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.

Hi, I'm Evan from JP Bombay. Congrats on the new building. I see a lot of greenery. Hopefully the money will rain down on you from this building. Yes, thank you. Maybe we can start with the U.S. data center portfolio. I noticed the top end of the range for Cadres has lifted. Maybe it gives a sense of, on a way to average basis, how much Cadre has expanded by. The second question I have for that portfolio is, can you touch on the tenant series there. Any updates on ATT Lease, ATOS, SunGuard and 6Terra or any other tenants do you think could potentially leave or could replace those tenants? Thanks.

I think as what you have already pointed out, what we have is a range 25-75 basis point but we see most of them clustered around the 30-40 level. So if you look at the downshift, you're talking about minus 70% if you're talking about like-for-like basis in terms of value effect. So in terms of the so-called tenant exposure, the larger one which we have outlined, AT&T, we are talking to prospects for one of the two larger ones, as you might have seen in some of the earlier releases, two of them expiring in 2023, the San Diego one, 2024 December. So that one is a little early. We do not have any so-called leasing engagements for the San Diego one, but for the Tennessee one. We are talking to a potential user but it's still at an early stage. Hopefully we'll be able to crystallize something prior to the expedition of the lease. And this prospect that we are talking to is looking at the entire campus. So that is a kind of match that will be preferred. We will try not to cut up the campus into a couple of so-called multi-tenanted product offerings then is quite a bit more difficult to manage in terms of lease and operations. So that's one. Atos, we are also talking to a potential user. It is still not at a stage where we can crystallize any contract yet, but we recognize that this is probably from a time perspective a little bit more critical because this expiration has already taken place. So while it's a smaller asset, we will try to see whether we could lock that in as well earlier. Now for the other tenants in our portfolio, we have essentially fairly long leases. So it's a case of the exposure to any of the issues tenants face. For example, SunGard, as you have outlined, they were at two of our facilities. They have extended the lease with us for five years, so they remained in our premises. But they had, of course, negotiated for some of the lease terms to be changed. For one of the facilities, the so-called lease rate is about the same. The other one, they have asked for quite a significant reduction. So we have accommodated that request because at the end of the day, we will look at the impact to the portfolio, the downtime so-called effect as well and what we can reasonably get from the market for that premise. In short, for the Sun Guard, the so-called issue has been closed, fully resolved. They are continuing with the lease, especially when they have a new shareholder or new owner on board. So it is essentially back to business as usual. So for the rest of the leases or the rest of the tenants will of course continue to be mindful of their operating matrices and whether the facilities are well used, whether they pay on time to make sure that the portfolio continues to be healthy. So far we do not have any so-called material things that would cause us any alarm.

How under-rented are your US data centres?

At this stage, I think for most of the single-user buildings, quite in line with market. I don't think it's the case of us being able to extract meaningful so-called up-shift in rent. our sense is that if there's any vacancy or any due to expiration of leases or whatever, we'll probably be able to lease at about the same rent levels. The challenge in most of these cases is actually downtime and the rent fee and all the tenant incentives that we need to give. So depending on the markets, sometimes you may need to give or you may need to wait up to six, nine months for finding the right match. So that is a kind of impact that we think we'll try to reduce as far as possible.

Thanks very much. Hi, this is Terence Lee from UBS. Will we continue to see pressure from the large users in Singapore? In the case of the high-tech one, is it kind of like one-off? and maybe if you could guide on reversions for FY24 as well.

Handling large tenants is always not easy because they do have stronger bargaining power and especially in markets or in environments where there are alternatives So while it's not cheap to relocate, but a lot of large tenants have a capacity, they have motivations or I would say attractions from other alternatives. So we would be very commercial in the assessment of this kind of property. transactions, renewal transactions. So if necessary, we would accommodate some adjustments from the rent perspective if it's more meaningful for us to keep the tenants. As of now, we do not see any other so-called large tenants in the high-tech space that would present this kind of challenging or so-called situations. So far most of the other leases that are expiring are not large leases. So essentially a business as usual kind of engagement we would have. Now when we talk about rent revisions for this current financial year, we are I would say cautiously optimistic of still getting positive rent revisions. I think high single digits may be difficult, but if we are talking about low single digits, I think it is something that we could push for in aggregate basis. Generally, I think the so-called inflation effect is also creeping into the rent, kind of rental rate, kind of figures. So that would allow us to maybe make some adjustments here and there when we deal with the tenants and the renewals.

Do you mind reminding us how you hedge your USD income?

For the USD income, we typically hedge using forward contracts. FX forward contracts and we look at it over rolling four quarters. So every quarter we will put in a little bit of a small percentage of the expected foreign income that's coming in. So as you can expect then in one particular quarter it will be an effect of the forward contracts that's been executed over the past four quarters. So by doing that we basically just do an averaging effect So in times when the exchange rate is going against our favor, we basically will be averaging down, and vice versa if market is going up.

I assume you're talking about income. Yeah, so that is a part. Got it, thank you.

Confirm? Yeah, I did it.

We only have one runner running around. He can run fast, but his eyesight is not so good. Quentin runs marathons, right?

David from Daiwa. Two questions. The first is, What type of asking rents are you requesting for this property?

What is the range? This one we will try more than $4 certainly. I think if you ask him, she's a bit more greedy. She can tell you the kind of range that we go out with.

Currently we are asking $4.50 per square foot.

Yes, greedy. As I said, she's greedy.

We are even trying to ask $480 for smaller sizes now. We are definitely higher than our friendly competitor. They are only asking $420.

At the end of the day, some of you may know or some of you may be a bit young. When you go to a night market, you haggle and negotiate. So at the end of the day, it is a starting point when you bracket your negotiations. But I think with the kind of demand that we are seeing in the market, while the market remains challenging of course, but I think the kind of feedback we get gives our leasing folks that confidence in trying to push the boundary. But at the end of the day, as you know, It depends on the negotiating position. You come down to a fairly reasonable level which would still be, I think, a respectable level. What we are trying to do is to try to hit at least $4 per square foot.

What would be a reasonable assumption of your pre-commitment rate by the end of this financial year?

Okay, if I were to give you a number that will be set as a KPI for the listening folks. So, okay, I think as of now, of course, 44%, but realistically, by end of the year, if we can get another 20-25%, that will be fairly decent. You'll be talking about 70% or so. So, if we were to set some reference level, if I were to round it out, let's try three quarters, done, 75%. pre-commitment. So this one really depends on whether we can get large users like the two that we have secured for this building. The first one took up two floors, second one, one full floor. So this kind of large so-called leases will be very helpful. You just do a few more, you'll be able to hit the target quite comfortably.

And my second follow-up question is on Going back to the U.S. data center portfolio, how many of the data centers saw a decline in valuations? And is there a common denominator? Is it like their location, vacancy rates, or like the tenant getting a credit downgrade? Is there any common factors for those that saw a loss in the valuations?

Okay, I think quite a few of the facilities, if you do a comparison, about half, you see some downshift in valuations, but mainly driven by the cap rate effect. Of course, that was offset by the routine escalations, roughly 2-2.5% for most of the tenants. So, effect from the market effect from talent so-called quality i think very muted if any the only more meaningful one if if you do a comparison is the rancho cotova asset minus 47 that one is the sun guard facility because of the downshift or downward adjustment in the rent level

Hi, Vijay from RHB. Hi, Vijay from RHB. Just a couple of questions. Maybe first one on the follow-up on the Kolam IS site. I mean, in terms of pre-committed level, slightly below where the market is in terms of overall occupancy and what it is. Is it because of the factor which you said that you're holding up to the high rents, that you want to hold up to the rents, that this building is slightly below pre-committed? And also, can you give some color in terms of new demand versus expansion demand seen in the market, especially in light of macro numbers which seems to have come down quite a bit in the recent months.

The practical consideration for development projects is that it is quite unlikely to get high commitment or pre-commitment prior to completion unless it is a built-as-up project. While occupancy or the committed occupancy level is lower than average or lower than what we are experiencing in the portfolio, we think this is not an uncommon observation for development projects. So if you look at the past redevelopment or development projects that we have, from completion to steady state, occupancy level, you'll probably be looking one and a half, two years. for us to get there. Of course, your environment, market situation does play a part in how fast or how slow we get there. We think this is a fairly normal observation for a development project at the point of completion. That said, we are of course getting the team to really work hard in maintaining the momentum. So the kind of aim, I think just now we had a question on the committed occupancy target by the end of the financial year. Hopefully, about three quarters, about there. But I think for us to get to full occupancy, practically full occupancy, you'll probably be talking about the subsequent financial year. and whether it's a one and a half year or so kind of time frame, we do not know. It really depends on the market demand and as what you might have observed, there could be certain kind of challenges in certain market segments. So we would want to be a bit more targeted in the approach The tenants that we think continue to be interested in this space, the medical technology ones, I think continue to feature. I think Kim probably can share some of the other possibilities that we are dealing with or other perspectives we are dealing with.

I think you just set my KPI for this year. For development projects, usually the commitment level was slowly built up. So after the TOP, which is now, this month in April, we actually see more increases in terms of viewings and inquiries. So the types of tenants is still the IT time factors. We see more now of electronic sectors. Bio or lab companies are still there. So it is in line with the type of tenants that we are targeting for this building. So, yep, I think we will work very hard on it.

My second question is in terms of your strategy on divestment. You mentioned about divestment and rebalancing your profile of your portfolio. Maybe can you elaborate a bit on this? Because I haven't heard divestment word from you for some time. Maybe you'll do more on redevelopment. What kind of divestment and where you are planning to rebalance your portfolio to?

We are looking at it in an opportunistic manner. As in, say, an analogy of managing a garden, you let the plants grow and you have a very vibrant kind of but periodically you will need to do some pruning, some adjustments here and there. If not, you will go into a jungle. We have not done much divestments and most of the cases are very opportunistic. If you look at our history over the past 12 years or so, only four were done. One was an option to purchase, which is the Equinix Dealer Centre. in Singapore, so that one was part of the deal, part of the transaction. The other three are very small assets. One in the US, two others in Singapore. Single user, end user type of transactions. So it's more driven by the demand we see coming from the space users. But we think it's probably a good time after managing this portfolio for a good period of time for us to look at a more confident approach, still opportunistic, but we will look at what makes sense for us to keep for longer periods, what makes sense for us to maybe look at even redevelopment, or on a total return basis, what might be a good time for us to crystallize some value. So it will be cutting across you know, the portfolio in terms of the review and assessment. So both in Singapore and North America. Because at the end of the day, it's about finding that right kind of value that we can crystallize. So it will be quite opportunistic. We would probably be grouping some of the assets together, whether, you know, in a logical manner by type or by so-called location, and we will engage the property brokerage firms in the respective markets to see whether we have a good level of interest. Then we'll see how we can take it forward. So it's about rebalancing, it's about pruning the garden that we have. And hopefully that will also, other than helping us crystallize good value. It also helps us rebalance a portfolio, allow us to have the capital to deploy to other more relevant or suitable assets for us. So it will probably be a process that will embed in our our so-called strategy going forward. As a portfolio gets to a certain scale, gets to a certain kind of age, this is something we'll probably need to do a little bit more as time goes on.

Just one follow-up on this. In terms of the mix, are you happy with the current mix of your data center, high-tech buildings, Do you plan to change this mix in terms of assets or geography?

Well, I think the second question, geography, for sure we want to be represented in more locations other than Singapore and North America, mainly US. Because while it has worked well in the last couple of years, we of course have strong attributes in both of these markets, but in the long term, Diversification will be a primary consideration. We have talked about going into the other more developed markets for the data center space, the European market, the key Asian markets. We will continue to look at these locations. Hopefully we are able to find the right asset to bring into the portfolio. We want to have greater geographical coverage And in terms of asset type, for the time being, our focus will still be on data centres. That's the reason why we'll probably be comfortable with letting the ratio creep up to, say, three-quarters. I think we talked about the bands earlier, two-thirds to 75%. But at the same time, we're keeping an eye out on the other asset or property types that fall within the industrial mandate. whether they are high-tech buildings, whether they are R&D facilities, or even biotech farmer facilities. So if those opportunities were to surface and if we were able to find a good match, we will certainly think of bringing them into the portfolio as well.

Hi, this is Tan Shen from Goldman. My first question is on growth opportunities. I guess what you're guiding on acquisition divestment seems quite different from what you mentioned last quarter. Can you share what has changed?

The acquisitions will continue to be a mainstay because at the end of the day, the redevelopment or asset enhancement opportunities are not so easy to execute. we have a fairly mature portfolio, so we can only look at certain opportunities within the portfolio once every couple of years, depending on the market situation, depending on whether we can find suitable prospects that can anchor some of these initiatives. And say, un-neutralized GFA, is not popping up everywhere. We only have a couple of clusters with a decent amount of so-called unutilized GFA that we could exploit. So acquisitions, whether they are for individual projects or assets or portfolios will continue to be a driver and that's what we've been doing in the past. I think the new thing that we have brought to the fore is divestment. I think as I have outlined in the earlier response, it is essential for us to look at rebalancing the portfolio and also pruning the portfolio over time. While if you look at most of our assets, they are getting very good occupancies, even the older facilities. But at the end of the day, as a manager of the portfolio we will look at whether it makes sense for us long-term whether on a total return basis it is an appropriate time for us to crystallize some of the gains against maybe some future value or future unknown. So it is a balance that we are looking at but we will be mindful of the impact of the portfolio as well because I think If you just crystallize gains without having a strategy on how to position the portfolio forward, you will not be meaningful for the portfolio in the medium to long term.

Can I follow up on longer term? If you think about divestment and acquisition, what kind of gearing do you think you will be comfortable at and also how are you thinking about equity fundraising?

I think the leverage level we have now, we are very comfortable. I think we have talked about the 40 to 45 percent level which is banned and we are okay with. But at the end of the day, we will be guided by the market, guided by what investors are comfortable with. But I think if you have instances where we say, look a little beyond 40%. It's not a big issue because our coverage ratios are still fairly robust, 4.5%, 5%. So I don't think it will be a big concern for us. And, say, if there are opportunities available and we need to, say, lean on that for the time being to... say execute certain projects that will bring our leverage slightly beyond 40%. I don't think it's a big issue. Now on the fundraising part, from our perspective, we would always try to match fundraising exercises with transactions. So to make sure that we put the money to good use. If you look at our historical fundraising exercises, it has always been pegged to transactions or deals. So that is the approach we will likely take in managing the portfolio going forward. We certainly recognize the market is not so clear in terms of fundraising opportunities. Maybe some windows will open up now and then, but at the end of the day, it will be more driven by transactions that we can bring forth that we can marry to any exercises.

Just a last quick question. Can you share the portfolio rent reversion for fourth quarter and full year?

Fourth quarter, minus 1.9% because of the high-tech space effect and if you were to exclude that, roughly 6%. For the full year, I think it'll probably be a 3% or so level. I don't have that full year number. Do we have?

We'll get back to you on the full year number.

Hi, Derek from Morgan Stanley.

Yeah, yeah, no problem. Please.

To follow up on the acquisitions angle, you talked about crime war data centers in Europe, key Asian markets. What are the cap rates over there looking like right now?

I think the cap rates are still not so helpful. In Europe, you'll probably be talking about the 4% level. We have not seen big adjustments yet responding to the interest rate increases. For the rest of the Asian markets, you'll still be around the 3 plus 4% level. you are talking about the more prime so-called assets. So if you look at it from the perspective of spread, the Asian markets probably look a little more interesting, whether it is Japan or South Korea, relative to Europe or even US. Because in those places, the borrowing cost is quite horrendous. staring at the 5% kind of figure. And if you look at our equity cost, also, you know, 5 plus percent kind of, even in good times. So to get deals to work or for deals to be equitative, you won't be able to find the right kind of opportunities in the market now. The market has not adjusted yet. So we'll be certainly... be hunting in all these locations but I think realistically the Asian markets might present more opportunities in view of the funding conditions.

In the UK, digital realty has a portfolio that they've been trying to sell for some time. Is that still too tight?

It is for the time being because I think the mindful of the the spread that we can push for. And while we anticipate the interest rate hikes to be moderating, it is still not moderating yet. So it is a case of whether we think it will be another 25 or 50 basis point more. But would it stay high at that level if it stays at the same level without any clarity on when that downshift is going to take place? some of these transactions could still be challenging in the near term.

And on the divestment front, do you have a dollar value target?

It's not driven by dollar value. I think we are looking at the assets that might be suitable. And it's across the portfolio in terms of location or in terms of the asset type. So we don't have a very specific dollar value in mind because at the end of the day, it is not a case of us needing a certain amount of capital. So it's a case of, as I mentioned in the garden analogy, pruning and looking at what is relevant, what might be suitable longer term, and if we can crystallize a good value value. say, upfront relative to looking at future possibilities. So that is a kind of analysis that we'll be doing and deciding which one that we will want to maybe check with the market. So it's not a dollar value-driven consideration.

Just lastly, we're all in interest. What's your outlook for this year?

She has a crystal ball.

As I said, if I have, I won't be here. I'm still looking forward to the beach where I can sip martini and treat at the same time. Well, I think for this quarter, we have actually reported all-in interest costs of about 3.5%. I believe that will still continue to move up. The only question perhaps is how far out it will go. I think right now the market is really expecting that there is going to be a rate hike. The only question is how much. and the expectation is even there is, is not going to, I think the expectation is about 25 bps. So if that continues, I think the interest cost, our interest cost will continue to creep up, but you will not be seeing very significant jump as what we have seen in the past few quarters.

This is two-thirds to 75% data centers is actually quite a large number compared to what I imagine. Maybe I missed out on a few quarters. I may be wrong. But in any case, do you have a timing for when you want to achieve this target? Then the second question is, you're currently at BBB Plus by which, is this something that you would be willing to cut? because if you hit say 40-45% which you are comfortable with, would it have implications on your credit rating? And the last question is, you mentioned about the trees that you are trying to plant. It led me thinking that in terms of industrial properties, can you share with us what is Singapore Government's plans in terms of greening this?

The last one, I don't have a great deal of insights. I will elaborate on that later. But in terms of the so-called profile of the portfolio, when we first started going into the data center space, the first transaction, we only had 10% of the portfolio that is data center. So at that time, we were looking at you know, what would be a right kind of representation. And that band of kind of data center representation has shifted up over time. So at various engagements with investors and, you know, the research firms, we have adjusted that up. And also that's partly driven by the support that we have received from market and investors in us, you know, having a larger representation in this space. So we have shifted that up about 2-3 years back to 50% to 2 thirds, which is whether 65% or 66%. From about 1.5-2 years back, looking at the situation and looking at opportunities available, we ventured an upshift in the band. possibly beyond two-thirds to maybe 75%. That is a possibility. So that one is also for us to gauge the level of support, level of interest. But I think at this point in time, it is safe for us to say we are not turning ourselves into a data center read. So we will of course continue to recalibrate the exposure. As of now, we are talking about 53.7% or 54%. And We'll probably move up to two-thirds soon. I think if you look at the pipeline, the very ready pipeline is the sponsors' balance 50% stake in the digital portfolio that we acquired in 2019 and early 2020. That one will move us closer to the 60% level. That one, I think, is well prepped. The and if we are able to crystallize a few more yeah I think two-thirds probably in the next year or two is that kind of possibility that very much of course depends on whether we can do that portfolio type of deal or not if we say asset by asset incremental one yeah probably need to stretch that by another year or two so we'll eventually get there to that kind of representation in the short to medium term. But would we want to push for 75 as a target? No. We are only looking at that as a band that we might see how the portfolio would be represented. It is not a destination. It is not a case of us saying we want to be 75% or we want to be 70% so that this is optimal mix. Because at the end of the day, We are also looking at other types of industrial assets, whether they are high-tech, R&D spaces. If economics work, if the attributes work, that will be another dimension because at the end already we recognise that for a platform to be evergreen and to be relevant, we need to respond to the market and we need to have a good level of diversification because we won't be able to make the right bets all the time. Market shifts, demand will shift over time. So that is a kind of consideration we have. So we don't have a very fixed time frame, but we think with the trajectory going this way, that is maybe a 3-5 year kind of possibility maybe we hit 75 if we have all the right elements in place we do a few more portfolio transactions but i think before we arrive there and we'll probably have a lot more conversations and engagements with the community and then see whether there's any need to recalibrate and readjust now on the on the greening of the facilities or the guides we don't have very specific kind of guidance. Because at the end of the day, we recognize that many of the industrial facilities, especially the ones that are non-air conditioned, difficult to secure the local standards, the green mark standards. The facility that you see down here, this block 161, 163, BCA grim up platinum, we have secured that because it's air-conditioned, we have put in a lot of features like low ATTV so-called design for the premise and we would incorporate as many of the features or green features as possible other than efficient ACMV systems, we're talking about tree planting and in future for this we'll be looking at possibilities of the solar panels as well. We have not put in any solar panels for this building yet at this present moment though we've embarked on initiatives or many of our other classes because we are looking at the tenant's needs and requirements at say the roof space first before we lock some of this in. This will be a feature they'll be looking at. Then the especially for newer buildings, new builds, high-tech facilities. We would, of course, track the guidance given by the government and also within the certain of the sustainability framework. Of course, for measurable ones, for ones that you get certifications, we would aim towards those certifications. I think we have our line In one of our releases for new builds, we will look for at least a green mark goal for our new builds. But we will be mindful of certain constraints, like if there's a non-extension facility or whole facility, it's practically not possible, but we do what we can. So things like solar panels, energy saving, light fittings, things like that we'll do.

Thank you. I think we might have to end the briefing shortly, but I'll take two last questions. I know the gentleman in white and maybe Brandon.

Go away. Dale from DBS. Just a very quick question for me. Going back to the high-tech building, the renewals, I understand that you said that it's because of a large tenant renewing, but just trying to wrap my head around why that big drop. Because we've been hearing about rentals still being very strong over the past two years, growing. And at the same time, in terms of the new leaser sign for high tech, it's also significantly below your passing rents. So just wondering, is all of this a one-off or is this a sign of where rentals will be trending?

A quick response to that is that the renewal rents that we're signing is still quite respectable relative to the market. The reason for that downshift is because of the mechanics built into the earlier lease, the expiring lease, because there were escalations built in and we managed to have the original lease packed at fairly high levels. So while the market has been supportive, but relative to what is in place, we think it is reasonable for us to accommodate that adjustment. So at the end of the day, will we be able to, we have to make that assessment, will we be able to push for the rent to be the same or an increase that will be slightly higher the market that might encourage the tenant to really look at alternatives or not. So of course if a tenant were to come back to us and ask for half price, then easy discussion. But it's about looking at that balance and the kind of managing that exposure and uncertainty. For high-tech space, the kind of comparison say for the new rents relative to say in place or passing rents may not be instructive in certain cases because our high-tech space is quite a mixed bag in terms of attributes. As many of you know, high-tech is not a property zone type. So it's partly a marketing term that we use. So our high-tech rent or high-tech space so-called offerings, we have rents that will settle as low as low-tooth, $2 plus to $4 plus, like what you see down here. So it depends on the deals that we have. crystallized in that quarter when we do the reporting. So you will fluctuate up and down fairly wildly within that band. So if you track the reports or figures that we have outlined, you'll find that volatility is relatively higher. So of course at the end of the day, whether we want to have two types or three types of high-tech descriptions within our portfolio, but then we don't, it's not as if we have say a thousand assets, ten thousand assets where we have a large enough kind of scale to give us that good number of data points to represent. So for the time being you will see this kind of fluctuation but I think observation that we can share is that the market continues to be supportive in this space, so that is not an indication of any weakness in the demand.

I just want to touch on the acquisition plans again, right? I think in FY23 you mentioned that the sponsor pipeline is probably off the table, but looking at FY24, does it make better sense now where you're trading?

Okay, it is still not an easy kind of execution, even if, say, the sponsor is looking at doing that transaction. Because while we are at the small premium over NAV from the capital cost perspective, especially when you take into consideration the borrowing cost, both on the borrowing cost, it is still quite close to the cap rates that we are seeing. getting the deal to be reasonably acquittive is not easy so you have to still wait for the right market conditions and of course depending on the sponsors so-called plans for the divestment. So it's something that we would want to plan for but is really driven by the sponsor's own considerations and also the market readiness. So is it going to say that the underlying yield of that portfolio is about what? 5 plus. So the case is whether we can find the right window for us to execute the transaction. Okay, thanks.

Thank you very much. I think we can take questions offline, but right now we have to end the webcast. Just a note to apologize for the late delay of this briefing. Thank you very much and have a good day.

Thank you for joining us.