Mapletree Industrial Trust

Good morning, and thanks for joining us for the results update for MIT's fourth quarter and full year 2021. My name is Melissa, and we have the management team of MIT sitting within safe distances in the boardroom. We have Mr. Tom Galway, our CEO, Ms. Lele Lee, our CFO, Mr. Peter Tan, the head of investment, and Ms. Serene Tan, the head of asset management. Today, we are broadcasting the analyst teleconference via our webcast. Can I please request for the analysts to mute their lines and use the raise hand button for the Q&A later. Without further ado, I'll pass the time to Kuo Wei for a quick update of the quarter.

Kuo Wei Liu, Kuo Wei Liu, Good morning, everybody. I think the assurance that she has given you, we're sitting far apart from each other, certainly more than three meters, very, very safe. So we have a presentation tag that was uploaded last evening. We can go through the highlights and maybe some of the few key updates before I take questions. Now, the highlight page is on page five. For the full year, we have reached almost $300 million worth of Distributable Income 295.3, and that represents an 11.3% increase year-on-year basis, driven mainly by the contributions we have from our North American data centers, which, as you know, we have completed the acquisition of a balance 60% on 1st of September 2020. But we had some drag from the rental relief that we are giving to our tenants in aggregate just below $13 million for the financial year. And of course, we commenced the redevelopment of our column II cluster, so we do not have revenue contributions from that cluster. On the DPO front, for the financial year, we have delivered 12.55 cents, which represents a 2.5% increase year-on-year basis. So if we look a little more closely at the fourth quarter, Distributable income, $70.7 million, which is a 2.3% increase year-on-year basis. Similar kind of drivers like what we have for the financial year. And the DPU level, $0.033, which represents a 15.8% increase year-on-year. Of course, this is a little kind of higher than what we'll normally see. mainly because of the amount that we have withheld in fourth quarter of financial year 19-20. That was $6.6 million. That is still not released yet. And because of the lower base for the fourth quarter of the previous financial year, you see a relatively higher increase DPO level. And for fourth quarter, as we have outlined, In the bullet point, we have released the $7.1 million of tax-exempt income that we have withheld earlier. So some of you might remember we have withheld an amount about the same, $7.1 million in the first quarter of financial year 2021, the beginning of the financial year. We are releasing that in fourth quarter so effectively if you look at financial year 2021 on a standalone basis is made intact so there is no kind of withholding effect of income for the financial year. So that amount is roughly equivalent to 0.3 cents. So if you remove that effect, we would have a 3 cent distribution for the fourth quarter. And of course, fairly recently, before the end of the financial year, we have completed The transaction we announced in September last year, the data center in Virginia in the U.S., so that has started to contribute a little, and we would expect the full kind of effect of contributions in this current financial year. And the next, of course, on the portfolio parameters, the performance occupancy has shifted up a little, 93.1% to 93.7%. driven partly by slightly better performance from our Singapore properties and also a little bit of contributions from that three weeks of higher occupancy registered or taken in for the Virginia property in the US. So in aggregate, we are reporting a higher number. The portfolio valuation as of 31st March, as you know, we do it once a year, has increased by 14.7% to $6.76 billion. So I think that is driven, of course, mainly by the acquisition and consolidation of the data center portfolio plus the acquisition of the asset that we did. Of course, there's some downward drag in valuation for some of our Singapore assets, which you see in the details that we have outlined in the financial statements. The capital management part, I think we remained fairly healthy, although we have a strong balance sheet. amount of committed facilities, we have more than $600 million and the coverage ratio is still a very strong 6.4 times as in the fourth quarter. Now going on to the next page, our distributable income and distribution profile. Of course, as I've outlined earlier, on the right, 3.3 cents, that is partly driven by the of the $7.1 million. So if you look at the bar chart, that $7.1 million is not registered in the $70.7 million because that is not a distributable income for that quarter. So as a result of that, there is a dip in the profile compared to the previous quarter. the lower disability income for this quarter is partly due to higher reliefs that we have given to our tenants compared to the previous quarter. The previous quarter was about $1.9 million. This quarter was about $3.7 million. And we have a little bit more operating expenses, water-proving, facade cleaning works for the portfolio in Singapore. So as a result, the effective disability income has come down. And of course, some of you may have noted, usually we do have a slightly higher level of operating expenses towards the end of the financial year, usually in the fourth quarter. In aggregate, I think we have been able to exceed, you know, the performance for last year despite the pandemic. challenges and despite having given out the rental reliefs of about $12.7 million to our tenants. So for the full financial year, $12.55. Now going on to the details from page 8 onwards, on page 8 we outline the revenue, about 19% increase. So for fourth quarter, we have delivered $121 million. That's partly or mainly driven by the consolidation of the U.S. data center portfolio that we have completed for September. Operating expenses, of course, has a corresponding effect as well. But as I mentioned earlier, we have a slightly higher set of operating expenses for the quarter, for the Singapore portfolio. So the net property income increase is about 17.3% to $91.8 million. And of course, for the fourth quarter, you see the effect of valuation in the P&L. So a couple of lines down, you see $87 million. That is the fair value loss. from valuation adjustments that we have seen mainly from the Singapore portfolio. There is another line that we would highlight which is a deferred tax, $32.35 million just around the middle of the table. That one is for our wholly owned US data centers. upon taking ownership of 100% of the portfolio based on accounting standards, we would need to provide for deferred tax that is equivalent to capital gains tax in the US if we had disposed of the assets. Of course, this is a provision, but I think being very obedient, law-abiding, So we provide for that and this is a non-cash item. So this provision as well as the evaluation, fair value adjustments, they have no impact on the distributions. So all this gets reversed out and therefore we have the amount available for distribution of 70.7 which I've outlined earlier and the 3.3 cents of DPU for the quarter. And going on to the full year, year-on-year performance comparison, that's on page 9. The revenue side we have reported a 10% increase from $406 to $447 million. Operating expenses follows the same trend, 87.8 to 96.2. So in aggregate, about a 10% increase in net property income from 318 to 351. So the same kind of effect gets so-called represented here with the fair value loss of $87 million because it was registered in fourth quarter and that is only registered once for the financial year. Same thing on the deferred tax effect, 32.5. So in aggregate, for the full financial year, we have delivered 11.3% increase of the amount available for distribution from 265 to 295, as I mentioned, just below $300 million. So that gives you that 2.5% increase from 12.24 to 12.55 cents. But I think if you stare hard at the numbers, you would have noticed the 12.24 cents was the effect of us withholding the $6.6 million in the fourth quarter of last year. And at that time, for a slightly lower unit issue base that was equivalent to roughly 0.3 cents. So from the DPO perspective, we are back to about the same level if we have not done the withholding last financial year. But of course, this year we had quite a lot of rebates that we need to account for, plus a slightly weaker leasing market at the beginning part of the financial year. So going on to the next page, page 10, where we compare quarter to quarter, There's very little shift because this one, you know, the timeframe is just, you know, three months from the comparison. The revenue has drifted down a little. Some of these are driven by, of course, rebates that we have given. As I mentioned earlier, we have slightly higher rebates given for fourth quarter, so $123.7 million down to $121 million. Operating expenses, you can see that increase which I talked about from $24.8 to $29.3 million. So net property income on a quarter-to-quarter basis, a 7.2% downward shift from $98.9 to $91.8 million. So the rest of the effect, similar to what I've outlined, the key kind of shifts, the net fair value loss and also the deferred tax. So on a quarter-to-quarter shift of 12.7% down, from a DPO perspective, because we have removed the effect of the non-cash item, we still see a 0.6% increase from 328 to 330. So going on to the next page, page 11, where we look at the financial position and also the NAV. So the NAV shift from 31st December 2020 to 31st March, end of financial year, is mainly driven by the adjustments in asset value. Of course, compared to last year, we have seen an increase, 9.4%, and on NAV per unit, year-on-year basis, 2.5% increase. and the adjustment downward 2.4% from the end of the previous quarter due to the valuation adjustments. Now going on to the next page, page 12, where we give an update on the valuation. So you can see the aggregate figure, S$6.76 billion equivalent for all 115 properties. The Singapore assets, you can see about near the top part of the chart, is $4.39 billion. And you compare that with last year, you would see that dip. It was from $4.44 billion to $4.39 billion. and quite a few of these assets that had downward shifts are the shorter-length annual assets and also some of the properties where we encountered challenges in rental levels and occupancy. So there's certain adjustments our valuers have made based on the take-off market rents and outlook as well. So that has accounted for a big part of the $87 million downward shift in the valuation. For the North American portfolio, we are seeing an increase for the wholly owned is about 1% and the joint venture portfolio is about 2% increase. And going on to the balance sheet on page 13, The notable so-called perimeter, of course, is aggregate leverage ratio. That has increased by about 3 percentage points from a quarter ago, from 37.3 to 40.3. Key reason is because we have used debt 100% to fund our data center acquisition in Virginia that was completed. on the 12th of March, depending whether you use Singapore time or US time. But anyway, we have looked at the size of that transaction. It's a little small for us to go out to the market to raise equity. So at the end of the day, we have decided to just use debt for the time being to complete the transaction. So we certainly look out for opportunities to adjust our balance sheet as we go forward. But this leverage level is certainly nothing for us to be concerned about. So going on to the next page, page 14, our maturity profile for our debt. very, very diversified across all the different financial years. So we don't have any notable kind of expiration. The larger one, I think, is about four and a half years from now. The financial year, 25, 26, 23.7 percent. So we are not that concern about exposure. So we just continue to make sure that we have a well-spread exploration profile. And on page 15, the risk management aspect of our balance sheet, you will find that the amount fixed as a proportion of the total debt has come down from 96.2% in the previous quarter to 76.8%. That's the key reason is because the debt that we have taken for the acquisition of the data center is mainly not fixed. It is on a folding basis. So effectively, that has... you know, resulted in the percentage drifting down. So the average annual remains about the same despite having a time regression because of some of the small refinancing that we have done. It turns out that we have the same number. We weighted our all-in costs about the same. We managed to shave a 0.1 percentage point. So now we're about 2.8%. Coverage ratio still remains fairly healthy six times. And if you look at the other parameter which is required or calculated based on the public fund guidelines on a trailing 12-month basis, it's about 6.4 times. It has come down a little compared to a quarter back. Okay, now going on to the next segment where we talk a little bit about the portfolio. So this is, of course, an updated picture. In aggregate, we are now $6.8 billion, and data centers just a little above 40%, 41.2%, and most of our data centers are in the U.S., 35%, and balance 6.2% in Singapore. So in terms of It comes out to be a nice rounded number, 3565, Singapore and North America. So we find that I think over time we will have a slightly larger representation of data centers and slightly larger representations of non-Singapore assets, you know, as we go along. And on page 18, on the occupancy levels, I think very, very stable. The increase in aggregate from 93.1 to 93.7, as I mentioned earlier, driven by slightly better Singapore performance, except for a couple of segments like business parks. We're still seeing a bit of weakness down there. And the contributions from the... so-called US portfolio as well. And on the lease expiration profile that's on page 19, the Singapore portfolio I think remains roughly the same about three years. North American portfolio is 6.2 years so in aggregate we still have a very, you know, credible four years for the weighted average lease to expiry. And it's very well spread. If you look at the chart below, in the near term for the current financial year, only 14.8% of leases are due. So it's essentially business as usual, tenant management for us. And most of the leases that are due for expiry, a big chunk of them way beyond 26, 27 and beyond. That's about 30%. And on page 20, our top ten tenants, in aggregate, slightly more than 33% of our gross rental revenue. And the addition or new entry is number five, which is 2.9%, or the multinational company, the name which we cannot outline at this moment. We will try. I mean, we are engaging the tenants. Some of the tenants are rather shy. And this is, of course, the tenant that was in the data center facility in Virginia. So when they are ready to be disclosed, we will certainly be happy to copy and paste the logo on this page. And on page 21, tenant trade sector diversification, of course we have a more and more diversified portfolio. Our Infocomm or the blue part of the chart had been growing over time so we think it is likely to be as significant as manufacturing very soon. and a lot of the tenants we have in this space are in the data center services. I think earlier on we had some classification adjustments. The tenant like AT&T I think was originally classified under telecommunications, but the activities and operations they have are more data centers, so this is more a a more accurate representation within a sub-segment, but as a whole, we see a higher representation coming from Infocomm in the coming years, and manufacturing becoming a fairly smaller kind of part of the portfolio, but it's still significant. And the larger part, of course, is still from the manufacturing, 17 percent, the precision engineering part of manufacturing. Okay, now going on to the next page where we talk about the Singapore portfolio specifically, we have seen an increase in occupancy level, 0.7 percentage point from 92.2 to 92.9%, partly because of, you know, better performance in some of the clusters in the later part of the financial year. There's a dip in the weighted average rental level 211 to 205. This is essentially due to the rent relief impact because the rent reliefs were given as rental rebates. So that has a direct mathematical impact on the kind of average rent number. So you'll probably find that for financial year 2021, the reported rent numbers tend to get distorted later by rent reliefs given. But I think next, or this coming financial year, you probably don't have that effect and you can see the rent numbers reflecting the actual rents, effective rents that we are securing. Okay, going on to page 23, the rent revisions. fairly stable profile, but I think if you do your calculations, you'll find that we have roughly a minus 3% effect in most of the property segments from the before and after rents. We had a tall bar, high-tech buildings, 467. That one I think we would suggest not you know, extrapolating data from there. Because high-tech buildings generally would not see this kind of high rent level. This is an anomaly. The background to this number is because we had a retail tenant at 18 Tai Seng. Of course, we don't have that many retail tenants, so 18 Tai Seng is a high-tech facility. We aggregated the data for purpose of reporting under high tech for 18 Taisheng even the retail tenants and we had some other tenants at our Papaya North cluster that had taken new leases so this becomes a blended number but it represents a fairly high 467 number so that is not really representative of high-tech buildings, typical high-tech buildings rent. Typical high-tech building rent, I think, would still hover from $220, $230 for some of our older facilities to about $350, $380. Not much changes for some of our newer facilities. So I think the takeaway is that there's still some pressure on the rent revision side. We're still not able to really, you know, push our rents up. There's still some concessions that we have been giving to our tenants to keep them, to keep our occupancy level healthy. So I think that bears out in our next chart on page 24. The chart on the right, you'll see our retention level, 85.7%. So I think at this time, We want to focus on keeping occupancies relatively healthy so we will trade off rent for the occupancy levels and to keep our tenants within the portfolio. And on the investment update, I think on page 26 is the Virginia data centre that we have completed. A lot of additional updates. This is probably a case of us completing the story. So it has started contributing from 12th or 13th of March, depending on which time zone you use. So there is an amount that we have set aside, about $35 million debts, you know, for... to account for any so-called lease structure finalization with the tenant, and hopefully we get some calories down there, and we can lock in a finer, finer purchase consideration. But for all intents and purposes, for now, we pack it at $208 million. And on page 27, our divestment of 26A, Airaja, Gretchen, that is the data center that we built for Equinix. And the sale price, of course, no change as what we have announced earlier, $125 million. But we think we are likely to have a transaction cost of roughly $5.2 million. You can see that in the middle of the chart. So the effective so-called value to us and also the so-called profit level is roughly 18% which has been adjusted down because of this transaction cost. And this transaction cost is mainly attributed to the kind of levy which this JDC would be, you know, putting on this transaction so we're waiting for final confirmation but this is our gauge at the present moment and this adjustment has also been reflected in our valuation numbers. Okay, and next chart of course is on redevelopment of Colombo IA2. It is progressing on track. The total redevelopment cost as what we have outlined $300 million and some of you may remember it was slightly more than $260 million then when we first conceived the project. The increase in total development cost is mainly due to increase in construction cost and that's driven of course by the pandemic supply chain. issues, manpower availability issues and so it's already accounted for and some of this effect had also been reflected in the valuation for this cluster in the end of year valuation figures. So the pre-commitment level is still the same, 24.4%. And we, of course, are working hard to try to secure anchor tenants for our other space that we are developing. And the updated picture, of course, you can see on the right is the construction progress. A lot of work on site, so we hope to be able to finish most of the substructure work soon and then start building up and in time for our delivery to, you know, our . And next I think we'll go on to the outlook and strategy segment. I think for the economy we're seeing some green shoots. If you look at the first quarter, very, very small improvement. take is that for 2021, we'll probably see easily 6% growth. But I think the 16 cases that we saw yesterday was a little worrying. So hopefully, you know, that one is just a blip and then we get to some good level of recovery and normalization this year. So on the Singapore portfolio impact, as I've mentioned earlier, in aggregate, we have given up $12.7 million. And the rent arrears very, very much under control. And we have already seen a reduction in the arrears level, 0.2 percentage points. So as at the end of the financial year, it has come down from 1.4% from 31st December to 1.2%. So we think the situation is getting a little better. And then we see probably less stress in our tenants now. And for North America, where we have, of course, just data centers, the growth remains strong, demand remains strong, and we see a lot of take-up in the pipeline that has been created, mainly hyperscale and also cloud service providers. So we think this will continue to drive the demand and requirement for data center space. So I think, finally, Just to sum up on page 32, our strategy I think is the same. We would work hard to keep the portfolio stable and make sure it's very resilient and then we work on the occupancy levels and then healthy retention levels and we have a very strong balance sheet. coverage ratio is very healthy and certainly we continue to look for growth opportunities and we have, you know, the upcoming redevelopment completion that should start contributing from next year onwards. So I think we have completed our presentation. I will be happy to take questions.

Thank you, Goh Wei. I think we have a few questions. I'm not sure who raised their hand first. On my list, can I get Yukian to ask the first question?