Mapletree Industrial Trust

Good morning. We are broadcasting live from MIT's newest redevelopment project, Maple Tree High Tech Park at Kowloon Way. We embarked on this redevelopment project in July 2019, way before COVID, and are pleased to announce that the final block received its completion certification in March. My name is Melissa from the IR team, and today we have Guo Wei, our CEO, Lily, our CFO, Serene next to me, Head of Asset Management, and Kim, the Head of Marketing. We will be using the slides that were uploaded last evening. Without further ado, I'll pass on the mic to Guo Wei, who will give an update of MIT's 4Q and 4U results.

Hello. Good morning. This is a virtual pass. She did not actually pass the mic to me. I'm happy that all of you could join us. You can hear a lot of echo. This is to showcase how large our space is. This is a new facility. As what Melissa mentioned, we just obtained temporary occupation permit in February and March for the two blocks respectively. So we're talking about very large floor space of about 37,000 square feet per floor. And this echo you hear is an indication of the kind of span and space that we can offer. And for the financial year, as what Melissa mentioned, we have uploaded the deck of slides last evening. We'll go through the usual segments. Let's see whether my lightsaber works. The five usual segments, we talked a little bit about the highlights, then we'll give an overview on the financial performance, then we update the portfolio information, give you a snapshot of our investment update, and also we talked a little bit about the outlook and strategy. Going on to the highlights, you would see from the top line perspective, the first set of bullet points, property income and even distributable income, we have seen meaningful increases. Sorry, I forgot to do the click. Now, in terms of net property income, just a shape below 10%, $518 million for the full financial year. Distributable income, that one has taken into account account, the interest cost impact is still giving us a meaningful 1.6% increase year on year, but of course a big part of the downward adjustment driven by interest expense kind of a drag. On the DPO basis, we are delivering 13.57 cents, which is 1.7% down. This is mainly driven by the enlarged unit base that we have from the distribution reinvestment plan that we have in place and some of the fees in units that we have issued. The second set of bullet points is the highlight that we wanted to share, the full completion of this development. We are talking about the single largest redevelopment project that we have taken on and it's about 860,000 square feet, 730,000 square feet of net lettable area. As of now, we are about 44% pre-committed, so we certainly anticipate the contributions from this development from this financial year onwards. Now, the next set of bullet points on the portfolio performance, from the valuation perspective, year-on-year, we are seeing a 0.1% increase, very marginal. Of course, there are some pluses and some minuses. Some of you, I think, if you had a bit of time to look at the information that we have shared, you will see that for some of the Singapore assets, we have seen valuation declines, mainly driven by shortening land annuals, and there are some effects from the market. For example, Singapore's introduction of higher stamp duties that has an impact finally on the valuation. On the US data center side, we are seeing very good support level and in fact we are seeing a small upshift in the valuations on an aggregate basis despite seeing the expansion in cap rates in some of the markets, the range of Cabot expansion is roughly 25% to 75% basis points, but the rent escalations that we have embedded in the leases as well as fairly strong market demand in some of the Tier 1 locations allow fairly decent level of support from the valuation perspective. So we are seeing positive, small positive contribution down there. So in aggregate, we are seeing a 0.1% increase for valuation. Now occupancy is 94.9% for the portfolio. This has come down a little when you compare quarter to quarter basis. Essentially it is driven by the mathematical effect of the completion of Kalan Wei, this new project, because the completion, the space that we have would be included in the denominator for calculation of the occupancy level. So it has come down a little. Putting that aside, I think, or if we do not include that effect, our occupancy actually would have increased a little bit. On the capital management fund, We continue to have a very strong healthy balance sheet. Borrowings about three quarters hedge and a weighted annual very healthy three and a half years. And of course many of you know we have the distribution reinvestment plan program that we started five quarters back and we have just recently suspended it. So for this round we have about $184 million dollars raised and this has helped us fund our current development project and we of course have a stronger balance sheet because of this initiative as well. The leverage ratio as I alluded to earlier in terms of the health of the balance sheet is only 37.4% so it gives us a lot of flexibility and headroom to look at opportunities. Now going on to the next slide. Of course this is an outline of our report card. Ever since we listed the portfolio on the right you can see the most recent set of data. So there's a downshift from the previous quarter but we think we have been working very hard in containing all these cost pressures and interest rate effects. So it is 3.33 cents for the quarter and we think the next financial year will continue to be difficult but we are working hard to see whether we can continue to deliver good level of distributions. Going on to the next segment where we outline the financial results. So on slide 8, you would see the year-on-year comparison for the fourth quarter. The revenue, we are experiencing a 4.3% increase. Property expenses, because of the inflation-driven effects and also partly because of utility costs increases as well, is a 5.8% increase, so that gives rise to more muted net property income increase of 3.8%. If you look at some of the downward adjustments, net fair value adjustments, essentially it's due to the valuation loss. For fourth quarter, the minus $110 million, essentially that is with respect to our book value. driven mainly by the Singapore portfolio adjustment. So from the amount available for distribution perspective, if you look at the bottom line, it's a 3.5% reduction from 90.3% in the previous year for the fourth quarter to $87.2 million. So that gives you that downshift from 3.49 to 3.33 cents. But of course, We see more material impact from all these headwinds in the fourth quarter, but for the full final year, I think the performance has been still relatively stable. If you look at the next page on page 9, in aggregate, we are still experiencing a fairly good growth as I've mentioned earlier. Revenue front 12.3% increase. Operating expenses, of course, because of cost pressures and inflation effects, has gone up almost 21%. So that gives us a net property income increase of 9.7% from $471 to $518 million. If you look at the real bottom line, the amount available for distribution, despite the interest cost effect, we're still getting a 1.6% increase in terms of the distributable income from $351 to $357 million. So the DPU for the entire financial year, because of the enlarged unit base, If you noted our earlier DRP proceeds, $184 million, these were all converted into units. So that gives rise to the 1.7% reduction in the DPU when you compare year-on-year basis. Now looking a little bit more closely at the quarter-to-quarter kind of performance that's on page 10, not a lot of difference from the revenue perspective, a very marginal increase, 0.4%. Some of these are driven by some of the good renewals and new leases that we have done. Operating expenses, I think the increase, while it is still happening, is fairly muted. So net property income is very stable. I would say almost the same, 0.1% increase from $128.8 to $128.9 million. So if you look at the distributable income on a total amount basis, it's a very slight downshift, 1.4% from $88.4 to $87.2 million. So in aggregate, we're seeing a quarter to quarter downshift of 1.8% from $3.39 to $3.33 million. So I think going on to the next page, page 11, on an NAV basis, if you compare to end of last year and end of the last financial year, 31st March 2022, we have seen some downshift because of revaluation losses and that has an impact on our NAV. So it has come down from last year 186 and December 190 to what we are ending at $185 per unit. So going on to the next slide, slide 12, that's a picture we have on the valuation. As I mentioned earlier, though if you look at headline numbers, it's a 0.1% increase year-on-year, but compared to bulk, because we have taken on the development project and fully crystallized and we also have some of the expenses that are capitalized in the balance sheet. So on a like-for-like basis, we see that minus $110 million effect on the portfolio when you compare the book. So the main drivers I think for the Singapore portfolio downshift I mentioned in the earlier slides essentially due to shortening land tenure and margin effect and also there's a stamp duty kind of effect that came very recently I think on the 14th of February when the budget was announced by the government. So all this had the contributed to that downshift for the Singapore portfolio, but I think we are seeing a good level of support for the North American data center portfolio that has offset some of this decline. Now on page 13 on the balance sheet, I think it's very stable. We're having a total debt of still at the $2.8 billion level, very marginal change, but we have managed to extend our debt tenure from 3.1 years to 3.7 years with refinancing of some of our debt that come due. So it gives us a lot more stability in the balance sheet and aggregate leverage ratio very little change despite us having taken on the development project so it remains at around the 37% level. as of the end of financial year, 37.4%. So the DRP take-up, I think just to highlight, would always be hovering around the 40% level. And that has been instrumental in us containing any leverage increase despite the commitment that we have for our project. And if you look at the pie chart on the right, the currency exposure has not changed much. It's still a 20-80 kind of split, 20% Singapore and 80% US dollars. And going on to the next slide, slide 14, where we show the expiration profile of our debt, very well spread. And if you look at the bars on the left, very, very short bars. So I don't think there's any... cost-worthily at all in terms of financing and so-called expiration exposure. So it's essentially business as usual for us, looking for the right kind of opportunities, the lock-in rates that I would describe as relatively low, but not low, because the current environment, everything is expensive. So we look for the right windows to refinance this and in terms of quantum very very small. I think we're talking about 300 million over two years. Now going on to slide 15 on the financial indicators for our exposure in terms of fixed rate debt is three quarters, very little change from December. So we're keeping this at a fairly high level to cushion us from many of the uncertainties in the market. The weighted hedge channel has shifted down a little, mainly due to time regression. But the all-in cost has, of course, shifted up a little from 3.3% in the previous quarter to 3.5% because of the movement, upward movements in the market. In terms of coverage ratio, it's still very healthy depending on which metric you look at. Four and a half times for the quarter of trading 12 months, we're talking about five times. So I think what we have at the bottom is a simulation on the effects of base rate increases on our DPU. So we think certainly there will be negative impact, but it will be quite well contained because of the hedges we have in place. So you look at every 50 basis point, DPU impact 0.7% kind of downshift. So that one I think is still very manageable. And next I think we go on to the portfolio update starting from 2017. So the total portfolio remains the same level, $8.8 billion and very little kind of adjustment in terms of the profile. We are still roughly 50-50 in terms of North America, Singapore and data centres are slightly a shade above 50% in terms of representation at 53.7%. And going on to the occupancy chart, that's on page 18. If you look at the value segment is very stable. The only downshift is a mathematical effect for high-tech buildings, 94.8% to 87.5% because of the inclusion of this newly completed building. So that gives rise to the 94.9% aggregate figure for the portfolio. So I would say steady as she goes as far as occupancy is concerned. And on page 19, for the lease expiration profile, we do not have any material kind of say, expiring leases to be concerned about is very well spread over the various financial years. For financial year 2023-2024, only 16% due for expiration. But of course, some of you would have been tracking our releases and data shared The few of the larger ones that we will be tracking more closely are the US data center expeditions, for example, the AT&T ones that will be expiring end of 2023. That brings us to slide 20, our top 10 annum profile in aggregate, just below 30%, 29.5%. of gross rental income and the tenant that we will be keeping a closer watch on in terms of the expiration of leases, AT&T the second largest tenant, we get 5.4% whereas for the rest I think is essentially having leases that are expiring many years from current financial year so we don't have any kind of near term exploration exposure to be concerned about. Going on to slide 21, the trade diversification across all the different industry segments I think remains very diversified so that gives us a lot of protection against any segment or sector coming under stress. Going on to site 22, for the Singapore portfolio performance, occupancy as I've outlined earlier, there's a downshift because of the new completion. As for the renter levels, we are still seeing a good level of upshift from 215 to 216. and the effect of this essentially you can see on page 23. For most cases, when you compare before-after, the green bars before renewals and the blue bars after renewals, we are seeing positive rent revisions. But you might have noticed for high-tech buildings, there's a downshift of about 11.5%. This is essentially due to us working on a renewal of a fairly large tenant and is a more defensive position, giving a bit of incentive to the tenant for the renewal. So that accounted for that downshift which we think is reasonable. If you look at the rate, it is still very much higher than average for property segment and also higher than new rents that we can get so that is the adjustment that we have accommodated and if you were to exclude that effect in aggregate the portfolio is getting roughly 6% positive rent revisions so that is still encouraging as you may remember the previous quarter we're talking about 8.5% so it has probably moderated down a little by still a positive territory. I think this is probably the fifth quarter where we are seeing on a general basis the positive rent revision. Going on to page 24, in terms of retention level, nothing exceptional to highlight. I think we have been successful in keeping most of our tenants. So in aggregate we are talking about 80%, 80.7% and more and more of our tenants stay with us for long periods of time and extending beyond the first term of lease with us. And of course there are quite a few initiatives that we have taken on. On page 25 that's essentially on the sustainability front And you might see a photo of us working hard, greening our space. This is at our current cluster here. We have promised to plant 10,000 shrubs if you care to count. I don't know how we can verify and tag every single plant. 10,000 and 296 trees, that's a little easier to count. So that's one of the trees which We did this exactly two weeks back here and on Lily's right is Chairman, Mr. Chia of the Maple Tree and Industrial Trust Management and on my left is Mr. Paul and he is Chair of the Audit Committee. So we continue to plan and I think if you look at the broad initiative and a group of 100,000 trees by 2030, so there will be a lot of planting to do. On the renewable energy side, I think we continue on with the initiatives for the Phase 2 project. We have successfully installed 4,000 kW peak or 4 MW peak. So we are embarking on the third phase for the rest of our buildings in Singapore. So hopefully over time, we have a portfolio that is more and more climate resilient. Now going on to the investment update, I think that the key thing to outline essentially is completion of this project which we are in now and later on if you have a bit of time you can walk around the premise to have a feel of the new precinct. So in terms of committed occupancy, now about 44% we're getting our leasing team to work very hard to carry on pushing the leasing momentum and hopefully the trajectory of commitment will continue to be strong and allow us to maybe arrive at stable occupancy by the next financial year. So I think finally we have a slide 29 on Outlook. I think a quick or simple statement is that 2023 will be challenging. There's still a lot of uncertainties everywhere else. And we don't see any of these so-called macro issues easing away anytime soon. But the comfort we have is there's still a bit of economic growth and activities in Singapore. but the sentiments, of course, are not so positive, especially in the manufacturing segment. And interest rate, while we think it is creating a bit of issue for everybody that borrows money, it should be, I would say, giving us a bit of a brief, possibly by the second half of this year, and hopefully we can see a more muted kind of interest rate shift or growth environment and it gives us a bit more certainty as well. For North America, for the data center space, we are still seeing fairly good take-ups in many of the Tier 1 markets. That said, certain other segments of course have been moderating in terms of the demand, but as a property segment we continue to see a good level of take-up in many of these locations and that has of course been very supportive in the rent levels and the valuation as well for the portfolio. So I think finally we talk about our strategy has remained the same. We will keep the portfolio resilient and certainly capital structure is very sound. We retain a lot of flexibility and of course for growth, we continue to look at acquisitions, developments like this one at Kalanwei and we will look at opportunistic divestments of non-core assets as well. I think that was also one of the outlines that we have mentioned in our press release. So it is a good time for us to look at rebalancing the portfolio, look at opportunities for perhaps adjusting the portfolio profile. So if there are good divestment opportunities, we could look at it a bit more closely and it will help us you know, chart the next phase of growth as well as we look for acquisition possibilities concurrently. So I think that ends what we have for the presentation deck. I'll be happy to take questions.

Thank you, Koi. Can we request for analysts to raise their hands and we'll pass around a mic for the benefit of webcast attendees. Please state your name. Thank you.