Keppel REIT (K71U.SI) Earnings Call Transcript & Summary

Hi, good morning, everyone. Thank you for joining us today for Keppel REIT's First Half 2025 Results Briefing. I'm Tong Yan from the IR team. So before we begin, let me introduce the management team on this session. We have Mr. Chua Hsien Yang, Chief Executive Officer; Mr. Sebastian Song, Chief Financial Officer; Ms. Teo Xuan Lin, Head of Investment; and Mr. Jason Chua, Director of Asset Management. So we will start the briefing with a presentation by the management team followed by a Q&A session. [Operator Instructions] I will now hand over the time to the CEO. Hsien Yang, please?

Thank you, Tong Yan. Good morning, everyone. Thank you so much for joining us today. We'll begin with the key highlights on Slide 3. Keppel REIT continued to deliver strong performance in the first half of 2025, underpinned by the quality assets within our portfolio. complemented by the contribution from 255 George Street in Sydney. A key driver of our performance has always been our Singapore portfolio, it has continued its trend in terms of delivering positive rental reversions and organic growth. The net property income for the portfolio for the first half of 2025 increased by a strong 11.8% year-on-year to $108.3 million. Distributable income from operations decreased 1.4% year-on-year to $95.5 million, due largely into payment of 25% of our management fees in cash. It's worth noting that if management fees were paid entirely in units, distributable income from operations would have increased 5.9% year-on-year, reflecting the strength of our portfolio and the acquisition of 255 George Street last year. Distribution per unit for the first half of 2025 was $0.0272. As at 30th of June, our leverage stood at 41.7% with a weighted average cost of debt at 3.51% per annum for the first half of 2025. 63% of our borrowings are on fixed rates. As at 30th of June, our portfolio maintained a high committed occupancy of 95.9%, reflecting the continued demand for our quality office spaces. We achieved a robust rental reversion of 12.3% for the portfolio in the first half of the year and our Singapore portfolio's rental reversion was also strong at 11.8%. In addition, we have extended the portfolio's weighted average lease expiry (WALE) to 4.8 years and the top 10 tenants WALE to 9 years, enhancing our income visibility. Through our proactive leasing strategy, we have committed over 1.1 million square feet of space in the first half of the year. I'll let Sebastian bring you through the key financial highlights next.

Thank you, Hsien Yang. In the first half of 2025, property income and net property income increased 9.1% and 11.8% year-on-year, respectively, due primarily to contribution from 255 George Street and higher occupancy at 2 Blue Street. As mentioned at the business update briefing for the first quarter, the increase was also due partly to higher one-off income received from the pretermination of a lease at Keppel Bay Tower. Such one-off income amounted to $3.6 million for the first half of 2025 as compared to $1.6 million for the same period last year. Share of results of associates increased 13.6% year-on-year, due mainly to higher rentals achieved for both Marina Bay Financial Centre and One Raffles Quay as well as lower borrowing costs. Borrowing costs increased 12.1% year-on-year due largely to higher borrowings following the acquisition of 255 George Street and refinancing of borrowings at market interest rates. Distributable income from operations decreased 1.4% year-on-year to $95.5 million due mainly to payment of 25% of management fees in cash. Assuming management fees were paid entirely in units, distributable income from operations would have increased 5.9% year-on-year. Moving to Slide 7. Unitholders can look forward to receiving the first half 2025 distribution on the 15th of September. Moving on to Slide 9, which outlines our key capital management metrics. As at 30th June, aggregate leverage was 41.7%. Through our cash optimization efforts, we repaid certain short-term borrowings to reduce borrowing costs. Weighted average cost of debt for the first half of 2025 was 3.51% per annum, in line with the guidance we provided previously. Since the beginning of the year, benchmark rates have softened, in particular, the SORA, which has eased considerably. Based on the current outlook, we believe that our cost of debt has peaked. Coupled with the lower margins obtained during our debt refinancing exercise in 2025 as well as further cuts expected of certain benchmark rates, we anticipate a gradual decline in borrowing costs as floating rate borrowings are repriced favorably. Fixed rate borrowings account for 63% of our total debt portfolio, and our interest coverage ratio improved to 2.6x. Moving on to Slide 10. We have completed the majority of our refinancing requirements for 2025 at lower margins. We typically will initiate refinancing discussions with lenders 6 to 9 months prior to debt maturity and had planned to carry out these discussions for the refinancing of borrowings maturing in 2026 in due course. Regarding the perpetual securities that are due for reset in September 2025, we expect to issue a new tranche to fund the redemption of the existing tranche. We have been monitoring the market and discussing actively with banks on pricing and other parameters. We will make the necessary announcements at the appropriate time. I'll now hand it back to Jason, who will walk you through our portfolio review.

Thank you, Sebastian. Slide 12 shows Keppel REIT's portfolio breakdown as at 30th of June by geographical locations. Singapore remains Keppel REIT's largest market at 78.6% while Australia, South Korea and Japan are at 17.5%, 3% and 0.9%, respectively. We maintained a high portfolio committed occupancy of 95.9%. Occupancies for One Raffles Quay, Keppel Bay Tower, Pinnacle Office Park and 8 Exhibition Street decreased quarter-on-quarter largely due to non-renewal. Having said that, occupancies for Ocean Financial Centre and 255 George Street increased quarter-on-quarter due to new leases, which I will elaborate on shortly. Slide 13 provides a breakdown of our performance by geography. Driven by higher rentals, the attributable NPI of our Singapore portfolio increased by 3.1%. Supported by contribution from 255 George Street and higher occupancy at 2 Blue Street, the attributable NPI for our Australia portfolio increased by 17% despite a stronger Singapore dollar. Underpinned by higher occupancy, the attributable NPI of our North Asia portfolio increased by 7%. Proceeding to Slide 14, the majority of the leases committed in the first half were for our Singapore properties. New leasing demand and expansions were primarily driven by tenants from the banking, insurance and financial services and technology, media and telecommunications sectors. We continue to maintain a well-staggered lease expiry profile as shown on Slide 15. The weighted average signing rent for our Singapore CBD office leases in the first half of 2025 was $12.77 per square foot per month. In comparison, the average rent for the leases expiring in the second half of 2025 stands at $11.37, which is below both our signing rent and CBRE's second quarter 2025 average core CBD Grade A office rent of $12.10 per square foot per month. Only 2.8% of leases by attributable gross rents are due to expire in the second half of 2025 with most of these expiries coming from our Singapore properties. Slide 16 highlights our well-established and diversified tenant base, comprising reputable blue chip corporations and government entities that contribute to the long-term stability of our portfolio. No single tenant accounts for more than 6% of our attributable committed gross rent, while our top 10 tenants collectively contribute 30.4% of our attributable committed gross rent, providing a resilient income stream. As mentioned earlier, occupancies for both Ocean Financial Centre and 255 George Street improved quarter-on-quarter to 96.1% and 99%, respectively. At Ocean Financial Centre, over 73% of the space vacated by an anchor tenant has been successfully backfilled, accompanied by a strong double-digit rental reversion. At 255 George Street, all 4 fitted suites that were recently completed have been leased at rental rates exceeding current rate. As part of i Light Singapore 2025, Ocean Financial Centre illuminated its facade in red for the Light Wash initiative and supported the Switch Off, Turn Up campaign during which non-essential lighting was turned off and air conditioning was adjusted to more energy efficient settings. At David Malcolm Justice Centre, in collaboration with the Department of Justice, artworks created by incarcerated artists were showcased during National Aboriginal and Islanders Day Observance Committee NAIDOC Week to express their connection to community and culture. On the 22nd of May, as part of Go Green SG Campaign, volunteers gathered at West Coast Park to plant 100 trees under the National Parks Board's OneMillionTrees Movement. I will hand the time back to Hsien Yang.

Thanks, Jason. The next few slides highlight the key trends across the market where Keppel REIT operates. Slide 20 shows that average rent for core CBD Grade A office increased by 0.4% quarter-on-quarter to $12.10 per square feet per month in the second quarter of 2025, while the average occupancy climbed to 94.7%. This was driven by sustained tight quality with occupiers prioritizing premium office spaces. With limited upcoming supply of office, market dynamics are expected to remain strong, supporting continued growth through 2025. Notably, CBRE has also revised its rental forecast upwards, projecting full year growth at upper end of the 2% to 3% range. For Australian office market, Jones Lang observed that the prime grade occupancies increased in second quarter 2025 for the Sydney CBD, North Sydney and Melbourne CBD, while Macquarie Park and Perth CBD recorded quarter-on-quarter declines. Meanwhile, prime gross respective rent in Sydney CBD continued its upward trend, increasing from $1,038 per square meter per year to $1,048 per square meters per year in the second quarter, reflecting the resilient demand for quality office space. And so, the market occupancy for CBD Grade A office decreased marginally from 97% in the first quarter to 95.6% in the second quarter due largely to the departure of several large tenants from the CBD area. Notwithstanding this, the upward rental trajectory continues. JLL reported that the net effective rent for CBD Grade A office increased by around 2.4% in the second quarter this year. For the Tokyo office market, JLL observed continued improvements across both the Grade A and Grade B office segments. Occupancy for Grade A office increased to 97.6% in second quarter 2025, while occupancy for Grade B office rose to 98.2% in second quarter 2025. Similarly, net effective rents for Grade A and Grade B offices each rose by 2.9% quarter-on-quarter, underscoring the resilient demand of Tokyo's office market. So that concludes our presentation, and I will be happy to take any questions that any analysts might have.

Terence, you can go ahead and ask.

Congrats on the strong numbers. I wanted to ask first on the interest cost outlook. Understand that -- expecting that rates have peaked, could you give us a sense of where you see your 2025 interest cost? And if you can help us to understand how much lower it could go into 2026. That's the first question. And if I may ask on some of the vacancies, especially in Australia, coming out of Australia, 8 Exhibition Street and Pinnacle, what should we expect there? And is there any concerns on especially the anchor lease coming out of 8 Exhibition next year?

Okay. Thanks so much, Terence. What I will do is I'll get Sebastian to run through your question on interest, I'll get Jason to run through the occupancies in Australia. But of course, as a general comment, we have all been observing SORA, the SORA has been coming down quite quickly. So we are not quite at the lowest point, but it's not too far from the lowest point, but I'll get Sebastian to answer that question.

Yes. Thanks, Terence, for the question. So unfortunately, we are not able to give a number to the interest -- to our cost of debt guidance at this moment because we are still observing the other benchmark rates like the one in Australia. So I think we're still looking at where the RBA is heading to. So I think their meeting will take place probably next week or the week after. So I think taking guidance from their meeting, then I thing we are in a better position to provide any kind of revised guidance for our 2025 cost of debt. But that said, I think the SORA has reduced considerably. So I think whilst it's not that apparent in our cost of debt for the first half of 2025. So we believe if this persists, we should be able to -- it should be more apparent in the third quarter and the second half of this year, and then we'll be in a better position to share more on the question.

I think for your -- in terms of your second question for Pinnacle Office Park, the occupancy dipped from 85.2% last quarter to 82.5% this quarter. This is mainly due to a tenant that is returning part of their previously owned occupied space. I think we also mentioned in the last quarter that POP's occupancy was lower due to the recent completion of Building D that was [Technical Difficulty]. But having said that, lease agreements have already been signed for 75% of the space. As for 8 Exhibition, this is an occupancy of 92.4%, and this declined this quarter due to the nonrenewal of one lease as far as another tenant that has moved into smaller unit in the property.

Okay. Just to add on a couple of points. Pinnacle Office Park first, so it's not a case of the tenant just returning part of the space. So what we did was we did a renewal of this tenant. As part of that, they did a bit of restacking, they returned us a little bit of space. It's not major, it's only around 2%, slightly above 2% of the portfolio. So we are sort of discussing with also our local teams, how we can sort of refresh Building A within Pinnacle Office Park and then how we can attract more tenants into that building. So on 8 Exhibition Street, your question was around the anchor tenant. One of the anchor tenants that has been reported in the papers to be leaving towards the end of next year. So I think that we have been working with them in terms of the exit. We are also actively marketing the space. So we don't have anything to report at this point in time, but I can assure you that we have been talking to a number of prospects, and we are working together with our partners, which is GPT, to actually market this space. So hopefully, at the next quarter or towards the end of this year, we will be able to share a little bit more, but we are in active discussions with multiple prospective tenants out there. So even in Melbourne, even though the market is not -- I would say that it's one of the weaker markets in Australia, there is still demand for quality assets. And our asset being in the eastern end or some people call it the Paris end of Melbourne, we expect there to be continued demand for office in this area. I mean the neighboring buildings are all seeing very high occupancies. So we also hope that we will be able to lease up the space very, very quickly. So Terence, was there anything else you wish to ask?

Yes, sorry. Just on the interest cost question, I guess, we have seen very significant declines in SORA. I wanted to check on what was the benchmark that you use. Is it 1 month or 3 months SORA? And even discounting any further rate cuts from here in other overseas benchmarks, what could the interest cost trend to in the second half?

We have a mix of 1 and 3 months SORA as our benchmark. So I think maybe the 3 months SORA may not have taken full effect yet. So that explains why our reduction in cost of debt has not been so apparent.

So I think that SORA is only one thing. So we have managed to really bring down our margins. So I think we have shared that one of the recent refinancings, our margins and this is a longer-term debt, is only in the 60s. We're paying 60-something basis points. So that's actually a lot lower than what we were paying previously also. So it's a number of things. So we are definitely looking at the market, looking at the SORA, where it's trending, it looks like it's trending down quite well, like I mentioned just now. Now of course, with the reduction in margins, we should be able to see a reduction in interest rate. Guidance-wise, it's a bit difficult for us to sort of guide you to a number, but we do expect to see interest rates start to come down from a portfolio perspective.

[ Xuan ]?

So I just wanted to clarify. I think, earlier you mentioned that for the perpetual 3.15%, I think the expectation is for a redemption. So in terms of timing, would that be -- of new perpetual, would that be before the September call date? Or would it be like maybe you take a bridge loan first and then you redeem? So that's the first question. And then the second one is, you mentioned about the 60 basis points spread on the bank loan. Is Keppel REIT looking -- in terms of your new financing, would it be lower than 60 basis points? Or would it be higher? That's all from me.

Okay. So on the perps, so it really depends on the market, right? Of course, in an ideal world, you want to time it such that, okay, if we issue a new tranche, we issue the new one, one day before the perp expires. So I mean, that's perfect world, right? But I think we do need to look at where the market is at that point in time. So of course, there are options we could issue the perps a bit earlier or if the market is not conducive, we expect the rates to come up, we can always take a bridge and then we can sort of issue the perps a bit later. So I think we are observing the market very closely. We will look for the best option that we feel will work for us. So it's very difficult for us to answer that question with certainty at this point in time. So that's something that we want to look at. So of course, in terms of borrowings, that was your next question, right? We always want to borrow as cheap as possible, but it also depends on the nature of the loan, the tenor, for example, sort of security you give. The aim for us is to always use the last loan that we did and negotiate even better terms with the banks. So that is, of course, our aspiration. There's no reason why I would tell you, oh, I'm paying, let's say, 60-something basis points, why would I want to pay 70-something or 80-something basis points for another loan. Doesn't really make sense. Do you understand what I'm saying?

Yes, that's very helpful.

Rachel, go ahead.

Congrats on the strong numbers. Maybe just a follow-up on the interest cost question. Can I get a sense when did you refinance that loan in the second quarter? So looking to second half of the year, I remember that second quarter, although you have done very good rates, bringing down the margins, but I expect you'll have an increase in interest expense rate from the expiring rate. So if I look at second half of the year, will the floating rates decline be able to offset the increase in the interest expense on your refinancing?

Rachel, so the refinancing done this quarter was in the later part of this quarter, I think in the June period. So I think those -- the impact from this refinancing should be experienced in the third quarter and second half this year. And because the margins have been trimmed quite significantly and given where SORA is right now, I think it's fair to say that we have peaked and the effects of those refinancing would be felt in the second half and it will become more apparent. I think maybe just also one thing to highlight is in the first quarter, we had expiries of certain interest rate swaps. So I think that probably drove cost of debt higher when you compare to the second half of last year or the full year last year. So I think that the full effects have also been experienced this first half. So I think given where the outlook is and where the interest rates are trending and also a couple of expectation that may be certain other benchmark rates may decline. So I think we should be able to see some savings in borrowing cost and also a reduction in cost of debt.

Okay. That's clear. All right. And then on the perps, did you -- do you have a sense in terms of the pricing? Do you think you can get like below 4% kind of pricing now?

We hope so. But I think perps is a very market-driven instrument. So it involves book building sentiments at that point in time when we book build. So I think based on the issuances that have been done this year, so it's quite wide ranging from low to high 4s, I think we also saw one that is sub 4%. So I think it really depends on our discussions with the book builders, the banks sentiments at that point in time, but we believe it will be very competitively priced.

So just to add on, you can be sure that we will be looking to achieve the best result. We want -- of course, our aim is to achieve the lowest interest that we can actually get because like someone mentioned, I think -- well, I can't remember who it was who mentioned just now the expiring interest rate is 3.15%. That will definitely be an increase. So we want to mitigate the increase as much as we can. So we will be looking at the market and finding the correct window for us to achieve the best pricing. So do keep a look out for that in the next couple of months.

Okay. And then to your Singapore portfolio, I mean, rents are very high in the CBD area, right, I suspect. But do you -- when you speak to your tenants or prospective tenants, are you still able to push rents higher? Or it's pretty much there this kind of rents?

So I mean, prior to this meeting, I just came from -- I don't want to mention which asset, I just came from one of my assets talking to one of the clients. Rents are very high, what you said is correct. But the interesting question is this tenant actually said, I need one extra floor. And this is an FI. And I did share in the previous quarters, we have seen expansion by tenants, but not from an FI, but this FI, basically, they want to almost double their space within one of our assets. They want to do a bit of consolidation. So it's very positive signs. They know that the rentals are high, the rentals will continue to go up, but they still want more space. So the reason for that is really around a number of things. So the workforce, the way that the workforce works is very different. It's not just about coming to work and going home. They need the social setting. They want the ability to be able to socialize not just with their colleagues, but also their friends in the CBD area. You just can't do that from home or in a more suburban location, for example. So we are expecting further expansion of space by a number of tenants across portfolio. And if you look at the CBD, I mean, this is what -- I heard this is a rumor, that's not verified, even IOI Central Boulevard is 90% committed. I mean I cannot verify that, but that's a positive sign for all the office landlords because if you are looking for like single floor, full floors of space, you just can't get in the CBD. It's just impossible unless you go a bit far out. I mean, like you have Keppel South Central, there's still some space there, Shaw on Beach Road, but they are very different locations. So you do need to be in the CBD if you want to offer that work environment that's exciting, it is also the vibe, the energy in the CBD, you are just not going to get that outside the CBD. So no, I don't think that the demand will continue to be strong. We're not seeing signs that demand is actually dropping and people are prepared to pay the rent.

So would you revise up your reversions guidance?

I mean what are you expecting? I think we are delivering double-digit rental reversions. What more are you looking at?

No. I mean for guidance for this year, I think I remember you say high single digit, right? So are you revising...

No. I've never said high single digit. I said that we are always aiming. The aim, the KPI that I set for the team is double-digit rental reversions. And that is still the aim for us to work on. And obviously, in the first half, we've already achieved double digit. We don't have a lot of expiries coming up for the rest of the year. So maybe it's better I mention high single digits. I've never mentioned high single digits before.

Okay. Maybe I remember wrongly. Yes. Then last one, any updates on your acquisitions and divestments? I think you haven't done much for a while. So yes.

Yes, yes. So of course, the positive sign is that our share price is inching up slowly. The last I checked, we were around $0.96, that's a positive sign. So we are definitely scouting the market. We are looking for opportunities. But at this point in time, I also did share earlier part of this year, we will not go out and do an acquisition 100% via debt. We will not look to increase our gearing any further. Like you said, it could be a combination of divestments and investments. So I think we are looking at a few things. If there's anything concrete that we have signed, we will actually announce it. But at this point in time, unfortunately, we won't be able to share a lot more details, but we are actively looking at various things within the markets that we're actually operating in.

Dale, yes, go ahead.

Just a few quick questions from me. I think firstly, in terms of NPI margins, right? I noticed that this first half seems to have increased to almost 80%. So just wanted to understand if this is the rate sustainable -- if this rate is sustainable going forward.

Dale, so I think the NPI margins have improved, I think largely due to the impact of the reversions that flowed through. And also, I think if you notice our NPI increase, the extent of NPI increase is higher than that of the PI because that is also due to savings in property expense, particularly on the utility costs where we have savings from recontracting at one of our assets. So I think that also contributed to the improved NPI margin.

Okay, okay. So going forward, I can assume these levels.

You can assume a range within this level.

Okay, okay. Got it, got it. Okay. And next question is back to your acquisition divestments, right? I understand that, that is something that you're actively looking at. But just wondering your thoughts around Korea and Japan, given that they have just very small exposure. Do they continue to feature in your plans in the near to medium term?

So I think if -- okay, it really depends on whether you're talking about investments or divestments. So for example, Korea, I think -- and Japan, I've actually mentioned in the last call, we do expect to see strong rental reversions. For Japan, we have renewed a lease or quite a large lease within a building, the rental reversion is actually high single digit, which is unheard of for Japan. Usually, Japan is either -- it's either flat or maybe if you could get 1% to 2%, it's already a very good result. We achieved high single-digit rental reversion. And then recently, we have signed one lease in Korea. It's more than 30% higher than the expiring rent. So we do expect that the NPIs for our Japan asset and Korea asset will continue to increase. So it's a bit premature to look at selling our two assets there. We could do it, but I just think it's not the correct time to do it. So from a divestment point, that's really my response to you. In terms of investments, Korean market at the moment, there's quite a few campaigns out there. But the cap rates are also quite high. The cap rates have actually tightened quite a fair bit. It's very competitive. There's a lot of liquidity in the market, but mainly from the Korean buyers. Foreign buyers have not been quite as successful in buying there because the cap rates have actually compressed a little bit. So I would say that Korea, while it's interesting, it's a market that we are interested to expand, trying to buy something there is probably not as easy, I think, at this juncture. Then Japan continues to be a very strong market. Everyone and everyone is there looking for deals, but we do need to be very careful with what we buy. And of course, Japan, as we all know, is a market, the cost, the borrowing cost is very low, but the cap rates are equally low. If you are looking to raise equity to fund the Japanese acquisition, it is very hard for the deal to be accretive. So it is a market that everyone is looking at. We will continue to look at it, but it will need to be a wider strategy in terms of how you sort of look at rerating the portfolio before we look at buying something additional there.

Okay, okay. That's very clear, Hsien. Sorry, just a last question for me. I think earlier on, you spoke about the tenant movements in Australia. What about in Singapore in ORQ and Keppel Bay Towers?

So yes, so I think what you have -- you are basically talking about a slight dip in occupancy for both assets. I'll let Jason talk you through these two assets.

So for ORQ, the occupancy dropped from 98.6% last quarter to 97.2% this quarter. This one is because of a nonrenewal of a tenant in the North Tower, but we are currently in negotiations with a prospective tenant who has expressed interest to take this case. For Keppel Bay Tower, the occupancy is at 91.8%. This is because this mainly due to a nonrenewal of a retail tenant and we are currently marketing this space. Now I think, previously, we did mention that there was [indiscernible] that we have received one-off income that is equivalent to more than a year's worth. So we will quickly market the space to lease it up.

So the good news about Keppel Bay Tower, if you have come, we do have a few retail shops here. In the last couple of months, we have sort of signed heads of terms with tenants for all of the retail space. So by the next quarter, I think all our retail space within Keppel Bay Tower would be fully leased.

Brandon, you can go ahead.

I just want to go back to your statement on the acquisitions part, right? So yes, your share price has been doing very, very well. But I just want to ask whether if at this kind of level, you can't sell assets, but if there's a very compelling acquisition out there, would you be open to raising equity at this kind of level? Or you want to wait till it goes to NAV?

Okay. So far I say is I will not look to acquire acquisitions using all debt. But definitely raising equity is something that we are looking at. Could we do it? The answer is yes. But will we do it now? I won't be able to commit to that. But definitely raising equity is an option. But of course, I think you will know will we sort of come out and say, oh, okay, I will raise equity, but everything is too dilutive. I think the market will probably not be too receptive to that. So we do need to look at a specific deal once we land a combination of debt or equity, could it be accretive? I think that's really something that we are looking at. But equity, the short answer to your question is that is definitely something we're looking at.

Okay, okay. And are you able to share the split between the reversions in Singapore and other markets?

I mean we did share, Singapore is 11.8%. The portfolio is 12.3%. So Jason, maybe you want to walk through the reversions? So it's mainly 3 reversions. Just I already mentioned, the Korea asset, the Korea asset we had reversions in excess of 30%. Jason, what's for our Australian?

And for the Australia one, we had 2 tenants, very high reversions, one in excess of 50% and then the other in excess of 25%.

Okay, okay. And on the CBRE's view, right, 2% to 3% uplift in spot rents, are you agreeable to that? Or you think they are conservative?

So, no, I think it's -- no, I cannot say that -- they obviously have a basis for it. But I think that what has really helped us is because the expiring rent -- they look at the average on the market as a whole. But for rest for us, we had a lot of expiring rent, which was very low, way lower than market. That's why the uplift is very substantial. So definitely, they have their basis for coming out with that projection. But like I mentioned to you, the city is very, very full. The CBD is very tight, right? Central Boulevard, we're talking about more premium grade, that was the only new supply coming up. And now if the rumor is true that they have 90% commitment, there's really no space for tenants. So even this tenant that I was talking to this morning, they know that if I can't offer them additional floor, for example, that they can't get it elsewhere, too. So working with us is the easiest option because they are already in my building. It just -- it's easier to expand within the building than to find somewhere that can give them like 4 floors or 5 floors. It's just impossible for you to be able to achieve that. And giving up space is easy but trying to get a space back is very, very difficult. So this -- I was also talking to my leasing team, marketing team, if they ever go somewhere else, they consolidate somewhere else, we actually have quite a fair very long list of people wanting to take their space. So that's really the reality of the market today. Some of the smaller space are not -- there's demand, but it's the big space, full floor space that actually has the strongest demand at the moment.

Okay. Just one last one, right? Regarding 255 George. So if I look at your occupancy right now, 99%, the income support that you have used is less than $2 million of the $5 million that's available. So how does that work? If you manage to lease it up at 100% yourself, income comes in, does it mean that you're not going to tap on the remaining $3 million?

Yes, that's correct, yes.

Okay. So you're not going to -- you're probably going to keep it for yourself, you won't give out more than what you have already received.

No, no, that is something that the seller will top up if the rental is not there. So obviously, if we don't draw on it, the occupancy is so high, then there is no need for us to draw from the seller. It's not money that we have in our bank.

Joy, you can go ahead.

Sure. Just a follow-up on Singapore. So your sign-up rents for first half is $12.77. How should we think about this number going forward and especially into 2026?

So I mean, we've talked about it, right? Are we expecting the rents will drop? The answer is no, we are definitely expecting the rents to continue this upward trend. I mean the supply-demand, there's no supply. So the demand continues to be strong. Definitely, we do expect rates to continue to inch up. So whether it's 2%, 3%, 4%, that one is anyone's guess, but we are expecting rents to continue to go up. And like I mentioned earlier to previous questions, we see continued demand, especially the flight to quality. So we -- I think in the last quarter, I also shared, right, even tenants who have moved out earlier, they're also coming back to the CBD because it's very important for you to have presence in the CBD. And especially, post COVID, the companies are trying to find all sorts of ways to make the staff come back on a full-time basis, 100% instead of working like 3 days in office and 2 days from home. You do need to provide an environment for them, the incentive, if you may, to sort of bring them back to the office, and they want to be motivated to come to the office 100% of the time.

So I guess more -- the trend we've seen in this number, the decline this quarter, you would think that's just a timing issue, a temporary timing issue. Because last quarter, I think you signed $12.90, right? And that's for first quarter. So I think if I do second quarter itself, we've probably seen a little bit of softening. So I'm just wondering -- yes.

Yes. So no, I think that one you have to look at, you really have to look at the tenants. So because some of them, if they are taking hundreds of thousands of square feet, they obviously are not -- are going to get a bit of a discount. So it's a bit of that. It also depends, of course, we have office at Keppel Bay Tower and all that. So it will never be like the exact same number. So it really depends on tenancies and all that, but the trend is definitely increasing. It's not like, oh, okay, the market is dropping. That's why the rental rates are coming down. That is definitely not...

Understand. And then you expect us to touch $13 next year?

I mean I can't guarantee, but I mean, that's something that you would expect, right? Once you hit high 12s, if it goes up, has to hit $13, right?

Okay. Sure. Yes. And then just another clarification on the Aussie 255. So you mentioned that the rents are actually above your sort of underwriting. But what about incentive? Is that inclusive of incentives?

Yes, yes, of course, yes, whatever we give will include incentive, the incentive levels are also within our underwriting. So the short answer is we are not giving more incentives to get higher fee spend, if that's what you're asking.

And does the incentive amount lesser than a normal lease because you're giving outfitted areas, right?

No. So you have to look at the cost of the fit-out. So the incentive, so let's say, you call it 30%, you give a fit-out, then that fit-out goes into the 30%. Yes, you don't give double.

Okay, okay. Understood, understood. Last one on the interest rate. Out of all your floating rate, are they all Sing dollar denominated?

No, it's a mix. So Sing dollar, Aussie, Korean won.

Can we get a sense of the breakdown?

About 70% Sing, 25% Aussie, and the rest Korean won.

[ Chang ], you can go ahead.

Can I ask about divestment? I think you mentioned it's a bit premature for Korea. So between Singapore and Australia, how are you thinking about divestment?

Okay. So I covered Korea, I covered Japan. Singapore, the market is so strong, doesn't really make sense for us to sell anything at this point in time. I would say probably not. And then for Australia, I think we all know that the cap rates are more or less should peak. I think it should start to compress starting from this year. So I think it's also a bit early. So I mean, yes, I don't think we are actively looking at any of our assets to actually divest at this juncture. So I've already explained that quite extensively the reasons why we are not really actively looking at divestments. But of course, if something comes up, someone gives us a good offer, we could look at it.

Okay. Got it. Second question is on management fee in units is currently 75%. How should we think about the next 3 years?

I don't think we have given any guidance like 3 years out. So definitely, we say that we don't know comments from various investors and -- we don't want to be changing mix too often also. So we have said that we will probably not change the mix so quickly. We'll give it a while. But if you're asking me for like a specific 3-year view, I don't think we'll be able to comment to that at this point in time.

Maybe I'll go through the webcast question. So we have a question from [ Ken ] from [indiscernible]. Assuming no change to RBA rates, where should borrowing costs go to? Just to get a sense on second half 2025 potential impact on SORA.

Yes. Thanks, Ken, for your question. So I think assuming no change to RBA, the Aussie rates, and also assuming SORA remains at this level, we think cost of debt should still have peaked and moving into the second half, it should decrease, albeit gradual and probably less significant. Like we highlighted earlier, we are unable to provide a figure as of yet, but I think the expectation is it should still decrease.

So I mean, I'm just looking at the -- this is from the Australian Broadcasting Corporation breaking news and inflation hit 2.1% in the June quarter, down from 2.4% in March. So I think that inflation is easing. So on that basis, we do expect the RBA to continue to cut rates. So I think that it's expected that they will cut at least another 25 basis points, but this year could potentially be more. That's at least our expectation or our guess of what could happen.

Okay. You can, yes, go ahead.

Just a quick question. I mean, following up Brandon's question just now. I mean, you said that you wouldn't really rule out equity raising. But would you do it when you're trading below book?

I mean -- okay. Of course, there is no hard and fast rule, right? So of course, from looking at it from an investors' perspective, any fundraising below book is, of course, not ideal because it is actually -- I think it is something that we do know. But of course, at the same time, if we want to pursue growth, is it okay to do an equity fundraise -- if you look at the portfolio, it is beneficial for our portfolio in the longer term. In doing this, is it accretive, for example, for the portfolio? These are all questions that we need to ask ourselves and we need to answer before we make a decision. So could it be done? It could, but there are many things that we need to consider before doing so. And these are all things that we will consider before we decide to do it or not. I know it's not a direct answer to your question...

But in your history, have you done it -- done any equity raising below book?

Yes. I think we have. Yes, we have done.

Okay. A couple of times?

Yes, at least a couple of times. The recent one was Keppel Bay Tower, I think that was slightly below book. I think, of course, in the early days like when I was still in [indiscernible] at that point in time, MBFC was done below book at least, yes, MBFC was done. Yes, so it has happened before.

Terence, UBS. Go ahead.

The NAV has been declining for actually a number of years, I observe. Is keeping up the adjusted NAV per unit any part of the consideration here?

Yes. So I think our NAV has indeed decreased over the past recent years. I think a couple of reasons because, firstly, we also took valuation hits over the past 24 months. So I think that came largely from the Australian portfolio. So secondly, I think our deficits in the foreign currency translation reserve has widened. I think that is also due to the continued strengthening of the Sing dollar against the foreign currencies that we have. Secondly, also more recently, I think because of the easing of the interest rate environment, our hedging reserve, which relates mainly to our -- to the mark-to-market values of our interest rate swaps, I think that has also resulted in a deficit. So I think all these have contributed to the reduction in NAV per unit.

Maybe if I ask it differently, does it then -- I mean, if the point is you guys want to preserve the NAV per unit, then would it then transpire that you guys would have to tweak some of the capital management policies to do with things like the mix of cash and perhaps even the capital distribution top-up?

The only capital distribution top-up we have is the anniversary distribution. I think that has been going on for a while and which we will remain committed to. We constantly look at our capital management strategies. We have some policies governing foreign currencies as well as interest rate hedging. So I think we have been adhering to those strictly. Unfortunately, I think the largest contributor of this decline in NAV would be foreign currency. Unfortunately, also Sing dollar has been very strong for the past couple of years. I mean we don't see that as a flaw in our policy for sale. I think that is -- which we will continue to adhere to. So yes.

Just to add, in terms of -- maybe just a quick trend in terms of valuations. I think that we have also shared we didn't do media valuation that we have done, just a quick desktop check, we believe that the valuations are stable. And if you talk to anyone in Australia, they do. At least the expectation is that the valuations definitely have bottomed. In fact, there could be some compression of cap rates starting of this year. So I think from a valuation perspective, Australian portfolio continues to be -- I think the outlook is actually quite positive. And of course, Singapore, with the strong rental reversion, we can expect that the value should actually increase. So I mean these are the two largest portions of our portfolio. So that's just a quick indication of at least the valuation trends for our portfolio for this year.

I think I vaguely remember that in the past, like whether it is through COVID, valuations for the Singapore side didn't really come off. And then even with the onset of higher rates as of mid-2022, nothing much was done on the Singapore valuations front. Now that we are here today with lower interest rates in Singapore at least and a bit of higher rents, just to understand in the context of your statement, you're saying Singapore value should increase, but that is perhaps only reflecting the portion to do with the better rental performance and I presume less to do with the lower interest rates. Would that be a fair characterization?

No, no, I think that it's -- you cannot just look at it that way, okay. So what actually happened through COVID was that valuation cap rates in Singapore didn't move very much. So if the valuation cap rates don't move very much, then obviously, the value wouldn't move very much unless there is an increase or decrease in the underlying NPI of the building, for example. So maybe I'll just give you an example in Hong Kong, valuation cap rates have been maintained, but because rentals have dropped 40%, which is why if you look at generally Hong Kong, the values have come off by 30% to 40%. So the values have come off even though the valuation cap rates are the same. So coming back to Singapore, valuation cap rates have more or less remained the same, but NPIs prior to this period have not really gone up quite as much. So we have not -- this strong rental reversions has really only been seen in the last couple of years. So definitely, if you're going at COVID time, that time the revenue was more or less stable. That's why the valuation numbers are stable. But now because NPIs have increased, if the valuation cap rates remain the same because you're tapping out a higher number, obviously, the valuation number should increase. So there is no reason why you would assume that the valuation numbers remain exactly the same.

Yes. I didn't mean that I expect it to be the same. I guess my question was more specifically for Singapore side, the valuers should not be treating the cap rates or discount rates for that matter. Would that be a fair statement?

So like I mentioned, the cap rates for Singapore and Hong Kong, in particular, have been very, very stable. Are we expecting them to tweak the valuation cap rates? The answer is no. I'm not expecting that. I'm not also suggesting that. But definitely, if the NPI goes up, if they stick to the same cap rates, the valuation number will be higher. That's what I'm saying.

Derek?

I just want to ask a follow-up question on acquisitions. I think, Hsien, you shared quite a bit already on South Korea and Japan. But wondering if you could share some color maybe on Australia and Singapore.

Okay. So okay, Australia, we bought 255 George Street at a 6.5% cap rate. That was done by the investment team led by [ Xuan Lin ], that was a fantastic deal that also set a bit of a benchmark for the market. Anything that people are sort of looking at, is definitely a lot lower than that. So if I'm looking at office, Sydney office cap rates, people are looking at maybe 5-point something to 6%. So that -- for a similar grade. So I think that we have definitely bought well in the market. So that's -- if you are asking for indication, that's where the market is at the moment in terms of Sydney. We are not really looking at any other markets. If anything, we only look in Sydney. Coming back to Singapore, valuation cap rates, we spent a lot of time talking about it, have remained constant. The asking cap rates for sellers have also remained around that kind of level. So will there be a lot of transactions in the market? I think we can't really tell. But whatever, I mean, there's a few rumored off-market transactions that's happening in the market, but we haven't really seen any like transactions come through, partly because some of these rumored ones, the quantum is actually quite big. But given the drop in SORA by quite a fair bit, I think that there will be more interest in investors looking to invest because right now, because previously, the borrowing cost was higher than even the cap rate of the asset, right? So there is a bit of a gap there in terms of the negative spread. But now interest rates have come off. So you get a bit of positive spread. So there could be more interest in transactions in the Singapore market, although we haven't really seen much of that yet, but that could change given the big shift in SORA.

I see. Just on Singapore, I guess, you mentioned the tight cap rate as well as the high quantum. So would you -- because of that, would you be keen on, let's say, evaluating a partial stake, buying a partial stake or buying assets which are less mature, but there could be some income support over there? Is that something that you'll be looking into?

Are you -- okay. So I don't know whether this is an indirect way of asking whether I'm looking to acquire Keppel South Central. I'm not sure whether that's the question.

It is.

So Keppel South Central, I did mentioned in the last quarter, that has not changed. We are not pursuing any discussions with Keppel for whether it's a full stake or a partial stake of Keppel South Central for the time being. Reason is because I think that they are still in the midst of leasing up. So there is no hurry for us to rush to buy a stake and take a position in terms of the leasing and all that. If that's your question, that's really the answer. I'm not looking at that. Could I look at -- okay, going to third-party deals, could I look at a partial stake? The answer is it really depends. I think we have to look at how strategic the acquisition is. If it's strategic enough for us to go in with a minority stake, if the returns are strong, the question is why not, right? We could look at it. But also, we have to look at things in totality, how are we going to fund it? Like I mentioned before, I'm not going to buy an asset and fund it 100%. By then, I would need to -- if I want to buy something, I would need to wait and see if I have some equity raise, is it the time to do it because like what I mentioned, I need to be mindful about the dilution to our unitholders. All these things, we need to wait before we decide whether or not to go ahead with an acquisition.

Are you okay with upfront slight dilution, like 1%, 2% dilution if the deal is attractive enough in terms of attributes?

I think we have seen enough examples in the market, if you want to do -- the REITs who have done it right, they have also chosen to look at the longer-term prospects. All these things, we will look at in our evaluation of the deal. I won't be able to answer you like categorically yes or no. It really depends on the deal. The potential of the asset, if we can justify why it's a dilution, why not, maybe it's something we could look at. But of course, the aim is not to do that, right, because there's always going to be a short-term impact on the share price. And obviously, what we want to do, what we aspire to do should hopefully result in share price going up. That's really the -- what we are working towards as the management team of KREIT.

Maybe I'll take the last question from Rachel.

Just one question, follow-up on acquisition. Would you consider expanding the type of assets that you're acquiring? Or are you still purely office?

This is a question that's actually coming up -- that's actually been coming up quite a fair bit, a fair, fair bit actually in the last quarter. And it's actually not from analysts, it's actually from investors. So maybe I will share what the investors have been saying first, and maybe I can address that. So actually, a lot of investors are saying that last time you were more focused on office. I mean, you don't mind, but actually now why don't you consider diversifying a little bit, but it's not just anyhow diversifying, us staying in the commercial sector, but maybe expanding a bit into retail or reason is because a lot of investors do like retail as a sector. And of course, retail has started improving by the quarter. So again, it's something that our investors have been telling us. So I don't have also a very, very specific answer to that. It's definitely something that we are looking at. If there is an asset that provides a little bit of diversification to our portfolio, we look at it, the answer is yes, we could look at it. Are we actively looking to diversify? I think the answer is no. It needs to be quite strategic for us. It needs to have -- it needs to be well thought out. But I would definitely say that we will still be predominantly in more premium grade office that's going to continue to be our strategy. Diversification, we look at it on a case-by-case basis. But -- and even if I do so, I will need to explain clearly what is the strategy that we are adopting, what we will actually do, what we actually do. And we also don't want -- I think what the investors are concerned with is, is this going to be a one-off. Can you actually scale up if you choose to diversify, for example? All these are questions that we will need to answer if we choose to diversify out of just pure office.

Okay. Got it. Understand. Just squeeze one more question. In terms of income hedge, do you hedge your Aussie dollar? And how far ahead do you hedge and what's the hedging rate?

As a policy requirement, we are required to hedge at least 70% of the forecast distribution we expect to receive at least 6 months ahead of that distribution. So we can go like 6, 12, 18 months ahead. Yes.

So currently, your hedging rate for AUD is?

My hedging rate for AUD. So the one that is coming within the next 6 to 12 months is about 70%.

70%, I mean, the exchange rate?

It is varying. So it's basically the spot or the forward rate that we get at each point in time. Say, for instance, we do 25%, 25%, 25%. So it's really subject to the spot and the forward at that point in time, but it should be close to or maybe slightly higher as compared to the spot right now.

The current spot right now, so about 0.8...

Yes.

Thank you, Rachel. Thank you, everyone. So we have come to the end of our webcast. If you have further questions, you can drop me an e-mail. Thank you, everybody. Have a good day. Thanks.