Hi, a very good morning. My name is Melissa. Thanks for joining us for MIT's fourth quarter and full financial year results briefing. We have the management team of MIT on site for this virtual briefing. We have Kuo Wei, our CEO, Lily Ler , our CFO, Tita, Head of Investment, Serene, Head of Asset, Sara, our U.S. Asset Manager, and also Kim, who leads the marketing team. The results presentation slides were issued last evening by SGXNet and available on MIT's website. We will use it for this morning's briefing. Without further ado, may I invite Kuo Wei to provide a short update on MIT's performance. Kuo Wei, please.
Can you hear us? Can you hear us? I assume you can. If not, you can speak half an hour without you all hearing anything. You know, just spending another 30 minutes without any productive thing done. Anyway, our fourth quarter and full financial results, I hope you can see we have projected it. We can go on to the highlights and then talk about what we have delivered. I think all in all, we have a relatively resilient performance, and the revenue contributions from the new projects had been quite meaningful. If you look at the Net Property Income improvement, 0.6% year-on-year to SGD 521 million. The amount we are able to deliver to unitholders has increased 2.7% to SGD 378.3 million.
On a DPU basis, if you look at the full year performance, we have a 1% dip compared to the previous year actual results. So we are delivering 13.43%. Of course, if you look at this in relation to the higher distribution available, it is driven mainly by the slightly larger unit base that we have. You could remember we issued SGD 200 million of equity in the third quarter last year for our Osaka data center acquisition. That has resulted in this small little drag. All in all, we are still looking at a fairly resilient financial performance. If you look at the second set of bullet points on the operational performance, we have reported positive reversions across all property segments. The aggregate average, we are looking at positive 6.6%.
If you look at the rental revisions over the last 10 quarters has been positive, as what we have outlined in some of our conversations, for the last two and a half years, we have turned a corner as far as reversions are concerned. If you look at the kind of trend, the previous quarter, 7.2%, this quarter, 6.6%, and three quarters back, it was 3.8%. So it is, I think, a case of us reaching a kind of point of diminishing returns. Would we be able to have positive rental revisions next few quarters? We'll probably have, but my sense is that we'll probably trend towards a 4%, 5% level. I think quite difficult to look at us going for even high single-digit figures.
Because as you might have seen, with 10 quarters of consecutive positive rent revisions, by the time we hit another two quarters, we will be catching the front end of this so-called period of positive rent revision. The kind of upward adjustment had already been effected about three years back. That kind of additional upshift from the rental rate perspective will be a bit more, I would say, muted. Going on to the rent levels. We are registering higher rent levels that have been fairly encouraging, SGD 2.02 for Singapore portfolio and SGD 2.51 for the North American portfolio. For the North American portfolio, you might have seen in some of our detailed numbers, we see a small upshift, and if you look at for our AT&T representation.
Essentially, when AT&T did the extension of one year for our San Diego asset, we had a small little bump in terms of rental rate. From rental rate perspective, we will see a higher so-called numerical representation. But that one, I would say, is temporary. The portfolio valuation is relatively stable. If you look at that from a face value perspective, SGD 8.8 billion. Compared to last year, 0.9% increase. But if you look a little bit more deeply, compared to book value, we had some write-downs. If you look at our other announcements on the valuations for this year, the portfolio valuation has seen a small uptick, mainly because of the addition of our Osaka data center that we took on third quarter last year. That had masked the downshift in like-for-like valuation adjustments. Later, we can run through some of the details.
But certainly, from the perspective of the portfolio management, we continue to look at rebalancing it, improving the profile. For the Osaka data center, as some of you may know, is a phased completion kind of arrangement, because it is not a fully completed or fully fitted asset. We have phases two, three, four to be done. We have recently completed the phase two fit-out works. Of course, we are receiving the corresponding revenue contribution. As of now, 80% done. We have another 10 + 10 for phases three and four in this year that we would expect completion.
Divestment is another key initiative that we would look at a bit more closely, and some of you may know we have reached out to the market to get a sense of interest for a broad range of assets in our portfolio, the Singapore assets, the manufacturing assets, business park buildings, and some of our U.S. data centers. The demand has not been that strong. It is very lukewarm. Some level of interest, but not at a level where we can, or the interest level, not at a stage where we are able to cross the line and go into a firm kind of transaction. We will continue to look at this divestment initiative this year. We think the market should be more conducive. While the interest rate cut start date has been shifting back and forth, probably more back based on the current set of articulations.
But we think it's a case of when, not a case of whether. And we think the market will probably respond favorably to that towards the later part of the year. And there might be windows available for us to look at divesting some of our assets. But, of course, we have successfully completed one, the Tanglin Halt factory cluster, SGD 50.6 million. That was completed just before the end of the financial year on March 27th. I think some of you all would have asked, I think, on the gains that we will be distributing. I think relative to what our original cost plus our capitalized cost, we have gains of roughly SGD 30 million. So, our intention is to distribute this SGD 30 million equally over the four quarters in this financial year. So of course, you won't see this in the fourth quarter set of results.
The next quarter, we will have this as a line item for the distribution of gains. Now, on the capital management part, we'll continue to strengthen our balance sheet, and we look at opportunistic issuances of bonds or getting our borrowings hedged at attractive favorable rates whenever we can. So we have recently issued SGD 50 million, three years at 3.75%. So that will give us a bit more certainty and also allow us to lock in, I would say, a reasonable rate in the meantime. Hedge borrowings, we have reported just a shade below 85%. So we have a fairly good level of protection. Average tenure for the hedge, 3.7 years, which matches our borrowing tenure relatively closely. So we have a bit of kind of good match along this front. Leverage ratio we think is still relatively healthy, 38.7%.
Gives us a bit of headroom to take on projects and to look at possible acquisitions to help us further diversify and strengthen the portfolio. So I think that rounds up the key highlights. Maybe I'll go to the Valuation part to give a bit of color. So this is on slide number 12. The figure which I outlined earlier, you can see aggregate 8802 for the entire portfolio. So they are, of course, essentially, some write-downs across the portfolio. In the Singapore portfolio, mainly due to the shortening land tenure clusters, because this is a case of a mathematical representation. Once your assets go to a stage of below, say, 15 or 16 years of land tenure balance. Cap rates generally the same compared to last year, except for the Singapore data centers, because of the very high demand for this space.
We have seen a roughly 50% cap rate compression for the Singapore data centers. And of course, mind you, this is the year where we have switched valuers. So while we see that as an indication of the read of the market, because when you shift girlfriends, you cannot do a like-for-like comparison. You say, last year you did this to me, this year you did another thing. All right? But I think the cap rates being, I would say, likely the same for the rest of our sectors is an indication of the stability in the Singapore market. Whereas for the U.S. data center market, we're seeing cap rate expansions generally across the board, except for some, one or two assets where we see slight compression because of the relative strength of certain sub-markets.
Now, for the U.S. assets, I think if you look at the cap rate reference, most of them will be clustering around the 5.75, 6.5 level. The broad range at the extreme end, at the low end, 5%, at the high end, I think it's 8.25%. This is, of course, a tighter cap rate. Assets are driven by the location and the attractive kind of attributes. Like 180 Peachtree at Atlanta is exhibiting the 5% cap rate because it is 100% occupied, long leases, and high-demand area. The 8% cap rate is represented by our Arlington asset because the tenant left in March 2023. From a cash flow perspective, there is nothing apparent yet in terms of re-leasing kind of a prospect. Some of this was taken into effect.
But if you look across the board, the range of cap rate expansion, we would see them clustering around +25 to +75 basis points. That represents roughly 64% of all the assets we have. I think that will give you a sense. I think if you're looking at modeling that kind of effect, you can look at that range, or you can pin whether a 50 basis point for getting a rough gauge. Do we see this cap rate continuing to expand next year? Of course, it is not easy to stare into the crystal ball and then forecast, but we think we are near or at the bottom because the cap rates are quite sensitive to your funding cost and interest rate environment.
The markets should, I would say, turn a corner along this front and then hopefully your cap rates would at least be stable. If not, if the market really continues to be exuberant, especially for the data center assets, we might see some improvements. But I think the stability should be maintained henceforth. Okay.
Yeah. I think we will move into Q&A. If I can request for the analysts to state your name and firm and limit your questions to two per round. I think the first one on the line is Mervin. Mervin, please.
Yeah. Good morning, everybody. Congrats, Kuo Wei, on the results.
Morning.
First question, in terms of rental reversion guidance for the coming year, any thoughts on that and how you are seeing demand? Second question I have is in terms of the distribution for JVs, it is very strong, I think [up to play 3%] year-on-year. What is happening there, given that, I presume you are facing high interest costs and there has been a drop in occupancy from the U.S. portfolio. Is there a higher payout ratio, capital return, or what is happening there? Thanks.
Yeah. Okay. I think the rent revisions kind of outlook, I have touched a little earlier. We think we would still be able to nudge rents up. Certain segments of our market, especially the more generic spaces, we are getting still decent rent levels. I have talked about roughly 5% positive rent revisions, and we should be able to maintain that for another two or three quarters, then we will see as I also outlined earlier, by that time, we would have reached a three-year cycle, and we will be at the start of the current set of rent upshift cycle. Then what you call that increase might be more muted. Now, on the rent levels, we think the business park space will still be under a bit more pressure because the sub-market vacancies on a relative basis are still high in the International Business Park and Changi Business Park space.
While we have fairly respectable occupancy level, above 80%, but the kind of challenge in this kind of market and the competition for prospects is tough, is stiff. That said, you might have seen us getting high new rates. If you look at the chart we have on page 23, SGD 4.31 for business park buildings. So it is encouraging, but it may not tell you the entire story. I think just as a so-called a bit of a background, we had a couple of small tenants, or I wouldn't describe them as small tenants, but tenants who took up small amount of space. 1,000 sq ft for a coffee joint, SGD 5 per square feet. Two small tenants, slightly more than 2,000 sq ft, SGD 4.40 or SGD 4.50 level. So in the mid SGD 4 level. So that has helped us pull up that weighted average figure.
But generally, there's still a lot of competition in that space. Now, of course, if you look a bit more closely at the other sector, the high-tech buildings. This aggregate kind of representation may not tell the full story because the new rents that we are able to get are not representative of what we see at, say, our Kallang Way high-tech buildings. We think we will still be able to do SGD 4 ± for that space. But the kind of tenants that we can get, I would say, not very large tenants. We will be looking at those 10,000 ± sq ft kind of tenants for the time being. Unlike those 70,000 sq ft, 100,000 sq ft tenants that is very difficult to come by in the market.
Distribution and JV.
Oh, distribution and JV. If you are talking about the comparison, what you might have seen or might not have noted is that there's a dip at the beginning of the year from the amount that we have withheld for the tenant that we did not name, that ran into arrears issue and that had undergone a Chapter 11 proceedings. So because of the amount withheld, we had a slightly lower amount of distributions from the JV. But I think we noted that had been since resolved. We have received the arrears, and of course, the amount withheld had been released. So that has resulted, more directly from this particular tenant, the additional contribution of about $2 million U.S. that were recorded in that line distribution from JV. So that has been helpful.
So maybe since we are on this topic, we can close up a loop on this outcome of the proceedings. As you could have read in some of our earlier materials, all eight of the leases were taken over, but we had some modifications to two of the leases. One, we had a downward rent adjustment. The other one, there's a right of termination given with six months notice. So we are now seeing the effect of the termination right being exercised. So, we will see that effect, not now, that right had been exercised. We are looking at the expiration on September 8th, 2024, this year. So that is at this [Eastech circle], and the impact to the portfolio is roughly 0.3%.
That is anticipated, but I think that slightly later exercise of the right gave us a bit of reprieve, and we continue to get the revenue contribution in the meantime. I think that should close out that part on this tenant.
Right. Thank you. We have [Yi Xian]. [Yi Xian], would you like to ask your questions, please?
Sure. Thank you for the presentation. It is [Yi Xian] from OCBC Credit Research. My two questions is, the first one is about our U.S. data centers. You mentioned that the REIT may be looking to divest U.S. data centers. Is there any similar characteristics of these U.S. assets that is planned for divestments? What is the reasons? The second one is, if you can clarify more on the accounting of the Osaka data center, because the interest is not 100% yet. There is another 20% that remains to be paid. In terms of the consolidated Net Property Income, how is it actually recognized? That is all from me. Thank you.
Yeah. Okay. For the U.S. data centers, I think certainly from the perspective of a portfolio manager, we would try to divest ones that are less relevant to us, whether financially or operationally or from the attribute's perspective. Assets that are not likely to give us reasonable revenue contributions, whether due to occupancy issues, due to attributes issues, we will look at divesting. An ideal situation is that things or assets that are a little less interesting to us might appeal to buyers who value some of the other attributes. The ones that we have mentioned earlier, like for example, our San Diego asset. Of course, now we have the extension of a year from AT&T. We get a bit of a premium rent, but that lease will expire December 31st, 2024. Will we be able to get a replacement tenant in the data center space?
We're not too sure now. We are reaching out to the market. I think we have outlined before that asset is adjacent to a vibrant biotech or life science market in San Diego. It's one of the few largest life sciences market in the U.S. So that might appeal to a different group of developers or space users. So we will be looking for matches like this. There are some assets that we have lower occupancies or that are vacant, similar kind of consideration, like for example, our Arlington asset, say, if we are not able to lease meaningfully or at the right pricing, but if you have an end user that can repurpose the facility at the right price, it will be something we look at. That is one perspective.
The other perspective is that for some of the assets that are, I would say, are fully valued, that we have fully exploited all the kind of opportunities available in moving up occupancies, moving up rents. If it is relatively stable, and we can get a good offer from the market, it's something that we would consider. Because at the end of the day, if we can divest the asset at cap rates that are meaningfully tighter than what our valuation says, than what we think we'll be able to work on in the years to come, because these are fully valued, fully so-called worked assets, then we could crystallize some of the gains through channel the capital or recycle the capital into other, maybe more interesting opportunities. So, these are some of the options that we're looking at.
There's another so-called subset, which is the kind of interest that we have received from the market or even end users or the existing tenants who express the interest of, or who are exploring the possibilities of buying over the premise that they are occupying. So, these are possibilities that we'll be looking at, and as a professional portfolio manager, while we like our assets, we don't form emotional attachment to them. We look at the economic outcome and see whether it makes sense for the platform for us to keep, hold, redo, or divest. So, I think that should provide a bit more color on how we approach the possibilities in our U.S. portfolio. Now on the Osaka Data Center mathematical gymnastics, I'll allow the gymnast to answer the question.
Hi. Morning. For the Japan acquisition, basically, as you know, we have only paid up to 80% of the agreed purchase cost, in view for the fit-out works that are still outstanding, so that's another two phases to go. In terms of accounting, we would have reported, in the P&L, the relevant income with respect to the 80%. So I think the agreement that's been set up during the acquisition is that, as the fit-out works are completed, we will pay the proportionate portion of the purchase consideration. At the same time, we will also receive the relevant income stream from it. Mm-hmm.
Sorry, I know you-
So in our book-
Sorry. Go ahead, please.
Sorry, go ahead.
Oh, because you only allowed me two questions, I thought I can squeeze one slight one as a follow-up to this data center, this Osaka data center.
Yeah. Okay.
The remaining 20%, how much is that, roughly?
About 20%. I think that's about JPY 10 billion.
Okay. Thanks.
Sorry, I interrupted you at book value, I think.
Sorry, again.
I interrupted you when you were about to say something about book value.
Oh, I see. Oh, no. We are saying that on the balance sheet, the book value, we would have also accounted for. That means we would not have accounted for 100% of the valuation as well. So, we have adjusted out the fact that there is a balance, JPY 10+ billion that needs to be paid out. Thank you, Ler.
Thank you.
Thank you. Derek, would you like to ask your question, please?
Hi, and good morning. Can you hear me?
Yes, we can.
Okay.
Good morning.
Yeah. Two questions from me. Good morning. My first one is back to, Kuo Wei, your thoughts around valuations. You are saying that you want to sell UFCs. Given that your new valuers or your girlfriends give you higher cap rates, do you think you can sell at book or above purchase price? I am just curious.
Now, okay. We have confidence that the valuers are able to, for our pricing, the figures are at what they think the market is transacting at. So of course, many of you know, valuation is not hard. We think those are fairly representative numbers. That said, we are not fixated on needing to divest or wanting to divest at prices that are above valuations, though that had been our so-called feature in the last five divestments. We always deliver a little bit of profit, whether big or small, some large enough for us to distribute. Of course, those are more opportunistic investments. Of course, we will entertain the opportunities that came then for assets we think we will be able to realize meaningful gains. But now our approach has taken a slightly different posture. We will be looking at the recycling capital.
We'll be looking at whether some of these assets are meaningful to us in the longer term. Say, if the value continues to decline, not because of cap rate expansion, but because that market demand will be weaker for that particular sub-market or the attributes are not as relevant in the space we're operating in. We anticipate a constrained valuation figures in the years to come. I think it's something we look at. So maybe a short answer to that is, would we divest below valuations? We will consider, but of course, that won't be our first position when we go out in the market while knowing that for some of the assets, we have a fairly sizable downshift in valuation.
I think as some of you read through the details, some of you might have noticed the largest downshift is our 250 Williams asset, 302, down by SGD 83.6 million or -28%. So that one, other than a cap rate expansion of one percentage point, the bigger issue is that about 1/2 of the building is commercial office space, and then the demand for commercial office usage is extremely low in U.S. and in several developed economies because most of the people are working from home or most of the staff from these large organizations are working from home. Will that trend change? It may moderate a little in terms of the work from home allocation, but would we get back to the good old days where everybody is in the office?
Quite unlikely, because I believe some of you might be sitting in your kitchen, your bedroom, or your study. We are participating in this. So that will become a new phenomenon. Because of that reason, and because it's all stuck in the U.S. market, for this financial year, we have seen that fairly significant downshift in values for assets that have the large office component for this case. But as I said, long and short, would we consider selling below current valuation? Yes, we will look at the medium to long-term prospects, and if it's a meaningful direction for us to take for some of the assets, we will do that.
Got it. More defensive strategy. My second question is on interest rates. I think you really kept interest rate really low, below a guidance of 3.5. So I'm assuming there are some hedges that's yet to roll off. I'm just wondering, could you give us a refresh guidance for interest rates for this financial year?
I believe my previous guidance was it should remain below 3.5%. At any rate, if you look at going forward, we have about SGD 220 million of interest rate swaps that will be expiring in the coming financial year, of which most of them are actually Sing dollars, about 70% are Sing dollars, and the expiry tends to be towards the end of the financial year. I think the U.S. dollars is about SGD 67 million, and that's expiring somewhere in mid-2024. Having said that, I think as you recognize the hedge rate, there will be a difference from the current hedge rate vis-a-vis the replacement rates. That is likely to have some impact. Because of the quantum, I do not think the impact will be too much.
I hope that we still can try to keep the interest rate as low as we can. Nonetheless, as I said, I do not really think that we are going to shoot beyond the 3.5.
Okay, good. Great. That sounds fantastic. All right. Thank you.
Thanks, Derek. We have Dale.
Yep. Thanks, Melissa. Hi, this is Dale from DBS. Kuo Wei, thanks for the presentation. Just two questions from me. I think the first one with regards to what you mentioned about divestments. Just wondering, if there is any quantum that you have targeted or at least, based on the non-core assets that you have targeted for divestments, what is the quantum looking like?
Well, we do not have a very specific number, but I think anything between SGD 200 million to SGD 500 million would be a good band to shoot for. Some of our assets we have are relatively chunky. If you look at our business park buildings in Singapore, for example, aggregate slightly more than SGD 500 million. So, last year, we tried to see whether there is interest when we package everything together, not successful in getting a strong interest in that space. So, we have to see, if we can do one down there, maybe another one asset in the U.S., maybe in aggregate, we might hit the lower end. So, this is a kind of period where we do not have that clarity yet because we have not re-engaged the market.
But we are also not working on our business contingent on being able to divest, because we are not under pressure to lower our leverage or strengthen our balance sheet at all costs. So we will still be a bit more opportunistic, but we would engage the market a bit more closely. But the SGD 200 million or so might be that lower bound that could be meaningful to us, that would provide a reasonable kind of set of capital that we could deploy elsewhere.
Okay. Got it. My second question is on your high-tech park at Kallang Way. I understand that occupancy is gradually creeping up, your rental rates are holding firm. But just wanted to understand, versus your earlier projections, your IRR calculations, how is that trending versus what you had earlier projected for this redevelopment?
Okay. Well, of course, for an income platform and for REIT, we use IRR as a reference. It is not a threshold that is [a circle thing]. Now, with the slower leasing up, the IRR, because of the recency effect on the IRR computation would result in a bit of a drag. But as of now, I think we should still be able to clear our intended IRR. The steady state occupancy levels that we are pushing for remains the same. We are talking about 90%, 95% level, and our current rent levels are holding, so we would reach there.
From the acquisition perspective, we think we will be able to deliver as promised, but as what you have observed very accurately, there will be a drag on IRR. Because of this overall leasing up, some of you may remember, whenever I am pressed to come up with a timeframe, I always say six to nine months. Right? Because three months is too short. One year, some of you may not accept.
There is a realistic kind of time period where we might be able to do something meaningful. Like for our Kallang Way asset, yes, we are, of course, getting our leasing folks to work extremely hard, but we are also adjusting our commission structure and incentive structures as well. Hopefully, that will draw more tenants, more prospects, and get some of our external agents to work a little harder, to move up the occupancy.
I think there were invariably several questions on where we reach steady state. I think I would moderate down our earlier kind of trajectory. Realistically, looking at this kind of small incremental tenants that we are able to commit, we will probably be looking at 65, 70% occupancy level by end of financial year, which is March 31st, 2025. So that I think is a more realistic and meaningful trajectory for us to shoot for. But I say this, of course, I think our leasing folks are working hard, and they are certainly trying very hard to exceed this kind of a trajectory also, that we can have some pleasant surprise at the end of the financial year or towards the end of financial year. The big driver at the end of the day would be large users, very large users.
Because the incremental ones, we push a little harder, we can get there. But we need those 50,000 sq ft, 100,000 sq ft kind of tenants. You need one or two big ones that would provide a meaningful kind of improvement to the figures. So, these kinds of animals , they are present in the rainforest, but not easy to find, right? So, we have to hunt a little harder.
Okay. Got it. Okay. That is all from me. Thank you.
Thanks, Dale. We have Brendan. Brendan, would you like to ask the next question?
Hey, morning, Kuo Wei. Can you hear me?
Yes, I can.
Yeah. Hi, Kuo Wei. I just want to ask on the U.S. occupancy, right, at 86.2%, it is really rather low. Do you think this is a bottoming kind of a stage, or you think that there could be more pressure for FY 2025?
Well, I would not want to promise you that this is the bottom, but we think this is near the bottom because the effect that you see is driven by us accounting for the exits of the two AT&T assets at Brentwood, Tennessee, and Milwaukee. It is fully accounted for this quarter, 86%. But, in many of our conversations, I think we talk about us being close, very close and very close to getting a replacement tenant for Brentwood. And we are indeed very close. The promise I get from Sara, she said, "Yes, you will be on the platter very soon." Okay. The long and short is, we have received a go. A go ahead from the tenants' committees. Hopefully we are just at the very last stretch, the very last yard for the 100-yard dash, to get the paperwork across.
We just need to get that done. And this tenant somehow has very traditional practices. And one of the tricky part is they need to collect autographs from all the relevant signatories. Hopefully that is the final bit. With that in place, our occupancy should go back up beyond 90%, about 91%. That will give us a bit of a reprieve. But of course, the challenges continue to be ahead of us because we do have some expiries coming up, the larger one being the San Diego asset from AT&T. We will be keeping a close watch on that. But we are happy that we are able to close up this Brentwood lease soon, then, at least we have a bit more room.
Okay. My second question would be on your NPI margins. If you look at this quarter, I do know that it is relatively low, like sub 74%, and we saw quite a bit of decline in most of the asset class. Is this what we should be looking at in terms of modeling for FY 2025? Or you think it is a bit of one-off because of the lower occupancy?
You are talking about aggregate basis for the whole portfolio, right?
Yeah. On the aggregate, it is 73.7. If we even look through the different segments, except for Business Park and High Tech, a lot of the other spaces came down, and especially the U.S. data center site. I just want to know from a modeling standpoint, is this a normalized number? Or you think that there are some one-offs or sort of occupancy-related items in there?
Well, you are absolutely right. There is one element of the occupancy kind of effect. For the U.S. data centers, as I mentioned earlier, with the AT&T leases being so-called expired, we do not get revenue, but we have expenses like property taxes. That one, for the large assets, is relatively big and has resulted in the drag in the NPI. Would we be able to see an upshift in NPI margin this financial year? We do not think so, because until we are able to get the revenue contributions coming in, the cash coming in, we will not be able to reverse that effect. For modeling purposes, I think, you will be prudent to continue adopting a similar kind of profile until we have the reletting clarity. For the Singapore-based assets, I think, of course, that downshift is a little less, I would say, pronounced.
Will we see an improvement this financial year? Unfortunately, I am not able to say with certainty. The few big moving parts, property taxes not coming down. Utility charges, while there are some quarters that had been expecting or anticipating maybe downward adjustments, we think at best it is going to be stable, maybe moving up a little, because we have, on an aggregate basis, larger utilization, especially when we have slightly higher occupancies for our Kallang Way assets. Our landlord part will see larger consumption, all things being equal. The other effect, which might not be apparent, is that Kallang Way being a fairly significant asset in our portfolio in Singapore. We had the temporary occupation permit set in March 2023.
For one year or so after completion, the property would be what we call under the defect liability period, where the maintenance cost is taken on by the contractor or the providers for the services and equipment. We do not see that represented in cost. From this year onwards, as all these kind of provisions fall off, we will need to account for the maintenance cost of this asset. In all likelihood, we would expect the NPI margin to be at this level or shift down a little because of this effect.
Okay. Thanks so much, Kuo Wei. That is it for me. Thank you.
Okay. Thanks, Brendan. Joy, would you like to ask your question? I am mindful of the time. I think we have online Joy, Tan Xuan, and Terrence to round out the session. Joy, please.
Thanks, Linda. Morning, Kuo Wei and team. Just two questions from me. First, going back to U.S., on the Brentwood asset . Is there any CapEx required to sign this lease? Also, on this portfolio broadly, do you foresee CapEx for-
Oh.
-occupancy improvement in 2025?
Okay. We have, of course, our friend Sara
, who is our head of asset for data centers, in the U.S. She is sitting right in front, putting up her hand and, the one to address your question very and truly, so please.
Hi, there. There are no tenant improvement capital expenses associated with the lease. There are several landlord capital items that would need to be done to the building as a shell. We are anticipating approximately $5 million-$6 million in completion of those within the first 12 months of the lease.
Sure. Thank you. Kuo Wei, if you can just comment on the sort of overall CapEx expectation for 2025.
Okay. I think, in aggregate, we are looking at roughly $ 20 million.
U.S.
U.S. A lot of this relates to roof water pooling replacement works. These are essential for our buildings to continue to operate optimally.
This is for the U.S. portfolio only or inclusive of the Singapore?
Yes, U.S. portfolio only. For Singapore, we do not anticipate much, only a few million dollars here and there. We have been improving our buildings over the years incrementally, as you might have followed, the lift upgrading, toilet upgrading, chiller upgrading works have all been done progressively over the years. I think the only other large project that we are taking on is the solar panel installation, and this is our third phase. We have completed two phases, and we should be completing that this financial year. That will give us, now in aggregate, slightly more than 10,000 kW peak of solar energy.
Thank you. My second question, just on the divestment. If you look at the bid-ask spread, Singapore versus U.S., what sort of bid-ask spread are you seeing and what sort of buyers are you looking at in the market?
Well, I think you might still see maybe 50 basis points delta between what we can get from the market. Hopefully, this gap closes, and we will be able to find a good point where transactions can occur. The buyers, I think, vary. Singapore assets, we have shared earlier, a lot of these are investors, as in financial investors, not end users. For one of our asset, the single-user building, 26 Woodlands Loop, we are engaging the market as well. The type of buyer for that asset, I would say you see more end user type of buyers. For the U.S., I think it is also a fairly broad range. As I have alluded earlier, there are a couple of smaller ones. There are smaller assets that we have that we have some indication of interest from existing tenants. These are end-user sitting tenants requirements.
Whereas for the rest, it is a bit more difficult to read. It could be data center operators, it could be developers. So a fairly broad range. But as far as we are concerned, as long as they can pay, we are not allergic to any investor type or buyer type.
Cool. Thank you for the color.
Thanks, Joy. Tan Xuan, would you like to go next?
Hi. Morning. Can I ask about the divestment? If I am not wrong, the guidance last quarter was SGD 100 million-SGD 200 million, and now it is SGD 200 million-SGD 500 million. Can you share a bit more about what has changed?
Yeah. We have decided to push a little harder. At the end of the day, these are just figures in a band of simulations that we are looking at. Some of this, of course, we need to have some basis. It is built up from the various candidates within our portfolio that we have shortlisted. We look at reasonable probability, low probability, higher probability. You come up to a kind of band we are looking at. I think to be more direct about it, we think the possibility of us getting fantastic acquisition deals this year, not high, because the market is still in a state of flux. Unless you get into a deal where you are in the right place at the right time and you are the right counterparty.
The market is still in a state of flux, and the way for us to get dry powder, the way for us to move a little ahead of the curve for rebalancing the portfolio, I think we need to look at a bit more divestments. While I would not describe the range SGD 100 million-SGD 200 million as a target, it is some kind of reference level we look at. That is the slightly higher kind of, bound. As you might have noticed, it is a bigger spread. I will not say SGD 200 million and SGD 250 million. That means we have already one or two assets in mind. But I said a bigger bound so that we would encourage the deal teams, our chaps that are studying this, our chaps that are engaging the market, to keep their minds open, to see whether they can stretch the envelope a little.
It is something that we look at. My point across is try not to read too much into this kind of, level. It is not us saying we must do SGD 200 million come hell or high water. It is kind of a reference range that we are looking at. Some of you may remember, earlier part of 2023 we were asked, of course, about the divestment portfolio size. The time when we engaged the market, it was even higher, SGD 500 million or more. Because that was how we have packaged some of the assets we have in Singapore when we engaged the market. We will need to go through that discovery process. But it will serve as a guide for us, and then we will be getting the teams to work harder on crystallizing the values of our assets.
Got it. Second question is on the mid-single-digit reversion, right? Does that include U.S.?
No, it doesn't. That one is for Singapore. I think if you look at the rent reversion aggregate data that we talked about earlier, all are for the Singapore portfolio. For the U.S., we do not have much renewals anyway. I think for some of the cases, typical renewal up shift is that 2%, 3% like what we have embedded in the original leases. I think that will probably be a reference level we take from there.
Okay. Thank you.
Thanks. Terrence, would you do the honors of the last question, please?
Yes. Thanks, Melissa. Hi, Kuo Wei. Just wanted to clarify on Chan's question. I guess for U.S. data centers, let's say for Brentwood, what kind of reversions are you getting and what kind of incentives do you have to offer to sign the leases?
Okay. For that one, because the deal is not done first yet, and second, this tenant is very shy, we will not be able to outline the exact parameters. But I think just to share a little more, the starting rent for this tenant will be a little lower than the last rent paid by AT&T. But if you look at it on an effective rent basis, for the whole AT&T lease period and the effective rent for this tenant for is in higher lease period, it will be a little higher. So, we are looking at slightly better economics in the long term. This one we have 12 months of rent-free given. So, that is, I would say, the more material part of the package that we have in place. And we don't have any additional tenant incentives embedded in this transaction.
Thanks, Kuo Wei. Maybe just one more question on the JV interest rate in the U.S. Could you share what's the JV interest currently and when is the debt due for refinancing?
Yeah. Okay. For this extremely difficult question, I'll have Ler answer.
This is a very difficult question. Okay. I think for the JV, as you all know, the JV was acquired during a period where interest rate is very favorable. So naturally, you expect that there will be quite a big top if we were to do a refinancing. Okay. We actually have a first tranche of the JV loans that has already expired, I think in early January. Right. So, I think for the next two years in January, we would have another SGD 300 million that will be due for expiry as well. As for the repricing, what is the replacement rate? I really have no idea. It depends on what Jerome Powell decides what he wants to do, to cut or no cut, how many cuts and when he wants to cut. I hope that helps.
Sorry. Next two years, SGD 300 million per annum or just SGD 300 million two years down the road?
Next year is SGD 300 million. Yeah.
Okay. Thanks.
All right. Thank you so much. Thanks for joining us today. I think we are ending a bit; we have overrun slightly. You know where to look for us if you have any further questions on the results.
Yeah. mTower, Level 35. Yeah.
Look for Melissa.
We all sit on 35.
All right. Thank you very much.
Okay. Thank you. Have a good day. Take care.
Have a good day. Bye-bye.