Hello, everyone. Thank you for taking the time to join us this morning for Keppel REIT's full year 2023 results briefing. I am Tong Yan from the IR team. Before we begin, let me introduce the management team on the session. We have Mr. Koh Wee Lih, Chief Executive Officer, Mr. Sebastian Song, Chief Financial Officer, Ms. Teo Xuan Lin , Head of Investment, and Mr. Rodney Yeo, Head of Asset Management. We will start the briefing with a presentation by the management team, followed by a Q&A session. For analysts who are joining us on the Webex platform, please be reminded to only unmute your mic during the Q&A. I will now hand over the time to the CEO, Wee Lih please.
All right. Thanks, Tong Yan. A very good morning to everyone, and thank you for joining us today for Keppel REIT's year results briefing for 2023. Starting with the key highlights on slide three. Underpinned by higher rentals and occupancy for the Singapore properties, NPI grew 3.7% year-on-year to SGD 182.4 million. Keppel REIT's portfolio performance continued to be resilient, achieving positive rental reversion of 9.9% for the full year of 2023. Portfolio committed occupancy was higher at 97.1% as compared to 95.9% as of 3rd of September last year. If excluding 2 Blue Street, which achieved practical completion in April last year, the portfolio occupancy would have been 98.3%. Portfolio and top 10 tenants will remain low at approximately 5.5 years and 9.7 years respectively.
On capital management, our aggregate leverage was 38.9%, while full year all-in interest rate was 2.89% per annum. Borrowings on fixed rate was 75% as at end 2023. Distribution to unitholders was SGD 218.7 million for 2023, while DPU was SGD 0.058. Next, I will hand the time over to Sebastian, who will provide an update on our financial results.
Thank you, Wee Lih. Moving on to slide five. Property income for 2023 increased 6.3% year-on-year, due mainly to higher rentals and occupancy of our Singapore properties. On the other hand, property expenses increased due mainly to higher utility costs and property taxes. Share of results of associates increased 3% year-on-year, due mainly to higher NPI recorded, attributable to higher rentals for all properties and increased occupancy for most of the properties. However, this was partially offset by higher borrowing costs incurred. The increase in share of results from joint ventures is mainly due to the commencement of new leases at 8 Chifley Square, offset partially by the weakening of the Australian dollar against the Singapore dollar.
Borrowing costs increased 16% year-on-year to SGD 67 million, in tandem with the higher interest rate environment, coupled with the cessation of capitalization of borrowing costs for 2 Blue Street, following its practical completion in April 2023. Overall, distribution to unitholders was SGD 218.7 million, a 1% decrease year-on-year. DPU for the second half of 2023 was SGD 0.029 , and unitholders can expect to receive them on 15 March 2024. Slide six provides the key balance sheet figures. Adjusted net asset value per unit as at end 2023 was SGD 1.29. Moving on to slide seven, as at 31st December 2023, aggregate leverage was 38.9%. Through our capital management efforts, an all-in interest rate of 2.89% per annum was recorded. Borrowings on fixed rates were maintained at around 75%.
Our sustainability-focused funding decreased slightly to 64% of our total borrowings, following the repayment of certain green loans. For debt maturing in 2024, they are mostly falling due in the second quarter. We are in advanced discussions with the respective lenders. Notwithstanding those ongoing discussions, we have sufficient capacity to finance all maturing debt. I will now hand the time to Rodney and Xuan Lin , who will talk through our portfolio and market updates.
Thank you, Sebastian. Slide nine shows Keppel REIT's portfolio breakdown by different geographical locations. Singapore remained Keppel REIT's biggest market at 79.1%, while Australia, Seoul, and Tokyo are at 16.5%, 3.4%, and 1% respectively. Amongst the 12 properties in our portfolio, 10 have occupancies of 95% or higher, with 8 Chifley Square and KR Ginza II achieving 100% occupancy recently. 2 Blue Street is also receiving 100% of income from the rental guarantee from the developer. As at the end of 2023, Keppel REIT's portfolio value is around SGD 9.2 billion. Moving on to slide 10. In 2023, we committed a total of more than 1.5 million square feet of space and achieved rental reversion of close to 10%. Tenant retention rate was in excess of 70%.
New leasing demand and expansions were mainly from the technology, media, telecoms, banking, insurance, and financial services, and also the energy, natural resources, shipping, and marine sectors. At the end of 2023, Keppel REIT's portfolio committed occupancy remained high at 97.1%, or 98.3% if excluding 2 Blue Street. Portfolio WALE remained long at 5.5 years, and 9.7 years for the top 10 tenants. We continue to maintain a well-spread lease expiry profile. The weighted average signing rent achieved for our Singapore CBD office leases was SGD 12.41 per square foot per month in 2023, which is higher than CBRE's fourth quarter 2023 average core CBD Grade A office rent of SGD 11.90 per square foot per month. The continuing uplift in signing rents translates into a 9.0% rental reversion achieved by our Singapore portfolio in 2023.
Expiries for 2024 is manageable at 12.6% by attributable NLA and 13.7% by attributable gross rent. Slide 12 shows our established and diversified tenant base, comprising established blue-chip corporations and government tenants that provide long-term stability to the portfolio. On to the next slide. As part of our efforts to ensure that our properties continue to be the preferred choice amongst the tenants, the Garden Plaza and North and South Tower lobbies at One Raffles Quay will be undergoing AEI to elevate the arrival and tenant experience. There will also be new seating areas at the lobbies to promote collaboration and networking amongst tenants. Food and beverage offerings will also be expanded to enrich the building's amenities and to provide more options for tenants. The AEI will commence in the first quarter of 2024, with completion expected to be end 2024.
Over in Australia, we also completed the refurbishment of Pinnacle Office Park's lobby in January 2024. The ground floor lobby, cafe area, and lift lobby were refreshed to elevate the arrival and tenant experience. In addition, a new convertible clubhouse lounge and meeting rooms were created to offer tenants comfortable and private areas for social events and meetings. The outdoor terrace was also renovated to modernize and upgrade the seating areas, as well as to create a walking track to allow tenants to socialize. I will now hand the time over to Teo Xuan Lin.
Thanks, Rodney. The next two slides provide a summary of our year-end property valuations. On slide 16, valuation for Singapore portfolio increased 1% as compared to the June 2023 valuation. This is mainly from the increase in the valuation of Marina Bay Financial Centre and One Raffles Quay due to higher passing rents and rental growth expectations. Slide 17 shows our overseas asset valuations. Due to softening of cap rates, some of our Australian assets recorded a decrease in valuation. Excluding 2 Blue Street, our Australian portfolio saw a drop of 4.2% in Australian dollar terms for the full year of 2023. Moving on to Korea, valuation for T Tower in Seoul increased by 4.2% in local currency, and this is mainly due to higher rents. For KR Ginza II, the Japanese yen valuation increased by 7.1% in local currency, mainly due to higher signing rents of the new leases.
Overall, our total portfolio valuation increased by 0.8% in Singapore dollar terms. The next couple of slides show that we are committed to supporting sustainable practices and in giving back to the community. As part of community engagement efforts, children from Care Corner Singapore student care centers were invited to attend a caroling performance by the Anglo-Chinese Junior College Choir and received gifts donated by Keppel Bay Tower tenants. In Australia, a community activity was hosted at David Malcolm Justice Centre to share waste and recycling initiatives at the property through fun and engaging quizzes. Pinnacle Office Park also achieved certification on its carbon neutral status, a demonstration of Keppel REIT's continued focus on managing its portfolio's carbon footprint. Moving on to slide 19.
Based on our preliminary data, we reduced our Scope 1 and Scope 2 emissions by more than 5%, while energy usage was reduced by more than 2% as compared to our 2019 baseline. Similarly, our water consumption also registered a more than 14% reduction. More details on our sustainability strategy, targets, and performance will be made available in our sustainability report, which will be issued in end March or early April. Slide 20 shows the various green achievements that we have achieved at the corporate, portfolio, and asset level. All of Keppel REIT's properties are green certified, with the exception of 2 Blue Street, which is in the process of certification. Pinnacle Office Park also achieved carbon neutral status, a demonstration of Keppel REIT's continued focus on managing our carbon footprint. The next few slides summarizes key trends in the office markets which Keppel REIT has presence in.
On slide 22, the Singapore office market remains resilient, with Grade A occupancy staying around 95% in end 2023. Rents also increased to SGD 11.90 per square foot in the last quarter of 2023. The type of supply in the longer term is expected to support the rents. Moving on to the next slide. Most Australian office markets continue to be stable, with North Sydney and Perth CBD recording higher occupancies, while Sydney occupancy remains unchanged. Macquarie Park and Melbourne CBD recorded lower occupancies. We see effective rents recovering as prime gross effective rents for all markets, except Melbourne CBD increased in the fourth quarter of 2023. The next slide shows the office space market trend in Seoul. Seoul continues to outperform as occupancy increased to 98.5% from 96.6% one quarter ago. Net effective rents also increased 2% quarter- on- quarter.
Moving on to the last slide on the Tokyo office market. Office occupancies of Grade A and B office within the qualified wards of Tokyo remain high at above 95%, with rental decline slowing. That concludes our presentation. Thank you.
Thank you, management . We have Rachel from DBS. Rachel, you want to unmute and ask your question?
Hello. Good morning, Wee Lih and team. Thanks for the call. Maybe just to kickstart, a few questions from me. In terms of the Singapore office, what was the rental reversion for fourth quarter and outlook for the reversions in 2024? Any major expiries coming up in 2024?
I think we also disclosed that for Singapore portfolio is 9% rental reversion itself. 2024, I think if you look at the CBRE rating report, they continue to see a positive rental reversion between 2%-3%. Likewise, I think we remain optimistic on the Singapore reversion. There is one chunk of lease expiring in 2024, and this one obviously was signed quite a while back. So again, we expect this to capture a significant positive rental reversion with the renewal of this lease, but let's see how it goes.
Yeah. I think to clarify, the 9.0% positive reversion for Singapore was for the 12 months 2023. Rachel's question is for fourth quarter, right, Rachel?
Yes, that is right.
The fourth quarter is 11.3% for Singapore portfolio.
Okay, thanks. Any major expiries coming up in 2024 in Singapore that we should be aware of, or any potential risk of IOI Central Boulevard completion? Also the expiries coming up in Australia as well. Anything from Pinnacle Office Park?
Okay, let's tackle Singapore first. There are a couple of big expiries coming up. I am sure you are aware. But I think there is very low to no risk of losing big tenants to IOI. I think it is a very low expiry year at 12.6% of the portfolio. Exposure is quite manageable. For Australia Pinnacle Office Park, there is only one larger tenant that is expected to expire in 2024. That risk is also mitigated by the fact that their space is actually quite good space, but we want to improve it further. So, we will be doing an AEI at POP to improve that space.
Yeah. Just to add, I think POP also, I think we roll out some spec suite strategies, and that is very well received by the tenants. So we have been leasing out quite good. But obviously we continue to look at enhancing the customer's tenant experience and also look to carry out AEI to future-proof the assets like what we have shown in the slides.
Thanks for the color. Just on Singapore lease expiries, can we get a sense which building is it from?
We don't want to disclose the specific. Again, I think like what Rodney mentioned, we are very confident that this tenant will renew, and this will likely bring positive rental reversion. In fact, if anything, I want the renewal to happen earlier rather than later, but it is what it is. We remain confident and optimistic on the Singapore office market outlook, at least for our portfolio.
Okay, thank you. The next one is on any more further refinancing happening on the JV level for 2024, and outlook on the cost of borrowing?
Okay. Yes, there will be one loan that will be up for refinancing this year at one of our associated companies. We are in advanced negotiation with the lenders already. We have come to a landing on the pricing. Anything else, it would really depend on what the SORA is when we finally carry out the refinancing. Based on, I think today or yesterday's rates, I think a three or five-year SORA is looking like 2.8 or 2.9. If you add a margin in, that will be about in the high threes.
Okay. How does that compare to the expiring interest rates?
The margins are more favorable due to our relationship and also the.
The strength.
The strength of the underlying assets. So margins have always been favorable. It really, really depends on what the SORA outcome is.
Okay, got it. I guess the existing loans is probably around or even lower. I just need to get a sense how big is the impact on refinancing.
Sorry, what was that your question? How big the loan is?
No. How big is the impact of a refinancing on the interest rate?
We can comment where the interest rate will trend for 2024.
Well, I think, okay. If you look at the debt maturity profile on the slides, we have about SGD 600 million or 22% of our total debt that is due for refinancing. If we are to apply this SORA on all these expiries, I think we might be at 3.5-ish for this year.
Okay. Got it. All right. Thank you so much. I will leave for others to ask questions.
It is no surprise that definitely interest rate is higher than when we entered into the loan a few years back itself. But obviously, through our active hedging strategy, we have managed to keep it low and will continue to take a proactive approach in managing our hedges and interest rate exposure to continue to have a competitive cost of capital over there.
Thanks, Rachel. Terence from JP Morgan.
Hey. Thanks so much for the opportunity. Congrats, really, on the results. I just wanted to ask two sets of questions. Firstly, what drove the cap rate compression at One Raffles Quay? I see that cap rates have moved down, seems like quite substantially at One Raffles Quay, and the cap rates look to be even lower than supposedly better quality assets at like Marina Bay Financial Centre. Also, maybe a second question, given that you still will see interest rate headwinds this year, would you consider additional capital supports to offset the higher interest costs this year? Thanks.
Yeah. I will take the first question. We do a full independent evaluation every year. We also happen to change valuers for One Raffles Quay this year. Every time you change a valuer, there is always a different set of values they use for their work. Yeah, I think that is the main reason why the cap rate changed. It is just one of many variables that valuers use to derive a value. They all have their own different way of deriving value.
Yeah. On the second part, obviously industry is going up itself, right? Too early to say, and we would want to give so-called guidance on the DPU and things like that. What I can say here, we are committed to deliver the anniversary distribution, and we will continue to go through. We will deliver that in 2024 as well. I think that the unitholders can expect to receive that SGD 20 million full year anniversary distribution from us.
Okay. Yeah. Maybe that is all I have for now.
Thank you, Terence. Brandon from Citi, go ahead with your questions.
Yeah, hi. Can you hear me?
Yeah.
Yeah. I just have a couple of questions. Any updates on your proposed divestment plans? I think if you look at Australia, the valuation seems to be coming down. Does that kind of imply that you are looking to sort of do something on that front? That is my first question. The second question is, what are the plans on buybacks? Are you looking to do more given that gearing now is at a slightly lower rate? Yes. Thanks.
Yeah. On the capital recycling, as I said, it is ongoing strategy. We continuously look at recycling opportunities throughout our portfolio and not just restricted to Australia. That is one thing I want to highlight itself. Yes, we continue to look for such opportunities to perhaps recycle the assets to better usage and maybe to manage our leverage itself. As in share buyback, obviously the whole market as well as, especially Keppel REIT, saw a good rally there. We just let the market flows through. I think we continue to have that mandate and are prepared to intervene as and when necessary itself. But again, I think let us see how the market goes from here.
Yeah. I just have a quick question on your leasing for FY 2023. I think on the certain deck you mentioned, you were showing the split between new leases and renewal leases. I noticed that for FY 2023 there was no review leases, but nine month 2023 there was about 2.5% of review leases. I just want to find out what is the discrepancy there?
Sorry, Brandon. Which slide are you referring to?
I think it's Just give me a minute.
Is it slide 11?
No. Slide 10. Slide 10, I think it was 52.5% new, 47.5% renewal. That is for FY 2023, right? If you were to look at the nine-month 2023 numbers, there was a 2.5% of rent review. So, it's a small issue, but I just wanted to find out what's the discrepancy there.
Sorry. We will check and I will come back to you, Brandon.
Okay, sure. No problem. Thanks. That is it. Thank you.
Thanks, Brandon. Joy from HSBC, go on.
Yeah, sure. Thank you. A couple of questions from me. First of all, just back to capital recycling and asset sales. What are you seeing in terms of the bids that are coming in, and which markets are you seeing a bit more interest between Australia and Singapore? Then second question, more on shadow space. Is there a shadow space in your Singapore portfolio? What percentage would that be?
Yeah. I will answer the second question first. No shadow space in our Singapore portfolio. I think, Australia itself, you see that the carrier expanded, hopefully the worst is behind us. Let us see how it goes. Again, I think our capital recycling is not restricted just to Australia. Open to the greater portfolio. Obviously, Singapore continue to perform well, and it is also very chunky asset. We like to, again, continue to enjoy the positive rental reversion coming from the Singapore portfolio. Unlikely capital recycling will come from Singapore.
Sure. If I can just follow up on Australia. Blue & William, I have seen your occupancy has been ticking up. If you look at the rents versus what the income support level is, what sort of comparable can we draw on?
I think Blue & William definitely has leased at better rates than we expected. I think we are probably about 8%-10% above our underwriting rent and thereabouts so far. Knock on wood.
I see. Incentives on that asset?
I think that the incentives are in line with what we expected in our underwriting.
Okay, cool. Thanks.
Thanks, Joy. Shuen from Goldman.
Hi. Morning.
Morning.
Can I verify the 2023 rent reversion guidance for Singapore again? Was it 2%-3% you mentioned earlier?
The 2023 rent reversion.
Sorry, 2024 guidance for rent reversion
That is from CBRE report. But again, I think if you look at our chart, for our portfolio, you should refer to slide 11, right? Over there, we did highlight what kind of expiring rent, in 2024, 11.19, versus where the spot rent is today, and I think you can probably connect the dots.
I think earlier you guided for low to mid-single digit, right? Does that still stand for 2024?
Yes. Our expectation is that the market will. Because the supply dynamics are quite muted, so we still expect that we will have a positive reversion in mid to high single digits.
Mid to high single digit, right? Have that taken into account potential rent decline or are you assuming spot rent stays unchanged?
Given what we have been seeing over the past three to six months, the market has slowed a bit, but I think it is more like the pace of the increases have kind of slowed down. But I think the market is still in a healthy state in Singapore. We still expect that we will see some positive reversion in Singapore.
Okay, got it. Thank you.
Thanks, Shuen. Joy, you still have your hand raised. Do you have additional questions?
No, I am good. I am going to lower it.
Thanks. Any more questions from the analyst side? We have one question from the Webex, which is on the guidance for rental reversion for office in each country.
Yeah. We don't provide guidance for rental reversions on each country that we're in. But I can provide a little bit of color on the different markets. In Singapore, I think it's more or less steady as you go with 80% of our portfolio here. Singapore CBD office rents, we expect it to remain stable with a slight upward trend. That would kind of put us in a striking zone of hopefully, mid-single digit, kind of positive reversions for 2024. For Australia, Perth.
Assets are 100% leased, so nothing to talk about there. For Melbourne, we have seen headline rents move up. Incentives are quite stable still. I think in general, the markets in Melbourne is a bit more challenging, but face rent is still moving up. For Sydney CBD, we're seeing a bit of a bounce back. Leasing demand has come back a bit, and again, also headline rent, we expect it to keep chugging up slowly. Incentives are still stable.
Just to circle back to Brandon's question just now regarding the rent review that you saw in our nine-month results deck, the 2.5%. For our full-year result, we actually put it together with the renewals. If you need the breakdown for the lease committed by type, for new it's 52.5, renewal is 45.7, and the rent review is 1.8.
Got it. Thanks so much.
No problem. Any more questions?
Hello.
Hi. Mervin. Sorry, Mervin from JPMorgan.
Hi. Thanks for the call. Maybe on slide 7, you have the debt expiry profile. You have about SGD 673 million of bank loans. Can we get a sense in terms of when those are up for renewal? Is it first half weighted or second half weighted?
They are mostly falling due in the second quarter, Mervin.
Oh, second quarter.
Yeah.
Yeah. Are those all Singapore dollar or Australian dollar or what rates? Yeah.
They are a mix of Singapore dollar and Renminbi.
Okay. And the strategy for refinancing those will be fixed, or you would think it will be more floating to capture any potential declines in the second half?
I think our capital management strategy has worked well for us, maintaining borrowings on fixed rate at about 25%. I think that number works. While we have not come to a firm decision, I think we would most likely want to hedge a substantial proportion of that. We would probably seek to maintain our borrowings on fixed rates at or above this current level.
Yeah. And your commentary to Rachel, those borrowing costs getting towards 3.5%. Is that for the full year or just the first half? Yeah.
Yeah. To clarify, based on current expectations, where the interest rates are right now, I think we are expecting 3.5% for the full year.
All right. That's not the conservative number. I thought you may beat that potentially. Okay. How should we be thinking about ICR ratios if borrowing cost gets to 3.5? I mean, your cap rates, low threes to mid threes. Yeah.
I think for interest coverage ratios, we're currently at three based on the adjusted interest coverage ratio. Definitely as interest costs continue to increase, borrowing costs increase, ICR will definitely deteriorate a little or subject to where the interest rate levels are. But we do not think we would be below the prescribed Monetary Authority of Singapore levels.
Okay. Excellent. In Australia, we're seeing the return to office coming back. Are you turning more bullish on Australian office? Is it time to buy rather than sell?
I think we remain optimistic on the Australian market itself. Definitely, there are a lot of pluses. The long-dated rail and stuff like that. What Rodney has shared, actually gross headline rent continue to trend up, the incentives continue to stabilize. From now till maybe 2027, again, not much supply. So it's a very favorable market condition, so we continue to monitor it closely and see how. But obviously, a lot of factors have to be considered, right? The leverage and things like that before we make an acquisition.
The balance, will you just wait it out or you rather sell something first?
Sorry, what was balance?
I mean, on balance, will you just rather wait out this downturn, hold the gearing, worst case, like 40%, and then don't worry about the short-term investor requirements in terms of selling assets?
Yeah. I think in our job, we have to balance both short-term as well as long-term itself. So again, let's say the portfolio optimization or capital recycling continue to be our strategy. So we continue to try to capitalize on this opportunity where possible to sell. And as Ann said, we see a compelling opportunity, we will consider it carefully whether we wanted to act on it ourself because, again, it's very difficult to time the market. Sometimes a good opportunity and if we have the capacity, we may act on it. But again, a lot of factors have to be considered before we pull the trigger.
Yep. Sorry, this final question from me. Sorry to be pedantic, but just following up on Terence's questions of the anniversary dividend. Are you rolling out further increases in terms of pulling for the top-up for this year, given borrowing cost is obviously expected to increase?
I think we just ended 2023. Again, I think it's too early to give a comment on that. These will actually have to be deliberated at the board level. But what we have working for us, obviously, positive rental reversion. We also see that interest rate is peaking as inflation more or less, I think is under control. So if interest rate trends down, it'll be good for us, particularly the office sector and actually good for our tenants as well. So we hope that this will be a positive catalyst for capital remarketing.
Okay. Sorry, just on Singapore office rents, this year is a bit hard to call in terms of any potential shadow space, IOI, Marina One, what they're doing. But should we be expecting growth from 2025 onwards? Or you think it'll take some time for the new supply to be absorbed?
I think IOI, like I said, they already have 40% occupied, and then market talk is they are in discussion with 20% of the space itself. Again, despite me having a building right next to IOI, we continue to see good demand. I say again, we are proactively managing our properties, carrying out AEIs, so we continue to see demand. So we watch the space closely, but we don't see immediate threat from there. I think the market has grown to be able to absorb that supply coming into the CBD area itself. So we again continue to remain optimistic for both 2024 and 2025 rental outlook.
Yep. Okay. Yeah, sorry, I have a question from a client. It wasn't from me. This came to me.
Okay.
They're asking, is there any one else in the second half that we should be aware of?
What do you mean one self?
I don't know, like pre-term or yeah.
No, we are not aware of any pre-term right now. In fact, like I said, for 2024, we remain actually quite optimistic on our rental reversion and rental trends. Yeah.
Okay, thanks very much. I think it is quite an excellent performance.
Thank you.
Ex borrowing cost, which is under control.
Yeah.
Thank you, Mervin. Derek from Morgan Stanley.
Derek?
Are you there? You're on mute. Maybe we go to the webcast question first. From Andy, we have a question on, can you provide guidance on utility output for 2024?
Yeah, I'll take that question. We typically don't provide guidance on utility expenses. What I can say is that electricity rates have been trending down over the last couple of years since the peak at the end of 2022, at the onset of the Ukraine war. Rates have been trending down since then. We are typically on fixed rate contracts at our building. We also have the ability to pass through expenses to the service charge. That being said, we have a couple of contracts that are coming up later on this year. Anyways, it's a fixed rate contract. Utility rates have been down for a long time.
Yeah. There have been some campaigns that happened in Sydney last year itself. Both, I think transaction looking at double-digit discount with the vendors transport itself. Again, I want to qualify, these are more value-added kind of assets itself. I think, typically they are older tenure, and the buyer have to spend a lot of CapEx doing AEI to enhance. For one of the building, I think one of the tenants are going to move out completely in two years' time. So we're almost looking at completing there also. They're not really the typical core products. As you can see, the core market, the core products, especially our portfolio in the premium and A grade space, continue to perform well. That's why I think we for quite a while, we continue to see the occupancy is above 95% for A grade assets.
Can you hear me?
It's on.
Hi, it's Terence here. Can you hear me?
Yes.
Can you just mind repeating yourself?
Yeah.
Do I have any questions? Can see that you're-.
Hi.
Yeah.
Hi, this is Terence. Can you guys hear me?
Yeah.
That's right. First question is there a difference in the debt maturity term versus the hedge tenure term?
Hey, Terence. They typically are very close to one another, but in some instances, the interest rate swaps may mature a little bit earlier, about two months before the loan maturity.
Right. What is the rationale for not letting the hedges roll off again?
Sorry, what is the rationale for not letting the hedges roll off again?
Yeah. I think you mentioned the intention is to keep the fixed ratio very high, but the trajectory of rates, I think we roughly know. My question is, why not just keep fixed hedges at a low level to benefit from the interest savings, potentially?
We are not putting a definite number to that fixed rate ratio right now. But I think traditionally, this has worked well for us, especially over the last couple of years. I think it has sheltered us very well. So we're not sure increasing this rate. Mindful that there is potentially rate cuts coming in this year, depending on the frequency and the level. We are keeping our options open. I think we are not committing to a high fixed rate ratio. That is something that we've always wanted to achieve. I think a higher hedge ratio, I think that is something that we cannot control borrowing costs, so we prefer to keep that. But we just keep the options open. So we'll see where the market takes us, and when that time comes, we would make that decision.
Yeah. Again, very difficult to forecast, right? I think initially people are expecting what seven rate cuts after that to reduce and enhance the market soften again. So we take a more prudent approach. We work very closely with our treasury team to monitor it, and we don't have to have a knee-jerk reaction, so we slowly enter into hedges so that we don't have suddenly a lot of exposure at a single point in time itself. But obviously over here, we would prefer to take real estate risk rather than interest rate risk. So we try to hedge away at an appropriate time at an appropriate level.
Okay. I think the sound quality just improved. My last question is, do you mind sharing the reversions for the other markets in fourth quarter?
Yeah, Terence, give me a second. Sorry. I'm sorry, Terence. Let us get back to you on that. Go on to the next question.
That's all from me. Thank you.
Sorry, I understand just now the line was a bit bad. Do you all want us to repeat any of the answers to any questions? Please let us know. Rachel from DBS, you want to go ahead and ask your question?
Yeah. Hi. Yeah. I think just now the sound quality was a bit bad, but I just wanted to follow up. On the Sydney or Australia transaction market, going into 2024, are you seeing more activities coming up, sellers putting up assets for sale or more buyers being more competitive in the market, or is it still as soft as what we saw last year?
Yeah. I think depending on the vendor itself, if the vendor has liquidity issues or need to meet redemptions, yes, they will continue to put up again. But I think last year we see a lot of, like what I mentioned, value-added assets. They're coming up. And those value-added assets, obviously, the buyer has to put in CapEx or have to undertake tremendous leasing risk. Like I mentioned, one of the buildings will almost be taken in one or two years’ time itself. Moving on, I think you can see probably better quality assets coming out to the market. More higher quality and in better locations coming up. It's just the beginning of the year. Let's see what other campaigns will roll out itself.
But again, I think the Australian market, hopefully we have seen the bottom, and will start to trend up, because headline rent continued to increase and incentive has stabilized. Like I mentioned, n ot much new supply coming up. Some of the supply already pre-committed, so it is having a healthy market trend right now.
Thanks for the color. I also want to clarify on the interest cost. I think you just want to mention refinancing rates, based on current rates is roughly about 3%, right? But your full year cost of borrowing guidance is about 3.5%. I just want to understand about the 3.5%.
Oh, sorry. I think I might have misinterpreted your question. I thought you were asking what is our expectation for 2024. So that 3.5% was what I was alluding to. That based on current rates, refinancing requirements, we are probably looking at 3.5% for 2024. Sorry. If that is the case, then could you mind repeating your original question that you are asking?
Yeah. I was just wondering. No, I think initially it was the JV, right? So I was asking, what would be the refinance rate versus the expiring rate for the JV levels? Yeah.
That one, unfortunately, we cannot disclose specific, but we are working hard on the margins. So we landed on the favorable margins. So depending on the timing of the refinancing, when it actually takes place, and also the level of hedging that ourselves and our shareholders agree to. So I think it is still quite fluid.
Okay. Got it. Yeah. But the SGD 600 + million bank loans refinancing, the refinancing rate is roughly about 3.5, right?
3.5 portfolio.
Portfolio?
Yeah.
Okay.
Not just the 22% stack that is coming up. Yeah.
Okay. Yeah. Got it. All right. Okay. Thank you so much.
Yeah. Thanks, Rachel.
Sorry. To get back to Terence's question on reversions for our overseas properties. Australia for FY 2023 was 16.3%, and Korea was 12.5%. There were no reversions in Japan.
Thank you.
Yeah. Apologize for the poor audio quality. We just got some feedback that it was very bad. Again, apologize for that. Did not realize it was happening on our end. Again, for those of you guys who missed some of our answers or want more, please reach out to Tong Yan or any of the management. We are happy to go through a bit more details with you. All right. Thanks for your understanding and patience.
We have a question from Gula. Can we have a repeat of the answer to the hedging question?
The-.
Hedging.
Hedging question. Yeah.
Which hedging question? Sorry, Gula.
Hi, Gula. We are thinking you are referring to the question earlier on the maturities of the interest rate swaps and the loans, and why not allowing the interest rate swaps to roll off and let our fixed rate ratio also go down. So to repeat that, the interest rate swaps tenure are typically in line with the maturities of our underlying borrowings. They may differ by a few months, typically. On letting our fixed rate ratio come down in view of the interest rate expectations, that is one option that we are monitoring closely or working very closely with our treasury team. But like Wee Lih said earlier, we would prefer to take real estate risk and not interest rate risk, which is something which is beyond our control.
Having this high level of fixed rate ratio has worked well for us over the past two to three years. So it has sheltered us from this volatility and exponential increases in interest rate that we have experienced. That said, we are keeping our options open. We are watching this space very closely to see what the optimal level of our fixed rate ratio would be.
Yeah. Again, just to add to that, obviously, whenever we enter into hedges, we will have a view of where the interest rate is going itself. For us, looking back at 2023, we make use of good market opportunities due to favorable market conditions and enter into hedges itself. Again, like I said, interest rate is uncertain itself. For us, we want to make sure our focus is obviously on the real estate side, and we try to hedge whatever risk that we have less control of. But again, we remain open and see how. But this interest rate trend, I think, is continuing to be volatile itself. But obviously, before entering into hedges, we will look into the long-term trend and then hopefully strike an optimal position in terms of our capital cost.
I think we have answered Gula's question.
All right.
Any more last questions? If there are no more questions, we have come to the end of our webcast. If you have any follow-up questions, please feel free to reach out to me or Linden.
Yeah.
Thank you, everyone.
Thanks, everyone. Again, I apologize for the poor audio quality. If you all need any clarification post this call, please reach out to us and we are happy to give you some more clarifications. Thanks, and have a nice day ahead.