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?

Hi, can you hear me? Yes, we can. Yeah, thanks, Kuo Wei. The first question is on the outlook of Business Park. Can you give us some color? I see that the occupancy is trending down a little bit. Just want to get a sense of what's happening there. Are you also seeing some of the financial institutions, if you have any, that is thinking about giving back space. Secondly, it's on acquisitions. What are your thoughts on acquisitions this year, given that your gearing is close to that 40% level? The last question is on the redevelopment of Ayer Raja. What is the initial projected ROI versus the current ROI? And could we say that this could go even lower given that your third building contract has yet to be awarded so construction costs could actually increase further? That's it from me. Thank you.

Okay. I would, you know, address the questions in order which we have outlined. The business park space is still under a bit of stress. the from the the canon profile perspective i think we do not have really financial institutions in our three buildings as you may know uh we used to have credit streets in our facility you know about seven years back so that they have it has moved out uh quite some time back already but we do have companies that in the info communications technology sector serving financial institutions. So we have seen some kind of reduction in space needs from these companies because sometimes if the financial institutions have adjustments made to their needs, requirements, or they no longer need to be in certain of these premises, the support kind of companies sometimes would shift away or shrink the space needs. And the few more material ones that we are seeing are in Signature Business Park building, where we have some ICT companies that are serving the financial institutions. And from what we understand, some of them have shifted some of the activities back to, say, places like India. So there's some effect down there. But as a whole, we think the business park space for us is not out of the woods yet. We are, of course, working hard to keep our tenants in our premises. That's the reason why you see the negative revision of about 3%. But I think the rent levels of about 350, 360 will probably be good support levels. And we think the situation is going to be getting to be a bit more stabilized soon. And the Your question on the investments and the kind of leverage level that we have reported, the 40.3% as I know I have mentioned earlier was driven mainly by the way we have done the acquisition or done the funding for the data center. in the U.S. in Virginia. That was of course roughly about $300 million Singapore dollars equivalent. It's a bit too small for us to do any equity fund raise so it was a considered decision then to use debt for the time being instead of going to the market to get, you know, a very small amount of equity raised. So that certainly would not prevent us from taking on opportunities, you know, if they surface. And we see that as a very minor consideration that leverage level as we have still very, very healthy coverage ratios and very good access to a lot of funding sources. So at the right time, we will probably look at maybe recalibrating the balance sheet a little and adjusting the leverage level to help us build the headroom. But that said, even as of now, at 40.3%, say if we use 45% as a reference point, I think Lily has already very generously allowed me to use $500 million of headroom. We have $600 million of committed lines available, and she says we can use easily $500 million, $600 million. So for us to move from the current level to say even 45% level. Of course, I think that would allow us to capture opportunities that's available and then if there are any sizable transactions, we'll probably, you know, staple on the equity fundraise initiative. So the The position that we are taking is that we will remain opportunistic and I think if there is a right window, we will make some adjustments to the balance sheet while keeping an eye out for possibilities to bring in new good quality assets into the portfolio.

Can I say that in the interim you could actually go up to 45%?

It's a possibility because I think at the end of the day, it's about availability of opportunities and whether the market offers a window for us to take on more equity at the right pricing. EVDs. A fairly stable market, I think our first preference is always to have a good mix of, you know, the funding sources. So we will certainly draw debt and we will try to get some equity raised so that we maintain a very healthy kind of level for the portfolio, but we do not discount the fact that, say, if the situation requires we would draw a little bit more debt, like what we have done in the last month or so for that transaction, draw a little bit more debt to you know, complete our transaction. So we wouldn't want to set very hard thresholds like 40%, 45% or whatever that level is. Because if we very rigidly set the level, say like 40%, then you put us in a bind, you know, in the last couple of weeks. Should we raise or should we not raise or should we just borrow and cross that 40%? So at the end of the day, these are reference levels. We keep an eye on the serviceability and the strength of our balance sheet. So we certainly will be prepared. If the right opportunity comes to you know, take on more debt at least for on a temporary basis to complete transactions. So we go to 45, yes, certainly it is possible, but I think all things being equal, we will probably not want to say test the the envelope or push the envelope too frequently and then see, you know, how the market will react because we think it's still better to think a prudent approach or have a prudent approach when it comes to managing transactions and getting the funding in place.

Okay.

So your... My last question is on Column IA.

Sorry, that's why I mentioned IA Raja.

Yeah, yeah, no problem.

Column IA.

So for Column IA, The original intended yield on cost was 8%. And with the increase in the construction cost and all the other parameters held constant, we think we'll probably drift closer to about 7% yield on cost. It is still, of course, a meaningful project for us to proceed. And on the construction cost front, We are of course a little bit more careful in the way we structured our tender. The construction scope for the third and the last block had already been included as an option in our construction contract with Lam Chang. So if we are proceeding, With that, it will be just a simple exercise of the option because I think at that time when we had the contract or tender structured, we wanted to have the maximum flexibility and we wanted to keep an eye on the market and to see whether construction costs would shift over the last couple of months or over the next couple of months.

Would it be fair to say that $300 million is sort of finalized?

Yeah, it's more or less in place. So that is based on the so-called contract sum that we have secured. So if we were to finally exercise the option, it should come out to be about the same number. So right now we are just getting some final gauge on the construction cost shift and indications from the market and from the quantity surveyors is that the labour market and your supply of materials continue to be fairly tight. So they expect construction costs to actually go up, continue to go up in the interim. So I would have to say luckily we had that option in place. If we had deferred making the decision, we may now be faced with even higher costs. But I think we have that kind of comfort that, you know, costs had been contained already in the figure that we have feasibility on.

Okay. Okay. Okay. Thanks, Kuo Wei. I'll leave the time to the rest of the guys. Yes, thanks.

Thank you, Yukiang. I think we do have quite a number of queries online. Can I ask Donald to ask his next question?

Hi. Can you hear me? No? Yes, we can hear you. Yes, can you hear me? Hi, good morning, Gouy. A few things for me. First is on Virginia's acquisition. As much as you can guide, could you let us know what is the debt cost, NOI, and NOI margins type of information? That would be very helpful. And the second question is on rent relief. We are at $12.1 million so far. Do we expect more going into this new fiscal year and what kind of momentum? Third is on your operating performance. I've seen that your retention ratios are improving, occupancy on a portfolio basis also starting to inch up. Would this be an indication that things could really start to turn around or stabilize, especially in the flatter factories segment where reversions continue to be negative? Thank you.

Okay. I think for the Virginia asset, I think the tenant is still a little sticky. And as you know, we have this ongoing process to finalize the lease kind of perimeter, so we would prefer not to outline the specifics on the NOI or the margins yet, and until that is logged away. If not, then the fellow would, you know, get the lawyers to send us a couple of nicely worded letters. So, I mean, please bear with us. we will certainly be working towards closing that up soon so that we could give more clarity. So give us a bit more time.

I think for the Virginia asset, we do expect the MPI yield for the first renewal term to be about 6%. And as Corey has mentioned, and you can also see the tenant is maybe in no hurry because rent really commences next June. So we'll take the time to speed up the process and try to get the details firmed down. But as you know, we are paying out distributions based on accounting standards. And based on that, we actually have started paying from 13 of March. And so if you look at the stretched out yield, we're looking at 5.2% based on a straight line.

But you're paying out from balance sheet at this point, isn't it?

Sorry? Sorry?

Are you paying out from your balance sheet at this point, given that the tenant has not started to pay rent yet?

Yes, we are.

Okay, and the borrowing cost, roughly, for this kind of asset in Virginia, assume that you're taking on U.S.

debt, right? I think the borrowing cost, I will leave Lily to answer that question.

Why you always ask so sensitive questions? It's an important question. Huh? Very sensitive. Very difficult. Okay.

Is it in line with the previous US acquisitions?

I think the one that we were done later, probably about there. I mean, anyway, if you look at your five-year swap rate now, I think it's close to about one. So it's likely to be in excess of two. Okay. Good enough? Okay.

The rent relief is actually 12.7 instead of 12.1. So we think that is probably going to be most, if not all, of what we are likely to give out to our tenants. The government agency is I think unlikely to come up with additional measures because the market is probably getting to a good degree of normalization. So that's one of the reasons why we have made the decision to release the amount withheld in this quarter, the $7.1 million. say if there's any residual or balance effect in the current financial year 21-22, you'll probably be in a form of maybe installments or whatever for some of our tenants. And we do have a couple of tenants who have gone on the... a scheme to allow them to do early termination, but the impact is fairly small. So it will probably be not manifested in the form of rent relief. So I think if your specific question is on rent reliefs or rebates, we do not think we will see that being featured in financial year 21-22. So that should be about it. And the operating performance, I think we're seeing some kind of encouraging signs. Even for the multi-tenanted space, we are seeing the tenants coming back and having a bit more confidence. And I think the occupancy levels of course, has drifted up a little. So we hope to be able to at least find the bottom for the occupancy levels now and start shifting that up. But for the rental levels, we think there will probably still be a bit more downward pressure, a little bit more for another quarter or so, especially for, say, the business park space, because our occupancy is relatively lower for the business park space and we will want to make sure that our overall kind of revenue is protected. So we will probably adjust our rents at renewals and even for new tenants coming in to make sure that the revenue trajectory is intact. So hopefully by say second half of the financial year, we should be able to see positive upticks in both occupancy and at least the rent levels. And rent levels, I think if we can see zero revisions, that will probably be a good sign.

Thanks, Goy. Maybe just very, very quickly, Lily, the debt numbers in this full year, does it include the Virginia debt year or not?

Yes, it does, but the number will be very small, so it doesn't really impact it. Considering that we have only done it, we probably would have drawn down towards the end of March, so no much impact.

But that number is included in it?

Yes, you have included.

Okay.

Thank you. It wouldn't swing the average number very much. It's probably the fourth or fifth decimal point.

Yeah, yeah.

Decimal place, sorry. Yeah.

Won't swing the interest cost, but the debt is there already. Okay. Thank you.

I counted four already. Debt is included. The debt is already included.

Can we get the next person, which is Derek. Derek, can you ask your question, please?

Hi. Thanks, Melissa. Morning, Kuo Wei. Just two questions for me. Just the first one, I noticed a fair amount of leasing that was done this year. For the new leases, what kind of sources of demand are we looking at?

Okay, this one I'll ask our head of asset management to answer.

Hi, actually the new research is still quite similar to what we have. We don't see any particular significant traits that is taking up extra space. Generally, it's still the precision engineering at the spectrum area and assembly and distributions trades that we are looking at.

Okay. We don't have vaccine-making companies or mask-making companies in our portfolio now.

Okay. Semicorn is better. My next question is on the sale of your Ayuraja property. Just wondering whether the gains that you make, do you have to pay taxes or will you ask for a waiver and how How long will you pay this out if you decide to pay it to unitholders?

Okay. Well, depending on what you define as taxes, the transaction cost that we have anticipated in our, and we have outlined in this presentation, about $5.2 million is some form of payment. you know, to the agency for the transaction. So that has been accounted for. So other taxes, certainly we hope not. As you know, there's no capital gains tax in Singapore, but we do not want transactions like this to be taken as a part of trading. as our operations by Inland Revenue Authority. If deemed as such, of course, you have an additional kind of corporate tax of another 17%. But I don't think we do it as a matter of, you know, business, usual business. So we certainly do not want to have exposure there. So for the time being, I think the additional so-called gains, whether the gains that we have received from the divestment, we are looking at distributing to the unit holders over the next year or so. So now we are calibrating the the kind of quantum as well and we will probably make the gauge or finalize that assessment once we get the confirmed transaction cost locked in from JDC and we have the actual profit level determined. That will probably be this or next quarter.

Okay, all right. Okay, sounds good. Thank you.

In the interest of time, can I request for, I'll take three more questions, and I'll request for the next few to ask one question each. Melvin, please.

Hi. Just maybe can touch on the rental divergence. I think previously mentioned that you were looking around that minus 5% level. I think this quarter we've seen about three to four. Does any guidance for the next couple of quarters?

Okay, I think things are, as I said, looking a bit encouraging. So hopefully the next quarter, you'll be minus two, maybe, then the quarter after that, zero to minus one, then you'll taper off. So that is our hope, you know, in terms of how the profile would look like.

Okay, thank you. Joy?

Thank you. Question for me is on sort of payout ratio. Now that your data center portion is getting larger, is there any intention to actually retain some of the dividend for future capex? Thanks.

At this moment I don't think we have a policy in place to make, you know, the retentions So some of the chunkier costs will still be registered. Onshore, of course, some of the things like tenant improvements, some of the building improvements or even, say, leasing commissions, those will probably be registered and taken on on an operating basis. So we have not put aside any so-called capital expenditure kind of allocation for the time being. As you know, most of our assets are on triple net basis and core and shell arrangements. So a big part of whatever that needs to be done would normally be taken on by the tenants. So probably not for the time being.

Thank you, Joy. Can we have Wi-Fi? Wi-Fi? If not, we can have Derek, Derek from Macquarie. Hello.

Hi.

Hi.

Hi, this is Wi-Fi. Hi, I'm sorry. Hi, hi, Wi-Fi. Yes. Sorry, just one question on US data center. I see that Christie Heights and Kuback Road, valuation fell quite substantially, like more than 30-40%. Can you provide some color?

Well, that is driven mainly by the valuers' read on the market rent levels. And we find that the, you know, the experience over the last couple of years dealing with the US valuers, they tend to rely a lot on their own gauge of the market rents and cash flow. So it's very, very much cash flow driven. Whereas, say the valuers we have in Singapore, you tend to see the valuation fluctuations being a little less, whereas it's a little more in the US. So for these two very specifically, it's driven by their read on the market rent levels and That being said, there are not many, many data center lease or transactions in some of the markets. So sometimes they made assumptions, they made certain interpolations in, you know, what they thought could be market. But at the end of the day, it's their professional read. And the valuation done, or rather the valuations are actually the same as what they had outlined in the circular in the transaction document last year for these assets because we need to have two valuers, you know, to be in place for the IPT transaction last year. So this was one of the valuers, NMNF, one of the valuers. So those were the numbers that they have outlined then already. So they are keeping it consistent.

I think just to add, there was a change in valuers from last year compared to this year. And based on that, as Ko has mentioned, they have different assumptions, which is why there tends to be varying differences in the valuation. Thank you, Wi-Fi. I think we can just take a question from Derek. Derek Heng from Macquarie.

Thanks, thanks for the time. So just to be very clear, you understand, I understand that the business card, you seem to be calling for a bottoming of the underlying performance. But I look at the, you know, IDP area, big box, there's a huge amount of space and pretty, and the space there is pretty competitive and close to the train station. What gives you the confidence? And are you already seeing like, you know, the competition coming from these new spaces over there?

Yeah, you're absolutely right. I think there's more competing space at International Business Park Precinct or that area even without the big box kind of addition. Some years back, the leasing market was a little more difficult at Changi Business Park. Then it shifted to IBP when you have higher vacancy levels in some of the older buildings. So it is a challenge. But I think our products have recently gone through a facelift, not a very drastic change. cosmetic surgery but I think the makeup is probably decent enough and we think we'll probably be able to at least compete effectively with you know the buildings in the facility and our leasing team is working hard to identify newer segments of the industries or the companies that put value being in that location. So it is challenging, no doubt, but I think we are seeing some good level of kind of inquiries coming back on. we think we'll probably be able to find a bottom very soon and then be able to shift up. But of course, if your question is along the line, could we push beyond 90%, I think that would be difficult. But I think we'll probably be able to push the high 80s and then get a support level for the rental levels. All right, thank you.

Thank you, Derek. I'm going to run this for five more minutes. I think we have three more questions at least. Tan Chien, Terence, and Brandon, who is doing a call-in. Tan Chien, would you like to ask your question?

Hi, morning. So I have a question on acquisition. With Virginia, we saw some office component coming along the data center. So outside of Singapore, is there a potential that you might also widen your mandate to include things outside of your usual data centers as well?

Well, a simple short answer is no. Because I think our focus is still industrial and data centers being a part of the industrial coverage. The reason why there is some office element down there is because of the nature of the existing development and the use of space. So, of course, if you want to be purist about it, we can always cut out the building, but that is extremely difficult to do in some of these transactions. So we, of course, took on this acquisition that has data center space and with some office elements. So it's a considered decision, but we have no plans to widen the mandate to cover office.

Got it. Thank you. Can we have Terence from JP?

This is Terence from Credit Suisse. I just have a question.

I only see Terence on the screen.

I have a question on rebates. Basically, I think the rebate for the fourth quarter is somewhere in the order of $3.7 million. I think this is much lower than what was previously guided in the previous briefing, which was, I believe, in the order of 14 to 15 million. I just want to clarify if that was the correct understanding from their briefing and if so, why is the difference so stark?

I see. Okay. Well, the 14-15 was an aggregate figure. So the aggregate for the financial year is 12.7. So it's a little lower suddenly compared to their 14 to 15 million dollars. that we talked about. So that 14 to 15 is not for the quarter but for the financial year.

Okay, got it. Thank you.

I think we'll take our final question. Brendan?

Yeah, hi. Thanks, Melissa. Go ahead. Can you just comment on the kind of cap rates and yields you're seeing in the U.S. data center market? And is it much harder to make acquisitions in this kind of environment? Yeah, thanks.

Well, I think for that market and for the asset class, we have seen the cap rates rapidly compressing. So there are quite a few transactions we are seeing out there, seeing very intense competition. And for, say, coin and shell type, if you have a a good counterparty, a good tenant, you'll probably see the rates drifting down to the 4 plus percent level already. Okay, thanks a lot. That's all.

Thank you everyone for joining us today. It has been quite a long briefing and we thank you for your patience. And keep safe. We'll see you next time.

Bye.

Thank you. See you. Bye-bye.

Thank you.