Mapletree Industrial Trust

Hi, very good morning to everyone. Thanks for taking the time to join us for Maple Tree Industrial Trust's first half financial year 21-22 results call. We have Mr. Tam Kuo Wei, our CEO of the manager, and Ms. Le Lily, CFO, joining the call this morning. I am Melissa and I will be your moderator today. Before we begin, may I request for analysts who have joined us via Webex to use the raise hand button for the Q&A session. Without further ado, I'll pass over to Guo Wei to give an update for the quarter.

Good morning everybody. We have uploaded the deck as usual last evening. I'll run through the few segments. First on the highlights, that's on flight number 5. Essentially, we have the growth driven by the contributions from the portfolio acquisitions of data centers in North America. So if you look at the year-on-year comparison, distributable income is now $88.4 million. It has gone up 21.3%. And of course, DPU, you can see a similar kind of upward adjustment, close to 12%, 3.47 cents. And of course, included in this DPU is the distribution of gain of 0.07 cents from our divestment of 26AI Raja Crescent, which is the data center we did as a build-to-suit project for Equinix. So that was completed on 25th of June in terms of transaction completion. So we will be distributing the gain over eight quarters, and of course this quarter being the first quarter where you see us registering that contribution. And the occupancy level for the portfolio remains very stable, 93.7%. If you look at some of the shift in the occupancy number on an aggregate basis, that's because of our... consolidation of the recently acquired data center portfolio and that portfolio occupancy is at 87.8%, so mathematically you see a downward shift in the occupancy number when aggregated, but it's a very stable number. The portfolio will, of course, because of the longer will for, or weighted average list of expiry for the new portfolio, you see an increase from 3.7 years to 4.3 years. And of course, the effect on our portfolio, so-called, The shift is because of a transaction done or completed, 1.32 billion US dollars, 29 facilities, that was completed on 22nd of July this year. And of course on a capital management front, we have a very robust balance sheet and as of now more than a billion dollars worth of committed facilities available, so we are in a very strong position to withstand any kind of near-term stress even on the financing front. And going on to the next slide, that's on slide 6, is our report card for the past 11 years. Some of you might have noted we are 11 years old already. We had our anniversary just six days ago. So on the right you can see the most recent quarters data points, highest ever distributable income and of course we have a new so-called level for the DPU compared to the rest of the quarters. So this is us continuing that upward track in terms of distribution and gains we provide to our stakeholders. I'll go in a little bit more specifically into the financial performance as the next section, starting from slide number eight. Revenue has gone up 50.5%. From $103.4 million last year, last financial year, to this financial year, $155.6 million. This, of course, has two effects. The consolidation of the balance stake that we acquired last year and also the contributions from the new portfolio and recent acquisition of the data center in Virginia. So all these helps to provide a fairly significant increase in the revenue line. And of course with the consolidation you can see a corresponding increase in operating expenses from $21.7 to $35.2 million. And net property income tracks that upward shift as well, 47.4% increase from $81.6 million to $120.3 million. So I think the borrowing cost has also been adjusted up accordingly from $12 million to $17.4 million. So If you bring the figures down to the amount available for distribution, that's where we have reported the 21.3% increase from $72.9 million second quarter last financial year to the $88.4 million that we are reporting for this financial year. On a DPU basis, 11.9% increase. from 3.1 cents to 3.47 cents. Looking a little at the year-to-date or the first half of the financial year's performance, that's on slide number 9. Of course the increase a little more muted because we only had some of the contributions from the recent acquisition only in the second quarter. So revenue side we are seeing a 40% increase. Property, net property income also about 40.4% increase. For the first half year $160.3 million to $225 million. And on the amount available for distribution, roughly 19.3%, a little lower than what we have, of course, registered for the second quarter, but it's still a very meaningful increase for us, $143.4 million to $171.1 million. So in aggregate, you are looking at the DPU increase of 14.2%. from 5.97 cents to 6.82 cents for the first half of the year. I think on a quarter-to-quarter basis, you see a similar trend. Of course, that increase is essentially from the new portfolio that we have acquired and we do not have the consolidation effect registered because it's already been in the financial numbers for the financial year. So a smaller increase of 21.5% for revenue, 14.6% for profits attributable and for the distribution, 6.9% increase and a DPO basis Of course, a more gradual 3.6% quarter-to-quarter basis from 3.35 to 3.47 cents. And going on to the next slide, slide 11. The net assets remain very stable. I think from a quarter-to-quarter basis, you see that the small leader uptick 1.7% from $1.75 as at the previous quarter end, 30th June, to $1.78 as at 30th September for these quarters. And on the balance sheet, that's on slide number 12. The debt of course has shifted up because of our acquisition. We have taken debt to fund the acquisition and it increased to about $2.9 billion. Weighted average channel has shifted up from 2.8 years in the previous quarter to 2.9 years in the quarter that ended 30th of September. You might have noticed the aggregate leverage ratio shifting up from 31% to 39.6%. Of course, the 31% was a figure which had incorporated the proceeds or cash that we have taken in from equity fundraising exercise in June. in preparation for completion of the transaction and we had not deployed the cash yet and that is the reason why on a reporting basis we see a lower leverage level but I think upon completion of the transaction on 22nd of July us taking on the debt and deploying the cash, you see the leverage level moving back to where we roughly were prior to the transaction. So we are now at 39.6%. And of course, if you look at the debt maturity profile on slide number 13, very well spread. And the weighted average annual, 2.9 years. A little lower than our weighted average lease expiry because our weighted lease expiry is a little longer due to the longer leases that we have in place for the data center portfolio. And if you look at the amount that is due for refinancing for the financial year, this current financial year, $425 million is very well within the capacity that I mentioned earlier, more than a billion dollars. So it's very well spread and we don't see any near-term challenge even on the financing side. And of course, if you look a little bit more closely at our other perimeters, that's on slide 14, as of 30th of September, our fixed amount of debt is lower at roughly 58% compared to about 96% previously. The key reason is because we have only recently drawn down the floating rate loans for financing the acquisition, we progressively take on the fixed rates, then you see that the percentage fix shifting up a little in the next couple of months. And with that all in, funding costs or our interest, more and more I think relevant the interest cost is lower, partly because this is made up of more floating rates So it's at 2.4% compared to 2.7% in the previous quarter. But as I said earlier, when we take on more fixed kind of elements in the borrowings, we expect the all-in cost to shift up a little, possibly closer to where we were in the previous quarter, assuming that the interest rate environment doesn't change too much. But as of now, the interest coverage ratio is very healthy at 6.7 times. And looking at the other forms of measurements, you know, trailing 12 months or even adjusting for the perpetual securities, we are roughly at 6 times for the quarter that just ended. Now, going into the next segment where we talk about The portfolio, this is of course a refresh of what we have on slide 16. Now we are at 8.5 billion Singapore dollars. And the Singapore and North America split is roughly 50-50 now. Singapore, of course, having a very slight majority, 50.6%. And data centers represent more than half of our portfolio, close to 53%. And in aggregate, we have about 24 million square feet of space. We continue to have a very large number of cannons and very diversified kind of portfolio profile. And if you look a little bit more closely at the occupancy rates on site number 17, You can see in the chart below, data centers has shifted down in the aggregate figure because of the lower occupancy rate that we have for the recently acquired North American or U.S. data center portfolio. So this is a mathematical effect. The rest of our segments are relatively stable, but we have observed some downward pressure for our business park buildings, about one percentage point from 83.6% to 82.6%. So in aggregate, you see the 0.6% reduction in the reported portfolio occupancy level on the right side of the chart. And if you look at the lease expiration profile, that's on slide number 18, very well spread and is essentially business as usual for us for the rest of our financial year, only 5.9% of the lease is due. And in aggregate, our weighted average lease to expiry, 4.3 years. The Singapore portfolio, we are seeing roughly 2.8 years, which is very close to our debt maturity kind of figure as well. North American portfolio is relatively higher and it has been helped by the recent acquisition, so now we're at six and a half years. And if you look at the tenant base that we have, that's on slide number 19, in aggregate, top 10, just below 30% contributions to the gross mental income. Number one is still on the left and the contribution has of course shifted down over time to just 6.2% and if you look at number two to number ten, all are data centres partly reflecting the shift in the portfolio profile and are still quite well spread among many of the key players in this space. And on slide 20, that's our tenant diversification chart. some of you might have noticed this is probably the first time we have a change in a position. We used to have the orange sector always starting from 12 o'clock. So now we have the blue part, the Infocomm part, which starts at 12 o'clock, representing the largest segment in our portfolio. That is, of course, because of a consolidation of to the data center portfolio and also recent acquisition. So now you see them stretching position. But that said, it is still a very diversified kind of tenant type across many, many different segments. Now going a little more into the Singapore portfolio, that's on slide 21. We see a fairly stable renter level, 213, no change from the previous quarter. The data, of course, you can see on the right side of the chart, on site 21. Occupancy, I think we're seeing an uptick. That, I think, is very helpful in us maintaining that stability. And if we look a little bit more closely, at the renter revisions figures on slide 22, while we see the stability in most segments in terms of before, after the renewal rents, we continue to see more pressure for the business park buildings. If you look a little bit more closely, before, after, we're talking about a $0.23 reduction for the business park rents from $3.96 to $3.73. But of course, that is still a little higher than our passing rent. So we are able to defend our rents a little. But for new leases coming in, we have taken that on at $3.40. So the market continues to be very competitive in the space we're in. And we would... prioritize occupancy and adjust our rent levels if necessary to improve the occupancy levels for our business park buildings. For the rest, I think we are seeing a good level of stability. For high-tech buildings, I think the new rents are a little lower because it depends on the category and type of tenants and buildings we're getting in for that quarter. As some of you may know, we have a wide range of high-tech assets and leases can range from from about low 2s to high 3s or even just a shade above $4. So it's a very wide range. And anyway, for this quarter, only four new leases registered. So high-tech buildings, we continue to see a very decent level of support. So going to the tenant retention chart on page 23, On the right, you can see the most recent quarters figures, 80% in aggregate. So it's a very healthy level that we continue to see, of course, partly because of the posture that we have taken in the engagement with the tenants, trying to keep them in the portfolio as far as possible. And I think moving on to the next segment, which is our investment update, On page 25, I think the key update is the completion for this particular quarter, 22nd of July, so they have started contributing meaningfully, as you can see in the financial numbers. And on page 26, our redevelopment project. The project, of course, is continuing to be on track for the few milestones that we're looking at, second half of 2022 and first half of 2023 for the first two blocks and the last block. But, of course, there's some kind of shift in the actual completion time within this window period for the completion of the projects, but I think it's still well within the overall plan that we have in place. And we are looking forward to, say, handing over the first block next year to our built-to-suit anchor tenant. And in the meantime, we are engaging prospects that may need a large kind of space or have large space requirements for this precinct. So hopefully we are able to outlined any pre-commitment ahead of completion. And I think finally going on to the outlook and strategy on page 28. For the Singapore economy I think in summary I think it's still positive. Businesses are still positive and cautiously positive about the outlook, though there is a recent kind of bit of uncertainty due to the extension of the stabilisation period, but hopefully we can get out of this uncertainty very soon with direction and guidance from the leaders. The arrears as I've indicated in the second bullet point for our portfolio remains very stable, about 1% of the last 12 months of gross revenue. So we do not see any additional stress. But that said, of course, there will still be some smaller tenants within our portfolio that have not recovered from the challenges of the pandemic yet. So we will continue to engage some of these tenants that are in the rear to see how we can manage the financial impact and the challenge that they are facing. As far as rent relief and rebates are concerned, we don't foresee much to be given. For the second quarter of this financial year, we have given out just below $150,000. This is, of course, a very small amount compared to what we have given out in the previous financial year. Some of you might have remembered, we gave up $12.7 million in terms of rent reliefs and rebates in financial year 2021. So right now, the amount that we're giving out is still a very manageable sum. We do expect more to be given out in the next one or two quarters, and part of this, of course, is in line with the government guidelines for landlords to give that two-week reprieve for retail-related tenants, which we have some. So there will be some more, but I don't think the magnitude will be in any way near what we have given out in the last financial year. And I think going on to North America, the data center portfolio We continue to see a lot of projects being in the pipeline and the pre-leasing had been fairly encouraging as well. The numbers that we have reported, 60% pre-lease and demand in the primary markets I think continues to be quite strong. So while there are some near-term rental pressures, we don't see any big immediate issues for us because most of our leases are already locked in a long time anyway. So we think that the data center market continues to be fairly healthy as far as we are concerned. And of course, I think finally, going on to our strategy, it remains the same, keeping our portfolio stable and resilient. And as you can see in our shift in our portfolio profile, as we increase our scale and coverage, the diversification certainly is very helpful. And from the financial flexibility side, our coverage ratio is strong. We have... the sufficient accommodated facilities available so we don't see any near or medium term challenge at all from the financial side. And of course On the growth, completion of the recent acquisition of course have been helpful. We continue to look out for more opportunities and not just in US. We are looking at other geographies as well as I have mentioned earlier. And of course our development is still on track for completion within the timeframe that we have outlined. And hopefully we can see the revenue contributions coming in probably late next year and early the year after next. So I think that ends the overview and the presentation. I can take questions.

Thank you, Goh Wei. Just some housekeeping matters before we begin. We will first take questions from analysts who have logged in via the Webex, and you have to raise your hands to put yourself in queue. And followed by that, we will take in questions from analysts who have dialed in. Webex listeners or website listeners are also welcome to submit their questions via the online platform as well. I can take the first question. Can we have a direct from DBS, please?