Mapletree Industrial Trust

Good morning and thanks for joining us for the Results Update for MIT's Fourth Quarter and Full Year 2021. My name is Melissa.

And we have the management team of MIT sitting within safe distances in the boardroom. We have got Mr.

Kuo Wei, our CEO; Ms. Ler Lily, our CFO; Mr.

Peter Tan, the Head of Investment; and Ms. Serene Tam, the Head of Asset Management.

Today we are broadcasting the analyst teleconference via our webcast. Can I please request for the analysts to use their lines and use the raise hand button for the Q&A later?

Without further ado, I'll pass the time to Kuo Wei for a quick update of the quarter.

Good morning everybody. I think Serene as she's given you, we are sitting far apart from each other, certainly more than three meters very, very safe.

So we have a presentation slide that was uploaded last evening. We can go through the highlights and maybe some of the few key updates before I take questions.

Now the highlight page is on Page 5. For the full year, we have reached almost $300 million worth of distributable income 295.3 and that represents 11.3% increase year-on-year basis, driven mainly by the contributions we have from our North American data centers, which you will know we have completed the acquisition of the balance 60% on September 1, 2020.

But we had some drag from the rental reliefs that we're giving to our tenants, in aggregate just below $30 million for the financial year. And of course, we commenced the redevelopment of our Kolam Ayer 2 Cluster, so we do not have revenue contributions from that cluster.

On the DPU front, for the financial year, we have delivered $0.1255, which represents a 2.5% increase year-on-year basis. So if you will look a little more closely at the fourth quarter distributable income $70.7 million, which is a 2.3% increase year-on-year basis similar kind of drivers of what we have for the financial year and the DPU level $0.33, which represents a 15.8% increase year-on-year.

Of course, this is little kind of higher than what we normally see mainly because of the amount that we have withheld in fourth quarter financial '19 and '20 that was $6.6 million steady still not released yet. And because of the lower base for the fourth quarter the previous financial year, you see a relatively higher increase DPO level.

And for fourth quarter as we have outlined in the bullet point, we have released the $7.1 million of tax-exempt income that we have withheld earlier. So some of you may remember, we have withheld an amount above the same $7.1 million in the first quarter of financial year 2021, beginning of the financial year.

So, we are releasing that in fourth quarter. So effectively, if you look at financial year 2021 on a standalone basis is made intact, so there is no kind of withholding effect of income for the financial year.

So that amount is roughly equivalent to $0.003. So if you remove that effect, we would have a $0.03 distribution for the fourth quarter.

And of course, fairly recently before the end of the financial year, we have completed the transaction we announced in September last year, the data center in Virginia in the US. So that has started to contribute a little and we would expect the full kind of effect or contributions in this current financial year.

And the next of course on the portfolio performance, occupancy has shifted up a little, 93.1% and 93.7%, driven partly by slightly better performance from our Singapore properties. And also a little bit of contributions from that three weeks of higher occupancy registered or taken in for the Virginia property in the US.

So in aggregate, we are reporting a higher number. The portfolio valuation as a 31 March, as you know, we do it once a year, has increased by 14.7% to $6.76 billion.

So I think that is driven of course, mainly by the acquisition and consolidation of the data center portfolio plus the acquisition of the asset that we did. Of course, there's some downward drag in valuation for some of our Singapore assets, which you see in the details that we have outlined in the financial statements.

The Capital Management part, I think, we remained fairly healthy, or rather we have a strong balance sheet and amount of committed facilities, we have more than $600 million, and the coverage ratio reached to a very strong number 6.4 times after the fourth quarter. Now going on to the next page, our distributable income and distribution profile, of course, as I outlined earlier on the right $0.033, that is partly driven by the release of the $7.1 million.

So if you look at the bar chart, that $7.1 million is not registered in the $70.7 million, because that is not a distributable income for that quarter. So as a result of that there is a dip in the profile compared to the previous quarter, and the lower distributable income for this quarter is partly due to higher reliefs that we have given to our tenants, compared to the previous quarter, previous quarter is $11.9 million, this quarter was about $3.7 million.

And we have a little bit more operating expenses, board approving for site cleaning works for the portfolio in Singapore. So as a result the effective distributable income has come down.

And of course, some of you may have noted, usually we do have a slightly higher level of operating expenses towards the end of the financial year, really in the fourth quarter. You may begin I think we have been able to exceed the performance for last year despite the pandemic challenges and despite having given out the rental release of about $12.7 million to all tenants, so for the full financial year $0.125.

Now going on to the details from Page 8 onwards, on Page 8, we outline the revenue about 19% increase. So for fourth quarter, we have delivered $121 million.

That's partly - mainly driven by the consolidation of the US data center portfolio that we have completed for September. Operating expenses, of course has a corresponding effect as well where as I mentioned earlier, we have a fairly higher set of operating expenses for the quarter for the Singapore portfolio.

So the net property income increase is about 17.3% or $91.8 million. And of course, for the fourth quarter, you see the effect of valuation in the P&L, so a couple of lines down you see $87 million steady state fair value loss from valuation adjustments that we have seen, mainly from the Singapore portfolio.

There is another line that we would highlight which is a deferred tax $32.35 million just around in the middle of the table. That one is for our wholly own us data centers, essentially, upon taking ownership of 100% of the portfolio, based on accounting standards, we will need to provide four differed tax and that is equivalent to capital gains tax in the US if we had disposed off the assets, but of course, this is a provision, but I think being very obedient, law abiding, so we provide for that and this is a non-cash item.

So this provision as well as evaluation, fair value adjustments, they have no impact on the distributions, so all this gets reversed out. And therefore, we have the amount available for distribution of 70.7, which I've outlined earlier and the $0.033 cents of DPU for the quarter.

And going on to the full year year-on-year performance comparison, that's on Page 9, the revenue side, we reported a 10% increase from $446 million to $ 447 million. Operating expenses follows the same trend 87.8 to 96.2.

So we now have about 10% increase in net property income from 318 to 351. So the same kind of effect gets - so called represented here with the fair value loss of 87 million because it's all registered - it was registered in fourth quarter, and that is only registered once for the financial year.

Same thing on the deferred tax effect 32.5. So in EBITDA for the full financial year, we have delivered 11.3% increase of the amount available for distribution from 265 to 295 as I mentioned, just a shade below $300 million.

So that gives you that 2.5% increase from $0.1224 to $0.1255, but I think you stare hard at the numbers, you would have noticed that $0.1224 was the effect of us withholding the $6.6 million in the fourth quarter of last year and at that time for a slightly lower unit issue base. That was equivalent to roughly $0.003.

So from the DPU perspective, we are back to about the same level if we had not done the withholding last financial year, but of course this year, we had quite a lot of rebates that we need to account for us this fairly weaker leasing market at the beginning part of the financial year. So going on to the next page, Page 10, where we compare quarter-to-quarter, there is very little shift because this one the timeframe is just three months from the comparison.

The revenue has drifted down a little. Some of these are driven by of course rebates that were given, as I mentioned earlier, we have slightly higher rebates given for fourth quarter, so $123.7 million down to having $121 million.

Operating expenses, you can see an increase which I talked about, from $24.8 million to $29.3 million. So net operating income on a quarter-to-quarter basis is 7.2% balance shift from $98.9 million to $91.8 million.

So the rest of the effect similar this has been I've outlined the key kind of shifts, the net fair value loss and also the deferred tax. So on a quarter-to-quarter shift or 2.7% down from the DPU perspective because we've removed the effect of the non-cash item, we still see a 0.6% increase from 328 to 330.

So going on to the next page, Page 11 where we look at the financial position and also the NAV. So the NAV shift from 31 December, 2020 to 31 March in our financial year is mainly driven by the adjustments in our asset value.

Of course compared to last year, we have seen an increase 9.4% and our NAV per unit, year-on-year basis, 2.5% increase, and adjustment down 2.4% from the end of the previous quarter due to the valuation adjustments. Now, going on to the next page, Page 12, where we give an update on the valuation, so you can see the aggregate figure SGD6.76 billion equivalent for all 115 properties.

The Singapore assets, you can see about the - near the top part of the chart is $4.39 billion. And you compare that with last year, you will see that the dip was from 4.7 - 4.44 billion to 4.39 billion.

And quite a few of these assets that had down shifts, the shorter land and your assets and also some of the properties where we encounter challenges in rental levels and occupancy. So there's certain adjustment variables that means based on the taking of market rents outlook as well.

So that has accounted for a big part of the $87 million downward shift in the evaluation. For the North American portfolio, we are seeing an increase for the wholly owned is about 1%.

And the joint venture portfolio is about 2% increase. And going on to the balance sheet on Page 13, the notable so-called perimeter, of course, is aggregate leverage ratio that increase by about three percentage point from a quarter ago from 37.3 to 40.3.

Key reason is because we have used debt 100% to fund our data center acquisition in Virginia that was completed on the March 12, depending whether you use Singapore time with US time. But anyway, we have looked at the size of that transaction is a little small for us to go out to the market to raise equity.

So at the end of the day, we decided to just use debt for the time being to complete the transaction. So we certainly look out for opportunities to kind of adjust our balance sheet as we go forward.

And this leverage level is certainly nothing for us to be concerned about. So going on to the next page, Page 14, our maturity profile for our debt, very, very diversify across all the different financial years.

So we don't have many multiple kind of exploration, the larger one I think is about four and a half years from now to the financial year '25, '26, 23.7%. So we are not that concerned about exposure.

So we just continue to make sure that we have a well spread exploration profile. And on Page 15, the risk management aspect of our balance sheet, you will find that the amount fixed as a proportion of the total debt has come down from 96.2% in the previous quarter to 76.8%.

That's - the key reason is because the debt that we've taken for the acquisition of the data center is mainly not fixed, it is on floating basis. So effectively that has resulted in the percentage drifting down.

So the average channel remains about the same despite having a time regression because of some of the small refinancing that never would have done. It turns out that we have the same number.

The weighted all-in costs about the same, we managed to save a 0.1 percentage point so now about 2.8%. Coverage ratio still remains fairly healthy six times and if you look at the other parameter which is required or calculated based on the property foundation guidelines on the trailing 12 months basically says about 6.4 times it has come down a little compared to a quarter back.

Okay, now going on to the next segment where we talk a bit about the portfolio. So this is, of course, an updated picture, in aggregate, we are now $6.8 billion and data centers, just a little above 40%, 41.2%.

And most of our data centers in the US 35% and balance 6.2% in Singapore. So in terms of geographical spread, it comes out to be nice on the number 35-65, Singapore and North America.

So we find that I think over time, we will have a say, larger representation of data centers and slightly larger representations of non Singapore assets as you go along. And on Page 18, on the occupancy levels, I think very, very stable.

The increase in aggregate from 93.1 to 93.7 as I mentioned earlier, driven by slightly better Singapore performance, except for a couple of segments like business parks, we're still seeing a bit of weakness now and the contributions from the so-called US portfolio as well. And on the lease expiration profile that's on Page 19.

The Singapore portfolio I think remains roughly the same amount for years. North American portfolio is 6.2 years.

So in aggregate we still have a very credible four years for the weighted average lease to expiry, and a very well spread, if you look at the chart below and in a near term, for the current financial year, only 14.8% of lease renewal. So it's essentially business as usual, tenant management for us.

And most of the leases that are dew for expiry the big chunk of them way beyond '26, '27 and beyond that's about 30%. And on Page 20, our top 10 tenants in aggregate, certainly more than 33% of our gross rental revenue.

And the addition of new entry is number five, which is 2.9%, or the multinational company, the name which we cannot apply at this moment. We will try I mean, we're engaging a tenant; some of their tenants are rather shy.

And this is of course, the tenant using - that was in a data center facility in Virginia. So when they're ready to be disclosed, we will certainly be happy to copy and paste the logo on this page.

And on Page 21, tenant trade sector diversification, of course, we have a more and more diversified portfolio how InfoComm or the blue part of the chart has been growing over time. So we think it is likely to be significant as manufacturing very soon.

And a lot of the tenants we have in this space are in a data center services. I think early on, we had some classification adjustments in the tenant like AT&T, I think was originally classified under telecommunications, but the activities and operations that have more data center, so this is more a - more accurate representation within a sub segment, but as a whole, we see a higher representation coming from InfoComm in the coming years and manufacturing becoming slightly smaller kind of - part of the portfolio.

While it's too significant and the larger part of course is to from the manufacturing 17%, the precision engineering part of manufacturing. Okay, now going on to the next page, where we talk about the Singapore portfolio, specifically we have seen an increase in occupancy level, 0.7 percentage point from 92.2% to 92.9%, partly because of better performance in some of the clusters in the later part of the financial year as a dip in the weighted average rental level 211 to 205.

This is essentially due to the rent relief impact because the rent reliefs were given a renter rebates. So that has a direct mathematical impact on the kind of average rent number.

So you'll probably find that for financial year 2021, the reported rent numbers tend to get distorted later by rent reliefs given, but I think, next - this coming financial year, you probably don't have that effect and you can see the rent numbers, reflecting the actual rent - effective rents that we're securing. Okay, going on to Page 23, the rent revisions, fairly stable profile, but I think if you do your calculations, you'll find that we have roughly minus 3% effect in most of the property segments from the before and after rents.

We had a poll bar high-tech building's 467, that one I think we would suggest, not extrapolating data from there, because high-tech buildings generally would not see these kind of higher end levels. This is normally - the background of this number is because we had a retail tenant at 18 Tai Seng.

Of course, we don't have that many retail tenants or 18 Tai Seng is a high-tech facility, we aggregated the data for purposes of reporting and the high-tech for 18 Tai Seng even the retail tenants. And we had some other tenants at our Toa Payoh North cluster, they had done - they had taken new leases.

So this becomes a better number, but it represents a fairly high 467 number. So that is not really representative of high-tech buildings - typical high-tech buildings rents.

Typical high-tech building rents, I think, would still cover from 220 to 230 more for the some of our older facilities to about 350, 380 no much changes for some of our newer facilities. So I think takeaway is that there's still some pressure on rent revision side, we're still not able to really push our ends up next to some concessions that we have been giving to our tenants to keep them - to keep our occupancy level healthy.

So I think that bears out in our next chart on Page 24. The chart on the right you'll see our retention above 85.7%.

So I think this time, we will want to focus on keeping occupancies relatively healthy. So we will trade off rent for the occupancy levels and keep all tenants within the portfolio.

And on the investment update heading on Page 26 is the Virginia data center that we have completed, so not a lot of additional updates. This is probably a case of us completing the story.

So it has started contributing from the March 12 or 13 depending on which time zone you use. So there is an amount that we have set aside about $35 million for us to account for any so-called lease structure finalization with the tenant and hopefully we get some carried on and we can lock in a final purchase consideration but for all intents and purposes for now, we pick it at $208 million.

And on Page 27, our divestment of 26A Ayer Rajah Crescent, the data center that we built for Equinix and the sale price so far, no change, as what we have announced earlier $125 million. But we think we are likely to have a transaction cost of roughly $5.2 million, you can see there in the middle of the chart.

So the effective so-called value to us and also the so-called profit level is roughly 18%, which is just down because of these transaction cost. And this transaction cost is mainly attributed to the kind of levy, which this JTC would be putting on this transaction.

So we're waiting for final confirmation, but this is how I gauge the present moment. And this adjustment has also been reflected in our valuation numbers.

Okay, and next chart, of course, is on the redevelopment of Kolam Ayer 2. It is progressing on track and the total redevelopment cost, but we have outlined $300 million.

And some of you may remember, it was certainly more than $216 million, then when we first conceived the project, the increase in total development cost is mainly due to increase in construction cost and is driven of course, by the pandemic, supply chain issues, manpower, availability issues, and so is already accounted for. And some of these effects have also been reflected in the valuation for this cluster, in end of year valuation figures.

So the pre-commitment level is still the same 24.4%. And we, of course, are working hard to try to secure anchor tenants for our space.

And then we are developing. And the updated picture, of course, you can see on the right is the construction progress, a lot of work on site, so we hope to be able to finish most of the substructural work soon and then start building up and in time for our delivery to our tenant.

And next I think we go on to the outlook and strategy segment. I think for the economy, we're seeing some green shoots.

If you look at the first quarter, very, very small improvement, so the takeaway is that for 2021, we'll probably see easily 6% growth, but I think the 16 cases that we saw yesterday was a little worrying. So hopefully that one is just a blip and then we get to some good level of recovery and normalization this year.

So on the Singapore portfolio, as I've mentioned earlier, in aggregate, we have given up $12.7 million and the rent arrears very, very much under control. And we have already seen a reduction in arrears level 0.2 percentage point.

So at the end of the financial year, has come down from 1.4% from December 31 to 1.2%. So we think situation is getting a little better.

And then we'll see probably the next stress in our tenants now. And for North America, where we have, of course, just data centers.

The growth remains - the strong demand remains strong and we see a lot of pickup in the pipeline that has been created mainly hyperscale and also cloud service providers. So we think this will continue to drive the demand and requirement for data center space.

So I think finally, just to sum up on Page 32, our strategy I think is the same. We work hard to keep the portfolio stable and make sure it's very resilient.

And then we'll work on the occupancy levels and healthy retention levels and we have a very strong balance sheet, coverage ratio is very healthy and certainly we continue to look for growth opportunities. And we have the upcoming redevelopment completion that should start contributing from next year onwards.

So I think we have completed our presentation. I will be happy to take questions.

Thank you, Kuo Wei. I think we have a few questions.

I'm not sure who raised your hand first. On my list, can I get Yew Kiang to ask the first question?

Hi, can you hear me?

Yeah. Thanks, Kuo Wei.

The first question is on the outlook of business. Can you give us some color, I see that the occupancy is trending down a little bit?

Just want to get a sense of what's happening there. Are you associating some of the financial institutions is this - if you have any that is like thinking about giving back space?

Secondly is on acquisitions. What are your thoughts on acquisitions this year, given that you're gearing close to that 40% level?

The last question is on the redevelopment of Ayer Rajah. What is the initial projected ROI versus the current status?

And could we say that this could go even lower given that your building contract has yet to be awarded, so construction costs could actually increase further? That's it for me, thank you.

Okay. I would address the questions in the order which you have outlined.

The business park space is still under a bit of stress. From the tenant profile perspective, I think we do not have many financial institutions in our three buildings.

As you may know, we used to have Credit Suisse in our facility about seven years back. So that - they've - it has moved out quite some time back already.

But we do have companies that - info communications technologies sector serving financial institutions. So we have seen some kind of reduction in space needs from these companies.

Because sometimes, if the financial institutions have attachments made to their needs requirements, or they no longer need to be in certain of these premises. The support kind of companies sometimes will shift away or shrink the space needs and the few more material ones that we are seeing in Signature Business Park building where we have some ICT companies and are serving the financial institutions and from what we understand some of them have shifted some of their activities back to places like India.

So there's some effect down there, but as a whole, we think the business park space for us is not out of the woods here. We are of course, working hard to keep our tenants in our premises.

That's the reason why you see the negative revision of about 3%. But I think rent levels of about 350, 360 will probably be good support levels.

And we think the situation is going to be getting to be a bit more stabilized soon. And the - your question on the investment and the kind of leverage level that we have reported the 40.3% is I have mentioned earlier - was driven mainly by the way we have done the acquisition or done the funding for the data center asset in the US in Virginia.

That was of course roughly about SGD300 million equivalent. It is a bit too small for us to do any equity fund raise, so it was a considered decision then to use that for the time being, instead of going to the market again, very small amount of equity raised.

So that certainly would not prevent us from taking on opportunities if there's suffice. And we see that as a very minor consideration that leverage level has.

We have still very, very healthy coverage ratios, and very good access to a lot of funding sources. So at the right time, we will probably look at maybe recalibrating the balance sheet a little and adjusting the leverage level to help us build the headroom.

But that said, even as of now, at 40.3%, say if we use 45% as a reference point, I think it Wendy has already very generously allowed me to use $500 million of headroom. We have $600 million of committed lines available and she says we can use easily 500, 600.

So yeah, so for us to move from the current level to say even 45% of course, I think that would allow us to capture opportunities that's available and if there are any sizable transactions, we'll probably step on the equity fundraising initiative. So the position that we are taking is that we will remain opportunistic and I think if the there's a right window, we will make some adjustments to their balance sheet while keeping an eye out for possibilities to bring in new good quality assets into the portfolio.

Now, your last question -

Okay, can I say in the interim you could actually go up to 45% what I saw throughout the call?

Okay, it's possibility because I think at the end of the day it is about availability of opportunities, and whether the market offers a window for us to say take on more equity at the right pricing. So if it is a fairly stable market, I think our first preference is always to have a good mix of the funding sources.

So we will certainly drop that and we will try to get some equity raised, so that we maintain a very healthy kind of level for the portfolio, but we do not discount the fact that say if the situation requires, we will draw a little bit of - a little bit more debt, like what we have done in the last month or so, for that transaction, draw a little bit more debt to complete our transactions. So we wouldn't want to set very hard thresholds like 40%, 45% or whatever that level because if we very rigidly set the level say like 40%, then you put us in a bind in the last couple of weeks, should we raise or should we not raise or should we just borrow and cross that 40%.

So at the end of the day, these are reference levels, we keep an eye on the serviceability and the strength of our balance sheet. So we certainly will be prepared if the right opportunity comes to pick on more debt at least on a temporary basis to complete transactions.

So we will go to 45, yes, certainly it is possible, but I think all things being equal, we will probably be not one to say test the envelope or push the envelope too frequently and then see how the market will react because we take is still better to think prudent approach or have a prudent approach when it comes to managing transactions and getting the funding in place. Okay to your last question is on -

My last question is on Kolam Ayer, sorry I mentioned Ayer Rajah - Kolam Ayer 2.

Yeah, no problem. So for Kolam Ayer, the original intended cost was 8%.

And the increase in construction cost and say all the other parameters held constant. We think we'll probably drift closer to about 7% year on cost.

It is still of course, a meaningful project for us to proceed. And on the construction cost front, we are of course a little bit more careful in the way we structure our tender.

The construction scope for the firm in the last block had already been included as an option in our construction contract with Lum Chang. So we are proceeding with that.

It will be just a simple exercise of the option because I think we had a time when we had the contract or tender structure. We wanted to have the maximum flexibility and wanted to keep an eye on the market and see whether construction costs would shift over the last couple of months over the next couple of months.

So would it be fair to say the 200 million is sort of finalized?

Yeah, it's more or less in place. So that is based on the so-called contract sum that we have secured, so when - if we will finally exercise the option, they should come out to be the same number.

So right now we are just getting some finer gauge on the construction costs shift and indications on the market and the quantity surveyors then the labor market. And the supply of materials continues to be fairly tight.

So they expect construction costs to actually go up - continue to go up in the interim. So I would have to say luckily, we had that option in place.

If we had deferred making the decision, we may now be faced with even higher costs, but I think we have that kind of comfort then where the cost had been contained already than one of the figures that we have visibility on.

Okay. Thanks Kuo Wei.

I'll leave the time to the rest of the guys. Yeah, thanks.

Thank you, Yew Kiang. I think we do have quite a number of queries online.

Can I ask Donald to ask his question?

Hi, can you hear me? No.

Yeah, we can hear you.

Yes, we can hear you.

Hi, good morning Kuo Wei. Few for me, first is on Virginia's acquisition.

As much as you can guide now, could you let us know what is the debt cost NOI and NOI margin type of information that'll be very helpful. The second question is on rent relief.

We are at 12.1 million so far. Do we expect more going to this new fiscal year and welcome momentum?

Third, is on your operating performance. I've seen that your retention ratios are improving occupancy on a portfolio basis also starting to inch up.

Would this be an indication that things could really start to turn around or stabilize, especially in the flatted factories segment where reversions continue to be negative? Thank you.

Okay, I think for the Virginia asset, I think the tenant is still a little sticky. And as you know, we have this ongoing process to finalize the lease kind of perimeter.

So we will prefer not to outline the specifics on the NOI or the margins yet and until that is locked away even though the federal get a lawyer to send us a couple nicely worded letters. So I mean, we - please bear with us Don and then we will certainly be looking towards closing that up soon so that we could give more clarity.

Yeah, I think for the Virginia assets, we do expect the NPI yield for the first renewal term to be about 6%. And as Kuo Wei as mentioned, and you can also see the tenant is maybe in no hurry, because when really commences next June.

So we will take the time to speed up the process and try to get the details from now. But as you know, we are paying out distributions based on accounting standards and based on that we actually have started paying from March 13.

And so if you look at the stretched out yield we're looking at 5.2% based on the straight line -

But you're paying out from balance sheet that is point, isn't it?

Sorry?

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

Yes. Yeah.

Okay. And the borrowing cost roughly, for this kind of assets in Virginia, I assume that you're taking on US?

I think the borrowing cost I will leave Lily to answer that question.

Why you always ask so sensitive question.

Its important questions.

Very difficult there. Okay, if you look at the -

Is it in line with the previous US acquisitions?

I think the one that we were standing probably about. I mean, anyway, if you look at your five-year swap rate, now, I think it's close to about one, so it's likely to be in excess of two.

Okay, good enough.

Rent relief?

Okay, the rent relief is actually 12.7 - 12.1. So we think that that is probably going to be most if not all, of what we are likely to give out to our tenants.

The government agencies, I think are likely to come up with additional measures, because the market is probably getting to a good degree of normalization. So that's one of the reasons why we have made the decision to release the amount withheld in this quarter, the $7.1 million.

So yeah, see, if there's any residual or balance effect in the current financial year '21/'22, it'll probably be in a form of maybe installments or whatever for some of our tenants. And we do have a couple of tenants who have gone on the scheme to allow them to do all the termination, but the impact is fairly small, so it'll probably be not manifested in the form of rent release.

So I think if your specific question is on rent reliefs or rebates, we do not think we will see that being featured in financial year '21/'22, yet so that should be about it. And the operating performance, I think we're seeing some kind of encouraging signs.

For the multi-tenanted space, we are seeing the tenants coming back and, having a bit more confidence. And I think the occupancy levels, of course has drifted up a little.

So we hope to be able to at least find a bottom for the occupancy levels now and then start shifting that up. For the renter levels, we think they will probably still be a bit more downward pressure.

A little bit more for another quarter or so especially for say the business park space, because our occupancy is relatively lower for the business park space. And we will want to say make sure that our overall kind of revenue is protected.

So we will probably adjust our rents and renewals and even for new tenants coming in to make sure that the revenue trajectory is intact. So hopefully by say second half of the financial year, we should be able to see positive upticks in both occupancy and at least the rent levels.

And rent levels, yeah, I think if we can see zero revisions, there will probably be a good sign.

Yeah. Thanks Kuo Wei.

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

Yes, it does. But the number will be very small.

So it doesn't really impact it. Considering that we have only done it - we probably would have turned out towards the end of March, so no much impact.

At any rate -

But the debt number is included in?

Yes, you have included.

Okay. Thank you.

That's all for me. Thank you.

It wouldn't swing the average number very much.

It's probably the fourth or fifth decimal point - decimal place. Sorry.

Yeah.

One thing that interest costs or the debt that is there already, the debt, okay. Thank you.

Accounted for really.

That is included. That is already included.

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

Thanks Melissa. Good morning, Kuo Wei.

Just two questions for me. Just the first one, I noticed a fair amount of leasing that was done this year.

For the new leases right what are the sources of demand are we looking at?

Okay, this one I'll ask our Head of Asset Management to answer.

Hey, I think the leases is still are quite similar to what we have so far. We don't see any particular significant treats that is taking up extra space.

Generally, still the precision engineering at the spectrum URL and assembly and distribution treats that we are looking at. Yeah.

Okay. All right.

Yeah, we don't have vaccine making companies or mask making companies in our portfolio now.

Okay. Semicon is better.

Okay. My next question is about the sale of your Ayer Rajah property.

Just wondering whether the gains that you made right, I mean, do you have to pay taxes and - or will you ask for a waiver and how long will you pay this out if you decide to pay it to unit holders?

Okay, well, depending on what you define as tax's the transaction cost that we have anticipated in [indiscernible] in this presentation about $5.2 million is some form of payment to the agency for the transaction. So that always has been accounted for.

So other taxes, certainly, we hope not. As you know, there's no capital gains tax in Singapore, but we do not want transactions like this to be taken as a part of trading operations by Inland Revenue Authority.

If deemed as such of course, you have additional kind of corporate tax another 17%, but I don't think we do it as a matter of business-as-usual business. So we certainly do not want to have exposure there.

So for the time being, I think the additional so-called gains, whether the gains that we have received from divestment we are looking at distributing to the unit holders over the next year or so. So now we are calibrating the kind of content as well and then the role power reaming gauge finalized and the assessment.

Once we get the confirmed transaction cost locked in from GDC and we have the actual profit level determined, that will probably be this next or quarter.

Okay, all right. Okay, sounds good.

Thank you.

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

Hi, just maybe you can touch on the rental reversions. I think previously Kuo Wei you mentioned that you were looking around at minus 5% level.

I think this quarter, we seen about three to four, the same guidance for next couple of quarters.

Okay, I think things are as I said looking a bit encouraging. So hopefully the next quarter you will be minus two maybe then the quarter after that zero to minus one then you taper off.

So that is our hope in terms of how the profile would look like.

Okay. Thank you.

Joy?

Yeah, thank you. Question for me is on sort of payout ratio, now that your data center portion is getting larger, is there any intention to actually retain some of the dividend for future CapEx?

Thanks.

At this moment, I don't think we have a policy in place to make the retention or the retentions. So some of the chunkier costs will still be registered onshore of course, some of the things like tenant improvements, some of the building improvements or even say leasing commissions, those will probably be registered and taken on an operating basis.

So we have not put aside any so-called capital expenditure kind of allocation for the time being. As you know, most of our assets are on per tenant basis and employing shower arrangements, so a big part of whatever there needs to be done would normally be taken on by the tenants, so probably not for the time being.

Thank you, Joy. Can we have Wei Fei [ph]?

Wei-Fei, if not, we can have Derrick. Derrick from Macquarie.

Hello.

Hi.

Hi.

Hi, this is Wei Fei.

Hi, Wei Fei.

Sorry, just one question on US data center. I see that Christie Heights and [indiscernible] valuation fell quite substantially like more than 30%, 40%.

Can you some color?

That is driven mainly by the valuers written on the market rent levels and we find that the know, the experience over the last couple of years dealing with the US valuers, they tend to rely a lot on their own gauge of the market rents and cash flow. It is very, very much cash flow driven.

Whereas say the valuers we have in Singapore, you tend to see the valuation fluctuations being a little less press - is a little more in the US. So for this two very specifically is driven by their read on the market rent levels.

And that being said, there are not many data center lease or transactions in some of the markets. So sometimes they made assumptions, they made certain interpolations in what they thought could be market by the end of the day you see the professional read and valuation done.

Rather the valuations are actually the same as what they had outlined in the secular - in the transaction document last year for this assets because we need to have two valuers to be in place for the IPT transaction last year. So this was one of the valuers [indiscernible] are valuers.

So those were the numbers that they have outlined then already. So they are keeping it consistent.

Yeah, I think just to add, there was a change in valuers from last year compared to this year. And based on their score as mentioned, they have different assumptions which is why they tend to be very - differences in the valuation.

Thank you. Wei Fei.

I think we can just take question from Derrick. Derrick Heng from Macquarie.

Thanks. Thanks for the time.

So just to be very clear your business park, it seems to be calling for a bottoming out the underlying performance, but as I look at the IBP area, big box. So huge amount of space and Purdue and a space that is pretty competitive and close to translation.

What gives you the confidence? And are you really seeing like the competition coming from these new spaces over there?

Yeah, absolutely right, I think this small competing space and international business park pleasing all that - that area, even without the big box, kind of addition. So some years back, the leasing market was a little more difficult than changing business, then it shifted the IBP when you have higher vacancy levels in some of the older buildings.

So it is a challenge. But I think our product has recently gone through a facelift, not a very drastic cosmetic surgery, but I think the makeup is probably decent enough.

And we think we'll probably be able to at least compete effectively with that the buildings in that facility. And our leasing team is working hard to identify newer segments of the industries or the companies that value being in that location.

So it is challenging, no doubt. But I think we are seeing some good level of kind of inquiries coming back on.

And we think we'll probably be able to find a bottom very soon and then be able to shift up. And of course, if your question is along the line, could we push beyond 90%.

I think that will be difficult. But I think we'll probably be able to push the high 80s and then get a support level for the horizontal levels.

Thank you.

Thank you, Derrick. I'm going to run this for five more minutes.

So I think we have three more questions, at least, Tan Xuan, Terrance and Brendon, who's doing a call. Tan Xuan, would you like to ask your question?

Yeah. Hi, good morning.

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

Well, simple answer is no. Because I think focus is still industrial and data centers being a part of the industrial coverage.

The reason why it is, some office element down here is because of the nature of the existing development and the use of space. And so of course, if you want to be purist about it, we can always cut out the building, but that is extremely difficult to do in some of these transactions.

So we of course, took on this acquisition that has data center space and with some office elements. So it is a considered decision, but we have no plans to widen the mandate to cover office.

Got it. Thank you.

Can you have Terrance from JP?

This is Terence from Credit Suisse. I have a question on rebates.

Basically, I think the rebate for the fourth quarter is somewhere in the order of 3.7 million. And yeah, I think this is much lower than what was previously guided in the previous briefing, which was, I believe in the order of 14 million to 15 million.

Just want to clarify if that was the correct understanding from their briefing and if so, why is the difference so tough?

I see. Okay, well, the 14, 15 was aggregate figure.

So the aggregate for the financial year is 12.7. So it's a little lower, certainly compared to the $14 million to $15 million that we're talking about, so that 14 to 15 is not for the quarter, but for the financial year.

Okay, got it. Thank you.

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

Yeah. Hi, thank you Melissa.

Kuo Wei can you just comment on the kind of cap rates and you are seeing in US data center market and is it much harder to make acquisitions in this current environment? Yeah, thanks.

Well, I think for that market and for the asset class, we have seen cap rates rapidly compressing. So quite a few transactions we are seeing out there and seeing very intense competition.

And for say, [indiscernible], we have a very good counterparty, a good tenant. You will probably see the rates drifting down to the plus 4% level really.

Okay, thanks a lot.

Thank you, everyone, for joining us today. It has been quite a long briefing and we thank you for your patience.

And keep safe. We will see you next time.

Bye.

Thank you. See you.

Bye, bye.

Thank you.