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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, everyone. Thank you for your patience. Sorry for the delay. My name is Terence from Investor Relation. Thank you for attending CapitaLand Ascendas REIT Financial Results briefing for the year ended 31 December, '22. Today's briefing will include a presentation followed by a Q&A session. Please note that today's session is being recorded and will be available on our website after today [ph].
We'll now proceed with the presentation for the FY 2022 financial results by Ms. Yeow Kit Peng, Head of Capital Markets and Investor Relations. Kit Peng, please
Happy New Year on behalf of CapitaLand Ascendas REIT; I wish you all good health and a successful year ahead. Let's now commence on the financial year FY 2022 without [Technical Difficulty] presentation.
Okay, key highlights; we achieved strong results across all our asset classes, despite uncertain macroeconomic conditions. The portfolio occupancy hit a 10-year high of 94.6%, and we achieved high rental reversion of 8% for leases renewed in the financial year FY 2022. So together with our proactive and discipline approach to capital management, DPU rose by 3.5% to S$15.798.
CapitaLand Capital Ascendas REIT is 20 years old. So since our listing in 2002, we have grown our AUM from under S$1 billion to S$16.43 billion today. We have expanded beyond Singapore and have a sizable presence in three other developed markets, namely US, Australia and the UK, Europe. The portfolio is well diversified and resilient. On a same-store basis, property valuation is stable at S$16.1 billion.
So let's dive into some of the details. So, FY '22 versus FY '21, gross revenue increased by 10.3%, driven mainly by full year contributions from the 75% state in Galaxis, [indiscernible] in Singapore, the 11 data centers in Europe, UK, the 11 logistics properties in the US and of course better performance from our existing properties in Singapore.
NPI rose, 5.2% to S$968.8 million despite cost pressures. Total amount for distribution rose in tandem to S$653.9 million. DPU rose 3.5% to S$15.798. This is second half versus first half financial FY 2022 performance. Gross revenue is 2.9% higher driven mainly by contributions from the seven logistics properties in Chicago, US. Net property income grew in tandem with gross revenue. Distribution income is stable at S$333.2 million despite an increase in borrowing costs. DPU is stable at S$7.925.
So this is second half versus second half of the previous year. Gross revenue increased by 7.1% and this is largely driven by the logistics portfolio in US. So this is the Chicago as well as Kansas City and better performance in Singapore properties.
Net property income increased 3.5% to S$491.8 million despite higher utilities expenses. So second half DPU increased 4.3% to S$7.925. Distribution, we adopt a semi-annual distribution frequency. So for the period of July to 31 December, 2022, a distribution of S$7.925 will be made. You will be receiving the dividends on 07 of March.
Moving on to investment; so the highlights for the year; so on the acquisitions front, we continue to adopt a cautious approach to ensure that we only acquire good quality properties with strong tendon base and have promising long-term potential. So during the year, we completed S$223.4 million of acquisitions and all three acquisitions, sorry -- and all three acquisitions are in the robust logistics sector in the US and Australia. The logistics portfolio is currently sizeable at about S$4.1 billion and represents a significant 25% of our AUM.
Next, we completed a redevelopment. This is UBIX in Singapore. It is a premium industrial property costing S$38.2 million. The new five story property enables us to secure a higher base rent, when we compare to the original two like industrial properties prior to the redevelopment. And during the year, we also completed two AEIs.
Post the financial year, in the first queue this year, January, February, we completed two acquisitions. The first one is a high tech industrial property at Toa Payoh, and the second one is a cold storage facility at 1 Buroh Lane. NPIU for the two acquisitions is estimated at about the 6.8%, 6.9%. Capital management; Gearing is healthy at 36.3%. So our emphasis is to ensure healthy gearing levels during this uncertain business environment.
We have a total borrowings of about S$6.3 billion. So during the year, we proactively term out S$1.3 billion of debt with fa panel of five to 10 years. So we have extended the debt maturity to 3.7 years. And this you can see, it is very well spread out such that less than 20% of our debt should come due for renewal in any one year to minimize refinancing risk.
The healthy leverage of 36.3% as well as a high proportion of fixed rate debt of 79% enable us to moderate our interest expense, despite the significant rise interest rates. Cost [ph] of debt is 2.5% for FY 2022 and the finance at very healthy levels, far exceeding what is required by the bank covenants, for example, ICR is 5.2 times. This is above the one odd or two times threshold. Okay, A3 Moody's rating is maintained, providing us with financial flexibility and very strong access to capital.
This is an interest rate sensitivity table. So about 79% of our debt is fixed. So the balance 21% is on floating rate, and based on that 21% proportion available debt a 100 basis points increase will result in a 2% decline in distribution. And then if we were to assume a 200 business points increase, then this will result in about 4% decline in distribution. Natural hedge; so to minimize the effects of any adverse exchange rate fluctuation, we have a high level of natural hedge of 74% for our overseas investments.
Okay revaluation; as at 31 December, 2022, CLAR owned 227 properties worth S$16.4 billion. So on the same-store basis, there is no significant change in the valuation of our property portfolio. It is stable at S$16.1 billion. In local currency terms, higher valuations were achieved for our properties in Singapore, Australia and US. Although the valuations for data centers in the UK and Europe declined, these data centers accounted for about 4.4% of the total AUM of S$16.4 billion.
So this is a strong demonstration of our acquisition strategy over the past few years. Our portfolio is well diversified and resilient. Our tenant's businesses are spread across more than 20 industries. This will reduce exposure through any one industry and lower customer concentration risk. So when one industry is challenge, another industry may be doing well.
Portfolio occupancy, overall the portfolio occupancy recorded a 10-year high of 94.6%, driven by improvements in Singapore and Australia in the fourth quarter. So Singapore improved to 92.1%, so higher than the island-wide occupancy rate and this is due to higher leases at some logistics and high specification industrial properties.
Australia increased further to 99.4% due to new leases in our business space, properties in Sydney and these tenants have signed up for pretty long leases of five years, 10 years. US, occupancy remained healthy at 94%. UK, Europe also very high at 99.4%. So based on new leases sign in the fourth quarter, the biomedical, engineering IT and data center sectors were the largest sources of demand by gross renter revenue. For FY the whole year, FY 2022, then the largest sources would be engineering, logistics, IT and data centers.
Okay. We have here for the international portfolio, in the fourth quarter the logistics, IT and data center and education and media sectors were the largest sources of demand by gross renter revenue and for the full year, so tenants from logistics, biomedical, retail consumer sectors accounted for the largest portion of the new demand.
Okay, renter reversions; overall, the portfolio achieved an average renter reversion of 8% for the full year. So this is in line with our guidance. You can see that the renter reversion for Singapore is 7%; Australia, 14.2%; US, 29.2% and 11.7% for UK Europe. So looking ahead, we expect the renter reversion to continue to be positive mid-single digit range, okay, well stable at 3.8 years.
Okay? So we have the portfolio lease expiry on the portfolio basis here. So we have about 21% due for renewal in this financial year. So this quite normal level and in Singapore is about 26% coming due for renewal. In the first bar, you will see a darker shade of grey, and you will see a 3.8% there. So this refers to the five single lease properties you know, and many of them are likely to renew, Australia, 16.4% coming due, US 9.2%, UK-Europe, 9.4%.
There are five ongoing projects worth S$617 million. They are undergoing development or redevelopment, EI and convert to suit, that will help us to improve on the returns of our existing portfolio. They are expected to complete between 2Q 2023 and 2Q 2025.
So to conclude, we continue to face challenges from the rising interest rates, inflation and global economic uncertainties. These issues may have some impact on our tenant's businesses as well as on CLAR's operating costs, but we are confident to overcome all these challenges and we are well positioned to leverage on our strong financial position to take advantage of any growth opportunities should they arise to deliver a sustainable, return to unitholders.
So with that thank you very much.
Thank you, Kit Peng. We have also representatives from the management on today's panel. May I invite William, CEO, Koo Lee Sze, CFO; and James Goh, Head of Portfolio Management and before we proceed to the Q&A, I would like to invite William to say a few words. William, please.
Thanks for coming. Just wanted to make a few points; just to summarize what Kit Peng has presented. The first point is a very strong set of results. DPU has grown 3.5% against last year and we actually hit 10-year high in terms of occupancy. You also can see in terms of occupancy and the resilience that we have in our assets. Rental reversion is 8%. In 3Q, we about meet five plus; guidance was mid-single digit. We are happy that we actually hit that.
Second point I want to make, I said despite all the global uncertainty, carrier expansions, worry and interest rate rises, valuation has been strong. It's been stable. In terms of same-store, slight decline, but 1%, but all stores increase. And third point I wanted to make known is that last year we actually celebrated 20th anniversary. We went overseas for past eight years. The main thing that I wanted to make known here that we have actually good knowledge from Singapore, and we'll transfer very good operational capabilities from Singapore to overseas, which is why we are able to maintain very strong performance across all our asset classes.
And the last point is, as we look forward to 2023, there are still uncertainties around the macroeconomic environment. We will continue to safeguard and expand our business, but we will also definitely have a very cautious approach as we navigate this environment. Thanks.
Thanks, William. We'll now proceed to the Q&A session. [Operator instructions] Mervin; go ahead.
Hi, Mervin from JPMorgan. Happy New Year to William and team. Congrats to the stronger set of results. No wonder you guys are beaming before the start of the presentation. [Technical Difficulty] consensus and occupancy continues to improve. We haven't seen these occupancy levels for such a long time.
How do you think you can sustain these levels? Or are you seeing some weakness? We're hearing job losses from the tech sector. I think see maybe some of these things on space. So we can touch on that. And second question I have in terms of borrowing costs, any guidance for this year? Thanks,
Thanks for questions. This is a good set of occupancy that we achieved especially for Singapore. Moving forward, as we look at environment because of the construction delay [Technical Difficulty] because of the construction delay in terms of COVID. 2023, I think we were about 1.8 million square meters of space coming up. Next three years, falling after that is about 2.2 million square meters. Average demand, less than a million; but we are also hopeful that we can still capture this good leasing demand that's out there; primary reasons, because of the quality assets that we have.
As for whether can maintain the occupancy, I think we will definitely want to maintain this lease. In fact, if you look at logistics across all our markets, it's full. I think there's no surprise. We're not the only one that's having full occupancy across our space. So even for logistics, any new supply will be very well absorbed. High-tech space has been in good demand. In fact, you see that our industry has been growing quite strongly.
The other challenge of course then is business park space, which leads to your second question about tech space, shadow space layoffs. We find that we are comfortable with what we are seeing in terms of the leases that we have with our tech tenants. They're committed. Any of the shadow space that you hear in the market, majority unfortunate site majority are not with us.
There are some space that, for example, talks about and yet they're not coming up from our space. So we are comfortable that they're continuing to be obligated to the leases. Other than that in the big tenants that we have, like [indiscernible], there's no news of that.
Overseas, we are exposed to Pinterest, Stripe [ph], Microsoft, Oracle, but all these days very well. In fact, I think they're all still expanding, which is why I wanted to put up a slide on international new demand. If you turn to that slide, you will see that new demand is still strong across different industries, and that is the strength of a diversified tenant base, as well as different asset classes that we owned. Last question is borrowing cost. Kit Peng, do you want to take that?
Okay. So we do have some refi coming up, but they are all in the second half of this year. The rates for these few refis will be higher, right? But the total refi amount is about less than S$700 million and our total borrowings is S$6 billion. So this is like 10% of our total borrowings.
So the increase in the borrowing cost should be more gradual in that sense and also we mentioned that 79% of our debt is fixed. So, there's some exposure the 21%, but overall, because we have the high level of fixed, and a lot of this refi is only like 10% of our total borrowing. So that should help us to manage the interest expense. Probably, it depends on where the benchmark moves, how it moves, but yeah, probably three, three-ish.
Thank you. I believe David from Daiwa has a question.
Great. Thanks, Terence. Hi William and team. Congrats once again on a very strong set of results. Just a few questions from me I think. Firstly, I would just like to understand a bit, given that a global backdrop is a little bit more modest in 2023, while you see good demand last year, I'm just wondering if you focus on, let's say economies where there's a more modest outlook or recessionary outlook, like in the US maybe in UK; could you give us more color on what you are seeing? And if any of the tenants at this point in time, be it logistics or in the business backspace, could seem a bit shakier. So that's one part of the comfort that we like to get.
Second thing is on valuations, I see that valuations are quite steady, but I know we're also hearing on the ground that carriers are expanding. So I just wondering whether if in terms of acquisitions this year, you have capacity, I'm sure in time the market will support you, but what kind of level of activity should we expect this year, which markets and what kind of asset class? Sorry, every on broad base, some thoughts on that. Thanks.
Thanks, Derek. Because of the assets that we have, if you focus on US and UK, let's put logistic aside. I think logistics in terms of demand continue very strong. In fact, I think the outlook for logistics across the four markets that we have is very positive.
We also expect strong venture reversion in those in logistics space. So set aside, if you are looking at the other asset classes, so US business park and of course UK, Europe is DC. Business park, in terms of US, you see that there is still some challenge in terms of occupancy. We have experienced lower occupancy in Portland and Raleigh, but San Diego has actually shot up.
But yet leasing activity in Portland has increased since 3Q, which we are hopeful that we will be able to capture some of this demand and we are not just focused on the tech tenants. We are focused on the various industry, which the new demand has shown in terms of 4Q as well as 2022 for international market.
For Australia, in terms of Business Park, our business office, we left very little space in Brisbane. Sydney is full. First time I see our covered street at a 100%. Activities are coming back. They're coming back to work. So less worried about Australia Business Park.
Than the Europe DC, Europe DC, in terms of when we bought the portfolio in Europe, there are some vacancies. They continue small vacancies. In fact, we only left with two data hall, 500 square meters and 700 square meters, very small. Demand is strong. We have actually renew from seven, 10 and 15; sorry, seven, 10 and 12 years for three year leases.
So this actually shows that demand is strong. Our supply is continually very tight and we are also trying to work with authorities and consultants to increase our elasticity capacity. That will allow us to be able to provide more for our tenants. Shaky or not, I think there will be industries that is continue to be under stress. But we are hopeful that there continue to be demand coming from various industries.
On your second, [Technical Difficulty] Singapore is probably the odd one. Compression, slight compression about 4 bps, 5 bps; UK, Europe is probably the largest 69 bps expansion. Australia is small, US is very stable. So you're talking about acquisition, I think it will show that perhaps across all landlords asset owners, the valuation will probably be also very stable. Small expansion, but allowed to be very stable.
So moving forward, but acquisition is a different story. Whether you're prepared to sell at what buyers like us demand. So we've been quite consistent, given the high interest rate and where we are trading, we probably demand something between 6%, 7%.
Assets, you look at our own valuations assets that we own, assets that any of our vendors own is probably still treating 5%, 6%. So in the past one year, I'll say that perhaps the mismatch in terms of pricing gap is between 100 bps to 150 bps. But we do see that in the last few months, it has actually narrowed down to perhaps 40 bps, 50 bps, which means that sellers have to take a discount of the evaluation, assuming the entire -- the markets that we are in the same experience.
Some carry expansion, supported by renter growth. So valuation will be quite stable, but if they want to divest or they want to sell, they have to take the discount, given the fact that buyers like us will expect certain level of returns. So I don't know whether I answer your question. If you're looking for numbers, I hope to do better than last year.
Yeah, that's all for me. Thanks.
Just back to the rate question, right, I think given that now the market seems to be thinking that rates have peaked, do you think that this 40 bps, 50 bps gap between vendors and buyers like yourself could actually start the result on you taking, buttoning the bullet to buy, provided that I know you can still get in some form of accretion?
So buyers like us hasn't changed I mentioned. We expect that kind of 6%, 7%. Why so is because even last year as we price any of these opportunities, we are looking forward towards a high interest cost. Sellers are not prepared to take the kind of discount last year. So I think that the price has narrowed.
Yes, you are right. So we've been seeing a narrowing in the past few months. Perhaps the next few months, second half, we'll start to see probably more realistic expectation of prices, prices from the vendor. And I will say that that actually goes back down to certain markets and asset classes that we are interested in.
Even our carrier expansion, Australia continued to be out of reach for us. As you look at my evaluation numbers as well, I'm still having a very strong 4%, 5% kind of cap rate. So quite outreach even for us to buy in Australia. For other countries, I think US is probably some location that it's worth spending more time in.
The business park has the deals that we see in terms of a business park has such actually increase and the 40 bps to 50 bps are primary reasons, primary coming up from US business park.
The other one will be data center in UK, in Europe. Our numbers has also shown that the carrier expansion is the valuation drop is quite significant as well. That will probably be across the board in that continent, which means that there like some acquisition opportunities.
Singapore, despite I mentioned is a compression in my assets in my portfolio, but there are still opportunities out there as we have demonstrated buying two assets here in Singapore and we continue to hunt for good location, good assets in Singapore and Singapore being a lease. So as we looked at and JDC gives a 30-year lease by the time the term ends. We are able to transact, you left at 8 years to 7 years to 10 years. So that makes it very attractive for us in terms of cushion.
I just want to check on the performance fees, right? Can I just check whether you kind of waive it for FY '22 because your growth is 3.5%, right?
Okay. The growth is 3.5%, but performance fee, we compare against pre-performance fee of last year. So against pre-performance fee is about 2.3%, which means there's no performance fee.
Okay. All right. Just one last one for me, right? For the rent reversions, can you sort of share with us the reversions for Australia and US, if we were to factor in the TIs [ph] as well as the incentives, if any?
James, you want to take that question?
So, yeah thanks Brandon. If we look at the US, typically on renewals, the TIs would be half of what would be a new lease and a lot of that would be factored into the rents as well. So I would say that this is a pretty clean reversion number that you see here.
And for Australia is less pronounced as well going forward. So, and many of this happening in our Australian office rather than logistics, since most of our logistics properties in Australia are single lit, and hence they are not calculated inside our table here.
All right. We have question for Vijay [ph].
Hi. Vijay [ph] from RHB. Happy New Year. I have a couple of questions, maybe I'll take it one by one. Firstly, on this topic of acquisitions, you noticed that the carriers, you mentioned that the cap rates have expanded. So how do we think, is this a opportunity for divestment potentially in Australia, which you can consider doing at this point of time and maybe this year, maybe, would your acquisition and divestment match together in terms of value? Is that something which you can think of?
Definitely. If there's opportunity look at recycling some of this capital for better yielding acquisitions, that's something that we will consider.
Okay. And maybe in acquisitions, would you be looking at single asset at this point of time or you think there is a portfolio opportunities in the market, which you can take on considering the market dislocations?
We do see single assets opportunity as well as portfolio. Given this portfolio, you probably will be aware that that may require EFR. We definitely want to look at whether ability in the window if, let's say we going to do any portfolio deals.
I would say in terms of any bottom in terms of single assets, I think it's still attractive given that the footprint that we have. So we'll be able to at least look at getting some advantage based on our footprint. If it's a portfolio, of course the challenge is the underlying assets performance mixed bag of good and more challenging assets is something that we probably got to take the decision proceeding with that portfolio acquisition.
If there's, for example, challenges, that for example, vacancy in the portfolio or certain locations, maybe a few assets, but certain locations maybe a bit more challenging, we could deeper into whether we can manage those challenges.
But your tilt will be towards single assets at this point of time.
Actually, both ways we are comfortable with any of them.
My next question is in terms of NPI margins. I noticed that half-on-half your NPI margin has in fact increased and you said lower utility expense in the second half. Maybe can you elaborate a bit on this and what sort of margins can we expect on a steady state going forward in 2023?
First, I think on the higher level steady state, so if you look at MTM margin, you have noted a decline. Primary reason is of course, OpEx has increased. The other big bucket is utility costs. Utility cost gone or utility income goes up, but cost has gone up as well.
So if you take that into account, the MTM margin will have a larger decline, but you had to strip up the utility, income and expense, in terms of MTM margin has been very stable, slight decline, but it's just attributed to OpEx increase. So in terms of steady state, I think we are still looking at that above 70%, 70%, 80% kind of margin. That's more for Singapore. Overseas is all very high, primary reason is because it's all pass through. Is that what we're looking at or...
So yes. Do you need elaboration or, yeah. okay with that?
I guess, I got the answer. Sorry, my last question, in terms of AEIs and redevelopments, I think you kick started with Science Park and redevelopment last year, maybe is that something, which you would consider doing more this year? Has costs still within your range of doing redevelopments is that something which we can look forward in 2020?
Good question. Vijay. You read my mind. So we have been doing the redevelopment AI, as I mentioned, we probably took a pause given the fact that COVID construction cost has gone up, but what we realized that flight to quality is very key, especially in this environment. So we will not stop holding back any AEIs or redevelopment.
In fact the team has been working very hard to look at still opportunities for us to redevelop especially in Singapore. We have -- actually, I think the past I mentioned, we have assets that have been sitting on very good locations, the untapped plot ratio within the asset. So we work towards redevelopment to enhance the portfolio. And for example, as Kit Peng mention about UBIX, the rent that we have achieved is very strong.
In fact, I think I mentioned before, it's probably about 20% higher than our underwriting. COVID has definitely helped to bring the money into this UBIX, and the environment currently we've -- that we can better enter. So we are actually able to capitalize on that. But we are mindful on the continued pressure on construction costs. So we got to look at how and where to spend the CapEx to make sure that it is meaningful.
Especially now when construction costs is actually continue to be on the rise. We want be very watch our spending for CapEx. But definitely redevelopment is one on our plate right now and overseas. we continue to look at whether we can enhance, as I mentioned just now, especially for data center. We want to be able to increase our electricity supply so that we will require some CapEx to enhance that. And that will actually help us in terms of renewal and leasing. And then for overseas in US, there will still be some opportunity for us to look at in terms of redevelopment and to this.
Thanks. Just following up, what sort of returns do you expect for redevelopments at this stage?
So for Singapore, I think we have to look at seven. In the past 6% will be fine. So for example, our science park redevelopment, with capital and development, we will achieving about 6.3% but today, in terms of this environment, we definitely looked at high enough.
Hi, this is Terrence [ph] from UBS. Do you mind sharing what our 4Q 2022 reversions, which segment was driving this number and could you remind us if this is picking up against the third quarter and for the FY '23 guidelines for reversions? Also, similarly, which sector would be driving it or does it look probably similar to FY 2022?
James, do you want to take that?
A - James Goh
Terrence, if you don’t mind, can you also flash on the screen, because the data is on the cable. I'll just run you through some of the numbers. Okay, so if you look at first we'll start with Singapore. It's fairly similar trends between 3Q and 4Q, and it's largely driven by logistics because that is really the hottest sector right now at double digit rent reversions for both quarters. I think at both business part and our industrial and data center segments, it tends to be more steady and a lot lower compared to logistics.
If I move on to US, as you are aware, as we acquired both the Kansas and the Chicago portfolio in the US, one of the pieces that we had was that the rents were under marketed and this reversions is proving that TCs needs to be right because we have actually been able to surpass our own underwriting rents when we first made those acquisitions. So that explains for the high reversion that you're seeing at the logistics cluster, it comes from a mix of both Kansas and Chicago.
I would say that in the business space, it's a mix of our legacy portfolio that we've first acquired when we went into the US in 2019. And it comes from a diverse mix of different geographies as well. What I would like to just add is that while occupancy has been challenging for us, I think one mitigating factor has been the strong reversion that we have been experiencing.
So overall, the NPI hasn't declined, or if in fact it has been more or less stable, we haven't really seen a negative financial impact from the lower occupancy up till now.
So for 2023, the reversions pattern that supports your guidance, will it look similar to FY 2022 in terms of the magnitude?
Yeah, so I think in Singapore, the trends would remain actually the same. You'll see logistics continue to outperform the other sectors. In US, it would depend on the specific leads that come up for expiry. I would say that the very high reversions that we saw this year might not be repeated next year. Of course, we'll try our best, but we, we can't sort of promise that you will continue to be maintained at those levels.
Sorry, one more. Clarification from Vijay's question for first quarter 2023, is the OpEx likely to be similar or higher than fourth quarter 2022? OpEx meaning inclusive of the utility costs electricity and same comment for NPI margins, is it likely going to be the same or lower factoring some of the service charges if you're in the midst of raising them?
Okay, so OpEx is going to increase. If I just give a brief sort of trend of where we see utility costs on a unit rate basis, we have seen somewhere between 35% to 40% jump in the underlying unit rate between FY '21 and FY '22. So you saw a big increase in terms of OpEx. But similarly there was almost corresponding increase in terms of the revenues because we would have taken in the electricity income that we recover from our tenants.
Next year, the trend is going to continue. We have locked in our unit rates and again, it's much higher than what we saw last year or what we saw in FY '22. So the same trend will continue. You would see our gross revenue continue to increase because the elect income would go up, but correspondingly that would also be higher expenses.
And mathematically that would result in a lower margin, but I would say that underlying, if you were to strip away all of these noises, the underlying margins of all the financial performance and profitability of our assets wouldn't be -- would be unchanged year-on-year. So the short answer to your question is yes, margins will drop next year.
Hi. Just one question. So if funding environment improves, right, is any sponsor assets ready for acquisition including CLD?
There is stabilized one. Yeah, there is in size park. The other one will be the data center that they have. The sponsor assets come from leased CLD line. There is nothing from CLD. Other than that, the assets, the other assets, like now they just had TOP [ph] for Rochester Commons is probably -- it's not really for transaction. So yeah, we definitely were very keen to acquire from our sponsor.
Thank you for the questions. Maybe let's move on to some questions that are online before we go on to the online questions. We'll come back. You join then? Okay. There's a question for Mr. Aaron [ph]. What are your thoughts on smaller logistics as opposed to big box out assets, particularly in Australia?
What's my thoughts? I like last mile, primary reason is there the tenants key, as you have seen from a good demonstration, is our US logistics rent reversion. Supply is very limited in the last mile location and the tenants need the space and they're assuming they've been there.
For 20 years, they are comfortable with the location. They definitely will come in for renewal. Renter has been increasing, whether it's in Australia, weather's in US, whether it's in Singapore. In Singapore, you see that we have double digit renter reversion across two quarters. That means that the asset class is very resilient across cycle and last mile location is not just for logistic player. Last mile location may be just for standard distribution owner who wants to have a place to store their goods.
Big boxes has been interesting, but we have not been keen on that. Primary reason is pricings are rich for us, and big box is definitely very different market, which means that if you have a big box, there's always challenge. If you can't find a big tenant to take the big box, you have to chop it up, which means that will affect efficiency and sharing or loading base and all this becomes an issue. So definitely we prefer last month.
Joy, do you have a question?
Oh, yeah. Thanks. So two question from you. First just on the rental reversion, just to clarify, that is before taking into account tenant incentives, right? And if you look at tenant incentive across your portfolio, what sort of movement are you seeing for different asset classes?
Yeah, okay. So thanks Joy. Tenant incentive, it's typically a CapEx item rather than being right, so it doesn't show up. But as I was saying for renewals, they tend to be a lot lower, particularly for office tenants. So I would say that with regards to the Aussie business based reversion, you wouldn't see a lot that the tenant incentive wouldn't have moved the figure too much.
And has tenant incentive changes over the last because of last year or so?
Okay. That's specific to which geography or across the board.
If you can just make a sort of general comment across your portfolio, what are you seeing in terms of key changes maybe?
Okay. We haven't seen too much material changes. We haven't really seen it go up too much. Maybe I would say that for Australia TIs or tenant incentives is typically used to help them and to attract new tenants rather than as a reversion kind of incentive.
And in this case, what we have done particularly for our vacant stubborn spaces in Australia is we have done speculative feed ups of vacant buildings. We do it for rather small units because this tend to appeal to your smaller occupiers who might not have the wherewithal expertise to carry out their own renovations, etcetera.
And in that case, we put the CapEx up front, but we cut the TIs and then the TIs goes down to a very low level, but they get almost like a fully fitted, they just need to bring in their moveable furniture and they can start operating.
So we have seen quite a lot of success there, which is why you see that our office occupancies across Sydney, across Brisbane, is close to a 100% right now. And besides that, I would say yeah, so just coming back to my earlier point, even in the US we haven't really seen too much changes in terms of tenant incentive.
I would say that particularly for logistics where TI also plays a big part, it's really still a landlord's market. So we are able to dictate a lot of the terms and we don't necessarily need to push ourselves and go above market.
Thank you. And second question, just on redevelopment. Early on, you mentioned about Singapore target 7%. Are you -- could you share what sort of target you will look at for US? And is US going to be a meaningful market for you down the road?
We don't have a very big portfolio in US. So there's some opportunities here and there. In fact including Europe some redeveloped opportunities, if you really want to look that for logistics, some offsets are all we definitely can be able to improve or redevelop.
Then in terms of EU, as we have demonstrated in our last case, for US, we are able to push up to about 90%. This will probably be what we are looking at for overseas market much higher than in Singapore, interest rate is definitely higher there.
So we definitely, for us, given that the opportunity comes with -- hopefully comes with tenant, that will actually enhance the deal and we can be able to work to what's specking up for the tenant. In Singapore, if looking at our industrial or in our business park buildings, they're mainly multi-tenanted buildings, which is why if it's a tenant that comes along, it's good. If not, given the market, given the environment right now, flight to quality is probably better and easier to lease out a new space.
Hi, I am Yew Kiang from CLSA. I recall last briefing you mentioned that you were to renew your utility contracts in October, November. Can you share how much higher when you renewed it, like versus the previous contracts?
Okay. We came off a low base in 2021, right. We also did the renewal or rather we had new contract about that time. If you recall, I mentioned our utility cost 2022 versus 2021. I'm looking at 50% to 70% higher utility cost compared to the year before. So where we now close the year, I can tell you my utility cost has gone up by 64%.
But that being said, the portion of the entire utility cost is two component the tenant, as well as the landlord. So the concern would always be are we able to fund the landlord, which we have increased the service charge, okay. For the tenant has been passed through, but not forgetting.
So the tenant, maybe I'll just write as well, including the point I made for landlord utilities is about 8% of OpEx, if you recall. Now as it comes in, is in fact less than 7%. So depends on consumption and I want to make another point is that this is for Singapore, which is 60% of the portfolio, right? So if you look, there's increase, but with the entire business of getting higher renters new leases that's comes in, occupancy has gone up, definitely helped to cushion all this increase.
This needs to be renewed every year. Is it?
So for current year, we have already did I think I mentioned we have actually contracted for two years and we have locked the rates for 2023.
My second question is on Singapore DC market, would you consider doing Greenfield with your sponsor?
You can't actually -- you have to -- you have to get a license. I think you know that DC require -- the motor was lifted. EDB has actually caught for RFP. So you need to be able to be awarded the available power of 60 megawatt before you can start a new DC. So you can't expect.
Okay. Thanks.
I'll come back to you. We have a question from [indiscernible]. It's regarding evaluation of our logistic properties in the US. What were their rental and occupancy assumptions as well as the outlook?
Okay. We don't typically release such detailed information, but I can speak quite broadly in terms of how the properties are valued as well as the valuation methodology. We would typically have a combination of both capitalization method as well as DCF, and we take a simple average of those two methodologies.
Now, in terms of the specific assumptions that goes into the valuation model, the value would take the market rents as the benchmark for that particular micro-market and I would also say that at least for our logistics properties, we are -- our in-place rents are typically at about 5% to 15% lower than what the market rent is. So there's some upside from there.
Second, in terms of occupancy assumptions, they would typically, for the DCF, they would roll out a 10-year DCF looking at the lease expiries, and they would then put in certain assumptions in terms of how long they think that you would take for us to find a replacement tenant.
But if, say for example, in this year, FY '23 for this is expiring, and if there are already tenants where we have already say pre-secured their renewals or where in advanced discussion, such information would then be passed to the value as well, so that they will take that into account and they might then reduce their period for such cases. So, I hope I've sufficiently answered that question.
Do you have a question.
Hi William and team, just wanted to follow on service charge question, what is the coverage like for service charge? Have you fully passed on the tenants a certain percentage -- the increases utility cost.
Okay. It's not passed on by way of service charge. We have to bear the cost, but we increase the service charge between 5% to 10%. So we have actually a higher service charge for about three months last year because we increased in October. So we'll have a full year of higher service charge for this year. That utility for the landlord is part of our landlord's OpEx, including everything else, cleaning, security and is actually passed on through service charge.
Just on the new cost of borrow for new loans in your markets like Singapore, US, Australia, borrowing cost like…
Okay, so say in Singapore for a five-year debt, I think we can achieve below 4%. Then the other geographies generally they are probably in the 5% thereabouts five year, US or Australia.
Maybe UK higher.
Just lastly on the redevelopment mentioned science park, you don't intend do it with the…
Frankly speaking, I don't think we will push any new redevelopment science park, given the fact that we are still constructing a million square feet there, we definitely got to feed it up and CLDS, another building across the road that need a free up. So yeah.
David from Daiwa, just out of curiosity, I noticed you missed your performance fee this year. I'm just curious, when the sponsor gets a performance fee, is that part of your like compensation bonus, because you seem pretty broad about not hitting, getting a performance fee. Does that affect your total compensation?
It's not in my balance. Okay. If you are asking for that, if we recall, we have been very equitable to all parties or stakeholders. When a need arises, we have customers even before the government require us to do renter rebate. We actually was quite early on decided to give rent rebate.
If we call last year's performance fee, we also want to be equitable as the unit holders that stayed with us. We have actually waved off half of our performance fee, if you recall, right. So we want to be fair and we want to grow together with tenants as well as all unit holders. Hope to have your support, David.
No, I was just curious.
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