Good morning, analysts, investors, and members of the public. Welcome to the analyst briefing and live webcast of Mapletree Pan Asia Commercial Trust, or MPACT, for our results for the second quarter or first half from 1st April to 30th September 2026. I am Yeng, and I will be your host for today's results briefing. Our speakers today are Ms. Sharon Lim, Chief Executive Officer for MPACT, Ms. Janica Tan, Chief Financial Officer, and Mr. Koh Wee Leong, our Head of Investments and Asset Management. They will be presenting our financial results, providing key business developments, and sharing market insights. Following the presentation, we will open the floor for Q&A, where you are welcome to ask questions. Without further ado, I will hand the floor over to Janica, our CFO. Janica, please.
Good morning, everyone. Let me start with our second quarter's results for FY 2026/2027 compared with the same period last year. Gross revenue for the quarter was SGD 207.5 million, while NPI was SGD 153.5 million. These were down 5% and 6.3% year-on-year respectively. Contributions from our Singapore properties remain steady. VivoCity delivered stronger performance following the completion of the B2 AEI, alongside sustained rental growth. This was partly offset by transitional downtime at MBC and mTower, lower compensation income at MBC, and higher property taxes across the Singapore properties. Overseas contribution were lower, mainly due to the previously disclosed non-renewal at Fujitsu Building in Japan and the challenging conditions in China and Hong Kong. We also no longer receive contributions from the asset divested last year, and the net proceeds from those divestments were used to repay debt.
On expenses, property operating expenses were 1.2% lower year-on-year, primarily due to the divestment. Finance expenses fell by 10.1%, reflecting lower interest rate on our Singapore dollar borrowings and continued interest savings from debt reduction. DPU for second quarter was SGD 0.0194, with VivoCity's growth and interest saving partially offsetting the softer overseas contribution. Turning on to slide nine, on the performance across our markets. Singapore continues to underpin MPACT's resilience. At MBC, we are progressively backfilling space, with a key committed lease expected to begin contributing rental income progressively from next quarter onwards. For our overseas properties, longer downtime and negative rental reversions weighed on contributions. Moving on to our first half results for FY 2026/2027 compared with the same period last year. Gross revenue was SGD 413.9 million, and NPI was SGD 308.3 million, down 5.3% and 6.5% year-on-year respectively.
Singapore's gross revenue grew 1.2% year-on-year, while overseas contributions were affected by the same factor I have mentioned for the second quarter, as well as a stronger Singapore dollar against Japanese yen and Hong Kong dollar. Finance expenses were 14.4% lower at SGD 83.4 million, and DPU for the first half was SGD 0.0390. Okay, on slide 11, our core asset, VivoCity and MBC, continue to anchor portfolio's earning. Together, they contributed 58% of gross revenue and 59% of NPI. VivoCity's gross revenue grew 7.5%, while NPI increased at 6.9%, benefiting from the B2 AEI. Moving on to our balance sheet on slide 12. Our NAV per unit remain relatively stable at SGD 0.0173 as at 30th September 2026. So now I move on to capital management on slide 13. Gross outstanding borrowings stood at SGD 5.9 billion, with aggregate leverage 38.1%.
Interest coverage was 3.3 times on a 12-month trailing basis. Our weighted average borrowing cost of debt declined to 2.95% from 3.23% a year ago. Of the total gross debt, 71.8% was either fixed rate or hedged through interest rate swap. The average term to maturity was 3.2 years. On the financial flex, MPACT has approximately SGD 0.6 billion in cash and undrawn committed facility at the close of the reporting period, providing sufficient liquidity for working capital and financial obligation. We continue to maintain a natural balance sheet hedge by aligning our debt currency mix with our geographical distribution of MPACT's AUM where feasible. Debt maturity profile remain well-spread, with no more than 22% falling due in any single financial year. Facility are already in place to refinance the remaining borrowings due in these financial years. Moving on to risk management.
To manage interest rate volatility, we continue to keep more than 70% of our debt on fixed rate. As at September, this portion stood at 71.8%. FX remain volatile against Singapore dollar. On a rolling four-quarter basis, approximately 94% of MPACT's distributable income was derived from or hedged into Singapore dollar. We will continue to take a risk-based approach to capital management, with a focus on overall financial resilience. Financing costs remain subject to market conditions, and we expect the scope for further savings to narrow as rates rise. Finally, let me cover the distribution detail. DPU for the second quarter, 1.94 cents. Unitholder can expect to receive the distribution on 16th December, and the book closure date will be on 10th November 2026. With that, I'll hand over to Wee Leong. Thank you.
Good morning, everyone. Maybe let's start with the key numbers. MBC continues to see leasing progress. We have been able to increase the committed occupancy slightly from 94.3% to 95.4%. As mentioned in previous quarters, results briefing, these committed leases will gradually contribute to revenue from the third quarter onwards. Majority of them will come in towards the later part of this quarter, as well as in the early part of next quarter. VivoCity remains fully committed, and the contribution of the AEI has been flowing through the numbers this year. For the other SG properties, we have a little bit of transitional vacancy at mTower. That's gradually being filled up, and we are maintaining our committed occupancy at the 95% mark so far. Festival Walk remains fully committed at 99.9%, just some transitional vacancies at the current moment.
For the China properties, leasing continues to be challenging. While the numbers on the committed occupancy have increased slightly, there are still weaknesses in the market, and you'll see that flowing through in the negative rental reversion on the next slide. For Japan properties, they remain stable. Committed occupancy increased slightly, but we are continuing to see weakness in the Makuhari assets. There are some green shoots. We are seeing some increased rental inquiries in the Makuhari area. We have talked about Makuhari being a challenging market in the past two or three years. We had very few inquiries for large spaces. In the current market, because of the increasing rentals in central Tokyo, there is now a little bit more attraction for Makuhari.
There are more leasing inquiries, and we are slowly converting some of these into leases, and hopefully we will get a bit more progress over the next half year or so. Pinnacle Gangnam continues to be performing well, fully committed occupancy, except for a small unit in the basement for F&B. Moving on to rental reversions. For MBC, rental reversions remain positive. Market rentals at MBC, we still are about the SGD 650, SGD 650 plus-minus mark. For most of the BP leases, we are signing leases around that space, maybe a little bit higher. VivoCity continues to perform well in the current market, and we see 15% rental reversion this year so far. For the other SG properties, reflecting the improvement in the general office sentiment, there is a slightly positive rental reversion of 5.5%. Festival Walk still remains weak in terms of rental reversion.
The market has come down over the last two or three years, and that is reflected in the rental reversion numbers we are seeing. As I mentioned earlier, China remains challenging. Market rentals in the Zhangjiang area, as well as in the Lufthansa area in Beijing, remain low. On a quarter-on-quarter year-over-year basis, we are still seeing market rentals come down. That is reflected in our rental reversion numbers, which, as you can see, there is close to minus 30%. Japan, most of this rental reversion is coming from the leases outside of Makuhari, so in the Tokyo area, where market is slightly improving, and we are able to increase rentals slightly.
For Korea, Pinnacle Gangnam continues to perform well, and because of the tight space in the Gangnam area in particular, and that has delivered a rental reversion of 30%. Lease expiry remains at 2.3 years, roughly consistent with the last few quarters.
Okay, moving to performance for VivoCity. Shopper traffic and tenant sales are up. Shopper traffic up slightly, and tenant sales up about 4.1% year-on-year. Large part of this contributed by F&B, and the shake then found this due to the improvement in the tenant sales due to the AEI that we concluded last year. So, you see some of the new tenant remixing and rejuvenation that we have done over the past quarter, as well as some of the events that we have done over the last quarter as well, particularly for the Mid-Autumn Festival. Looking at Hong Kong, starting to see a little bit more green shoots in the Hong Kong retail market in general.
That has also flown through a little bit to Festival Walk where shopper traffic is up 6.7, tenant sales is up 3.9, largely driven by improvements in the F&B sector for FW, as well as some of the luxury, in particular the jewelry side of the jewelry tenants. So we continue to remix the tenancies at FW to improve. Like I mentioned, because we are seeing improvements in the F&B sector, one of the things that we have been doing is also try to put in a bit more F&B in the mall. Okay. Then lastly, FW continues to be very strong in running events to bring traffic to the mall, and these are some of the things that we have done over the last quarter.
Thank you, Janica and Leong. That brings us to our Q&A session. We kindly request that all analysts please state your name and firm before asking your question. To allow everyone a chance, please limit yourself to two questions at a time, but you are most welcome to join our queue again for follow-ups. For those joining us online, please submit your questions through the backstage platform, and we will relay them to the panel accordingly. Now let's open the floor for questions. Terence Lee, please go ahead. Please unmute yourself .
Hi. Terence Lee from UBS. The outcome from the Circle Line and HarbourFront Centre closure is intriguing. I think sales was up 3% in the quarter when shopper traffic seems to be slightly down. Would you say that some of this incremental tourist spend coming from Marina Bay is perhaps more higher spending and ticket size? I guess, can we extrapolate this sales pattern for the rest of the year? I guess, anecdotally, has there been any meaningful impact to the Sentosa traffic due to the haze, sir?
Thank you for your question. It is very hard for us to quantify who exactly comes from Marina Bay. I would say that the Circle Line completion with connecting Vivo within the line is definitely a huge plus for VivoCity itself, in terms of traffic and all. Precisely whether they come from Marina Bay, we will not be able to tell. Okay? It is definitely a huge plus with the Circle Line completion for Vivo. HFC, they have already started closure, so there is a little bit of impact on the linkways. I would say that our business is carrying on as it is. Our car park is way more full than before. Vivo itself, I think, is steady. We have completed our AEI, and the numbers are all flowing through today. That is where you see the increases of about 7%.
For a 20-year-old mall to still be generating very positive NPI year-on-year is a combination of effects. Okay? The Circle Line completion is definitely one, our AEI effects, and also one, and of course, our regular changes in tweaking the trade mix to complete experience for a shopper is also another factor. Yeah.
Okay. And maybe on Festival Walk, what should we make of the disparity between the negative rental reversions despite sustained sales increases? Granted, I know, on the ground, there are certainly more challenges, especially I think Pinduoduo is giving, I guess, malls a run for the money. How should we think about the timeline of when reversions start to flatten out from here?
Okay. I think the spread of increases in sales for different category is different. Okay? F&B is a very clear sector that is doing well. The luxury end, I would say that is only the, for example, like Goldsmith shop and all jewelry shops, they were at the last two quarters, they were doing extremely well. On the flip side, the fashion and all, I think it is not just specific to Hong Kong, is on the weaker side. Okay? When we look at sales, I think we are comforted that there is positive sales growth, and definitely in sectors of the F&B, it is positive. How do we look at rental reversion? Rental reversion looks at the specific cluster of leases that is due for renewal, and that is how we and numbers are reported accordingly. So, it depends on who is up for expiry.
I would say that in quarters where there is fashion, there will definitely be a little bit more downside. So over time, what have we been doing? We have been tweaking a little bit of the fashion and personal cosmetics, which is on a little bit more challenged. Okay? Next year for Festival Walk, we are already on track to rezone our entertainment cluster, which is the cinema. Cinema operations is slightly different between Singapore and Hong Kong. In Hong Kong, I would say that the sentiments are way weaker than in Singapore. So when we look at the viability of the unit, we thought that what we could do better was to reconfigure it, reduce the size. Whilst we like some format of cinema, it does not have to be in that format, and convert it to a combination of F&Bs. So that is well on track.
The planning is well on track. Upon expiry, we will be downsizing our cinema in Festival Walk. I think if you talk about rental reversion and all, I would say we still have a few handful of tenants that we see that we need to weed, that needs to be taken care of, and that will still affect the rental reversion. But for the F&B cluster, we are very confident that it is okay.
Got it. After the cinema, is there anything else you think needs to be refreshed?
Okay. I think the cinema is a nice corner cluster that we could act on. The MTR floor, certain subdivision is also underway. Which I think what we are trying to do is to create added more tenancies. So a little bit of resizing for the MTR floor is what we are trying to do. Also in certain corners, where lots are bigger, which we are also looking at tuning it to make it a little bit more tenant-friendly, because tenant size requirements have changed over time. We note that sometimes a 12,000 and a 10,000 does not work anymore. Tenants looked at slightly smaller, and those are the things that we are doing.
Okay. Sounds like one more year to go. Thank you.
Yeah. Actually, if you look at our F&B, when we did our H&M transformation, H&M was split over a few floors, stacked up. We took back that unit, and we carved to a few restaurants. Those were a very big hit, and the numbers jumped. It was over a 50% change in terms of numbers, and definitely did help the sales and also the footfall. So I think that gives us a lot of confidence in terms of the food. I think where we are located, next to the university, is also a huge positive on the F&B. So from that angle, we are also looking at spreading, widening the spread of our F&B offering to better cater for it. So I think the last quarter's AEI that we did for the H&M was a very huge plus for us.
Thanks. Got it. Thank you.
Thank you.
Thank you, Terence. Geraldine, please go ahead.
Good morning, Sharon and management team. Just wanted to ask on the Festival Walk AEI. Do you have a timeline for this or any target kind of quantum to deploy, if you are ready to share? And cinema space conversion to entertainment sounds like quite a big rent uplift to expect.
Okay. Just as a general, I think we're expecting a positive ROI. Okay? The timing itself, there will be a bit of downtime next year, but I think it's a good change. ROI is looking positive based on the tender that we're receiving for the construction works, but we are still fine-tuning it to see what else we can do to tighten the cost a little bit more. Okay? But it's positive ROI.
Okay. Sharon, just to clarify, this cinema space is a tenant replacement, or are you rejigging the space and...
Rejigging and same tenant.
Okay.
Rejigging and same tenant.
Okay. Got it. I think Festival Walk, you still have quite a few anchor spaces to renew, and some of these rents are from the protest or COVID lows. Should we say we are expecting a good positive reversion uplift from this?
I would say immediate few quarters, no. Because when we look at the numbers, we calculate on a cumulative basis. So whatever numbers that you're seeing on a minus, the next quarter is accumulated.
Okay. Understood. Also, I think back on the Makuhari area inquiries, I think you shared that this could be a tenant for Fujitsu. Are you able to share a bit more color on this?
Well, currently, we are still in negotiations with quite a few tenants, including one for Fujitsu building. Discussions are still fairly preliminary, and the decision-making process, we understand from the tenant, is fairly long drawn. I think it's not opportune at this time to share more on that at the moment. But what we can say is that in general, compared to a year or two years ago, leasing inquiries in Makuhari have definitely picked up. In the past, most of the inquiries for Makuhari were small, right? We're looking at 25 sub-floors, something like 1,000 plus, 2,000 square feet, to maybe 3,000, 4,000 square feet tower spaces. In the last two years, we signed one tenant that took up more than one floor.
But in the current market, because there is so much price pressure in Tokyo Central, there is a little bit more inquiries coming out from tenants who potentially are looking to relocate out of Tokyo Central or in the Tokyo suburban areas. And we are seeing tenancies that are coming through asking for 50,000, 100,000 square feet of spaces. Most of these are not immediate. We are looking at next year before these leases will start. But discussions are ongoing with a few tenants on these type of spaces, including one tenant who potentially could take the whole of Makuhari. But as I said, tenants are taking a little bit of time, rightly so, because it is a very big change for some of these tenants who used to have offices in Central Tokyo and are now looking to move 40 minutes, one hour away to the Chiba area.
So internally, they have a lot of hurdles to cross as well. When we are able to sign off the lease, then we will have something to report.
Okay. Thanks for the color. Are they from the same trade sector or various?
Oh, a wide variety of sectors, electronics, financial services, entertainment.
Okay. Thanks for the color.
Thank you, Geraldine. Terence from JPM. Nice to see you again, Terence.
Thanks for the opportunity. This is Terence from JPMorgan. Just wanted to ask on MBC, can you share on the physical occupancy as of 30th of September versus the committed, and how should we think about the ramp-up to that 95% number? And did I hear correctly earlier you were saying that there is a one-off impact on MBC? Was that in the last quarter or something? Just the first question. Thanks.
Okay. I will do the easy one first. MBC doesn't have any one-offs this quarter. In terms of occupancy-wise, physical occupancy. What really happened was, if you look from last financial year to now, right? At the beginning of the previous financial year, in terms of physical occupancy-wise, we were probably around the 90% mark plus, just around that level. It dropped to about 88%-89% at the end of last quarter, and it is slowly ramping upwards now. So, in terms of the gap between our current committed and physical, that will gradually close towards the end of the financial year. So, by the end of the financial year, we should be north of 92%-93% in terms of physical occupancy. There will be a few tenants whose leases will start next FY rather than this FY, and that is a small part of it.
Okay, thanks. Yeah, just for my second question.
Okay. Maybe in short, about 60% are starting in its so-called physically vacant, but it is committed. But the bulk of it is starting rental payment on 1st of November. 60% is committed that has not started.
Okay. And maybe on my second question, we have seen this focus on sharpening the portfolio, and I guess it has been mentioned a few times before, but could you share with us, is there further urgency to sharpen the portfolio? Are we looking at maybe accelerated pace of divestments? How should we think about refocusing on your core markets? And what is the timeline for that?
Okay. I think it has been ongoing. If you look at what we have done for the last two years, we have trimmed about SGD 1.2 billion of assets for various reasons. One, better offer, higher than yields are worse than interest rates. The other thing is future tenancy issues that we brought forward to divest, to not be held in a challenged position. So, for various good reasons, we divested SGD 1.2 billion. Okay? I do not think that is the end. I think we are in a combination of trying to trim where possible the weaker assets, but I think I will not hide away from the challenges in the market of certain markets in terms of divestment. I think the weaker ones definitely, like Makuhari, okay? But I think the challenges remain in terms of divestment.
So, there are certain things that we try to do along this line that for, like Fujitsu, if we can successfully lease it, I think the chances of divesting it will be higher. So, I think we are working along those directions to continue to trim weaker yielding assets and try to replace with better ones. I think the focus is still the same, where it's not a matter of the challenged markets, it's not a matter of whether I put my timeline, I want to do it next year, or I want to do it in three months' time. It's not a scenario of a Singapore market. I would say that our focus is still the same.
Trim all those that is not doing as good, and we will definitely continue to look at assets that may even out the portfolio in terms of strengthening the portfolio further. No change to what we have been doing.
I guess, as you mentioned, that SGD 1 billion over two years, you still have about SGD 6 billion of overseas assets. Would that take I don't know, how long would that take? Because I guess the overseas environment does still seem to be very, very challenged.
Yes.
Is the sponsor still willing to wait so long?
Yeah. Terence, I think there is a balance there between what buyers will potentially look at, or the existence of certain buyers for certain zones. If we are willing to take certain huge haircuts, which I don't think is warranted, and I think that there is, on a sustained basis, it shouldn't go down to that level, those are the decisions that we will take that we will continue holding it. There are certain markets that I am willing to let go. But buyers are limited due to the investment environment, where interest could be higher than any of the property yield. And the next is interest level on locations, like certain parts of Japan. So, we have to think slightly differently of trying to couple the whole thing and mix and match certain things to make it more palatable.
But unfortunately, Japan interest rate has started to move up. That makes viability of an investment case for any potential buyers slightly more difficult. That being said, our focus on trying to get all this done is still there. I bet that it's slightly longer in view of the changing environment.
Okay, thanks. That's all I have for now.
Thank you, Terence. Jonathan, over to you, please. Jonathan.
Yeah. Good morning, Sharon and management team. My first question relates to Festival Walk. The retention is about 56%. Is it the typical level in Hong Kong, or is it kind of lower than industry average? Is that low level of retention causing that negative rental reversion, and how can you kind of improve that retention? Second question relates to South Korea. One of your peers have divested, and I think recorded a handsome gain. Is that something that you're looking at, and does MPACT benefit if that were to be divested? Is it something good to do? Thank you.
Okay. I think Korea, our asset is very stable, giving us decent operating metrics in terms of rental reversion, stability, tenancies, and so on and so forth. Right now, the impact of which will be quite nominal because we are sharing a 50/50 on the building with the sponsor. I think if there is any decent offers, we'll look at it. Recently, the interest rate has climbed quite tremendously for Korea. So, I think we need to be a bit more balanced. I mean, for us, whether we sell or we don't sell, it doesn't have much impact to us. Similarly, for Japan is also quite small. We have revalued to the point where it's maybe about 3% of our portfolio. So, Korea is even smaller than that. So, whether we sell, we don't sell, it doesn't have much impact, but it's a very stable asset.
Okay. Yes.
Sorry, Jonathan, could you repeat your question on Festival Walk?
Let me read. The question is on Festival Walk's retention rate, and how does it relate to a rental reversion?
Okay. I do not see there is a lot of change due to, for example, I do not see very drastic change, okay? Because depending on the pot that is up for renewal, we count either reversion and the retention, okay? So, there were certain little bit of changeovers, like for example, Rolex became two-door and whatever, so it changes, but it is still in the same trade, yeah? So, it became a two-brand trade as opposed to a mono, yeah? So, on a basis, I am not actually alarmed with the numbers. I think it is substance over form. If you look at Festival Walk, we are not changing the trade very much, okay? For example, this watch group, we swapped to two, okay? Then one of the fashion, we swapped to two other similar but slightly different type of fashion.
I think it is not alarming for Festival Walk. Like H&M, we split into four F&B. I am not too alarmed.
Okay. As you continue to reconfigure, this number will be like 50%, 60% is quite typical?
50% what? Rental reversion?
Retention.
Retention.
Actually, the truth of the matter is retention is not in my KPI. Not in my KPI. When we look at the tenancy, we look at whether the trade still fits, whether this tenant still can survive, this exact tenant in this trade. If we think that there are better options, we will go. I don't go like, "I need to retain 80%," and we go. No. If subdivision, changing trade makes sense, or keeping the same trade, changing tenants out makes sense, we will do it. The truth of the matter is retention is not on my KPI list. We look at individual lots per se when we do the assessment.
Okay. For rental reversion, would you be able to kind of narrow it to a negative single digit? In say, second half of-
I tell you, this quarter was because of one big one. There's one tenancy, actually his OPEX was okay. I think it's decent. Okay, okay. But because he opened another lot in one MTR stop away. And when they first started, they had very preferential rents, and that was used as a comparison. But I would say over time, that kind of rents cannot hold for my competitor, so it will come up to a certain normality. There are certain things that I will take it up because the trade is something that we still want, but yet my competitors are throwing a bit of rents because they were new. So right now, I would say after the first term, it will come back again. Because any new malls cannot hold rents at that level. It's only to attract.
That tenant rightfully used the leverage, and I think over time, it will normalize because rents cannot be in that manner. That was one of the big hit that we took.
If excluding that exception going forward, it is quite likely that you can narrow it to a single digit.
Okay. Few things. There is a few handful that I need to deal with the cinema. The grocer, one of the athleisure, and plus one. I suddenly just fell off my There is a couple more of the bigger ones, not anchor per se, that we had to deal with. The rest are in terms of cosmetic, t hey are small, but PSF higher. These are the two weakest areas, I would say. About F&B, it is about maybe 30% of the mall. It is fine, and it is doing okay. The entertainment, which is cinema, or the wellness part, that one is also fine. It is only the personal cosmetics and also sports or fashion has to be handled.
Okay. Yeah. Got it. Thank you, Sharon, for the update. Thank you.
Thank you. Tabitha, you may go ahead.
Hi, good morning, Sharon Lim. This is Tabitha from DBS. My first question is on VivoCity continues to be the standout performer in your portfolio. How long more do you expect to sustain these double-digit rental reversions, and what is the current OPEX? Are there AEI plans over the next two to three years to further optimize the mall?
Okay. OPEX is around low 20s, okay? Say, plus-minus, around 20. Any positive rental reversion for a 20-year mall, I would say is positive, so I will not commit double digit because it is typically not that easy, okay? For us, I say what we have done a few rounds was, number one, a few years ago, we started looking at right-sizing. Then we went on changing, tapping on tenants who want a face, who want to stand alone from the athleisure side, as opposed to coming out from a multi-brand to a single store, okay? Then we went on a basis of weeding out old tenants that has been very loyal but has not been performing well recently. All these were giving us all the rental pluses, okay? The rental reversions.
I think we will continue in scrutinizing individual leases and clusters to strengthen it, then whereby we are hoping to see rental reversion. Now, rental reversion has to come together with positive sales growth, okay? The OPEX question, I think, is good in a way that I think you are trying to ask me whether how much more can we push, okay? So, I need sales to grow, then we can move the rental further, okay? I think we are on the right track. Places that we cannot, we do AEI, where we transform lower-yielding to higher-yielding spaces. I think that is like what we have done for the entire basement two, okay? Which is increasing kiosks from 20 - 24, upgrading everything else, changing car park 60 to retail, and creating NLA of 21,000. All these are positive also.
It may still start with a 20, but 20 with a bigger base. That's how we get our seven million out. Numbers along the way. What other AEIs can we do? I think I've been guiding that we're in very advanced planning for two big ones that will carry us for another two years. What does it include? If you look at a mall, you will say, "Sharon, what else can you all do? You have touched B2, you have touched basement 1, you have touched a lot of corners, everywhere. What else can you do?" Now, if you look at VivoCity, like I always say, our back of the house can be turned to some form of a front, which is our drop-off point. So much traffic pass there, and it's quite a shame that it's technically a back of a house.
Who is at our back of our house? The back of our house is actually units connecting to our hypermarket and also to the back of our so-called prime unit, H&M. I think there is a lot of work that we can do to turn the whole strip, to change and to add a new cluster. I'm quite confident that we are getting on the right track, but it's just that we are not tendered out. We are already in a very advanced drafting stage. We don't see big hurdles, but we just have not tendered out to get all the number to get the AEI going. All are planned. Other things that we are looking at is retrieving GFA. Retrieving GFA from pockets, that means decantment of GFA and redeploying into higher yielding.
I think if we creatively look at how certain of our tenancies are sitting on excess GFA based on old design and old code, that gives us some flexibility in extracting the GFA and to redeploy. Where else I'm going to redeploy besides the drop-off point, the whole entire back, is definitely level one. And certain slabbing over of level two to create a level one space. I think that gives you Give me some time. We are very advanced; we just haven't tendered. When we are done, we will definitely come out to talk about it. All are positive ROI. We are trying to minimize disruption. There will be disruption, but we need disruption before we can get the numbers. That's how we have been planning our AEIs.
When one disrupts, next year, number comes out, I will start the disruption again, and that's where the numbers can come out the following year, and so on and so forth. I think we have a good two-year program. We are trying to make sure that the program limits disruption, and when income comes in, we bring down another part, and after a while, it will stabilize to a higher number. I think I'm quite positive that a good two years. We are already a good two years ahead now.
Thank you so much for the color. My next question is on the cost of debt outlook.
The outlook for FY26/27?
Yeah.
Okay. You need a guidance. As I previously mentioned, we expect to end this financial year with the cost of debt to be above 3%. We might be, or hopefully should be, below the 3.16 a year ago, but it is likely to be 3%. As you know, interest rates are all climbing up.
Okay, thank you.
So far, we will still see savings from the swapping out of the SGD interest rate swap. We do not have much or any HKD interest rate swap this year expiring. Yeah. So, you can still see some positive, but whether it's a big positive or small positive, it really depend on the market.
Okay, understood. Thank you.
Thank you, Tabitha. Just to let Donald go first ahead of Terence. Terence, I'll get back to you later. Donald, can you please go ahead with your question?
Hi, can you hear me?
Yes.
Thanks. Just a couple of questions. First on the lease expiry for the second half and also FY28. What's the proportion of these lease expiry coming from both Hong Kong and China?
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Okay. Hong Kong and China, in terms of the portfolio, is actually not that big in terms of number of leases and spaces. So, roughly proportional. The big chunk that you see there, if you're looking at next year's lease expiry, for Hong Kong, and you're looking at the retail number, I'm assuming, that should be split about half-half with Vivo and Hong Kong.
Vivo. So, both 2H27 and FY28, you'll be half-half?
Roughly around that sort of proportions.
[Crosstalk]
China will be a much smaller proportion of that, and it is in the office and business park side. Most of the office and business park lease expiry is actually Singapore and MBC.
Could we have a range, like how many percent of the GRI?
Yeah. Give me a second. We are probably looking at. I do not have the breakdown for you, but we are probably looking at maybe 60%-70% Singapore.
Okay. Maybe about 30%, 40% will be China. Okay, that is fine. On Festival Walk, I appreciate the stronger sales, but clearly the negative reversions to normalize will take some more time. In terms of leases that expiring in the next 18 months, how much over-renting at this point for the leases they are rolling over versus market rents now? How much is it above the current market?
I think the big one would be the cinema, okay? Because the expiry comes, then we will revert to the so-called lower rents today. But I think we have been giving them what I have been saying for a few quarters that we have been giving them rental rebate if they do not hit a certain sales over the last term. So, the current term that is going to be expiring by end January, okay? Now, the rental rebate has kicked in and already been booked into our number. But the rental reversion number, when it comes to expiry, we will still use the higher number to count, okay? I think that will also be one pain, but actually it has been flushed out in the NPI pertaining to that lease. I will give you an example.
Actually, the cinema rents were roughly maybe about, let's say, shy of HKD 100. Then the rental rebate, we are talking about one-third off, okay? Roughly about one-third off. It has kicked in, and has always been in our books. So, when the time comes, rental reversion, we will start looking at it again. Then we will have to think about. The numbers have already been flushed out, lah. I think that's one point, in terms of cash.
The-
Sharon, are you-
Yeah, go ahead.
Sharon, are you prepared? Or at this point, given that it has been a couple of years, do you think will it be a year or two years? If you look at your leases now,
When do you think will we start to see the rents for all leases being at market level or starting to be close?
We look at profiling our NPI. Because rental reversion is certain bucket, package of leases at a certain point in time. It doesn't reflect the entire. If we look at the mall performance, we have been looking at, what, minus 30 before, minus 20 rental reversion. But if you look at the true impact of the NPI, it's not in the 30, in the minus 30, minus 20. No, it's not. If I look at NPI profile, I would say that it's not in the same magnitude as what you're seeing, okay? As what you're seeing in terms of rental reversion. Because there's other components in the performance in the P&L of an individual asset. There are other revenue, there are OPEX, and rental, whatever you see, is a spread over three years. There is also AEIs that we do.
A combination of all these, I don't see it dropping the same manner as the rental reversion that is reported. Okay? Not in a year, not in 2 years.
Sorry, maybe just to supplement that question.
Yeah
So, the 60%, 70% MBC is correct. Then there is another 10% which is Singapore, the other Singapore assets. Then the remaining 20% is, what, 10% China, 10% Japan.
Okay, so Japan is 10% of the.
Of the lease, of the office and BP part.
Yeah.
Of the office and BP part.
Okay. That's very helpful. Maybe my last question. At this level, is buyback an option, a viable option now?
I would say that the buyback, we would like to couple it with other things, lah. If we can free up capital somewhere else, I think for me, for short term or for if we think that it's a long-term viability, I think we will look at buyback. But it has to be coupled with something else. It can't be just borrowing money to give money back. You know what I mean?
Okay.
I won't borrow money to give you money. It's like going to the bank, I take SGD 200, then I go, "Donald, here's your uncle, SGD 200.
Not really, Sharon. You are borrowing money to buy back your own assets, right?
Yeah, yeah. But it is technically
It is not the same as borrowing money to...
I agree with you, but what I am saying is, we will prefer to free up capital in a different manner. Free up capital first, and I will definitely consider a buyback. I think buyback has always been on our books, okay? But for the last few deals, when we look at what is the better use of cash, I think we make the call to pare down debt. Okay? The borrow money to give you money back, I think that is only a simplified manner. I think you rightfully pointed out there is certain other considerations. So, we are on the same page, okay? I think there is benefit of doing a buyback. I am not denying that, but we will do it when there is another capital free-up.
We did not do it for the first three rounds, but I think we are seriously considering once we can free up certain capital.
Okay. That's helpful. Thanks. Thank you. That's all for me.
Thank you.
Thank you very much, Donald. Can we have Derek? Derek, can you go ahead first?
Oh, thanks, Teng. Just on the Festival Walk, Sharon, you were saying that the reason for the sharp decline this quarter is because existing tenant leverage on his other lease at The Wai to get a much more favorable rate. Is there any concern that the other mini anchors, whose expiring, could use that same trick as well? I mean, since I guess, information will be pretty porous.
When we did a match of the tenancies, there's, I think, about teens that are similar. We did a match before. I am only naming the significant ones because tenants always threaten you with anything.
Yeah.
Because any way to cut rent, for any reason you can think of, it will come up. Just to get the negotiations, to be ahead of the negotiations. I think when we look at it, we always look at, do we need this tenancy? Do we see completing a certain trade mix? I think we have helped us. If you have a walk in Festival Walk, you will understand that we were still trying to keep a certain integrity of a mall, as opposed to shoving any tenancies in there just for rent. So, I think the discipline is still there. I bet that the rentals may be slightly lower, but I think on the long haul, it will keep the integrity of the valuation of the property. We do not take a short-term approach when we look at renewals now.
Sometimes we do take an approach of who can sustain longer, and we go. We are also very practical. If we find that we cannot find anybody, obviously, what do we do? Take whatever that is on the table. But for this case, it is a trade that we wanted, and we had a very, very long discussion about it, to the point where we know that the next term, it will be similar. They cannot continue to hold at that kind of rent. But because they are still in the same term, they positively leverage on it. But I would say on a sales basis, we are technically not that worse off compared to our neighbors.
Hmm. Okay. But is there any risk of the, as you said, tenants will do whatever, will use whatever information to nego hard on rents?
Yeah.
Is there risk of the upcoming ones? Yeah.
Cinema, no. Cinema is everywhere threatening everybody. It is not specific to a competitor. It is the industry that is weakened, okay? The cinema industry in Hong Kong is not good. It is not a matter of competitor. It is a matter of the industry. I think there are different issues in Hong Kong retail. The luxury end, I was educated that that is the biggest drop. Our drop is nothing compared to the super high end, okay? I think there is a combination of effects. What we think on the long haul, we still need to refine the trade mix a little bit more, okay? I think, like I always mention, we are slowly trying to get out of some of the personal cosmetics, painfully so, because the buyers are now comforted to buy locally, and all those brands cannot survive on so many outlets.
That means rentals will come down because of them reducing their platform or number of shops in Hong Kong. From that basis, we are tweaking, okay? I think the changes, I think you can see along the way, we are also tweaking along the way, okay? We would love to keep the rentals of the old personal cosmetics, but we will continue to change them up, okay, when the time comes. I will hold onto every single dollar now because the rentals are still high, but when the time comes, I will switch out. I will switch out.
Hmm. Okay. Got it. My next question would be, given everything that has been said on this call, is it fair to say that we should still expect DPU to see some slippage, I guess, for the next two years, with interest rate higher, AEI disruption, NPI for the overseas assets still challenged? I guess the inflection point, 2029.
I hope to be faster. Next, let us see, about one-third of our contribution is coming from overseas. About one-third is coming from overseas. Singapore has been holding the fort. Okay? But slightly not enough to cover. It did cover for the first one year-ish, two. Then currently cannot. Why? I think the AEI that we tear is not small in Vivo.
Yeah.
Next year, I am tearing more, okay? We are very confident of the output. I am not going to hold back on what we think that is good just because I want to even out the pain, okay? I think the challenges in China will continue. The challenges in Festival Walk is way lesser than China. Way lesser than China, okay? What I am saying is, on top of that, we have single tenant or festival in Fujitsu that left, which we have guided the market for good two and a half years or more. When you do year-on-year comparison, the drop will still be there. If you look at our NPI, one-third of our current NPI is divested assets, okay?
The balance of the two-thirds is operations, which is majority, some parts of MBC because of the transitional, which income will start coming in 1st November for about 6% part of it that is committed but have not started. They are starting in 1st November. The two-thirds that are down in the NPI can be accounted for on overseas, and not all overseas, because there is a big chunk from MBC, okay? MBC numbers will kick in 1st November. A big lease will start. All of the 6% that is committed but have not started will start 1st November, okay? Year-on-year comparison, Fujitsu will kill me already, right?
Mm. Yep.
My downtime next year, I am tearing a lot on level one in Vivo, but I am trying to spread the pain and still get the gain, okay? The team is working through the detailing of trying to maximize the timeline, okay? Technically, in hunky-dory, I would love to thrash one time, we all pain together and get the income as fast as we can. But I need to balance the team's work, okay? We have a good team that I do not need to exhaust them to the point where they do not have time to breathe, yeah? We also need to manage the mental state of our team, because the work is a lot, okay?
We are talking about thrashing tenancies, we are talking about rebuilding tenancies, we are talking about building new tenancies, the construction work, and all the operational opening and everything is a humongous exercise behind.
Based on numbers, my downtime will kill me, but I am comfortable to do it. I am comfortable to face investor to say, "Yes, I acknowledge my China is going down." But I always tell myself, my team, that we have to beat the market. Macro is macro, but we have to beat internal, as well you got to beat your own competitors. If you beat your own competitors, you are ahead. Because we cannot control macro, but we cannot 100% blame macro. We just have to draw comparison to your competitors. Today, I think I will acknowledge that China will continue to go down in the next year or so, okay?
The magnitude is way more than Festival Walk. Festival Walk is, magnitude is peanuts compared to China.
Yeah, agree. I mean, NPI is just down 1%, right? But Festival Walk, China, Japan, 18%, 36% declines.
Yes, and the contribution is small, but it is big, yeah? When it can show up, it means the pain is more. China is our biggest pain, if you ask me.
It is the biggest pain. Japan is Makuhari, it is maximum pain, nominal impact. Except once I clear out Fujitsu, the pain, the year-on-year comparison of Fujitsu, it will be lesser and lesser. Because by year-on-year comparison, you will see the negatives. Last year, when we divested the Hong Kong office of Festival Walk, I think the deal was done. I received a lot of feedback that we have actually charted a very good price for Kowloon Tong for office. I think we were lucky in that spot where suburban office may not be that good, but we had a very willing and dedicated buyer. So that deal, I think, was a very, very nice deal done for Festival Walk office. So I think we will continue to explore pockets of this. Certain things I cannot commit.
You ask me, "Would you all like to sell certain parts of China?" I will tell you, "Yes." Realistically, who is going to give me a very decent price? China, today. I think we all have to be realistic that China is a long-term focus. China, we are not saying bye-bye to China today. I am unlikely not to add anything on China today, but that also means that there will be very little take off of my China portfolios today. We are trying to drive our whole or forward. If I just purely look at our overseas without Singapore, I think it is very, very weak. It is weak, okay? We are trying to mitigate the pain with Singapore moving. So, I think the Vivo and MBC has done its job.
A bit of a flu in terms of downtime for MBC, but it is coming back. It is coming back to its good old self. It caught a bit of flu in terms of downtime. 1st of November, big leases are all starting. So, we cannot clear out China's problem today. I cannot confidently tell you, "Yes, I am going to be dealing with China." If can, I would have done it.
Thank you, Sharon. Thank you. Just before we move on to the web, we have one question, invite questions from Brandon first. Brandon?
Hey, Sharon, I just have one quick question. If we look at your NPI yield for Festival Walk today at 3.5%. After two years of AEI, where should we see this number go towards, assuming your valuation doesn't change?
You're talking about Vivo?
That is it.
The two-year AEI.
Oh, no. Festival Walk.
I am referring to.
Festival Walk, sorry. FW.
FW will-
I think-
It will hover around the three-ish.
Basically.
3.3 - 3.6 is 10% increase in NPI there.
Yeah, yeah, correct. So that is what I should be looking at.
I will tell you, it will hover around the three plus of where it is.
Okay. Can. Okay. Hey, that is good enough. Thank you.
Thank you, Brandon. Mervin, let us move on to the web first before coming back to you. We have one question from Darius. Darius, an individual investor participating online. The questions relate to the Greater Southern Waterfront development. So that upcoming development on various fronts, including Sentosa and residential developments. How does MPACT look at this, and are we already involved, or do we have any plans to participate in such developments?
Okay, I think the Southern Waterfront, I think the announcements were around residential and all. We are not into residential, but it is very positive towards. Definitely, the VivoCity will definitely enjoy the outputs of the redevelopment of the Southern Waterfront. In terms of control, I think our government, URA, is very meticulous in terms of what they develop, and they have a grand master plan. Vivo is definitely benefiting from, will benefit from the increased residential population in this area. Anything that Sentosa do positively will have a direct come indirect impact because we are next door, and we are a pass-through, or you have to pass through Vivo when you go there. So, we are looking. We are very happy to hear of any new developments that Sentosa itself is bringing, is doing.
Anything that is positive on the tourism front or bringing Sentosa to a different level, it will benefit Vivo. It is a very direct impact.
Thank you, Sharon. Just to round up the Q&A session, can we have Mervin?
Yeah, thanks for the opportunity. MPACT share price is now at 2013 levels, which is 13 years ago. MPACT now trades at a 34% discount to book. The market conditions also changed significantly over the last few years, making the rationale for the merger between MCT and MNACT less compelling today. Ahead of sponsors potential listing next year, is it time for a more radical change in MPACT strategy? Would management of MPACT recommend to the board and sponsor to consider splitting MPACT into two REITs, Mapletree Singapore Trust and Mapletree Outside Singapore Trust, to unlock value? If the answer is no, why would the current strategy of trimming assets and waiting for a cycle to turn restore confidence to cause a sustainable re-rating of share price and close the large discount?
Mervin, I am not sure if you are directing the question correctly to us or whoever that may be. It does not seem to be in my realm of ability to answer. I can only tell you about MPACT. Anything beyond, I am not aware. Neither do I have any comments to it.
Aren't you in charge of managing the share or helping improve the share price from here? I mean, the discount is huge.
If you talk about broader strategy of the group, that should be redirected to the group. Okay? If we are talking about MPACT directly, I will be able to tell you where we see things moving.
Okay. Maybe I will ask a second question. In terms of Japan assets, can you talk about the rental differential between Makuhari and Central Tokyo? What is the discount at this point in time, and how wide does it need to get to
You can take it as Orchard Road rent versus industrial rent in Singapore. That gives you a sense.
Okay. We need a significant, what, 30%, 50% increase in Tokyo before we see a jump in demand?
Okay. No, no. I think your question is, what's the difference between the rent? The variance is you take as Orchard Road rent versus an industrial rent that gives you at Tokyo core rents versus Makuhari. So, I'm answering your first question.
Yeah.
I'm not talking about anything that trickles will have to go by tier 1, then trickle down to tier 2. I think that is correct to say for any office industry or any office market.
Yeah. Okay. Yeah, I'm just trying to figure out, like, how much wider does it need to get before we see a significant pickup in demand? Yeah.
Okay. Anything that it will positively trickle, but if you are asking for granularity, like Sharon, if occupancy hits 88% from 80%, will it move one percentage? I will not be able to tell you that. I can safely tell you that there is positive impact when the central moves up to a point where rentals become too high, then it will trickle.
Thank you.
Okay. Yeah, Sharon, just want to mention, yeah, you are one of my favorite CEOs, and I see significant inherent value in the share price, so that is why we have overweight rating.
Thank you. I feel the love, Mervin. Mervin, I feel the love. Thank you.
I think the market's overly punishing for the overseas exposure at this point in time.
Thank you.
Thank you, Mervin, for your very kind comments. We will come to the close to our results briefing today. Thank you again for your active participation. If you have further questions, please reach out to any of us in the IR team. Again, thank you for making time. We wish you a great weekend ahead. Thank you.