Mapletree Industrial Trust

SGX:ME8U

Earnings Call Transcript 2025-Q2

[Operator]

Good morning. Thanks for joining us this morning for MIT's Second Quarter and First Half Financial 2024-2025 Results Briefing. MIT has released its second quarter and first half financial year 2024 and 2025 results yesterday evening. We have the management team to present the key highlights of the results. Ms. Ler Lily, CEO; Ms. Khoo Geng Foong, CFO; Mr. Peter Tan, Investment; Ms. Serene Tam of Asset Management; and Ms. Chng Siok Khim of Marketing.

[Lily Ler, executive]

[Audio Gap]

coming in with the financials as well as the capital management section. Then I think I will touch a little bit on the operation parameters, okay?

So just to start off in terms of the key highlights, if you are flipping to these slides, you'll be looking at Slide 5.

I think for this quarter, it has been, I would say, quite non-eventful, business very much as usual. We do report a higher net property income. I think whether you compare quarter-on-quarter or year-on-year, Osaka Data Centre is key contributor, right? I think for the final details, you will probably hear it from Geng Foong later. So I think in terms of DPU, we are quite happy to be able to deliver a $0.033 DPU. I think this, if you look at it on a year-on-year basis is 1.5% increase. I mean, of course, on a quarter-on-quarter basis, I have highlighted last quarter, I think in terms of the NPI margin, et cetera, is a little bit on the high side last quarter. So I think this quarter is a bit more -- but it also means that I think in terms of the DPU, we do see a slight decline, okay?

Operationally -- yes, and maybe it's also good for me to just highlight at this point that, for this quarter, we have finalized the extension with AT&T. So I think the extension is for a 17-month period. I think in terms of rental, I reckon this will be a question that you will ask, so I'll just address first.

The rental rate is, I would say, is lower, close to what we have signed on initially. If you remember, this is the second extension. So the first extension was at a premium. I think in consideration of -- and for all practical reasons, we think that just accepting the extension is a better move for us.

I guess the other side of it, if we don't accept the extension or we hope for even higher rental rates is the fact that you will have some downtime in trying to fill up the building. And during this period, it's probably a 0 income type of situation. So I think the extension of AT&T is actually a good development for us. It gives us more breathing space for a good 17 months. But nonetheless, it's really kicking the can down the road, and we will continue to work on marketing the -- exploring the various options that we can work with for San Diego.

Okay. Going on to the operational performance. The average overall portfolio occupancy has actually increased, I would say, quite well from 91.9% to 92.2%, largely due to the Vanderbilt lease, which is commencing. But I think just like to remind that this Vanderbilt lease comes with a 1-year rent free. So at this point, we are still doing the rent-free period, so there will be no DPU impact arising from this, okay?

The other point to highlight is the rental revision. We are happy to report that we have achieved 10.7% across all property segment. This is something that is we are quite happy to be able to achieve. But nonetheless, I think we also have to bear in mind that the rental revision, a large part of it, comes about because we do have leases that were signed on during the COVID period. So those were at relatively lower rents. So I think going forward, we would expect that the rental revision, which will mute down a bit, so probably near the single mid-digit, okay?

The third point that we have here is really the acquisition of the property that we have recently announced in Tokyo. So we have just completed it yesterday. In fact, it was like halfway through our Board meeting that we actually completed. And the last point is really on the distribution reinvestment plan. We are quite thankful to the unitholders for taking up the options, or the elections, to receive units. So we are able to retain about close to $17 million. So that actually helped to mitigate some of the effects towards our leverage.

Okay. Next, I will pass [Technical Difficulty].

[Geng Foong Khoo, executive]

Can you hear me?

[Che Heng Tan, executive]

We can.

[Geng Foong Khoo, executive]

Okay. I'll go through the financial performance as well as the capital management update.

Okay. Year-on-year, comparing the second quarter, net property income increased by 4.6% to $134.5 million, largely due to contributions from the Osaka Data Centre, which we acquired in September last year, as well as new and renewal leases across the various property clusters. These were partially offset by the nonrenewal of leases from the North American portfolio and loss of income from the Tanglin divestments.

We also incur higher property taxes, marketing costs and higher property maintenance costs. On the borrowing costs, this increased by 3%, largely due to the higher borrowing costs in relation to the Osaka Data Centre, partially offset by effects from the repayment of loans with the proceeds from Tanglin divestments.

The distribution declared by the JV decreased due to higher borrowing costs from replacements of interest rate hedges. So overall, our DPU increased by 1.5% and or $0.005 to $0.0337.

Okay. Quarter-on-quarter, our net property income increased due to higher revenue from the full quarter impact from the Vanderbilt lease. We also completed Phase 3 of the Osaka Data Centre end June '24, hence, the higher revenue from Osaka Data Centre for this quarter. These were partially offset by higher property taxes and property maintenance. Our borrowing costs increased due to higher interest costs from non-replacement of interest rate hedges upon expiry.

Before that, let me clarify in terms of the NPI, stripping out the rental amortization, our NPI is flat. Hence, if you look at the DPU, overall, it's dropped by 1.7% or $0.006 to $0.0337.

Next Slide 11 -- sorry the NAV slide. Our NAV per unit decreased by $0.04 to $0.0172, mainly due to decline in the valuation of financial derivatives as well as weaker U.S. dollar.

Our total debt decreased by $48 million to $3 billion, mainly due to lower net translated borrowings from a weaker U.S. dollar. Our aggregate leverage ratio stands at 39.1% as at 30th September. Post-completion of Tokyo acquisition, the aggregate leverage is about 40%.

As Lily has mentioned, we retained $16.6 million of cash from the DRP, which we have used to pay down loans. So as a gauge, for every $10 million of cash retained, we will be able to reduce our gearing by 0.1%. So for this quarter, we continue to apply DRP.

In terms of debt maturity profile, it is well staggered with average debt duration of 3.4 years with no refinancing risk. So we have about $50 million of IRS due this quarter, which was not replaced, hence, the lower hedge ratio to 80.4%. And our average hedge tenure reduced slightly to 3.4 years. Our average borrowing cost is at 3.2%.

I think Lily will continue with the operational performance.

[Lily Ler, executive]

Okay. Sorry, there's some downtime because we need to switch the mic, need to pass the mic on.

Okay. Now on the operational side, good news in terms of the occupancy, we see overall an increase of occupancy for the entire portfolio. I think if you look at the breakdown between the Singapore, North American and Osaka, the key contributor to the increased portfolio occupancy is really from the North America. And that one, as I explained earlier, is largely due to the Vanderbilt -- the commencement of the lease by Vanderbilt.

I think maybe at this point, I can also highlight our report that for our Kallang Way, we have managed to increase our committed occupancy. I think last quarter, we mentioned about 53.5% has been committed. So this quarter, we are able to increase it by 1 percentage point to 54.5%. I guess it's a slow progress, but at least there is some progression. So I think the team is working quite hard on this. And we do hope that we can at least reach maybe 60% to 65% by end of this year.

Okay. Moving on. Lease expiry. I think if you look at this quarter, we do have 1 lease that is expiring. That's the 1 that was previously occupied by [ Cistera ] or Central Square now, okay? I think that one is in East Technology in Phoenix. I think the re-leasing progress is -- the re-leasing is currently in progress. But we think that it should be quite okay to do a back few, considering that this is actually in Phoenix, which is one of the key data center markets in North America. But of course, I think it's not a case of immediately, if somebody who left, somebody will come in and take over as in. So there's bound to be a certain level of downtime. So I think we need to be a little bit patient on that one, okay?

If we look at the rest -- some of the expiry that's coming for the rest of the financial year, we do have Vanguard, who is located in Philadelphia. So I think that one takes up about 124,000 square feet, and it'll be expiring towards the end of this calendar year, so December 2024. We have started the marketing for it. And in fact, we have engaged a broker to do the marketing. So we do hope that there will be some progress on it as well.

And other smallish facilities that is due for expiry, that is in February 2025, is in East Cornia. I think this is the one that is held under the JV. So I think in terms of the square feet, it's about 33,000, but I think this one is -- we know that they are not renewing, but I think there is not much issue in filling it up because we are currently talking to the existing tenant to see if they want to take up the additional space. I think other than that, the rest are quite small, very much business as usual.

Okay. Rental rates. I think there is something that we do have -- we are quite happy to report average revision rate, as I said, 10.7%. But if you look in terms of the range you are talking about as high as the 26.1%. I think this 26.1% actually occurs in the light industrial building, which you see no bars in the chart because it's only 1 lease, right? So to protect the confidentiality. But what I can say is this is actually one of these that is in our 2A Changi North. And generally, it's 26% because we actually start off with a low base.

Moving on. Maybe just the next thing to highlight is actually our acquisition in Tokyo, which we have just completed. Maybe I'll let Peter speak through this.

[Che Heng Tan, executive]

All right. So I mean, as Lily mentioned earlier, so we just completed this acquisition yesterday in the midst of our Board meeting. So our Japanese colleagues were actually helping us to close this off. So we are pleased to announce it's completed yesterday. I think the other update that we have is we have always -- we have also continued our discussions with TEPCO, which is the onshore power service provider. So we remain confident that we are able to secure the power in the future when we wanted to redevelop this asset. So total IT load is probably north of 30 megawatts. So that's what we will be aiming for.

All right. Okay. I'll hand it over back to Lily.

[Lily Ler, executive]

Okay. The next part I will just quickly touch on is the outlook. I think for this quarter, the outlook in terms of generally for the global economy as well as Singapore, U.S. are actually quite positive. In fact, I think if you look at the newspaper yesterday, very positive news in respect of the industrial segment as far as the technology segment. So I think this is something that bodes well for us. Nonetheless, we do know that we have certain challenges that we need to deal with, say, in terms of filling up some of the spaces at Kallang Way as well as some of the renewals that's in the North America portfolio.

Then I think you can move on to the next slide, yes. Then from what you can see here, of course, the portfolio remains large and diversified. So I think notwithstanding that we do have certain challenges that we need to face, the portfolio should still be able to deliver something that is quite resilient and stable, and that is something that the team here is working towards. I think financial flexibility, we have been able to make sure that our balance sheet remains strong. So with the DRP, this will certainly give us more flexibilities that we need.

I think we continue to look at the growth through the acquisitions and development. And since on that point, maybe in terms of the divestment, that is something that we are still pursuing. We are in talks with some of the potential divestment transaction. But I would say, at this point, there's nothing much I can report, but please be assured that we are working on that to help to rebalance our portfolio. And that will also give us some financial flexibility towards our acquisition plan. Thank you.

[Hwei Leng Tan, executive]

We will now move on to the Q&A session. Can we have Mervin to take the first -- to ask the first question.

[Mervin Song, analyst]

Thanks, Melissa, and congrats, again, to the team on the very good results and the AT&T extension. Maybe I can just follow up on the AT& lease renewal or extension. The audio wasn't very good. You said the rents will be lower. Is it rent will be back to the pre-20% increase? Or what were you referring to?

[Lily Ler, executive]

What I meant is we'll be back to the initial lease. So if you remember, this is the second extension. So for the first extension, there's about 20-plus percent premium. So I think if you're going to compare, say, on a year-on-year -- so as I was saying, we do expect to see about a 20% drop in terms of the rental rates for AT&T. I think that is actually a very -- a decision that we have to take on a practical basis. I mean, rather than leaving the property empty, at least we are getting some rental out from it. But nonetheless, we also have to remember that the first extension was actually at a premium. I hope that explains it.

[Mervin Song, analyst]

The 17-month extension, there's no rent-free period, right? Is this straight cash flow?

[Lily Ler, executive]

No rent-free period. The extension is only for 17 months. If I have rent-free period, I cannot...

[Mervin Song, analyst]

And then on the other 2 leases, Central Square in Phoenix, when does that expire? And what percentage of GRI does it contribute? Similarly for Vanguard in Philadelphia, percentage of GRI and your expectations in terms of rental reversions for these two leases?

[Lily Ler, executive]

Okay. For Vanguard, I think it takes about 1.2% of our total portfolio revenue, and it expires in December 2024, so end of calendar year. I think the other one we are talking about was the one at East Cornia. That one will expire in February 2025, but it's a smaller space of about 33,000 square feet. So in terms of contribution to our portfolio, it's about 0.03%.

[Mervin Song, analyst]

Okay. Look forward to more divestments and perhaps some acquisition in Japan.

[Hwei Leng Tan, executive]

Derek from DBS.

[Derek Tan, analyst]

Melissa, can you hear me?

[Hwei Leng Tan, executive]

Yes, we can hear you.

[Derek Tan, analyst]

Just two questions from me. Just a follow-up on Merv's questions on your U.S. data centers. Apart from what was highlighted, right, are you still sensing that your tenants are willing to renew? And are we still going to see largely a typical 3- to 5-year kind of renewal rather than a short-term kind of extension? I just want to get a sense around the strength of the portfolio in the U.S.

Then my second question is on interest costs. I think previously, you talked about 3.5%. You're doing much better than that. Could you give us an update on what to expect for this year and maybe next financial year? Yes, that's all for me.

[Lily Ler, executive]

I think for AT&T at this point, they have already informed us that they are going to move out for sure, okay? The reason why they had the extension is because they are having problem really shifting all the operations -- cutting off and shifting all the operations to the Orange County. Of course, that also indicates how sticky tenants can be or how difficult it is for the tenants to just plug off and move away. So it's not really kind of a plug-and-play type of business that you're talking about. So for AT&T, this is their second extension. Of course, I would also hope that they can do further extension, right? But the truth is they have done the extension this time for a longer period, about 17 months. I think the last extension was about 12 months. So I don't know, we have no indication whether they'll continue to extend.

[Che Heng Tan, executive]

Sorry. Also, Derek, to add on to your question, I mean since we are on these top 10 tenants lines, right? So actually, if you look at the top 10 tenants lines, we are actually quite confident that most of them will continue to renew at least on a 5-year or longer basis. Of course, for the other, some of the smaller -- other smaller tenants, there may be the renewals at a shorter lease term or short-term renewals. But for the top 10 tenants that you see here, we are quite confident they'll continue to lease with us if they have -- for the facilities they have with us in U.S., except for AT&T.

[Derek Tan, analyst]

Got it. Okay. Sorry, just one for the AT&T asset, right? Do you have the asset power currently that is contracted? Is there upside to that? Or it's too sensitive?

[Che Heng Tan, executive]

Okay. The current on-site power is low. Yes, it's low. But for this asset, we actually see other alternative use besides data center. So that's what we will continue to pursue as well because San Diego market, we actually see if there are other good users just like similarly like the other ones that we have in Brentwood.

[Derek Tan, analyst]

Sorry, interest cost?

[Geng Foong Khoo, executive]

Yes. I think that's like the third question. Our interest rate is 3.2%. And we are 80.4% hedged so with the -- sorry, can you hear me?

[Derek Tan, analyst]

I can.

[Geng Foong Khoo, executive]

Okay. So we are 80.4% hedged. With the interest rate cut coming, we will then benefit from the unhedged portion, 19.6%, or about $600 million for our loans. So for [Technical Difficulty]

[Derek Tan, analyst]

I think you went on mute again.

[Geng Foong Khoo, executive]

Okay. Maybe I need to restart. About 80.4% of our loans are hedged. So the remaining unhedged portion, we will be able to benefit from the interest rate cut. For every 100 bps cut, we will have that savings of $6 million per annum. But having said that, we do have IRS coming due this year. Every year, we will have IRS coming due. And all these were largely locked in during low interest rate period. So for like this year, as I mentioned last quarter, last quarter, we have about $350 million, $400 million that's coming due. So some of it we may or may not replace, which then bear higher interest rate of maybe 300 to 350 bps. That will have an impact of $11 million to $12 million per annum. But the thing is that 2/3 of this will be at the JV level. So you may not be able -- you won't see it at that borrowing cost line, but you'll see this impact at the distribution declared by the JV.

But all in all, I think by end of this year, we expect interest rate at the group level to be around slightly below 3.3%, slightly lower than last quarter indicative of lower than 3.4%. So I mean, all this interest rate is also relative, right, because our JPY debt that we drew for the Tokyo acquisitions is cheaper -- I mean much cheaper than 3.2%. So on average, this will then help to bring down the average interest rate.

[Hwei Leng Tan, executive]

We have Brandon from Citi to ask the next question.

[Brandon Lee, analyst]

Can you hear me?

[Hwei Leng Tan, executive]

Yes, we can.

[Brandon Lee, analyst]

Just going back to the AT&T, right? Any reason why I think given the kind of vacancies we are seeing in the market, they are still like pushing down the rent by 20%? Have we actually have negotiated for a better rate. That's my first question.

And do we have any updates on the Williams Street occupancy compared to a couple of quarters ago? That's my second one. And third one, can you let us know what's the hedges, both U.S. hedges and the debt that's due in FY '26 as well and FY '25, hedges and debt for U.S.?

[Lily Ler, executive]

Let me address the AT&T rental first. I mean, of course, I can insist and charge them an arm and a leg, right? But I think it's really us also trying to balance what we can get out of it vis-a-vis them just biting the bullet and shift everything out, right? So I think at a certain point of time, we need to be very practical about this, right? So do we want to force the hand so much that they decided that, "There's no point for me to continue this? I just pick up and go." After all, this is really the second extension.

So when it comes to second extension, their drop -- their move to the Orange County would more or less have started, right? And probably it's just in the midst of completion. So I don't think we want to push the envelope too far out. So I think it's really taking a very practical approach towards this weighing between us being able to charge a higher premium or a higher rental vis-a-vis faced with the option of -- faced with the possibility of leaving of an empty building that gives me nothing. So I hope that addressed the AT&T question.

The other two question -- the other question is 250 Williams occupancy. I don't think there's a lot of move. I think that's actually quite similar. I think for 250 Williams, I think, as we all know, it is in Atlanta. And Atlanta, at this point in terms of the downtown, it is not easy to get any more data centers to be established because of the power constraint that they have there. But we are currently working with the Georgia Power. And hopefully, we are able to bring in more power, in which case then the 250 Williams will be able to see some level of uptick.

I will leave Geng Foong to handle the hedges.

[Geng Foong Khoo, executive]

So USD IRS coming due in FY '25 as well as FY '26 and '27, Sing-dollar equivalent, we have about $500 million to $550 million of USD IRS coming due next FY, and the year after, maybe $600 million to $650 million.

[Brandon Lee, analyst]

And also 2/3 is JV.

[Geng Foong Khoo, executive]

For next year, maybe half-half. The year after, it's largely the Singapore side. I mean it's MIT group level.

[Brandon Lee, analyst]

Okay. And is it correct to just assume that the -- I can't just assume that the debt tranche is exactly the same the hedge tranche. So I should divide it by 80% to get the exact debt tranche deal because of your 80% fixed. Is it correct?

[Geng Foong Khoo, executive]

No, no. So I think when you look at the debt maturity profile, it's very different compared to our interest rate profile -- I mean interest rate hedge profile because we manage our refinancing risk as well as the interest rate risk separately. So in terms of the debt profile, we don't see much higher margin that the banks are charging. I think our risk is more on the base rate spot. So you can't compare with the slide on debt maturity profile.

[Brandon Lee, analyst]

I think we'll be getting this offline. It is a bit too detailed.

[Lily Ler, executive]

Thank you. Maybe suffice to just remind that in terms of the hedge tenure, it's about 3.4 years. So we do have certain level of protection.

[Brandon Lee, analyst]

Okay.

[Hwei Leng Tan, executive]

We have Jonathan from UOB to ask the next question.

[Jonathan Koh, analyst]

Congrats on a very good set of results. My first question relates to Slide 24 on the rental revision. And for flatted factories, the rental revision is quite strong, 13%, and is quite kind of broad-based within the flatted factories space, 102 leases signed. Could you discuss some of the positive catalysts within the flatted factories space? And would this 13% revision be sustainable? On the other hand, for hi-tech, we have new leases signed at $2.48, which is quite low. So could you discuss the dynamics within these 2 segments?

[Lily Ler, executive]

I think for the flatted factories, we have to recognize that this is actually one of the lower cost space that we have in Singapore. And I think you also recognize that flatted factories are the ones that were quite hard hit during the COVID period as well. So a lot of the leases that were contracted during that period were at lower rental rates. So now that this was signed like then about 3 years ago, so now that we have 3 years has passed generally, you do see the uptick there. So that actually explains for the, I think, close to 13% rental revisions, right? Whether this is sustainable, I would say that we are probably not going to see a similar trending going forward. There will still be a positive rental revision, but I don't think it'll be in a double digit.

[Jonathan Koh, analyst]

Okay. And for the new leases for hi-tech building?

[Hwei Leng Tan, executive]

Maybe I'll just take this question. Jonathan, for hi-tech buildings, as you know, it's a mix bag of properties of different ages specifications. So this particular block of hi-tech building is actually the one at Toa Payoh where we did an asset enhancement initiative. So if you recall, within the cluster, there are 2 docks of flatted factories. And a number of the leases that were signed for this quarter included those flatted factories where it's about $2, so you see it brings down the average. Sometimes for hi-tech buildings, this number is skewed. So it's also affected by the fact that there are only 13 leases could sign during the quarter.

[Jonathan Koh, analyst]

Okay. And if I can follow up on the DRP. What's the current discount that you're offering now? And would you consider having a higher discount to reward unitholders and then also to improve the sort of acceptance rate?

[Geng Foong Khoo, executive]

For this round, the discount that we're looking at will be a 2% discount to adjusted VWAP, which is the same as last quarter. The thing with the take-up rate, right, it really depends on the share price at the point of subscription. So for example, last quarter, the take-up rate was very good, was mainly because, during the subscription period, our share price rallied. So that gives us that discount of about 6% -- I mean, 6% to 7%. So even by giving that 3%, I mean, additional discount, it may or may not help. It all really depends on the market.

[Hwei Leng Tan, executive]

Can we have Joy from HSBC to ask the next question.

[Qianqiao Wang, analyst]

Just a few questions from me. First of all, just on the Vanguard leases, can we get a sense as to in terms of the impact to P&L, should we expect something similar to the AT&T leases we have dealt through in the past? And also what's the plan on the asset itself?

Second question, I think earlier on, you mentioned that you were doing a power study on the portfolio. Is there any update where there are opportunities? And then last one, just going back to interest rate swaps. The base rate that you're locked-in for the next few years, is it very different? So basically, the revert to current market, is it of the same quantum or it's actually on a diminishing sort of quantum?

[Lily Ler, executive]

Okay. One at a time. So for the Vanguard, I think just now I said that the contribution is about 1.2% to the overall portfolio. So that will be the -- I guess, that will be the financial impact that you see on the portfolio. Whether is it going to be the same as the AT&T, I can outrightly say no because AT&T, as it is, is a much bigger space that we were talking about. So I guess if you look at the top 10, AT&T is actually 1 of the top 10 tenants. I think that one -- the San Diego is about 3% contribution. So comparatively, the impact naturally will be much lower, okay? But nonetheless, this is something that the team, again, is working very hard on. Hopefully, we are able to deliver some good news, right?

[Qianqiao Wang, analyst]

Sorry, Lily, what I meant is in terms of the impact in the VOI period, we should be quite similar as to how you fulfill the other AT&T leases, right, the 10 East one?

[Lily Ler, executive]

Yes, you probably can expect that. I mean at the end of the day, we are trying to fill up the whole building. So I'm not cutting out into smaller spaces. So you're talking about one whole building.

Then on the power study, it is still ongoing. I think the point about power study is not as speedy as I thought it will be. In fact, I was chasing the team, why does it take so long. But the truth of the fact is to do that power study, we need to work with a consultant. We need to work with the power supplier. And as you would understand, at this point, the utilities supplier actually very busy and perhaps quite strong with requests. But this is something that we have gone underway. I believe that a typical time that is needed is at least a 6- to 9-month type of period, right? So we do have some that is coming to a conclusion soon. But once we have any news on that, we will be quite happy to share with you guys.

[Geng Foong Khoo, executive]

Joy, on your questions on comparing the base rates for the interest rate swaps that we lock in the next 2 years, right, FY '25 and FY '26, so earlier, I mentioned for those coming due in this FY, the 300 to 350 bps higher, you have to bear in mind that the full year impact will be next year. So there's always this lag effect. So for FY '25, the existing hedge versus the new rate potentially, we are looking at maybe 100 to 150 bps higher for FY '25 and '26 because those were locked in not as low as compared to those we locked in for those IRS duties FY. But you'll still see the impact of the higher interest.

[Qianqiao Wang, analyst]

Got it. And this is versus today's rate. So meaning if let's say rate gets cut, we will see probably 25, 50 basis points better. Is that fair?

[Geng Foong Khoo, executive]

Yes and no. Because when you see the interest rate cut, that is more for the short-term rates, i.e., more the overnight rate. But if you look at the long term, let's say, 3 years or 5-year rates, potentially it remains stable at current rate or it may go even higher when interest rate usually is a steeper curve.

[Hwei Leng Tan, executive]

We have Rachel from Macquarie to ask the next question.

[Chengzhi Chen, analyst]

Just a few questions from me. I think firstly, can I just confirm that if East Cornia asset, is it the one that you're referring to with the Phoenix asset? Is that right?

[Lily Ler, executive]

No. The one at Phoenix, that's really vacated by Center Square, which they have vacated in the early part of September.

[Chengzhi Chen, analyst]

Okay. Got it. And can I know what's the percentage of GRI for the Phoenix asset? And what do you intend to do with the Phoenix asset?

[Geng Foong Khoo, executive]

Phoenix asset is about 0.3% of GRI. So we are looking to -- we are in the process of doing the marketing. I think, of course, as I've mentioned just now, Phoenix is actually one of the key data center markets in North America. So it is something that will probably make time for us to find the tenants, right?

[Chengzhi Chen, analyst]

And also what kind of revisions do you expect for the backfilling of both the Phoenix and the Vanguard assets?

[Che Heng Tan, executive]

I think for the Phoenix one, we think that we should probably be able to maintain about the same rate that we can get. For the Vanguard one, because it was originally a kind of a specific use for Vanguard themselves, so I mean, as you can see from the valuation drop over the years, we actually think that the rental rates will actually be quite low because we may not be able to find a replacement tenant who uses the facility like Vanguard.

[Chengzhi Chen, analyst]

Okay. Got it. So legacy for Vanguard, that's right?

[Che Heng Tan, executive]

Yes, that's right.

[Chengzhi Chen, analyst]

Okay. And I do see that there are also some expiries on the data center portfolio in FY '25 and '26. Any cause of concern that we should be -- or any risk over there?

[Lily Ler, executive]

I think if you look at it, the larger ones perhaps will be the ones that is in the hyperscaler facilities. And I don't think there is much risk in that one because for these hyperscalers, they are looking to stay for long.

[Che Heng Tan, executive]

Maybe to add on. I think what you see is also we have not really captured the short-term renewal by AT&T in San Diego because this is as at 30th of September. So if you remove that, then quite a big chunk of the lease renewal will move away.

[Chengzhi Chen, analyst]

I see. Got it. Okay. And then my next question is on the Tokyo acquisition power. I think just now did you mention that you already got the power or you're still in the process of getting the power?

[Che Heng Tan, executive]

We have not got the power because that will take quite a bit more time, but we are actually quite confident with our engagement with TEPCO now that we will secure the power.

[Hwei Leng Tan, executive]

Okay. We have Xuan Tan from Goldman to ask the next question.

[Xuan Tan, analyst]

Can I just clarify on Phoenix, when is the lease ending?

[Geng Foong Khoo, executive]

That lease ended early September this year.

[Xuan Tan, analyst]

Okay. Got it. Again, question is on cash contribution from occupancy. Brentwood, are we still under rent-free or is it 100%? And also Kallang, what's the cash occupancy that's contributing this quarter?

[Geng Foong Khoo, executive]

For Brentwood, there's 1-year rent free from June. So you will see cash contribution from 1st June FY '25.

[Lily Ler, executive]

I think for Kallang, you'll probably be looking at above the 50% level, so probably around 52%, 53% level.

[Xuan Tan, analyst]

Okay. Got it. Just one last question on your Singapore data center. Any lease expiry that has come through? And what was actually the revision on Singapore DC?

[Lily Ler, executive]

I think for Singapore data center, we have not hit any expiry yet, but that's a long time ago. For the recent time, any coming, yes, we do have. Well, we do have one that is coming up that will be from the STT side. I think if you look at the STT lease, the renewal for the data center confirm will be -- I'm quite sure that they will renew. The only thing is, if you recall back -- for those with the history long enough, if you recall back, the rental from STT, there's actually 2 components to read. One is the base building and the other one is actually on the data center feed-out works that we have done for them. So I think come next year, when the lease is due for renewal, that data center works rental will actually fall off. So I think if you look at in terms of the impact, it's about 50% of the rental from STT.

[Xuan Tan, analyst]

So it will be 50% overall?

[Che Heng Tan, executive]

I think, yes, that's about the proportion of the data center works, except that there will be some offsetting effect by the escalation from the base build works as well. So that, we are still discussing with the tenant. And there will be some uplift, but there will -- it will be offset by the drop in the data center works.

[Xuan Tan, analyst]

And what's the expectation on revision? I guess some other peers have recorded a really strong revision for Singapore.

[Che Heng Tan, executive]

Yes. But for this deal, there is some -- because it's only base building, and we actually have agreed to some form of rental cap for the renewal. So I think we will just have to push up to the maximum of the rental cap, but I would say it's decent enough, but it won't be very high double digit also.

[Hwei Leng Tan, executive]

Can we have Dale from DBS to ask the next question?

[Dale Lai, analyst]

Just two quick questions for me. I think, firstly, I just wanted to ask about the business park in Singapore. I saw Q-on-Q your occupancy, a slight uptick, but revisions were negative. So I just wanted to understand what should we be expecting for business park segment. And in terms of the new demand, which sectors are they coming from?

[Lily Ler, executive]

I think for the business park, we have been pushing up the occupancy a little bit by a little bit. But I think in terms of revision, we do see a slight decline. But I think that is something that is still quite lettable. I mean at the end of the day, your decline is not as huge, right? In terms of the demand that we're seeing, maybe Khim you can take that through?

[Siok Chng, executive]

Can you hear me? This is Khim.

[Che Heng Tan, executive]

Yes.

[Siok Chng, executive]

Okay. For the business park, as you know, we have actually -- the buildings are located in the first-gen business park. So 2 in International Business Park and 1 in Changi Business Park. Now international business parks has a certain demand that is actually more from the manufacturing companies that are located in Toa. So we are able to get some firms that has some HQ functions and they are located to our strategy. Whereas synergy, again, it's more location demand that is from the logistics side from the Changi North area and then the aviation kind of industry, but they are smaller demand. So we don't see the last time those technology companies that is in Changi Business Park. I hope that answered your question.

[Dale Lai, analyst]

Yes, got it. But just a quick follow-up on this. Then in terms of, I think, looking ahead for this both segments, international business park and Changi, I don't know, should we be expecting to see occupancy continue creeping up with demand for some of the smaller spaces still coming in?

[Siok Chng, executive]

Yes. And I would say maybe because of the smaller demand, right, they do have a lot of choices now in the market. So it maybe take a certain targeted groups to be there. We are trying to see actually the larger space that is ticket -- that will have a bigger impact on the occupancy.

[Dale Lai, analyst]

Okay. Got it. Sounds good.

[Lily Ler, executive]

Let me just elaborate a little bit on the revision for the business park. I think for this quarter, there's actually a rent free that was given to 2 of the new leases at the business park level. So that actually accounted for the dip in terms of the revision.

[Dale Lai, analyst]

Okay. Got it. And then moving on to my next question, going back to talking about these power studies, right, for your portfolio, I know it's still early days, but just wondering if these power studies, if let's say, you do ascertain that certain parts of your portfolio has an upside to power load, would it actually affect your portfolio valuations? Would it actually add to your valuation?

[Che Heng Tan, executive]

I think the short answer is yes. If we can secure more power, yes, it should improve the portfolio valuation.

[Siok Chng, executive]

I guess that would then filter through in terms of the rental rates that we're able to fetch for the building. Of course, with the power study, it also means that our option -- if we are able to have some visibility in terms of the uptick or in terms of how much power we can actually get hold of, our options with respect to the building will be much wider, in the sense that we can consider either it will help in our re-leasing of the building or we can even consider a redevelopment if the numbers make sense. And as a very large result, even in terms of the sales of the property, that power study result will help. And we probably will be able to -- we will basically open up the tenant space for us.

[Dale Lai, analyst]

Okay. Actually, I'm referring more to -- I mean, if the power study show that there is a potential -- even before you actually managed to lease up or get the additional power, would this potential uplift actually affect your valuations?

[Che Heng Tan, executive]

No, I doubt. If it's just potential, it will increase the valuation because I mean something must be confirmed.

[Dale Lai, analyst]

Okay. Got it. And just a quick follow-on on this, right? So like you say, let's say, there is potential, you can do an extension or redevelopment, how do you see yourselves doing some of this? Would it be together with a partner? Are you able to undertake it yourself? How should we be expecting any potential major AEIs or redevelopments?

[Che Heng Tan, executive]

I think all the options are on the table. We are able to do it ourselves or we can find a partner. We could be a colo operator or an end user. So all these options are on the table because essentially, we do have the skill sets and the resource to do it.

[Lily Ler, executive]

If I may remind, we have also done built to suits for data center before. Of course, Kallang Basin at Singapore. But there is no -- I reckon that it is not difficult for us to transfer the knowledge over there as well, right?

[Hwei Leng Tan, executive]

We are conscious of the time, so can we take the last question from Yew Kiang from CLSA.

[Yew Kiang Wong, analyst]

Just maybe two questions and one suggestion. One is, can you briefly talk about the demand in U.S. data centers? I know some of the data centers might be pretty old. So it might not be AI capable, but what are the type of industries that you are seeing on the demand side? That's the first question. Second, is on Kallang Way. Why is the occupancy taking so long to fill up?

And then as a suggestion, I think your U.S. data centers have a lot of leases, maybe next time a slide with a summary of each of the lease expiries and what's going on there would be helpful. That's it for me.

[Che Heng Tan, executive]

All right. I will take the first, slightly easier question. So for the first question, the so-called enterprise data centers, we'll probably have to sign alternative users. You can actually see that from the re-leasing of the Brentwood property to Vanderbilt Medical Center, okay? So that's one.

For the co-location leases that expire, we actually remain confident that we should be able to find another co-location operator to take over the space. I mean if you -- I mean for people who have been following us for quite some time, we do have 2, I would say, Chapter 11 filing earlier from our co-location operators, but essentially most of our leases do not get rejected and other operators do continue to operate the facilities, so we remain positive in that sense. And then for the cloud and the hyperscale providers, we are confident that they will continue to renew.

[Yew Kiang Wong, analyst]

I guess I'm also asking like other than health care, right, what other kind of sectors can take up the space?

[Che Heng Tan, executive]

I mean it can be anything, it can be anything, even for tech providers doing for their backroom officers or training and so on, it can always -- there are a lot of options. So ultimately, we actually think that North American market is pretty -- very deep and wide. So that actually gives us the comfort that we are able to manage the portfolio and the properties.

[Yew Kiang Wong, analyst]

Kallang?

[Che Heng Tan, executive]

Kallang, I'll leave it to another smart person.

[Siok Chng, executive]

This is Khim. For Kallang, the occupancy is creeping up slower than we like reason is because there is a lot of supply of hi-tech spaces that is in the market right now. The largest competition is TSX that has about 1 million of square feet. And Alexandra Technopark, as you know, Google has almost close to more than 300 over 1,000 square feet (sic) [ 300,000 square feet ] So that added to the supply situation and it competes for the similar type of customers.

So for us, the team has actually did smaller deals the last quarter, basically, in also the electronics, the IT sector trades. We are in discussions. As I mentioned before, we are hoping that we could sign another big user soon, at least a floor, that will move up the space, but the competition is steep. So just bear with us a while.

[Hwei Leng Tan, executive]

All right. Thank you so much. Thanks for joining us today. You know where to reach us, if you have further questions. Thank you.