 megawatt, that from an enterprise company, so the previous standard was enterprise, financial institution, if you can push towards 60 megawatt, the market opens up for hyperscaler. To what we understand today, if the data center will be used for AI consumption, the power requirement is much more, which we don’t have the ability, given the fact that what we have been talking about in terms of getting additional power is up to 60-megawatt.

We will still have to, so bear this in mind, this is not a certainty. We have put in an application, we have been able to get some confidence that we can get 60 megawatt, but the authorities look to study this, how they will get the power to us. So we still need time to be able to finalize the details.

Xavier Lee

So for AI, is 60 enough or they need more?

William Tay

To what we understand, it’s more than that.

Xavier Lee

Okay, thanks. For my second question, it’s on the Singapore Business Park. Obviously, it’s very challenging. Is there a reason why you are keeping these assets? Is it because they have redevelopment potential or are you so confident that you can continue to whiz it up and improve the performance?

William Tay

Thanks, Xavier, a very good question. Over time, we have realized that we are sitting on locations that are very valuable. For example, in International Business Park, we have torn down a building, iQuest, now under redevelopment. There will be no surprise that we have plans for the buildings, two more buildings that’s next door, Acer and Creative. Why so, is because when the new MRT comes in, in 2027, it just opens up the opportunity. So would we let go of that when we have more than 30 years of lease right now? Unlikely, so we have definitely have to make sure that we continue to make meaningful leases because we intend to redevelop some of these opportunities.

And if you look at it in Science Park, over time, whether is it CLD or us, we do have plans to increase plot ratio redevelop which our Geneo project has shown. Right in front of MRT station, we managed to convince the authority to award to us more plot ratio. Originally, the site was 1.2 plot ratio and we managed to get 3.6. And now we are building 1 million square feet. And CLD has actually over time redeveloped the assets around there. I think these are all value of value assets like Ascent. You probably know that they own that. There’s also a new building that comes next door to our Geneo asset, Geneo redevelopment.

So we will look at all this as opportunity. And Science Park, we are still sitting of a few years, all right? And Science Park is still in demand given the ecosystem around life science, near one-north. And there will be new trend that comes along for us that we can redevelop to suit the new specs and the new development or new requirements of the clients today. So that leaves us some good opportunities, which is why I won’t say that we are hanging on to them, but they are really valuable assets and locations.

Xavier Lee

So you’re just kind of like waiting to see if there will be an opportunity to redevelop. If not, you just hold on for a while longer, right?

William Tay

In our evaluation, there are opportunities. It’s being able to phase out to time the development. And having said that, the occupancy is over 80% for Business Park, so they are not terrible. If you give the context that even the JTC statistics is about 80%, so we are doing very well. And this is probably only a phase of time where there’s no demand from tech tenants, but it’s replaced by other industries. So they are still a good asset class that makes sense for the industry players, whether is it from engineering, whether is it from industrial, R&D. So these are still good assets to own on.

Xavier Lee

Thank you.

Operator

We are very aware of the time. It’s already six minutes past 6.30. So perhaps we will have one last question from the floor. I think Derek, you raised your hand earlier, correct?

Derek Chang

Thanks, William. Just wanted to follow up on the data center project, what is the expected cost of a rough gauge because 60 megawatts sounds a bit pricey?

William Tay

I want to keep that as a suspense, Derek. I mean for new builds, it could be north of S$500 million. Also, I don’t think it will be at that kind of size. Depends on how we end up building it, whether you want to include the M&E or its core and shell. So these are still early stages. I didn’t know that this announcement of potential brings so much attention, but I hope you do feel that what we want to put in place is a lot of proactive asset management. We know ahead the expiry of the tenant, we know the potential. So just like Geneo, when before we tear it down, we went to apply for higher plot ratio, so in this case, same thing. It took us a while to put in application and to talk to the authorities for higher power. So we have to plan ahead to give us time and I think we are very comfortable that at this point in time seems to be that the plan that we have in place are positive. So right after we are able to get confirmation of the size of the power that we can get, we should be looking towards further down the evaluation to look at construction costs and what we want to build for if there’s a tenant or there’s not a tenant. Thanks, Derek.

Operator

Okay, we will move to the final question online. There is this question on, will CLAR explore new geographical regions for acquisitions to grow the portfolio? For example, with Mr. Tay’s strong background in South Korea, where the current fundamentals look strong, notwithstanding local funding costs, will there be opportunities?

William Tay

Thanks for mentioning South Korea. I think we’ve been asked a lot about Japan and Korea, given that there is also a merchant market. Yes, we do see that there is some, it’s interesting. But at this point in time, I think our focus will still be where we are right now in terms of US, Europe, Australia and Singapore. While I say there’s no investment opportunity in Australia, I think we are still sitting on very good product and asset class in Australia. Occupancy for office, despite all the negative news about vacancies in fringe of CBD, we are in urban location, occupancy are strong. In fact, we have a few new builds. MQX4 is new. Mulgrave in Melbourne is new. So we are attracting good tenancy and enquiries.

Logistics, as we have mentioned, they continue to give us a lot of confidence to continue to own and hold on to these assets. Selectively and strategically, we have done some divestment, which we have picked three assets, three logistics assets in Brisbane. Since we got a good offer, the NPI that, based on the offer price, the NPI is looking at 3%. So even if we’ve rent growth, we believe that it probably can push towards 4%, four-ish. Since we get a 3% right now, I think it does make sense as a responsible manager to accept this kind of pricing and we look for better yielding assets to acquire, whether it’s in other jurisdictions, to be able to supplement and build up a better portfolio.

Operator

Okay, with that we have come to the end of this briefing. Thank you everyone for joining us in-person as well as online and thank you for submitting your questions. We hope you enjoy the evening.

William Tay

Thank you, thank you for coming. Before we sign off, maybe I just want to thank the team. It’s not an easy year, but we have done very well, the asset managers, portfolio managers, leasing team, property management. So we just want to thank the team here. Thanks, good job.