Hi, good evening, everyone. Thank you for taking the time to join us this evening for Keppel REIT's first half 2023 results briefing. I am Tong Yen from the investor relations team. Before we begin, let me introduce the management team on the session. We have Mr. Koh Wee Lih, CEO, Ms. Kang Leng Hui, CFO, 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 the question- and- answer. 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 Mr. Koh Wee Lih.
Thank you, Tong Yen. Good evening, everyone. Thank you for joining us today for Keppel REIT's first half result webcast. Starting with the key highlights on slide three. In the first half of 2023, Keppel REIT continued to see healthy operating performance. Portfolio committed occupancy remained high at 94.9%. If excluding Blue & William, which has just achieved practical completion on 3rd April, 2023, the portfolio occupancy would have been 97%. The weighted average lease expiry or WALE for the portfolio remained long at 5.7 years, with top 10 tenants WALE at 10.3 years. Leasing momentum continued to be stable, and we have completed more than 850,000 sq ft of leases and recorded a rental reversion of 8.1% in the first half of 2023.
Moving on to our capital management. As at 30 of June, 2023, our aggregate leverage was 39.2%, while first half 2023 all-in interest rate was 2.84% per annum. Borrowings on fixed rate was 76% as at end June. We continued with the unit buyback exercise in second quarter 2023, and including those purchased earlier this year, a total of 19.65 million units were subsequently canceled during the same period. Next, I will hand the time to Leng Hui, who will provide an update on our financial results.
Thank you, Wee Lih. Moving on to slide five. Supported by the higher rentals and portfolio occupancy, property income increased 4.7% year-on-year. Property expenses, however, also increased due mainly to higher utility costs and property taxes, as well as the inclusion of KR Ginza II following its acquisition in November 2022 and the practical completion of Blue & William in April this year. The associated companies also recorded improvements to net property income, due largely to higher occupancy at One Raffles Quay and higher rentals across the rest of the associated companies. Higher borrowing costs incurred by these companies that resulted in a decrease in share results from associates when compared to the same period last year.
Share results from joint ventures increased mainly due to the commencement of new leases at 8 Chifley Square, offset partially by the depreciation of Australian dollar against the Singapore dollar. Borrowing costs increased year-on-year to SGD 31.8 million, in tandem with the higher interest rate environment, coupled with the cessation of capitalization of borrowing costs for Blue & William following its practical completion. Notwithstanding an overall operational improvement of the portfolio, distribution to unitholders was lower year-on-year at SGD 109 million. DPU for the first half of 2023 was SGD 0.29 cents, and unitholders can expect to receive them on 8th of September this year.
On to slide six. Deposited property dropped slightly, mainly due to a decrease in the valuation of the portfolio, primarily from the Australian properties. Borrowings increased following the drawdown of loans to fund the progress payments made for Blue & William. Adjusted net NAV per unit as at 30th of June decreased to SGD 1.31. We adopt a proactive and prudent capital management strategy. As at 30th of June this year, aggregate leverage was 39.2% and all-in interest rate was 2.84% per annum. Borrowings on fixed rates were maintained at around 76% to hedge against the rising rates. We also adopt a natural hedge strategy where practicable by matching the currency of the borrowings to debt of the assets.
Such foreign currency denominated loans form approximately a quarter of our total portfolio borrowings. Our sustainability-focused funding was increased further in the second quarter to 68%, as compared to 62% in first quarter 2023. There is also no major refinancing required for the rest of this year. The remaining debts coming due in 2023 will mature in fourth quarter, while those due in 2024 will mature in the second quarter of 2024. I will now hand the time to Rodney and Xuan Lin, who will talk us through our portfolio and market updates.
Thank you, Leng Hui. Slide nine shows Keppel REIT's portfolio breakdown by different geographical locations. Singapore remains Keppel REIT's biggest market at 79%, while Australia, Seoul, and Tokyo are at 16.8%, 3.3%, and 0.9% respectively. These quality assets are distributed across different markets, which will enhance Keppel REIT's income stability and provide long-term growth opportunities. As at end June 2023, Keppel REIT's portfolio value is around SGD 9.2 billion. Moving on to slide 10. We committed a total of more than 850,000 sq ft of space, or over 420,000 sq ft of attributable space in the first half of 2023. Tenant retention rate was lower at around 70%, mainly due to a number of replacement tenants secured in second quarter of 2023.
New leasing demand and expansions were mainly from the technology, media, and telecoms, banking, insurance, and financial services, with some government agencies in there too. As at end June 2023, Keppel REIT's portfolio committed occupancy remained high at 94.9%, or 97.0% if excluding Blue & William, and the portfolio will remain long at 5.7 years. Slide 11. Driven by the stable demand for prime commercial space, committed occupancies for Ocean Financial Centre and One Raffles Quay reached 100%, while Marina Bay Financial Centre and Keppel Bay Tower achieved occupancies of above 98%.
In second Q 2023, 8 Chifley Square secured a new government tenant who will occupy approximately 100,000 sq ft. Blue & William has also secured its second tenant from the banking sector and improved the committed occupancy to 37.7%. The rental guarantee on the unlet space has commenced and will continue for a period of up to three years from the practical completion date. Supported by steady leasing demand, portfolio rental reversion for the first half of 2023 was 8.1%. Keppel REIT's lease expiry profile remains well spread across the years.
The weighted average signing rents achieved for Singapore CBD office leases was SGD 12.35/ sq ft per month in the first half of 2023, which is higher than SGD 12.05 in the first quarter of 2023, and average core CBD Grade A office rent of SGD 11.80/ sq ft per month. Remaining expiries for 2023 is low at 4% by attributable NLA and 3.3% by attributable gross rent. Slide 13 shows our established and diversified tenant base comprising established blue-chip corporations and government tenants. I will now hand the time over to Xuan Lin .
Thank you, Rodney. The next two slides provide a summary of our mid-year property valuations. On slide 14, valuation for Singapore portfolio increased 0.5% as compared to the December 2022 valuation. This is mainly from the increase in the valuation of MBFC due to higher passing rents and rental growth expectations. Slide 15 shows our overseas asset valuations. Some of our Australian assets recorded a decrease in valuation due to the softening in carry expectations. Notwithstanding, a number of our Australian assets remain resilient. In local currency terms, the valuations of Exhibition Street and Victoria Police Centre held firm, while Blue & William saw an uptick in value because the valuation as of June 2023 is based on completed basis, while previous valuations were based on percentage completion basis.
The valuation for T Tower in Seoul increased by 6.4% in local currency terms. This is again mainly due to higher rents and relatively stable transaction yields in the Seoul office market. However, the valuation increase is partially offset by the weakened Korean won. In Japan, KR Ginza II's Japanese Yen valuation remained stable but was also affected by a weaker Japanese Yen. On an overall basis, our total portfolio valuation decreased by 0.1% in Singapore dollar terms.
Moving on to slide 16. These are the ESG activities that were carried out in the second quarter, and they included an eco gardening day with tenants from One Raffles Quay and Marina Bay Financial Centre, as well as a bento-making workshop with the beneficiaries of MDS. Slide 17 shows the various recognitions we have received so far in our sustainability journey. We remain committed towards making sustainability a key part of our business and work towards the ESG targets that we have set. The next four slides will provide an overview of the various markets which Keppel REIT has presence in. In Singapore, average core CBD occupancy increased to 94.8%, and average core CBD Grade A office rents registered an increase to SGD 11.80/ ft per month.
In Australia, JLL Research noted that the prime Grade office occupancy for Perth CBD increased in the second quarter, while Sydney, North Sydney, Macquarie Park, and Melbourne CBD recorded declines in occupancy. In terms of rental performance, Sydney and Melbourne CBD recorded increases, while rents for North Sydney, Macquarie Park, and Perth CBD recorded marginal declines. Seoul CBD office market remained robust while Grade A office occupancy rate decreased slightly from 98.5% to 98.1% in the second quarter.
Rental rate increased 2% quarter-on-quarter to more than 126,000 KRW per pyeong. Grade A offices in Tokyo Central Five Wards recorded a decrease in occupancy to 95.2%, while Grade B occupancy maintained at 96.1%. Rents for Grade A and Grade B offices observed a decrease of 1.5% and 1.8% respectively. The rate of deceleration has been slowing. That concludes our presentation, and we open the session to questions.
Thank you, Xuan Lin. We will now begin the Q&A. For analysts who are joining us on the Webex platform, if you would like to ask a question, please click on the raise hand button and wait for our cue before you unmute yourself. For those joining us online via the webcast platform, please type your question via the chat box provided. We have the first question from Rachel. Rachel Tan, you want to go ahead?
Hi, good evening, Rodney and team.
Hi, Rachel. Hi.
Hey, hi. Congratulations on the very strong leasing rents that you have managed to talk in. Just a few questions from me. I think firstly, maybe just to give us a sense on terms of the leasing interest for Blue & William. I know you have signed the second tenant. How's the interest like? Secondly, I think-
Hey, Rachel. Rachel, you're a bit on mute. We cannot hear you.
Oh, sorry. Okay. First question I think for Blue & William, could you give us a sense on how the leasing interest like, and whether we can expect a higher committed occupancy by second half of the year? Also, secondly, maybe just on rental reversions, if you could give us second quarter rental reversions and first half rental reversions. Thanks.
Yeah. I will start first, and I think Rodney can add to that. I think the first half is 8.1% overall portfolio itself. In terms of Blue & William, the second lease that we signed has exceeded our expectation, so it is going very well. We have a few leases under head of agreement. Hopefully in due course we can convert that to leases.
Right now, leasing momentum continues to be strong because I think the quality of the building, as well as the location. If you have seen some of the pictures that we have flashed, I think the vista is very good. We remain confident on the leasing prospect. Like I said, there is a rental guarantee from the developer Lendlease itself. We are right now focusing on trying to get in the right tenants, suitable for the building that will actually stay beyond the first term itself. Rodney, anything you want to add?
Yeah. Basically, leasing momentum or at least viewing momentum at Blue & William has been very good, especially in the last month or so. We have got a fairly full list of prospects that we are looking at. I think, hopefully by the next two quarters, we can convert a large amount of these prospects and then the building will be essentially quite well leased.
Yeah. To add to that, again, even in 8 Chifley we have achieved some good leasing momentum as well. Again, I think it is building specific. I think we have invested in our buildings, and so they are attracting, I think, the right tenants. Like I said, that is despite the quality which we are seeing across our portfolio right now.
Thanks for the color. From the positive statement that you have been saying in the leasing momentum, does it show that the Australia office leasing has sort of turned around? Do you see any interesting transactions in the market that you might be interested in buying?
I think this past quarter, we've had some good leasing momentum. Also, note that we have leased up also more 8 Chifley to a government tenant. The government tenant has taken over existing space and wants to grow in the building. I think, hopefully for 8 Chifley by the end of the year, we should be also close to 100% leased. Not much space left to talk about at 8 Chifley . I think this past quarter, leasing has been going quite well in our Australian portfolio.
Yeah. Transaction market, any interesting ones?
Sorry, can you repeat your question again? You got cut off there.
Transaction market. With a positive leasing momentum, are you saying that there could be potential acquisitions that is interesting for you to acquire? Is it time already?
Yeah, we continue to look at opportunities there. Again, like I said, right now, we continue to exercise prudence and caution in the market. There has been some transaction going on in the market right now, but those, again, I would caution, are slightly older building. Some of them require value add strategy. So you can't really compare apples to apples to our so-called more core Grade A or prime kind of building itself. So we continue to be prudent. Obviously, I think we like to grow the portfolio, but at the right time and for the right asset. And one strategy that we could potentially adopt is capital recycling or portfolio optimization, because we also have a close eye on our leverage itself. Yeah.
Okay, great. Thank you. I'll pass-
Sure.
...to other people to ask questions. Thanks.
Thanks, Rachel.
Thanks, Rachel. Can we have Yew Kiang? Yew Kiang, you want to go ahead and ask your question?
Hi, can you hear me?
Yes.
Can you hear me? Yeah. I have three questions. First one is how much more share buyback will you do, and can you do? Secondly, is on the B&W lease. Blue & William lease. What is the rent that you sign for the 37% versus the rental guarantee implied rent? The landlord is supporting you at a certain level, but I just want to know whether the 37% that you sign is above or higher than that. Lastly, with the revaluation exercise, does it mean that the next revaluation exercise, you will probably do it in December 2024?
No. Let me maybe take the share buyback and valuation exercise then. I think then at least Rodney will talk about the leasing question. Valuation exercise, we still have to do a full year valuation end of the year itself. So you will see another one after our year-end result announcement. There will be a full valuation again on property. I think we do believe in the robustness of our property.
That is why we do a mid-year just to demonstrate where the market values are there. With regard to share buyback, again, I think a sensitive issue. Let us say how much you are going to buyback and stuff like that. But what you can get from our action is we remain committed to our unit price as well as DPU. That is why I think we are prepared to intervene when necessary. Maybe back over to Rodney, talk about the leasing.
Yeah. So for the question on Blue & William leasing. The two leases that we signed for the 37.7% in the building, they both were above our underwriting when we acquired the building.
Is it very much higher? I just want to get a sense. Is it 30% higher or is it very close to what the landlord was supporting it at?
It is about 8%-10% higher than what we underwrote.
Okay. Thank you. That is it for me. I will leave it to the rest. I will jump to the back of the queue. Thanks.
Hey, thanks, Yew Kiang. Can we have Joy?
Yeah. Hi, can you hear me?
Yep.
Okay. Just a follow-up on that share buyback question. How should we think about share buyback versus your gearing? Is there a limit where you are going to say that, "I am going to also watch on my gearing." And can we use that as your capacity for share buyback?
Hi, Joy. This is Leng Hui. Yeah, of course, using share buyback is just one form of how we intend to use up some of our capital and that is part of capital management. Of course, we will definitely take agreed leverage as one of the key consideration because that is using our debt headroom. I think, just now what Wee Lih mentioned, because it is also a very sensitive issue on how much we are buying and what price we are buying it. We will not go into details on that quantum. But definitely we will balance it against all other users, taking into account the distributions or anniversary distribution that we are giving out, including share buyback. So right now we are still at below 40%. We have very good debt headroom even before reaching this 40% or 42% mark.
Okay, sure. Then just a follow-up on the debt or the funding side. Could you give us a sense as to what your floating debt are denominated at and what were the debt refinancing during 2Q and your refinancing costs?
Okay. The floating debt, I think, we have a portion on Singapore dollar, which is on SORA. Now we have converted all to SORA and Australian dollars is at BBSW active. So, just on floating rate, I think, you can see that including margins, we will be across 4% and BBSW active floating will be crossing 5%, just on float. We actually did not do any major refinancing activities during this quarter. Just a little portion is really due to one of our IBOR transition, which is to convert one of our SOR loan into SORA.
So there has no major impact or it is not really considered a refinancing event that has impacted us in this quarter. In fact, you see that we have hedged up a little bit more. The hedging was also done earlier. We have entered into some forward hedges, but those have taken effect this quarter, s o those are actually at better rates than current.
Okay, sure. Lastly, just on the Australia leasing market, could you comment a little bit on the incentive level, especially on the newly signed leases? Thank you.
The incentive levels actually for the last few quarters have been quite stable in the mid-30s. Not much change from there. What actually we see is rental levels starting to creep up. Yeah, incentives are stable, but the rents are moving up, especially in Sydney.
Okay, cool. Thank you.
Yeah.
Thanks, Joy. Can we have Terence from J.P. Morgan?
Hey, thanks so much. Thanks, Wee Lih and team. I just wanted to ask a little bit on the DPU. I noticed that the DPU actually seem to have increased on a Q-on-Q basis. Could you maybe share a little bit about why there was an increase on a Q -on-Q?
Quarter-on-quarter? Sorry, you are comparing to 1Q, is it? 1Q and 2Q.
Yeah. Between 1Q and 2Q. 1Q looked like it was probably closer to about 1.34, and then 2Q is about almost 1.56.
Actually, those are not the numbers. I think, is it because you have put in the SGD 10 million of anniversary distribution only in the second quarter?
Okay, maybe I will take that offline. I did strip out, but it seems like it did go up Q- on- Q. Can I also ask, were there any one-off distributions or expenses this quarter?
We have some one-off income for the first half of this year, about SGD 1.2 million. It is actually about the same level as year- on- year, same as the first half last year.
Right. Okay. In terms of the aggregate leverage, Wee Lih, you mentioned that you are currently comfortable, but you are also looking at capital recycling. Could you share a little bit more on what assets that you could look to recycle, and what is the level that you are likely to try and keep gearing at?
Yeah, again, like I said, Keppel has been consistent in our portfolio optimization strategy, which part of it is capital recycling. Again, like I said, definitely, we are not looking to raise fresh equity at the current discount rate. Potentially, if we were to go into new acquisition, one way we could do that is through capital recycling. But right now, again, nothing has been firmed up on which asset to recycle. But I think management and team is constantly looking at this just to manage the overall portfolio. Like I said, I think I also shared with the team, I think with analysts during first Q, a lot of emphasis is put this year on asset management as well as capital management. So that will continue to be our focus going forward.
Right. Currently, at the current level of gearing, you are still comfortable, even with the further capital commitments in terms of the anniversary distributions.
I think we are definitely comfortable with that. I think you must also look at our debt maturity profile is well spread out and things like that. Having said that, of course, we are constantly thinking ahead, and then definitely, I think we will plan to, like I say, if in the event that leverage has to go up too high, we will definitely do something to pare it down accordingly.
Okay. My final question, could you touch a bit on the Ginza, how is leasing interest coming along?
Yeah. Actually, leasing is coming on very well, I would say, and we hope to be able to share some good news with the investors and analysts in the very near future. Let's put it this way. I think definitely that has been a focus for our Japan office, our Japan team there, as well as management here. But rest assured that that is being taken care of, and once we sign any significant leases, we will make the necessary announcement and share the good news with everybody. But we are definitely very confident of the asset that we have bought and how it is panning out. Yeah.
Okay. Thank you. That's very helpful.
Thanks. Yeah.
Thanks, Terence. Donald, you want to go next?
Hi. Can you guys hear me?
Yes.
Yes, we can.
Hi. Thanks. A couple of questions. Referring back to your incentives earlier, could you share the incentives for the lease-up by asset, both on Blue & William, Pinnacle, and Chifley? How does it differ, and how is it trending?
It is not something that we normally share. It is kind of confidential tenant information. I do not think it is appropriate to share it with the market.
Sure. But is that a trend between a CBD incentives and, say, a North Sydney and a little bit more decentralized incentives?
Yeah, I think it's generally Okay, so at Pinnacle Office Park, we've been doing spec suites, and that process has gone very well. We've leased up all except one of our spec suites at Pinnacle Office Park. We are looking actually to do another round of spec suites for an upcoming vacancy in the building. It seems to work quite well. When you chop up the space, we get higher rents. Depending on the length of the lease, that determines your incentive level, right. If you look at it on a five-year basis, it's actually a very comparable incentive level to the CBD leases.
Those are for what, 100 sq m?
No. Generally, 200 sq m-400 sq m.
200 sq m-400 sq m .
At Pinnacle Office Park, the last couple of years, what we've seen is a trend towards kind of smaller leases-
Yeah.
...and so tackled that trend and split up whole floors or half floors, and it's worked well for us. Again, higher rents, a decent incentive level if you look at it on a five-year basis.
Your leasing CapEx is comparable to the incentives level that you're getting across your Australian portfolio, roughly?
Yes, more or less.
Okay. Are you going to do more spec suites for Pinnacle?
Yes, we are.
Okay, thanks. On the transaction. Sorry, you wanted to say something?
Oh, no. It is not only at Pinnacle. Because we see for certain buildings in our Australian portfolio, we can take half floors and do two spec suites or thereabout. It is something that we consider because I think in general, the lease sizes have gone down over the last couple of years.
Yeah.
But we are starting to see a little bit more interest from the 500 sq m- 1,000 sq m prospective tenants. That market seems to be coming back a little bit. We are waiting and seeing. But I think the spec suite, less than a full floor spec suite program has been successful, and I think it will continue to be successful.
Yeah. But because a lot of your competitors are also doing that.
Yes.
So are you seeing a big saturation of spec suites?
Actually, the market is obviously wider and deeper for smaller tenants. So, the pie is larger, so to speak.
Understand. On the transaction market, you were talking about potential recycling, but for Australia, where is the bid-ask spread now? Do you see that narrowing?
Bid-ask spread?
Yeah.
The yield-
Are there any inquiries for your assets? There will always be inquiries, right? But has the pricing differed compared to, say, 12 months ago? Are people more willing to do deals at a tighter number? How is the trend like?
Well, I think you can take the cue from the recent transactions, right? Like, 44 Market and stuff like that. But again, those are older vintage and stuff like that.
Those are value add, right?
Yeah. More value add kind of strategy. Some of the transactions campaigns that were put out, I think they did not get a satisfactory bid. I think the vendor continued to hold on to those asset itself. Again, I think the Prime and Grade A office continued to perform well, like what is shown in our portfolio. We are not actively looking to I think those buildings will be very confident of our valuation, like what you have seen this time. I think some of the higher quality ones continue to maintain the valuation that they have. Obviously, the non-CBD one may have a greater increase in cap rate, but still, I think we are seeing our assets as we check. Yeah.
Okay. Recycling is something that you guys are always looking at, but-
Yes.
...at this point, no. The market is not conducive. I think it is safe to say, at this point.
I think, like I say, we are also not desperate seller. I think we are prepared to do a deal when the price is right itself. But definitely, we are not looking to sign an asset at a distressed price. I think we have, like I say, good leasing momentum, seeing that our property itself continue to lease well. So we are currently enjoying those income.
Sure. Thanks. My last question on Singapore, a ny shadow space are you looking at this point? Can you remind me, just now, did you say rental reversion was 8.1%? Or is this just for the whole portfolio or just for Singapore?
Whole portfolio for first half.
For first half. Yes, correct.
Yeah, whole portfolio.
For Singapore?
Whole portfolio.
If it is just for Singapore, what would the number be?
For first half, it will be around also close to 8%.
Okay. So it is still fairly stable.
It's fairly stable. We currently don't have any shadow space within our portfolio. Like I said, we have achieved 100% for ORQ right now as well as OFC. So we continue to monitor this space. Definitely, there are shadow space around, but sometimes it may not be an exact fit, right? It may just be a tail end of the lease itself, and depending on the fit-out, whether you like it or not. So it's not easy. But of course, this is the space that we closely monitor just in case it will impact our portfolio. But so far, we're not seeing that impacting our portfolio in any significant ways.
Okay. Thank you so much. That's all for me.
Yeah.
Thanks, Donald. Michael from UBS, I'll go next.
Hi, good evening. I've got a couple of questions. If I were to look at your adjusted ICR, in the first half of this year is 3.0. In Q1, I think it was 3.2. What is it specifically for the second quarter?
Hi, Michael. I think we don't calculate on a Q-on-Q basis also because, for MAS, this particular definition requires it to be on a rolling basis. It is more meaningful to look at it on the point.
Okay. My reason being, if I look at it's been coming off. What confidence can I get that it's not going to move down towards, say, the 2.5 level by year-end?
I would say that, this coming year, we expect the interest rate to really come off to stabilize. Of course, we are expecting more news on a hike, but we believe that the forward rates have largely been priced in. We still have quite a good buffer from the 2.5 times that is stipulated by MAS, and that really only applies if we intend to exceed a 45% aggregate leverage. It's not going to mean a breach of governance or anything for us, definitely. In fact, this is really just an MAS requirement for us to keep our gearing or aggregate leverage intact. We still have quite a good way to go. We are at 3.0 times, even in this very challenging environment for us.
Okay. My next question is on the tenant at 8 Chifley. You said you got a new government tenant. Can you give us a sense of the rents that they're paying? Is it higher or lower versus the space that's been vacated by the previous tenant?
Yeah. It is about a 10% positive reversion on that one.
Okay. How quickly can you fill up the remaining space?
We have got heads of agreement for another two floors. I think we expect that two-floor stack or village to be under contract in the next 30 days, which leaves us only half a floor to lease. That half floor, we might do a couple of spec suites on the half floor. It is about 500+ sq m, and then we will be full. I think, hopefully by the third quarter results, we will be close to 100%, if not at 100%.
Okay. That is great. My final question is on, earlier you mentioned there was SGD 1.2 million of one-off income. What is that for?
Oh, those are for various reasons. There could be some settlement from some of the tenants. Not huge individually.
Okay. I assume that's for Singapore.
Largely for Singapore.
Okay. Thank you.
Okay. Thanks, Michael. Jonathan from Kay Hian.
Hi. Thank you for taking my question. Actually, two of my other questions have been answered. For page nine, I observed that for Ocean Financial Centre and for Marina Bay Financial Centre, there is some increase in occupancy. Could you share whether those are expansion or new tenants? Also, could you share the industry sector for the improvement? Thank you.
In general, it is mostly new tenants. I think we have had one expansion at MBFC. In terms of-
The new tenants. Which sector? Sorry, the new tenants.
...which sector? What, just for MBFC and OFC?
Yeah. There's some improvement there. New tenants, which industry do they come from?
Mainly from tech and banking.
Okay. Are there tend to be demand for smaller spaces? Do you see any demand for larger spaces in the two buildings? Thank you.
Even if there is, unfortunately, we cannot accommodate. Even before this past quarter, we were at 98%. So all our spaces in the buildings are all small spaces. They are all kind of chopped up.
Okay. Thank you. Thank you very much.
Yeah.
Thanks, Jon. David from Daiwa?
Yeah. Hi. Good evening, everyone. What was the rental reversion in the second quarter and first quarter?
First quarter was 9.1%, and second quarter is 9.3%. Second quarter was 7.7%.
Okay. 9.3% and 7.7%.
7.7%. Yeah.
Okay. For the second half of this year, do you think you could do, like, 7%?
Oh, that is a forecast.
Yeah. We cannot give you forecast. We hope to achieve good numbers. That is why I think single-digit rental reversion is what we are trying to aim for, and hopefully we can outperform that.
Yeah. But true, [David], also in the second half, we actually do not have very much left to renew in the portfolio.
Left, yeah, 4%.
Okay. You would be able to hold the rents, since you do not have much to renew.
Yes, correct.
Okay. In terms of Blue & William, the contribution that is coming through in your results is mainly the income support. Is that correct? Are there any other items that this property might contribute?
It is mainly rental support, so rentals guarantee for this one.
There is one lease. They haven't. Mostly rental support.
Okay. Got it. Yeah, it looks pretty straightforward. Yeah. That's all from me. Hey, thanks.
Hey, thanks, David. Vijay? Vijay, you go next.
Yeah. Hi, good evening. Can you hear me?
Yep, we can hear you.
Yeah.
Okay. A couple of questions. Firstly, in terms of Australia, if I just look at the valuations and cap rates perspective, it seems to me that Sydney has taken a bit more harder hit in terms of 15- 50 basis point expansion in cap rates, especially for POP compared to Melbourne and Perth, which seems to have expanded smaller. Can I get a sense of how is the market in Australia? Is Sydney facing a lot of challenges from work from home? Melbourne and Perth, is it doing better? Would that be a right assessment to come from?
Yeah, it is a little bit different. For Perth, because we have essentially one government tenant, which is the state courts. Being state courts, work from home is not affecting them at all because you still have to have court cases and all that kind of stuff. For Sydney and Melbourne is probably a little bit more challenging in terms of leasing. Sydney, in the past quarter, in the past three or four months has been doing better in terms of leasing.
Okay. But in terms of recent transactions for Australia, I think the cap rate seems to have certainly widened as the value has fully factored this effect into your valuations or in the latest valuations.
Yeah. I think in general, probably the Sydney assets are holding up a little bit better than the Melbourne assets.
Okay. Can I get a sense in terms of what is return to office in all three markets which you are at this point?
Return to office in the three different cities?
Yeah. I mean, across the different markets.
Yeah. I mean, Sydney and Melbourne, they are generally mainly between 60%-70% back in office.
Okay.
Obviously not as robust as our Singapore or Korean kind of markets, where we are back to normal. But certainly much better than what we hear what is happening in the U.S.
But still, I think good quality buildings continue to attract tenancies. That is why I think we have had some success in our leasing in those cities there. Yeah.
Okay. In terms of Singapore office, I think you do have a sense in terms of pre-commitments for IOI Boulevard. Do you expect with the building nearing completion, some of your users or tenants might move from some of your buildings over there, and what could be the rental differential? Could you guide us on that?
Sorry, can you repeat your question? You came out a bit muffled, I couldn't quite catch your whole question.
Sorry. In terms of IOI Boulevard, which is completing pretty soon.
IOI.
IOI Boulevard, which is completing pretty soon. Is there a possibility that some of your tenants would move from that building? Do you have a sense of what is the pre-commitment so far, and the rent differential between yours and theirs?
I mean, truth be told, tenants can go anywhere they want, anytime they want, as long as they're not happy with the current building they're in. But obviously with IOI being right next to ORQ and sort of a stone's throw away from OFC, we're a bit closer to the action. But we have maintained interest from our tenants. Hence you see both OFC and ORQ both at 100%. I think the attraction to our buildings is quite strong, and also the stickiness to our buildings is quite strong. Also at ORQ we are refurbishing and doing an AEI on the lobby to keep it I mean, it's a really nice lobby already, but I think we want to try and provide more amenity for our tenants. We'll be doing that in the next year or so.
Okay. Do not see that as a threat at this point of time. Do you have a sense of the pre-commitment levels at this point of time?
In general, I think what we hear from the market is they are in the 30%+ range in terms of pre-commitment at IOI. Not being the owner, I really cannot tell you what the real number is.
Sorry. Lastly, in terms of your management fees, it has been fully paid in units. Is there any plans to change that or will it be kept that way?
We will obviously-
I think we will look at it. I mean, right now, this quarter, we plan to take it fully in units. Yes. This, obviously, we will have to discuss at the Board.
Okay. So for now, it is status quo.
Yes, that is right.
Okay. That is all.
Okay, thanks, Vijay. John from Goldman? Hi, John. Are you there?
Move on to the next one.
Yeah, we will move on to the next one. Michael and Donald, you still have your hand raised. Do you have any more questions?
I have got a simple one. You mentioned tenant retention at 66%. Can you give us a sense of for the tenants that moved out, where did they go? Which buildings did you lose them to? And the tenant wins that you got, where did they come from?
I think across the portfolio, it is 60%, I was going to say 70%. It was actually mainly driven by a tenant in our Australian portfolio leaving at Pinnacle Office Park.
Okay, so it is primarily Australia.
Yes, correct.
Okay. In Singapore, there is, I assume, not much movement.
Yes, not much movement. It's a bit of a fight for space right now, so yeah.
Great. That's clear. Thank you.
Hi, this is Donald. Yeah, I do have a very quick follow-up question on Chifley. Rodney, you mentioned just now there's another two hits of agreement for two floors. Where are these tenants coming from? Are they relocating within the same building, or could you give us some color?
Yeah. It is actually one hit for two floor. It is a two-floor village. So 8 Chifley is a bunch of different two, three, four floor villages concept kind of building. So we have one two-floor village left and one half floor. And this tenant is a new tenant to the building. And it is essentially a co-working kind of outfit.
Oh, it is co-working.
Yes.
Are they moving from other areas? Are they moving from outside the CBD or-
No, they-
Within the-
They are a CBD. They prefer the CBD. It is a co-working company that prefers the CBD locations, and this is an expansion for them. From what we understand-
Okay.
...the co-working business in Australia is generally very robust, as with Singapore.
Hmm. Okay. For the spec suites that you want to do, right, and you are probably going to do more spec suites. How is the construction cost now? Has it started to normalize, and would that be a benefit for you, in terms of your leasing CapEx?
Yeah. I think it has been stable. There was a bit of a spike up about a year plus ago.
Yeah.
When everyone reopened. But it has been quite stable since then. If not, it is trending. Actually, we are seeing it is trending down a little bit, like SGD 100/sq m, SGD 200/ sq m, down.
Okay.
Sorry, what is the second half of your question?
No, no. I was wondering if the construction cost is starting to normalize or trend down.
Yeah.
Then it will work to your favor, right, when it comes to your effective rents that you are getting for the spec suites?
Yes. But rents have also been trending upwards, so it may be-
Okay.
...a plus plus for us.
Okay. Understood. Thank you so much. Cheers, Rodney.
Yep.
Thanks, Donald. Jon from UOB Kay Hian, do you have some follow-up questions?
Yeah, just a follow-up on valuation. We see Sydney, like 8 Chifley and Pinnacle having a bigger drop, 6% and 17%. That is quite different compared to your more positive outlook for Sydney. Could you help us reconcile? Is there a bigger capital extension for Sydney?
Yes, there is. Well, for Pinnacle Office Park, that's a metropolitan location. It's not in the CBD. The cap rates has expanded a little bit more there.
Okay. For 8 Chifley, it's slightly more than Melbourne.
Yeah, but the valuation change is quite de minimis. It is a difference of about SGD 5 million.
Yeah, so 2.2%. The 6.7% is after translating to Singapore Dollar. The weakening of the Aussie dollar contributed to that. But you look at the Aussie terms, it is just basically 2%, which is, I would say, marginal right now.
Okay. Thank you.
Sure.
Okay. Thanks, Jon. Rachael, you have a follow-up question?
Okay. Just a few quick follow-up questions on Singapore. I think you mentioned that it's a bit of fight for space. With your existing rents at SGD 12.35, do you think that the rents can be pushed further up at the moment for Singapore?
If you're talking about market rents, they're probably flat for now, given the supply of IOI. But given that we don't really have very much space left, the leftover, whatever vacant space we have in our buildings, some of them not necessarily the best space in the building. I think, yeah, hard to say. Hard to compare rent like versus like.
Okay, got it. Just looking at your lease expiries, 2024, 2025, any lease expiries coming up? Do you may need from Singapore right now?
Sorry, any major leases in 2024, 2025?
Yes.
We do have a couple of big leases coming up, especially in 2024.
Oh, okay. Which buildings are they?
One is in the MBFC portfolio.
Yeah.
I think we have one at OFC.
Okay. Would you be able to share the tenant or no?
No.
Yeah.
Okay. Tech tenant? Finance tenant?
We can't share. We'll leave it at that, yeah.
This is a results presentation, not fishing trip. Just kidding, Rachel.
Okay. Thank you.
But let me just add that we remain confident in leasing out those spaces, so shouldn't be an issue.
Got it. Thank you.
Thanks, Rachel. Joy, you have a follow-up question?
Yeah. Just a very quick one on interest expense, because quarter-on-quarter, I think your interest expense has actually flat and come down 2 basis points. But you've actually drawn down additional debt. Can I understand, did you draw down additional debt in yen, which is why your interest expense actually dropped?
Maybe I will just explain why. You look at quarter-on-quarter, it is slightly higher. Actually, we did some restructuring on interest rate swap earlier in the quarter, so that was a one-off adjustment, in the earlier part of this year. I would say, the second quarter or the first half number is more representative of the current interest rate environment.
Can I get a sense of the one-off adjustment, like the quantum or what nature was it?
It is just we restructured some interest rate swaps. As in, we will do some, it is more accounting when we-
Okay.
...unwind some swaps as we repay loans. So there is some one-off adjustments.
All these are Singapore dollar denominated debt, right?
It is Australia, actually.
Okay.
Yeah.
Okay. Cool. Thanks.
Thanks, Joy. I think we let Rachel.
Yeah.
Rachel, you have one last question.
Rachel, please.
Oh, sorry.
Accidentally pressed raise hand.
No, I think so. I didn't put down my hand.
Want to say goodbye, is it? Wave goodbye.
Oh, you like to k ee Chu, ah?
Oh.
Okay. I think we don't have any more questions. Thanks, all. Thank you, everybody.
All right. Thanks, everybody. Have a good evening. All right.
Thank you.
Speak to you soon. Cheers. Bye-bye.
Thanks.
Thank you.
Thank you.