Mapletree Industrial Trust (ME8U) Earnings Call Transcript & Summary

Thanks for joining us this morning for MIT Fourth Quarter and Full Year Financial 2024/'25 results briefing. MIT has released its results on 30th April after market. We have the management team to present the key highlights of the results. Ms. Ler Lily, CEO; Ms. Khoo Geng Foong, CFO; Mr. Peter Tan; Head of Investments; Ms. Serene Tam, Head of Asset Management; Ms. Chng Siok Khim, Head of Marketing. Now I'll pass to Lily to present the key highlights of the results.

Good morning, everyone, and happy Cooling-Off Day. So no politics talks today. Okay. Anyway, we can probably take a break from all the -- after the past few days, talks on politics, right? So let's focus a bit on the results. For this quarter, we are pleased to report a year-on-year improvement in terms of this new growth, 1%, reporting at $0.1357. In the key contributors to the improvement in the DPU growth is really on the back of the new contributions from the Osaka Data Center. We see the full year effect this year. And we also have the new Tokyo acquisition, which we have completed towards the end of September. As for specific details on the financials, I think we will have Geng Foong to run through that. On the operational front, we are reporting a positive rental revision, across all the sectors. I think weighted average about 8.1%. If you look, in terms of the range we are achieving rental revisions of between 1.4% to 12%. I think the high of the range of 12% is actually the revision that we recorded for our Flatted Factories. So that is the resilience of the Flatted Factories as well. As we have said, I think in the past quarters before, the rental revision is largely due to the fact that these are leases -- renewal of leases which were signed 3 years ago during the COVID period. So naturally, we kind of start off from a lower base. Going forward, we do expect that the rental revision may be going down to, say, a single digit as we near the renewal cycle for these leases. On the valuation front, overall, we see an increase in valuation by about 2.7% AUM totaling about $9 billion. The highest increase is due to the Japan acquisition, as you can see on the slide. In terms of the Singapore portfolio and U.S. portfolio, it is actually quite flattish, very marginal increase. P&L-wise, however, you will note that we do register devaluation -- slight revaluation loss, but that's mainly because we have some capitalized costs involved. If we look at the cap rate, it remains largely unchanged. We don't really see a significant change in terms of the cap rate. So if I can move on to the -- maybe portfolio occupancy, right? The portfolio occupancy slipped a bit from 92.1% to 91.6%, very marginal dip, but it's still a dip, nevertheless. If you look at the individual portfolio, Singapore portfolio is about flat, I think there is slight -- I think just to be specific. I think as you noticed, the Light Industrial Buildings is actually at the lower occupancy of about 51%. I think that's mainly due to a vacant building, but I think I also like to highlight that this industrial building segment forms only 0.7% of our overall portfolio. I think one thing which I always quite concerned on the committed occupancy at Kallang Way, the Hi-Tech Park at Kallang Way. So I think we are pleased to say -- to inform that the committed occupancy as of now for this property is 60.1%. So if you remember the last quarter, we reported 57%. So that's about -- uptick of about 3%. So we should be seeing the full year effect of these committed leases coming through soon. North American portfolio occupancy is reported at 88.2%. If you compare to last quarter, there is a decline from last quarter's 90.3%, largely due to the exit of the tenant in Philadelphia. I think that's something that we have already flagged out in last quarter. I think for the North American portfolio, we continued to work on these spaces. Even for like 250 Williams, if you remember, 250 Williams is actually a building which is about 50% data center space and 50% office space. So the data center space really is, I would say, fully taken up, but the team continues to work on the office space. And hopefully, with some of these new spaces taken up, we will be able to inch our occupancy for 250 Williams Street. In terms of our lease expiries, we have about 14.3% of the leases that are expiring in this financial year or in FY '25/'26, mostly from, I would say, Flatted Factories segment as well as the U.S. D.C. segment. For the U.S. D.C. segment, WALE is about relatively long, 6.3 years. I think if you look at what is due for renewal in FY '25/'26, about 3.6%. I think we have also informed during last quarter that about 1.7% actually has confirmed to be nonrenewal. I hope and I think that should be it for the remaining of the financial year. The remaining -- I guess the remaining 1.8% is something that the team has already started work, and we are relatively hopeful that the renewal should be there. At any rate, I guess, the tenant renewal and backfilling of space is actually quite possible of our business. It's something that the team will always continue have to work on. So if I move to the next slide on some of the measures that we take on to tackle some of these tenant renewals and backfilling of space. Generally, 3 prongs, reletting, repositioning and rebalancing. As a background for the U.S., about 60% to 70% of our data center are located in the primary data center market. Again, as I said earlier, the WALE for the U.S. leases are relatively long at about 6.3 years. The recent nonrenewals that we have seen so far. I would say many of them were largely due to tenant's company policies where they review the corporate real estate space requirements. So I think if you look at it, quite a number of them were actually from the enterprise user. For example, the likes of AT&T. For some of the things that we try to do, like we will try to engage them ahead of the renewals. I think this is shown as what we have done for property at Richmond, where they have actually renewed 2 years in advance. Of course, we also do try to backfill the spaces. I think this can be backfilling it with new data center operators or it can also be non-data center operator as what is evident is what we have done with Brentwood 2 months back. I think one thing to note about Brentwood. The good thing is rent-free period should be coming off soon around June this year, right? So we should be expecting some cash flow contribution coming out from this. Anyway, coming back to what we do as part of our asset management, repositioning is something that we will always consider. This can take in the form of doing a redevelopment or even re-leasing the properties out as a separate use. Rebalancing is something that we have always been -- that we have been looking in the past 1, 2 years. So I'm quite happy to announce that we have actually divested the data center in Georgia. I think for this particular data center, the lease expiry is coming -- is supposed to come out in August, in 2025. So this basically help us to negate part of the effect when it comes to our lease renewal. And of course, given that we have a diversified portfolio in terms of geography, it does help a bit in trying to negate some of these nonrenewal. I think then maybe going for the next segment, I'll have Geng Foong to take us through the financials and the capital management side.

Good morning, everyone. I'll quickly run through the financial performance of MIT as well as the capital management position. Year-on-year, our net property income increased to $531 million largely due to higher contributions from our Japan properties as well as new leases and renewals across various Singapore property clusters. These were actually offset by loss of income from the divestment of Tanglin Halt, which were completed in March last year, nonrenewal of leases in North American portfolio and higher property maintenance and marketing costs. Operating cost is lower at $105.1 million, mainly due to repayment of loans with proceeds from Tanglin Halt divestment and lower interest on the unhedged floating rate loans. These were partially offset by higher volume costs taken on loans for the Japan portfolio. The distribution from joint venture is lower, mainly due to higher borrowing costs from repricing of mature interest rate swaps. Accordingly, our distribution per unit increased by 1% to $0.1357. Quarter-on-quarter, our net property income increased to $131 million, mainly due to nonrenewal leases, lower rental rates and higher property maintenance costs from the North American portfolio which were then partially offset by new leases and renewals across various Singapore property clusters and the full contribution from the Tokyo acquisition. The distribution from the joint venture is lower due to higher borrowing costs from repricing of mature interest rate swaps. Accordingly, our distribution per unit decreased by 1.5% to $0.0336 this quarter. Balance sheet remains strong with gearing at 40.1% and interest coverage ratio of 4.3x. This financial year, we retained about $30 million of cash through DRP, but given the tick up depends on MIT unit price and in the current volatile market environment, we are suspending DRP from this quarter onwards. Our debt maturity profile is well staggered with average duration of 3.2 years. On interest rate management, about 78% of our debt is hedged into fixed rate with average hedge duration of 3.4 years. The average borrowing cost for the quarter decreased slightly to 3%, largely due to lower floating rate on unhedged loans. However, we continue to see impact of higher interest from repricing of our interest rate swaps maturing in the coming financial year. FY '25/'26, we have about $600 million IRS coming in, we expect to be replaced at higher interest rate. The impact of this is about $10 million to $11 million. And given that these are all onshore in the U.S., net of taxation maybe about $7 million to $8 million. And 1/3 of these will affect -- will give the negative impact to DPU in FY '25/'26.

Next, we can go on to the outlook. Well, I guess, outlook, everybody knows where -- or don't know where it's going. So one word to describe it is uncertain. Every morning, I wake up wondering what Donald Trump has done or said as I was sleeping. I think in view of such uncertainty, we have also seen a lot of the economies adjusting their growth rate, the economic growth rate, Singapore included. We do continue to see the rise of higher operating costs and as well as the elevated borrowing costs. This will continue to exert pressure. It's something that we will need to just ride through and deal with. Operationally, we will focus on improving our occupancy for both the Singapore and U.S. portfolio. I think, hopefully, if we can bring out some, we can fill out some new spaces that will be able to ease and provide us with some additional cash flow. In the face of the trade tariffs and the political tension, I think we are going to be a bit more defensive in terms of our leasing strategy. We do need to be -- try to be a bit more nimble and flexible when it comes to the leasing terms. I guess our efforts on the rebalancing the portfolio through divestments will continue. This will actually help to strengthen our financial flexibility and provide us with more headroom where we can make some acquisitions -- meaningful acquisitions that can provide us with sustainable growth. So I would say we do have our challenges ahead of us, but our portfolio is diversified, and we do have relatively strong balance sheet. So we do hope that this can see us through these uncertain times. With this, we can take questions.

[Operator Instructions] Yes. Mervin from JPMorgan to take the first question.

Congrats on the strong rental reversions and the very low borrowing costs. Just can we touch on a few properties where we show a decline in property values, in particular, Neil Armstrong Boulevard, McCrimmon Parkway, Hills and Dales Road, Governors Hill Drive and Beltway Parkway as well as Bowen Road. Can we just get an update in terms of, are there future vacancies for these properties, not necessary for FY '26 but '27. Because if you look at the big drops in or drop in valuations for March '24, it kind of correlated to the vacancies that you touched on previously. And also second question I have is, any updates in terms of the properties at Rancho Cordova. I note that it seems that JLL is trying to sell one of the properties there and the occupancy for the property actually seem to drop to 42.5% from a much higher level.

Okay. Just to answer the first question on valuation forecast, there's a list of properties that was being highlighted. Generally, for U.S., we do see -- the U.S. valuations are predominantly pretty much cash flow focused. So when there is upcoming renewals or upcoming vacancy or when the property is vacant, the valuation will actually fluctuate quite a bit. And the other side is true as well once we manage to secure any increase in occupancy or slightly higher rental rates or more committed cash flow, the valuation will actually creep up immediately as well. So as you rightly pointed out, I think one of -- the last one I heard was Arlington at Bowen Road. So that was the one that we -- the tenants have removed and then we have actually wrote down the valuation because the property is currently vacant. So I hope that kind of summarizes why the valuation changes. Then the second question is on the Rancho Cordova 2, I think it's sharp of you to find that JLL is marketing the property. It is currently occupied, all right? But we actually thought that it is not one of our core properties, which is why we're actually running a process to sell. And in order to do that, we will actually have to get a third-party broker to help us to market the property to have a wide outreach to potential buyers or investors. So that's one of the properties that we are trying to sell.

So the 5 properties that I mentioned between 10% to 12% decline in property values, is that upcoming vacancies or lower rents? What's driving the drop in valuations?

Yes. Well, I think it's probably a mixture of both.

Some of the adjustment for valuation may also come from the assumptions used by the valuers.

Yes, for market rent.

Market rents, how they gauge. I think -- I don't know, I mean, to be frank, we do have exchange in valuers for the portfolio. So that could jolly well also contribute a bit to how the assumptions may differ between valuers to valuers. So it may not necessarily just purely because this is coming up specifically, but it's a combination of quite a few business.

For these particular properties, are they mainly -- is a drop in valuation really change in discount rate used by the new valuer or is this actual cash flows that impacted the reduce?

It's a mix. So there are some, and there are quite a number that is due to the adjustment in terms of the market valuation.

So there is some risk of lower cash flows for some of these properties, not necessarily this year, but in the outer years.

I think it's still quite early to say at this point. I think these are basically -- you're talking about it being due in the next few financial years. So things may change. As we have highlighted, things are very fluid at this point. So the renewals, we typically will start talking to them as early as we can. So at this point, we won't really know.

Sure. The final question for me...

If you want to get expiries, it is available in one of the slides that we have.

Yes. Just in terms of the -- sorry.

So, I think because just on when you're running through the lease of properties, just to be clear, some of them are due to vacancy like the one in Arlington, but quite a few are mainly due to the just changes in market rent. So it's not because the leasing is weak in future, it's just a valuer's view.

Yes, I know the valuers may be more conservative in actuality, which may not be a reality. But just trying to understand because the vacancies kind of correlated, the drop in valuation the year before, so we actually had 6 to 9 months precursor to guidance.

But I think we shouldn't assume that all leases when expired will not renew. I think as I have highlighted for this financial year, 1.7% is confirmed nonrenewal. We don't think that there would be some -- that this number will deviate very significantly for the rest of the year. So the balance of the 1.8%, I think, a small portion has really been addressed with the divestment of Northwoods, right? The balance of it is something that we are working on. And I would say, we are quite hopeful.

Yes. And how should we be thinking about distribution of prior divestment gains. We sold the one that Northwoods Parkway, which I presume that's a gain, how should we think about that?

I think in the first place -- okay, if you talk about divestment gain, you'll know that we have already -- for this fourth quarter, this is the last quarter of our distribution for Tanglin Halt. We have so far not kept any divestment reserves if you want to put it that way. So for this Georgia data center, the gain is actually very small. So I think based on what we have always been doing, it's not likely that we will be distributing it.

Good luck with the backfilling.

We have Derek from DBS to ask the next question.

Just two questions from me, right. Firstly, I think, Lily, you mentioned about your rent reversionary outlook for this year. You guided for mid-single digit, right? I'm just wondering whether -- what's driving this more conservative number, just being conservative? Or are you actually seeing that compressing of the leasing spread going forward? Maybe you answer for this first, yes.

I think it is small from the fact that these are the past leases that we have been seeing, where we record double-digit type of rental revision, these are mostly leases which we have taken on during the COVID period. So I think you understand that during the COVID period, a lot of the businesses were facing pressure. So we have actually in our negotiation being a little bit more flexible. So I think this will start off from a low base. So we have been continuously seeing very good -- very strong rental revision coming through for the past, I would say, about 3 financial years. So generally, if you look at our Singapore leases, this tends to be on the 3 to 5 years type of lease tenure. So I think that is where we think that while looking at the situation while we think that the rental revision will still continue -- will still be positive, we may not be seeing as much growth as what we used to be simply because these leases before on a low base, which have more or less been running out of their cycle.

I see. Okay. But generally, it's still positive for this year is a good confidence you'll get there.

Yes.

Okay. Okay. Got it. So my second question is on your asset recycling, right? I noticed that you have been selectively selling assets. So I'm just wondering given that in the U.S., it's quite diversified and you've got many properties that's maybe sub-$10 million. Are you actively looking to sell more prior to the lease coming up for renewal? Do you have a guidance on the quantum for us?

We are definitely looking at streamlining the portfolio. I think that is something that we have articulated many quarters -- a few quarters before that. I think you will also understand that our North American portfolio actually acquired largely through 3 large portfolio acquisitions. There are nice properties, there are properties that may not be as nice, there are properties that were relevant, may not be as relevant right now. So we are actually taking a good hard look at this lease of properties to see what we think may not be as relevant. Of course, some of them would include those that is nearing expiries, which we think that maybe the renewal potential may not be as high, right? And of course, this will also include those vacant buildings. So I think we remain open as to the options that we have with these properties. But I think suffice to say that the divestments of the U.S. or some of the properties in the U.S. portfolio is definitely ongoing.

Okay. Good. How about Singapore? Is Singapore something you're looking at also?

I think Singapore is the same, okay? You would also appreciate that the Singapore portfolio has generally been here since our IPO time. I think we also earlier on back in 2023, actually pushed out a big $1 billion divestment program, which didn't work out that well. So we have kind of take a good hard look at the Singapore portfolio and trying to see what is something that is not as relevant. So I think at the end of the day, what we are hoping to do is for those that is not leaving us as much growth or for those which we think we may not be able to extract a lot of more value up from it. This will be the potential for candidates for us to divest. And once we divest the -- basically the proceeds, we can use them for redeployment into new investments. I think that, I hope, can actually bring our portfolio to deliver sustainable returns for our unit growth.

We have Rachel from Macquarie, next question.

Okay. Maybe just the first question on the average cost of debt. The $600 million that you have guided on the U.S. debt, does that include your JV level? And what's the current average cost of debt for your JV level?

Yes. So our average cost of debt for this quarter, when we mentioned, is 3%. This excludes our JV level. But the $600 million IRS coming due in the coming FY, that includes basically total IRS, including the JV level. So -- our share. So when I mentioned the per annum impact $10 million, $11 million, part of this were actually see the lower distribution from JV.

Got it. Would you be able to share with us the average cost of debt for your JV level?

Currently, it's around...

I don't think it's very far out from what we are reporting, maybe slightly higher.

And then maybe just on the Brentwood lease that you are saying that the rent-free period is coming off, roughly what's the percentage of GRI from that asset?

It's on our top 10, that's 1.4% is the last one that you see.

Maybe just one last question for me. In terms of -- I think you have guided some divestments and you're looking at some divestments. But given how uncertain the environment is now, do you see a slowdown in pace in terms of divestments? And hence, FY 2026 may not reach the kind of divestment that you were hoping for?

We have not exactly seen a significant slowdown, right? But I think we are -- we think that we should still be able to deliver some divestments. I think probably hopefully say in the range of $500 million to $600 million.

And these are mainly the U.S. portfolio or the Singapore portfolio?

So it should be a mix. Yes, I think -- I don't -- we don't specifically say I must divest Singapore only or I must divest U.S. only. So I think we will have to manage it as we go. As you will appreciate, I think divestment is not something that we say we want to get it, right? So we can't really detect how it will take place. It's a lot of negotiation and progress that needs to -- and process that needs to be run.

Derek from Morgan Stanley to ask the next question.

Yes. I just wanted to ask a couple of follow-up questions. First one would be on the guidance for nonrenewals. Lily, you mentioned 1.7% come from renewing this financial year and the balance of 1.8%. Is the 1.7% Telepark in Singapore?

Sorry. Sorry, I was a bit cut off. I am not familiar at this point about my portfolio. Are you referring to STT, is it?

Yes.

STT, as you see on the chart, should be reflected in the small little blue line that you see. So I think for STT, currently, they contributed about 1.8% to our gross revenue. So I think with the newer -- I think I probably explained this before. But for STT, the rental actually has 2 portions to it. One is the base rent. The other one is the rental which they pay on the fit-out that was done. So what happened is that fit-out leases will actually drop off this coming financial year. So we do expect the impact to be around 50% of this. But I think the STT has also been -- has extended their leases with us for another 10 years. And there's also a little bit of additional space that's picking up. So I think all in, I think the impact might be muted a bit, but I think we should still be looking at about 50% of the 1.8%, slightly lesser than 50%.

Understood. So that 1.7% and 1.8% numbers that you mentioned really stem from the U.S. portfolio?

So for the U.S. one, what I was saying is for FY '25/'26, about 3.6% of the gross revenue is due for renewal, of which the 1.7%, I think we have already said that there are confirmed nonrenewals. The remaining of the 1.8%, part of which, of course, includes Northwoods. So we have already divested. So I think Northwoods' contribution is about 0.1%. So we are talking about the remaining of 1.7% of renewals, which we are currently working on. And we think that it should be okay.

Got it. Didn't catch the first part of the presentation. And, just on, you mentioned cost pressures, higher borrowing costs, higher operating costs. Do you counteract such effects? Will you be open to, I guess, increasing fees in units?

I think at this point, there's no intention to. So what we will try to do is to adapt as we were trying to increase our efficiency and try to improve the margin, trying to reduce the impact on the higher cost. And as for the interest and our borrowing costs, I think that's something that we have always been looking at it, trying to see whether there's any way we can reduce the impact.

In terms of managing the interest cost, we continue to be nimble. So for example, last quarter, when I spoke to you guys, the 5-year rate was around 4.3%, currently, maybe 3.5%, 3.6%. So we continue to monitor this for the upcoming IRS due of, let's say, $600 million. When we monitored, let's say recently when the interest rate went down to around 3.2%, 3.3% try to catch it, we will not do the replacement at one go $600 million. We can do a bit of forward start and do some of the extension early, also, we will continue to monitor so that will have to reduce the impact for our DPU.

Okay. And what will be the all-in interest outlook for this FY?

So the MIT interest rate for the coming FY maybe around -- about 3% to 3.1%.

Joy from HSBC to ask the next question.

So first of all, can we just get an update on the U.S. power study? And I think in your slides, you mentioned about redevelopment, are we referring to redevelopment in U.S. or Singapore?

Redevelopment can be both in Singapore, U.S., but I think it's very much looking at whether do we have the right composition of it. So I mean -- by that, I mean, there's a lot of factors that goes into in terms of redevelopment. We probably need to have some level of commitments before we are prepared to do something similar to what we have done in the past for our Kallang Way, where we have at least a certain proportion that is taken up before we will consider doing a redevelopment. Because I think we also have to appreciate that for redevelopment or any projects that is developed in the -- along the line of redevelopment may have certain impacts on our DPU. So I think that's something that we need to balance as well. So in short, whether, is it in Singapore or the U.S., we are open to both. I think you also asked for the power study. I'm glad that you bring this up. There's something that I forgot to talk about just now, okay? But I think for the power study, we are actually in the finalization for the Power study for San Jose. I think at this stage, based on what we understand, I think the facility in itself, we are able to get accessible power, say, around 3 to 7 megawatts. I think currently, you are talking about maybe 2 to 3 megawatts. Currently, it's about 2 to 3 megawatts. We should be able to get -- based on the existing infrastructure, power grid, we should be able to get 3 to 7 megawatts -- up to 3 to 7 megawatts. If we want to go further up, I think 20 megawatts is possible within the next maybe 3 to 4 years. So I think at this point, we are evaluating the options that is that we can work with. And at the same time, we are also doing our marketing in terms of the re-leasing. And I think as we've lot of the other portfolio -- a lot of the other properties, but also open to a divestment for this.

I see. And just a follow-up on San Jose. I guess if you were to start a redevelopment, would you do on a spec or you will need to secure a tenant before you start development work?

I think Peter -- I'll let Peter take this.

Yes. No. So essentially, we -- Lily mentioned earlier, when we were undertaking redevelopment, it actually creates a lot of downtime and uncertainty as well for us, for us as a portfolio or as a REIT. So we are, I mean, if you look at our earlier redevelopment and the development that we did most of them are built-to-suit. So this is probably something similar that we will do for the U.S. And our primary aim is really to have income-producing assets. So speculative development, especially if it's a big one, it's not something that we will want to do. But specifically for San Jose, as Lily mentioned, we do see some upside in the power. I mean we have done our power study, we can increase to 7 megawatts without much work, but to increase to 12 or up to 20 megawatts, we have to pay some money. So we are also exploring potential sale as one of our repositioning or rebalancing strategy. Yes.

So just to clarify, basically up to 7 megawatts, there is no payment required or no CapEx to required, right?

No payment required. Of course, I think in terms of internal CapEx, still we will have to pay. But at least there's no additional payment that we need to do to the power authority.

It's based on this existing power grid.

Yes, correct. The capacity.

Cool. That's very clear. And then my second question is on, in terms of a tenant. I don't know if you've done sort of an assessment in terms of exposure to sort of export-related activities. And also in your view, what percentage of the tenants are a little bit on a more vulnerable side?

This is small on the Singapore portfolio. To be frank, it is quite difficult for us to put a number to the tenant's exposure. I think partly you understand that our tenant base is 2,000 over. So for me to try to gather information from 2,000 over tenant is not easy. And for quite a number of them, it will be like pulling teeth out of the tiger's mouth because these are actually deemed quite confidential from their perspective, right? But I think what I can say is we have spoken to some of the tenants. Some of the larger tenants, they actually don't see a significant change in terms of your business order and production for, especially for those that it is exporting to U.S. I think a lot of the tenants are actually taking a wait-and-see position. I mean, nobody really knows what we've developed from the trade tariff. As I said, every morning, we wake up wondering what has happened, what has transpired, what has Donald Trump said or not say, done and not done, right? So I think it is very, very fluid at this point. So quite a number of the tenants will also like -- I also don't know what to expect. So they have -- some of them have -- quite a number of them has actually been said, I'll just wait and see before we move. The larger tenants actually may not be impacted, especially those where they have already been preparing to diversify their support chain. So I think the U.S.-China tension is something that is not new to everyone. It has been ongoing for the past years. And also arising from COVID, I think everybody learned a bit of a lesson from there. So the bigger tenants have actually -- the larger corporates have actually been looking to diversify their own support chain and their supply chain. So I think when the trade tariff comes out, then for them is, well, it does impact us, but we have that flexibility to be able to reshuffle our distribution in terms of the materials, in terms of the products. So basically, what they do is they try to reshuffle and minimize the impact in terms of the cost, right? I think -- and interestingly, we do see some inquiries for additional space from some of the existing tenants. Basically, this will be the likes of business will be tenants who are actually exploring that maybe with the trade tariff -- if the trade tariff turns up to be what it is, they may be looking at moving some of their operations to Singapore. I think at the end of the day, at this point, Singapore is one of those countries with the lowest tariff rates, right? So -- and we also see that some of the export-oriented tenants for those that is in the, say, semicom industry, et cetera, they are actually producing more for the Asia market and not so much for exporting into the U.S. I think what could be possibly will impact -- for that matter, I think would impact everyone is actually the second and third order effects. I think with the tariffs going on, we would expect production costs to increase. So I think that is something that we will have to keep a look out for.

Maybe, yes, sorry, Peter again. So I just want to address Mervin's earlier question on the valuation. So after I kind of looked at our valuation numbers, those few properties that you highlighted, essentially, those leases, except I think the last one you mentioned, at Bowen Road, actually, the value increased slightly. So I probably got that mistaken. But for the rest of the properties that you mentioned, the valuation dropped not due to the leases, but it's mainly due to the changes in cap rates and valuers assumed market rents and so it's a house building. And most of those leases are not going to expire in the next 2 to 3 years. So just to close out that look.

We have Brandon from Citi to ask the next question.

Just want to talk on your reversion outlook, right? Just confirming that you are lowering down from high single digit to low to mid?

Single mid digit.

Single mid?

Yes. So we still expect a positive rental revision coming through, but it will not be as high pace as a double digit, mid-single range.

Okay. And are you open to sharing about the split by the different industrial segments as well as on the U.S. side, what's the expectation because I realized that your gross signing rents have been coming down despite the very strong market over there?

For the Singapore, in terms of segment, we have a range of 1.4% to 12%, right? So the 12% is actually contributed mainly -- is actually contributed by the Flatted Factories. So we see a higher -- and if you look at the historical trending of it, Flatted Factories is the one that has been giving us quite strong rental revisions for the past few years, right? The one that may -- the rental revision may be on the lower end tends to be those that is in the Business Park and the Hi-Tech side. I think that is also reflective of the situations Hi-Tech and the Business Park softened demand because of the supply that's coming on stream. So for the U.S. side, I think, in terms of rental revision, it is positive, but I don't think we are expecting a double-digit rental revision. I think if you look at some of the data that's been put out by the other players, some of the double-digit is largely because they are also doing the operations side of business. So for us, our data center, it's really more on the core and shell basis. I hope that explains.

Yes. So basically, for U.S., you are still expecting low to mid-single-digit positive as well going forward. Is it correct?

I think the -- yes, we can't really just have a general reversion target like this because for our U.S. portfolio, quite a lot actually locked in leases. And for our better ones are in Northern Virginia, where it's actually one of the world's hottest market, those are actually on very long lock-in leases with extension terms that have already kind of on pre-agreed terms as well. So I think this is one of the main reasons why you do not see a very high reversion but at least we are comforted that those assets are pretty much resilient and will be renewed in that case. So for you then for some of our other assets that, which we do not have sufficient power to cater to the new development in the industry, we will then have to undertake power study. And then with that, we may have to sell some of them, so -- which is why we're kind of hesitant to give a very targeted reversion, but...

I think you also appreciate that U.S. is actually a much bigger as compared to Singapore. So I think there is some varying factor in terms of the market.

Yes, that's right.

[indiscernible] something. Okay?

Sure, sure. And just to follow on from the U.S. data center portfolio, right? Out of this USD 3.1 billion of portfolio that you have, can you sort of give us a rough sense like how much of this you do look at actively selling them? How much of it does have the potential for upgradable power and how much you think it's really sort of much more resilient than the rest. Yes, because as you already mentioned, right, there's a fair mix of a lot of things. So good to get a sense on where we should look at the viability of this portfolio in the short and medium term.

Yes. Maybe I would say that if you look at the tenant mix, out of that, we have about 20%, these are the hyperscale data center service. These are the ones that we thought are very resilient. And of course, we have a bit 60% which is power shell data centers. I would say that out of this whole bunch probably 60% to 70% are pretty resilient. And if you look at our geographical split, right, 60% to 70% are also in Tier 1 markets. So for the balance, 20% to 30% are more for domestic city users and so on. Those are the ones that we see are probably less resilient than the Tier 1 markets. But having said that, they serve its own use as well. And so if you're talking about how the strength of our portfolio in U.S., probably the [indiscernible] 7%.

Sorry. I kind of missed that. Sorry, you were cut off.

Don't worry. So okay, I was, okay, if you look at it from our view or if you look at the pie chart on the right side, the doughnut chart on the right side, the hyperscale and the colon providers are probably what the current market is driving at whereby there's AI and more retail type of users. So the weaker part of our portfolio is mainly the enterprise end user and the other section.

Got it. Got it. Okay. Okay. That's very helpful. And just one last question to add it, right? Sorry.

All right. Maybe if I may also add, if you look at our North America data center portfolio, lease expiry, okay, at least more than 50 -- I would say more than 50% of our leases are actually due in FY '30, '31 and beyond, right? So I think what you're looking at in terms of year, the more recent expiries are not a small percentage of the total portfolio.

Can you also share a bit on your NPL margins for this portfolio, right? Because we have seen that coming down below 70% again this quarter. In the past, I think it was always been about 70-plus percent. So is 68% to 69% the kind of normalized number that we should be looking at?

Not really. I think if you look at the NPI margin, historically, we have always been around 73% level, 73%, 74% level. I think this quarter, it is a bit lower, but you also understand that typically, this is the last quarter of the year. There is quite a number of works, the cyclical works that actually happens in that quarter rather than other quarters. I think if you look at the historical trend of our margin, the last quarter tends to be a bit on the lower side. But if you look at it on a full year basis on the average, I believe the margin are somewhat relatively consistent.

Bill from UBS to ask the next question.

I just have two questions actually. I think the first one is going back to the expiries in the U.S. that 1.7%. I mean based on currently what you guys are working towards, should we be expecting more conversions? Or you're just looking to do, spend a bit of CapEx and re-lease it? And what kind of CapEx should we be expecting for the portfolio?

You mean for the 1.7%?

Yes. Yes.

We are open to all. So basically, we keep the options open. So we are working both on re-leasing for data center basis. Of course, the preference would be -- if I can lease out a data center, that would be my top. If not, then other users is something that is not closed option as well, right? And despite the leasing of course, as you say, some of them, it possibly may have a potential for divestment.

Okay. Okay. But given that they have really confirmed that they're not going to renew, are there any advanced negotiations with potential re-leasing? Or what should we be expecting, for the policy, yes?

Saying that we, it's not a case of where you get 0 inquiries. There have been viewing. There has been some talks. It's really just then trying to see if we can crystallize the talks into confirmed leases or not. But these are things that are still quite a few read, and we are working on it. So I think for the 1.7%, we also included the San Jose, right? And that is something that we have done a power study on, so we do hope that, that can actually create some interest in these facilities as well.

Got it. Okay. And my next question is on the borrowing cost. I think information you just now you mentioned that there will be a $10 million to $11 million impact, this is -- I'm assuming this entire $10 million to $11 million is the total impact to mind, right, in terms of the high-end borrowing cost?

Yes, the plenum impact for the replacement hedges would be around $10 million to $11 million, but this is per annum. The $600 million of IRS coming due, I mean it will come in progressively this FY.

Okay. Okay. Got it. But I just wanted to hear your thoughts behind this, right? This $10 million to $11 million is based on today's rates or have you guys actually assumed or baked in further interest rate cuts?

So I think the market has pricing, let's say, about, let's say, potentially 3 rate cuts, right? But these rate cuts will affect the short-term risk looking on hedge portion. So on that front, we will continue to see some interest savings from our unhedged loans. But when we talk about replacement of the IRS, we will usually use the 5-year rate, so we have used current 5-year rate, maybe 3.5%, 3.6%.

Okay. Okay. So meaning to say the 5-year rates to actually come down, there could be some slight savings from that.

Yes.

Tan Xuan from Goldman to ask the next question.

Can I just check that 1.7% nonrenewal other than San Jose, which are the assets was included in this?

I think San Jose will take the bulk of it. And I think previously, we have so highlighted that there is a tenant in 250 Williams, which have already -- which has also reduced the office space. The data center space was extended for a longer lease period.

Okay. Got it. Second question is on USD exposure and also debt, right? In terms of income hedging, how long is it for? And also given the difference in Sing and U.S. borrowing cost, any thoughts about shifting the USD debt to see?

So maybe in terms of the FX front, in terms of managing our FX, we 2 parts, right? One is the CapEx and the income hedge. On our capital hedge, we try to borrow the local currency for natural hedge. So for USD, currently, maybe about 55% to 58% assets is hedged in U.S. dollar borrowings. In terms of the income hedged for the next 12 months, we have hedged about 57% of our USD income into Sing dollar? On borrowing costs, the thing with USD is that if we borrow onshore, we have the tax shields. So all in all, we are still slightly better off borrowing USD onshore currently. I mean other than providing us that hedge, we also -- I mean, net-net, we are still about the same in terms of all-in interest costs. I mean, today, we take Sing-dollar borrowings, right, and you stop to USD doesn't really make sense because maybe we need to pay about 150 to 170 bps cost. So net-net, we are still better off borrowing onshore USD.

Okay. I understand. Last question on the divestment of $500 million to $600 million. That's the total amount that you're looking at, right? Not what you're looking to achieve for FY '26. Is that right?

Yes. I think the to $500 million to $600 million target is probably the lower part of what we -- it's something...

The process is something that is not really detect at my whims [indiscernible], right? It will take time, I mean it takes a lot of work for us to run the process and even after you get the process, you need to go into your due diligence, you need to do your negotiation, et cetera. But I think we should be able to -- I guess to a $500 million to $600 million type of number, it should be something that is achievable for us.

Is it achievable in the next financial year?

Yes. But if I can do more, if the numbers are correct, if the price is correct, if we can do more and help us to push ahead with our streamlining of portfolio, I think that will be something that is good. I think at the end of the day, what we want is to really build a resilient portfolio that can bring sustainable growth to the unitholders. So whether be it by divestment proceeds is being redeployed into better properties that give us growth that is -- that can provide us growth in the long run or even just us streamlining the portfolio and resolving some of the leasing pressure, I think that's something that will be quite good for the portfolio. Hope that answers.

Jonathan from UOB to ask the next question.

First question relates to tariff. And you correctly pointed out that Reciprocal tariff in Singapore is a lot lower than regional countries potentially. So for the 4 asset classes that you have in Singapore Hi-Tech Business Park, Flatted Factories and Stack-up/Ramp-up, which segment will be positively affected, which segment will be negatively affected by reciprocal tariff? Second question relates to the very attractive rent for new leases for Hi-Tech at 337, Business Park new leases at 3.9. They look much higher than the existing leases. Could you give us some color on how those attractive rents were achieved? And can we infer or read that positively for this -- for the trend going forward for these 2 segments?

Your first question on which segment will be more exposed. I think that is a very difficult question because really, nobody knows what will happen, okay? We are not able to decide for what is the -- at the end of the day, what will happen in terms of the trade tariffs something that is still a huge question mark. I would say generally, if we want to look across board, if you are looking at your second or third order effect globally -- for that matter, globally, prices will go up. Things are going to increase simply because of the trade tariff, right? So this is what we mean by the second of the quarter. So -- and kind of effect would affect most of the industries. And I would say, if you look at a class across both the FX class, okay? But I think we have seen quite some resilience in terms of the Flatted Factories during the trying times. I think if you look at the COVID period, while we say that the Flatted Factories have a lot of SMEs that may be affected, we also recognize that Flatted Factories are actually one of the lower -- lowest cost base that you can find in Singapore. So when times are uncertain, people don't know what to expect and all people are trying to save cost, the lower cost base tends to be something that people will want to get it. So from that perspective, I think the Flatted Factories are relatively resilient. Of course, doesn't mean that Flatted Factories tenants will not be affected at all. There would be tenants who will be affected. But it's just that because it's low cost, we might be able to find some replacement tenant in times to come. So I think with that, we are also a bit -- we also keep an eye in terms of the arrears that we have been looking at. I think our arrears numbers throughout the Singapore portfolio tends to be relatively healthy. Generally, you're talking about 0.1% type, okay? Even during times of COVID, our arrears numbers, I think you'll only be looking at 1%, 1.2%, so -- which is still relatively healthy, right? So I think the resilience of the portfolio is there. There's no deny that the trade tariff will have impact, but how much that impact is still a question. As I said earlier on, we have also seen quite interesting things in the sense that we have inquiries for space from our existing tenants because they are looking to move their operations into Singapore because of the trade tariffs, right? So that is actually somewhat a positive, I guess, a positive point for us, but it's always a case of which effect is higher or more -- which effect is higher than the other, right? So I think that is something that remains to be seen at this point. I hope that answer your question.

Yes. Hi-Tech and Business Park, there would be less manufacturing. So would that be more resilient? And then Stack-up/Ramp-up will have more logistic trade-related activities, would that maybe be weaker?

I think the answer is probably, we don't think so. Yes, we don't think so.

And on the new leases, sorry.

In terms of the new leases for the Hi-Tech, I think a large part of it is attributed to our Kallang Way. I think that one, if you recall our Kallang Way property is actually one which is of relatively, I would say, very good quality. So the kind of rental rates that we have been able to command of it actually shows evidence of this.

Okay. And could you give us the latest occupancy for Kallang Way, how much that has improved in the last quarter?

Committed occupancy, it's 60.1%. Last quarter was 57%. So we have an uptick of about 3 percentage points.

Thank you, everyone for joining us. We are mindful that we have exceeded an hour. If there are any more questions, reach out to the IR team. Thank you.