Ascendas Real Estate Investment Trust (ACDSF) CEO William Tay on Q4 2021 Results – Earnings Call Transcript
Ascendas Real Estate Investment Trust (OTCPK:ACDSF) Q4 2021 Earnings Conference Call February 8, 2022 4:30 AM ET
Company Participants
Wylyn Liu – IR
Yeow Peng – Head, Capital Markets & IR
William Tay – CEO
Lee Sze – Chief Financial Officer
James Goh – Head Portfolio Manager
Ram Soundararajan – Head, investment
Conference Call Participants
Dale Lai – DBS
Vijay Natarajan – RHB
Kanchan Sundrani – Goldman Sachs
Joy Wang – HSBC
Brandon Lee – Citi
Derek Tan – DPS
David Lum – Daiwa
Mervin Song – JPMorgan
Wylyn Liu
Good evening, everyone. This is Wylyn from the Ascendas Reit Investor Relations team. Thank you for joining Ascendas Reit’s FY 2021 Financial Results Briefing.
Today’s session will include a presentation followed by a question-and-answer session. Please be informed that today’s session is recorded and the recording will be made available on AscendasReit’s website after this briefing. We will start off with a presentation of the FY 2021 results by Ms. Yeow Kit Peng, Head of capital markets and Investor Relations. Kit Peng, please.
Yeow Peng
Thank you, Wylyn. Happy Lunar New Year to everybody. On behalf of the Ascendas Reit team I wish all of you good health and successful year ahead. Let us now commence on Ascendas Reit full year results FY 2021.
For FY 2021, we achieved steady growth. Some key numbers here, distributable income grew 17% to S$630 million, DPU grew 3.5% to S$0.15258 [ph]. Investment properties increased 19% to S$16.29 billion. On the same-store basis valuations increase 3.3%. Gearing is healthy at 35.9%, portfolio occupancy rate improved to 93.2%, rent reversions grew 4.5% in FY 2021.
Year-on-year performance saw full year 2021 versus full year of 2020. Gross revenue increased almost 17% due to mainly by full year contributions from the two San Francisco office and a suburban office in Melbourne, as well as, contributions from new acquisitions in 2021, particularly the 11 data centers in Europe, as well as Galaxis, the Business Park property in Singapore.
Net property income and distributable income increase in tandem with the increase in revenue. FY 2021 distributable income of S$630 million includes a performance fee of S$7.4 million, the performance fee of S$7.4 million took into consideration the COVID-19 rental rebates mandated by the Singapore government that resulted in a lower DPU in FY 2020.
The manager has voluntarily made a one-off paper for this entitled performance fee to the extent of the effect of director rebates. Hence the unitholders will receive S$0.15258 instead of S$0.15058 for FY 2021.
Second half business first half performance, gross revenue at S$640.5 million is 9.3% higher driven mainly by contributions from the 75% acquisition of Galaxis’s Business Park in Singapore, 11 data centers in Europe, Grab Business Park property in Singapore and the 11 logistics properties in Kansas city, USA.
Net property income grew in tandem with gross revenue, but was partially lowered by higher utilities cost and property tax. Distributable income increased 2.6% to S$319 million after performance fee and an increase in non-property operating expense and tax expense for the new acquisitions.
DPU was stable at S$$0.07598, DPU before performance fee would have been a higher S$0.07778 or a 1.5% growth half on RV. When we compare second half 2021 versus second half 2020, the growth in gross revenue, NPI, NDI is largely driven by acquisitions completed in 2021 and 2020
Net property income and distributable income grows in tandem with gross revenue second half DPU increased 2.4% to S$0.07598 after performance fee. As you can see from the results the impact of COVID-19 on center suite has been enabled. We continue to distribute fully the taxable income available for distribution to unitholders.
We adopt a semi-annual distribution frequency. So for the period of 1st July to 31st December of 2021, the distribution of S$0.07598 will be made. Book disclosure date is 16th of February and you will be receiving the dividends on 11th of March.
In the last financial year we deployed over S$2 billion in capital to invest in properties across our four existing markets. The most significant increase is in Europe, where we acquired 11 data centers for SGD905 million. The acquisition of the 11 data centers in Europe also marked the center street’s first foray into the overseas data center market.
Two business based properties Galaxis and 1-5 Thomas Holt Drive located in the technology Precincts in one-north Singapore and Macquarie Park in Sydney respectively were also acquired for S$818.4 million.
We expanded our logistics portfolio by acquiring 11 last month logistics properties in Kansas City, USA for $207.8 million. You will observe that all these new investments are in technology focused business spaces, data centers and logistics facilities.
These assets will enable AV to right the growth in the new economy. Properties in this new economy such as technology life science, data center, logistics now represent a significant 81% of AREIT’s total AUM and contributed 78% to FY 2021 total gross revenue.
We continue to streamline our portfolio. In FY 2021, a total of five properties were divested in Australia and Singapore for S$204 million at above valuation. Post the close of the financial year 2021 in January just last month, UBIX’s, a high specification industrial property in Singapore was completed for S$38.2 million.
The five-storey premium industrial property is well located just right next to the Ubi MRT station and features modern workspaces with large floor plates of up to 4,300 square meters. We are confident of leasing out the property by end of the year.
Moving on to capital management. We ended a year with a very sound capital profile, gearing is healthy at 35.9%. So there is plenty of that hit rule. It works out to be about S$4.8 billion to reach MAS aggregate leverage limit of 50%.
We have a total borrowings of S$6.1 billion. The average debt majority is 3.5 years. Financial metrics are healthy by exceeding the required minimum level set by bank loan covenants as well as Moody’s rating. FY 2021 interest costs declined to 2.2% versus 2.7% a year ago. So during the year we expanded our sources of funding with an inaugural issuance of a €300 million bond seven years at 0.75%.
We also lock in attractive U.S. dollar denominated loans. So the proportion of fixed grade debt as a percentage of the total debt has increased to 79.4%. So, we have this A3 Moody’s rating, it is maintained and that provides us with a lot of financial flexibility and very strong access to capital.
Here is an interest rate sensitivity table. So about 79% of our debt is fixed. So the balance 21% is on floating rate. And the impact of higher interest rates of say, 20 basis points will result in a 0.4% decline in DPU and say, 60 bps increase that will result in a 1.2% decline in DPU.
Still maintaining a high level of natural hedge for overseas investments. It is about 76% for the portfolio. The valuation, overall our portfolio achieved higher valuation. Same-store valuation increased 3.3% to S$13.95 billion due mainly to cap rates compression.
Cap rates compress the most in Australia for logistics properties and as well as the suburban officer there as well and also in the UK for our logistics properties. Overall, the portfolio occupancy improved to 93.2%,Q-on-Q as well as year-on-year driven mainly by improvement in the Singapore, Australia and U.S. portfolios.
In Singapore, resource sizeable take-up of 6,000 square meters by new tenants in our logistics and business park properties. We also achieved a long signings of five to six years. In Australia, occupancy remained healthy at 99%.
Occupancy of the U.S. portfolio rose to 94.5% to get into account our newly acquired 11 logistics properties in Kansas City, which following the acquisition very soon after we achieved full occupancy versus the 92.6% at the point of acquisition.
In UK/Europe also have big occupancy of 96.7%. During the quarter there was some tenant movement in a logistics property. We are currently putting in some CapEx works and we have secured a tenant to lease up the space once the AEI is completed.
In FY 2021 based on new leases sign, tenants are mainly from the Info Tech and data center sector that contributed to that 25.5% followed by the Biomed and Agri Center at 24.6%.
Rental reversions. Overall the portfolio achieved an average rental reversion of 4.5% for the full year. And this is in line with our guidance throughout the financial year. So, as you can see in the first column in that green box, in Singapore, we were able to renew leases at higher rents for all the clusters.
In U.S., we achieved a 22.6% positive rental reversion. In U.K/Europe 6.2% positive rental reversion. Well, 3.8 years, portfolio expiry for this current financial year is about 18.7%. There are six ongoing development in AEI projects for S$647 million. The largest ongoing project would be the joint redevelopment of number 1 Science Park Drive.
Through our 34% stake and it is expected to be ready in 2025 and this transformative redevelopment will unlock value of the prime site and create a world-class life science and innovation campus within Singapore Science Park 1.
A quick update on COVID. So in FY 2020, just to recap. We successfully navigated the defective period with limited impact. We supported tenants with S$17.8 million in rental rebates which accounted for 1.7% of our gross revenue.
We did not have to withhold any dividends at any point in time. So, similarly in FY 2021, the impact is minimal. We continue our support with an additional S$1.8 million in rental rebates and we did not withhold any dividends as well.
So to conclude. More and more countries are planning to open up in 2022 and intend to live with this pandemic. So based on this, we believe the demand for our asset class will grow and remain healthy.
Properties in the new economy such as technology, life science, data center and logistics now represent a significant 81% of Ascendas Reit’s AUM and contributed 78% to our gross revenue in FY 2021.
So we believe 2022 will bring us a more balanced and predictability in our business. Thank you very much for your attention.
Wylyn Liu
Thank you, Kit Peng. Before we proceed with the Q&A, I would like to invite our CEO, Mr. William Tay to make some opening remarks. William please.
William Tay
Hi. Good evening to all and a happy New Year to you. Before we go to Q&A, maybe I’d just like to introduce two person, two personal change to the management team. I’ve been joined today by James. I suppose him. He was the Head for International Portfolio and he has been promoted to the Head of Portfolio Management responsible for Singapore and International Portfolio.
And also joined by Ram. He is a key member of the investment team for the past three years helping us to acquire the assets that you have, you’re familiar with. He has been promoted to the Head of Investment. So, I just like to welcome this two gentlemen into the management team. And we will take your Q&A right now. Wylyn?
Wylyn Liu
Thank you, William. For the analysts and media joining us via MS teams, please use the raise hang function and wait for me to call. For participants joining us by the online webcast please type your question in the text box at the bottom of the web page. We can take the first question now from Dale, DBS. Dale, Please unmute and ask the question.
Question-and-Answer Session
Q – Dale Lai
Hi. Thanks Wylyn. Hi, William and team Thanks for the presentation.
William Tay
Hi, Dale.
Dale Lai
Yes. Firstly, Happy New Year.
William Tay
Happy New Year.
Dale Lai
Yep. Okay. I just wanted to check with regards to this UBIX’s redevelopment. Could you remind us what is the ROI on that? As well as what is the committed occupancy like?
William Tay
Thanks Dale. When we first started, we were looking above 7%, probably about 7.3%. The COVID has caused increase in construction cost. So we ended with the final project about 10% higher costs than was budgeted. It ends up now about 6%, between 6.6% to 6.7%. In terms of occupancy, we are very pleased to report that upon TOP [ph], we have pre-commitment by about close to 20%. In fact rental has been holding up very well to pre-COVID numbers. We expect our stabilized occupancy to hit about 70%, 80% by the end of this year, which is actually faster than what we have budgeted — when we first started the project.
Dale Lai
Okay. Okay, sounds good. Thank you. Okay. The next question is with regards to the upcoming expiries for next year. Could you give us a bit more details on where the expiry is coming from? And should we be expecting this kind of single digit positive rent reversions as well?
William Tay
Where we can go through perhaps each of the country. Maybe Wylyn, can switch to Singapore first. Okay. Anyway generally, I think in Singapore there are still challenges despite that we have actually delivered a very high occupancy in 4Q — ending 4Q this year. Is probably one of our highest in many years that we have five, six, seven years that we have experienced. Primary reason is that you probably have heard me mentioned the key driver of the demand comes from biomedical, ICT and as well as engineering companies. In fact, in 4Q, we saw a huge take-up coming from Science Park. It’s mentioned in the slides that we have actually captured some higher demand from Xilin’s, from FMCG, as well as Science Park properties. You won’t be surprised to see that the 13 university will be moving their campus to Science Park. So this is probably good for them as they are into health science and information system kind of causes [ph]. So being in a technology and science campus will probably help in their positioning.
I also mentioned before in the one half that there was a biomedical company. One of the top three biomedical companies Singapore government has announced. They landed with us in one of our facility in Jurong. They in the same company, a different division and has expanded a very large expansion in Science Park. So these are helping us in terms of occupancy. But moving forward we looked at the list of the expiry. Is as usual about 20%, 25%, because of the WALE [ph] is 3.4 years. So, no surprise there. But we do expect that the trend will continue. That we will continue to see demand from Biomed Technology as well as engineering company. Logistics also were featured quite strongly. Because as 3PLs actually renew their leases between two to three years as their contract expires in each of these two or three years.
Rental reversion. We continue to believe that it will be around the low single digit. Despite this year, we delivered a 4.5% overall, but this is mainly driven by overseas. And we believe that in Singapore, currently what we experienced today, our renewal rates, our NTU rates, our new take-up rates are by and large slightly higher than what we have seen in the market. So we are happy that some of our assets when we reposition, it fits well, and now we can command the kind of rental. So AEI repositioning is important for us and we’ll continue to increase our CapEx into that space. Maybe you go down to Australia. Australia, we are in a very good position in 2022. If you look at the chart right there, majority are in Sydney. We probably have less than 15 leases due and they’re more in Sydney. In fact, when we looked at the growth of a rental is strong for the logistics. Demand is strong. We have actually two assets to be completed. One in Sydney and one in Brisbane. In fact, they have been pre-committed despite we have a rental guarantee on them.
UK — yes, U.S. Okay. U.S. is a mixed bag. But if you look at 2022, we have about close to 20% come due. That works out to be about between less than 30 leases. Majority is in San Diego as well as Raleigh. So these are actually growth cities. challenges that we do see in Portland. But in terms of the vacancy in Portland, in fact, we are talking to some new demand right now and we hope to be able to close them for Portland. And rent growth in Raleigh San Diego has been strong. Portland in terms of rental growth, I will probably see that — say that is probably still flattish right now for Portland. Next one UK/Europe. UK/Europe, you’ll see that there is about only 7.6% comps [ph] due and majority is in the Netherlands, which is a data center. UK/Europe less than five leases will be due. We are now still negotiating with the data center user for the renewal. And I think we are in good shape for that.
Dale Lai
Okay. That’s very detailed. Yes. Thanks William. Okay. That’s all from me for now. I’ll pass on to the others first. Thank you.
William Tay
Thank you.
Wylyn Liu
Thanks Dale. Next we have Vijay from RHB. Please unmute yourself.
Vijay Natarajan
Yes. Hi. Good evening William.
William Tay
Hi, Vijay.
Vijay Natarajan
Just a couple of questions. Hi. Happy New Year. Just a couple of questions. Firstly, on the acquisitions. I think last year was a quite a good year in terms of acquisitions. You made some S$2 billion worth of acquisitions. What’s your outlook for 2022 with interest rates rising and cap rate seems to have compressed and possibly, which markets still look attractive at this point of time in terms of acquisitions ahead?
William Tay
Thanks Vijay. Yes. It was a good year. We did about S$2 billion, over S$2 billion of investment. And if you look at valuation uplift, we also see that in our portfolio. So, in terms of what you mentioned, cap rate compression, we have experienced that largely in Australia, a huge amount of cap rate compression, which I also mentioned previously what we have seen in Australia in terms of ability to acquire. We probably would be quite constrained given the fast pace of the cap rate compression. But nonetheless we continue to look at investment in Australia via fund-through [ph] as well as development. The last one year we have been looking at — we have announced logistics development, as well as our fund-through in Macquarie Park. So this is a way to capture some acquisition in Australia.
For UK/Europe, we continue to focus on data center and logistics. Despite interest rate increasing, as well as some challenges in terms of landing ourselves with good portfolio, we believe there are still opportunity in the logistics sector, as well as data center given the fact that the cap rate is a very wide range, probably between 4% to 7% in the Europe region. So we need to be able to hunt well. Perhaps even looking at secondary locations, so long as there are good specs we are able to then capture those demand and those assets in those locations. U.S., we have gone into logistics. I think that is one area that still continues to be attractive for us. Given the fact that the size of the market in U.S. for logistics investment, as well as the debt is strong. We believe that we continue to be able to hunt in the right location.
It could also be a secondary location. but if you look at the asset classes or the asset specs that comes along, they are in a very good location even though it could be a Tier 2, Tier 3 location like Kansas City that we’ve acquired. The other one that continued to play out well is the tech offices. We have done the investment into San Francisco. But we continue to see opportunities in the tech office, which we were a little bit prudent I would say after the SF [ph] acquisition. And you have seen in our valuation that there’s some expansion of cap rates in the U.S. tech space. I think that actually plays out well for us to acquire into a tech office in the U.S.
Vijay Natarajan
Got it. Got it.
William Tay
Hope, I’ve given you some context Vijay?
Vijay Natarajan
Got it. Got it. Maybe if you have to rank among your markets in terms of attractiveness and opportunities at this point of time, how would you rank it? And probably can you give a ballpark pace which you might be looking at for this year maybe say, S$1 billion to S$2 billion? Is that a right figure to look at or you think you can exceed last year’s acquisitions this year?
William Tay
I will say, we have to exit last year’s S$2 billion. But S$1 billion, S$2 billion is something that we want to be able to work on, in a sense that it has to be first of all meaningful as I mentioned before. but we will not be shy from even small single acquisition and bulk up in certain locations that we find that is attractive. But we are working towards that. You’ve seen our track record in terms of our acquisition between S$1 billion or so will probably be something that we’ll be interested to at least increase over the course of one year. You ask me to rank. I don’t think I can. Given the fact that I mentioned the cap rate ranges for U.S. logistics, Europe logistics the range between four to seven, which means they are still able to hunt. We need to able to hunt correctly and acquire meaningfully and creative. So we hope to close this year with good acquisition and work towards that the S$1 billion acquisitions that you are familiar with.
Vijay Natarajan
Okay. Okay. One more just clarification. In terms of the performance fee adjustments which you have shown in the DPU. Does it relate to last year? There was no performance fees and this year you have taken S$7.4 million performance fees? Is that correct? Is my understanding correct?
William Tay
So, last year, I mean, quite naturally the DPU went down. There was no performance fee. What we have done is to adjust, backed the rental rebate, given the fact that rental rebate was mandated by the government, which actually caused a lower base as a DPU in 2020. So, we have taken that rental bid — it’s almost like putting back the rental bid as though there was no rebate. And then, we actually factored that as our share of the performance fee to be with.
Vijay Natarajan
Got it. Got it. Okay. Thank you. That’s all I have.
William Tay
Thank you, Vijay.
Wylyn Liu
Thanks Vijay. Next we have Kanchan from Goldman. Kanchan, please go ahead.
Kanchan Sundrani
Hi, William and team. Happy Chinese New Year.
William Tay
Thank you. Happy New Year.
Kanchan Sundrani
I have three questions. I’ll ask them one by one. First is, your thoughts on divestment. More divestments given cap rate compression?
William Tay
At this point in time the assets that we have right now, I will say, they are healthy. While there’s cap rate compression. We believe that holding on to some of these assets especially in Australia, but we have done some divestment last year. But the rest of the assets are in the well good location. Tenancy is strong. We believe that holding on will give us better leverage in terms of our returns. In regards to U.S., UK/Europe, the acquisitions was done recently. So we will go through our usual wholesale to determine whether there is a need for us to right-size some of this portfolio or rather some assets within the portfolio that we’ve acquired and that could be something that we will do. But it won’t be a big divestment exercise you would expect.
And in Singapore as you have heard me mention before. We are sitting on very good locations in terms of assets. COVID hasn’t helped by — help us because of a higher construction cost, if not, we would have pushed up more redevelopment opportunities and a lot more of this potential of this assets. So divestment may not feature strongly in Singapore as well. In fact because of a large base we are able to attract some of this new demand. As I mentioned some of these new demands are actually new to AREIT, new to Singapore, which is able to help us in terms of lifting our occupancy. As well as, I may say that some of these in terms of our location they are In very good locations. For example, I think there could be a question about data center moratorium. Some of these actually are sitting on very good hot spot data center location. We hope to be able to capture some of these demand or rather some of these licenses that the government have give up.
Kanchan Sundrani
Thanks. And my second question is on any pressure on MPI margin given cost inflation?
William Tay
Yes, there will be. In fact, we also experience some increase in terms of our OpEx cost, given the fact that there is huge, high electricity cost that comes along since last year. We have already done all our renewal. But you’re probably very familiar with the way the retailers have actually gone about the renewal. There wasn’t any fixed rate or discount of tariff that we are able to renew. Most of them are actually now on fewer base. But given the fact that it’s a higher cost because of fuel [ph] costs, we do expect electricity costs to go up perhaps between 50% to 70% of our base in 2021 average. But electricity is only about 20% of OpEx. We will find ways to contain this by other savings in the OpEx., But if we are still monitoring this, but if we really can’t then we will have to increase service charge along the way. And that will actually cater to a lot more, I mean, cater to other cost increase not just from electricity, but from other maintenance services that we re-contract in the year. And we do expect some of this to go up given the fact that there is a higher labor cost requirement, as well as material costs, supply chain disruption. So, we do see that there will be some cost impact in terms of OpEx, but we will find ways to make sure that we are able to contain this. Okay, Kanchan.
Kanchan Sundrani
Got it. Yes. Thanks. And then, just one last question on DPU. If you look at the DPU bid before after performance fee, it still seems quite a bit below 2018 and 2019 level of $0.16. But since then, I think cost of debt has come down. Portfolio metrics were broadly positive and there have been several rounds of acquisitions. So, can you help to explain what’s the main factor driving this? And when should we see it going back to that level again?
William Tay
Okay. Kanchan, thanks for that question and give us a chance to clarify you. If you remember some of these DPU numbers in the past, almost every year in the last few years pre-COVID there was one-off adjustment. There was there was inside the DPU. So that was how if the entire number was popped up to about close to $0.16. But the entire BAU business is probably hovering between about $0.15. So that is that is the key explanation. Hope you capture that Kanchan?
Kanchan Sundrani
Can you help us. Why is driving that? What was driving the one-off adjustment?
William Tay
Maybe Lee Sze will explain that.
Lee Sze
Yes. So one of the top text and also one of a row over adjustments. So the standard pictures that was one-off not deductible [Indiscernible] and so actually added back by a row over adjustments, so that contributed to the higher DPU in those years.
Kanchan Sundrani
Okay. Okay. Got it. Thank you. That’s all from me.
William Tay
Thanks Kanchan.
Wylyn Liu
Thanks Kanchan. Next we have Joy from HSBC. Joy, please go ahead.
Joy Wang
Thank you, Wylyn. Happy New Year everyone. Two questions from me. First just on sort of the portfolios that you have acquired over the years in terms of your Aussie log, UK log in U.S. business parks. If you look back in terms of performance, was this in line with what you projected at the time of acquisition? And if you can just share some color in terms of performance versus initial projection, that’ll be very helpful?
William Tay
Thanks, Joy. We do 12 months, as well as 24 months after action review of the investment. By and large, all the acquisitions are aligned, in line with our budgeted or rather FX [ph] assumptions. The key driver behind the performance, I mean, for example U.S. is varied. There’s rent growth that we have seen in Raleigh, offset by some occupancy challenges in Portland. But by and large as a portfolio they are in line with budgeted assumptions during our acquisition. Even so, for data center, we are about a year after our acquisition. We are going to miss probably the last month of our transition from our operator to our own operation and we are ready. During these past six months we have continued to be involved in the operation. We have renewed, for example, the property contract, as well as electricity costs contracts and they are all in line with our assumptions. Kansas City that we have done recently, we have acquired some vacancy. I would say, it surprised us that we were able to list out the vacancy within a month of our acquisition. So we are very pleased with the acquisition.
Joy Wang
Sure. And maybe just follow up on what you mentioned. And we’ve seen portfolio occupancy up and downs within different assets. Were these sort of get period longer than what we normally see in sort of local assets? And do you need to give a bit more incentives versus what we see in Singapore?
William Tay
You’re looking at overseas in terms of incentives?
Joy Wang
Overseas, yes. In terms of incentives, was this also sort of in line. And I guess partly to Kanchan’s questions as well. Because I think we’re trying to compare the accretion that we were looking for when you first acquired. And I guess, COVID has it affected. But on a normalized basis, was this also because of occupancy fluctuations and the down times that maybe we didn’t incorporate?
William Tay
Okay. If you were to look at from the angle, yes, there will be assets that fluctuate given it’s a huge, for example, U.S. business park. The number of properties that we have, definitely, there will be assets that do better as well as some assets that will have some challenges. And COVID doesn’t help in terms of getting people back to office. In U.S., back to work, back to office is probably about 20% to 40% right now. The past one two years is only about 10%. So viewing has been challenging. But by and large is not different from what we have guided. If you look at our rental reversion for overseas assets, they continue to deliver double digit as what we have mentioned that, for example, U.S. portfolio was under rented. And within the portfolio there are leases that has fixed escalation whether CPI or per annum basis. So these are some of the differing performance of the assets, which is why you see some of the certain quarters you will see that the occupancy may be down. But in the midst of back fielding some of these vacancies or whether new vacancies or non-renewal, we are not experienced since it longer.
For example, in UK, just now keeping as mentioned, there was a non-renewal, but we have already found a tenor for the logistics space and we are in the midst of doing AEI. So., in the market of such size they are still demand and the typical incentive hasn’t really gone up substantially. Rental could be flattish. But since our properties are under rented, we are still able to capture the rental reversion. And when we are able to list out with a new demand is of a better rental than the previous leases that we follow.
Joy Wang
Okay. Got it. Thanks for all the colors. And just moving on to my second questions. We’ve seen quite good demand in Singapore, Science, especially around Science Park. Could we expect more sort of built to suit or convert to suit opportunities? And sort of the returns that we can look at around that for those opportunities? And also in Singapore, I think, Changi BP, we’ve seen a little bit of weakness just in the recent quarter. Maybe if you can just share some colors? Thank you.
William Tay
Okay. Demand in Singapore is fairly healthy right now. As we speak right now, we are working on a few deals whether is it convert to suit or BTS. Though BTS is new, we hope to be able to close them at least this year. This all comes from new demand into Singapore whether is it biomedical, chemical companies or even in it space. Convert-to-suit, we continue to work on them. We have seen a few RFPs that come out there. They are looking at some of these opportunities in the business park area. We are responding to them. Hopefully, we get some of this demand into our space. You probably have also followed that this new demand not just into the business park space. In the last one year we have captured two very big demand into our vacant buildings one in Woodlands and one in Jurong. And actually this helps to lift our occupancy higher.
We continue to be able to offer this because of the large size portfolio that we have. And we are prepared to work hand-in-hand with all these new customers that we come into contact with in terms of customizing the solution for them. Your question about CBP, CBP occupancy is still healthy. We have been looking at some of the AEI as you have seen in Hansapoint and some of smaller building to make sure that the building remains attractive as we look at some of the renewals in those buildings.
Joy Wang
Okay. Thank you. That’s all from me.
William Tay
Thanks Joy.
Wylyn Liu
Thanks Joy. Let me take a few questions from the online webcast first. There’s a question on what is the company’s direction on data centers? What is the plan for renewable energy in all these buildings? And is the company considering listing the data centers?
William Tay
Okay. Data center feature quite strongly last year because of acquisition in Europe. In Singapore we are probably the largest provider in terms of data center GFA. And in fact when we know about the moratorium. Even prior to a moratorium, we had drawing plans ready to convert some of these assets into data center. But now that the moratorium has been lifted. We want to be able to capture some of this new demand for the new licenses that the government will give up. The government has mentioned that this is not – one-off it’s a pilot phase, so we hope to be able to capture this. If it’s not this year at least in the next few years to come. And they are sitting on very good location. I mean, the — we have two data center in near Tai Sing leads to our Singtel. And we still have a light industrial asset in the Tai Sing area, which essentially is a CBD of the data center. Not far from there we have assets in Serangoon. We have assets in Tampines.
These are all light industrial, which you have heard me mention just like UBIX, the opportunity comes when we can reposition a light industrial to a higher specs building, whether it’s at high specs industrial or data center. So, these are assets that we have and we hope to be able to work with and as well as attract some of these new license that the government give up to land them in our portfolio. So we want to be able to grow portfolio here in Singapore. And responding to overseas in terms of data center. While we like data centers in Australia, in U.S., we find that we want to be able to focus and grow meaningfully. So we have decided to venture into the Europe market. For example, London market, UK market, this is the second largest in the world after Virginia, sizable demand for data center. Even in other Europe countries, for example, Netherlands have listed moratorium, so we continue to see supply going up. And the locations that we have obtained in our last acquisition, they are near city centers, which means that they can be converted over time. When new leases do come expired we will look at redevelopment into each data center. Because latency is important for this data centers.
And we want to be able to continue to grow there. Perhaps I also like to share most recently because we have operation on the ground right now. We’ve been invited to participate in RFP for CIA [ph] leaseback, because we have a data center operator experience right now. So we want to be able to leverage on this operation expertise as well as ability to scale up in the locations that we have selected meaningfully and we want to grow those data center portfolio that we have. In regards to listing of data center, it’s not on our plans right now. I think it’s still a small proportion of entire AUM. But we recognize that some investors have asked us that sizeable AUM to be listed. But we believe that the ascenders Ascendas Reit offers a very resilient portfolio, a multi-asset cutting across from business park, life science and data center, as well as logistics, which now accounts about 80% of our AUM. And we have seen this resilience in the last few years in the provide tenant base has been very strong technology, life science, logistics 3PLs, as well as government sectors will give us very resilient revenue income stream.
In regards to renewable energy, we continue to monitor in terms of the reward, as well as the investment into renewable energy. We have done that via some of these assets that we have. Right now, we have seven assets that is generating green energy for us. We are probably the largest solar farm on the rooftop in Singapore. And we continue to explore to deliver more of this rooftop solar energy for our green buildings so we also have put in place greening our own buildings. So we have done that with one building in 2020. So we have one that’s going to be online in 2021. Once we finalize all the RECs that we have and we are able to convert that into a green consumption building, there will be a second building. And in time to come, we have in 2022, the third building to be able to tap on the green energy. Perhaps, its good to let Royston, Royston know that the green energy in the data center that we have in Europe, the energy that we have procured are all green energy.
Joy Wang
Thanks.
Wylyn Liu
We’ll take one more question on the online platform. This is somewhat related, so I think we take this. Are there any plans to completely divest off the light industrial buildings in Singapore given that these are older in general and do not have much upside? I think the second question on the cleaning of properties of course [Indiscernible]?
William Tay
Yes. So light industrial, while the term like industrial seems to be more old economy or less attractive given that it may not be fit nicely into the newer economy or knowledge economy. But the locations that they are in are very good. Just I mentioned a few of them whether is it in the Tai Sing area, in Serangoon, in Tampines, it offers opportunity for us to capture some of this convert-to-suit. If it’s not a data center, it could be a high spec building and we want to be able to convert some of this light industrial. As you have pointed out perhaps older in nature. But if we can, we can want to redevelop them and then we can capture the higher rental. So for example UBIX’s, it was too light industrial. Rental rates between S$1 dollar to 150 per square feet. We tore it down, amalgamate the site, put in a new price specs building, larger floor plate and rental we are capturing is above S$3 right now. So these are ways that we want to reposition the assets instead of divesting this older assets.
Wylyn Liu
Next, would you have any guardians with regards to gearing and CapEx for 2020 — 2022, sorry?
William Tay
Gearing is frankly is healthy right now. Depending on acquisitions we are able to of course tap on gearing to the scale of almost close to S$4.85 billion. We would have stretch it to 50%, but we have to be mindful and prudent, as well as the interest rate is rising. So in terms of CapEx typically, in terms of AEI, we spend about S$100 million, S$200 million a year in terms of AEI. And the another area of CapEx that we are prepared to deploy is for built-to-suit. For example you have seen us deploying CapEx into built-in suit for Grab, which has turned out very well for us. Despite COVID higher costs of construction, the MPI is still — the MPIU is still very strong at 6% prior to that with a low construction maybe about 6.1%, 6.2%. So built-to-suit, it’s one opportunity for us to capture some of this new demand. And we are working with customers of prospects. They are familiar with our ability to deliver, as well as knowing very well the higher cost of construction and they have to capture that within their feasibility to look at whether they can invest into Singapore. So this is a real demand. Hopefully, we can capture some of this via some of this BTS.
Wylyn Liu
Moving back to [Indiscernible]. Brandon, Brandon from Citi. Please go ahead.
Brandon Lee
Yes. Hi. William, can you hear me?
William Tay
Yes, Brandon.
Brandon Lee
Hi. Happy New Year. Just three questions. I’ll just start off by one by one. Just back to the business, the Science Park comment, right? Can we say that the occupancy improvement for your Science Park properties is sustainable or is it a one-off? And also how much will it impact any potential redevelopment plans in the next year or so?
William Tay
Okay. For the Science Park, perhaps one outlier in terms of demand, Brandon, in terms of demand, whereas one outlier is as mentioned, Curtin University. They are educational. But the rest of the demand that comes into our Science Park, for example, we have two chemical companies that went into new clause. I mentioned one of the, the biomedical company that took out manufacturing facility with us have expanded into Science Park in a big way. We also have seen here in the numbers, the new Galaxis has increased occupancy, though Shopee has expanded. We are happy to be able to capture their new demand. So this segment, if you look at the past few quarters biomedical, IT technology has been driving all the new demand. And R&D, I would say, R&D sector, is probably one of my top performing in terms of rental reversion.
So biomedical, IT technology companies continue to feature strongly. As we have come to terms with COVID, whether you are or not, I think you continue to drive the demand whether is it COVID or the new way of life into digitization, e-commerce and many other platform. And we believe that this will continue to grow as a source of demand for our spending. In relation to impact, I suppose you’re asking in relation that if it’s strong — just to make clarify. If it’s a strong occupancy, we hold back redevelopment of Science Park. Is that what you’re asking?
Brandon Lee
Yes. That’s right. That’s right. I mean, we have sitting with built-to-suit, right? Then obviously, I don’t think anyone really expected to jump in your buildings like Acer, Capricorn, Aries and buildings like that. So, I mean, they are relatively older compared to some of your other Science Park properties. so I just wondering?
William Tay
Yes. So the Science Park properties. Okay, I look at Science Park first. Given the fact that we are not developing to suit into a new campus, there’ll be substantial space to few when it’s completed. So fair to say that unless there is a demand that comes that require us to tear down and be non-speculative in nature to redevelop any building in Science Park then we will do it. If not, we are just competing a building that’s next to the MRT station, a building that’s further away. So it may not make sense for us to take any speculative redevelopment in the Science Park location. But in regards to other locations that you have mentioned, in IBP, yes, we started with iQuest. First, we did the AEI for Nordic, occupancy has gone back up strong in about 75% to 80%. We are able to find a tenant, a government agency to take up techquest, the entire building and then we follow on to do the iQuest development. We have pushed back iQuest development by a year, because now we have completed a tender. We are doing the value engineering to make sure that we are able to contain some of these costs and see how we can work around in terms of efficiency to capture higher demand and better returns.
Follow on that, yes, you are right. Then, we will look that we looked at the opportunities for Acer as well as Creative [ph]. So it has to be time and make sure that we don’t cannibalize ourselves in terms of the timing of the development. Hope that makes sense for you, Brandon.
Brandon Lee
Yes. That’s very good. Hey, thanks a lot. Just one last one. I think you mentioned about the DC conversion for some of your existing sync properties, right? I think given what the pilot phase encompasses in terms of the limit on megawatts and how many projects the government is willing to give? And we have seen a lot of your peers wanting to go in as well. How competitive do you think A-REIT is compared to your other competitors?
William Tay
Yes. Okay. I would say that we are not at least — not disadvantaged. At least we internally have a group that manages or operate data center. As you have looked at our Europe acquisition, we are able to work with a sponsor for them to deploy manpower and hire new people to make sure that we as a group, A-REIT together a sponsor can manage this data center. So in Singapore, I’m sure there will be properties and many landlords who want to be able to offer their facility for all these new licenses that the government will give. But and all day, yes, there will be a lot of opportunities, but the location will probably speak for itself. Where we have locations like Tai Sing as well as in Serangoon, which is a very good location. And these are the key CBD of data center.
So, there will be opportunity. As mentioned if it’s not this year at least the next few years as the government looks at how to improve both, for example, the PUE, the efficiency and they have given a very nice 10 to 30 megawatt, which is suitable for some of these sites that we have. If it’s too large obviously, if you’re targeting a hyperscaler perhaps we may be too small in terms of our site, as a site area, but given the context and the criteria, some of our sites are very suitable. So it will be a hotly competitive market, Brandon.
Brandon Lee
Okay. Thanks so much. All the best. Thank you.
William Tay
Thank you, Brandon.
Wylyn Liu
Thanks. Brandon. Next we have Derrick, DPS. Derek, please go ahead.
Derek Tan
Hi. Good evening, William and team. Derek here. So Happy New Year.
William Tay
Hi, Derek.
Derek Tan
Yes. I’ve got a few questions. So, firstly on Singapore. I think we note that, there’s a fair amount of supply also entering the market. I’m just wondering whether based on your discussions, tenants more willing to let’s say, stay at the current premises? And you’ll probably be more shielded than what the supply that’s incoming. Just your thoughts on that?
William Tay
We still have a mixed bag of requests, whether you have downsized stay, they want to move out. But numbers speak for itself. Our retention ratio is very high. In Singapore, 75%. Overall, depending on building ranges between 60% to 90% retention. So, perhaps you have your spot on. More likely to stay. They may looked at downsizing. but overall, I think the right sector will give us the rental that we require.
Derek Tan
I see.
William Tay
As I mentioned, our rental reversion, my rental reversion, key industries that actually do very well, R&D. Of course, the government sector gave us a huge rental reversion. And the other one is logistics. I think logistics supply is out there. But with a good location, right specs, we are able to continue to renew at a higher rental.
Derek Tan
Okay. Sounds good. And I’m just wondering whether the — when you did the redevelopment of Science Park Drive, right? And you’re talking about capturing life science kind of demand. I’m just curious whether are you also capturing the same kind of demand in your other properties across Science Park?
William Tay
They are likely those properties that we have are likely demand that we can capture right now, right? Science park, 1 Science Park Drive is going to be ready in 2025. We are talking to some demand right now. Hoping that they will pre-commit to a space take up in a few years time. So, it’s different timing. But we believe that the growth of biomedical, life science, as well as technology innovation will continue to drive the demand for business park. And the site is next to MRT, near one-north new [ph] university, it’s a very good location. With a new campus environment, of course, with the new features and all this. Naturally when it comes online, chances are, it will be attractive, but attractive property also don’t can tripler, right? Look to MRT with the free command the better renter compared to the rest. So the price point may fit to diff — may fit well with different criterias of the companies. And we hope to be able to capture some of these in existing property, which is why you have seen that our BS — our Business and Science Park properties has shot up from last quarter about 81% to about 87%.
Derek Tan
Okay. That’s really a good performance. Okay. Just follow on. I just want to look at U.S. Have you captured all your under-rented kind of leases really. So going forward are we looking at a more normalized kind of reversion?
William Tay
I would say, the number of leases that comes due are not substantial. We have some that comes every year about 10% to 20%. We are going go to U.S. slide. U.S. leases, yes. So, you see about 10%, 20% lease that comes expiry for each year. Retention there is probably holding about 60%, 70%, which means that those leases will continue to give us the higher rental reversion. Some cities, for example, I mentioned, Portland has been flattish. There could be some rental declined in some properties, but it’s fairly flattish. Raleigh, continue to have rent growth, a very resilient city. San Diego, we are experiencing rent growth right now. So there could be a stop in terms of rental growth in the past one, two years. But we are able to still continue to capture the high rental reversion. As the market moves and opens up, I believe the rent growth will start to come back in. More people will come back to office and work. Then the under rental situation will probably be continued for a while until we have existing leases every year 20%, all the existing leases that has been renewed in the next 4.4 years that you see on the screen.
Derek Tan
Okay. Sounds good. Sorry, last one from me. I’m just wondering as you look for your next billion dollar of acquisition, can we assume that you are looking to deepen your current exposure, while not looking at new markets like Japan or let’s say, Korea? These are not featuring at this point in time, right?
William Tay
Yes. We will continue to look at our existing market. As I mentioned, U.S., Europe, they are big markets. We have enough opportunity to scale up. So we want to be able to scale up and be meaningful instead of opening up another new market whether it’s Japan or any other mature market. So we continue to like the — as we have mentioned before, Australia, UK, U.S., these are markets that we’re familiar. Clear rule of law. We are able to operate in those market transparent and as well as operation. It’s easy for us to make sure that we have boots on the ground. Even the past one two years when there’s COVID, we can’t travel, but the boots on the ground are able to make sure that we are able to acquire meaningfully as we do all the due diligence, talking to consultants and making sure that we are able to perform in terms of acquisition, as well as asset management. So, we are comfortable with the markets that we are in and not to open up another new market.
Derek Tan
Okay. Okay. And that sounds really good.
William Tay
So hope that gives you some comfort.
Derek Tan
Yes. Thank you. Thank you. All right.
Wylyn Liu
Thanks Derek. Next we have David Lum from Daiwa. David, Please go ahead.
David Lum
Hi. Good evening.
William Tay
Hi, David.
David Lum
And Happy New Year. Hey, William. Just one question from me. The one takeaway I have from your results. Is that it seems like your occupancy rate has been — is really gaining traction. If I’m not mistaken, it’s probably one of the strongest quarters that appears that I’ve seen. So that’s a positive trend. Whether it’s sustainable or not that’s anyone’s guess. But I also recall over the last like five years, you’ve had periods where your occupancy rates haven’t gone anywhere yet you’re still reporting positive rental reversions. So, is it possible that if the occupancy rate is sustainable and you’re gaining traction, could you surprise on the upside with your rental reversions for this year? Because you’re guiding very conservatively. I think you mentioned, low single digits. So, is it possible that with all the demand that you’re mentioning that that we could have actually have a very strong reversion for this year?
William Tay
Thanks, David. Thanks for the confidence.
David Lum
I didn’t express any confidence. I’m just putting it out, yes. Okay.
William Tay
Yes. In terms of rental reversion, as I mentioned, even you look at the statistics, we have market rates. You can compare to JDC. In terms of occupancy, overall as the market JDC is in Singapore, the occupancy is over about 89%, 90% depending on each asset clusters. We are able to now — in fact most of our clusters has outperformed the JDC’s occupancy. And not forgetting that market rates. If you look at our market rates, we are closing them higher than what, for example, some of the major consultants have showed. Which means that, if you’re looking at a huge upside in terms of rental reversion and new take-up rates you’ll be probably quite a stretch. I think we want to be able to continue at this performance at this pace and this is meaningful for us to make sure that overall as AREIT has the right resilient industries that we are capturing. Rental rates are strong. Occupancy is strong, as well as able to continue to look at AEI to make sure that we continue to be able to get a retention. So there are a few factors here. So not necessary if you push rental reversion to too high, obviously, in these times we may then lose some of this demand, which then also impacts the overall performance.
David Lum
Okay. Thanks for that.
Wylyn Liu
Thanks David. Next we have Mervin from JPMorgan. Mervin, please go ahead.
Mervin Song
Good evening, guys. Happy New Year.
William Tay
Hi, Mervin.
Mervin Song
Just and congrats on the occupancy performance. My first question in regards to the logistics strategy. Obviously, the cap rates for stabilized properties around the world is quite low. Just writing your thoughts. Are you looking to do more greenfield developments for purchase agreements? Or looking more secondary locations? So that’s my first question. Second question, maybe a more big picture. I think probably relates to some of the questions that people have been asking during the spin of the data center portfolio. How should we think about capital structure given cost of equity is quite high. Are you willing to push it further in terms of asset allocation? Last year despite the DPU accretive transactions the market hasn’t really responded positively partially due to interest rate fears. But just running your thoughts in terms of maybe reflections over the Christmas period, how you want to position the AREIT going forward? Thanks.
William Tay
I’m not quite sure that I hear your second question. Maybe I respond to your first question first. In terms of logistics, yes, you’ve seen the cap rate compression very much so in Australia. But in terms of cap rates has still been the 4% to 7% whether is it in Europe or in U.S. So would we do more? Yes, we will look at the secondary location I mentioned. We do development. If there are assets that comes along with part income, part development, perhaps we can look at it given the fact that in these two market we already have operators on the ground, asset managers who are able to run some of this development in AEI. And as I mentioned, when we acquire the portfolio we definitely got to look at reposition some of these assets over time putting in CapEx or looking at the certain assets performance as we in the next one two three years whether it meets to our expectation before we look at divestment. So, we are prepared to do some development, but it may not be a big way that you see us doing in Singapore, where we can take on 100, 200, 300 million of development. If we need to, it could be multiple projects at a one goal in Singapore. So it will still be very much acquisition driven for overseas logistics.
Mervin Song
Yes. My second question is maybe I wasn’t clear. Just the cost of capital is very high, which I don’t think is quite right. But I’m just thinking, asking a lot whether you have any thoughts in terms of how you can drive a bit lower from here, because despite the accretive transactions last year, the market hasn’t responded positively. So I’m wondering whether you had any considerations of the change in asset allocation in logistics business parks, office or suburban office, data centers? I know it’s a very difficult question. And I — I’m a keyboard warrior, so I know all the answers. But you probably more experience than I am on this front?
William Tay
Yes. I mean, end of the day they are still accretive acquisition. And the past two years you have seen us deploying into technology. I call it tech and lock, tech buildings, data center, whether is in this park here in Singapore, Galaxis, logistics. These are the two key industries that we see. The asset classes that supports the driver in each of this economy. And it’s not just about the immediate returns. We know that as a large REIT as we acquire. In terms of acquisition it may not be huge and that most will look at, but at least, it’s at least moving in the right direction. Whether is it zero point something percent at least in the right direction. And what we hope to capture is over time as we can unlock some of this grant growth in that portfolio. We start to see later years the DPU and as well as the income increasing. So it’s a necessary time to deploy to make sure that over time the REIT is more resilient. As we have seen now, we have a nice mix of multi assets cutting across from business space, data center, logistics as well as industrial. And each of the market, for example, in UK/Europe, it’s quite focused data center and logistics. In U.S. is Business park as well as logistics.
These are the new areas that we’ve gone into. And these are big markets and we hope to be able to deploy that more capital into these two markets. And over time, the REIT can also become, have a better balance in terms of overseas exposure. Singapore is now about 61%. Not forgetting that Singapore is a leasehold country. So, we need to be able to over time built in ability to recycle or redevelop this property before they become too short at least. But overseas freehold properties, rental escalation invaded, we hope to be able to increase our overseas exposure. May not be a direct answer, a different angle, so hopefully you are comfortable that in terms of the growth we continue to like the growth industry, which is technology and life science as well as logistics.
Mervin Song
Now, I think the shift overseas for freeholds has been very important and necessary to be done. I think there was some criticism. You first moved to Australia for logistics?
William Tay
Yes.
Mervin Song
With benefit of hindsight has been a fabulous decision. Would be that rents and capital growth. So musket menu on the team on that. And I think also many people should get menu in terms of the waiver of the pass away for the performance fees. I think that’s what investors has been asking for as well. So I must continue and congratulate you in terms of responding to investors request, demands. All right, anyway. All the best for this year. Looks like a stronger year with higher occupancies and your rental rate versions. Hopefully you can beat or achieve David’s expectations.
William Tay
Thank you, Mervin.
Wylyn Liu
Thanks Mervin. Move on to questions online. How much are the rentals are in arrears in Singapore and other countries?
William Tay
Rental arrears is not high. In fact, our rental collection is very strong across all markets. In the past maybe you set over around 90%, but as of last year all our markets are doing very well. The lowest is probably Singapore at 94%. Overseas is 97$, 99%, 100% kind of our range. Unfortunately for Singapore as you have seen there are numbers for COVID about 1.7 million, 1.8 million of rental rebates. Part of it as I mentioned less than a million is because of the half a month that the government has requested the landlords to give up to FMB industries. Probably about 300,000 to 400,0000 was out of pocket for us to help our tenants. The other beat that came out was some of the leases that were restructured due to realignment framework. Some of the tenants who are not able to meet the restructured installment they have to fall, which means that we have to write-off some of this above 600,000. So this is small impact. But in terms of helping our tenants is probably one our key driver behind some of these adhoc repeats.
Wylyn Liu
Next, I there are two questions from Nicolas [ph]. So the first one is can you remind us if there were instances in the past where you waived your performance fee and took a lower portion in the past?
William Tay
No, Nicolas.
Wylyn Liu
The next question is, how much of the $86.5 million tax expense for 2021 is cash expense that impacts DPU?
Lee Sze
I think there are 30% of the number.
Wylyn Liu
Okay. Next, I’ll move on to another question on utilities. What’s the utilities spill for AV in FY 2021 using FY 2020 as a reference, utilities spill was about $52 million or about 10% of distributable income. Does that mean that we could see the increase in utility spill of 5% to 7% of distributable income for FY 2022 as a result of the higher energy cost? And how much of your utilities still can be passed through and how quickly?
William Tay
Percentage wide [Indiscernible]. Okay. Utilities has a few components. This is and if you’re looking at the entire REIT, it’s probably between Singapore and overseas. Let’s confirm that. If it’s overseas, utilities are usually passed through. In Singapore, is landlord bear the utility cost and the recovery is of course via service charge for all the common space and the other cost of maintaining the property. So just on electricity, utilities is probably about 20% OpEx. We have not come to the end of 2022 to know exactly the impact of that. I mentioned, its 50% to 70%. This is a projection from the very low utility cost that we have experienced in the last one year. We have actually hatched all our utilities right up to June this year. So whenever there’s ability, a window that we can hatch continue to be able to hatch for the rest of the year. So we have actually factored in about 50% 70% increase given the fact that we have not fully hatched all the utilities in the year. But as mentioned, we continue to see that the utility has not shot up the way it has gone up last year. So we believe that we still be able to contain them. But we are monitoring this to see how we can then recover some of these via service charges. If you’re looking at how quick. Yes, our leases do allow us to adjust our service charge. But it will impact in terms of tenants overall cost structure. But giving enough time to tenant perhaps a few months ahead to plan for that at least in terms of the advanced notice we should be able to then increase service charge if we need to.
Wylyn Liu
Okay. Next question, inflation rates have been relatively high globally. How much of this do you think can push through to tenants in the form of higher rents?
William Tay
Yes. There’s a core relation, but it’s not direct correlation in terms of inflation. Over time, the rental rate should be able to reflect the CPI, the inflation rate. Oversee, some of the leases are directly packed linked to CPI, which means that there’s inflation, of course, we can actually capture them. But open market at Singapore, I think end of day other factors supply, demand, location, attributes, all these come into play. But with inflation, we do see that there is opportunity that eventually rental rates and most costs would actually be higher. So, in terms of rental, we are today are able to capture much slightly above market for most of our asset classes. And with that, we are actually above market right now. And adding on inflation, it has to be a market-driven rental base.
Wylyn Liu
Right. Another question on investment. So, in the longer term, five to ten years, will investors be expecting AV to continually prioritize opportunities overseas instead of in Singapore?
William Tay
In terms of priority, I would say that overseas market do us — do give us better opportunity. Right now, you have seen us occurring more overseas in the past one, two years. But given the size of the REIT, even it will deploy in the same proportion to overseas more in overseas than Singapore, you will still see that Singapore is still a big base. Today Singapore is about 61%. It will take a lot of overseas investment to bring Singapore 61% down to what 40%. Today we are 40% overseas. So you’re to swing it the other way, you’ll be a lot of investment overseas. So even as a REIT as we deploy more overseas we can see that Singapore probably from 61% moving down to the 50%, handle 50% range, it will still be a very much Singapore based, Singapore focus REIT. And not forgetting, there are still opportunities here in Singapore. For example, our Science Park Drive development, the sponsors they have assets that we are keen to acquire. So Singapore, will still feature quite strongly in our portfolio.
William Tay
Thank you. So I think that’s all the questions we can take today. Before we close, William would you like to just have some close.
William Tay
Okay. Maybe a short one, since we have covered most our points. As I mentioned, this is quite a good result given that occupancy has hit the ninth in Singapore, which we’ve been hoping to achieve for a while. And we’ll be hoping about 88 — 87, 88 for many years. This is a good achievement for us. The positioning that we have in terms of our portfolio has been our key driver. We want to make sure that we are able to put in the right enhancement, redevelop the properties. And for Singapore, we want to be able to do it before the leases runs out. We continue to like the business [ph] park in Singapore. And you know that this sponsor still has a few assets that we are keen to acquire. These are very good quality assets as we start off our 1 Science Park redevelopment. I think we were in a very good shape to capture new demand.
And this is the strength of the REIT, which is why we are able to capture some of this very new demand that come into Singapore. Rental reversion, we’ve been guiding low single digit, but in terms of our performance this year about 4.5% as we have — as you have seen driven very much overseas because of double digit under rented in some of our portfolios, some of the assets. Singapore, we continue to be able to drive rental reversion and now coupled with a high occupancy. So this is all good for us and we hope to be able to keep up this performance over time. You may see some fluctuation within quarters, but this is just transitions to make sure that assets can be turned around, space can be turned around if we need to backfill some of this demand.
We continue to like the biomedical technology sector, which has given us very resilient income, as well as data center. And for the next this year this will probably be still be the acquisition targets, the tech and lock that we are very familiar with. And we want to be able to continue to deliver the acquisition in this sector. Thanks, Wylyn.
Wylyn Liu
Thank you, William. I would like to thank everyone for joining us today. Please take care and goodbye. Thank you.
William Tay
Thank you. Bye.