“If we can identify the drivers that support the economy, we can invest in the assets that support the drivers of that country’s economy. Within mature economies, we have focused on tech and logistics. We were in the New Economy from day one of the IPO. We want to be adaptable to the changing environment, which is now digitalisation, e-commerce, supply chain disruption,” says Tay. “When we go overseas, we’ve got to build a team on the ground.” CLAR’s sponsor and largest unitholder is CapitaLand Investment.
He believes the megatrend of digitalisation is likely to continue. US assets have proven challenging and troubling for S-REITs, as evidenced by the recapitalisations of Manulife US REIT and Keppel Pacific Oak US REIT, and by Prime US REIT’s distribution per unit (DPU) cut.
Irrespective of property cycles, innovation is the cornerstone of the US economy, adds Tay. Innovation has always been a key pillar of the US economy, no matter where the cycle is, he adds. What are the assets that support innovation? Tech buildings near universities, where the talent pool is; assets close to venture capital ecosystems, Silicon Valley; life sciences facilities near, for example, Boston.
The US economy is focusing on AI, data centres, and big corporations in the autonomous vehicle space, all of which are connected to innovation. “If you are in that space, you may go through a property cycle, but that is the asset class that makes sense for the US,” says Tay.
In terms of sectors, as of Sept 30, 36% of the portfolio is exposed to business space, including Science Park and One-North; 26% to logistics; 9% to data centres; 9% to life sciences; and 20% to industrial buildings.
CLAR holds firm in its US portfolio
Tay addresses questions on issues such as asset enhancement initiatives (AEI), capex and short-term land leases head-on. The CapitaLand Group introduced the concept of AEIs in the early 2000s to keep assets current, well-maintained and relevant to future users and uses, providing portfolio stability during Covid-19 including in the US.
In 2019, CLAR acquired a US business park portfolio for $1.28 billion. The rationale at the time was diversification, and the acquisition was accretive to DPU. Although the US-based S-REITs had indicated that tenant incentives existed, they were not well-flagged in meetings with media and investors. During the interest rate upcycle, these US-based S-REITs had to either restructure and recapitalise and/or halt DPU altogether, or cut DPU drastically.
CLAR did not do any of these things. Why? Whether it is rent-free periods or other tenant incentives, these reflect market sentiment and where the property cycle is at, Tay says.
“In asset management, we have constantly improved our facilities. In the last few quarters, we have announced AEIs for our US properties. This signals to our customers and prospects (future customers) that we still have a strong balance sheet to invest in these properties, whether it’s a fresh coat of paint, improved lobbies, or updated toilets. We’ve added gyms and cafeterias. In one property, we created an outdoor barbecue area.”
The market constantly faces challenges, including the interest rate upcycle, but thanks to the enhancements, “customers see that we are improving our facilities, which is why we can get our renewals,” Tay continues. He readily admits to losing tenants, with occupancies drifting lower, but CLAR’s occupancies are still a significant improvement over peers’.
“We pay attention to our assets, we continue to find tenants, to replace the expiries. And rental reversions over time are still positive. Tenant incentives may change based on leases, customers, and the amount of fit-out required. But by and large, it is still stable. Despite positive rental reversions, we can find tenants.
“The market has a life of its own. The general market has many players, many landlords. We monitor our assets and study how each performs. We make sure we have an asset plan we can execute yearly to be able to capture these demands out there,” says Tay.
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In December 2023, CLAR completed a convert-to-suit at 6055 Lusk Boulevard in San Diego for $56.4 million on behalf of Crinetics Pharmaceuticals, a life sciences customer that has committed to an 11-year lease. In September this year, CLAR completed the AEI of Perimeter One in Raleigh. An AEI of $11.2 million for 5005 and 5010 Wateridge, San Diego, was announced in CLAR’s 3Q2025 business updates.
CLAR has indeed faced challenges in the US. In June this year, it divested a business space and life sciences property in Portland for $26.5 million. Although this was at a 45% premium to valuation, the acquisition price was equivalent to $32.2 million, as part of the $1.28 billion US portfolio acquired in 2019.
Tay: We have always focused on creating a REIT that is resilient and diversified across mature economies
Leasing strategy, capital management
The leasing strategy for the largest industrial S-REIT is to keep its weighted average lease expiry (WALE) to around four years. Hence, every year, 20% to 25% of the portfolio is up for renewal, thus stabilising the net property income (NPI). Although still volatile, this is the way to limit the volatility for a real estate portfolio. If the market is in a growth stage, CLAR gets positive rental reversions. If the market is down, the negative rental reversions are capped, says Tay.
“What is needed is your ability to maintain and manage the building, because you need to manage your property in such a way that it stands out better than the market. We have demonstrated that we can do that over time in all the countries that we are in, that we pay attention to our assets and the asset managers pay attention to each asset such that they can perform better than the market, whether it is through AEI or the tenants or the leases that we can bring in,” he adds.
Most domestic commercial properties, including industrial properties, are on three-year leases. Leases for overseas properties differ slightly. The leases are usually longer, from say five years onwards, and there is either an annual escalation or rents are pegged to inflation measures such as CPI.
“Today, we have 67% here in Singapore, which is stable with three-year fixed rents. Overseas, whether you sign three years, five years, seven years, 10 years, there is an escalation on a yearly basis. You’re looking at 33% of the portfolio with annual escalation, which gives us growth in rental,” offers Tay. On the income side, overseas rental escalation ranges from 1.5% to 4%, and this should offset or partially offset SGD appreciation.
Regarding foreign-sourced income, CLAR uses a 12-month hedge to lower foreign currency impact on such income. “It’s a rolling arrangement where we do a 12-month hedge. We know the lease and the rental obligation. We are not subjected to a monthly change of income,” says Tay.
For the equity portion, CLAR adopts a natural hedge, ranging from 70% to 100%, to match the liability of overseas assets denominated in foreign currency with the same-denominated currency debt.
“With the natural hedge, we are protected. Our NAV is protected, and you don’t see any asset fluctuations. It gives our investors and us comfort that while we invest overseas, we use hedging to protect both our value as well as income,” Tay adds.
Data centres and logistics
Assets that underpin the themes that drive economic growth, of technology, AI, innovation, e-commerce and trade are business space and life sciences, data centres and logistics. Tay says CLAR’s data centre portfolio comprises assets under management of around $2 billion.
Although the data centres in Europe are of an older vintage, they continue to attract enterprise customers. “We want to be a strong industry player, we understand the industry trend, work with the customers and try to expand with them,” Tay says.
CLAR owns a data centre outside London. “The power is already approved. We are waiting for the timeline for power to reach the site. With the existing 25MW, we can start phase one. The remaining 35MW is phase two. The total power available is 60MW,” he adds.
Data centres are capital-intensive. The underlying asset is a high-specification industrial building. The majority of the capex is for equipment and Mechanical and Electrical (M&E) works. “The real estate component (land value) is around one-third of the cost (of a data centre). The M&E accounts for around two-thirds of the total cost. If you look at a lifespan, typically M&E equipment has about 15–20 years,” adds Tay.
Landlords need to maintain the data centres and must have a clear capex plan in place. Data centres are more than air conditioning and cooling; they also require reliable power to run the servers and related systems.
The amount of capex depends on the business models landlords use. If it is a fully fitted, co-location data centre, such as 9 Tai Seng Drive acquired by CLAR this year, CLAR is responsible for the capex. For a data centre leased to an operator or master lessee, the tenant is responsible for M&E and capex. CapitaLand Investment’s data centre team oversees the data centres in the UK. “We lease up floor by floor for the data halls and maintain the M&E,” says Tay of CLAR’s five UK data centres.
Asset managers typically review the master plan and work with the URA and the Ministry of National Development to identify development or redevelopment opportunities.
The recently completed Geneo at Singapore Science Park, which has already reached 80% occupancy, reflects CLAR’s effort to build an entirely new ecosystem. “We completed Geneo in March, and it shows there is demand,” Tay says. “The buildings will serve the needs of life science players.”
The development was designed to fuse innovation, AI and life sciences. Geneo’s buildings are divided between life sciences and innovation space. Separately, at One-North, Biopolis caters to life sciences while Fusionpolis focuses on engineering.
Tay says Geneo is an example of redevelopment. “It is next to the MRT station. Part of Geneo, 1 Science Park Drive’s original plot ratio was 1.2, and now the land has been built up to a plot ratio of 3.6. The value uplift is significant. We have moved on to redevelop 27 IBP,” he adds, referring to the $136 million redevelopment of 27 IBP to be completed in 1Q2026. Both Geneo and 27 IBP are on sites with longish land tenures. CLAR is also spending $136.2 million to redevelop LogisHub @ Clementi, with completion scheduled for 1Q2028.
Geneo is jointly owned by CapitaLand Development (66% stake) and CLAR (34% stake). It is classified as business space and life sciences. Geneo comprises three interconnected Grade A buildings linked by an event plaza and offers business space, wet-lab-ready life sciences workspace, and retail and F&B amenities.
“You need to create an environment,” Tay says, referring to the atrium at Geneo. “We can use it for events. We organise conferences such as the Outreach Network programme for tenants. To build that network, we will utilise all this space over time. In the future, we can have tenants host life sciences events and conferences to strengthen the ecosystem. We want to be more than a landlord. We help customers to grow so that we will grow together with them.”
