Mapletree Industrial Trust

SGX:ME8U

Earnings Call Transcript 2023-Q2

[Hwei Leng Tan, executive]

Good morning. Thanks for joining us this morning for MIT's 2Q and First Half Financial Year '22-'23 Financial Results. We had uploaded our announcements, together with presentation deck last evening. And this morning, we have management seated in the office to a virtual presentation of the results. We have Kuo Wei, our CEO; Lily, our CFO; Serene, our Head of Asset Management; Peter, the Head of Investments; and Khim, the Head of Marketing; myself, Melissa and Lillian from the IR team. So without further ado, I'll pass on the mic to Kuo Wei, who will give a short intro through the financial results.

[Kuo Wei Tham, executive]

Can you all hear me? Probably I've been spitting nonsense. I got cut off by the policewoman. So anyway, I said I was standing up and the rest are sitting now, yes, thanks for joining us. I'll run through the 5 usual segments that we present at our results release. First, I will go through the key highlights. That's the first segment. And who is controlling the -- okay. Now if you look at the Slide #5, you can see the operating performance continues to be fairly robust, despite margins being squeezed by inflation effects and also higher utility costs. And the distributable income actually had been fairly stable, SGD 89 million on a year-on-year basis for that quarter 0.7% increase. But DPU, you can see that effect coming down. This is, of course, partly due to the dilution effect from the series of distribution reinvestment plan we have in place. And I think going forward, we continue to see more pressure coming from borrowing costs, so-called increases. Now looking at the second set of bullet points, if we look at our portfolio performance, especially for the Singapore portfolio has been very encouraging. Our occupancy level on an aggregate basis has gone up 0.3% to 95.6%, which is if I could say highest ever we have recorded for the Singapore portfolio ever since we listed the platform. So the market, I think, continues to be helpful in the occupancy front and even on the rates, as you would have seen in the details we have outlined, we have seen an increase in average rental rate as well as SGD 2.13 to SGD 2.15. So rent revisions are also positive across most of our property types. In fact, the effective aggregate increase is positive 2.6%, which is a fourth consecutive quarter of increase. So that is also another welcome sign. That said, we have seen a small dip in the occupancy level for the North American portfolio because we have, as said, fairly small, 0.4% of the portfolio revenue as of last year on a relative basis at Leonia. We have a tenant that's moving out. So now we are, of course, in the process of engaging interested parties to take up the space. On the capital management front, the third set of bullet point, we are happy to report that the hedge borrowings we have managed to shift that up a little 74.2%, almost 2 percentage points from 72.3% in the previous quarter and a weighted average 4 years. So that gives us a bit of protection, but not full protection against the onset of the interest rate [indiscernible] adjustments. And the DRP continues to be a good source of funding for us, especially when we still have our ongoing development project at Kallang Way. So last quarter, SGD 40.2 million received, a very good take-up rate of 42.9%, of course, as you would know, that is contributed mainly by the participation of Mapletree investments as our sponsor is about 25% of that 42.9%. And the last bullet point, as a kind of measure against the increasing so-called pressures we anticipate in the next couple of quarters from cost, so-called increases and also borrowing cost, upshift, we will plan for the release of the SGD 6.6 million that we have withheld earlier. over the next 3 quarters, so that will help cushion some of the relief impact that we anticipate. So I think that rounds up the key highlights. But if you look at the chart that we have outlined on Slide 6, the DPU profile as what you can see, we have outlined a dip to SGD 0.036 for the current quarter and we, of course, will work hard in keeping our occupancy levels healthy and then try to retain our tenants as far as possible while keeping a close eye on our margins and costs going forward. Okay? So I think that is a quick snapshot of what we have. The rest, I think are fairly standard kind of components of what we normally update. We don't have anything really exceptional to highlight. I think there will probably be some burning questions, some of you might have, so we can take them.

[Hwei Leng Tan, executive]

Thank you, Kuo Wei. Just some housekeeping rules. Request for our analysts to keep your questions to 2 for each round. So of course, if there are no more questions, you're very welcome to ask some more. If you can raise your hand via the Webex platform, you can also contact us or via the live webcast. So we will take questions on the various platforms. Can we have the first question, please? Derek from DBS.

[Derek Tan, analyst]

I'll just ask one question. Essentially, it's on your refinancing, right? So could you give us more color? I noted there's some expiry next year and looking where base rates are in the U.S., it appears that things could spike up quite significantly. So maybe could you just share where you expect interest rates to land? And this SGD 350 million, how should we think about your interest rates?

[Kuo Wei Tham, executive]

Okay. The color we have is orange. So, I'm just trying to put a faster on you. Yes. So Lily would shed some light on that, but I assure you it's still orange.

[Lily Ler, executive]

We're green today, hoping to get some positive vibes. But anyway, okay, let's address the refinancing for this current financial year. If you look at the presentation slide on 13, we do have about SGD 315 million of debt that is maturing in January, okay? The good thing about this refinancing is in terms of the benchmark rate, we have already done the hedges for it we have extended. If you recall, last quarter, I did mention that we have no repricing with respect to the interest rate swap because we have already extended the interest rate swap that is expiring in January. So that part is kind of a lockup, right? We are currently negotiating with the banks with respect of the loan renewal itself. I think because it's still in negotiation, I'm afraid I can't say too much in terms of the pricing, et cetera, okay? But I think we are hopeful and we are trying our best to keep the incremental costs to as low as possible. We don't think it's going to be very significant looking at what we have locked in ahead of time. I think for all intents and purposes, being the risk that we are really facing here is the rate hikes that the U.S. Fed has been putting on, and that basically impacts the benchmark rate. I think in terms of the margin, the rate is not as high as compared to where the market interest rate would go, okay? So I think for this refinancing that is coming due in January because we have really done our extension of interest rate swap that risk is very much mitigated, right? The next year, you'll find that we have about SGD 175 million of MTN paper that is falling off. And this typically, you are looking at them somewhere maturing in middle of the financial year and end of the financial year, okay? So I think that still gives us some breathing space. But nonetheless, the team will continue to look at how we can address the refinancing this year. Okay?

[Derek Tan, analyst]

Yes. Lily, just to summarize what you mentioned. So we should expect that the increase in interest rates for this particular tranche should be much lesser than the base rates that we see increasing. Is that the right assumption? Because you hedged -- you already hedged [indiscernible] essentially. You're putting the hedges together?

[Lily Ler, executive]

Yes, yes, yes.

[Hwei Leng Tan, executive]

David, can you please ask -- go ahead with your question. David from Daiwa.

[David Lum, analyst]

I have a question on the accounting treatment of your hedges, because you're seeing a pretty significant gain this financial year. And how should I interpret this? Is this just accounting -- it actually increases your NAV. So is there any way you can monetize this to offset the rising interest rates? Or is -- or should these hedges just unwind on maturity and we should not even look at your gains on your -- on those derivatives?

[Lily Ler, executive]

Okay. For the derivatives, under the accounting standard, we are expected to do a mark-to-market. So of course, the IRFS that was taken on a few years back, definitely is in the money now if you look at the interest rate environment, and that is also the reason why the derivative value has actually increased. Whether we want to monetize it, we can, but then the question as the moment you monetize, you lose your protection going forward. So I think that is why I think typically, corporate don't really actively look at unwinding their hedges. I think the hedges are there for a reason for your protection. So question then, do you just want to remove that protection just for that -- just to monetize it, right? So I think the other point I would like to highlight is also that such mark-to-market has no DPU impact whatsoever, okay? I think you will get the benefits when you do your realization and you are right, you will unwind, you basically then unwind a point of maturity. Does that answer your question?

[David Lum, analyst]

Yes. Yes. Yes. That's pretty clear.

[Hwei Leng Tan, executive]

Mervin?

[Mervin Song, analyst]

This question in terms of the nonrenewal in the U.S., just trying to understand the reason for tenant moving out. And also, you see other none risk outside [ AT&T ] over the next 12 to 18 months?

[Kuo Wei Tham, executive]

Okay. For this tenant, I think the activity level has been very low in the premise. So it's not a key location for its operations. So they decided to move out and anyway, it's not a very large asset. As to other renewal so-called discussions, I think the more prominent still remains the group of 3 [indiscernible]. We don't have any other very large one in the coming, say, 12 months or so.

[Mervin Song, analyst]

Do you have any of these smaller ones that could come out?

[Kuo Wei Tham, executive]

Smaller ones, I think we have a large -- what we call, hyperscale user at the Northern Virginia asset -- but on a relative basis, it's a smaller part of our portfolio that's having the lease up for renewal beginning of 2023. So that one, I think, is in the joint venture vehicle we have with Mapletree Investments and also with Digital. So digital is funding that engagement with the [indiscernible]. So we do not know at the present moment on the renewal kind of intention, but we are hopeful. And hopefully, by November or December, we will get some clarity on that.

[Hwei Leng Tan, executive]

Tan Xuan, do you have a question?

[Xuan Tan, analyst]

Just one question on the debt currency profile. The proportion of U.S. borrowings significantly higher as compared to your SMBs. So is this a deliberate policy and with refinancing will you look to bring that down?

[Lily Ler, executive]

Okay. I think typically, when it comes to the debt currency profile, the reason for the higher percentage in terms of U.S. dollars is more because we're also trying to ensure that there is a natural hedge with respect to the capital value, right? So -- and of course, plus the fact that for the U.S. dollars borrowings that are taken onshore in U.S. itself, we actually are able to enjoy the tax deductibility when it comes to us having to pay the tax, et cetera. So there is certain benefits in us having a higher percentage of the U.S. borrowing -- but having said that, I think in terms of the impact, the U.S. borrowings, we have a large part of our -- how should I put it -- our hedge ratio, okay, is about 74%, right? And that also means that the U.S. borrowings is quite largely hedged. So I think we only have about 25% thereabout of the U.S. debt that is not -- that is unhedged and therefore facing the increase in terms of the higher interest rates. So I guess, we can say, yes, that composition is deliberate because we were looking at the natural hedge as well as taking advantage of the onshore tax deductibility of the interest expense.

[Xuan Tan, analyst]

Okay. So with the refinancing next year, we shouldn't expect this ratio to change, right?

[Lily Ler, executive]

I don't think so. Yes.

[Kuo Wei Tham, executive]

Very unlikely, unless you are able to get a lot more, say, exposure or kind of projects in non-U.S. geographies, and you see that ratio adjusting, because if you look at the nature of our so-called the fundraising exercises is almost entirely in Singapore -- in Singapore dollars for equity. So whatever equity that we raise, would normally be used to pay down existing Singapore debts that's a lot more direct and so-called less cumbersome to execute. I don't think we're going to try to be inventive and take the Singapore dollar equity funds convert into U.S. dollars and pay down our U.S. dollar debt for the time being because we still have a fairly decent level of shield -- tech shield by having slightly elevated, which is at a level of 60% when we first started of debt for the U.S. portfolio. So as with most kind of instruments, there's no one instrument that is going to be suitable for all seasons. So that kind of profile -- the profile that we have had been helpful, very helpful for the -- over the last 5 years. But of course, the trade-off is that you see more exposure, more direct exposure to U.S. rate hike cycles. So that's what we are seeing now. That said, it's certainly helpful that we have a big part that's already hedged away, then the small balance of about quarter would be still having to experience the current volatilities.

[Hwei Leng Tan, executive]

Brandon, do you have a question? Brandon of Citi. Okay. Maybe, Nicholas can ask your question first. Nicholas from Credit Suisse.

[Nicholas Teh, analyst]

Can I just ask on some of the leasing progress. I just want to understand on the AT&T, although it's still early. Any color on like the backfilling or inquiries that you're getting on the spaces and also the leasing up for Kolam Ayer 2?

[Kuo Wei Tham, executive]

For the AT&T facilities, as of now, we don't have any additional updates that we can share. So we are still checking with the market and getting the brokers on board is about a year from now when the leases expire. So we would certainly update the community when we get some so-called interest from prospects. So at the present moment, nothing yet. For the Kolam Ayer 2 with this redevelopment, we are discussing with the prospect for 2 floors in the middle block, Block 163. So we -- of course, if not there, sealed up the lease document yet. So we are optimistic, but still working at it. At the same time, I think we're reaching out to a couple of interested analysts, but not as close as this tenant who was taking up 2 floors. 2 floors is roughly 27% of the [ NOA ] of that building. So if you spread up here, you'll add another 8%, 10% to the occupancy levels, so you would have crossed 30%. If you include the first block alone for 24.4%.

[Nicholas Teh, analyst]

Okay. And just one quick follow-up. In terms of the timing for the anchor tenant's lease, when does that start? Or when do you start seeing?

[Kuo Wei Tham, executive]

Okay. Effectively, for us, after the rent-free it will be end of March or early April 2023. So for ease of I think, modeling 1st of April 2023 would be, I think, a good date to pin the start date after the expiration of the rent-free period.

[Hwei Leng Tan, executive]

I think Brandon's been trying to ask a question. Brandon, are you able to speak?

[Brandon Lee, analyst]

Yes, can you hear me?

[Hwei Leng Tan, executive]

Yes, we can hear you.

[Brandon Lee, analyst]

Just 2 questions, right? The first one is with regards to the SGD 6.6 million that you are returning. How should we be reading it? I mean, because you are going to distribute it over 3 quarters, why not 4 quarters on a 5 quarters? Is it because you think that the next 3 quarters is going to be quite bad or you're trying to engineer a DPU growth for the full year? Yes, that's my first one. The second question would be, can you explain the year-on-year NPI margin across several of your segments this quarter, especially on the U.S. DC as well as the high-tech space ex-DC?

[Kuo Wei Tham, executive]

Okay. The mathematics behind this is extremely complex. It's like earth designing for a trip to mars. So -- but anyway, that was, of course, said in just -- is not the precise kind of exact science that we have. We think the release of the SGD 6.6 million is timely, partly, of course, because of the increasing pressures that we anticipate in the next couple of quarters. But I think more specifically, should we do it 2 quarters or 3 quarters, there's no exact science. Our sense is that you split it up to -- so over too many quarters, you'll be inconsequential and you'll be too dilute in terms of the effect. And we also do not want a concentrated kind of a release in one quarter, which I think may not be helpful over the -- at least the next couple of quarters because we see that continued pressure from at least inflation and the borrowing costs that will continue to feature for some time. So of course, the debate is 2 quarters, 3 quarters at the end of the day, we decided to spread it out a little more to 3 quarters that would at least help us take through the next couple of months of greater uncertainty. And if you divide SGD 6.6 million by 3, SGD 2.2 million is a reasonably helpful quantum that we think would at least give some material help in terms of the profiling.

[Lily Ler, executive]

I think the question is on NPI margins. I think for the Singapore and the U.S., the reasons are quite different. For the Singapore portfolio, I think, as you all know, utilities expenses have hit across the board, especially for the high-tech -- for the air conditioned buildings, including high tech. And we see this hitting the margins directly. For the U.S., if you notice, Q-on-Q, actually, the NPI is the same. For the U.S., the treatment is a bit different because for whatever expenses we incur for the property, there is a claim back. So you'll see that gross revenue will be higher in some quarters, if there are works there to be clean from the tenant. So I think for the North America data centers, the effect is largely mathematical and not so much because of any increase in property operating expenses.

[Hwei Leng Tan, executive]

I think we have Ezien from OCBC. Would you like to ask your question, please?

[Ezien Hoo, analyst]

Sure. So, I have 2 questions. So the first one is, I think there's still a right of first refuser on data center portfolio that is held at the sponsor level. So just wanted to get a sense of what your thoughts are on acquiring just given the current funding environment? Then the second question is on data centers. Has Mapletree Industrial done some kind of valuation on the data centers on an alternative use basis, say, if they no longer use as data centers? Yes, that's all.

[Kuo Wei Tham, executive]

Okay. The first one, I think on the right to acquire, it remains there and we are, of course, keen. At the end of the day is whether the parent Mapletree Investments is ready to divest and at what price. So, I think for this asset types, the prices continue to remain fairly tight or rather capitalization rates remain very tight. So unless you get a very huge friendship discount, that is so-called out of line with the market, my sense is that, say, if you take an arm's length kind of value for the portfolio, it will not be easy for us to execute a transaction to do an acquisition. So we would, of course, keep an eye on our cost of capital, both on equity and debt part to see whether there is a window for us to engage our parent a little more so-called on this possibility. My sense is that at least for the next 6 months to 9 months, fairly low likelihood for us to explore this in view of the market situation. But it's something that we would continue to monitor and with the right conditions and when a market window opens, we would pursue that with our sponsor. Now, on the valuation of data centers or alternative use, as of now, for most of the facilities, the highest and best use generally would be for the data center operations, say, for some of the locations where we have the assets that are in, say, business partner type of precincts that would be the next alternative use, the so-called next alternative better use. So the valuations would probably not differ too much from what we have, because most of our assets in these kind of locations are leased on a triple net basis and mainly power shower or just [indiscernible] basis. So the general kind of land levels and valuation would not defer too much from what we are getting for the data centers. Of course, for the fitted hyperscale facilities, that's very different. The asset is purpose built and the freedom element is a lot higher. But for this group of assets we have, the leases are very long and the tenants, I think, are relatively, they're lot more sticky compared to the other groups of tenants. So that in part, I think the risk, of course, is there after the expiration of the very long leases, but they will be something that we will need to review many years down the line. And of course, on a positive note, there are certain so-called the upgrades that we see, like, for example, the San Diego asset where AT&T presently did 1 year extension, I think we have outlined earlier to December 2024. So that part or that part of San Diego is actually a very vibrant life sciences hub. So, that represents an upgrade in the -- so-called the use for that kind of premise. So it is another angle that we are exploring in terms of conversion, if you are not leasing out the space to a data center operator and expiration of the lease.

[Hwei Leng Tan, executive]

Okay. I think I'll ask a question from the chat, Derek from Morgan Stanley. The all-in debt cost of 2.9%, what would this be after refinancing the SGD 251 million in loans due? That's the first question. The second question, the Kolam Ayer 2 redevelopment is completing in the second half of 2022, first half of 2023. Is management worried about leasing progress so far as it's just been committed by the anchor tenants? Any further updates?

[Lily Ler, executive]

On the all-in debt, the 2.9%, okay, is what is reflective of what we see in the current quarter, right? As for the refinancing, I think just now I said that we are trying to make sure that the incremental is not as high. And with us locking in the hedges ahead of time, we actually managed to lock in at a rate that is comparatively attractive compared to what we are looking at now, okay. So, I think even if it does increase for the refinancing, we hope -- we are hopeful that the incremental will be less than 50 bps. I think that's something that we are trying to do and we hope to achieve. But as I said, unfortunately, I can't give you guys too much details on that because we're still negotiating. Hopefully, we have some good news later on, right? So as to how it will change the 2.9%, I think if you recognize that the SGD 350 million is only about 12% of my total debt. I think the impact may not be that significant as well if I'm talking about incremental. Okay? I hope that answers your questions.

[Kuo Wei Tham, executive]

Okay. The next question on leasing of Kolam Ayer, we are absolutely confident in our ability and reach of our leasing folks. And they're working very hard and they have been assuring me that they would be able to convert many of the prospects they're talking to. So if you look at the track record of their delivery, we remain very positive. So, there will always be some challenges in the market, especially when the environment is so volatile. But we have a good product. We have a brand new facility. We have specifications that are relevant to the industries that we are targeting. So, we are positive. So, you may take a bit of time in terms of leasing up in terms of getting the tenants in place. And as I've outlined earlier, the block in the middle, block 163 we have -- we are very close to the signing of block slightly more than a quarter of the space to a good brand name tenant. So the momentum is there. We will continue to work on that, but practically, I think if your question is on the contributions, when we see the revenue streams coming, I think it will be towards the end of 2023 that we'll see the kind of revenue streams being recognized because by the time, say, we complete the development by middle of 2023, even if you can get a tenant to commit, then you have fit out and a rent-free period. So invariably, most of the contributions will probably be back-ended towards the end of 2023 and early 2024.

[Lily Ler, executive]

Yes. But for the block that we have already committed, we expect that to come in from the beginning of next financial year. So that's 1st April, right?

[Kuo Wei Tham, executive]

Yes, 1st April. I think the 24.4% is confirmed. That part, I think, gives us that base load as far as revenue is concerned. But the rest, I think while we work hard at getting commitments in place, but practically as I mentioned with the -- so-called the commencement, times being staggered and you have your -- all the fit-out and rent-free arrangements. So the real cash flow will probably be towards end of 2023.

[Hwei Leng Tan, executive]

Can we have Vijay's question please?

[Vijay Natarajan, analyst]

I have 2 questions. My first question is on the service charges. There were some discussions about increasing service charges in the past to -- I mean to mitigate this inflationary pressures. I mean, is there something -- is there still something on discussion? And if such a thing would be implemented, would it be across all the leases in your portfolio base? My second question is related to ForEx impact. With regards to the strengthening of the USD, how did this impact your DPU for this quarter or for the first 9 months? And if you strip off the USD impact, what would it be? Or is it fully mitigated by the interest payment in US dollars also? That would be my questions.

[Kuo Wei Tham, executive]

Okay. On the service charge part, I think we have articulated our intent to increase the service charge. We are happy to share with you. We have done that 1 July, 2022. So for our air-conditioned facilities, essentially, the business park buildings or the Hi-Tech Buildings that increased roughly 10%, because we are making adjustments to the second decimal point on the service charge costs. So 10% increase, and I wouldn't say it's very well received by the tenants. We get some complaints here and there, but they gradually accepted the increase. So, that has helped us offset some of the margin pressures from utility cost increases. Just to share, in our current REIT on the cost up shifts, you might remember we have shared before our utility costs increased. We anticipated roughly SGD 10 million to SGD 12 million for the year. And it is fairly in line, based on what we are seeing so far on the actual costs so-called taken in. So probably you will fall quite well within the $10 million to $12 million anticipated. So that utility costs rather offset from the service charge increase will be helpful. Our gauge in terms of the impact from this service charge adjustment is probably 1 plus or so SGD 1 million. It's not going to be very significant, but it's helpful in mitigating the effect and it's also signaling and then share kind of pain that we have in place with our community. We have not raised a service charge rate for our non-air-conditioned buildings. In other words, the multi-user Flatted Factories because these are not large, so-called consumers of utilities. The buildings are not air-conditioned. The equipment that is so far powered by electricity would be mainly the lifts for THESE premises. So that impact is not as material. And we have weighed the pros and cons of pushing ahead, that additional kind of so-called revenue, or I wouldn't say revenue, additional so-called contributions on the service charges you can get from this bunch of folks will not be that much. And it's extremely painful process dealing with the thousands of smallest SMEs on this front. So, we have decided not to have a blanket across the board service charge of so-called adjustments. Yes. On the exchange or the ForEx, so-called the impact, I think Lily can shed some color on that. Essentially, we have big part of our borrowings that are already hedged. So, we don't expect any so-called big movements down there from the ForEx impact on the distributions. We also have the hedges in place for the cash flows that we are receiving, but with different levels of kind of hedges that have been layered on over time. So, I think Lily can share some so-called details on this.

[Lily Ler, executive]

Okay. As Kuo Wei says, we typically look at the US. income stream coming in from the US, and we take into consideration the net after looking at the interest rate that is in U.S dollars as well, right? So the exposure we're looking is really net of all this. We basically hedge the net income stream by looking at FX forwards. So, we do that on looking ahead 4 quarters. So every quarter, we will actually add a little bit of FX hedge or FX forwards for the quarters coming in the next 4 quarters. So basically, I think the key idea here is we do average our exchange rate that will be applied on the distribution. So if you imagine this quarter's distribution is probably made up of a few forwards that has been locked in 4, 3, 2, 1 quarters ago. And of course, we have about -- we left at about maybe 20% that is on a spot basis. So, I think typically that is how we manage the FX exposure. So, I think the key thing we have to remember that when we do all these FX hedges is to ensure certainty in terms of the distribution. Not so much of -- we are trying to benefit from -- we're trying to profit from it. Okay. I hope that answers your question.

[Vijay Natarajan, analyst]

Yes, Got it. If I just, may be just clarify on the first part -- just to clarify that the service charge impact has been implemented across all tenants, not just for new leases and this is the margins which we can expect moving forward after increasing the service charge in coming quarters. Is my understanding right?

[Kuo Wei Tham, executive]

Yes. The service charge increase has been applied to all air-conditioned buildings, so the Hi-Tech facilities and the Business Park Buildings, but not to the non-air-conditioned buildings, the Flatted Factories, stack-up/ramp-up facilities. We don't have that increase in place.

[Hwei Leng Tan, executive]

Okay. I think we are running out of time. I'm going to take questions from those who have not had a chance to ask on the WebEx. That would be Xavier, Michael and Amanda. Xavier, could you ask your question, please?

[Xinfu Lee, analyst]

Just want to check your views because [indiscernible], just one of the slowdown of spending, I want to know whether you foresee weaker demand as well as longer lease-up periods for your US data centers? And by extension, should we also expect a slowdown, this slow and cost spending to affect, therefore, data center demand as well?

[Kuo Wei Tham, executive]

Okay. I think the tech companies are relooking at their growth plans. They're still growing probably at a slower clip. They'll be making adjustments on their needs in some markets, for sure. You can read about them downsizing certain parts of their workforce. But I think the medium-term outlook and then demand continues to be very encouraging. And for the lease-up of the space we have in our portfolio in the US, certainly, that would have some impact. And on the level of interest, we would, of course, continue to monitor the market very closely and try to find the right match for our space. The Singapore data center space, I think I will characterize this as still a landlords market because the vacancy is extremely low. Whatever power that is available, already would have taken. So despite the shrinkage in some quarters for some of the tech companies, I believe if you're able to offer new space, additional or other adequate power allocation for any facility, you'll be able to find a taker very quickly because Singapore is in a situation where your supply is really or new supply is really non-existent partly because of policy decisions taken 3 years back. As you know, there's a moratorium in place, so it is partly an artificial kind of constraint from the supply side. So if you have any space available or power available, that will be taken up very quickly. But there is also a challenge we face from REIT or from a developers' perspective, it's not so easy to get hold of new allocation, new approvals for such facilities. So while we are very positive about the kind of demand that we are seeing here, we might not be able to exploit the opportunities very effectively as a REIT, as a developer, as a property company compared to, say, data center operators or users.

[Xinfu Lee, analyst]

Got it. So if I were to summarize, I guess the near-term challenge -- the near-term challenges for your US data centers are that the medium to long-term outlook is still good. And as for Singapore, I guess the -- as you mentioned, it's still a landlord market, question is just whether you'll be able to take advantage of it?

[Kuo Wei Tham, executive]

Yes. That is right. As you know, there's a CFA, call for application by the agencies for the data centers that's closing, I think next month. Quite difficult for us to be competitive in this space. You will in the operator kind of a game instead of a property company or REIT or developer game.

[Hwei Leng Tan, executive]

Michael, do you have a question for us. Michael from UBS. We'll take the question from Amanda first, please. Amanda is here.

[Unknown Analyst]

I just have 2 quick questions. One on rent and one on leasing demand. For the rental, are you seeing any pressures on asking rents for your new leases? I see that your new leases for the first half for Flatted Factories, Business Park Buildings in the second quarter saw lower new signings rent. That's my first question.

[Kuo Wei Tham, executive]

Okay. This so-called the additional sense and read of the market, probably, I'll ask Khim to give you, she's been dealing with all these prospects on a very intensive basis.

[Siok Chng, executive]

Right. For the Flatted Factories, right, we are actually very practical in our approach because now our occupancy for the Flatted Factories has gone up. So some of the leases, the new leases, we were actually trying to get some very good tenants in terms of the profile. So that's why we have made some adjustment. Where there is smaller spaces, we actually push up the rent. So on average, it does seems that it has lowered, yes. But it helps us in the longer-term. So for the stack-up/ramp-up, it was due to largely a few big tenants that we were trying to replace. So, we tried to get them to come in earlier. So, that will help us to reduce the downtime. So it's more of a practical kind of move. But on the whole, we are actually pushing the renters.

[Kuo Wei Tham, executive]

Essentially -- sorry?

[Unknown Analyst]

Go ahead, Kuo Wei. Sorry.

[Kuo Wei Tham, executive]

Yes. Just wanted to say Khim is getting more selective apparently because, I think the so-called situation is a little more helpful now. The supply and demand situation is more helpful for landlords, but we are fully cognizant of the fact that there will be a lot of stock that we will be completing end of this year, early next year. So it is always at a stage where we are looking at a tension, whether we should nudge the occupancy up a little, whether we get better quality tenants to improve the profile of the precincts that we are managing and also taking a more defensive position in view of the new stock that is coming in the market that will be competing with us. So, this is striking that kind of balance, which Khim is working hard at and exhibited in some of the figures that you see in our update.

[Unknown Analyst]

I see. Okay. Then on leasing demand, what is your read on the demand on the ground currently? Are you seeing any slowdown, say, from any particular tenant sectors in manufacturing data or maybe any tenant sector that's coming in strong?

[Kuo Wei Tham, executive]

I don't think we have so-called registered any material, so-called shift in the level of demand whether upwards or downwards. So, I think the COVID, the so-called -- the issues are firmly behind us now. Everybody is working around maskless, except for a few very careful people. So our tenants, I think -- and prospects are generally, I would say, I would describe as positive. So, I don't think there's any drop-off in demand. It continues to be encouraging, though. Of course, you might have read in the recent reports there are certain segments that they're seeing some so-called reduction in, say, industrial production or capacity semi-con industries being so-called under a bit of stress. But generally, we don't see any big negative issues across the different segments.

[Hwei Leng Tan, executive]

I think I'll just check if Michael would still like to ask his question, if not. Michael? Okay. I think that we might have lost Michael. Well, thank you, everybody, for joining us for this rather long call this morning. We hope we have answered most, if not all of your questions.

[Kuo Wei Tham, executive]

Just one. You managed to see DRP, right?

[Hwei Leng Tan, executive]

DRP?

[Kuo Wei Tham, executive]

I saw it flashed up on the screen for 3 seconds, then it went off.

[Hwei Leng Tan, executive]

Okay. So Derek's question has caught Kuo Wei's eye.

[Kuo Wei Tham, executive]

Everything will catch my eye blinking.

[Hwei Leng Tan, executive]

Okay. You would like to answer this question? Kuo, we mentioned the merits of continuing the DRP, but wouldn't this be an expensive source of funding cost given trading use, maybe more so than borrowings? We also saw the dilutive impact of the DRP this current year.

[Kuo Wei Tham, executive]

Yes. So it's not an easy kind of calibration to do. I agree, absolutely, it is costly relative to say our position a year back. At that time, our unit price or equity cost is a lot more attractive from a fundraising perspective, but it is still at the current level at a premium over NAV. So if you look at it very theoretically, it is still beneficial to raise equity at a premium to NAV, but of course, on a relative basis, a little less interesting. From our perspective, we still have funding needs for our development projects. And I think just as a quick reference, we have about 1/3 more to go in terms of payments, not precise numbers. So that would require so-called, us to get capital, whether debt or equity. So if we see continued support from our unitholders and also from our sponsor, we think is helpful for us to continue for little while longer to have the capital in place to cater to the funding needs for our development project until we finish up most of it. Certainly, we can take that and our leverage ratio is still at a fairly healthy level, but it is not at a very low kind of a level where we have extremely large headroom. We are still at the 37.8% level. So, I won't describe this as an extremely safe kind of leverage level. Extremely safe is below 30%. We have reached then -- that level some years back and also partly because of our application of the DRP, then as well over the quarters. And when we got to that very, very safe level, we turned that off. So, we are certainly not near there. And with our current leverage level, it's good to keep a little bit of headroom and have some dry powder in place. But we are cognizant of the fact that it is on a relative basis less attractive means compared to a year back and also the dilution effect to the portfolio. So, we are recalibrating that and we will relook at that in a quarter or 2 to see whether we want to continue with the DRP program or not. But I think as of now, as we have outlined in current quarter's release, we are continuing with this quarter first because we still have current needs.

[Hwei Leng Tan, executive]

All right. Thank you, everybody. Thank you for your time. Please reach out to us if you have further questions. Thank you. Bye.

[Kuo Wei Tham, executive]

Yes. Thank you, everybody.