Mapletree Pan Asia Commercial Trust (N2IU) Earnings Call Transcript & Summary

Good morning, analysts, investors and members of the public. Welcome to Mapletree Pan Asia Commercial Trust or MPACT Analyst Briefing and Live Webcast for our Results for the Fourth Quarter and the Full Year FY 2024-'25. I'm Li Yeng. And today, for our results briefing, we have the following speakers. They are Ms. Sharon Lim, Chief Executive Officer of MPACT; Ms. Janica Tan, Chief Financial Officer; and Mr. Koh Wee Leong, our Head of Investments and Asset Management. We'll be presenting our financial results, providing business development updates and sharing some market insights. Following the presentation, we'll open the floor for a Q&A session, where we invite you to ask questions and seek further clarification. Without further ado, I will hand the floor over to our CFO, Janica.

Thank you, Li Yeng. A very good morning to everybody. We have just announced our results this morning. So maybe we'll just go to Slide 8 to quickly go through the financials. For fourth quarter FY '24-'25, gross revenue was SGD 222.9 million and NPI SGD 169.5 million. These were lower by 6.8% and 7.4% year-on-year, respectively. And this largely reflects the absence of Mapletree Anson's contribution following its divestment on 31st July 2024 and lower overseas contributions. As you may recall, we have divested Mapletree Anson, our noncore asset on 31st July 2024 and we have applied the entire proceeds to the reduction of borrowings. Okay. Moving on to the OpEx. OpEx improved by 4.9% year-on-year during the quarter and this was largely due to the Mapletree Anson's divestment and lower utility costs, in particular, the Singapore portfolio. Net finance expense for the quarter, 9.4% lower at SGD 51.1 million as compared to fourth quarter last year and this was mainly due to the repayment of borrowings using the net proceeds from the divestment of Mapletree Anson, but this was partly offset by the higher rates on the Sing dollar, Hong Kong dollar and Japanese yen borrowing as our legacy interest rate swap continued to roll off progressively. So consequently, this amount available for distribution was SGD 103.6 million and DPU SGD 0.0195, down 14.8% year-on-year for fourth quarter. Okay. Moving on to next slide. This shows the contribution by different markets. Singapore properties' contribution increased by 1.4% year-on-year, excluding Mapletree Anson. And this accounted for about 53% to both fourth quarter's portfolio gross revenue and NPI. On a full year basis, MPACT reported gross revenue and NPI of SGD 908.8 million and SGD 683.5 million, respectively, lower by 5.1% and 6.1% year-on-year. The higher contribution by Singapore portfolio on a comparable basis, which is without Mapletree Anson as well as lower OpEx and net finance costs provided a partial offset to the overseas headwinds -- ForEx headwinds. So consequently, DI amounted to SGD 423 million and DPU SGD 0.0802. Okay. The next few slides are on our portfolio valuation. MPACT's portfolio valuation is approximately SGD 16 billion as at 31st March 2025. Excluding the effect from Mapletree Anson's divestment, the portfolio valuation rose SGD 339.4 million or 2.2% from their respective last available independent valuation either as at 31st March 2024 or in the case of the 3 Makuhari assets in Japan as at September 2024. On a year-on-year basis and excluding Mapletree Anson, the valuation increased by SGD 225.5 million or 1.4%. The overseas properties recorded lower valuation, largely stemming from the revised market expectation in Greater China and cap rate and discount rate expansion applied to Festival Walk. Okay. Moving on to the next slide. This is the valuation for Singapore property. There's an uplift of SGD 660 million or 7.9% and this more than offset the decline in the valuation of the overseas properties. Singapore's growth was led by VivoCity's better performance and tighter cap rates applied by the valuers to VivoCity and the Business Park segment of MBC. For Japan, the year-on-year valuation decline was largely due to the 3 properties located in Makuhari in Japan and has been captured in the September's results. The current 6 months change in valuation was largely due to ForEx impact, while MBP shows some gain due to successful backfilling. Moving on to balance sheet. With the uplift of the portfolio valuation, NAV per unit is now at SGD 1.78 as at September 2025 and this was higher as compared to March 2024 by 1.7%. On capital management, the deployment of Mapletree Anson's divestment proceeds reduced outstanding borrowings to SGD 6.1 billion. And together with the higher overall valuation, aggregate leverage ratio improved from 40.5% a year ago to 37.7% as at 31st March 2025. With the average all-in cost of debt maintained stable at around mid-3s, ICR kept at 2.8x on a 12-month trailing basis. During the quarter, MPACT issued a 7-year green bond in March 2025 and this extended the average term to maturity of debt to 3.3 years as at March 2025. And by the close of the reporting period, MPACT has a financial flex of SGD 1.2 billion in cash and undrawn committed facilities. So this is sufficient for working capital and financial obligation. We will continue to ensure a natural balance sheet hedge by closely aligning the debt mix with the geographical distribution of MPACT's AUM where visible. Okay. MPACT's debt profile remains balanced with no single financial year facing more than 23% of debt for refinancing. Moving on to risk management. The fixed rate debt portion was lower from 81.5% to 79.9% during the quarter. Without the 7-year fixed rate bonds issued in March 2025, the percentage of fixed rate debt would be at 76.6%. So at about 80% of our debt on fixed rate, every 50 bps change in benchmark rate is estimated to impact the DPU by SGD 0.01 per annum. And lastly, at the close of the quarter, approximately 90% of MPACT's expected distributable income was derived from or hedged into Sing dollar. The next slide is on the total return. So for this year, the total return from capital and dividend payout is 3.9%. And last but not least, on the distribution detail, DPD, received April 2025 and the payout date is on 6 June 2025. With that, I will now hand over to Wee Leong. Thank you.

Good morning, everyone. Maybe let's move on to the occupancy performance. So you can see that the portfolio occupancy has declined very slightly since December 2024. That's largely driven by the Japan properties where there were a number of non-renewals assets, particularly in the Makuhari area. But then moving on to the Singapore assets. So for MBC, occupancy now stands at 91.2%. There have been a number of non-renewals in the current year in the financial year that just passed and most of those spaces are still in the process of being leased out. The experience over the last 3 to 6 months has been that tenants have been taking a far longer time to make decisions and commitments are typically a lot further into the future. We remain hopeful that we can bring up the occupancy in the coming financial year, largely due to the fact that the cost pressures for tenants in Singapore are driving them from CBD assets into lower cost locations like MBC. For VivoCity occupancy remains strong and a small amount of vacant space largely due to AEIs, which are currently ongoing. mTower is the main beneficiary of the increase in occupancy for the other SG properties. Again, we have been the beneficiary of the movement of tenants out from CBD, looking for slightly lower cost locations. mTower also benefited because we were able to offer smaller spaces. The building has been multi-tenanted for a long time. Smaller space of 1,000, 2,000, 5,000 square feet are easily available. We have also managed to retain a lot of the fit-outs from tenants that recently departed and this allowed incoming tenants to reduce their moving costs, making the building a lot more attractive. For Festival Walk, that a little bit of vacancy is largely due to the office component of the building. We had one tenant move out earlier in the year. We have backfilled about 40% to 50% of the space and we are looking to fill up the rest of the spaces. China remains one of our more challenging markets. If you look on a year-on-year basis, Gateway Plaza actually lost a little bit of occupancy against March last year, whereas Sandhill Plaza has actually improved occupancy slightly. But while those assets have performed better than most of the market comparables, leasing demand still remains fairly weak both in Shanghai and Beijing. In particular, for Shanghai, we will likely see a little bit of headwinds going forward as the Zhangjiang area being Business Park does face a little bit more pressure due to the trade tensions, which have mainly been focused on manufacturing as well as on -- and specifically on semiconductors and microelectronics-related industries. For the Japan properties, this is largely due to the termination of leases from the single-tenant property vehicle as well as the non-renewal of the master leases at MBP. For Pinnacle Gangnam, still one of the bright spots in the portfolio, all of the vacant spaces in the building have been currently taken up except for a small retail unit in Basement 2. And we expect Pinnacle Gangnam to continue performing well over the next 1 year or so. Okay. Moving on to rental reversion. So MBC -- the Singapore properties in general have performed a lot better. MBC, VivoCity and mTower in particular, have seen healthy rental reversions. Festival Walk continues to see negative rental reversions. That's also been pressured because of the current trade tensions and the potential impact on the economy of both Hong Kong and China. The China assets, as we have mentioned previously -- mentioned in the previous quarters, there has been negative rental reversions. Market rentals have been falling. While we have managed to contain this to a negative 9%, the reality is market rentals are a little bit -- quite a bit below our passing rentals in the past. Just to give a sense, Sandhill Plaza in the past used to sign leases in the [ SGD 5 to SGD 6.50 per day -- RMB per day ]. Most of the rentals we are concluding now are actually in the [ SGD 3.50 to SGD 4 ] range, okay? So for Japan, that's again largely due to the Seiko building and MBP and the market leases MBP, whereas Pinnacle Gangnam continues to perform well. This improvement in rental reversion is largely due to the office leases where a lot of the -- due to the run-up in office rentals in the Gangnam area, where we still have quite a component of the building where the passing rentals are -- where the current rentals are below the market. So we can probably expect to see a positive rental reversion for Pinnacle Gangnam going forward. Just a quick note on lease expiry profile. So our Portfolio is 2.2 years, Retail is the same number, whereas Office and Business Park is at 2.3%. You will see that we actually have quite a large chunk of spaces coming up for renewal in the current FY '25-'26 and we are in negotiations with all of these tenants. And the current indications are that most of these tenants will be renewing their leases, although 1 or 2 of them might have some reduction in spaces. So moving forward on the performance of the Office and BP assets. So Singapore continues to perform well, a bit with a slightly increased vacancy at MBC, which we hope to close up throughout this financial year. China continues to be challenging. Retention rates are fairly low. We do have tenants who have been moving out to newer buildings, in particular in Shanghai. Whereas for Japan, while we have signed up a good number of leases, some of this is actually some of the underlying leases in the master tenant, which have continued in the building. And rental reversions continue to be weak, especially in Makuhari. So Korea, I mentioned earlier, continues to be one of the better performers in the portfolio. So moving on to VivoCity's performance. So shopper traffic is down very marginally against the year-on-year, whereas tenant sales have been down about 2.1% against year-on-year. Part of the impact on tenant sales has been that if you have been to the mall recently, you have seen that we have had quite a lot of asset enhancement works ongoing and that's contributed to significantly more downtime this current financial year than against the previous financial year. Looking at the asset enhancement work. So for Basement 2, we had 2 phases of works ongoing. One phase is the upgrade of the full kiosk as well as increase the number. That's largely complete. Just one -- just a few more kiosks which will be done by the end of this quarter. For Phase 2, which we have started a few months ago, where we'll be expanding the retail footprint into the car park area, that's currently ongoing and will largely be complete by the third quarter of the year. Most of the phases have already been committed out, just a few more leases left to finish up. So this slide just gives you a few of the tenants that we have signed up over the current quarter as well as some of the A&P activities that is ongoing. Moving on to Festival Walk. Festival Walk, the shopper traffic has been up 5.6%. I think this has largely been contributed by, firstly, increased travel from China into Hong Kong, although that hasn't really translated into tenant sales. If you look at the Hong Kong tourist statistics, while the number of arrivals have improved -- increased, the spend by tourists, either those who have stayed overnight or are there only on a day trip have decreased quite significantly from what they were doing pre-COVID and even against the previous year. Tenant sales continues to remain weak. We do think that it's likely that this is starting to flatten out. If you look at the outbound statistics for Hong Kong, that number actually is starting to flatten out. In previous years -- in the previous months over the past financial year, that would have been easily a 30%, 40% to 50% increase, whereas over the last 1 month or so, that increase has been fairly muted. So the mall continues to improve the tenant mix, a number of new tenants that we brought in as well as a number of pop-up stores that we have put through to the mall. The mall continues to be very strong in running marketing activities to drive footfall and it remains very popular with social media-related events as well as with the stars in Hong Kong. Okay? So we can come to the end of the presentation. I hand it back to Li Yeng.

Thank you, Janica and Wee Leong. We are now ready to take your questions. [Operator Instructions] So first, we have Terence for JPMorgan.

This is Terence Khi from JPMorgan. Just wanted to ask on Japan occupancies, especially for MBP and Makuhari. Is this the low that we are seeing? Any more vacancies expected for FY '26?

Okay. The FJM property, as we have announced and shared with the market, the tenancy will add in 2026. So in terms of valuation, we have taken it down. In terms of the number, in terms of occupancy, when you see the number, come 2026, there will be a drop due to Fujitsu. But valuation-wise, we have taken majority of the valuation down already for the asset.

In terms of master lease, all the master leases for MBC have they...

Yes. So the master leases for Seiko -- okay, we had 2 master leases that we shared with, 2 big ones, which is Seiko and Fujitsu. Seiko, we have already taken down. Both of the assets we have taken down, they fell. Occupancy is showing up already or has shown up for the Seiko asset, which is now called MBT, okay? That's the building. Now for Fujitsu, it's 2026. Valuation taken down, but the occupancy, you will see it coming down in 2026.

Okay. And in terms of the negative reversions, how should we expect negative -- how should we expect reversions to trend for the overseas assets, especially for Festival Walk, China and Japan?

Okay. I think if you look at our entire portfolio reversion, if you look at the whole portfolio, it's a positive 3% -- over 3-over percent and that is led by VivoCity, okay? The rest of the overseas are in the single-digit, okay? If we're talking about Hong Kong and China, we are talking about single-digit. I think right now, there is still a little bit of uncertainty, okay? But I think we're trying to keep the -- and try not to expand this negative rental reversion beyond what we are seeing, yes.

And finally for me, I just want to ask on the capital distribution, this SGD 7.7 million. Can I ask how much has been utilized and how much remains to be distributed?

Can you repeat your question again, Terence, please?

The SGD 7.7 million, I understand that there's a SGD 7.7 million capital distribution from the balance allowance from the divestment of Mapletree Anson?

No, I think you got it wrong. We do not distribute any divestment gain on Mapletree Anson. If you are referring to our footnote in the financials in the SGXNet on the allowance that's relating to Mapletree Anson, I think this is something to do with the tax because we used to claim capital allowance for Mapletree Anson and some of it has not been claimed. And under Singapore tax, we got claim all. So it's a deduction from our DI and then we just adjust it in the DCC adjustment. It's in our profit. So we just adjust it to our DI. So effectively, we are not paying out anything. It's just a book classification. We are not paying out anything.

Thank you, Terence. Can we have Geraldine from DBS next?

This is Geraldine from DBS. I think VivoCity's valuation was a surprise. I was just wondering how much of the AEI that you have done is reflected in this valuation uplift?

Okay. Majority is due to operations, okay? I think you see the rental reversion over the years, the year, it has gone up. So operations contributed majority of it. Then with a portion of AEI and a portion of cap rate compression, but majority is operations flat.

Okay. Maybe one more, I think, to get back to the trade war tensions. Any expected tenant vacation or any talks of pre-term within the portfolio?

Not that we are aware of, but I think Wee Leong can give you a bit more color into the exact because I think generally, we are not the first asset class that will be hit in terms of tension. But when there is uncertainty, all companies will be a little bit slower or a bit more cautious in their consumption of office space, okay? So I think we are expecting a slower decision-making. But I think we will take the lead from what we see how it all pans out with other sectors that it will slowly trigger down -- sorry, slow down to our asset class. Okay? So I think Wee Leong will share a bit more on the specific markets that we're in and where we see our tenant's lease and how they are affected.

Okay. So maybe let's start with Singapore. If you look at our Singapore portfolio, and here, we're talking about Office and BP. We'll talk about Retail seg later. So for Office and BP, if you look at it, the majority of our tenants are in the IT sector, financial sector as well as we've got a fairly healthy portion of government tenants as well. Looking through the portfolio, we feel that the likelihood for softness is probably from the shipping and transport sector. We saw this during the last round of trade wars in 2017-2018 period, where a lot of our shipping tenants actually had a bit of weakness and we had a number of non-renewals. Currently, we are still -- it's still early days, none of the tenants have come to us with pre-termination requests. However, we have been in discussions with some of the tenants potentially for expansion of spaces. And at least one of them has come back to us to say that they will renew in-situ rather than expand. So we are seeing a little bit of slowdown in terms of the sector as much -- it's probably as much from uncertainty than it is from direct impact of the tariffs. So moving on from Singapore, the sector -- the country that is most greatly affected will likely -- is likely to be China. Two assets have quite different performances. If you look at Shanghai, Shanghai is a Business Park asset and the operations there are largely supporting manufacturing of -- supporting semiconductor-related activities. We, however, do have a number of U.S. companies in Sandhill Plaza. And while they have mostly continued with us over the last few years, we are in close contact with all of the tenants. We do know that there will be some pullback. Some of the tenants are looking at downsizing when the leases expire, but that's largely related to the slowdown in the economy in China rather than a direct impact of the tensions. The Beijing Office market is in some ways, insulated and that's largely because during the previous round of trade tensions, most of the -- a lot of the large American tenants within our building have actually already left and most of those vacancies have been backfilled. So the Beijing market now has -- there's a lot more local. There are a lot more local Chinese companies taking out spaces in Gateway Plaza. We haven't heard in particular from any other tenants about impact of the tariffs. Even when we touch base with our largest tenants, their feedback was largely -- was more that the slowing China automobile market has been a bigger impact on them than the tariff directly. So far, for the Japan portfolio, we are seeing anything as well. In Korea, our tenants within the building are largely serving the local market, not so much export related. So moving on to the 2 retail assets. I think in particular, for Singapore, in terms of retail, usually, we do see a stronger -- we do see the retail asset perform slightly stronger when there's a certain amount of uncertainty, while -- and people tend to spend less on luxuries and discretionary items whereas non-discretionary spending will usually improve. And that will definitely be an upside for VivoCity where the majority of the tenants are -- where we generally do not have luxury tenants. For Festival Walk, we do think that there should be some positive impact as well. However, the larger picture really has been -- really will continue to be that the Hong Kong dollar remains strong and the connection with China is easy. And the connection to China remain fairly easy and there will be -- will still be a small -- there will still be an amount of spending which will flow through to Shenzhen. That's why as Sharon mentioned, we do expect the negative reversions still we -- we still expect there to be negative rental reversions, but probably in the same range as we have continued to see. In general, when there is uncertainty, weaker spending does flip more towards the discretionary side and that does benefit both our malls slightly because of the fact that they are not particularly high-end malls and in Festival Walk's case located within a largely residential area and serving the consumption of the people located there. We do have that here in Singapore for VivoCity as well. And we do expect that the impact from tourism is likely to be more muted.

So the other point that our leasing colleagues are sharing is from their dealings in the market today, tenants are -- prospects are a little bit more cost conscious. So that's where I think we sit better today because our offices are slightly in Singapore, slightly decentralized, but near enough to town and of decent quality. And pricing, there is a differential that will place us better. Although, there is -- everybody is a little bit more uncertain, they become more cost conscious and that's where I think our offices will be better placed.

Thank you. Can we have Derek Chang from Morgan Stanley next.

Just a follow-up on the divestment gains from Anson. So would you be -- would you consider paying out divestment gains to shore up DPU, especially as you've mentioned the pressures on DPU?

No. Okay. I think from the start, we did say that we are not distributing the gain. We're keeping it for -- to improve our balance sheet. I mean, right -- at that time, our gearing was at a certain level. And I think we have successfully brought up to a super comfortable zone at 37%. I think we will see along the way and assess future -- if there is any potential future positive gains from divestment, we will -- we may consider. But for Anson, we have decided that we will keep it to strengthen our balance sheet.

Yes. Maybe let me add on, on that SGD 7.7 million that you see in the SGXNet. That relates to Anson's capital allowance. So Anson is being taken off from my taxable income. So I have to do it through a capital distribution to balance it out. So we are not distributing any capital gain from the Anson divestment.

Yes. Got it. Understood. And could I also ask on the MBC Google backfilling progress? Where are we at right now?

So for the 2 floors that Google gave up during the previous lease renewal, we are currently still marketing the space. There are a number of tenants who are looking at it. But the reality is the spaces which are large have very, very few tenants looking at it currently. We have been engaging the 1 or 2 potential tenants for at least 6 months -- 3 to 6 months already. And we are still working with them on when they can take over as well as what spaces they are eventually finally going to take. We have mentioned earlier, decision-making has slowed down quite a lot and a lot of tenants tend to be a lot more cost conscious currently -- cost conscious going forward.

Right. What is the percentage of progress done?

For the 2 floors that Google gave up?

Yes.

Currently, nothing -- but both floors are being looked at by -- being looked at by tenants to be taken up in their entirety.

Understood. And can you share some color as to -- you spoke about tenants moving from CBD to Business Park -- pure Business Park area. Could you give a flavor of where -- which industries they are from?

So we have -- it's a fairly wide range. I've got shipping companies, I've got financial institutions. I've got the usual IT companies as well, FMCG even, right? So, not quite fast moving. But definitely, it's across all sectors. When CBD rentals start to cross SGD 13, SGD 14, it becomes a little bit more uncomfortable for them in terms of taking out spaces. Most of the tenants will start looking at what the more cost effective -- what's the more cost-effective solution. In some cases, they will split offices, which we have seen, taking some office spaces in the CBD as well as taking back office spaces or mid-office spaces here. I mean the tight supply in the CBD does help to push up rentals. And when that happens, more tenants will start looking at ways to rationalize their office spaces.

Got it. Understood. And just last -- one last question. At VivoCity, what's the current occupancy cost? And when will these double-digit reversions come normalize back to single digits?

Okay. I think 10-over percent of rental reversion is actually very, very high, okay, decently high. And I think we have consistently been able to do so, but I think we have to be a little bit more muted in our actions going forward, depending on which are the leases that's coming up. So a lot of the rental reversions are due to changes in trade, okay, changes in trade or improvement in tenancy type within the same trade. So that's where the team has been able to capture such decent rental reversion. For example, we have one restaurant that was there with us for 10 years. He was the bottom 3 and there was just a switch of a tenant to a better operating one. The rental reversion was a very decent jump. So I think Vivo itself is least of my worry. I think we have seen that domestic spending will continue when there is a certain form of uncertainty in the market. On top of that, we are also improving ourselves operationally with all the AEIs. I think if you have gone to Vivo recently, you have seen how we have reconfigured all the kiosks and the kiosk is increasing the numbers using removing our customer service office and also using common area spaces to better utilize the floor space to create [Technical Difficulty]. The look, feel, M&E, flow, tenancy mix, even toilet provisions are all included in the full upgrade. The other one -- the other AIE that we are doing, which is the conversion of car park and reconfiguring the space into retail, that will be quite interesting because that is the front of where the MRC ingress egress is, straight to the mall. So tenancies have been signed up successfully. It will be very nice. The whole look feel, amenities will all be upgraded. So I think this is VivoCity's major plus point. We have a big space. We have never stopped over 10 years in continuously upgrading the space, be it for revenue or be it for beautification and look, ambient spaces. So rental reversion, of course, the team is -- will be very measured, okay. Where there is potential to move, they will move. But I think we -- I cannot guarantee that we will all be doing 10-over percent every year. It is actually, if you look at the market, 10-over percent rental reversion is consistently is not -- I've not seen it in most of the other malls, okay? So I think VivoCity is a little bit one-off, yes. Occupancy cost is always around hovering around 20%. So while we move up the thing, we will still have to try to move the sales. So this round, I think we are tracking retail sales, okay? But we have not significantly over the retail sales index is because we trash a lot of units at Basement 2. When we trash the units at Basement 2, it means that we are not trading. So when we do the sales comparison, we do not remove when they are undergoing AEI. So the way MPACT does it is at east, okay? So we do not remove when we are doing AEI and calculate the sales on a per square foot basis. So technically, we are not comparing on a like-for-like basis, but we are still tracking retail sales index even though we have trashed a lot of units for asset enhancement works at the Basement 2. So in short answer to you is we are still around the same occupancy cost.

Derek, you have another question or maybe that's all for now. Okay. It's alright. Next, we have Brandon.

Can you comment a bit on BMW and TaSTe. For BMW, do you think...

Our BMW is very there. He's still in China office occupying a major, his lease is still 2028. BMW is still there, okay? And we did renew the lease about 2 over years ago in December. So we still -- and the lease is still 2028. TaSTe is still there. We have renewed the lease. So I think in terms of operations, they are quite stable as of now.

Does BMW have any preterm clause?

I think it's a signed contract. Nobody has a preterm clause.Anything you want to preterm, it must be negotiated. Not allowed, you can negotiate with us, but not allowed in the contract. None of our contracts allow you to preterm. Only Japan, because Japan is rolling leases, right? So rolling leases by nature, they are allowed to preterm. The rest is very similar to Singapore. We cannot just walk away.

Okay. So I assume for BMW, they should remain, so...

They are there. I can just tell you that they are there. They are still there.

There are many, many, many BMWs in the Gateway Plaza car park, many.

Okay. Okay. And just going back to Festival Walk, I think we earlier mentioned that the sales has bottomed out. And as for the negative rent reversion, right, how long more do you think that could continue, especially given the current tariff war?

Okay. You see there, I can't really predict the general economy at this moment, okay? Right now, everything is a little bit volatile, it changes. But for retail itself, I think when you see the Hong Kong dollar slightly weakening, which is tied to the U.S. dollar, I believe spending will be tilted back a bit more to Hong Kong. Our consumption is going on, but consumption has some leakage into Shenzhen. So the Hong Kong dollar strength has some bearings to it. So for me, I can't tell you when the whole world is going to change or when we're going to see the bottoming up. Now is it feeling a little bit of pressure? I think entire Hong Kong, yes. But good thing about Festival Walk is, one, we are -- in terms of retail sales, even though it's negative, we are lesser negative than the general Hong Kong retail sales. So it means it is performing better than the general retail in Hong Kong for Festival Walk. So when will I turn? I think a good first step, a good first step that I will see immediately when the Hong Kong dollar weakens a little bit, okay, against Chinese yuan or whatever, then that's where you see the spending, I believe, will tilt back a bit for Hong Kong, okay? But generally, where is it going to start flying, okay, is a bigger economic question, okay? It's a bigger question in terms of where Hong Kong would lies as a financial sector, okay? So that, I think, is anybody's guess today.

Okay. Just one last one on valuations in China, right? You've taken them down quite a bit this quarter. Do you think that that's probably the worst that we have seen?

Okay. The -- most of our -- okay, the overseas asset, okay, is it a huge drop? It's a reflection of the operations, okay? If you talk about very, very huge drop, like 30, 40, no, no, no, it's not in that -- in that scale. We have not dropped in that manner, okay? So I'm not saying that overseas drop is directly linked to the operations. China -- Hong Kong drop, there is a portion of cap rate expansion, okay? So are we going to see depending on where the operations go, I think China, there will still be a little bit of weakness in terms of valuation. Hong Kong itself is -- majority of the drop is due to the cap rate, okay? Now where the cap rate -- will it continue to expand? It will depend on where the valuers face it at the end of the time. This round, they did 10 bps, okay, 10 bps expansion. So it may continue. We're not sure. But what we see ourselves in terms of our financial strength today after selling Anson and all, our -- plus our Singapore holding up strongly, our total WALE actually has gone up by the strength of our 60-odd percent portfolio, which is held by Singapore. Singapore has gone up and it's 60-odd percent of portfolio, it brings our gearing to about 37-ish. So it won't be able to withstand any shocks, okay, in terms of any major cap rate changes. I'm not saying there will be any major cap rate changes, but if there is for China or Greater China, our portfolio will be able to withstand that, okay? So I think our financial strength today can take us to withstand the next 1, 2 years if there is any changes in cap rates. Okay. So valuation, even if it drops, it will be a reflection of the softening of operations in China, okay? But we will be able to withstand based on our current capital structure.

Thank you, Brandon. Xuan, good morning. Over to you now.

Could you explain a bit about the cap rate compression for Singapore, especially for MBC and Vivo.

Okay. Okay. Vivo itself, if you look at it, our cap rate -- our running cap is high-4s, okay? So the marginal cap rate compression, if you look at the past deals, is tighter than what it is. The valuers really have no choice. They really have to give it to me because there was transaction, okay? But majority of Vivo's valuation gain is operations, is operation. The 10 bps doesn't get me to that SGD 600 million -- SGD 500 million, SGD 600 million, okay, SGD 500 million. It is majority the operation. Now MBC, MBC is due to transactions, okay? They have done a mixture. They have to -- typically, valuers will have to take in transaction cap, okay? And they will be a bit measured in terms of maybe adjusting market rents down a bit. then there was a mixture of that. So the reason behind the changes is majority transaction -- market transaction led and our own operations being positive for retail.

Got it. Second question is on cost of debt. If you look at the debt that's expiring versus what you're signing, what's the expected cost of debt for the next financial year?

Currently, I think rates are all going down or going down and then quite stable these few days. I would think it will be around this level, mid-3s for the next 12 months.

Would you be able to share what's the average expiring debt cost for the next year?

Actually, average expiring debt cost for the next year is not quite meaningful because some of it we hedge, some of it we swap. So what I can tell you is for this coming year, financial year, the fixed rate debt is actually at about 62.7% on a blended basis. So when that get rolls off, it will be reverted to floating rate. And the majority of the fixed rate debt that is expiring in first quarter are all below the current market rate. So there will be some increase. But we are also working hard, talking to the banks to renegotiate the margin and doing a lot of whatever things that we can do within our portfolio to bring down the cost of debt. So that cushion the impact of when lower REITs IRS roll off, it will be -- it will impact in our books. So at the same time, we are also seeing margin going down because we have been going back to renegotiate. Hopefully, that can offset each other and that we can keep it at about mid-3s -- continue to be at mid-3s.

Thank you, Tan Xuan. Derek from DBS. Over to you, Derek.

Can you hear me?

Yes, we can hear you.

I just have 2 questions, right? First one is on your WALE right. Could you give us a bit more color whether this year for the retail office business park type of expiries, are you expecting any churn or downsizing? Maybe some thoughts around that given the current climate. So that's my first question. Yes. Okay. So my second question, back to what Tan Xuan has asked, right? So I think Janica, you have kept interest rates pretty stable and you're still guiding for flattish. I'm just wondering whether are you being a bit conservative on that front because you have moved Hong Kong to China, right? And China is going down, Singapore is going down. So rightfully, I thought that maybe...

Thank you for doing my job. Thank you for asking that question to my CFO.

Let me take the -- sorry, interest rate more important.

Yes, yes. So I just wondering maybe what you think you will...

3.5% to -- 3.4% also mid -- 3.6%, also mid, right?

Okay. But essentially, we should expect that your interest rate should have [indiscernible]. That's how we should look at it, right?

No, no, no, no. We do have interest rate swap at high rate at the moment, and it's going to only drop off next 2 years up to March 2027, okay? So when that stays, the interest rate cannot go down too much, okay? Then when -- after March 2027, when all our high interest rate swap expire and we roll then that you will see that it depends on the market and if the market is same as today, then you will see it going down. Then I can safely tell you it's a low 3s. But at the moment, not yet. I got to gradually manage the high interest rate that we -- high interest rate swap that we have in our portfolio, okay, to keep it to the mid-3s that I promised you.

Got it. Got it. So you're saying that -- so just a follow up. You mentioned that if interest rates remain at current level, you potentially could go in at low 3s. Is that how we should look at it?

Okay. What is low 3s. Yes. it might be 10%, 15% lower than what we have now. Put it that way -- put it that way, if assuming all my debt reprice today and based on today's market rate, it will be around 3.3%. 3.3% -- 3.2% plus 3.3%. Yes. As well as the Interest rate swap -- high interest swap on my portfolio.

I know. You won't be too bullish, yes. Just some thoughts around.

Okay. Then maybe let me just comment quickly on the weighted average lease expiry. Generally, for retail leases, we aren't seeing any significant changes to the lease durations, right? Larger tenants are still signing slightly longer leases. The majority of retail leases are still 3 years, and we still have a small component of short-term leases within our portfolio. That's largely unchanged. The bigger changes are -- will probably be on the office side. For office, if you look at our previous quarters and in fact, going back a few quarters, you'll see that our office bill has come down slightly. That's largely due to the passing of time, where we have a number of -- we have quite a large chunk of office leases expiring in FY '26, FY '25 and FY '26. And because those leases haven't -- largely haven't been renewed yet, they are slightly shorter durations have brought down [Technical Difficulty] slightly. Looking at the negotiations with the office tenants currently, we do see a lot of the tenants, where previously they were assigned 5-year leases are now largely more looking at the 3-year -- looking at 3-year durations. I still have 5-year renewals. I still have 4-year renewals as well. But the tenants that previously had 5-year leases are potentially asking us for 3 years rather than 5 years. So the office will come down slightly. In terms of the second part of your question, in terms of where you're asking about downsizing and the like, unfortunately, we do have a little bit of that. I mean, we mentioned that the market remains uncertain. The ability for tenants to continue to hold large spaces, especially in the current uncertainty is not very high. while most of the tenants, especially our larger tenants have retained all of their spaces, that's not the case for all of our tenants. A number of tenants have actually given up spaces. I mean, Google was a good example last year. We still have a few of these tenants going forward that are asking for a slight reduction of space upon their renewals. But it's not -- for these large tenants, there's not a huge amount of space. We are talking about maybe 5%, 10% and 20% of space being given up, and it's only for a small proportion of the tenants within MBC in particular. If you go to Shanghai and Beijing, then that story becomes quite different. For Shanghai, we do have tenants, who have been asking for 50% reduction in spaces. But again, there's still a minority. The bigger challenge in Shanghai actually has been non-renewal of tenants, where because the market rentals have been low and because there's a lot of supply within the market, we do have a lot of churn within the tenant mix. Although the property has done fairly well, we have brought occupancy up from where it was about -- it was low -- it was actually high 70s about a year ago. We are now at about 86% thereabouts for Shanghai. We have a little bit of that -- of the same issue in Beijing as well, where we do have tenants, who have given up 50% of space. And there is also a little bit of competition between landlords for tenants. But for that building, we have actually managed to maintain our occupancy at a quite healthy level, so around -- also around the mid-80s mark.

Okay. Okay. Sorry for that. But just one more for MBC, right, are we going to see stable or negative reversions or just one-off negative? I'm just curious.

So -- okay -- so passing rentals, market rentals, market rentals have remained fairly stable or around the mid-6% range. Where the reversions will come is depending on where the tenant ends their lease, where -- which tenant is the one that is being renewed and what their rentals were. Within the Park, there are a number of tenants, where the average rent is actually a little bit -- quite a bit higher than [indiscernible]. So when those leases revert back to market, unfortunately, there will be a little bit of negative rental reversion.

Okay. Maybe, Derek, I'll give you another perspective, yes. I think the -- okay, our current -- most of our tenants have been with us for, what, 5 years, 10 years and more. Certain amount, if we were to switch out a tenant, I just compare switching out a tenant and a negative reversion. Just for example, 8% or 8% or 10% -- 8% rental reversion negative may sound like a catastrophe, okay? But if you look at what does that translate into the number of months for a lease term, we are talking to over months. Would I be -- on a cash flow basis, I may be better off as compared to switching another tenant because switching another tenant, the likelihood of it being back to back and not giving rent-free is absolutely out of this world. In a typical business, leases we sign, where the give fit out rent-free and the handover unit is never so perfect. So I think I will say that for Business Park and all, I really prefer them to stay. My cash flow is definitely better, okay? And anything that is single digit is nothing to worry about. It's even better than I switch tenant and get a positive reversion. That is from my operations perspective, okay? And in terms of how -- maybe I'll just share the other point is that leads to your question pertaining to our lease expiry. The term to maturities in terms of our leases -- the few of our top tenants by virtue of lesser time, they are coming closer. So good thing is one of our top 10 tenants in MBC is renewed, okay? So that has been significantly -- it will improve the lease expiry profile, okay, and have derisk for MBC. So I think when you look at rental reversion, especially for Business Park, yes, changing a tenant, you see the percentage. Typically, we have to give minimum 3 months to 4 months, plus a certain downtime because we cannot back to back today, I take back the key tomorrow, I hand out the key to another tenant. In terms of cash flow impact, it is worth in my pocket on that basis. So if I can renew and the rental reversion is slightly negative, I'm more than happy to do so because overall, on a cash flow basis, I'm better.

Thank you, Derek. So can we quickly move on to Jonathan?

Lots of leases expiring for the next 2 years. You have mentioned potential weakness in Shanghai and Beijing. Are there other markets that could also have potential weakness in terms of downsizing or non-renewal? And maybe you can share in terms of quantum, how some of that weakness could be? Second question relates to, I think, an earlier question on -- yes, occupancy cost for Festival Walk, I think we missed out answering that part of the question.

I think -- okay -- you go ahead.

Let me just -- so in terms of the significant risk in the portfolio, I think some of the business we have already flagged earlier, flagged before in previous quarters. One of the bigger risk within the portfolio actually is the non-renewal of Fujitsu at the SGM building in Makuhari Japan. So when that occurs towards the end of -- after the end of this current FY, then there will be a drop in occupancy for Japan portfolio and the corresponding reduction in revenue and net property income. For the current -- so moving on to other geographies, Korea is fairly stable, actually doing quite well now that the building there to 100%. We are -- for Hong Kong, the office component has got a small amount of vacancy. For the other tenants within the building, most of -- some of the leases were signed quite recently and especially for the anchor tenant at the festival office that extends all the way out to 2030. If we move on to Singapore, mTower has a little bit of -- will have a little bit of occupancy reduction towards the end of this current FY. One of the tenants has flagged that they were moving out. Actually, they flagged they're moving out from more than 2 years already, moving to their own use building. For MBC, we are in negotiations with the majority of the tenants, which are -- we have really started negotiation with majority of tenants, which are expiring in the going forward financial -- in the current financial year. And for the majority of them -- for the majority of them, they have not indicated that they are downsizing. There is one tenant that potentially may and we are still working through the details we have. But that downsizing is not significant. It's not like a 50% reduction of space. It's probably closer to about 20% reduction, 20-ish percent reduction. Okay. Then I think the last question you had was on Festival Walk occupancy cost, right? And that's also in the 20-ish percent range, fairly consistent from what it was in the previous financial year.

Thank you, Jonathan as well. Next, we have Joy.

A few questions. First of all, just on MBC. You mentioned about a few non-renewals. Can we -- can I just get a bit of a sense as to the reason of non-renewal? Is it cost or just...

Those are the previous financial year. So Google gave up 2 floors, right? Then you know that…

No new ones.

No new ones. Okay.

No new ones.

No new big ones. They are small, small ones, those type of half floor, one floor tenant, which I believe doesn't impact the portfolio that significantly.

Okay. And for those small ones, they're moving out because of cost?

Some of them are moving out because of cost. There's nobody that said that we are closing down the Singapore operation, and therefore, we have to exit MBC. We haven't heard that in quite a while. But there have been some, which are consolidations, where they have like 3 or 4 different offices, and they were looking to consolidate. Like I mentioned, for PGB that was largely cost as well as the expansion issue. Then there were a few other tenants, which were largely driven by cost and consolidation.

Okay. Cool. And the occupancy rate, I can take it as the current physical occupancy rate, right?

For MBC...

For MBC, yes.

Yes. The difference between our committed and physical occupancy is -- it's very small.

Okay. Great. And then second one on Vivo. You mentioned that the valuation is largely on operational. So does that mean that once your AEI is completed, we can expect another one round of meaningful revalue?

Okay. It will all depend on that. If you see the NPI going up, which is typically the rental -- reflection of the rental reversion, then that will slowly be taken into the valuation. But they will always deduct the capital expenditure that we spend on the mall too, okay? So yes, If it go up, it will go up. Yes. If it comes down, it will come down. This is big cap rate changes unlikely because there is no deal. So on that front, the valuers will not unlikely move.

I see. And then just lastly, Sharon, you wrote on your press release that pursue targeted opportunities. Could you just elaborate a little bit more on the targeted opportunities? And I guess, also on divestment opportunities in other markets as well?

Okay. I think when we talk about opportunities, very simply, okay, without reading my press release, very simply, okay, we always review the constitution of our portfolio, okay? Now if there is opportunities to sell and we see that there is -- there's a reason to sell, we will consider doing it, okay? So I think what we have done last year at Anson is an indication of how of capitalizing on certain opportunities when we see it -- when the opportunity comes by, okay? So we are not here to have assets. If we find that there is good purpose for doing so, we will continue. So I think we are regularly sharing that we will continue to do whatever that we said, which is to recycle where possible, okay? But of course, recycling for commercial is a little bit tougher because our asset size are chunkier, okay? But that doesn't stop us from thinking of how to dissect and capture the opportunity when it comes. Yes. So I think maybe what I'd like to share like for the whole of the year, just in summary, what have we done well? What are we worried about? What have we not done well? Okay. Maybe I talk about what we think that we have done well first. Number one, the valuation increases well supported by operations is a definite positive. 60-odd percent of our portfolio is stable. In terms of NPI contribution, Singapore is about 60 over -- it's about 60%. And that is -- it's a very, very stable piece, okay? And that leads to bringing down the worries of last year of our 40% gearing down to 37%. Now what does this 37% mean to me? 37% mean to me is, number one, investors stop making about my gearing; 2 is, I have enough buffer to withstand any shocks in this unstable market, okay? Right now, globally, I would think that there's some shake stuff, okay? How will pan out in terms of cap rate, I think we still don't know. Certain parts have shown signs of expansion in cap rates. So valuation, I think we have done well, led by operations, better operation. Two, the other thing is the -- we also actively recycled, which capitalizing on Anson with a gain and lowering our gearing also. Third is our 2 retail malls, you may say that Hong Kong is weak, but I would say that we have beat retail sales. We are better than -- better negative than the general negative in the market, okay? So on that basis, I would say capital structure is stronger. We have done what we can. Operationally, we push what we can, but we are not immune from the slight weakness in the China market and Japan assets that we have. Now so where are the downs? Japan, I think we have said enough about Japan of our issues with the anchor tenant. We have actively taken down our valuation, okay? So the books have already registered the leaving of our 2 master leases and Japan is about less than 10% of our entire portfolio. So what we can do, we are very done, okay? Control the OpEx, control the CapEx, bring down the WALE. Japan, we have done what we can as a manager. Hong Kong, moving to our Hong Kong retail. We kept our occupancy high, although the whole market is a bit weak, we push on to make sure that our occupancy is kept. Rental reversion, a bit that is a negative -- is a less negative than the market. Where we see the turn is there is still consumption. Hong Kong dollar, if it weakens, it will be a benefit to Festival Walk. But generally, we are not performing behind Hong Kong retail market. Okay. China. China itself, everybody hear a lot of bad news, trade tensions, whatever, they are not -- it's not new to us. It's not new to China at all, okay? So in terms of operations front, our stability comes from occupancy. If you see our occupancy, even though it has dropped, is way ahead of the market, okay? We may be in the 80s, market is 70s, okay? So I would say that although we are negative, same story, we are better -- we are performing better than the market. So those are our -- if you ask me where our focus is, our down points are our overseas softening, but we are outperforming the market be on the occupancy or beyond the sales front for the retail part. Now as a manager, I cannot control the macro. We can control our ops. We can control our costs. We can control our spending and we can control and push certain AEI plans to gain further revenue when we see opportunities for Vivo. So I think generally, that sums up for what we have done for the year.

So I guess, going forward, next year, we probably acquisition or sizable acquisitions still off the card. Is that fair to say?

I think right now, depends on what acquisition and the size. Today, I would say, Singapore acquisition [indiscernible] okay? Our gearing 37%, I think most of the acquisitions for the last 10 years, you need a bit of gearing to push up for accretion because your underlying portfolio that historically is actually higher yielding than whatever that is selling in the market, yes. So if we are strictly looking at accretion and not the quality of the asset that you're bringing in, typically higher quality means lower yield, then you will need gearing, okay? So I think we -- I would say that if you want strictly accretion, it will be slightly tougher. But I am not against the idea of improving the quality even at neutral. Sometimes we are too fixated on certain things. And yes, I think what I'm saying is, I'm okay even with neutral if it is a higher quality asset.

And in that scenario, would you be happy to trade, let's say, partial stake of your sizable assets for those?

Okay. Which one? I think we have always shared with the market. Vivo and MBC is synonymous to MPACT, okay? As of now, there is no plans of any divestment. They are core to us. If you say others, I do not know what you mean significant -- others, yes, we will consider if the price is right. Yes.

Thank you, Joy. Last, we have Rachel from Macquarie.

Just very quick questions. I think firstly, Fujitsu. Fujitsu's occupancy, how much -- sorry, Fujitsu non-renewals, how much would it form in your lease expiries for this year?

No, next year -- next year 2026.

2026, yes. So the 12.7% and is it 2026 or 2027?

No, it's 2026. So of that 12.7%, Fujitsu is may be about 2%, 3% -- 2% [indiscernible]. Yes, actually a little bit less than 2% -- should be a little bit less than 2%.

Okay. Got it. And one more is Japan, your Japan asset, are you looking -- do you need to do AEI or anything or any color on leasing demand or...

So for the Japan assets, it's number -- we do a little bit of AEI. The buildings -- the buildings, in particular, the Makuhari ones are a little bit old. So we do have plans to do more cosmetic type of work to just improve the leasing outlook of the building. That and the fact that, like I said, because they are old, then there will always be upgrades and replacements that need to be done over the course of the life of the building.

Okay. But demand is just soft in that area. Hello? Hello?

Sorry, we didn't get your question. Can you please repeat?

Definitely. Demand, is it still soft or is it...

So interestingly, okay, so I have to split it between the Makuhari assets and the rest of Japan, right? So the Makuhari leasing demand actually has been improving slightly. We're not talking like leaps and bounds, but at the very least, we are able to sign a number of leases. We do have a little bit more demand. In the past, I never saw -- we never saw tenants that were like -- that were more than 50, 60 [ Zubo ]. We actually now have tenants that are looking at spaces at the 100, 200 Zubo range. So there's a little bit of interest -- a little bit more interest in the -- in the Makuhari market. The leasing demand for the rest of our Tokyo assets still remains strong. Even when there are a little bit -- even when there are non-renewals, we're generally able to backfill the spaces either even before the tenant leaves or not significantly a long period after the tenant moves out.

One last one on share buyback. Would you use the capital gains or the divestment gains to do share buyback?

My divestment all used to [Technical Difficulty].

[Technical Difficulty] no more.

I think we have -- I think we have the mandate. Previously, we didn't. We are able to do so, but doesn't mean that we will do so. We will balance between keeping our gearing to make sure that -- because every SGD 100 million is a positive effect and are positive to the DPU, no doubt. But we will balance that and decide along the way. But as of now, I would say immediately, no, but we have the capability of doing so. It's a standby.

Yes. I think if I may add on, if we need to, we can do that. We will do.

Thank you. And final question from our online participant [Technical Difficulty]. He is asking if you could share a bit more color on Japan portfolio lease expiring in coming year?

I believe the question actually refers to -- he is asking about lease expiries outside of the 3 Makuhari assets. So I will answer that way. So for the rest of the assets, the largest chunk is actually the HP building, and that's got a committed lease all the way to 2030. For the remaining assets, there are always expiries here and there. And I think the most significant one is where we have a single tenant building at TSI in Ikebukuro. That asset, the lease expiry is coming up, and we are in negotiation with the tenants. So far, we are still waiting for them to come back to us on whether they are going to stay or going to give out a space or going to leave the building entirely. So that one is still work in progress. In any case, all of these assets are fairly small. In the case of Ikebukuro, it's insignificant.

Insignificant. Okay. I think in short, what is -- what will be material will be HP, okay, Hewlett-Packard lease, and that is to 2030. The rest is part and parcel of business and individually very, very small. But if you say anything that will be significant would be HP lease, but that lease is still 2030.

Thank you, everyone. I would like to thank everyone to -- for finding time to join us today. You have further questions, feel free to reach out to us any time. We'll be happy to take them on your side. Thank you so much, and have a good day ahead. Goodbye.

Thank you.

Thank you.