Thanks for joining us this morning for MIT fourth quarter and full year financial 2024, 2025 results briefing. MIT has released its results on 30th April after market close. We have the management team to present the key highlights of the results. Ms. Lily, CEO. Khoo Geng Foong, CFO. Peter, Head of Investments. Ms. Serene Tam, Head of Asset Management. Ms. Chng Siok Khim, Head of Marketing. Now pass to Lily to present the key highlights of the results.
Good morning, everyone, and happy cooling off day. No politics talks today. Anyways, we can probably take a break after the past few days' talks on politics. Let's focus a bit on the results. For this quarter, we are pleased to report a year-on-year improvement in terms of the DPU growth of 1%, reporting at 13.57 cents. I think the key contributors to the improvement in the DPU growth is really on the back of the new contributions from the Osaka data center. We see the full year effect this year. We also have the new Tokyo acquisition, which we have completed towards the end of September. As for specific details on the financial, I think we will have Geng Foong to run through that. I think on the operational front, we are reporting a positive rental revision across all the sectors.
I think weighted average about 8.1%. If you look in terms of the range, we are achieving rental revisions of between 1.4%-1 2%. I think the higher of the range of 12% is actually the revision that has been recorded for our flatted factories. So that is the resilience of the flatted factories as well. As we have said, I think in the past quarters before, the rental revision is largely due to the fact that these are leases, renewal of leases, which were signed three years ago during the COVID period.
So naturally, we kind of start off from a lower base. Going forward, we do expect that the rental revision may be going down to, say, a single digit as we near the renewal cycle for these leases. On the valuation front, overall, we see an increase in valuation by about 2.7%, AUM totaling about SGD 9 billion.
The highest increase is due to the Japan acquisition, as you can see on the slide. In terms of the Singapore portfolio and U.S. portfolio, is actually quite flattish, very marginal increase. Here, however, you will note that we do register slight revaluation loss, but that's mainly because we have some capitalized costs involved. If we look at the cap rate, it remains largely unchanged. We don't really see a significant change in terms of the cap rate. If I can move on to the maybe portfolio occupancy. The portfolio occupancy slips a bit, from 92.1% - 91.6%. Very marginal dip, but still a dip nevertheless. If you look at the individual portfolio, Singapore portfolio is about flat. I think just to be specific, I think if you notice, the light industrial building is actually at the lower occupancy of about 51%.
I think that is mainly due to a vacant building. I think I also like to highlight that this light industrial building segment forms only 0.7% of our overall portfolio. I think one thing which all is quite concerned on is the committed occupancy at Kallang Way, the high-tech part at Kallang Way. I think we are pleased to inform that the committed occupancy as of now for this property is 60.1%. If you remember the last quarter, we reported 57%. That is about an uptick of about 3%. We should be seeing the full year effects of these committed leases coming through soon. North American portfolio occupancy is reported at 88.2%. I think if you compare to last quarter, there is a decline from last quarter's 90.3%, largely due to the exit of a tenant in Philadelphia.
I think that is something that we have already flagged out in last quarter. I think for the North American portfolio, we continue to work on these spaces, even for 250 Williams Street, if you remember. 250 Williams Street is actually a building, which is about 50% data center space and 50% office space. The data center space is, I would say, fully taken up. But the team continues to work on the office space. Then hopefully with some of these new spaces taken up, we will be able to inch our occupancy for 250 Williams Street a bit. In case of lease expiries, we have about 14.3% of the leases that are expiring in this financial year or in FY 2025, FY 2026, mostly from, I would say, the flexible factory segment as well as the [US DC] segment. For the [US DC] [inaudible] relatively long, 6.3 years.
I think if you look at what is due for renewal in FY 2025, FY 2026, about 3.6%. I think we have also informed during last quarter that about 1.7% has confirmed to be non-renewal. I hope and I think that should be it for the remaining of the financial year. I guess the remaining 1.8%, this is something that the team have already started work and we are relatively hopeful that the renewal should be there. At any rate, I guess the tenant renewal and backfilling of space is actually part of our business. It is something that the team will always continue to have to work at. If I move to the next slide. On some of the measures that we take on to tackle some of these tenant renewals and backfillings of space. Generally, three prongs, reletting, repositioning, and rebalance.
As a background for in U.S., about 60%-70% of our data center are located in the primary data center market. As I said earlier, the build for the U.S. leases are relatively long at about 6.3. The recent non-renewals that we have seen so far, I would say many of them were largely due to tenants' company policies where they review the corporate real estate space requirements. I think if you look at it, quite a number of them were actually from the enterprise user. For example, the likes of AT&T. For some of the things that we try to do, like we will try to engage them ahead of the renewals. I think this is shown as what we have done for the property at Richmond, where they have actually renewed two years in advance. Of course, we also do try to backfill the spaces.
I think this can be backfilling it with new data center operators, or it can also be non-data center operator, as what is evident is what we have done with Brentwood few months back. I think one thing to note about Brentwood, the good thing is the rent-free period should be coming off soon around June this year. So we should be expecting some cash flow contribution coming out from this. Anyway, coming back to what we do as part of our assets management, repositioning is something that we will always consider. This can take in the form of doing a redevelopment or even re-leasing the properties out as a separate use. Rebalancing is something that we have been looking in the past one, two years. So I am quite happy to announce that we have actually divested the data center in Georgia.
I think for this particular data center, the lease expiry is supposed to come out in August in 2025. So this basically help us to negate part of the effect when it comes to our lease rate. And of course, given that we have a diversified portfolio in terms of geography, it does help a bit in trying to negate some of these non-renewals. I think then maybe going for the next segment, I will have Geng Foong to take us through the financials and the capital management side.
Good morning, everyone. I will quickly run through the financial performance of MIT as well as our capital management position. Year-on-year, our net property income increased to SGD 531 million, largely due to higher contributions from our Japan properties, as well as new leases and renewals across various Singapore property clusters. These were partially offset by loss of income from the divestment of Tanglin Halt, which were completed in March last year.
Non-renewal of leases in North American portfolio and higher property maintenance and marketing costs. Our borrowing cost is lower at SGD 105.1 million, mainly due to repayment of loans with profits from Tanglin Halt divestment and lower interest on the unhedged floating rate loans. These are partially offset by higher borrowing costs taken on loans for the Japan portfolio. The distribution from joint venture is lower, mainly due to higher borrowing costs from repricing of mature interest rate swaps.
Accordingly, our distribution per unit increased by 1% to 13.57 cents. Quarter-on-quarter, our net property income increased to SGD 131 million, mainly due to non-renewal of leases, lower rental rates, and higher property maintenance costs from the North American portfolio, which were then partially offset by new leases and renewals across various Singapore property clusters and the full quarter contribution from the Tokyo acquisition. The distribution from joint venture is lower due to higher borrowing costs from repricing of mature interest rate swaps. Accordingly, our distribution per unit decreased by 1.5% to 3.36 cents this quarter. The balance sheet remains strong with gearing at 40.1% and interest coverage ratio of 4.3x . This financial year, we retained about SGD 30 million of cash through DRP. But given the tick up depends on MIT unit price and in the current volatile market environment, we are suspending DRP from this quarter onwards.
Our debt maturity profile remains well-feathered with average debt duration of 3.2 years. On interest rate management, about 78% of our debt is hedged into fixed rate with average hedge duration of 3.4 years. The average borrowing cost for the quarter decreased slightly to 3%, largely due to lower floating rate on unhedged loans. However, we continue to see impact of higher interest from repricing of our interest rate swaps maturing in the coming financial year. For FY 2025, FY 2026, we have about SGD 600 million of IRS coming in, we expect to be replaced at higher interest rates. The earning impact of this is about SGD 10 million- SGD 11 million, and given that these are all onshore in the U.S., net of tax shield, maybe about SGD 7 million- SGD 8 million. 1/3 of these will give the negative impact to DPU in FY 2025, FY 2026.
Next, we can go on to the outlook. Well, I guess outlook, everybody knows where or don't know where it's going. One word to describe is uncertain. Every morning I wake up wondering what Donald Trump has done or said as I was sleeping. I think in view of such uncertainty, we have also seen a lot of the economies adjusting their economic growth rate, Singapore included. We do continue to see the risk of higher operating costs as well as the elevated borrowing costs. This will continue to exert pressure. It's something that we will need to ride through and deal with. Operationally, we will focus on improving our occupancy for both the Singapore and U.S. portfolio. I think hopefully if we can fill up some new spaces that will be able to inch out and provide us with some additional cash flow.
In the face of the trade tariffs and the political tension, I think we are going to be a bit more defensive in terms of our leasing strategy. We do need to try to be a bit more nimble and flexible when it comes to the leasing terms. I guess our efforts on the rebalancing the portfolio through divestments will continue. This will actually help to strengthen our financial flexibility and provide us with more headroom, where we can make some meaningful acquisition that can provide us with sustainable growth. So I would say we do have our challenges ahead of us, but our portfolio is diversified, and we do have relatively strong balance sheet. So we do hope that this can see us through this uncertain time. With this, we can take questions.
Thanks, Lily and team. Now we will take questions from analysts. May we request each analyst to keep to three questions? We have Mervin Song with JPMorgan to take the first question.
Yeah. Good morning, Lily and team. Congrats on the strong rental reversions and the very low borrowing costs. Can we touch on a few properties? We saw a decline in property values, in particular, Neil Armstrong Boulevard, McCrimmon Parkway, Hills and Dales Road, Douglasville Drive, and [Lackawanna] Parkway as well as South Bowen Road. Can we just get an update in terms of, are there future vacancies for these properties, not necessarily for FY 2026 but FY 2027? Because if we look at the big drops in, or drop in valuations in March 2024, it kind of correlated to the vacancies that you touched on previously. And also second question I have is, any updates in terms of the properties at Rancho Cordova?
I note that it seems that JLL is trying to sell one of the properties there, and the occupancy on the properties actually seems to have dropped to 42.5% from a much higher level. Thanks.
Okay. Just to answer the first question on valuation, of course, there's a list of properties that was being highlighted. Generally for U.S., we do see the U.S. valuations are predominantly pretty much cash flow focused. So when there is upcoming renewals or upcoming vacancy or when the property is vacant, the valuation will actually fluctuate quite a bit. And the other side is as true as well. Once we manage to secure any increase in occupancy or slightly higher rental rates or more committed cash flow, the valuation will actually creep up immediately as well. As you rightly pointed out, I think the last one I heard was Arlington at Bowen Road. So that was the one that the tenant have actually moved out, and then we have actually wrote down the valuation because the property is currently vacant.
So I hope that kind of summarizes why the valuation changes. The second question on the Rancho Cordova too, I think it's sharp of you to find that JLL is marketing the property. It is currently o ccupied. All right?
We actually thought that it is not one of our core properties, which is why we are actually running a process to sell. In order to do that, we will actually have to get a third-party broker to help us to market the property to have a wider outreach to potential buyers or investors. Yes, that's one of the property that we are trying to sell.
The five properties that saw a dimension between 10%-12% decline in property values, is that upcoming vacancies or lower rents? What's driving the drop in valuations?
Well, I think it's probably a mixture of both.
I think some of the-
It is because
Some of the adjustment for valuation may also come from the assumptions used by the valuers.
Yes, for market rents.
In terms of the market rents, how they gauge. I think, I don't know, to be frank, we do have a change in valuers for the portfolio. That could jolly well also contribute a bit to how the assumptions may differ between valuers to valuers. It may not necessarily just purely because this is coming up specifically, but it is a combination of quite a few factors.
For these particular properties, is the drop in valuation mainly change in discount rate used by the new valuer or is it actual cash flows that's impacted, been reduced?
Both. There are some, and there are quite a number that is due to the drop in terms of the market valuation.
There is some risk of lower cash flows for some of these properties, not necessarily this year, but in the outer years.
I-
I think it's still quite early to say at this point. I think these are basically, you're talking about it being due in the next few financial years. Things may change. As we have highlighted, things are very fluid at this point. The renewals, we typically will start talking to them as early as we can. At this point, we won't really know.
Hmm. Then final question from me.
You want to get inquiries, it available in one of the slides that we have.
Yeah.
Yeah.
Just in terms of the Yeah, sorry.
Add on. I think because just now when you are running through the list of properties, just to be clear, some of them are due to vacancy like the one in Arlington. But quite a few are mainly due to the just changes in market rent. So it is not because the leasing is weak or in future. So it is just a valuer's view. Just to be clear.
Yeah, I know the valuers can be more conservative than actuality, which may not reflect reality. Just trying to understand, because the vacancies cannot correlate with the drop in valuations a year before. So we actually had six to nine months precursor to guidance. Yeah.
But I think we shouldn't assume that all leases when expired will not renew.
Yeah.
I think, as I have highlighted for this financial year, 1.7% is confirmed non-renewal. We don't think that there would be two, that this number will deviate very significantly for the rest of it. So the balance of the 1.8%, I think a small portion has already been addressed with the divestment of Northwoods Parkway. The balance of it is something that we are working on, and I would say we are quite hopeful.
Yeah. And how should we be thinking about distribution of prior divestment gains? We saw the one at Northwoods Parkway, which I presume is a gain. Yeah. How should we think about that? Thanks.
I think in the first place, if you talk about divestment gain, you know that we have already, for this fourth quarter, this is the last quarter of our distribution for Tanglin Halt [investment]. We have so far not kept any divestment gains. Reserve, if you want to put it that way. So for this Georgia data center, the gain is actually very small. I think based on what we have always been doing, it's not likely that we will be distributing it.
Okay. Good luck with [Beck's Philly].
Thank you.
Can we have Derek from DBS to ask the next question?
Hi. Morning. Can you hear me?
Yes.
Yeah. Hi. Good morning, Lily and team. Just two questions for me, right? Firstly, I think, Lily, you mentioned about your rent reversionary outlook for this year, your guidance for mid-single digit, right? I am just wondering whether what is driving this more conservative number? Is it just being conservative, or are you actually seeing that compressing of the leasing spread going forward? Maybe your answer for this first. Yeah.
I think it is more from the fact that these are the past leases that we have been seeing where we record double digit type of rental revision. These are mostly leases which we have taken on during the COVID period. I think you understand that during the COVID period, a lot of the businesses were facing pressure. So we have actually, in our negotiation, been a little bit more flexible. I think this will start off from a low base. We have been continuously seeing very good, very strong rental revision coming through for the past, I would say about three financial years. Generally, if you look at our Singapore leases, this tends to be on the three to five years type of lease tenure.
I think that is where we think that while looking at the situation, while we think that the rental revision will still continue, will still be positive, we may not be seeing as much growth as what we used to be, simply because these leases which were on a low base would have more or less be running out of the cycle.
I see. Okay. But generally, still positive for this year. It's a good confidence you'll get that.
Yeah.
Okay. Got it. So my second question is on your asset recycling. I noticed that you have been selectively selling assets. So I am just wondering, given that the U.S. is quite diversified and you've got many properties, there's maybe sub SGD 10 million. Are you actively looking to sell more prior to the lease coming out for renewal? Do you have a guidance on the quantum for us?
We are definitely looking at streamlining the portfolio. I think that is something that we have articulated a few quarters before, that I think you also understand that our North American portfolio is actually acquired largely through three large portfolio acquisitions.
Yeah.
With portfolio acquisitions, there are nice properties, there are properties that may not be as nice. There are properties that were relevant may not be as relevant right now. We are actually taking a good hard look at this list of properties to see what we think may not be as relevant. Of course, some of them would include those that is nearing expiry, which we think that maybe the renewal potential may not be as high. This will also include those vacant buildings. I think we remain open as to the options that we have with these properties. I think suffice to say is that the divestment of some of the properties in the U.S. portfolio is definitely ongoing.
Okay, got it. How about Singapore? Is Singapore something you're looking at also?
I think Singapore is the same. You would also appreciate that the Singapore portfolio has generally been there since our IPO time.
Yep.
I think we also, earlier on, back in about 2023, we actually pushed out a big SGD 1 billion divestment program, which didn't work out that well. We have take a good hard look at the Singapore portfolio and trying to see what is something that is not as relevant. I think at the end of the day, what we are hoping to do is for those that is not giving us as much growth or for those which we think we may not be able to extract a lot more value out from it, this will be the potential for candidates for us to divest. Once we divest, basically the proceeds, we can use them for redeployment into new investments. I think that I hope can actually bring our portfolio to deliver sustainable return for our unitholders.
Okay. Got it. That's all for me. I see a long list of questions here. That's all for me. Yeah. Thank you.
Thank you.
Yep.
We have Rachel from Macquarie. Next question. Rachel, if you are speaking, we cannot hear you. Rachel? We can't hear you, Rachel.
Hi, can you hear me?
Yes. We can hear you, Rachel.
Oh, hi. Okay, that's good. Thank you. Sorry. I think there's something wrong with my headphone. Maybe just the first question on the average cost of debt. The SGD 600 million that you have guided on the U.S. debt, does that include your JV level? And what's the current average cost of debt for your JV level?
Hi, Rachel. Yeah, so our average cost of debt for this quarter, when we mentioned, is 3%. This excludes our JV level. But the SGD 600 million of IRS coming due in the coming FY, that includes basically total IRS, including the JV level.
Okay.
Our share. So when I mentioned the per annum impact SGD 10, SGD 11 million, part of this will actually hit the lower distribution from JV.
Got it. Would you be able to share with us the average cost of debt for your JV level?
Currently? Currently, it is around three... I don't think it is very far off from what we are reporting, maybe slightly higher.
Okay. Got it. Thanks. Maybe just on the Brentwood lease that you were saying that the rent free period is coming off. Roughly what is the percentage of GRI from that asset?
It is on our, It's similar, right?
It's on our top 10 there, 1.4%. It's the last one that you see, our number of debt.
Yep. Thanks. Maybe just one last question from me. In terms of, I think you have guided some divestments and you're looking at some divestments, but given how uncertain the environment is now, do you see a slowdown in pace in terms of divestments, and hence FY 2026 may not reach the kind of divestment that you were hoping for?
We have not exactly seen a significant slowdown. But we think that we should still be able to deliver some divestments, I think probably, hopefully, say in the range of SGD 500 million- SGD 600 million.
Okay. And these are mainly the U.S. portfolio or the Singapore portfolio?
Well, it should be a mix. We don't specifically say, "I must divest Singapore only," or, "I must divest U.S. only." So I think we will have to manage it as you go. As you appreciate, I think divestment is not something that we say we want, we get it. So we can't really dictate how it will take place. It's a lot of negotiation and process that needs to be run.
Okay. All right. Thank you so much. Those are my three questions. Thanks.
Derek from Morgan Stanley will ask the next question.
Derek, we cannot hear you.
[inaudible] Maybe we move-
Hello.
I think we have Derek.
Yeah, sorry. I think I was on mute. Sorry. Just wanted to ask a couple of follow-up questions. First of all, will be on the guidance for non-renewals. Lily, you mentioned 1.7% confirm not renewing this financial year, and the balance 1.8%. Is the 1.7% Telepark in Singapore?
Sorry?
Oh, STT non-renewals. Yeah.
Sorry, I was a bit caught off. It is a name not familiar to me at this point. It is not within my portfolio. You are referring to STT, is it?
Yeah.
STT, as you see on the chart, should be reflected in the small little blue line that you see, the base. For STT, currently, they contributed about 1.8% to our gross revenue. I think I probably explained this before, but for STT, the rental actually has two portions to it. One is the base rent, the other one is the rental which they paid on the fit-outs that was done. What happened is that fit-out leases will actually drop off this coming financial year. We do expect the impact to be around 50% of this. But STT has actually extended their leases with us for another 10 years. And there is also a little bit of additional space that is taken up. All in, I think the impact might be muted a bit.
But I think we should still be looking at about 50% of the 1.8%, slightly lesser than 50%.
Oh. Understood. The 1.7% and 1.8% numbers that you mentioned really stem from the U.S. portfolio.
For the U.S. one, what I was saying is for FY 2025, FY 2026, about 3.6% of the gross revenue is due for renewal, of which the 1.7%, I think we have already said that they are confirmed non-renewals. The remaining of the 1.8%, part of which, of course, Northwoods forms it. We have already divested. I think Northwoods contribution is about 0.1%. We are talking about the remaining of 1.7% of renewals, which we are currently working on. We think that it should be okay.
Got it. Thanks for that. Sorry, I did not catch the first part of the presentation. Just on, you mentioned cost pressures, higher borrowing costs, higher operating costs. To counteract such effects, would you be open to, I guess, increasing fees and units?
I think at this point, there is no intention to. What we will try to do is to adopt as we will try to increase our efficiency and try to improve the margin, trying to reduce the impact on the higher cost. As for the interest and our borrowing cost, I think that is something that we have always been looking at it, trying to see whether there is any way we can reduce the impact.
Yeah, I think in terms of managing the interest cost, we continue to be nimble. For example, last quarter when I speak to you guys, the five-year rate was around 4.3%. Currently, maybe 3.5%, 3.6%. We continue to monitor this. For the upcoming IRS due of, let us say, SGD 600 million, when we monitor, let us say recently, when the interest rate went down to around 3.2%, 3.3%, we try to catch a bit. We will not do the replacement at one go, SGD 600 million. We can do a bit of forward start, can do some of the extension early, you see. Yeah. We will continue to monitor so that will help to reduce the impact for our DPU.
Okay. What will be your interest outlook for this FY?
The MIT interest rate for the coming FY, maybe about 3%- 3.1%.
3.1%. Okay, got it. Thank you.
I think it's Joy from HSBC to ask the next question.
Hi, can you hear me? Hi.
Hi, Joy. We can hear you.
Okay, great. Thanks. Hi, Lily and team. First of all, can we just get an update on the U.S. power study? I think in your slides you mentioned about redevelopment. Are we referring to redevelopment in U.S. or Singapore? Thank you.
Redevelopment can be both in Singapore or U.S. I think it's very much looking at whether do we have the right composition of this. By that, I mean there's a lot of factors that goes into in terms of redevelopment. We probably need to have some level of commitment before we are prepared to do something similar to what we have done in the past for our Kallang Way, where we have at least a certain proportion that is taken up before we will consider doing a redevelopment. I think we also have to appreciate that for redevelopment or any projects that is along the line of redevelopment, may have certain impacts on our DPU. I think that's something that we need to balance as well. In short, whether it is in Singapore or U.S., we are open to both.
I think you also asked for the power study.
Yeah.
I am glad that you bring this up. That is something that I forgot to talk about just now. I think for the power study, we are actually in the finalization for the power study for San Jose. At this stage, based on what we understand, I think the facility in itself, we are able to get accessible power, say around 3 MW-7 MW. I think currently we are talking about maybe 2 MW-3 MW. Currently it is about 2 MW-3 MW. Based on the existing infrastructure power grid, we should be able to get up to 3 MW-7 MW. If we want to go further up, I think 20 MW is possible within the next maybe three to four y ears. I think at this point, we are evaluating the options that we can work with.
At the same time, we are also doing our marketing in terms of the re-leasing. I think as with a lot of the other properties, we are also open to a divestment for this.
I see. Just follow up on San Jose. I guess if you were to start a redevelopment, would you do on a spec or you will need to secure a tenant before you start development work?
I think I'll let Peter take this.
Yes. Essentially, like what Lily mentioned earlier, when we undertake redevelopment, it actually creates a lot of downtime and uncertainty as well for us as a portfolio, as a REIT. If you look at our earlier redevelopment and the development that we did, most of them are attribute to suite. This is probably something similar that we will do for U.S. And our primary aim is really to have income-producing assets. Speculative development, especially if it's a big one, it's not something that we will want to do. But specifically for San Jose, as what Lily mentioned, we do see some upside in the power. We have done our power study. We can increase to 7 MW without much work. But to increase to 12 or up to 20 megawatt, you have to pay some money.
We are also exploring potential sale, as one of our repositioning or rebalancing strategy.
Just to clarify, basically up to 7 MW, there is no payment required or no CapEx required, right?
No payment required. Of course, I think in terms of internal CapEx, we will still have to pay, but at least there's no additional payment that we need to do to the power authority.
It is based on this existing power grid.
Yes.
Okay.
At present day.
Cool. That's very clear. My second question is on, in terms of a tenant, I don't know if you've done sort of an assessment in terms of exposure to export-related activities and also, in your view, what percentage of the tenants are a little bit on the more vulnerable side?
This is more on the Singapore portfolio. To be frank, it is quite difficult for us to put a number to the tenants' exposure. I think partly, you understand that our tenant base is 2,000 over. For me to try to gather information from 2,000 over tenants, it is not easy. For quite a number of them, it will be like pulling teeth out of a tiger's mouth, because these are actually deemed quite confidential from their perspective, right? I think what I can say is we have spoken to some of the tenants. Some of the larger tenants, they actually don't see a significant change in terms of their business order and production, especially for those that is exporting to U.S. I think a lot of the tenants are actually taking a wait and see position.
Nobody really knows what will develop from the trade tariff. As I said, every morning we wake up wondering what has happened, what has transpired, what has Donald Trump say or not say, done and not done. I think it is very fluid at this point. Quite a number of the tenants will also like, I also don't know what to expect. A number of them have actually been saying, "I'll just wait and see before we move." The larger tenants actually may not be that as impacted, especially those where they have already been preparing to diversify their support chain. I think the U.S.-China tension is something that is not new to everyone. It has been ongoing for the past years. Also arising from COVID, I think everybody learned a bit of a lesson from there.
The larger corporates have actually been looking to diversify their own support chain and their supply chain. I think when the trade tariff comes out, then for them it's, well, it does impact us, but we have that flexibility to be able to reshuffle our distribution, in terms of the materials, in terms of the products. Basically what they do is they try to reshuffle and minimize the impact in terms of the costs. Interestingly, we do see some inquiries for additional space from some of the existing tenants. Basically, these will be tenants who are actually exploring that maybe if the trade tariff turns out to be what it is, they may be looking at moving some of their operations to Singapore. I think at the end of the day, at this point, Singapore is one of those country with the lowest tariff rates.
We also see that some of the export-oriented tenants, for those that is in the semicon industry, et cetera, they are actually producing more for the Asia market and not so much for exporting into U.S. I think what could be possibly will impact, well, for that matter, I think will impact everyone is actually the second and third order effects. I think with the tariff going on, we would expect production costs to increase. I think that is something that we will have to keep a lookout for.
Cool. That is very clear. Thank you, Lily.
Yeah. Sorry, Peter again. I just want to address Mervin's earlier question on the valuation. After I kind of look at our valuation numbers, those few properties that you highlighted, essentially those leases except, I think the last one you mentioned, at Bowen Road, actually the valuation has increased slightly. I probably got that mistaken. But for the rest of the properties that you mentioned, the valuation dropped, not new to the leasers, but it is mainly due to the changes in cap rates and the valuers assumed market rents. It is a house viewing. Most of those leases are not going to expire in the next two to three years. Just to close out that loop.
Can we have [Brandon] from Citi to ask the next question?
Hey, morning. Can you hear me?
Yes, we can hear you.
Yeah. Okay, great. Just want to talk a bit on your reversion outlook. Just confirming that you are lowering down from high single digit to low to mid?
Single mid digit.
Single mid?
Yeah. We still expect a positive rental revision coming through, but it will not be at as high pace as a double- digit.
Okay.
It's around mid-single range.
Okay. Are you open to sharing with us the split by the different industrial segments as well as on the U.S. side? What's the expectation there? Because I realize that your gross signing rents have been coming down despite the very strong market over there. Yeah.
For the Singapore, in terms of segment, you have a range of 1.4%- 12%. The 12% is actually contributed by the flatted factories. We see a higher end. If you look at the historical trending of it, flatted factory is the one that has been giving us quite strong rental revisions for the past few years. The rental revision may be on the lower end, tends to be those that is in the business park and the high-tech side. I think that is also reflective of the situation in high-tech and the business park, because of the supply that is coming on stream. For the U.S. side, I think in terms of rental revision, it is positive, but I don't think we are expecting a double-digit rental revision.
I think if you look at some of the data that is been put out by other players, some of their double- digit is largely because they are also doing the operations side of it. For us, our data center is really more on a core and shell basis. I hope that explains.
Yeah. Basically for U.S., you are still expecting low to mid, single digit positive as well going forward? Is it correct?
I think it is. We can't really just have a general reversion target like this because for our U.S. portfolio, quite a lot are actually locked-in leases. For our better ones are in Northern Virginia, where it is actually one of the world's hottest markets. Those are actually on very long lock-in leases with extension terms that have already on pre-agreed terms as well. I think this is one of the main reasons why you do not see a very high reversion. But at least we are comforted that those assets are pretty much resilient and will be renewed in that case. Then for some of our other assets that which we do not have sufficient power to cater to the new development in the industry, we will then have to undertake power study, and then with that, we may have to sell some of them.
Which is why we are kind of hesitant to give a very targeted reversion.
But-
I think you also appreciate that U.S. is actually a much bigger tenant compared to Singapore. I think there is some varying factor in terms of the market.
Yes, that's right.
If I was to kiss out something.
Yeah. Sure. Just to follow on from the U.S. data center portfolio. Out of this $3.1 billion of portfolio that you have, can you give us a rough sense, like, how much of this you do look at actively selling them? How much of it does have the potential for upgradable power and how much you think it's really much more resilient than the rest? Yeah, because as Che Heng mentioned, there's a fair mix of a lot of things. Could you get a sense on where we should look at the viability of this portfolio in the short and medium term?
Yeah. Maybe I would say that if you look at this your tenants mix. Out of that, we have over 20%. These are the fitted hyperscale data center services. These are the ones that we thought are very resilient. Of course, we have 60%, which is powered shell data centers. I would say that out of this whole bunch, probably 60%-70% are pretty resilient. If you look at our geographical split, 60%-70% are also in Tier 1 markets. For the balance, 20%-30% are more for domestic city users and so on. Those are the ones that we see are probably less resilient than the Tier one markets. But having said that, they serve its own use as well. If you're talking about the strength of our portfolio in U.S., probably the 7%.
Sorry? I kind of missed that, Peter. Sorry. I think you got cut off or something.
No worry. If you look at it from our view or if you look at the pie chart on the right side, the donut chart on the right side, the hyperscale and the [colo] providers are probably what the current market is driving at, whereby there's AI and more real type of users. The weaker part of our portfolio is mainly the enterprise and end user and the other section.
Got it. Okay. That is very helpful. Just one last question to add it right on the-
Sorry.
Yeah. Sorry? Hello?
We need to also-
Yeah, sorry.
Can you hear us, Brandon?
Yeah. Okay.
All right. Maybe I can, if I may also add, if you look at our North America data center portfolio lease expiry, at least I would say more than 50% of our leases are actually due in FY 2030, FY 2031 and beyond. Right? I think what you are looking at in terms of the more recent expiries are a small percentage of the total portfolio.
Can you also share a bit on your NPI margins for this portfolio? Because we have seen that coming down below 70% again this quarter. In the past, I think it was always been about 70%+. So is 68%, 69% the kind of normalized number that we should be looking at?
Not really. I think if you look at the NPI margin, historically, we have always been around the 73% level, 73%, 74% level. I think this quarter it is a bit lower, but you also understand that typically this is the last quarter of the year. There is quite a number of cyclical works that actually happens in that quarter rather than other quarters. I think if you look at the historical trend of our margin, the last quarter tends to be a bit on the lower side. But if you look at it on a full year basis, on the average, I believe the margin are somewhat, relatively consistent.
Okay. Hey, thanks so much, Lily and Peter. Yeah, thanks. This is very helpful. Thank you. That is it for me.
[Bill] from UBS to ask the next question.
Yeah, thanks. Hi, Lily and team. Thanks for the presentation. I just have two questions, actually. I think the first one is going back to the expiries in the U.S. that they are at 1.7%. Based on currently what you guys are working towards, should we be expecting more conversions or you are just looking to do spend a bit of CapEx and re-lease it? And what kind of CapEx should we be expecting for the portfolio?
You mean for the 1.7%?
Yeah.
We are open to all. We keep the options open. We are working both on re-leasing for data center basis. Of course, the preference would be if I can lease out as a data center, that would be my top. If not, then other users is something that is not closed option as well. Besides the leasing, of course, as we said, some of them it possibly may have potential for divestment.
Okay. But given that they have already confirmed that they're not going to renew, are there any advanced negotiations with potential re-leasing or what should we be expecting for the public now?
Since that it's not a case of where you get 0 inquiries. There have been viewings, there has been some talks. It's really just then trying to see if we can crystallize the talks into confirmed leases or not. But these are things that is still quite fluid, and we are working on it. I think for the 1.7%, we also included the San Jose, right? And that is something that we have done a power study on. We do hope that that can actually create some interest in the facilities as well.
Okay. Can. Got it. My next question is on the borrowing cost. I think, Geng Foong, just now you mentioned that there will be a SGD 10 million- SGD 11 million impact. I am assuming this entire SGD 10 million- SGD 11 million is the total impact to MIT, right, in terms of the higher borrowing cost?
Yes. The per annum impact for the replacement hedges will be around SGD 10 million- SGD 11 million, but this is per annum.
Okay.
There is another million of IRS coming due. It will come in progressively. Is that why?
Okay. Got it. Just wanted to hear your thoughts behind this, right? This SGD 10 million- SGD 11 million is based on today's rates, or have you guys actually assumed or baked in further interest rate cuts?
I think the market has priced in, let's say, potentially three rate cuts, right? But these rate cuts will affect the short-term rates floating on our unhedged portion. From that front, we will continue to see some interest savings from our unhedged loans. But, when we talk about replacement of the IRS, we will usually use the five-year rate. We have used a current five-year rate, maybe 3.5%, 3.6%.
Okay. Meaning to say if the five-year rates do actually come down, there could be some slight savings from that.
Yes.
Okay. Got it. Okay. That's all from me. Thank you.
We have Tan Xuan from Goldman Sachs to ask the next question.
Can I just check that 1.7% non-renewal, other than San Jose, which other asset was included in this?
I think San Jose will take the bulk of it. I think previously we have also highlighted that there is a tenant in 250 Williams Street, which has asked to reduce the office space. The data center space was extended for a longer lease period.
Okay, got it. Second question is on USD exposure and also debt. In terms of income hedging, how long is it for? Also, given the difference in staying in U.S. borrowing cost, any thoughts about shifting the USD debt to Singapore dollar?
So maybe in terms of the effects front, in terms of managing our effects, we have two parts. One is the capital hedge, then is the income hedge. On our capital hedge, we try to borrow the local currency for our natural hedge. So for USD, currently maybe about 55%- 58% for assets is hedged in U.S. dollar borrowings. In terms of the income hedge, for the next 12 months, we have hedged about 57% of our USD income into Singapore dollar. On borrowing costs, the thing with USD is that if we borrow onshore, we have the tax shield usage. So all in all, we are still slightly better off borrowing USD onshore currently. Other than providing us that capital hedge, net, we are still about the same in terms of all-in interest costs.
Okay, got it. Yeah, sorry.
Sorry, Tan Xuan. If today we take Singapore dollar borrowings, right, and you swap to USD, it doesn't really make sense because maybe we need to pay about 150 basis points-1 70 basis points cost. Net-net, we are still better off borrowing onshore USD.
Okay, I understand. Last question on the divestment of SGD 500 million- SGD 600 million. That's the total amount that you're looking at, right? Not what you're looking to achieve for FY 2026. Is that fair?
I think the SGD 500 million- SGD 600 million target is probably the lower bound of what we-
The process is something that I cannot really dictate at my whims effectively. It will take time. It takes a lot of work for us to run the process, and even after you get the process, you need to go into your due diligence, you need to do your negotiation, et cetera. But I think we should be able to, I guess, to a SGD 5 million- SGD 6 million type of a number. It should be something that is achievable for us.
Is it achievable in the next financial year?
Yes.
Okay. Got it. That's clear. Thank you.
Of course, if I can do more, if the numbers are correct, if the price is correct, if we can do more and help us to push ahead with our streamlining of portfolio, I think that will be something that is good. I think at the end of the day, what we want is to really WALE a resilient portfolio that can bring sustainable growth to the unitholders. Whether be it by divestment proceeds is being redeployed into better usage, better properties that give us growth, that can provide us growth in the long run, or even just us streamlining the portfolio, and resolving some of the leasing pressure. I think that's something that would be quite good for the portfolio.
Okay. Thank you.
Okay, Xuan?
Thanks. Yes. Thank you.
Jonathan from UOB. Ask your question.
Yeah. Morning, and thank you for taking my question. First question relates to tariff, and you correctly pointed out that reciprocal tariff in Singapore is a lot lower than regional countries, potentially. So for the four asset classes that you have in Singapore, high-tech business park, flatted factory and stack-up/ramp-up. Which segment will be positively affected? Which segment will be negatively affected by reciprocal tariff? Second question relates to the very attractive rent for new leases for high-tech at SGD 3.37, business park new leases at SGD 3.9. They look much higher than the existing leases. Could you give us some color on how those attractive rents were achieved, and can we infer or read that positively for the trend going forward for these two segments? Thank you.
Your first question on which segment will be more exposed. I think that is a very difficult question because really nobody knows what will happen. We are not able to decipher what is, at the end of the day, what will happen in terms of the trade tariff is something that is still a huge question mark. I would say generally, if we want to look across, but if you are looking at your second order, third order effect globally, for that matter, globally, prices will go up. Things are going to increase simply because of the trade tariff. So this is what we meant by the second and third order. And this kind of effect would affect most of the industries. And I would say if you look at the asset class across board, the asset class.
But I think we have seen quite some resilience in terms of the flatted factories during the trying times. I think if you look at the COVID period, while we say that the flatted factories has a lot of SMEs that may be affected, we also recognize that flatted factories are actually one of the lowest cost space that you can find in Singapore. So when times are uncertain, people don't know what to expect or people are trying to save cost, the lower cost space tends to be something that people will want to look at. So from that perspective, I think the flatted factories are relatively resilient. Of course, it doesn't mean that the flatted factories' tenants will not be affected at all. There would be tenants who will be affected.
But it's just that because it's low cost, we might be able to find some replacement tenant in times to come. So I think with that, we also keep an eye in terms of the arrears that we have been looking at. I think our arrears numbers throughout the Singapore portfolio tends to be relatively healthy. Generally, you're talking about 0.1% type. Even during times of COVID, our arrears numbers, I think you'll only be looking at 1%, 1.2%. Which is still relatively healthy. So I think the resilience of the portfolio is there. There's no denying that the trade tariff will have impact, but how much the impact is still a question.
As I said earlier on, we have also seen quite interesting things in the sense that we have inquiries for space from our existing tenants because they are looking to move their operations into Singapore because of the trade tariff. Right. That is actually somewhat, I guess, a positive point for us. But it's always a case of which effect is higher than the other, right? I think that is something that remains to be seen at this point. I hope that answered your question.
Yeah. Hi-tech and business park, there will be less manufacturing. So would that be more resilient? And then second ramp-up will have more logistic trade-related activities. Would that maybe be weaker?
I think the short answer is probably we don't think so. Yeah, we don't think so.
Okay. Thank you. And on the new leases, sorry.
Oh, in terms of the new leases for the hi-tech? I think a large part of it is attributed to our Kallang Way. I think that one, if you recall, our Kallang Way property is actually one which is of relatively, I would say, very good quality. So the kind of rental rates that we have been able to command of it actually shows evidence of it.
Okay. Could you give us the latest occupancy for Kallang Way? How much that has improved in the last quarter?
Committed occupancy is 60.1%. Last quarter was 57%. So we have uptick of about 3 percentage points.
Okay. Thank you very much. Thank you.
Everyone for joining us. We are mindful that we have exceeded our hour. If you have any more questions, reach out to the IR team. Thank you