Good morning, everybody. Thank you for joining us for MIT's Second Quarter Financial Results for financial year 2023, 2024. My name is Melissa from Investor Relations. We have the management team of MIT with us this morning. Kuo Wei, our CEO, Lily, our CFO, Peter, our Head of Investment, Serene, the Head of Asset Management, and Khim, the Head of Marketing. We have uploaded results presentation last evening, which we will be using for this discussion. Without further ado, I will pass it on to Kuo Wei. We will just go through the key highlights, and we will proceed on to Q&A. Kuo Wei, please.
Okay. Good morning. I hope you can hear me because we do not get any feedback. Hopefully this is not the Okay, I got the thumbs up. I will run through the key highlights. It is actually a fairly straightforward quarter for us and take questions after that. If you look at the first bullet point, essentially from the distribution point of view, able to deliver 3.5% more year-on-year basis for the quarter to SGD 94 million. DPU perspective, actually a 1.2% SGD 0.0332 . The key reason is because of the enlarged unit holder base. We did, previous year, the first series of our equity, the distribution reinvestment plan. We had one equity fundraise exercise that we did June this year for our Japanese asset acquisition. So that increased our unit base from 2.7 billion to 2.8 billion units, 4.8% increase.
So essentially have more unit holders share slightly larger distribution. So that resulted in the near-term shift in DPU. On the operating front, if you look at our second set of bullet points, we have registered very, I would say, robust kind of results. Rent revisions, we are happy to say positive across all the property segments. In fact, if we aggregate property, rather the rental revisions, we are looking at 3.8%. So that is very encouraging from the revenue side. Now, of course, that is reflected in the higher rental rates as well. If you look at the Singapore portfolio and the U.S. portfolio, both are getting higher rates, 1.9% for Singapore and $2.42 for North America portfolio. The portfolio average lease to expiration has also increased from 3.9 years to 4.2 years because of our recently completed transaction.
As you can see in the third bullet point, it is finally completed just before the end of the quarter, 28th of September. So we would expect contributions to start or to be meaningful from the quarter onwards. On the capital management front, I think it is relatively stable. 80% of our borrowings are still hedged, tenure 3.7 years. Our leverage ratio, see as a fairly healthy 37.9% level. So I think that sums up what we have for the quarter. Maybe I can take questions.
Thank you, Kuo Wei. May I request for analysts to click the Raise Hand icon on Webex? In the interest of time, we will limit to two questions first, and then we'll come back if there's more time. Yes, all right. Okay, sorry. The first question would be Derek. Derek from DBS.
Hi. Good morning. Melissa, can you hear me?
Yes. It's loud and clear.
Hi. Morning, Kuo Wei. Just two quick questions. First one is, could you give us an update on the AT&T leases that is expiring this year? My second question would be on the interest rates, right? Maybe could Lily give us a sense, where will you expect interest rates to land by the end of this financial year? Yeah, just two quick questions. Thanks.
Oh, I need to having to answer the very difficult question because it's crystal ball gazing. Ball is a bit hazy and cloudy. On the leasing of the AT&T facilities, we are still engaging the market. As you would have seen in our highlights and in the report, we don't have any leases crystallized yet. For the SLC asset, which is the second largest, one I think say closer to us reaching some form of agreement. We are working very hard on that, and hopefully by fourth quarter this financial year, we'll be able to share or whatever we are able to
Kuo Wei, I think you're a bit muffled. You say you're floating in and out.
Yeah, the reason why I'm floating in and out, because I'm a floating butterfly. You remember our friend, Muhammad Ali? But I won't sting you, don't worry. Yeah, I'm walking back, pacing back forth. Anyway, I'll stay put where I am. Essentially, for that particular tenancy asset is closer to us reaching some form of agreement. It is a long process, but we are about to have That's why I'm saying hopefully by fourth quarter, we'll be able to share the specifics. The lease for the tenancy asset will be expiring in November. So, we still have a bit of rent income in time. But one thing to note, that even if we are able to secure a lease, generally for leases with fairly long to allocate rent-free or tenant incentives, so that is a bit of a 40 years. They are about to renew the rent contract.
Okay. Thank you. How about the interest rates?
Yeah. Just a moment. Sorry.
Yeah.
Hello?
Sorry. Hi, can you hear me?
Yeah, I can hear you again.
The system doesn't want me to speak. Okay. As I was saying, the interest cost for this quarter is reported at 3.2%. It is definitely lower than last quarter simply because of the addition of the Japanese borrowing. That mathematically kind of bring it down. If you look at the rest of the year, we don't think that the interest cost will change very significantly. We probably can look at it to around between the 3.2% to the 3.5% range. But of course, that depends on where the interest rate goes and what the Fed decides to do. I guess to hike or not to hike, that is the question, right?
But I would say for this financial year, we don't have a lot of hedges that will be expiring, so they are actually quite small percentage, and the effect of which is not expected to be that significant. I think that's not so much an issue. For the next financial year, we do have some close to about 200 million of hedges that will be falling off. Those, I think, if we were to do a replacement again, the impact shouldn't be too significant. But I think the bigger risk that we have here is really the replacement of the hedges that is reported at the joint venture level. Okay? At the joint venture level, for this financial year, we have about $120 million of hedges that will be up for renewal.
We have actually done some hedges ahead of time on a forward start basis. I think all in the impact will be quite limited. I think for this financial year, the impact may not be that significant. Come next financial year, we would expect to see the full effect of such replacement. We should be expecting the interest cost to go up. If you can recall, the joint venture was actually acquired back in, I think, 2020. The general interest rate level at that point of time is relatively low. We are looking at around the 1% level. Today, if we were to go out and hedge, I think the two to three years rate would be hovering around a 4.5%. We can expect quite a bit of the impact arising from this replacement. I hope that answers your question.
Yeah. Give me good color on that. All right. Thank you very much. That is all for me.
I think we have just a request to repeat the last part of the AT&T explanation because I think it was muted accidentally.
Muted accidentally. Some of my-
Last part. Maybe last two.
Okay. Anyway, just a-
The last two.
... kind of repeat. Out of the three assets, the second largest, which I mentioned earlier, Tennessee, worth about 1.8%, gauging the prospect very closely. Hopefully by fourth quarter, we will be able to share specifics on whatever we are able to close up. That existing lease with AT&T is expiring end of November. So we would have still a little bit of rental income in the meantime, but the effect rent-free for any new tenant will be taken in. So from a cash flow perspective, even if we are able to get lease in place that we have a year or so of zero cash flow. So that is a practical consideration from the property perspective.
Okay. Can we have the next question from Mervin?
Yeah. Thanks for the opportunity. Yeah, congrats on the strong rental emergence. Maybe you can touch on divestment gains. How much do you have left in the kitty? Because some of the surprise that you have divestment gains from 2017. In terms of managing DPU, would you also increase the proportion of management fees paid in units going forward to temper any impact from higher borrowing costs? My second question is related to slide 13. For FY 2025, about SGD 544 million, how much of that is US dollar versus Sing dollar? Do you have a borrowing cost guidance for FY 2025? Thanks.
Yeah. Okay. Now, first let me share with you that we have no kitty. It's not signed in. The reason why we have done this distribution this way was essentially a sequencing consideration. Essentially, whenever we have available, we would certainly try to distribute. Now, you look at the capital distribution this quarter, that we will also apply to next quarter. Coming from the two areas, the first SGD 4.2 million from the 65 Tech Park Crescent divestment. At that time, we were still waiting for clarity of the tax treatment. Only recently did we get that clarity. With us having that certainty, we proceeded with the divestment, or rather distribution of the divestment gains. Of course, one consideration a couple of years back was should we have done the bit of distribution while setting aside a bit of the assumed tax treatment?
But the amount becomes very small and may not be as meaningful. As you have seen, soon after that, we have the 26A Ayer Rajah Crescent divestment done for data center that we do through Equinix. So that is relatively material, and we proceeded with eight quarters the distribution of close to SGD 16 million. So we decided not to commingle these various offers. So this was put aside till we have that clarity. Same consideration for the young compensation as what we have written down there. It was from the compensation from the government for taking a small sliver of land for the MRT works. So not a lot of money, SGD 4.1 million. So it's not that significant also relative to the earlier set of distribution gains from 26A Ayer Rajah Crescent.
So now that we have completed distribution of the more, I would say, material gains from 26A Ayer Rajah Crescent, the DPU, I think, is probably in a bit of a need for some level of support. We have that available. I think it's time for us to continue that distribution. But it's not a lot. If you look at the effect, it's only two quarters, this quarter and the next quarter. Subsequent quarters will not have anything programmed or scheduled. The question on the SGD 546 million, or SGD 540-
44.
SGD 544 million. SGD 545 million. I think Lily can go through that.
Okay. I think in terms of the currency, part of the SGD 544 million is actually the Japanese Yen loan that we have taken on a short-term basis. Currently, at this point for the Japanese Yen, as you all know, we have done long-term bonds covering about JPY 160 million. The balance is actually to be done through bank loan. We are now in the process of the documentation. Should be completing this quarter or this coming quarter. Currently, for us to do the completion, we have actually drawn on short-term loans. The bulk of your SGD 544 million is actually on a short-term loan basis, Japanese Yen. Mm-hmm. I hope that answer your question. The rest of it are actually- Are we wrong on this one?
Mix of U.S. and Sing.
Okay. The rest of the tower is actually a mix of Sing dollars and U.S. dollars. But if you are trying to figure out how much of these are hedged, I would say a large part of them are hedged. It's just that when we manage the hedges, it is managed on a portfolio basis. As I said earlier, in terms of the hedge expiry, we have about SGD 150 million -SGD 160 million of hedges that is due, and the impact is not so significant.
What is the absolute dollar amount for U.S. dollar borrowings out of the SGD 545 million?
Absolute dollar. Wow, you are so detailed.
I think we will take it offline, Mervin.
Yeah, sure. Just back to my first question to Kuo Wei. You do not have any things in the kitty, but are there any other properties that you divested before that you are still waiting for tax treatment clarity? Also, the proportion of fees paid in units, will you be lifting it to temper the impact of higher borrowing costs?
Yeah. I forgot to answer your earlier question on fees and units. Right now, we do not have any plans yet. If you look at our past purchase on this, essentially, either driven by use transactions, essentially acquisitions where we have fees in units, make the arrangements or issue units or through the distribution reinvestment plan program. Right now we do not have any immediate plans to reactivate that. On your question on whether there is any residual elements.
Yes. If you look at the divestments that we have done, the more meaningful ones, the CICT 26A Ayer Rajah Crescent I mentioned earlier, where we have done distributions of the gains for eight quarters. There is the tax treatment part still unknown. If we get the clarity, the tax treatment, essentially our engagements with the tax authorities, then we will probably be able to distribute that out. I think amount won't be large.
It is just a small residual part of uncertain tax treatment. Other than that, we do not have any, we will call, significant divestments that will result in us having gains, whether pending tax clarity or not. Because if you look at our two, we have only four divestments done. Two other divestments, it is 19 Changi South and also the Southfield facility in Michigan. The gains are relatively small, it is actually very marginal. We do not think we will be able to make any kind of gains distribution there. Going forward, look at what else we can divest. Any of the assets that are probably less relevant in our longer-term strategy that we can divest, and if we are able to crystallize any divestments, then we can look at possible distributions. Now we are still at an early stage.
As I have shared in some of our conversations as well, gauging the market and trying to get some sense of interest assets. There is some level of interest, not that interesting yet. Maybe we will be able to look at one or two possibilities, but I think quantum probably won't be large, something that we will continue to manage in terms of the portfolio profile.
Thank you.
Thanks very much. Yeah. I think when it rains, even a small umbrella makes a big difference.
No problem. Can we have Tan Xuan ask the next question, please?
Yeah. Hi, morning. My first question is on reversion. 8.8% for second quarter. Can you share what it is for first half? For full year, are you still guiding for low single -digits?
Okay. We will work out the mathematical effect of the first half, but I do not think it is as high. Actually, your third quarter number is actually, I would say, a relatively encouraging number. Going forward, I think the market and growth might not be as exuberant. I think a low single -digit will probably be what you can look out for in the next couple of quarters.
I think we may not provide a six-month rental revision number, but the portfolio rental revision for 1Q was 5.3%.
It's hardly a mathematical thing. You can take a simple average, and that will probably be quite close to what you can. A life debt going now, staring at every single Mr. reversion. Essentially, we are quite, I would say, happy with the outcome for this quarter, but I don't think it's a level that we are able to really replicate future quarters. A low single -digit or mid kind of level, about 5% level is probably a more realistic kind of level that we can hope for.
Okay, got it. Second question is on ramp-up at Kallang Way. Seems a bit slow. What would be the main pushback from prospective tenants?
Okay. Essentially, there are not that many large users out there that are ready to commit because for Kallang Way precinct, the amount of space that we need to lease, we are talking about close to 400,000 sq ft. Our aim is to get very large space users, but that kind of demand is relatively low. Most of the prospects that we're dealing with, and they're cutting across many industry sectors. Most of the prospects we're dealing with, they are looking at the smaller kind of space needs, a few thousand square feet to even a larger one, 10 or so thousand square feet. It is taking us a bit more time to build up the occupancy, especially now that the economic outlook becoming a little less certain.
Capital cost is, I think, getting to be a bit higher for any businesses looking to commit to any lease, commit to any expenditures. The companies are becoming a little more careful and therefore, I think it's a little more difficult for us to secure large commitments. Our team is certainly working hard engaging the market, talking to the prospects. Our sense is that in the coming months it will probably be a major accumulation of more smaller users than a couple of very large ones that can help us improve our occupancy levels. In short, it is a bit slower than what we have anticipated, but we're working hard at it.
Okay. Thank you.
Thank you, Tan Xu an. Brandon, would you like to ask your questions?
Yeah. Hi, Kuo, can you hear me?
Yes, I can hear you.
Yeah, hi. My first question will be, I wanted to follow up on the divestments in Singapore. Can you give us more clarity on that, and how far would you go in terms of the divestment premium or even discount? Are you open as far as this 10% discount just to get your gearing down? Yeah, just my first question. Second one is, can you update on the Milwaukee space as well as the San Diego space for HDT?
Sorry, Brandon, I think you were breaking up. We didn't hear the end of your first question and the second question.
Oh, can you hear me now?
Yes.
Yeah. Basically, just want to ask how the updates on the Singapore divestment exercise, and how far would you go in terms of the discount or premium? For instance, are you willing to sell at, say, 10% discount just to get this going? Yeah, just want to hear your thoughts on that. That's my first one.
Okay.
And the yep.
Okay. I think the second one, we more or less get a gist of what you are asking. The divestment exercise is actually a portfolio, say, rebalancing exercise. Not only it has this positive impact if you are able to divest meaningfully on a positive impact on the average, but as you have seen in our current reported average level, 77.9%, still a very healthy level. There is no compelling reason for us to have a divestment just for the purpose of managing our risk level. I think just maybe about 10 minutes back, talk about us engaging the market on our Singapore assets. We do get some offers coming in, but some are interesting, but not all are interesting enough.
The assets that I think we have looked at are essentially some of our flatted factories and then our Business Park Buildings to see whether there are some level of interest. There was some initial interest, but in terms of pricing, probably not at a level which we think is meaningful for us to divest for the sake of divesting. As to your question, would we want to push for the divestment with some discounts being given. At this stage, I think it's probably not necessary for us to do that. A lot of these assets, as you have seen in our offloading with the still giving us very good occupancy levels and very strong yields.
If it is a case of selling at a discount or even at higher yields than the buyer would take on, it is probably not a move that we will take in the meantime. We would be selective divestment process, and we will look at preferably divesting at valuation or at prices that gives us a bit of a premium that would allow us to strengthen our balance sheet as well. It is a relatively selective approach that we are taking at the moment. For the other question, the other two assets, the San Diego one, the largest facility we have, as shared, the lease has extended to December 2024. We are exploring all options, whether it is a divestment, whether it is a redevelopment or relet approach. We do not have anything material for that as of now.
We will be continuing to look at all these options. Milwaukee asset, the smallest of one, 1%. The lease had expired last month, September. It is vacant now. We are engaging the market on the few prospects that might be interested. We do not have something that is close to being crystallized, like all the tenancy asset where we are already in discussions on the lease. This will take a bit of time. I think we at least probably six to nine months of downtime before we get some clarity, but we work hard on that.
Okay. Thanks so much, Kuo Wei. Thanks. That is it. Thanks.
Maybe before we take the next question from Derek Tan, I would like to take a question from Jonathan Lim on the Webex. Had the Japan data center started contributing at the start of Q2 instead of actual end of Q2, would DPU still have declined this quarter despite the enlarged share count?
You see our friends down here scratching their head. It is a very relevant question. My sense is that you might still get a bit of yield decline. The contribution won't be large enough to offset that. Some of you would have seen other than the operating, we call the top half of our portfolio. On some of the assets, we are still trying to lease up and some we have vacancies building up. The bigger impact actually comes from those costs increase. Look at the quarter, 1% increase. That's small. The first half, 20%. That will continue to impact on the distributable income. A better test, I think, is next quarter's results announcement where we have one full quarter of contributions from the Osaka facility.
I think one thing we would like to share, or rather, especially those who are applying as well, is that the Osaka data center is on a phased completion schedule. The completion of the acquisition transaction on 28th of September, we only have 70% of the schedule because it's 70% that has opened up. We have the balance 30% that will be finished up progressively from early this year, from early part of next year onwards. We still have a small little ramp-up. Our mathematical guru down here said they punch numbers into their giant spreadsheets. They say maybe marginal DPU growth if we were to factor all these things as if we had the asset at the start of the quarter.
I think the fact of the matter is we only got it three days before the close of the quarter, so positive effect will be felt in the third quarter of the financial year. Our worry at the end of the day is the interest cost impact that may offset whatever gains we get from this.
Thank you, Kuo Wei . Derek? Questions for us, Derek Tan?
Hi, morning. Can you hear me?
Yes, we can.
Hi, morning, Kuo Wei and team. Just wanted to follow up on Lily's earlier comments on the interest rate outlook. I'm not sure if I heard correctly, but are you guiding for 3.2% for this FY, and then next FY is when it moves up to 3.5%?
Currently, it's about 3.2%. I think for the rest of the financial year, we do still expect interest rate to be creeping up. So I think on the average for this year, we will probably be looking at a range of about between 3%- 3.5%. That should be the range for this financial year. Next financial year, when we see the full effect of your Z replacement of some of the hedges, we solve the expiry hedges that comes through, we would expect the interest cost to increase a bit.
I see. So probably closer towards the 4% end.
I think that one really also depends on what happen in next quarter. Like I said, the big question of this quarter and of the year is to hike or not to hike.
Okay, understood. And, just
Crystal ball.
Understand. Difficult. Next one is on Milwaukee, expired in September, but is that reflected in the U.S. DC occupancy? Because I noticed that crept up actually in this quarter.
Okay. The reason why we have that fridge in occupancy is because we have finally started the lease for our asset in Millenia, 67,000 sq ft, as you would have read in our earlier information given. But tenant left over a year back. So we managed to get human tenant and finally, got all this paperwork done. Started the lease, I think, September is it? September. So that has resulted in that small little bump up in the occupancy level. Anyway, it cannot be mentioned, but it is not a data center tenant. So trying to find the right category or categorization for this tenant. They provide Adult Day Health Care.
Right. So is the Milwaukee tenancy vacancy reflected already?
No. I think that has not been reflected because the lease expires 30th September. So you'll see the effect in the next quarter.
What will the occupancy be if we include that?
Actually, Kuo Wei,
We will have to come back to you on that.
Okay, sure. No problem. This is lastly on divestments, the Singapore divestments. Is there a dollar value that you can share for the, I guess, the assets that you have put on market? I guess on the inquiries, Kuo Wei mentioned, you have had a few inquiries so far. Just wondering what the profile is like. Are they like end occupiers, funds or even fellow-
Okay. I think this is not something secret. We went very broad spectrum of potential buyers. We have put in three Business Park Buildings as possibilities. If you look at the aggregate valuation, certainly more than SGD 500 million. We have put in a couple of our manufacturing factories, four of them. We are talking about another SGD 500 million. We look at this as possibilities. In an ideal world, when the market is very tight, I'd say if we are able to crystallize maybe a premium, but that one is what we are putting out as items on our menu. Engagement with the potential buyers. But I think realistically, case of whether you get interest for a couple of them, one or two of them, maybe a sub-portfolio.
The sense we get from communications is that there's some interest, but as I shared, some of them are looking for some level of discounts and support. It might not be as interesting or meaningful for us. This is a, I would say, a continuous process and engagement that we should have going forward. I think this is the time, as we shared earlier, as our garden grows, we need to do some pruning. This is that regular check with the market, regular adjustments that we'll be doing. We'll go through this process periodically. See, when the market is a little more conducive for transactions, the outlook is better. Maybe we will crystallize some of it later further down the road.
All right. But for now, about SGD 500 million to SGD 1 billion available for sale.
Yeah. That's the kind of items we have on the menu.
Yes.
But it is not like a target size or scale that we are looking at, because at the end of the day, the engagements with potential buyers, either a case of us telling them, "Look at our annual report. Whatever that is down there is available for sale." Then it becomes too broad, that thing, in terms of the kind of engagement. We decided to narrow down the narrative in terms of what we are possibly looking at. So that is how we arrived at that. I said, "Okay, this is a smaller subset which might be possible to solicit this kind of feedback." But it does not certainly mean that, oh yes, if there is some level of interest, we are prepared to do 500. It is essentially, like I mentioned earlier, outlining what might be the venue.
Right. I guess more imminently, do you think you could do maybe SGD 50+ million over the next two quarters? Is that realistic?
What was the question?
Whether you can do SGD 50 million in over-
SGD 300 million. Is it realistic? Yeah.
SGD 50 million-SGD 100 million , yeah, that is, I would say, a possible kind of level. Because at the end of the day, in a market like this where it's a bit more, of course, challenging and you need to find the right match in terms of whether they are able to fire and at price levels which we think that we would be able to divest. So, I think that number SGD 50 million, SGD 100 million might be a realistic reference level for us to look at of finally being able to match demand and supply path of the market.
Right.
Yeah. It is something to look at.
Thanks, Derek.
Right. Got it. Thanks so much, Kuo Wei.
Thank you. We are going to take the last two questions so that we can try to target to close at the end of the hour. Sutai, would you like to ask your question, please?
Yeah. Hi. Thanks, Kuo Wei. Sutai from Macquarie. Just two questions. First of all, just to follow up on Xuan's question, particularly on the Kallang Way asset itself, can you give us an idea? Right now, let's just say you're going to go out to lease to a tenant, what sort of rents you're going to get, what sort of tenant profile that you're hoping to get into right now? And then maybe some idea as to what it's going to be over the next 12 months. I understand that the market may be soft, but really, what is the target? And then ultimately, some guidance on this particular asset over the next 12 months. Second thing is that, I think last quarter you did talk about acquisition. So, I just want to ask, right now, is this still going to be there?
Acquisition pipeline, is this still some profile? Is it going to be the sponsor, the party? And then is this really going to be something you look at or is this going to be selling assets right now? Because your balance sheet is actually okay. Yeah. Thanks.
Okay. Well, I think the rent levels that we are targeting still around the SGD 4 per square foot per month for the Kallang Way asset. We think our product is good, has fairly high specifications, and is at the right location. While we recognize that the leasing progress is a little slower, we have fairly meaningful engagements with the market. It is across a very broad spectrum from instrumentation companies, biotech companies, precision engineering companies, across the board. It is a very broad industry segment, so we do not have any particular sector that is very prominent. Our facility is flexible enough to accommodate many of the industry users who certainly work hard in building up the occupancy. Looking ahead 12 months, we hope to be able to get to a level of, say, 75%, so that it is a meaningful level.
That is the kind of near-term target for us. On the acquisition front, certainly there are deals popping up now and then. But if you look across the board, spread over cost of capital, I would say nonexistent in the markets. Unless it is a very compelling transaction, it is difficult for us to utilize any use now meaningfully. We will continue to look, but I think realistic outcome is that any acquisitions will probably be done later part of next year or beyond. Because the near term likely for the market readjust also for your physical market assets that are at the right kind of pricing level for us to deliver appropriate level of attrition from below. The only few reasons it will give you that decent spread, it will be bad. That is the reason why seize the opportunity mainly here, that transaction.
But opportunities like this, few and far between. I think we will be very selective and careful the way we look at the acquisition opportunities. As you all have observed as well, the time for us to look at maybe adjusting the portfolio a little, divestment would be something that we look at a bit more closely. That is why we started this disengagement process. But our balance sheet is still relatively strong, so be selective. We adjust our portfolio.
Thanks, Sutai.
Yeah. Thanks a lot. Thanks, Kuo Wei. Thank you.
Krishna, would you like to do the honors of asking our last two questions?
Hey, thank you very much for taking my question. Just a housekeeping one. First is on the operating expense. What happened? I think Q1, Q2 it was increased by about 15%, if you can give some color on that. Then some general industry question. First is, we hear a lot of the headlines about large companies coming to set up bases here, be it in electronics, automobiles, electric vehicles, or life sciences. Just wondering if the supply chain participants of these large companies, are you seeing demand for that? I am just trying to get some color based on your earlier comment that you potentially likely see more of the smaller tenants coming into your facilities later part of the year. So if you can give some color on that. Then the last question is that you have this divestment thing. Where will you acquire if you were to? Will you be more interested in further increasing your footprint in Japan?
I answer the simpler question first. Yes, certainly in the near term, Japan looks more interesting and more meaningful to us. It also helps us improve our portfolio diversification. So in the near term, yeah, that's where we look at a bit more closely. I'm going backwards in terms of the question answering. The second question, next question is on the industries. Yes, we have seen certain large industrial kind of companies setting up shop here. Unfortunately, some of these kind of goods and demands are not the good match for the products that we are offering. For example, your EVs and all those are very small from direct allocation of ground-up build.
Kuo Wei, you are breaking apart on the second question.
Okay. Actually, these kind of large industrial users, like for example, some of the EV producers, are not good matches for whatever products that we have. Especially now where we are trying to reach high spec facility at Kallang. So the pockets of demand continues to be a bit smaller. I think one observation that we have is that new corporates coming in, including Chinese corporates, I would say a meaningful representation on our prospect list. So still generally a smaller user, not complete production plan kind of demand that we are seeing, though that, of course, observe in the other so-called Singapore. It's not a good match for product range. The next question is on the operating cost or margin.
I think in Singapore, the effect is slight increase in terms of our utility. Mainly because of a slight increase in tariff rates from SP Services. Also with the commencement of Kallang Way, it has increased as well. If we look at expenses for the U.S., I think it might be better to look at NPI margin. So if you're referring to a Q -on -Q increase, you'll note that actually NPI margin had dropped for the U.S. in particular, because some expenses are charged to the tenant at a later date, we look more closely at the NPI margins, and I think that was due to rent-free period for some leases and lower pass-through income. So it's a mixture of few effects or higher expenses.
Right.
Singapore facilities and in the U.S., rent-free effect plus lower pass-through income.
Right. Okay. You are showing positive reversions, but then your rent frees have also sort of gone up. Right. So effective rent kind of relatively flattish.
I think the rent-free refers to the North American portfolio, which tends to be lumpy because there are just not that many leases that can be signed in a particular quarter. I think that is not really seen in Singapore portfolio.
Okay. Finally, if I just squeeze in just Japan acquisition. Do you really like these assets or is it more to for the cheap JPY debt?
First and foremost, we are a real estate platform, so we need to like the real estate attributes first. The JPY thing is icing on the cake.
Okay. Because I think you raised more JPY debt than the asset value for that Osaka asset, if I remember correctly. So I was just wondering that.
Yes.
Let me just clarify, we did not raise more Japanese Yen debt. We raised exactly the same amount that is required for the acquisition. So I am basically 100% capital hedged for the Japanese Yen.
Okay.
Of course, the obvious reason being that this is just a way of doing the, I think the capital to minimize any effects of fluctuations in terms of the capital. Right. And of course, the other consideration is amongst all my currency, definitely Japanese Yen is the lowest.
Yeah.
Is it likely we will borrow more in Japanese yen to fund my investments in other countries? Not likely because debt-based
Okay. Thank you very much for your answers. Thank you.
We are at 10:29 A.M. Thank you for spending the hour with us. If you have any more questions or if it was not clear because of audio, we apologize. Please reach out to me if you have any more clarifications. Okay. Thank you. Have a good day.
Okay. Thank you. Yeah, have a good day.