Good morning, everyone. Thank you for joining us today for Keppel REIT's first half 2026 financial results briefing. I am Charmaine from the Investor Relations team. Before we begin, let me introduce the management team on this session. We have Mr. Chua Hsien Yang, Chief Executive Officer, Mr. Andy Gwee, Chief Financial Officer, Ms. Teo Xuan Lin, Head of Investment, and Mr. Jason Chua, Head of Portfolio Management. We will start the briefing with a presentation by the management team, followed by a question and answer session. I will now hand over the time to the CEO, Hsien Yang, please.
Thanks, Charmaine. Good morning, everyone. Thank you so much for joining us today. Before we move into the results, allow me to provide a quick update on the operating environment. Across our key markets, prime office demand has remained resilient, supported by a number of structural demand drivers including technology and innovation-led companies, continued flight to quality, leasing activity, and also growth from key sectors such as banking and finance, wealth management and professional services. At the same time, flight to quality remains a key theme across many of our markets. Our businesses are taking a more measured approach to leasing decisions amid the broader macroeconomic environment to continue to prioritize well-located, high-quality office buildings that offer strong workplace experiences. The growth of AI and its implications for the office sector continues to be widely discussed.
AI is likely to support office demand as its adoption drives business growth, productivity, and also innovation across a broad range of industries. As businesses adapt to new technologies and evolving workplace requirements, they continue to prioritize high-quality office environments to support collaboration, knowledge sharing, and talent attraction, reinforcing demand for premium assets in prime locations. Together with the ongoing flight to quality trend, these structural demand drivers continue to support demand for prime office assets. Against this backdrop, we continue to actively manage our portfolio to benefit from these structural demand drivers and the preference amongst tenants for premium, well-located office space. I think we have shared since earlier this year that aside from focusing on asset management, we will also be working on potential divestments.
I am pleased to share that this morning we announced that we have entered into an agreement to divest our interest in KR Ginza II in Tokyo. The sale price of JPY 11.5 billion for 100% interest in the property represents an attractive 28.4% premium to the property's purchase price in November 2022, and a 9.7% premium for the property valuation as at 10th July this year. Keppel REIT is divesting its 98.47% stake. Keppel Japan, which owns the remaining 1.53%, is also divesting its stake. The buyer is a listed real estate company in Japan. This divestment demonstrates our ability to identify strategic investment opportunities and unlock value at the right time.
We believe that the timing for this divestment is opportune, especially given that the exit cap rate is attractive, and the current all-in interest rates in Japan are actually higher than the cap rate based on the selling price. This divestment allows us to crystallize value and reduce our portfolio gearing, reinforcing our commitment to delivering sustainable long-term unit holder returns to our shareholders. Moving on to the 2026 key highlights for the first half. NPI rose 13.1% year-on-year, driven mainly by contributions from Top Ryde City. Excluding Top Ryde, the NPI increased 2.5% year-on-year, reflecting continued growth across our existing portfolio. Share of results from joint ventures was 37.2% higher year-on-year, mainly due to the addition of 1/3 interest in MBFC Tower 3.
Excluding the acquisition, the share of results of joint ventures would have increased 11.6%, largely due to higher rentals and also lower borrowing costs. Distributable income from operations grew 25.2% year-on-year, driven by contributions from Top Ryde and the additional 1/3 interest in MBFC Tower 3, as well as improved performance from our existing portfolio. Excluding contributions from Top Ryde and MBFC Tower 3 acquisitions, distributable income from operations increased approximately 4% year-on-year, reflecting positive organic growth across the portfolio. As at 30th of June, our leverage stood at 40%. Weighted average cost of debt was 3.27% per annum, and total borrowings on fixed rates was 62%. Assuming that the proceed of KR Ginza II sale are included in the gearing computation on a pro forma basis, the gearing will be at 39.6%.
The portfolio's resilient performance reflects the strength of our Singapore portfolio and growing contributions from Australia, supported by active asset management and strong leasing execution across both markets. As at 30th of June, on a portfolio basis, our committed occupancy remained high at 96%, and we achieved a strong rental reversion of 12.8% for this quarter, with the Singapore portfolio recording approximately 10%. The portfolio WALE remained long at 4.5 years, and the WALE of our top 10 tenants was at eight years, reinforcing our income visibility.
Through proactive leasing efforts, we have committed over 1.1 million sq ft of space during the period. I'll let Andy bring you through the key financial highlights next.
Thank you, Hsien Yang . In the first half of 2026, property income and net property income increased by 16.7% and 13.1% year-on-year respectively. That is mainly due to the contribution from Top Ryde City. Excluding Top Ryde, the existing portfolio also performed better as a result of higher occupancy and stronger AUD. Share of results on joint ventures increased 37.2% year-on-year, mainly due to the additional 1/3 interest in MBFC Tower 3, as well as higher rentals, lower borrowing costs and stronger AUD for the existing portfolio. Borrowing costs increased 5.4% year-on-year, and that is due to the loans drawn down for the acquisition of Top Ryde, as well as MBFC Tower 3 in the fourth quarter of 2025. This was partially offset by the lower interest rate during the period.
Driven by stronger portfolio performance and contribution from acquisition, distributable income from operation increased by 25.2% year-on-year to about SGD 119.6 million. Excluding contribution from Top Ryde and the MBFC Tower 3 acquisition, DI from operation increased approximately 3.7% year-on-year. This reflects the quality and resilience of the portfolio, which continue to deliver organic growth through active asset management and leasing initiatives. Including the anniversary distribution, distributable income for the period was SGD 129.6 million. While this reflects a solid first half performance, the period's input contribution from non-recurring items are mainly due to lease pre-termination payments as well as a stronger Australian dollar. DPU for the first half of 2026 is SGD 0.0261 , compared with the SGD 0.0272 in the prior year period, with underlying earnings growth partially offsetting the impact from dilution from the enlarged unit base during the distribution period.
On slide 11, this shows the distribution timetable. Distribution will be paid to unitholders on the 15th September. Next, for balance sheet, total borrowings and total liabilities decreased 14.8% and 21.1% respectively from the 31st December 2025. The equity bridge loans, which were obtained to temporarily fund the acquisition of our additional 1/3 interest in MBFC Tower 3, were fully repaid in full on 20th January 2026. Adjusted NAV per unit as at 30th June is SGD 1.22. Next, slide 13 outlines our key capital management metrics. Weighted average cost of debt was 3.27% for the first half of 2026. This is in line with our guidance for weighted average cost of debt for 2026 to be in the range of 3%-3.3%. Note that compared to the first half, it went up. Sorry.
Note that it went up from the 3.16% reported in the first quarter. That is mainly due to the first quarter having the equity bridge loan in there. I believe we disclosed during the first quarter as well that excluding the equity bridge loan, it is about 3.7% as well.
3%. Yeah. 3.27%.
3.27%. We remain focused on proactive capital management and will continue to evaluate opportunities to achieve favorable outcomes as we manage our refinancing requirements. Aggregate leverage was 40%. Fixed rate borrowings and sustainability focused funding account for 62% and 80% of our total portfolio debt respectively. Interest coverage ratio was 2.7 x as at 30th June 2026. Next, in terms of our debt maturity profile, we have completed the majority of our 2026 refinancing requirements and are in advanced discussions for the remaining portion. Consistent with our proactive approach to debt management, we typically engage lenders six to nine months prior to the debt maturity and expect to commence discussions relating to our 2027 requirements in due course. Following the acquisition of MBFC Tower 3 in December 2025, we have made good progress on the planned conversion, including the necessary tax and legal work streams.
Required submissions to IRAS are largely completed. We are working through the remaining processes and will provide further updates as appropriate. With that, I will now hand the time to Jason, who will walk you through our portfolio review.
Thank you, Andy. Slide 16 shows Keppel REIT's portfolio breakdown as at 30th of June 2026 by geography. Singapore remains Keppel REIT's largest market at 78.7%, while Australia, South Korea and Japan are at 18.4%, 2.2% and 0.7% respectively. We maintain a high portfolio committed occupancy of 96% for the quarter, mainly driven by a higher committed occupancy within our Singapore portfolio. This was offset by a lower occupancy at some of our Australian properties due to anticipated downsizing. Committed occupancy at Top Ryde City Shopping Centre declined slightly quarter-on-quarter, and this is expected as we continue to work with our partner to refresh and optimize the tenant mix. The leases we have signed recently have been secured at improved rental rates which are above underwriting, reflecting healthy leasing demand at the asset. At 8 Exhibition Street, we continue to actively engage prospective tenants and pursue opportunities to backfill available space.
While leasing activity remains encouraging, market conditions in the Melbourne office market remain competitive and may result in some near-term occupancy pressure. Slide 17 provides a breakdown of our performance by geography. Attributable NPI for our Singapore portfolio increased 23.5% due to the additional 1/3 interest in MBFC Tower 3 and higher rentals. At our Australia portfolio, NPI increased by 21.2%, mainly due to Top Ryde, increased contribution from recently commenced leases at Pinnacle Office Park, and a stronger Australian dollar. The decrease in the attributable NPI for our North Asia portfolio was due to a lower occupancy and a stronger Singapore dollar. Slide 18 gives an overview of our leasing performance. 80% of our leases committed during the first half of the year were at our Singapore properties.
New leasing demand and expansions were primarily driven by tenants from the banking, insurance, and financial services sector. We continue to maintain a well-spread lease expiry profile. The weighted average signing rent for our Singapore CBD office leases was SGD 13.14 per sq ft per month in the second quarter. In comparison, the average rent for the remaining leases expiring in 2026 stands at SGD 12.24, which is below both our signing rents and CBRE second quarter 2026 average core CBD Grade A office rent of SGD 12.50 per sq ft per month. We have 6.4% of leases by an attributable gross rent due to expire in the second half of 2026, which are largely concentrated in our Singapore CBD assets.
Leasing demand remains healthy, and we continue to actively engage with tenants ahead of upcoming lease expiries. This slide highlights the strength of our tenant base with a diversified mix of reputable blue-chip corporations and government agencies contributing to portfolio stability. In April this year, we completed the lobby upgrading works at Pinnacle Office Park, including a new business lounge and refreshed common areas, enhancing the tenant experience in fostering greater workplace collaboration. These upgrades are expected to support tenant retention and leasing assets by further improving the property's competitiveness within its submarket. During the quarter, ESG initiatives included children's kitchen workshops at Top Ryde, conducted in partnership with retail tenants to promote community engagement and hands-on learning, as well as a food donation drive at 255 George Street in collaboration with OzHarvest, Australia's leading food rescue organization.
In Singapore, Gourmet Park was launched at Ocean Financial Centre to foster community interaction and enhance the workplace experience for tenants and visitors through curated food and lifestyle offerings. In June, we obtained the BCA Green Mark Platinum Super Low Energy certification at MBFC Tower 1 and 2, Marina Bay Link Mall, and One Raffles Quay. With this milestone, all of Keppel REIT's Singapore properties have attained this certification, reinforcing our leadership in sustainable real estate and low carbon building operations. These assets also help to optimize the energy consumption, supporting cost efficiencies and enhancing the long-term resilience of our portfolio. 2 Blue Street also achieved the highest six-star NABERS Energy rating, highlighting its excellence in energy efficiency and sustainability. I will now hand the time to Teo Xuan Lin, who will go through the market review.
Thank you, Jason. The next few slides provide a snapshot of market conditions across Keppel REIT's key operating markets. In Singapore, average core CBD Grade A office rents rose a further 0.8% quarter-on-quarter to SGD 12.50 per sq ft per month in the second quarter of this year, representing the sixth consecutive quarter of growth. Occupancy remained high at 96.7%, reflecting continued landlord favorable market conditions. The tightening market conditions extended beyond the core CBD, with vacancy in decentralized locations declining sharply from 5.6% in the first quarter to 3.6% in the second quarter, partly due to the withdrawal of HarbourFront Centre from the market. The Shaw Tower redevelopment was completed in July this year, with no further supply expected for the rest of the year.
With limited upcoming supply and no significant completion projected till 2027, market dynamics are expected to be positive for landlords. Key real estate agencies are largely in consensus, with Singapore Grade B office rents in the CBD forecasted to grow at up to 5% year-on-year in 2026. In Australia, JLL reported that prime grade office occupancies improved in the Perth CBD and remained broadly stable in Sydney CBD and North Sydney. Occupancies in the Melbourne CBD and Macquarie Park moderated quarter-on-quarter. Prime gross effective rents continued to trend upwards, reflecting ongoing demand for quality office space. In the Sydney CBD, prime gross effective rents increased by 8.3% year-on-year from AUD 1,048 per sq m per year to AUD 1,135 in the second quarter.
Highlighting the resilient demand for quality office space. In Australia's retail market, household spending increased 1.3% in May, supported by growth in all nine spending categories. Spending on discretionary categories, as well as clothing and footwear, remained robust during the quarter. On the supply side, new supply of regional and sub-regional retail in Sydney remains below historical levels, with future supply largely driven by upgrades and expansion of existing shopping malls. In Seoul, rents continue to trend upwards, with net effective rents for CBD Grade A offices rising 2.8% quarter-on-quarter in the second quarter of this year. Occupancy remained healthy at 87.7%.
The Tokyo market continued to perform exceptionally well, with net effective rents for Grade A and Grade B offices increasing 6.9% and 4.8% quarter-on-quarter respectively, reflecting sustained demand for office space. Occupancies remained high at approximately 99% across both segments. That concludes our presentation. Thank you.
Thank you, Xuan Lin. We will now take questions. For analysts who are joining us on the Teams platform, please click on the raise hand button if you would like to ask a question and wait for our queue before you unmute yourself to pose the question. For the benefit of all participants on today's call, please limit yourselves to three questions. If you have more questions, please re-enter the queue. For those joining us online via the webcast platform, please type your questions via the chat box provided. We can start with the first question from Terence from JP Morgan.
Hi, morning, Terence.
Hey, morning, Hsien Yang and team. Congrats on the good results and on the Tokyo divestment. Maybe just two questions from me first. Firstly, on the divestment, can we ask on the use of proceeds and are there other properties that would or could qualify for asset recycling? Secondly, on acquisitions. Another REIT has actually said that they may be open to divesting their 1/3 stake in ORQ. Would like to understand if Keppel REIT could potentially exercise their right to acquire the property. Thanks.
Okay. On the divestment first. This asset was 100% funded by debt. What we are looking to do is to pay down debt. We're not looking to redeploy any of the proceeds for any future acquisitions. There is one other asset that I shared before, which is our asset in Korea. We could potentially look at divestment of this asset also, given that we bought in at quite a good price. If we were to sell it today, the price would actually be relatively attractive. This is the only other asset that we could potentially sell. That's on the divestment. Then in terms of investment, I'm not sure what Suntec REIT is thinking about in terms of divestments. They have not spoken to me at all about potentially selling any of their assets.
At this point in time, we are not doing any work. I've also shared with you that this year, the focus is on divestments, not on investments for the time being. Yeah, that's something that we can, of course, always look at if they approach us. But as of now, they have not spoken to us, we have not spoken to them too.
I guess if they were to approach or if they were to actually say that they wanted to divest, would this be something that you could consider? And potentially if this acquisition, if you were to acquire your equivalent stake of that 1/3 stake in ORQ, would that be accretive?
Of course, we are a 1/3 owner of this asset. Based on the information that we have on this asset, the price valuation, if you ask me, would not be very attractive at this point in time. Of course, we will need to do a bit more work. But if you are just asking very high level, if there was an offer to sell this asset at the current valuation, at the current yield, I don't think that is something that we'll be very interested to look at.
Okay, that's it. Thanks very much.
Okay.
Thank you. Next, could we have Andy?
Hi, morning Hsien Yang team. Can I just check on the NPI margin? It compressed by more than 2 percentage points. I was just wondering how much of this was mostly driven by Top Ryde or were there some other reasons, given that we did see increases in utilities and repair and maintenance? Just a follow-up on that, for Top Ryde, 67% NPI margin. Can we consider this as a stabilized level or is there some room for improvement going forward?
The NPI margin, again, depends a bit. You also mentioned that the repairs and maintenance, some quarters is a bit higher, some quarters is a bit lower. There will be some fluctuations, and 2 percentage points is not really that large. In terms of the Top Ryde, this should more or less be the same thing. Like what I mentioned earlier, there could be a bit of fluctuation, too, between quarters, but you can sort of take this as relatively a stable level that you can look at.
Okay, thanks. In terms of the rental reversions, do you mind just giving us a breakdown between Australia and Singapore for both second quarter and first half?
I thought I shared just now briefly in terms of rental reversion.
Sorry, I may have missed the earlier part.
No worries.
Was there a breakdown given between the two markets?
For second quarter, the rental reversion, this is for first half. Our rental reversion is 12.8% for the first half, and then Singapore is around 10%.
Okay, for Australia?
Singapore is 10%, the rest of it basically comes from Australia, so Australia is a lot higher than that. I do not have the exact number, but it is quite a high number.
Okay. Last one from me, maybe any updates on your course of debt guidance?
I think it should still be between 3%-3.3% in terms of the guidance that we previously given.
Okay, thanks. That is all from me. Thank you.
Next, can we have Geraldine?
Hi, morning, Hsien Yang and team. Maybe just one question on Japan after the exit and Korea, you are also looking to divest. Will you not be deploying in a big way in these two markets in the next, say, three to five years and just double down on what you have in Australia and Singapore? Is that right to say?
Okay. So three to five, this is a very long way away to sort of be so definitive in terms of acquisitions. What I can tell you is today it is a better time to be selling in Japan and Korea. The cap rates have compressed. We are in an environment where the interest rates are actually going up. So the returns from Japan and Korean assets are actually quite low. In fact, in Japan, I also shared just now, the cost of borrowing is higher than the yield of the asset. So, if you buy today, you will actually be out of the pocket immediately. There is no return. It is negative return. So, if the cap rates remain at this current levels, it does not make sense for us to invest in Japan, nor Korea.
If we do sell our Korean asset, the chances of us buying back into these two markets today is actually quite low. I would not say that we are going to double down in Singapore and Australia. I do not think we are looking to redeploy all the proceeds into new acquisitions. Only if we see something that we like, we feel that the returns are attractive, then we will look at it.
Okay. Thanks, Hsien Yang. Very clear. Maybe just a quick one on 2027 expiries. Looks a little bit low, SGD 11.5. Wondering if you are able to share a breakdown of what are those leases, which assets they are from, and are you able to rightfully uplift those to today's market rates? Next market date, yeah.
We have already started working on that. So a fair bit of that is actually in Singapore in one of our I only share that it is CBD asset. So, we only have MBFC, ORQ and OFC is one of those. It will definitely get to market levels. The experiment is at a very low level, and it will get to market. We have more or less already agreed on terms with them. So the reversion for this particular large tenant is going to be quite high. But I will not be able to share any further details at this point in time.
Okay, thank you.
Thank you. Next, can we have Vijay?
Hi, good morning, Hsien Yang and team. Most of my questions are answered. Maybe just a couple of follow-ups. Firstly, on this JPY divestment, just want to check what is the yield, exit yield, and also the loan you are repaying, is it a Japanese loan or is it a SGD loan? If so, do you have to repatriate it, and would that be a mark-to-market loss?
I will answer the first question, Andy will take the second question. The exit cap rate for this asset is low 2%.
Okay.
Okay, Andy, you want to take the second question?
Yes. In terms of the loans, all the loans are JPY loans, so there is a natural hedge to the proceeds. We have taken both onshore and offshore. The onshore loan will be repaid upon completion, and then once we repatriate the money back, we will repay the offshore loan in Singapore as well.
Okay. Next, would it be a slight minor negative impact to DPU? Or what would be the impact to DPU as such?
It is very minimum impact to DPU, which is why I think we announced with you as a media release rather than an SGX announcement.
Got it. Yes. Thank you. My second question is, in terms of rent reversions, I noticed that the quarter-on-quarter only gets up to some high single-digit kind of level. Is this because the lease is expiring? Is there a revised guidance for the full year rent reversions which we should look out for?
I do not think we are providing any guidance in terms of the rental reversion for the rest of the year. I did mention earlier this year and also last year that expiring rentals for this year is, of course, fair is higher than expected rentals for next year. The rental reversion for next year obviously is going to be a lot higher. As of now, the rental reversions, like Jason has shared, is around 4.8%. But I also wanted to point out that we have done most of our leasing for the year. There is actually very little leasing left for the remainder of this year.
Okay, got it.
Which should be reflective of the performance for the year.
Got it. Just one last question. In terms of future acquisitions, potentially after divestments, earlier there was a discussion about adding retail to your portfolio. If you are looking at a future acquisition, would it be more office or retail? How would you look at these two asset classes for future?
Okay. Before I get there, I think what I shared, I think for completeness, I mentioned that we will be looking at divestment of one or more assets. We have already done Japan, which has been announced. But I think that some of the analysts did pick up that it is quite a small divestment. I think logically it is fair to assume that there could be potentially another one more divestment. We have shared, I think consistently in the past one or two quarters, the aim is to pare down debt first and also to use part of the proceeds for share buyback. That is what we are looking to do. We are not looking actively at any investments at this point in time. But if we were to look at a deal, for example, hypothetically, based on your question, would it be retail? Would it be office?
I do not think there is a definitive answer. We do like both. Both are commercial assets. It really depends on the opportunity that comes up. We will look at the returns to see what actually makes sense. But of course, today, if you look at purely yields, retail yields are higher than office yields.
Okay. Thank you. That is all I have.
Thanks. Can we have Dale, please?
Hey, morning, Dale.
Yeah. Hi, morning, Hsien Yang and team. Morning. Just two quick questions from me. I think firstly, in terms of the signing rents that you reported this quarter, 13.14. I noticed that it is lower than first few. Just wondering, is it due to the types of leases you sign, or is that indicative of rents coming off?
No, the rents are actually still going up, but I think this is reflective of we signed very, very large leases. As you know, they are very large tenants. Their rental rates are actually a bit lower. Also depends on fairly where the stack are lower. Those especially in the lower stacks will pay slightly lower rental. It is not a reflection of the market starting to come off. In fact, the rentals are still going up. It is just the nature of these leases.
Okay. That is very clear. Next question is just wanted to also follow up on what you mentioned earlier. This year's focus will be on divestments. Outside of Korea, Japan, I do not know, is Singapore something you would consider? Firstly, given that ORQ yields are really low, so it could be something attractive. Or if DBS were to come to you and say they want to do a 50/50% partnership with you for MBFC Tower 3, are these something you will consider?
The comment about the ORQ being the lower yield did not come from me. So that one
Yeah, yeah.
You have to go back to talk to the person who made that comment. As of now, there are no plans for us to consider divesting any of the Singapore assets.
Okay. Got it. Thank you.
Yeah.
Okay. Yeah, that's all from me. Thank you.
Okay. Thanks, Dale.
Thank you. Next, can we have Clarence, please?
Hi. Good morning. For Singapore office, you mentioned that the property consultancies are expecting 5% growth in 2026. I am not trying to split hairs here, but as office rents reach new highs, what is more reasonable here, this 5% or perhaps something more in line with GDP growth, like 3%?
Pricing for office is really not pegged to GDP growth. It really depends on supply and demand. I think that if you look at what has actually happened in the second quarter, we have seen healthy lease up of even at the assets outside the CBD. Shaw Tower has just come online. They have reached fairly healthy occupancy levels. The other one is, of course, an asset that our sponsor has. They did not tell me what the occupancy is, but I know that it has reached not nowhere near full, but they also reached relatively healthy levels. They will be announcing their results tomorrow. Maybe if any of you are covering them, you can also ask them. That is a reflection of the market. And within the CBD, if we are talking about core Marina Bay and Raffles Place, occupancies are very high.
That is the reason why the rental rates are going up. Rental rates are not tied to GDP. I would not want to suggest that there is some correlation between these two. And today's reversions really reflect what the tenants are prepared to pay for. And like what I said in the opening remarks, we do see a flight to quality. People are prepared to pay a bit more for good office space, premium office space in very prime locations. That is the trend that we are actually seeing. Would it be at 5% next year, given that there is no new supply coming up? I do think it is quite reasonable.
Okay. But I take it that they meant 5% this year in 2026, which implies SGD 13.50 rents.
Correct. But then I think that if you look forward, of course, this is anyone's guess, right? To make an assumption of 5% ± on a yearly basis, I would say that that is a fair assumption that one can take.
Okay. And maybe just help me understand how, say it comes in at 5% for 2026, hypothetically, how would this I take it that it will naturally bring our asset valuations, being that it's slightly ahead of what valuers have penciled in earlier.
The valuers will look at what you have. It's not just about what the market has been. First, the valuers will take the rent roll, then they will look at how much is actually expiring in the next one, two years. They will make certain assumptions around the rental growth. Would they revise, for example, if previously they assumed 2%, 3%, and the market is actually showing 4%, 5%, would this actually bring up the valuation? Technically, it could. You know the valuers will never mark exactly than the market. They will have their own house assumptions. But I think that if you are talking hypothetically, if the market has demonstrated, say for example, 5%, would they up their forecast a little bit? Potentially, it could, but like I said, it also ties back to the expiry profile of the building.
Okay. Got it. Thank you.
Can we have Sharon next, please?
Morning. Can I ask about the higher JV and associate contribution? How much of that is driven by one-offs, and also what is the cost of debt at the JV level?
Okay. Hold on a moment. Let me check. In terms of the higher JV one-off, it is only about SGD 1 million or so. The rest are really the strong performance, the underlying performance for the JVs. And of course, Australian dollar is stronger as well. So our Australian JV also contribute positively from the FX effect as well.
Okay. Just maybe to break down a little bit also. I think that if you are talking about rental reversions, we have spent quite a fair bit of time talking about reversions. Reversions just now, if you are looking at the market, it is they are up to 5% growth in rental on a year-on-year basis. But of course, some of these leases are up. They are only due every three years, so that is why the rental reversions are a lot higher. That is how you get the average of 10%. The rest of it is really interest savings.
Yeah. Interest savings. In terms of your question on what is the interest rate for the JVs, I don't think we disclose that on a standalone basis. They do form part of our 3.27% for it.
Is it higher or lower or similar than group level?
If you look at the Aussie rate now, Aussie rate is so much higher than Singapore rate. By reference-
It will be lower.
Lower.
It's lower.
Oh, okay. I think earlier you mentioned about share buybacks, right? Can you talk a bit more about that in terms of timing, quantum? What are you looking at?
No. I think what I said is if we have sold, like for example, if I have sold another asset, we would look to take out some portion to do share buyback. But I've only sold KR Ginza II and KR Ginza II is very small, so share buyback is not happening yet. If I do sell one more asset, then we look at that. Then we will actually share, once we have announced the divestment of that to you, how much we intend to take out to do a share buyback. I think we will provide more details once we have crystallized another divestment when that happens.
Okay. Just one last question on Pinnacle Office occupancy. How should we think about backfilling?
I think that this sub-market is facing some headwinds in terms of leasing. Ours is already, if you ask me, the best-performing asset in this sub-sector. But definitely trying to get tenants, trying to attract tenants is a bit more difficult because like what I mentioned, flight to quality is applicable also in places like Sydney. People do want the best buildings and also in Melbourne. I think the eastern end is doing a lot better than the western end. So definitely this location is not a CBD location, so it is going to be a bit more challenging. But I think that we have done the AEI for Pinnacle Office Park. I have just recently inspected it. It is looking really good. We are hoping that this AEI will also help us to attract tenants into this particular asset.
Okay. Got it. Thank you.
Thank you. Can we have Yew Kiang, please?
Hi, Hsien Yang. Can you hear me?
Yeah, we can.
Yes. Just one question on the share buyback. How should we think about, because you mentioned you might be looking to sell down, divest some, and then redeploy this into either maybe acquisitions or maybe share buyback. But predominantly, you're going to focus on paring down the debt first. The first question is, what level of gearing would you be comfortable before you start to consider redeploying into acquisitions than share buyback? Because when I look at, say, retail in Australia, you also acquired at about just above 6% yield. If you look at your current share price, it is also implying about 6% yield. So, if you buy something like a retail asset in Australia and also a share buyback, technically it is almost the same. So how should we think about that? Which one should you be prioritizing?
Okay. I think, just to clarify again, the aim is to look at divestments, okay, then together with the proceeds from KR Ginza II, the aim is to pare down debt, not acquisition, and pare down debt is the top priority, and then allocating some of that proceeds for share buyback. That is what we are doing. We are not looking at any divestments from the proceeds of these divestments. So I think I wanted to clarify that because, I do not know why you seem to think that I will use part of the proceeds for investments. No, it is purely to pare down debt and also to do share buyback. That is what we have planned for, and that is what we intend to do. There are no plans to do any acquisitions at this point in time until the share buyback has happened, until the paring down of debt has happened.
So comfortable, I think the gold standard today has to be under 40%, right? So I think that is where the market would like to see the REIT operate at in terms of gearing. So I think that is what we are still looking to maintain, a gearing level of under 40%.
You are about there already or do you still need some more buffer? These two will be pretty-
Full format is 39.6%. But if I do one more divestment, then it will come down a bit further. I think that is a good level of gearing to be at.
Okay. Just to focus on share buyback again, is there a valuation, like price to book level that you will be looking to actively trigger this? If let us say, you have done your parring of your debt already.
Like I mentioned earlier, we will share more details in terms of the quantum we would dedicate for the share buyback. We will share that at a later. We do not have any indication now. The focus for us at the moment is still on divestment. Once we have done that, then we will share more details. We are not looking at share buyback now, only until that happens, then we will share more details before we actually do it.
But historically, has the board focused on the price to book level or dividend yield level before you guys go aggressively on share buyback?
No, on the share buyback, I don't think anyone will go aggressively on the share buyback. I think it will always be moderate. That's something that we will need to discuss with our board. The truth is, we have mentioned this concept with the board, and similarly for the board, the board says that you wait until your divestment is confirmed, the proceeds are in, then we look at it. We have not given ourselves any mandate also at this point in time.
Yeah. Okay. Just a thought. I think historically, your share buyback program hasn't been able to really rerate the share price. Yeah. So, just what I think, unless it's very meaningful. Thanks.
Okay. Thanks for that.
Thank you. Can we have Jonathan next?
Yeah. Good morning, Hsien Yang and management team. My question relates to the expansion into the retail space. Your peers, like CICT and Suntec REIT, they have embarked on a development project together with their sponsor. Is that something feasible that you can do that, doing a joint development to build a retail mall in Singapore together with your sponsor? Secondly, also related to the retail space, given the lack of opportunity in Singapore, assets are tightly held for retail mall. Would you then say that it is more likely that you acquire retail asset in Australia rather than Singapore? Yeah. Thank you.
Okay. I do think that this is really more of a question for our sponsor, Keppel, to answer. But if you look at what they have been saying, consistently, they are moving away from the big developer model. They are not looking to bid for land and to do development, unless it is through a fund model, whereby they look for investors to actually jointly develop assets. I think that, the first question, are we likely to jointly bid on land together with them to build? I do not think that is something that we are actually looking at. In terms of opportunities for retail, there are actually transactions happening in Singapore. There are transactions happening in Australia. If we wanted to buy retail, we do not necessarily have to develop. We can potentially buy assets off the market.
Even today, there are assets being marketed for sale even in the retail space. I think that, like what I mentioned earlier, we are not actively looking at acquisitions for now. But if we wanted to, say, for example, add more retail, the most logical way for us to go about doing so is by buying the assets that are already operating versus developing an asset, for example. Does that answer your question?
Yes. You will be looking for retail asset, both Singapore and Australia?
Like what I mentioned, these are the two markets that we could potentially look to buy retail.
Yeah.
But we are not actively looking at any deals at the moment.
Okay. Yep. Thank you. We look forward to more progress on expansion in retail. Thank you very much.
Okay, thank you.
Can we have Darren next, please?
Hi. Morning. Actually, most of my questions have been answered. Just maybe a follow-up on the ANZ lease at OFC. I think previously you mentioned you were in advance nego for one floor.
Yep
Looking at the other. Any other further updates on that lease?
That one floor we are close to signing. I think I'm getting, I think I'm not supposed to talk about it, but yeah, I'm close to signing that one floor. That one floor at a very, very good rental. The other one floor, we are negotiating with a prospect at the moment, also at a good rental level.
That wouldn't be put into your reversion number. It's a revision.
Nope, it's not in there yet.
Sorry. If it does, then it will be put into your reversion number?
Yeah, correct.
Okay. Got it. Thank you.
Can we have Brandon, please?
Hey, morning, Hsien Yang.
Morning.
Yeah. Hey, morning. Just getting back to your share buyback. Any reason why do not you just lower further your fees units instead of doing a share buyback?
Lower fees. I think this is a question you asked my sponsor, whether it is something they will consider. I think from a management perspective, lower fees are unit- Sorry?
Lower the amount of fees you take.
Oh, you are talking about that. Okay, I thought you were talking about lowering the fees. Okay.
No, no. Not that way.
Okay. So that means you are saying that take more units or take less units?
Take less. Take less units.
So your question is take less units, is it?
Yeah. Instead of doing buyback.
I think that is something that we want to balance. I think, as I said before, we feel that this is a level that we feel is a good level. I wouldn't want to say optimal, but it's a good level. I think that we have also made a commitment not to change the split. I think this was something that a number of investors have also raised with us. That is not something we are looking to change. We have made a commitment not to change this for at least two years. I think we will need to maintain this level of cash and units for now.
Is it correct to assume that you will be following what your predecessors did in terms of cancellation of the shares?
I think that, like I mentioned, the more details of this will be shared later once we have placed this with the board. When we do share more details, I think there, we will be able to provide a bit more color in terms of what we do, yeah.
Okay.
Logically, I think that if you look at the industry, that is a fair assumption.
Just one also matters. From your assets in Brisbane and in Melbourne, are you currently paying the absentee owner surcharge?
We don't have any assets in Brisbane, only in Melbourne. In Melbourne, yes, we do pay the absentee owner surcharge.
Oh, you are paying in Melbourne?
Yep, correct.
Okay. Okay. Can.
Okay. Can. Thanks.
We have a question from the webcast. Given the current interest rate environment, are you concerned that this could increase capital needs financing costs as well as other plans to enter new markets in the future? Which markets would be prioritized?
I will take the second question first. Like I shared earlier, we are not actively looking at investments at this point in time. The priority for us is to complete our divestments, do a share buyback. Then for investments, if we were to look at it further down the line, assuming if we do get out of Korea, the two markets that we have is Singapore and Australia. I think that our focus will be on these two markets. But of course, today, we do hear from investors their preference is for more Singapore exposure. I think we have taken note of that. That would definitely be something that we will look at if we do look at new investment opportunities. Do you want to take the question on interest?
In terms of the interest, I think we are actively looking at it and managing it through a mix of looking at the amount of our fixed rate loan ratio. We are currently at about 62%, so we are keeping it between 60% - 70%. As and when we enter into new loans or do refinancing of our loans that expire, we will end up, as and when we can see whether is there a need to do that. Hedging to minimize the impact or do a bit of risk management on the impact of the interest rate on our DPU and NPI.
David, do you have a follow-up question? Otherwise, we have another question on the webcast. Given that Pinnacle Office Park's occupancy dipped in the second quarter despite the completion of AEI, has the management considered divesting this asset?
I don't think that the moment you see an occupancy dip, that automatically qualifies this as a divestment target. I think that in order to get the best price for an asset, we do need to maximize the income first. I think that the priority for us at this point in time is to focus on the leasing and lease it out first. Also you need to select the correct time in the cycle. The Australian assets' cap rates have not recovered to the historic high. I think that's why we have not mentioned that we are looking at potential Australia divestments at this point in time. I think we are better off focusing on the leasing, getting the occupancy up, and then selling when the cap rates have actually compressed versus trying to sell the asset now.
If the asset is not performing well from an occupancy perspective, you're not going to get a good price too.
Geraldine, do you have a follow-up question?
Hey, a quick follow-up question for the 28% divestment premium. If we take into account the depreciation of JPY across the past four years, in local currency terms, will it be at a much lower level?
Okay. It wouldn't be much lower. Maybe just to give you a sense, the premium that we have sold it at is high 20s. The depreciation over the past this period is only around 10% ±. So definitely it is still positive and I think I also wanted to mention that we have funded this 100% via Japanese yen debt, so it's 100% hedged.
Okay. Thanks, Hsien Yang. Some impact, but not to the tune of the actual depreciation.
Yeah.
Okay, got it. Thanks.
One last question from the webcast. Are you open to raising equity at this level for acquisitions as a good asset comes along?
At this point in time, I don't think that we are looking to raise equity at this juncture.
Do we have a last question from Yew Kiang as well?
Yeah. Can I just quickly confirm the numbers on the divestment of KR Ginza II? When you acquired JPY and SGD terms back then, and then the current JPY and also the current SGD that you will be locking in for the sale price.
Andy, are you able to share a bit more?
In the JPY, in terms of the gross price in JPY is 11.5 billion, thereabout. In terms of the SGD equivalent, it is about SGD 105 million. Yeah. Is that correct?
Sorry, SGD 105 million?
SGD 91 million. Yeah.
SGD 91 million. Okay.
Yeah.
Okay, thank you.
If there are no further questions, we have come to the end of this call. Ladies and gentlemen, we have come to the end of our results teleconference. Thank you for joining us and have a pleasant day.