Mapletree Industrial Trust

SGX:ME8U

Earnings Call Transcript 2022-Q2

[Hwei Leng Tan, executive]

Very good morning to everyone. Thanks for taking the time to join us for Mapletree Industrial Trust's First Half Financial Year '21/'22 Results Call.

We have than Tham Kuo Wei, our CEO of the Manager; and Ms. Ler Lily, CFO, joining the call this morning. I am Melissa and I will be your moderator today. Before we begin, may I request for analysts who have joined us via WebEx to use the raise hand button for the Q&A session.

Without further ado, I will pass over to Kuo Wei to give an update for the quarter.

[Kuo Wei Tham, executive]

Yes. Good morning, everybody. We have uploaded the deck as usual, last evening. I'll run through a few segments. First of all, highlight stats on Slide #5.

Essentially, we have the growth driven by the contributions from the portfolio acquisitions of data centers in North America. So if you look at the year-on-year comparison, distributable income, is now $88.4 million. It has gone up 21.3%. And of course, DPU, you can see a similar kind of upward adjustment close to 12% $0.347. And of course, included in this DPU is the distribution of gain of $0.0007 from our divestment of 26A Ayer Rajah Crescent, which is the data center. We did have a build-to-suit project for Equinix. So that was completed on 25th of June in terms of transaction completion.

So we will be distributing the gain over 8 quarters. And of course, this quarter being the first quarter where you see us registering that contribution. And the occupancy level for the portfolio remains very stable, 93.7%. If you look at some of the shift in the occupancy number on an aggregate basis. That's because of our consolidation of the recently acquired data center portfolio. And that portfolio occupancy is at 87.8%. So mathematically, you see a downward shift in the occupancy number when aggregated, but it's a very stable number.

The portfolio WALE, of course, because of longer WALE for or weighted average lease expiry for the new portfolio, you see an increase from 3.7 years to 4.3 years. And of course, the effect on our portfolio, so-called shift is because of a transaction done or completed USD 1.32 billion, 29 facilities that was completed on 22nd of July this year.

And of course, on a capital management front, we have a very robust balance sheet. And as of now, more than $1 billion worth of committed facilities available. So we are in a very strong position to withstand any kind of near-term stress even on the financing front.

And going on to the next slide, that's on Slide 6 is our report card for the past 11 years. Some of you might have noted 11 years already we were -- we had our anniversary just 6 days ago. So on the right, you can see the most recent quarters data points, highest-ever distributable income. And of course, we have new so-called level for the DPU compared to the rest of the quarters. So this is us continuing that upward track in terms of distribution and gains we provide to our stakeholders.

Going a little bit more specifically into the financial performance as the next section, starting from Slide #8. Revenue has gone up 50.5% from $103.4 million last year -- last financial year, to this financial year, $155.6 million. This, of course, has 2 effects the consolidation of the balance thing that we acquired last year and also the contributions from the new portfolio and recent acquisition of the data center in Virginia. So all this helps to provide a fairly significant increase in the revenue line.

And of course, with the consolidation, you can see a corresponding increase in operating expenses from $21.7 million to $35.2 million and net property income tracks that upward shift as well, 47.4% increase from $81.6 million to $120.3 million. So I think the borrowing cost has also been adjusted up accordingly from $12 million to $17.4 million.

So if you bring down to -- or bring the figure down to the amount available for distribution, that's where we have reported the 21.3% increase from $72.9 million second quarter last financial year with $88.4 million that we are reporting for this financial year. On a DPU basis, 11.9% increase from $0.031 to $0.347.

And looking a little at the year-to-date or the first half of the financial year's performance, that's on Slide #9. Of course, the increase a little more muted because we only had some of the contributions from the recent acquisition only in the second quarter. So revenue side, we are seeing a 40% increase. Property -- net property income, also about 40.4% increase for the first half year, $160.3 million to $225 million. And on the amount available for distribution, roughly 19.3%, a little lower than what we have of course registered for the second quarter but there's still a very meaningful increase for us, $143.4 million to $171.1 million. So in aggregate, we are looking at the DPU increase of 14.2% from $0.5969 to $0.0682 for the first half of the year.

I think on a quarter-to-quarter basis, you see a similar trend. Of course, that increase is essentially from the new portfolio that we have acquired, and we do not have the consolidation effect registered because it's already been in the financial numbers for the financial year. So a smaller increase of 21.5% for revenue -- sorry, 14.6% for profits attributable and for the distribution, 6.9% increase on a DPU basis, of course, a more gradual 3.6% quarter-to-quarter basis from $0.0335 to $0.0347.

And going on to the next slide, Slide 11. Our net assets remained very stable. I think from a quarter-to-quarter basis, you see that small little uptick, 1.7% from $1.75 as at the previous quarter end 30th June to $1.78 as at the 30th of September for this quarter.

And on the balance sheet, that's on Slide #12. The debt, of course, has shifted up because of our acquisition, we have taken debt to fund the acquisition, and it increased to about $2.9 billion. Weighted average tenor has shifted up from 2.8 years in the previous quarter to 2.9 years in the quarter that ended 30th of September. You might have noticed the aggregate leverage ratio shifting up from 31% to 39.6%. Of course, the 31% was a figure, which had incorporated the proceeds or cash that we have taken in from equity fundraising exercise in June, in preparation for completion of the transaction, and we had not deployed cash and that is the reason why on a reporting basis, we see a lower leverage level.

But I think upon completion of the transaction on 22nd of July, us taking on the debt and deploying the cash. You see the leverage level moving back to where we roughly were prior to the transaction. So we are now at 39.6%.

And of course, if you look at the debt maturity profile on Slide #13, very well spread. And the weighted average tenor 2.9 years, a little lower than our weighted average lease expiry. Because our weighted lease expiry is a little longer due to the longer leases that we have in place for the data center portfolio. And if you look at the amount that is due for refinancing for the financial year -- this current financial year, $425 million. That's very well within the capacity that I mentioned earlier, more than $1 billion. So it's very well spread and we don't see any near-term challenge even on the financing front.

And of course, if you look a little bit more closely at our other parameters, that's on Slide 14. As of 30th of September, our fixed amount of debt is lower at roughly 58% compared to over 96% previously. The key reason is because we have only recently drawn down the floating rate loans for financing the acquisition progressively, take on the fixed rates, then you see that the percentage fix shifting up a little in the next couple of months.

And weighted all-in funding costs for our interest more, I think, relevant to the interest cost is lower, partly because this is made up of more floating rates. So it's at 2.4% compared to 2.7% in the previous quarter. But as I said earlier, when we take on more fixed kind of elements in the borrowings, we expect the all-in cost to shift up a little, possibly closer to where we were in the previous quarter assuming that the interest rate environment doesn't change too much.

But as of now, the interest coverage ratio is very healthy at 6.7x. And looking at the other forms of measurements in trailing 12 months or even adjusting for the perpetual securities, we are roughly at a 6x for the quarter that just ended.

Now going into the next segment where we talk about the portfolio. This is, of course, refresh of what we have on Slide 16. Now we are at SGD 8.5 billion. And the Singapore and North America split is roughly 50-50 now. Singapore, of course, having a very slight majority, 50.6%. And data centers represent more than half of our portfolio close to 53%. And in aggregate, we have about 24 million square feet of space. We continue to have a very large number of tenants and very diversified kind of portfolio profile.

And if you look a little bit more closely at the occupancy rates on Slide #17. You can see in the chart that below data centers has shifted down in the aggregates figure because of the lower occupancy rate that we have for the recently acquired North American or U.S. data center portfolio. So this is a mathematical effect. The rest of our segments are relatively stable but we have observed some downward pressure for our Business Park Buildings, about 1 percentage point from 83.6% to 82.6%.

So in aggregate, you see the 0.6% reduction in the reported portfolio occupancy level on the right side of the chart. And if you look at the lease expiration profile, that's on Slide #18. Very well spread and is essentially business as usual for us for the rest of the financial year, only 5.9% of the leases due and in aggregate, our weighted average lease to expiry 4.3 years. The Singapore portfolio, we are seeing roughly 2.8 years, which is very close to our debt maturity kind of figure as well.

North American portfolio is relatively higher, and it has been helped by the recent acquisition. So now we are at 6.5 years. And if you look at the tenant lease that we have that's on Slide #19. In aggregate, top 10, just below 30% contributions to the gross rental income. Number 1 is still Hewlett-Packard on the left. And the contribution of course, split down over time to just 6.2%.

And if you look at #2 to #10 all our data centers partly reflecting the shift in the portfolio profile and still quite well spread among many of the key players in this space.

And on Slide 20, that's our tenant diversification chart. Some of you might have noticed, this is probably the first time we have a change in a position. We used to have the orange sector always starting from 12 o'clock. So now we have the blue part, the InfoComm part, we start at 12 o'clock, representing the largest segment in our portfolio. Maybe it's, of course, because of the consolidation of the data center portfolio and also the recent acquisition.

So now you see them switching position. But that's it, it is still a very diversified kind of tenant type across many, many different segments. Now going a little more into the Singapore portfolio, that's on Slide 21. We see a fairly stable rental level 213. No change from the previous quarter. The data. Of course, you can see on the right side of the chart on Slide 21.

Occupancy, I think, we're seeing an uptick that I think is very helpful in us maintaining that stability. And if we look a little bit more closely at the rental revisions figures on Slide 22, while we see the stability in most segments in terms of before after the renewal rents. We continue to see more pressure for the Business Park Buildings.

If we look a little bit more closely before after, we're talking about a $0.23 reduction for the Business Park rents from $3.96 to only $3.73. But of course, that is still a little higher than our passing rent. So we are able to defend our rents a little. But for new leases coming in, we have taken that on at $3.40. So the market continues to be very competitive in the space we're in and we would prioritize occupancy and say, adjust our rent levels if necessary to improve the occupancy levels for our Business Park buildings.

But for the rest, I think we are seeing a good level of stability. For Hi-Tech Buildings, I think the new rents are a little lower because it depends on the category and type of tenants and buildings vacating in for that quarter. As some of you may know, we have a wide range of Hi-Tech assets and leases can range from about low 2s to high 3s or even just a share above $4. So it's a very wide range. And anyway for this quarter, only 4 new leases registered. So Hi-Tech Buildings, we continue to see a very decent level of -- so going to the tenant retention chart on Page 23.

On the right, you can see the most recent quarter's figures, 80% in aggregate. So it's a very healthy level that we continue to see, of course, partly because of the posture that we have taken in the engagement with our tenants trying to keep them in the portfolio as far as possible.

And I think moving on to the next segment, which is our investment update. On Page 25, the -- I think, the key update is the completion for this particular quarter, 22nd of July. So they have started contributing meaningfully, as you can see in the financial numbers.

And on Page 26, our redevelopment project. The project of course, this is continuing to be on track for the few milestones that we're looking at second half of 2022 and first half of 2023 for the first 2 blocks and the last block. But of course, there is some kind of shift in the actual so-called time, completion time within this window period for the completion of the projects, but I think it's still well within the overall plan that we have in place.

And we are looking forward to, say, handing over the first block next year to our build-to-suit anchor tenant. And in the meantime, we are engaging prospects that may need a large kind of space or have large space requirements for this precinct. So hopefully, we are able to outline any precommitment ahead of completion.

And I think finally, going on to the outlook and strategy on Page 28. For the Singapore economy, I think in summary, I think it's still positive. Businesses are still positive and cautiously positive about the outlook. Though there is a recent kind of bit of uncertainty due to the extension of a stabilization period. Hopefully, we can get out of this uncertainty very soon with direction and guidance from the leaders.

The arrears as I've indicated in the second bullet point for our portfolio remains very stable about 1% of the last 12 months of gross revenue. So we do not see any additional stress. But that said, there, of course -- there will still be some smaller tenants in our portfolio that had not recovered from the challenges of the pandemic yet.

So we will continue to engage some of the -- these tenants that are in arrears to see how we can manage the financial impact and the challenge that they are facing. And as far as rent relief and rebates are concerned, we don't foresee much to be given. For the second quarter of this financial year, we have given out just below $150,000. This is, of course, a very small amount compared to what we have given out in the previous financial year. Some of you might have remembered we gave up $12.7 million in terms of rent reliefs and rebates in financial year 2021. So right now, the amount that we're giving out still a very manageable sum. We do expect more to be given out in the next 1 or 2 quarters. And part of this, of course, is in line with the government guidelines for landlords to give that too in reprieve for retail-related tenants, which we have some. So there will be some more, but I don't think the magnitude will be anywhere near what we have given out in the last financial year.

And I think going on to North America, the data center portfolio, we continue to see a lot of projects being in the pipeline and the pre-leasing had been fairly encouraging as well. The numbers that we have reported, 60% pre-leased and demand in the primary markets, I think, continues to be quite strong. So while there are some near-term rental pressures, we don't see any big immediate issues for us because most of our leases already locked in a long time anyway.

So we think that the data center market continues to be fairly healthy as far as we are concerned. And of course, I think finally, going on to our strategy. It remains the same, keeping our portfolio stable and resilient. And as you can see in our shift in our portfolio profile as we increase our scale and coverage, the diversification certainly is very helpful. And from the financial flexibility side, our coverage ratio is strong. We have the sufficient committed facilities available. So we don't see any near or medium-term challenge at all from the financial side.

And of course, on the growth, completion of the recent acquisition, of course, have been helpful. We continue to look out for more opportunities, and not just in the U.S., we are looking at other geographies as well as I have mentioned earlier. And of course, our development is still on track for completion within the time frame that we have outlined. And hopefully, we can see the revenue contributions coming in probably late next year and early the year after next. Okay.

So I think that ends the overview and the presentation, I can take questions.

[Hwei Leng Tan, executive]

Just some housekeeping matters before we begin. We will take -- first take questions from analysts who are logged in via the WebEx and you have to raise your hands to put yourself in queue. And followed by that, we will take in questions from analyst who've dialed-in. WebEx listeners or website listeners are also welcome to submit your questions via the online platform as well.

I can take the first question. Can we have Derek Tan from DBS, please?

[Derek Tan, analyst]

I would just ask 2 questions. The first 1 is on your OpEx and margins going forward. I mean, given where we've been so the costs do we expect margins to be under pressure? And can you give some guidance on that front.

[Kuo Wei Tham, executive]

Sorry, you're asking about the margins for the portfolio.

[Derek Tan, analyst]

Yes, portfolio, that is Singapore. I mean, utilities pressure and also in security contracts on the uptrend. Just wanting whether would eat into your margins for next year.

[Kuo Wei Tham, executive]

I think a short answer, yes. Because the operating costs that we have continue to see the inflation effects creeping in. So when we do our contract renewals for most of our services, we anticipate upward shift in the operating cost despite us looking at efficiency improvements and using technology to contain the cost.

So on the contract to contract basis, I think 5% to 10% kind of increase is anticipated. But the bigger worry is what you have also mentioned, utilities. We have 2 elements in the utility costs. The first 1 is the discount level, which we can get from the power retailers or the power companies. So that discount rate had been shifting down and we expect that to continue to shift down into the next calendar year 2022.

So that would materially say, reduce the kind of headroom we have. And the other element is the discount of tariff rate because our energy contracts are essentially based on the discount level to the tariff and the tariff moves up and down with whatever the Singapore Power outlines on a yearly, quarterly basis. And we have also seen that shifting up because of oil or fuel price increases and the power crunch experience as well.

So we anticipate the energy costs or rather utilities cost and for our case, mainly from electricity to continue to move up. And the upward shift based on our guess so far might be in the ballpark of about $200,000 more per quarter -- per month basis, sorry. So if I'm looking on annual kind of impact, probably a $2 million kind of impact depending on finally where we lend with the tariff rates and the kind of level of discounts and everything.

[Derek Tan, analyst]

Okay. I think it's quite manageable. Okay. So that appears to be quite manageable about your cost increases, if that's the case.

[Kuo Wei Tham, executive]

Well, I think it is something that we think we can stomach. You look at this quantum of increase relative to our operating costs, but the thing is the margins would still be under stress. If you look at our revenue level or even rent levels, we continue to see negative revisions in many of the segments. And the likelihood of us hitting a kind of a support level in the next 3, 6 months, not likely.

I think you'll probably be by middle of 2022 before we have that visibility. So you see the top line coming under a bit of pressure and your operating expenses for certain, we are seeing that upward shift so the margins or the -- probably see that challenge going forward.

[Hwei Leng Tan, executive]

[Operator Instructions] We have Mervin. Mervin, would you like to ask your question?

[Mervin Song, analyst]

Just following on to Kuo Wei's comments about maybe bottoming out only in mid-2022. I noticed that excluding data centers, the NPI for all segments is actually down Q-on-Q. So -- are you -- should we be expecting this to continue to drift lower on the back of continuing negative rental reversions and maybe even occupancy pressures within the Business Park portfolio?

[Kuo Wei Tham, executive]

Okay. I could not get that part of the question that clearly. Okay. Partly because of our hardware issue, we're using what you call it Polycom on it, and they want to reduce the echo. So they have to reduce the volume. So you're saying the data center rates?

[Mervin Song, analyst]

I want to repeat myself, if it's okay.

[Kuo Wei Tham, executive]

Yes. Yes. Please.

[Mervin Song, analyst]

Yes, I just noticed, excluding the data centers, the NPI for all segments were actually down Q-on-Q. So we expect this to continue on the back of continued negative rental reversions and maybe occupancy pressures for the Business Parks in particular?

[Kuo Wei Tham, executive]

Yes. I think a short answer to your question is yes, we expect that pressure to continue to be there. So what has been helpful is the uptick in the occupancy levels. So that we are able to mitigate some of these effects of the rental rate, challenges and also the expense increase on our net property income. So yes, I think we are looking at the net property income level, having a risk of downshifting a bit.

[Mervin Song, analyst]

Maybe you can touch on the data center portfolio. I don't know whether there are any leases renewed over the quarter. What was rental reversions? And any guidance in terms of the FY '23 lease business. Are we expecting flat positive or negative rental reversions.

[Kuo Wei Tham, executive]

Okay. As of now, we don't have any leases that were renewed. So the gauge that we have for the next financial year is that the likelihood of tenants renewing is fairly good.

But I think it's a bit early now for us to look at the rent levels. But hopefully, we are able to push for a little bit of growth in some of the key leases that we are renewing.

[Mervin Song, analyst]

Hopefully, with some cost savings you can get new telecom system next results season.

[Hwei Leng Tan, executive]

Can we have Joy to ask the next question, please?

[Qianqiao Wang, analyst]

Just 2 questions from me. First of all, just on Singapore, did you look at the land lease or rather the vaccine project that land lease won, were you part of the RFP process?

And more broadly, are you seeing a pickup in sort of built-to-suit requirement or convert-to-suit requirement? Is this something that you can explore with our existing Singapore portfolio?

[Kuo Wei Tham, executive]

No, I think the first one, I think, we have not looked at it for the portfolio. And the second question, sorry, I couldn't hear you, clearly.

[Qianqiao Wang, analyst]

So it's really just on the RFP for build-to-suits. Are you seeing sort of yes, more opportunities in that area.

[Kuo Wei Tham, executive]

Well, I think they are maybe 1 or 2 possibilities that we are looking at. And I won't characterize this as you know that the industry is seeing a lot more demand in this space. But I think on and off, there are a few kind of possibilities. And some of these are not exactly 100% that can be strictly pigeon holding to a build-to-suit kind of possibilities. Because some of the request for space comes from users who are open to build-to-suit or open and they are also open to relocating to existing facilities that can be customized.

So there's a couple of these kind of possibilities around. One of them we're looking at comes on the finance industry backroom kind of operations and other 1 is the automotive industry. And of course, we continue to engage data center users as well for their needs. And we are certainly open to conversions of any of our 2 remaining blocks at the redevelopment of the Kolam Ayer 2 clusters into data center.

We have already made provisions in the design some time back. At the end of the day is very much driven by the support and approval from the government agencies as well if we get interest from end users. So these possibilities are being reviewed and considered. So I would say that there are space users out there looking out for this kind of product offerings, but I won't characterize it as say the market coming out with a lot of demand -- there's some demand that we are pursuing.

[Qianqiao Wang, analyst]

If I can just follow up on the DC, would you be affected by the moratorium of these...

[Kuo Wei Tham, executive]

Yes, it -- We are not bulletproof. So that moratorium applies across the board. So we keep regular engagement with agencies and I hope that we can get some guidance as well. So we basically engaging at all fronts on the user side and also on the regulator side and hopefully, we can tie all this up and then be able to crystallize transaction by is certainly a lot harder than maybe 3, 5 years ago.

[Qianqiao Wang, analyst]

Okay. And my second question on U.S. For the lease coming up to you, is there any CapEx required?

[Kuo Wei Tham, executive]

Well, as of now, I don't think we have any anticipated. Essentially, for many of the leases that are on a acquire and share basis, we don't think we will require a lot of expenditures to be committed. And if necessary, it will probably be some form of tenant improvement kind of commitment that we'll built into the lease for recovery.

[Hwei Leng Tan, executive]

We have a question from caller users. I'll open it up to analysts who have dialed in this state your name and firm, please.

[Brandon I. Lee, analyst]

This is Brandon from Citi. Can you just give us some clarity on the empty space -- not empty space, the vacant space at Atlanta DC in U.S., I think it was 63.5%, right? So what's the update from there? That's my first question.

And second 1 is, do you have a targeted EUM allocation for U.S. DC over the next 1 or 2 years?

[Kuo Wei Tham, executive]

Okay. The occupancy level, as we have reported earlier, is roughly the 63% to 65% level. So we are still, of course, working on leasing out the balance space. Right now, we're actually doing a more detailed analysis on the market and we are close to the appointment of external leasing firms as well to help us reach out to the market. And our intent is to go for quick wins first. In other words, these are the commercial part of the space first, while we look at the longer-term conversion of part of the space for data center usage.

And I think I could have outlined earlier in our earlier engagements we're looking at maybe in the next year or so to be able to lease out at least a big part of the commercial space available. So we are looking maybe about 50,000, 100,000 square feet of space. And hopefully, the commercial market would have recovered by next year.

And as you know, some of -- many of the corporate users are still in flux now and a lot of them have not firmed up their approach and policies, whether they really go fully back to work, whether they have hybrid kind of work arrangements. So it is going to be bit of uncertainty in the near term, but I think we are hopeful that the market would gradually improve by next year.

And in terms of the composition, I think, we will not, 1, to do the allocation by country. It is extremely difficult to calibrate the portfolio along that front. So our intent, of course, is to look at a profile of between half to 2/3 data centers. And as of now, we have already crossed the halfway mark, which is a 50% mark for data center representation.

So we would certainly continue to look at possibilities globally, including the U.S. and the likelihood of us being able to crystallize transactions in U.S. on a relative basis is a little higher because of the size and the depth of the market essentially. And also our presence there had been helpful.

But so -- while I do not want to set a limit. I will say that all things being equal, we will want to have the representation in the other markets essentially for more balanced and more diversified kind of portfolio. So I don't think I want to say we'll cap it at the current level now.

[Donald Chua, analyst]

It's Donald. Two questions from me. First is on data centers. You -- when -- for your first renewal next year, what sort of rent reversion expectation will you be looking at given that the general U.S. market is pretty soft when it comes to the re-leasing spread?

And also, are you having -- imputing some vacancy allowance, some churn rates as you renew next year?

[Kuo Wei Tham, executive]

Yes. I think you're absolutely right. There's some near-term weakness in some of the markets and our aim in many of these renewals or extensions is to try to keep through the current trajectory. So if we can push for a 2%, 3% increase from the last rent or the expiring rents, I think, that is a kind of target that they are moving towards.

The rent incentives and all the commission effect will be considered. And generally, we are looking at probably a 5%, 6% kind of impact on the revenue from the lease renewal.

[Donald Chua, analyst]

So you are expecting effective 5% to 6% down or 2% to 6% or 2% to 3%.

[Kuo Wei Tham, executive]

Okay. The 5% to 6% is the effect on the rents that the revenue that we're expecting to get. So I think on a straight-line basis, there might be a risk of rent revisions being a little negative.

[Donald Chua, analyst]

Understand. I understand. Okay. That's for data snipping. Second is on a business for the quarter, your occupancy is down, but rent reversion trends on a sequential basis looks like it's easing when it comes to the negative reversion.

So what's driving these trends? And when do you think the Business Parks for your portfolio will bottom?

[Kuo Wei Tham, executive]

This is not easy to crystal ball. I think the Business Park users say, to some extent, similar to in terms of space kind of usage close to commercial tenants to some extent, especially those that are not using the facilities for, say, high-tech manufacturing. So we do have some tenants who had shifted the operating model from a work-from-premise kind of arrangement to hybrid arrangements where they have staff who can work from home to be working from home or working on kind of hybrid basis in the premises and at home.

So that has resulted in a downward shift in the occupancy and, of course, the demand that we see in general. We think this kind of say, adjustment will continue to be there at least until the end of 2022, because many of the tenants and corporates are responding maybe to this new norm.

And now the pandemic kind of situation is not entirely resolved. We are not out of the woods yet. So there's still quite a bit of uncertainty. And if you're looking at when we expect that situation to say, be a bit more stabilized and us looking at the bottoming of the portfolio, I think the earliest that we would venture is probably the mid of 2022.

But that I think is looking at a fairly optimistic kind of outcome. The economy being opened sooner than later and us not needing to have all these constraints and restrictions in place. So optimistically, by middle of 2022, which is around, say, June, July time, you find that bottom support. Then you can see the outlook improving. But I think with this uncertainty, certainly a risk of that support only coming in maybe by third quarter of the calendar year.

[Donald Chua, analyst]

Which tenants. Which tenants a little bit quick last one. Just how tenants did not -- you guys did not retain, which industry from the...

[Kuo Wei Tham, executive]

Is, okay, the say segment, which this tenant is in which represents the larger part of this shift is in the chemicals industry. What it did was it downsized its space requirements, roughly half in the renewal. So that has, of course, created a downward drag. Long and short is that the -- many of our tenants and corporates would remain operating.

And I think they continue to be confident of at least the medium-term outlook, but is the business model that probably has shifted for some of this tenant types. And so for this particular tenant for what cannot be done at home because they're dealing with chemicals. They, of course, retain the space and in operations. But for certain backroom support that need not have that physical presence in premise. So they have gone on through the hybrid work arrangements. So that resulted in the reduction in space required.

[Hwei Leng Tan, executive]

Thank you, Donald. I'm cautious that we are approaching the hour mark for this call. I'm going to take 1 more last question from WebEx. I think that's from Vijay. And Vijay, would you like to ask your question?

[Vijay Natarajan, analyst]

Just a quick question. I think there was market talk about digital reality project properties. What are your thoughts relative to on your future pipeline from U.S. markets. And is there any other market other than Singapore and U.S. you are exploring in terms of opportunities at this point of time?

[Kuo Wei Tham, executive]

Well, of course, we have heard in the market that it might be coming up soon. We don't have a lot more details about that. And certainly, we look everywhere for opportunities and for increasing our coverage and reach of the platform. And our intent, as I think, I could have outlined earlier is to be able to have a more balanced portfolio beyond our 2 geographies other than Singapore and North America, where we look at the other markets in Europe and the other key markets in Asia. We would continue to look for the right type of additions that we could bring into our portfolio.

[Vijay Natarajan, analyst]

[indiscernible]

[Kuo Wei Tham, executive]

Yes, yes, that is correct. I think in terms of the mandate, we have only outlined data centers beyond Singapore. Of course, we regularly review other possibilities or other property types and segments that could help us improve our property portfolio profile. But in the meantime, I think we'll be allocating our attention and resources in the data center space first.

[Hwei Leng Tan, executive]

I'm just going to take 1 last question from Derek from Morgan Stanley. Are you able to ask your question, Derek?

[Jian Hua Chang, analyst]

Are you able to hear me?

[Hwei Leng Tan, executive]

Sorry. Yes. Yes, we are able to hear you.

[Jian Hua Chang, analyst]

Just on the U.S. data center occupancies for the new acquisition, the current 88%, where do you see that number getting towards, especially after middle of next year? And how will this translate to overall U.S. occupancy?

[Kuo Wei Tham, executive]

Okay. I think we -- of course, looking at the larger vacancy so-called property. And for our case, for this particular portfolio is 250 Williams in Atlanta. And we outlined the intent to reach out to the key leasing focus and our aim is to lease out the commercial space first because it's probably a lower barrier and an easy execution.

So I outlined another 50,000 to 100,000 square feet of space that we hope to be able to lease out. So practically, if we were to intensify our engagements, you'll be looking at probably the middle of 2022 and beyond before you see the contributions being crystallized. So hopefully, we are able to nudge our occupancy level on an aggregate basis by another 1 to 2 percentage point.

[Jian Hua Chang, analyst]

That's for U.S. DC.

[Kuo Wei Tham, executive]

Yes, that is correct.

[Jian Hua Chang, analyst]

Okay. And just on the NPI. I noticed that the U.S. DC NPI also dropped to 77%, 79%. I think that's probably because of the acquisitions. Do you see that NPI margin also improving after middle of next year?

[Kuo Wei Tham, executive]

Well, we don't expect big fluctuations in the NPI margin going forward. Because I think most of our assets are on the triple net basis and we recover most of the expenses from our tenants anyway.

[Jian Hua Chang, analyst]

Okay. So we just maintain at 79%.

[Kuo Wei Tham, executive]

Yes.

[Hwei Leng Tan, executive]

I'm going to take just 2 last questions from our webcast platform. We have a question from [Wee Bing]. Is that impact to the cost due to the increase of electricity prices, especially for the data center portfolio.

[Kuo Wei Tham, executive]

Okay. We don't see that having any say, direct impact because most of our leases, as I outlined on triple net basis, so the utility cost is fully recovered from the tenants. So I think, broadly speaking, no direct impact. But of course, for the landlord's part, which is our part, we have a couple of facilities that are on multi-tenanted basis where we of course take care of the common areas and general area utilities. So indirectly, we will see some small increase in our expenses, but we don't expect that to be large. Because most of the energy consumption for the data center operations and data host will be borne directly by the tenants.

[Hwei Leng Tan, executive]

I think the final question from [Helen Wong], for the Singapore high tech and business new leases, what kind of tenants do you see? Are they new to Singapore?

[Kuo Wei Tham, executive]

Well, we don't have a lot of really new kind of industry types coming in. I think the key demand still comes from a precision engineering, ICT companies. Though I think the other segments like semiconductor had been fairly robust as well.

I think in the recent year, there has been an uptick in the semiconductor kind of activities and as a consequence of that, demand for space. So far, we have not seen other forms of -- or others, so-called new industry segments that are new to the country or new to the economy?

[Hwei Leng Tan, executive]

Thank you. Thanks for joining us today. I think we have passed our mark now at 10:35. I'm sorry, we have not been able to answer all your questions. We will get back to you via e-mail or if you know how to reach us via phone. Thank you, and have a good day. Stay safe.

[Kuo Wei Tham, executive]

Yes. Thank you. Bye-bye.