Mapletree Industrial Trust

Good morning, everyone. Thanks for joining us this morning for MIT Second Quarter and First Half Financial Year '25-'26 Results Briefing.

MIT has released its results today after market closed. 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 Investment; Ms.

Serene Tan, Head of Asset Management; Ms. Chng Siok Khim, Head of Marketing.

I'll pass to Geng Foong to bring us through the results highlights.

Good morning, everyone. Thanks for joining us today.

So for second quarter FY '25, '26, year-on-year, our net property income decreased due to loss of income from the divestments of 3 industrial properties in Singapore, which we have completed in August. Lower contributions from the North American portfolio from nonrenewal of leases, weaker U.S.

dollar. These were partially offset by the higher contribution from acquisitions we did end of last year, as well as the completion of final fit out works in May '25.

Borrowing costs decreased due to repayment of borrowings with the divestment proceeds, lower interest on unhedged floating rate loans and effects of weaker U.S. dollar.

These were partially offset by higher borrowing costs we took for the Japan portfolio. Distribution declared by joint venture decreased due to higher borrowing costs from repricing of matured interest rate swaps as well as pre-termination of lease at one of the joint venture properties in prior year.

So overall, our distribution to unitholders decreased 5.3% to $90.7 million, and our distribution per unit increased 5.6% to $0.0318. This prior year, we also distributed about $3.3 million of divestment gain from divestment of Tanglin Halt.

So if we exclude that, our DPU would have decreased 2.2% instead. So for first half, most of the reasons are quite similar, so I'll skip that.

So for quarter-on-quarter, our net property income decreased due to loss of income from the divestment of the 3 industrial properties in Singapore. Full quarter impact of end of lease amortization for the fit-out works at one of the property in Singapore portfolio, higher operating expenses at North American and Singapore portfolio.

These were partially offset by the full quarter contribution from the final fit-out works at Osaka Data Center. So on borrowing costs is lower mainly due to repayment of borrowings with the divestment proceeds and lower interest on unhedged floating rate loans.

Overall, our distribution to unitholders decreased 2.7% to $90.7 million and DPU decreased quarter-on-quarter 2.8% to $0.0318. From a capital management perspective, our total borrowings reduced to $3.1 billion, largely due to the repayment of loans with the divestment proceeds.

Accordingly, our aggregate leverage ratio decreased to 37.3% and our interest rate hedge ratio increased to close to 93%. With a lower leverage ratio, this provides us with ample debt headroom to capture any potential growth opportunities.

Our average borrowing cost for the quarter reduced slightly to 3%, largely due to repayment of higher cost debt with the divestment proceeds and lower interest rate on the unhedged floating rate loans. Having said that, we do have interest rate swaps coming due every year.

So for this financial year as well as next financial year, we do have about $600 million of IRS due or coming due, which we expect to have impact on borrowing costs. Even these interest rate swaps were previously locked in when interest rates were lower.

So overall, the borrowing cost for this financial year, we expect to be around 3.1% to 3.2%. And for next financial year, the interest cost will be about 3.3% to 3.4%.

Our debt maturity profile remains well staggered. No more than 24% of total debt maturing in any single year and average debt tenure of 3 years.

On the FX front, as much as feasible, we try to draw local currency loans to provide natural hedge for our overseas investments. This helps to protect FX fluctuation on our NAV and DPU.

So for example, about 50% to 52% of our portfolio are funded with loans. So while our exposure to the U.S.

by AUM is about 47% of onshore borrowings, our distributable income exposure to U.S. dollar is about 25% to [ 20% ].

This means that in terms of sensitivity for every 5% depreciation in dollar impact to our distributable income is only about 1.5%. So for the remaining of the foreign currency, we enter into FX forwards to hedge the income into Sing dollar.

So we have about 86% of our next 12 months distributable income is hedged or derived in Sing dollar. Now to Lily to go through [Technical Difficulty].

I will cover the operational performance. So if we can start off with the occupancy of the portfolio, I think that's something that above our [indiscernible].

On a portfolio basis, the occupancy rate has, I would say, remained relatively flattish. So we are looking at 91.3%.

If you look at the Singapore portfolio, pretty resilient. We have managed to keep the occupancy flat, right?

For North American portfolio, we do see a bit of slightly marginally down to 7.8%, and that's largely because of the expiry of lease at San Jose, which is something that we have spoke about in the last quarter. On the Singapore side, something which I missed out just now would be the progress of the Kallang Way property.

I think that one, we have managed to improve the committed occupancy to 64.4%. So there is about a 1 percentage point improvement from the last quarter we have reported.

I think this quarter, we have also seen quite a bit of new leases and renewal that we have actually executed. To date, we have executed about 184,000 square feet of the space in North America.

This is about 2.6% if you look specifically at the North America [indiscernible]. Of this 184,000 square feet, we have about 20% -- 20% to 23% of these leases actually pertains to empty units, which were previously vacant.

So we are able to fill up some of the vacant units. The rest of it are basically just renewals.

So it's not going to -- it basically means that we are able to extend the lease period, right? I think if you look in terms of some details for lease renewals, weighted average revision comes up to be about 3%.

I think if you look at the range of the revision, we are talking about from a low single of 2% to a double digit like 10%. And on lease renewal also for a relatively long period, so about 5 to 11 years.

I think maybe I just also want to highlight that these are -- a lot of these leases or most of these leases, we will be taking effect only in FY '26, '27. That means the next financial year.

I mean these are actually forward renewals that we have entered into. The lease commencement actually starts next financial year.

So we will see the effect. I think the current financial numbers does not include the effects of these leases, not significant [indiscernible].

The rental revision in Singapore continues to be quite positive. I think we are looking at a weighted average of 46.2% on the average.

Of course, if you look in terms of greater details, the general industrial buildings continue to see encouraging rental revision at about 8%. We do have a little bit of a negative revision in the Hi-Tech building and business space, specifically, that is more on the business park, where we have one particular tenant.

I would say, not very sizable, but it's not your usual typically 1,000, 2,000 type of spaces. So we have actually defended the occupancy by taking a lower rental rate.

So that accounts for the negative rental revision that you see. I think then if you look at the lease expiry -- in terms of the WALE, we will see that there is a slight improvement in terms of the overall portfolio.

Last quarter, we reported 4.5 years. So this quarter, we actually reported a 4.6 years.

Of course, you also understand that every time you move 1 quarter, naturally, this number will drop, but we have actually managed to improve it, and that is mainly because of one of the renewals that we -- which was one of a renewal, which I've mentioned earlier on that actually take effect towards the end of the financial year. So that has basically lengthened the WALE.

If you look in terms of the profile for FY '25, '26, in total, we have about 4.6% of our total portfolio expiring. If we look specifically at the North American data center, that would be about 1.8%.

And of course, I think we have spoke about this last quarter as well [indiscernible] 1.8%. There is also 1.2% that is largely due to the vacant unit.

The office spaces that was given up by one of the data center tenants in 250 Williams. So I think whatever that is left in the remaining of the financial year, we are quite positive in terms of the renewal and backfilling.

Okay. So for next financial year, '26-'27, of course, the large part of the expiry for the North American portfolio continues to be the San Diego.

So that is something that we are keeping an eye on as well. I think in terms of some of the investment divestment activities, we have completed our divestment -- the Singapore divestment of the 3 properties.

So that takes place -- that took place on 15th August. I think that is also why this quarter, we see some effects of the loss income coming from the divestment [indiscernible] through the financial numbers, right?

With this, I think we will continue -- we will still continue to look at our divestment for the portfolio. But I think this -- the focus will be more on the North American side.

I think that is something that we have always been looking at as well, right? So I think we probably will be looking at another $500 million to $600 million of divestment for the portfolio.

In terms of investment activities, I think since our divestment, we have managed to bring our leverage ratio down. So that does give us some headroom in terms of looking at acquisitions.

So I think we have -- we are seeing quite a few transactions in the market, say, in the Europe and more recently, in fact, I would say, a little bit more on the Japan side. So Europe and Asia will continue to be our focus.

And of course, the 50% stake that the sponsor is still holding it will continue to be something that we want to look at. I think if you look at this portfolio specifically, it is a good portfolio, which can help to improve our quality of the quality of MIT's portfolio overall.

And of course, we also know that, that is the one, where the hyperscalers facilities forms a large part of it. So it will be an interesting pipeline for us.

So with this, I think we hope to be able to recycle the seeds that we have obtained from the divestment. And of course, with further divestment that can come through, that will also help to give us more gun powder in terms of the acquisitions.

So looking ahead, I think our priorities will remain very much centered on improving the occupancy at both the Singapore and the North American sites. We have been getting some traction in recent times.

So we are quite encouraged by that [indiscernible] continue doing this. We are still in talks with a few potential renewals or new leases in the North American side.

So that is something that we hope we can continue to provide some good news next quarter. right?

I think in terms of the interest rate side, as Geng Foong has said, we do have some repricing replacement that needs to be managed. So we need to be very nimble, and we can just adjust the hedge ratio and keep a lookout for any opportunities.

So I think as we move along, there may be some transitional impacts on our results. Some of these -- as I said, some of these renewals that we are looking at are actually forward renewals.

So we are actually paving the way going forward. So that's something that I hope you guys will understand.

I think with this, that will end our presentation. I'll pass it back to -- I'll pass the floor back to Mui Lian.

[Operator Instructions] Terence, would you like to ask the first question?

This is Terence from JPMorgan. Just wanted to ask a bit more on the backfilling of the U.S.

data centers. Could you share a little bit on what -- how do you see progress?

Or how should we expect backfilling for 250 Williams and the AT&T next year

I think for 250 William, we have -- as you will probably note that for the past few quarters, we have been able to lease out some of the office space. Although, as I said, these are not very big significant type of areas that we can go -- that we can fill up immediately, but we have been making some progress, and we are actually quite encouraged by that.

There have been still quite a number of -- we are still seeing quite a few inquiries, some people coming to view, et cetera. So I think it seems like while the office space continues to still be quite weak in terms of the demand, there seems to be some slight recovery that is coming back.

So we hope that we are able to continue this traction. In terms of the AT&T, we are still -- we are actually talking -- we are still kind of -- we need to talk to them and see actually what is their plan because if you remember, for AT&T, there is a further options to -- for them to extend another 5 months.

So that's something that we will get some clarity -- we want to get some clarity from them. And of course, the efforts for us to release the building, repurpose the building or even to do a divestment for the building continues to be something on the card that we [indiscernible].

I hope that answers your question.

Yes. So is that -- I mean, to give a sense, is there any details on whether we should expect that 5-month extension?

There's no clarity at this point actually.

Okay. Great.

Could I ask about the FX hedging? What is the hedge rate for U.S.

dollar ForEx into the second half of the year? And how should we see the FX hedging for next year?

So for the income hedges, we have hedged about 53% of our USD income stream for the next 12 months. The average rate is about [ 1.28, 1.29 ].

Hopefully, it's for the next 12 months.

And maybe a final question for me. Any thoughts?

Could you share a little bit more on the acquisitions? I understand that you're looking at both the sponsors, 50% and also Europe and Asia.

Maybe a bit more details in terms of cap rates and how you are seeing any preference?

I think now with the current interest rate environment, where the rate seems to be easing off, it is something -- it is a development, which will, I guess, help in terms of the acquisition cases. I think at least in terms of the yield spread that can start to make sense or make better sense for some of the projects that we are looking.

So I think in more recent time, we have been seeing transactions that is coming up from the Europe, from the Japan and I think even from the U.S. for that matter.

I think for us, it is very -- we do recognize that it is something that we want to -- that we will want to keep on pursuing in terms of the acquisition because at the end of the day, now that we have divested a bit of the -- relatively significant portfolio from the Singapore side, it is something that we will need to be able to replace at least if not part of the income that has been lost. So that is something that the team will have to continue to work on.

So I think if you look in terms of the numbers or that, I don't think the numbers very, very far out from what you're seeing in the market. So Japan, you typically will still be looking at around 4%, sometimes maybe a bit sub-4%.

But I think the interest rate side, I think there is still some -- I'll say that the increase doesn't seems to be so coming in so strongly. So I think in terms of the yield spread, it still quite makes sense.

So I think we probably can be looking at a yield spread of around, say, 1.5% to 2% type. And you'll probably see a similar type of yield spread across the other regions as well.

So basically, when your cap rate is there, your cost of funds tends to follow it as well.

And in terms of timing, how should we think about timing? Is there a time or target for acquisitions?

In terms of what, sorry?

Sorry, timing of acquisitions?

Well, I guess the thing with external acquisition is you either get it or you don't get it, right? So we have evaluated.

We have tried -- we have done some submissions, et cetera. So I think we hope that we're able to get something quite soon as well.

But as I say, this is something that we will have to continuously be in the works. Of course, what would be easier within which will be the 50% stake that we can look at.

So I think that is something that we are always in continuous discussion with the sponsor. If they are looking to sell, I think it's something that we want to look at it seriously as well.

Can we have [indiscernible] to ask the next question.

Can I ask about the next $500 million to $600 million of divestment? Is that something that we can expect over the next 6 to 12 months?

And also, is this sufficient to fund for your acquisition? Or are you also open to equity fundraising?

Okay. Let's address the $500 million to $600 million.

I think that is generally the part of the portfolio, which we think that we want to do a recycling. As for the timing in terms of $500 million to $600 million, it is not it's not small, okay?

So I think if you look at the U.S. trending so far, those properties that we have been selling are generally on individual basis relatively small, right?

But this -- I think we do expect that perhaps we hope that for this financial year, we can do about $100 million to $200 million, right? But to fully divest the entire $500 million to $600 million, I think it will probably take some time.

12 years might be a bit too much. 12 months might be a bit too short for us.

So you'll probably take, say, maybe about 1 or 2 years or so.

Funding for acquisition?

Sorry. So whether we will consider EFR, of course, it's never a case of I must do a divestment before I do an acquisition, right?

It very much depends on the attributes of the projects. And if the market is conducive, we would want to do a bit of equity fundraising.

That is that can basically help us in terms of managing our balance sheet as well. So I think it will also depend on the sizing of the -- the size of these acquisition targets.

Okay. Got it.

Second question is on debt hedging. Can you explain why is it at 90% currently?

And what's the comfortable level for debt hedging?

We pay down loans with the divestment proceeds. So what we have done is, of course, we paid down the unhedged portion.

So that brings our interest rate hedge ratio to close to 93%. But we do have IRS coming due remaining financial year.

So by March, we'll see this closer to about 80% back to the normal level.

And the target is to maintain it at 80%.

By year-end, it will be 80%. But of course, I mean, but over the next few years, we'll see the interest rate environment and recalibrate the hedge ratio.

Do we have Derek from Morgan Stanley to ask the next question?

Can you hear me now?

We can hear you.

All right. Perfect.

I just want to ask on the upcoming lease expiry in FY '27 for U.S., how much is U.S. account for FY '27?

And of that, how much is the AT&T lease?

Okay. So you're talking about FY '26-'27, right?

Yes.

In total, if you look at the total portfolio, it's 19.2%. Specifically for North America, that would be about 5.5%.

Of course, the majority will be for San Diego. I think San Diego generally contributes about 2.4%.

2.4%.

2.5%.

Sorry, 2.4%.

2.5%.

2.5%, 2.5%. Okay.

So 2.5%, that one is more -- that one visibility is much lower, but the remaining 3 percentage points that shouldn't be an issue?

I think it's something that we are continuously looking at. That's why I think if you look at some of the leases that we have signed this quarter or to date, some of these are actually pertaining to the '26, '27.

So we would be able to -- I would say, the significant lease is actually more on the San Diego one.

Understood. The ones that you signed, which also pertains to FY '27, those came at reversion of 3%, right?

Weighted average 3%, yes. I think in terms of the range, which is a wider range.

So you're talking about the low 2% [ of ] 10%. So it's about 2% to 10%.

2% to 10%. Okay.

And just on, I guess, San Jose, is there any updates on your power studies over there?

The power study has been done. We understand that the current facilities can take up to 7 megawatts, although I think previously, it was running at about 3 megawatts, right.

if we want to bring the facilities up to a 20 megawatt, it is possible, but I think it will -- means that you need to put in the power supply -- the power supplier will need to put in additional CapEx to bring -- I think they need to build a new substation and put the new cabling through. So there will be cost involved in getting the 20 megawatts.

And of course, that also means that it will take some time.

So are you angling towards just going ahead with 7 megawatts without having to build power station? And how soon would you expect the lease-up of that asset?

Yes. So I think with this, what we have actually done is we wanted to -- with the power study in Japan, we wanted to actually sell the properties.

I think the response is not as expected as what we expected. We do note that there is quite a number of requirements, those that come to look at it, the requirements tends to be more for the immediate power.

So I think some of them are not prepared to wait 3, 4 years for the additional powers to come in. So I think this is something that we will have to continue to engage the prospect.

Okay. So there's no timing per se that you can guide for at this point in time?

I think we are currently in the progress of actually trying to reach out to the prospect and maybe also to expand the marketing program.

Okay. Understood.

And are there any other power studies for other assets or it's just San Jose for now?

We have done one for Horton. And I would say that it is quite positive, right?

So we are able to bring in much higher power as compared to San Jose, right? So I think that Horton is currently still leased.

The lease will end probably next financial year. So that's something that we're also talking about talking to a tenant about the re-leasing -- sorry, the renewal of it.

This is the -- this is in FY '27?

This is in FY '26, '27, the next financial year.

How much does it account for that 5.5% for U.S., the Horton one?

I think it's about 1.2%.

1.2% Okay. Okay.

So you're in the process of renewal and if that doesn't come through, you would use the power studies and increase the IT capacity for the [Technical Difficulty].

Derek from DBS has the next question.

Can you hear me? Just a few questions from me.

First one is on your rent reversion that you achieved for America, right? I'm just curious whether the leases were likely renewal or backfilling.

I just want to get a sense whether there's possible improvements in occupancy.

Those -- the rental reversion we talked about is only for the [Technical Difficulty]. So we're talking about backfilling as in us trying to fill up additional empty spaces.

I think just now I mentioned out of the 184,000 square feet that we have signed to date, about 23% are actually, I would say, backfilling of empty units. So yes, you'll see some contributions towards the occupancy.

But I think we will also [Technical Difficulty].

Then my next question is on your comments on acquisition, right? You're mentioning that you are scanning -- you're potentially divesting.

But if you look at, let's say, opportunities that you're keen to execute, right, what -- how will you rank the 50% stake will be ranked the highest in our view?

Well, I think it's a difficult question.

Easy as I know, but...

[indiscernible] question I ask Peter to address, okay?

Yes. I mean, what Lily mentioned earlier, the 50% stake, those are very good properties and a good portfolio add-on to improve our quality of our portfolio.

But we also -- we are also seeing a lot of other decent opportunity that is coming on our table. So we will have to assess it, but it kind of at least give us some leeway to choose, which is the assets or which are the portfolio that we wanted to add on to MIT.

It's not a very easy decision, I guess.

To add on is like [indiscernible] we have to choose.

I guess if we are able to get in other [ draw free ], it will also help in terms of the diversification for the portfolio, right? Notwithstanding that, the acquisition of the 50% stake will also increase our exposure to the hyperscalers.

So I think that is something we have to evaluate when the transaction comes so forth.

Okay. Okay.

Got it. But you're saying that you're also looking for Asia and Europe, anything that you believe is very -- that will rank quite soon because I'm just thinking about it from a new spread, right?

I mean, Europe and Asia will be higher.

I think there is quite a number of transaction that potentially can be coming out. So that will be something that we'll be quite keen to pursue.

So -- and you're right. I think in terms of the U.S.

spread, maybe initial might be similar, but I think the difference also lies in terms of the built-in escalation, right? So I think typically, if you look at Europe, you'll be around 2% to 3%, which is quite similar too.

I think Japan, generally, we are seeing some between the 1% to 2%. So that's something that we have to take into consideration as well.

Of course, transactions varies from one another. So it really depends on what is the attributes, so.

We have Rachel from Macquarie to ask the next question.

Maybe my first question is on the interest cost. I think at the start of the year, there was like $597 million of IRS that's due this year.

And then now there's $600 million due this year and next year. Can you give us a breakdown in terms of how much has already lapsed and has been included in the interest cost?

And then how much are we expecting the rest of this year? And how much are we expecting next year?

Thanks, Rachel. So okay, it's a bit difficult to -- because we do like some of the earlier renewal of -- mention of the hedges.

So early this year, we have about close to $600 million IRS, right, coming due this financial year. But of course, all these were progressively due over this financial year.

But having said that, whenever interest rate [Technical Difficulty] slightly, we will try to lock in a bit. So to date, we have locked in about maybe about $200 million IRS.

So we still have about $400 million to go. But having said that, like I mentioned earlier, our hedge ratio is quite high.

So we will -- this $400 million floating rate and then so that the hedge ratio will be about 80%. But net-net per annum impact, if you look at it, per annum impact all these replacement hedges for IRS is due this financial year, [ NIM ] is about $9 million to $11 million, but most of these are in U.S.

dollar. onshore.

So we have a bit of tax shield there. So net of the tax shield may be about $7 million, $8 million.

And so you see the full year impact probably next year. This year, maybe half year impact.

So meaning the net impact, $7 million, $8 million this year is half of that the impact and then next year will flow through.

Yes.

Okay. And then the remaining [ 400 ] hedges that is expiring this year, you will drop it off.

But next year, is there any more IRS?

Yes. So like I mentioned earlier, we have another $600 million IRS coming due next year.

Similarly, we will see impact from these replacement hedges. But having said that, the average interest rate for those IRS coming due next year will be kind of slightly higher than this year's IRS due.

So we'll see some impact, but not as much as this year.

So -- okay, sorry, the next year one is also $600 million. Yes.

So the $600 million this year and next year, $600 million, roughly. Okay.

Okay. Then my next question is in terms of the San Jose, if I were to follow up, now that the tenant, I think you mentioned that the tenant want a higher power, right, but you are still talking to the tenant.

So any intention of you putting in CapEx now that you're talking to a tenant? Or you will still walk away from putting in additional CapEx?

And are you able to sell these assets?

Yes. I mean, just really to clarify, were you referring to San Jose or the one that we mentioned about, we're talking to existing tenant, which is Horton?

No, no, the San Jose one.

So San Jose, the tenant have vacated earlier already, but we did complete the power study. So we are now just exploring whether with potential prospects to divest the property essentially.

Okay. I see.

So okay, right, to divest the property completely, right, with potential tenants, okay. Okay.

Got it. Yes.

And then maybe just squeeze in one. I remember in terms of acquisitions last quarter; you were actually more positive on like EU in terms of acquisition.

But somehow rather this quarter seems the narrative seems to have changed a little bit. Can I just understand, has something changed along the way?

No. I'm still keen on Europe.

I think at the end of the day, we do recognize that it will be good to have Europe, which is one of the -- which is one of the largest data center market globally. So Europe is definitely something that's on our radar.

Similarly for Asia as well. I think in more recent times, we are -- I would say, in more recent times, we are seeing a little bit more transaction coming out from Japan.

I think Europe, there is a few. So no, our radar is still on these 3 -- on Europe, Asia and potentially the 50% stake.

Okay. Got it.

Yes. And are you -- do you still intend to acquire bigger data centers in terms of the size?

I think in terms of the size, of course, we have done a range of transactions from $100-plus million, $500 million to about, say, $1-plus billion. So the range remains similar.

Of course, considering where we are, it will be very hard for us to do a 1 gigawatt or 100-megawatt type of data center, but probably $1 billion-ish or so or from $100-plus million to $1 billion-ish remains on our radar.

We have from [ Yew Wong from CLSA ] to ask the next question.

I just have one question focusing on the 50% balance from the sponsor. Can you share more details about this portfolio in terms of performance, right?

So if we look at your U.S. data center portfolio has been trending down over the past few years.

Was -- does the 50% mirror similar trends? And also, secondly, what is the NPI margin as well for -- do you see the similar NPI margin decompression trend that you have with your existing portfolio?

And how much of the 50% balance, right, has exposure to hyperscaler and also like megawatt capacity? Anything that you can share?

And lastly, does the valuation of the portfolio, right? Is the cap rate similar to your existing cap rate of your U.S.

data center portfolio?

Okay. For the 50% stake, that portfolio, a large part of it, I would say, about 60% of it is actually the hyperscaler that you see here.

So the balance of it, most of them are colo providers, right? I think the issue that we are seeing with some of -- with our current portfolio is more of the facilities that were previously occupied by the enterprise user.

So I think I mentioned previously before that when it comes to enterprise user, they are fixed in terms of the location, they are fixed in terms of how they allocate the space and how they design, the data centers fit-out, et cetera, may not be as efficient as what a data center operator was. So that kind of makes the re-leasing a little bit more difficult, right?

But you don't have that in the 50% stake portfolio.

So the margins will be better as well and the occupancy will be arguably higher?

Okay. I think from a margin perspective, because they do have triple net leases and gross leases and so on.

So ultimately, we will probably be looking at very similar cap rate currently about 5.5% to 6%. And I think in terms of -- sorry, your second question is the occupancy, yes.

So for this 50% portfolio, the occupancies are generally pretty very strong. So we have always seen it as more than 90-plus percent currently and going forward.

Okay. So it did not really come down to the 80s, mid-80s as seen in your portfolio?

Not yet. Yes.

I think…

not yet. Or is it -- you don't expect it to come down?

No, we think that it's probably quite pretty resilient or you will be more than -- you will be more [indiscernible].

Yes. And this is actually locked in for quite long term as well.

I think maybe just for this portfolio, if you recall, in one of the quarters, we [ said ] that we have a tenant who has vacated one of the buildings in Tampe is that. So I think that one, we are in the progress of backfilling it.

We think that there shouldn't be any problem.

Okay. Okay.

Yes. And any idea on like power capacity?

Yes. So I mean, for the 3 hyperscale data centers that we have in Northern Virginia, those [ carry ] between about 60 to 70 megawatts.

And then the rest would be spread. Each asset is probably about 3 to 4 average.

So total -- but the 3 to 4 are mainly our power shell assets. So -- but in terms of IT load, you're talking about, including the Northern Virginia ones, probably about 90 to 100 megawatt.

Okay. So total will be -- you're talking about the 50% that is from the sponsor, right?

Yes, yes, correct, correct. But all is on the entire 100 all the buildings -- is on the building, it's not proportionate.

Maybe just to add, so for the [ MRODCT ] portfolio, right, there's 2 parts, the power shell and the data hyperscale data center. So the 3 data hyperscale data centers, they are actually located in Northern Virginia, a very tight market at the moment.

For the [indiscernible] data centers, right, actually, the WALE are fairly long. They are looking at maybe around 7 to 9 years.

So for this particular portfolio, right, actually, we see trending maybe above 95%, 100% is about 94%.

And then -- and sorry, slip in one more question. So if you were to fund it using U.S.

debt, right, what's the current debt that you can get in the market today?

For USD today, maybe about all in U.S. dollar funding, maybe about 4.4%, 4.6%.

We have Jonathan from UOB Kay Hain to ask the next question.

My first question relates to divestment. You mentioned you will focus on North America.

And the size you indicated is quite large, $500 million to $600 million. Can I ask if you are like looking at like divesting a basket of data center in North America that will help you achieve that sizable goal?

Are you looking at selling a few of them in a portfolio. Is that what you're looking at?

Second question relates to your guidance of cost of debt going higher to 3.3% to 3.4% for FY '27. What's your assumption in terms of rate cut going forward for -- to get that 3.3% to 3.4%.

And does that include or doesn't include the JV, the interest rate that you have mentioned?

Okay. I think in terms of the divestment portfolio; I think the approach is something that is not fixed.

It doesn't mean that I will just group every one up because the moment you group everyone up, it becomes pretty sizable. So it may not be that easy to sell.

And I think because the portfolio is actually quite spread out in terms of the location, et cetera, so depending on the individual local situation, sometimes it's better for us to just sell it as asset by asset or we also may look at bundling up some of the assets together as a portfolio to sell. So the approach that we are taking is not a very -- it's not something that is fixed at.

I'll just package everything and go, right? So given the different attributes and the different local situation, demand and supply situation in the market, we will want to take the approach that can give us the best value.

Okay. So not cast in stone...

Yes. Maybe to add on, we do have -- okay, I won't say it's cast in stone, but we do have really identified how do we want to divest all those assets.

Some of them are single asset transactions, some of them are on a portfolio basis. So you'll see a mixed bag.

It won't be like, say, we want to sell 10 properties for $600 million or so.

Okay. So on the interest rate for FY '26-'27, the guidance 3.3% to 3.4%.

Basically, we have assumed that the whole 600 million IRS coming due next year will be refinanced with, let's say, a 5-year USD [Technical Difficulty] about 3.4%, 3.5%. So as you're aware, we cut the base rate.

So now it's around 3.75% to 4% range. So if because various banks have various expectation or forecast for next financial year -- for next year.

So if the floating rate come down to around 3%, we may be able to so-called adjust that hedge ratio and accordingly, we price this at a lower level [Technical Difficulty]. And yes -- so just to clarify, all our capital management positions include our JV.

Okay. So you do factor in rate cuts in that forecast.

No. We have not factored in so-called the rate cut.

We have assumed this 5-year pricing, a 5-year interest rate swap today instead of floating rate.

Okay. That is the rate today that you get.

For 5-year interest rate swap.

We have Vijay to ask the last question.

A couple of questions from me. Firstly, in terms of the operating costs, I think operating costs for this quarter seems to have gone up a bit because of maintenance and utilities.

Are there any one-offs? And moving forward, what should we expect in terms of margins?

I think in the set of numbers for this quarter, we do have some training contracts, which was renewed. So that one, we do see some inflationary increase in terms of the contract price.

So that kind of explained it. But I think we basically I would say, tranche out our contracts.

So we don't renew every one at one go, right? So the effect will be more muted that way.

But I think in terms of the margin, the NPI margin, we should expect it to be somewhere similar to what we have this quarter.

My second question is in terms of potential portfolio, I mean, possibly if you add on U.S. assets and Europe assets, I think over time, your Singapore exposure is going to go less and less below 40% or closer to the mid-30s, et cetera.

Are you comfortable with that because I don't see any pipeline also in Singapore?

I think we would love to be able to add on more to Singapore. Our -- while we are doing a lot of acquisitions in terms of the data center global Singapore remains our home ground, and that will still be one of the focus.

The only thing is at this point, acquisitions opportunities are actually quite limited. So I think if you look at it in terms of, say, data center in Singapore, the market is very tight.

So we would love to be able to add something on. But it is also very limited in the sense that the government has been -- is putting on quite a bit of control in terms of the power acquisition -- sorry, the power allocation, right?

So I think -- and in order for us to apply for all these power allocation, there are certain criteria that needs to be met. And some of these actually has to be -- it's more -- is something which an operator will be able to achieve, like you need to have a PUE of at least 1.3x, et cetera.

So we are -- it is not -- the opportunities for us to do the acquisition in Singapore is not easy. And of course, if you look at other industrial properties that we see in Singapore, that continues to be something that we will be keen to look at and we will continue to look at.

The only issue is when you look at the Singapore industrial property, a lot of them comes with the short land tenure. So that proves to be a bit something that can be -- well, I think that makes our decision much more harder because the moment you buy, say, 25 years underlying lease, in 5 years' time, you start to see the valuation of that property dropping simply because of the shortening land tenure.

So that is something that we are also quite careful about, right? Of course, what we can do in terms of the Singapore properties is that we continue to look out for opportunities where we can do, say, build-to-suit projects, so getting land allocations from the governments together with the tenant that they like, right?

Or we can also look at redeveloping the existing properties that we have on hand. I mean, if someone comes along, happy for us to take up some of the space if we were to redevelop, that can actually be a potential trigger for us to go to the government and see if they are able to extend the underlying land lease.

So these are some of the things, which we hope that we can execute, and we will continue to scan the market for such opportunities.

Got it. Just one last question, if I can.

Can you give some color in terms of business park demand and Hi-Tech demand in the Singapore market at this point of time, which still seems a bit soft looking at the reversion in your portfolio?

Yes. I think Hi-Tech space and business park space are definitely still a weaker link at this point of time, and we have been seeing this for the past few quarters.

Generally, I think when we look at the demand that is coming through there continues to be demand. So it's not a case of totally nobody even wants to look at it.

There continues to be demand, except that the demands are not for the bigger space. So this tends to be the smaller areas.

So if you take, for example, our development at Kallang Way, we started off [Technical Difficulty] redevelopment, we started off hoping that we are able to lease up floor by floor, which is relatively huge floor plate, right? But the demand aren't' really there.

So we actually start to cut them out into smaller units, and that is where we start to see a bit more traction. So I think if you track our progression so far, last quarter, we managed to improve the committed occupancy by 3 percentage points.

This quarter, 1 percentage point. So I think the -- I would say the transactions continues to be there.

We are still continuing to be able to cross some of these inquiries into contracts. So this will be more for the smaller space.

And for business park, I think we also know that there is quite a lot of competition in the vicinity. If you -- right now, we have already -- we have -- we had 3 business parks.

Now -- and we divested 2. So I'm just left with the one in Changi Business Park.

But if you look at Changi Business Park, specifically for our building, while the business park demand may not be so good, we have been able to hold up to the occupancy rate for Changi Business Park pretty well. right?

Right now, I think you are looking at about 83%, 85% occupancy, right? If you look at some of the buildings in the vicinity, similar buildings in the vicinity, the occupancy is definitely not there.

So I think that is also the reason why we want to make sure that we are able to defend that. And I think that was also the point that I made where we decide that for a tenant, where you have a slightly bigger size unit, okay, we are prepared to go down a bit just to defend the occupancy.

I think the rest of the renewals that possibly can be coming up for the Changi Business Park smaller floor units. So that is something that we think we still can hold.

Maybe we can have Donald to ask the last question and end the session. Donald, are you there?

Can you hear me? Okay.

Just a couple of quick clarifications. First is on the interest rate question.

Do you mentioned -- so if U.S. rates -- swap rates come down by around 50 basis points, you mentioned about 3%, you can -- are you able to -- you can get some savings?

Would that mean that your WACC is likely to come down if we -- if U.S. rates come off by 50 basis points in FY '27.

Yes. So for next [indiscernible] I think I want to like clarify that when Fed cut rates is on the floating.

When we look at the interest rate swaps replacement, we look at the long-term rates, the 5-year long-term rates, which is today maybe 3.5%, right? So when they cut it, it doesn't mean that your 5-year rate will be lower?

So…

Sure. So maybe put it another way, at current rates, you're expecting your interest cost -- all-in interest cost to go up in FY '27.

By how much must rates come down for you to see your all-in interest costs come down? Yes.

Let's put it the other way around. If let's say, this $600 million now, I assume 3.5%, right?

But in -- come next year, if the floating rate for U.S. dollar is 3%, we have the loans hedged.

So I see that for [Technical Difficulty] 50 bps on that $600 million.

Sorry, you broke up a little bit. So if floating rate gone up by to 3%, you will see a neutral level.

Is that what to take away from that?

You will still see some impact because all the interest rates were locked in when it was quite low, right? So average maybe 2%, 2.3%.

So you still see why you have a bit of savings.

And then the second question about the MRO DCT portfolio. Any indication of what's the valuation and the ticket size at this point?

[ SGD 1 billion ].

SGD 1 billion for the 50% stake, is it?

Right.

Okay. And is there any under-renting in the colo leases or hyperscale leases at this point?

Under-renting I wouldn't say it's under-rented [indiscernible].

So pretty, quite near -- pretty much at market.

Yes, that's correct.

[Technical Difficulty]. If you have any questions, please reach out to us.

Thank you.