Mapletree Industrial Trust

Hi, a very good morning. My name is Melissa. Thanks for joining us for MIT's fourth quarter and full financial year results briefing. We have the management team of MIT on site for this virtual briefing. We have Kowei, our CEO, Yuli, our CFO, Peter, head of investment, Serene, head of asset, Sarah, our US asset manager, and also Kim, who leads the marketing team. The results presentation slides were issued last evening by SGXNet and available on MIT's website. We will use it for this morning's briefing. Without further ado, may I invite Kuo Wei to provide a short update on MIT's performance. Kuo Wei, please. Thank you.

Can you hear us? I assume you can. If not, you can speak half an hour. Without your hearing anything, you'll be just spending another 30 minutes without any productive things done. So anyway, our fourth quarter and full financial results I hope you can see we have projected it. We can go on to the highlights and talk about what we have delivered. I think all in all, we have relatively resilient performance and the revenue contributions from the new projects have been quite meaningful. If you look at the net property income improvements, 0.6% year-on-year to $521 million. And the amount that we are able to deliver to unit holders has increased 2.7% to $378.3 million. But on a DPO basis, if you look at the full year performance, we have a 1% dip compared to the previous year actual results So we are delivering 13.43%. Of course, if you look at this in relation to the higher distribution available, this is driven mainly by the slightly larger unit base that we have. You could remember we issued $200 million of equity in the third quarter last year for our Osaka Data Center acquisition. So that has resulted in this small little drag. All in all, we are still looking at a fairly resilient financial performance. If we look at the second set of bullet points on the operational performance, we have reported positive reversions across all property segments. The aggregate average, we are looking at positive 6.6%. So if you look at the rental revisions over the last 10 quarters has been positive as what we have outlined in some of our conversations. For the last two and a half years, we have turned the corner as far as revisions are concerned. But if you look at the kind of trend, the previous quarter 7.2, this quarter 6.6, And three quarters back, it was 8.8%. So it is, I think, a case of us reaching a kind of point of diminishing returns. Would we get or would we be able to have rental revisions, positive rental revisions, next few quarters? We'll probably have. But my sense is that we'll probably trend towards a 4%, 5% level. I think quite difficult to look at you know, us going for high, even high single-digit figures, because as you might have seen, with 10 quarters of consecutive positive rent revisions, by the time we hit another two quarters, we will be catching the front end of this so-called period of positive rent revisions. So the kind of upward adjustments had already been effected about three years back. So that kind of additional upshift from the rental rate perspective would be a bit more, I would say, muted. Now, going on to the rent levels, we are registering higher rent levels that have been fairly encouraging, $2.02 for the Singapore portfolio and $2.51 for the North American portfolio. For the North American portfolio, you might have seen in some of our detail numbers, we see a small upshift, and if you look at our AT&T representation, essentially when AT&T did the extension of one year for our San Diego asset. We had a small little bump in terms of rental rate. So from rental rate perspective, we see a higher so-called numerical representation. But that one I would say is temporary. The portfolio valuation is relatively stable. If you look at that from a face value perspective, $8.8 billion. And compared to last year, 0.9% increase. But if you look a little bit more deeply, compared to book value, we had some write-downs. If you look at our other announcements on the valuations for this year, Portfolio valuation seen a small uptake mainly because of the addition of our Osaka data center that we took on third quarter last year. So that had, you know, marked the downshift in like-for-like valuation adjustments. Later we can run through some of the details. But certainly, From the perspective of the portfolio management, we continue to look at rebalancing it, improving the profile. For the Osaka Data Center, as some of you may know, it's a phase completion kind of arrangement because it's not a fully completed or fully fitted asset. We have phases 2, 3, 4 to be done. We have recently completed a phase 2 feed-out workflow. And of course, we are receiving the corresponding revenue contribution. So as of now, 80% done. We have another 10 plus 10 for phases three and four in this year that we would expect completion. Now, divestment is another key initiative that we would look at a bit more closely. And some of you may know we have reached out to the market uh to to you know get a sense of interest for a broad range of assets in our portfolio the singapore assets the value factory assets business park buildings and some of our u.s data centers the demand has not been that strong it's fairly loop on some level of interest but not uh at this level where we can or or the kind of um the the interest level not at a stage where we are able to cross the line and go into a firm kind of transaction. So we will continue to look at this divestment initiative this year. We think the market should be more conducive. While the interest rate cut start date has been shifting back and forth, probably more back based on the current set of articulations. But we think it's a case of when, not a case of, you know, whether. And we think the market will probably respond favorably to that towards the later part of the year. And there might be windows available for us to look at divesting some of our assets. But, of course, we have successfully completed one, the Tangling Hot, feather factory cluster, $50.6 million. That was completed just before the end of the financial year on 27th of March. I think some of you all have asked, I think, on the gains that we will be distributing. I think relative to what our original cost plus our... capitalized costs, we have gains of roughly 13 million Singapore dollars. So our intention is to distribute this 13 million dollars equally over the four quarters in this financial year. So of course you won't see this in the fourth quarter set of results. The next quarter we will have this as a line item for the distribution of gains. Now on the Capital management part will continue to strengthen the balance sheet and we look at opportunistic issuances of bonds or getting our borrowings hedged at an attractive favorable rate whenever we can. So we have recently issued $50 million Singapore dollars three years at 3.75%. So that will give us a bit more certainty and also allow us to lock in, I would say, a reasonable rate in the meantime. Hedge borderings, we have reported just a shift below 85%, so we have a fairly good level of protection. Average tenure for the hedge, 3.7 years, which matches our bordering tenure relatively closely. So we have a bit of a kind of a good match along this front. Leverage ratio we think is still relatively healthy, 38.7%, gives us a bit of headroom to take on projects and to look at the possible acquisitions to help us further diversify and strengthen the portfolio. So I think that rounds up the key highlights, maybe I'll go to the valuation part to give a bit of colour. So this is on slide number 12. The figure which I've outlined earlier, you can see aggregate 8802 for the entire portfolio. So there are, of course, essentially some write downs across the portfolio. In the Singapore portfolio, mainly due to the shortening land tenure clusters, because this is a case of a mathematical representation once your assets go to a stage of below, say, 15 or 16 years of balanced land tenure balance. Cap rates, generally the same, except for, compared to last year, except for the Singapore data centres, Because of the very high demand for this space, we have seen a roughly 50% cap rate compression for the Singapore data centers. And of course, mind you, this is the year where we have switched valuers. So while we see that as an indication of the width of the market, because when you shift girlfriends, you cannot do a life-for-life competition. You say, last time you did this to me, or last year you did this to me, this year you did another thing. But I think the cap rates being, I think, likely the same for the rest of the sectors is an indication of the stability in the Singapore market. Whereas for the US data center market, we're seeing cap rate expansions generally across the board, except for some one or two assets where we see side compression because of the relative strength of certain sub-markets. Now, for the U.S. assets, I think if you look at the cap rate reference, most of them will be clustering around the 5.75%, 6%, 6%. 5 level. The broad range, you know, at the extreme end, at the low end, 5%. At the high end, I think it's 8.25%. So this is, of course, the tighter cap rate assets are driven by the location and the kind of attractive kind of attributes. Like 180P3 at Atlanta is exhibiting the 5% cap rate because it's 100% occupied, long leases and high demand area. The 8% cap rate is represented by Arlington asset because the tenant left in March 2023. So from a cash flow perspective, there is nothing apparent yet in terms of releasing kind of a prospect. So some of this was taken into effect But if you look across the board, the range of cap rate expansion, we would see them clustering around plus 25 to plus 75 basis points. And that represents roughly 64% of all the assets we have. So I think that will give you a sense. I think if you're looking at modeling that kind of effect, you can look at that range or you can pin whether a 50 basis point, you know, for getting a rough gauge. So do we see this cap rate continue to expand next year? Of course, it's not easy to stare into the crystal ball and forecast, but we think we are near or at the bottom because the cap rates are quite sensitive to your funding costs and interest rate environment and the market should, I would say, turn the corner along this front and hopefully your cap rates would at least be stable. And if not, if the market really continues to be exuberant, especially for the data center assets, we might see some improvements. But I think the stability should be maintained henceforth.

Okay? Yes. I think we will move into Q&A. If I can request for the analyst to state your name and firm and limit your questions to two per round. I think the first one on the line is Mervyn.