Mapletree Industrial Trust

SGX:ME8U

Earnings Call Transcript 2022-Q4

[Hwei Leng Tan, executive]

Good morning, everybody. Thanks for joining us for MIT's 4Q financial year '21-'22 financial results. We are having the virtual analyst call right now. And this is also a live webcast where investors can login to listen and submit your questions online. If I can invite Kuo Wei to give a quick update of the results. We will take questions later. Kuo Wei, please?

[Kuo Wei Tham, executive]

Thank you. Good morning, everybody. Good that you can join us, even if it's virtually. Actually, I was expecting a video session and I can't get to see them and they were offering to show me. Okay, we have the presentation pack, which was uploaded last evening. I think we're sharing this on this platform as well.

I think we can go on to the first relevant page on our highlights. Essentially, what you see us delivering a fairly close set of results from the distributable income perspective 18.8%, just a little above SGD 350 million. Of course, DPU is a little more exciting, 10% year-on-year increase to $0.138. And the distributer income for the fourth quarter, you can see a more significant increase, about 28% for the distributable income, SGD 90 million. That is mainly due to, of course, the full effect of the U.S. data center portfolio, which we acquired. And on a DPU basis, $0.0349, same as what we have done in the previous quarter, 5.8% increase year-on-year basis. Certainly, on the full year basis, we don't have the full financial years' worth of contributions from the acquisition because it was done only in the earlier part of the financial year, but it has been very material in terms of the contributions.

Of course, the next part, we talk about our portfolio status. The valuation increase, of course, driven by the acquisition, about 29%. Now we are at SGD 8.7 billion. The valuation gain in aggregate, we are talking about SGD 87 million. Of course, a big part driven by the increases we see in the U.S. data center portfolio, I think, driven quite materially by capitalization rate, compressions in quite a few of the locations we have. And of course, you would have seen, if you look at the details that we have outlined, the valuation losses for the Singapore portfolio, especially the shorter land tenure ones, those I think, quite structural in nature as we go forward as the tenure get shorter as we raise towards the expiration of the leases when we return the site to the government, the valuations that will gradually move down. So it's certainly helpful to have the cushioning effect from the U.S. data center portfolio.

Now on an operating basis, I think we are happy to note that we have found a good level of support. And in fact, we have managed to move the occupancy up by 0.4 percentage points. So we are now at 94% for the entire portfolio. And I think as some of you would have read in our announcement, the divestment of our 19 Changi South Street 1 property was completed just after the end of the financial year, but I think we reported it down here for [ comfiness ], so SGD 13 million in the pocket.

And on the capital management front, we had our first distribution reinvestment plan for this series. The take up was fairly healthy, 42.5%. That I think if you recall in our announcement, the issue of the unit was 1% discount to the weighted average unit price prior to us closing the books. And the take-up was very nice because we have good support from our sponsor, which took up -- Mapletree investments which took up is a proportionate stake. And of course, our balance sheet remains strong. We have sufficient committed facilities. I think the only key thing to look out for is interest rate movements, okay? Maybe the correct way to put it is, how much you will move up? I can tell you for sure it's moving up, at least for the next year or so, quite unlikely for it to move down for whatever reason. So it's just how much more that upward shift will be depending on posture taken by the Fed, okay?

Now going on to the next slide, I think this is our usual reporting chart. On the right, the most recent set of figures, which I've outlined earlier, $0.0349 and SGD 90.3 million. So we certainly hope to continue building on this upward growth trajectory. Certainly, there's a lot of headwinds we will discuss.

Moving on to the next slide. We have included this to provide a broad overview of outtake on what we are doing to be a good corporate citizen. And suddenly, the push is to build a climate resilient portfolio. I don't know whether we have copyrighted this part, okay? We have set the long-term targets. You might have seen the financial year '29/'30 number that I think was taken from the base of financial year '19/'20, a 10-year target. Why '19/'20? Because that was before COVID, the kind of consumption patterns and operating figures we have for the finance -- the COVID, yes, a little less representative of what that normal situation is, and it's very difficult to take reference on that. So anyway, we just look back financial year '19/'20, plus 10 years. So we are looking at these 3 key targets, which we have outlined at the top.

Building electricity intensity, we would reduce it by 15%. Greenhouse gas by 17%, and we are working at generating solar energy of 10,000 kilowatt peak. So this is a nice round number. I think at one time when I was discussing with our team and [ aquiver ], which made over this single-digit kind of adjustment. So anyway, I rounded it out 10,000. So it's a nice number to work towards.

So as of what we have done so far? We have, of course, completed 2 sets of installations at our Serangoon North Cluster and Kallang so far, corporate headquarters, cluster also Serangoon. So that gave us 849 kilowatt peak, you can see at the bottom right. Nice pictures on a sunny day, especially for these 2 clusters. So we are looking progressively installing more. We have actually just awarded a contract for some of our clusters for this current financial year. So we will be working very hard in delivering that 10,000 kilowatt peak and hopefully a little sooner instead of -- we think the last minute at the end of the 10 years, like you're studying for example, the last day before the exam, tried to get as much done as possible. So we're working hard on that. We are motivated as well because this is financially meaningful. It helps us mitigate the impact on high energy costs that we anticipate over the next couple of years.

Now on the other element, Green Mark or the green building certification, of course, in Singapore is Green Mark. We have a couple of facilities that were recertified and we have taken Green Mark Gold for The Synergy, in our Business Park Building. So we are working on the next cluster, which is Serangoon North Cluster. So these are some of the initiatives that we are taking on, and we certainly want to get a few more badges to demonstrate the compliance of our buildings in meeting all these green kind of expectations, okay?

So going forward, I think on the financial results, we do not have any kind of exceptional elements to highlight. Essentially, that big increase you see on revenue, property income, mainly due to the U.S. data center portfolio effect, the valuation effect. Of course, you can see in the net fair value gain for the Singapore portfolio, of course, is a very muted. Rather Singapore [ plus tower ] wholly-owned data center portfolio fairly muted $7.2 million. We have a joint venture with our patent. And of course, that 1 has also a stick in 3 hyperscale facilities in the U.S., so all data centers. So we have provided a bit more details on that part of our portfolio. So the fair value gain is relatively significant on -- even on our share, about $79 million, almost $80 million recorded.

So I think moving on, we talk later about the effect on the full financial year. The amount available for distribution, as what I've outlined earlier, 18.8% increase from just under SGD 300 million. Now we have about SGD 351 million. So that gives rise to that 10% increase in DPU year-on-year basis from SGD 12.55 to SGD 13.80. And of course, please -- of course, I would encourage you not to extrapolate using this 10% kind of annual growth, any growth rate. This is not something that we can replicate all the time. This is just fortunate that we are able to get a reasonably large portfolio and a good window. And this kind of growth rate, this is probably difficult for platforms that are of a certain scale already. If we are maybe 5x, 8x smaller, yes, maybe there's some avenue for that, about 10% kind of annual growth is certainly not something that can be replicated easily.

Going forward, I think we talk about our financial position. The equity fund raise exercise that we did certainly has been helpful. So on year-on-year basis, you can see our increase, 12%. 1 year ago, it was 166 NAV per unit. Now we are 186. Very small marginal shift on a quarter-to-quarter basis, 3.3%.

Moving on. For the portfolio valuation, as I've outlined earlier, SGD 8.7 billion driven by the new portfolio. So that is very material increase from the SGD 6.76 billion the last financial year. The valuation gain of the data center portfolio as briefly outlined in the second bullet point, in aggregate SGD 87 million, so that has helped us partly to improve our NAV per unit as well.

On the balance sheet side, you might have seen a very slight reduction in the total debt, SGD 2.97 billion to SGD 2.90 billion because we repaid some of our loans with cash available. And with the recent take-up of borrowings that have a slightly longer tenure, so we have managed to increase the tenure on that weighted average basis, 3.5 years to 3.8 years from a quarter ago. So because of the valuation improvement and also us taking on a little -- a bit less of the debt aggregate, leverage ratio is at a fairly comfortable level of 38.4%. So I think it just means that we have a reasonably robust platform and balance sheet.

So the debt maturity profile is what we have outlined on this Page 15. That's how we arrived at 3.8 years. Very well spread, though we do have a little more. 4 years later, financial year '26-'27, but as we work on our refinancing over time, I think we would continue to spread the exposure fairly evenly over the years.

So in terms of the coverage ratio, if you look at the bottom 3 lines down there, still very healthy level, whichever measure you look at whether it's trailing 12 months or with adjustment for our perpetuals, so about 5.7x to 6.4x. Our weighted average all-in funding cost has gone up marginally, and we are seeing the interest costs creeping up already, from 2.3% to 2.4% this quarter. Tenure, of course, has increased a little. And I think, of course, now we're moving from bottom to the top. The percentage fixed is a little lower at 70.5% instead of 80%. We do have some hedges that have fallen off. So we would be mindful of the situation and look for opportunities with the right windows for us to maybe get more certainty on the rates as far as possible.

Portfolio update. This one, I thought -- I think, is a refresh picture. And I think our checks costing this pie reminded me that we have switched the position now. U.S. is at a tougher comp side. Now we have data center that is 54%, decidedly more than half of our portfolio. So the asset under management, SGD 8.8 billion is a little higher than the valuation of our portfolio, mainly because of the right-of-use effect because this one is partly accounting. You look at the bullet point #1, the right-of-use assets for our leasehold, the assets were aggregated inside this number, but the figure is established at SGD 42.5 million so is in our books.

Okay, we can move on. The portfolio overview, we have in aggregate, 143 assets. I think the big increase is, of course, on the portfolio transaction. Occupancy level as I've outlined, has moved up, and that's contributed mainly by the Singapore portfolio. If you look at the North American portfolio is very stable at 93.3%. And you can look at the occupancy levels, there's some so-called small movements across the different property segments. Data center being very stable. Hi-Tech buildings are also at the same level. We have some small upshift in the Business Park Building and Flatted Factories by sound, very little downshift for the stack-up ramp-up facilities. So from where we can see, these are just usual, rather the business as usual kind of tenancy movements, so nothing really significant to highlight here.

And on the expiration of the leases, if you look at the chart for this financial year, which we have just started, 14.2% less due, is nothing exceptional. Some of you would have noted, we have our AT&T leases that are expiring, but that is only in financial year '23, '24. So it's in the next bar, under the 21.5% bar. And out of the 3 assets that we have with AT&T, the larger one at San Diego. I think some of you might know that one has original expiration date of December 2023. And we have been notified by AT&T that it wanted to do a 1-year extension. So it will be December 2024. So then I think we are pushing it another year forward. What we are doing now is tidying up the documentation for this extension.

For the other 2 properties, this San Diego one is roughly 2.6% of our revenue contribution. The other 2 smaller assets, I think we don't have any indications from AT&T on extension or renewals yet. From the looks of it, it probably will not be doing renewals or extensions on this. But the expirations of these are also a little later in September, and then I think anyways November 2023, so the subsequent financial year.

So okay, this is where we are top 10 tenants. You can see all blue except 1 orange. So all data center tenants except for Hewlett-Packard, which is, of course, manufacturing regional headquarters. So the AT&T part I talked about, the 5.4% in aggregate, 2.6% for San Diego, 1.9% for the Tennessee and 0.9% for the Milwaukee asset. So we would have -- now I think we have some clarity on a big part, about half of the AT&T kind of lease with us, then we will see it continuing on with us until end of 2024, so another 2 years and 8 months.

So for this tenant diversification, nothing really material to outline. It remains very diversified, okay? And for the Singapore portfolio performance, you can see on Chart 23, very stable rent levels, but we continue to work hard to notch occupancies up, make hay while the sunshine, while the market supply-demand situation is still a liter to land loss advantage before the big supply of [ stock a month ] stream, where we try to lock in as many leases as we can.

So on the rent revisions, you can see some ups and downs. The Hi-Tech Buildings, I think we managed to notch the rents up. I think this is at our Kallang place asset. The 190 figure for new rents for the Hi-Tech Buildings, is a little low because that's 1 of our -- according to how our friends described it, this one is a half big Hi-Tech building because we have the Toa Payoh cluster, where we have a mix of new build plus asset enhancement part of the customer. So this is from the enhanced part for statistics purpose. We have aggregated this -- in these Hi-Tech Buildings segment, because it's a continuous cluster. So anyway, this is for that kind of building where we had a new lease signed, of course, still relatively competitive for that asset type and quality.

For Business Park Buildings, I think we have seen some small dip. Essentially, that's us trying to be non-competitive in the market to keep our tenants and also drawing new tenants as you would have seen. Our Business Park space in terms of occupancy level is still relatively lower compared to the rest of our property types. So we are working a little harder and trading of rates for occupancy. But I think in aggregate, some of you might have calculated or noted. We have positive rent revision for the entire portfolio. I think for this quarter is 1.1%, positive 1.1%. Last quarter was positive 1%. So this is what we call 2 consecutive quarters of positive provisions. So I think the -- like at the end of the tunnel is getting a little brighter, but this, of course, is not a very decisive positive rent revisions but it gives us a bit of encouragement that the support is there.

Tenant retention profile, nothing very significant to highlight. I think it's fairly healthy at 84%. Investment update. Our redevelopment at Kolam Ayer 2 contract. First block, I think we are looking at completion by end of the calendar year. The other block 2 also by end of calendar year, slightly behind the first block because I think the first block, we already have the committed anchor tenant. So we are prioritizing the completion and handover for that first block. And I think the anchor tenant has already commenced fitting out works in the facility. So things are progressing well. As far as the leasing discussion is concerned, it's ongoing. We had a couple of fairly large interest that we are pursuing. But at this stage, we don't have any commitment that is assigned yet. So we are working very hard on that.

Of course, the next thing, the divestment, which was, as I mentioned, completed on 21st of April. So we received the SGD 13 million already. And I think this one, we will keep -- because the gain is relatively minor relative to the valuation of purchase price, so we will keep the funds for working capital or take down on that.

Outlook and strategy. I think on the outlook, still very uncertain, but I think there's an optimism that Singapore's economy might move up a little depending on the next refresh of the economic growth. I suspect we'll probably push closer to 4% if our gradual or now more than gradual opening of the economy works according to plan. But I think the bigger issue that we are facing now as an economy and as a platform is rising costs, especially energy and for us, of course, electricity costs. And supply chain disruptions, which is causing a bit of issue on inflation for us is operating part that we need to watch out for operating costs renewal, [ so forth ]. The other thing, of course, is interest rate effect as I've alluded earlier, for sure is on the way with just how fast it is. So we think another 75 to 100 basis points -- 100 basis points quite easy for us to see within the next 12 months or so. So in terms of the reset, I think just to close up, I think this is a little lower really compared to the last 12 months. So this is also a positive indication of the optimism and also less kind of stress that we see portfolio of our tenants.

So U.S., I think, continues to be strong, especially in the data center space. Our rental rate in segment is relatively stable. So a challenge for us is always getting the right deals in this market at kind of appropriate capitalization rate because it still is a very competitive market, but we are very positive about this space.

[Hwei Leng Tan, executive]

I think we will now take questions. If I can encourage you to raise your hands and limit your questions to 2 per analyst. I think the first 1 is Mervin.

[Mervin Song, analyst]

My first question is just with regards to electricity costs. Maybe you can just run through the sensitivities, any hedges that you have in place and when they drop off? And I think there's a bit of concerns about electricity for data centers. Maybe you can touch on that.

[Kuo Wei Tham, executive]

Yes, yes. I can do that. Now our data center leases in Singapore and also in the U.S., mainly triple net basically Singapore, of course, we don't take care of the electricity for the data center tenants. So they would -- so they entirely in U.S. of about 90% on a triple net basis. So the impact is really muted as far as we can see. And the increase in utility rates in the U.S. is not as high as what we are seeing in Singapore, because I think down there, they had -- in the markets they were in, a little more diversified energy sources and they are under a little less pressure. But anyway, looking at the forecast we have, we don't think there will be any material impact on the data center part. But our Singapore operating portfolio is where we would need to be a lot more watchful as almost all our leases on tenant basis, and then we take gross rent. So we take on the exposure.

Our many electricity costs as a proportion of our operating cost was below 5%, depending on how you look at it. This is, of course, relative to financial year '21-'22 figures. So actual numbers now that the financial year is closed, so 4-plus percent. We anticipate that to go up 2x to 3x depending on finally where we land with this utility rates. The reason why we say that is because our current so-called hedge or semi hedge would fall off by 30th of May. So from June 1, we need to take on the new rates. Now we're still, I think, partly protected.

We have a combination of fixed and discount of tariff kind of schemes, but mainly discount of tariff, because it's only 1 or 2 tenants where we have arrangements on fixed. So discount of tariff for us is roughly in the 20% to 30% discount level because over time, we have made adjustments. So we are really seeing that cost increase creeping up as you would know, a discount of tariff is off the Singapore Power's tariff rate. So that has been going up on a quarterly basis. So we will adjust our cost, we just slot up though the discount is still there. But that aside is a more meaningful discussion to look at what we can secure beyond 30th of May, because I think it's another month or so before we need to contend with the bigger exposures.

And as you would have read in many of the press coverage or media coverage, many large energy users cannot get contracts from the energy retailers because with capacity issue, and also, the rates are growing crazy. So our current high tension rate after the discounts, we are looking at the mid-teens in terms of cents per kilowatt hour. So about the SGD 0.15 level. And if you look at the government rates now they are offering to help the businesses with the tracks, the temporary kind of energy contract scheme, it fluctuates SGD 0.40, SGD 0.45 or SGD 0.50. So there is a real risk if we were to go to the market that -- like-for-like basis, the cost can go up 2x to 3x depending on finally on -- we went up with, of course, we are trying to work with energy retailers bulking our or aggregating as much as our demand as possible to try to negotiate for a better price.

So the energy retailers have not been able to really commit, say, firm prices for the next 2 quarters. And the visibility they have is probably end of the calendar year and beyond. If you're talking about longer-term fixed rate, the situation now certainly is not helpful with the -- Putin dancing around Zelenskyy. And the situation, I think, is still very volatile. So that's the reason why we have looked at the possibility of energy or utility cost going up 2x to 3x for our case.

[Mervin Song, analyst]

So net-net, that 2x to 3x, what would be the sensitivity to your FY '22 DPU?

[Kuo Wei Tham, executive]

Yes. Okay. DPU is difficult for us to pin down. But I think maybe we can talk about the -- maybe net property income effect maybe 2%, 3% kind of effect, minus.

[Mervin Song, analyst]

My second question is, I think in regard to your U.S. data centers, I think there was a last statistics apologies have been custom. I think you mentioned that half of AT&T will stay to 2024. Can I presume the rest will drop off in the next 2 years or so?

[Kuo Wei Tham, executive]

Well, right now, we don't have any visibility, but I think taking educated guess, the other 2 properties, I think, are quite unlikely for AT&T to take long-term extensions. Maybe for the purpose of their own operational kind of management shorter-term extensions could be possible. I think our plan now is to look for alternatives instead of waiting until the last minute for it to tell us whether it's continuing or not continuing. But the certainty, of course, is for the larger one. So at least we have some clarity down there.

That aside, the San Diego location as you might have read is actually very popular for life sciences companies. The demand actually is a lot stronger than data centers. So we are looking at higher -- the highest and best use in the medium term beyond. So this is another angle that we will explore now that we have close to 3 years of lead time.

[Mervin Song, analyst]

So the worst case based on discussions or indications of or your understanding of the customer needs, maybe 2%, 3% of GRI could be lost with U.S. data center in the next 2 or 3 years, you think that would be something we should [ replicate ]?

[Kuo Wei Tham, executive]

Yes. I think in terms of kind of expiration of lease, yes, 2 plus percent. Certainly, we have that kind of lead time, we will be working on finding replacement tenants or alternative kind of strategies for these assets.

[Hwei Leng Tan, executive]

I think Derek, you're next. Do you like to ask your question, please?

[Derek Tan, analyst]

Derek from DBS. I've got my two questions. My first one is on the signs are going into bankruptcy [ debt level ], I'm just wondering can you give us more comfort on your other tenants. I think we've been getting clear results, better could we have look through or whether is there any further risk that your other U.S. data center tenants could also face similar kind of stress? I guess wondering whether your team has taken a look through your portfolio?

[Kuo Wei Tham, executive]

Okay. The short answer is, yes, we had taken a look. And so far, all our current operations, so most of these assets are in line with what we anticipated in terms of activities and kind of usage. So no other indications yet. The Changi 1, I think you might have read in some of the coverage. Its business is a little mix is -- as I think out of the 55 assets, 24, there are data centers, 31 of that are all those recovery core, rather backroom support. So that kind of business is factored quite materially by the COVID situation, especially when people are not working in office, and they can work from home to a limited extent and need not have this kind of secondary backup. So that part, I think, is affected quite a bit.

And of course, it has overextended itself. Balance sheet is not strong. And then U.K. operations is suffering. So there are certain elements which is not very directly related to the data center demand and operations. But the thing to, I think, consider is sometimes very difficult to gauge in advance of time, the health of the tenants and unless they are very regular in giving us the feedback because that is not the primary kind of engagement. We were not going to be able to talk to our tenants every month or every quarter and tell them give me a business feedback. But our asset and property guys willing a gauge on activities and then have a sense of whether the space is valued, whether they still have decent business activities. So far, I think the rest of assets, we don't have any worry yet.

The other thing, of course, we were reminded by our Board, keep an eye on the credit defaults or some of these entities. So that is another element that would point us to possible stress so there's another thing they are tracking on. But so far, no arrears, everybody is paying on time, including Sungard until March, of course, now we are in April.

[Derek Tan, analyst]

Okay. Sounds good. So my next question, if I can just add back to AT&T, right? So the San Diego data center, they probably extend for 1 year. So is it your read that they will likely vacate after? And is this property [ carried out or so ]?

[Kuo Wei Tham, executive]

No, it's for the enterprise use primarily. And there's some call center element for the AT&T operations. So I think what they are doing now or what they have done is to shift the call center personnel or the people to Orange County, I think it's another 100-or-so miles away for the out north. So in terms of the activities and operations, I think it is still supporting the state of that part -- that geography for U.S., but probably a consolidation of business. So the data center part for the enterprise systems still in place. And I think they needed quite a bit more time to work out their plans. And even if they needed or wanted to relocate, it's not going to be something that they can affect immediately. I think that's the reason why they are looking out for the extension until December 2024.

And our read is that it might not continue on. Now that part of their business operations have been relocated the call center part. So it's economically not so meaningful, unless say, over the next year or 2, we suddenly find that the shift in the strategy or requirements and they pull more of their enterprise systems back here, maybe because it has always the option of renewing or further extension. That one, I think we'll continue to have that engagement and discussion. But our comfort for this particular side is that the demand from the life sciences space is extremely strong. And we do have these investors knocking on our doors, 1 thing to look at the site and see whether they could do something. So there is another possibility for us to look at in the medium term for the higher and better use of the space.

[Derek Tan, analyst]

Okay. Sounds good. Life science is actually for now. All right.

[Kuo Wei Tham, executive]

It's very sexy, actually. But if I would characterize this just as competitive, if not more competitive than the data center market space.

[Hwei Leng Tan, executive]

Can we have Brandon to ask your question, please?

[Brandon Lee, analyst]

My first question will be with regards to debt, retain distributions of SGD 6.6 million, right? Can you share us 1 of your plans for that? Has it been held back this quarter because of Sungard, because of AT&T? Or is it just general concerns about the salable market?

[Kuo Wei Tham, executive]

Okay. That SGD 6.6 million, of course, as many of you may remember, at that time when we held back, it was in anticipation of the rent rebates that we might need to provide to our tenants because of COVID-19. So we had given rent rebates. And the total amount we held was SGD 13.7 million, SGD 6.6 million plus SGD 7.1 million. So we have released the SGD 7.1 million in the previous financial year already. So last year or the financial year, they just ended -- there's still a little bit of noise in the COVID situation. We're not too sure whether we are totally out of it or not. So that was retained.

And I think we will, of course, milling over [ ON ], we should really release to the unitholders. And of course, one consideration is whether we release in financial year '21-'22, which is already past, but I think the contributions we have from the new data center portfolio has been fairly material. So there is no compelling need for us to just flush everything out for the purpose of cleaning up store room. That's it. We certainly won't want to hold on for -- through this indefinitely.

I think a good time for us to release that is financial '22-'23, which is now. And especially when we anticipate the rising cost pressures from mainly utilities and, of course, other inflation effects. As I outlined earlier, 2x to 3x increase in utilities and also interest rate increase kind of drag on the DPU. That 1 is for sure coming. It's just how fast the adjustments getting done. So we think that $6.6 million would be very helpful in us mitigating all these pressures, so that this year we will continue to be able to have a fairly stable kind of delivery.

[Brandon Lee, analyst]

My second question would be with regards to Williams Street, right? Can you share what is the latest update on leasing and occupancy? And was there a [ reval ] of downgrade in the latest exercise?

[Kuo Wei Tham, executive]

Well, I think short answer, we have not leased out more space yet, it's still at around 65%. And the downtown Atlanta market is, of course, decent, but it's not booming. One of the kind of uncertainty now is, of course, the what habits or what arrangements for the corporates, especially in the commercial space because of the COVID-19 situation, while is the environment is getting back to more of a normal state in the U.S., many of the, yes, employees still preferring to work from home after getting used to yoga sessions at home before they start working in the morning, live coffee in the afternoon. So anyway, so a lot of the corporates in the commercial space have not taken on large increases in -- even talk about commitment of commercial office space leasing. So that part is a little uncertain, but we think the market will probably find its own level and gradually return to some steady state this year 2022 or 2023.

So while we have not been able to secure any large prospects, we will continue to engage the market, and we are working on a small scale asset improvement to improve the attractiveness of the building. And we think we should be able to find the right match and then hopefully enlarge the occupancy this year also. And in terms of valuation, I don't think there's any impact. There's a very slight improvement for the valuation for this asset.

[Hwei Leng Tan, executive]

Can we have Derrick Heng, please?

[Derrick Heng, analyst]

So the first thing I would like to ask is on the other trust expense line. I think in your FS you mentioned there is some provision for tenant convention. Can you elaborate a little bit on this one? Second is on these -- just now there were quite a number of numbers moving around for electricity exposure. Can you just give us a dollar value in terms of utility costs that you are paying in FY '22, which is your share of payment? So let us just quantify this a little bit more accurately.

[Kuo Wei Tham, executive]

Okay. I think invariably, we'll have this kind of very specific questions, allow me to answer your electricity question first. Our current cost financial year '22 -- '21-'22 is around the SGD 6 million level. And we anticipate probably a SGD 10 million, SGD 12 million kind of increase. So that finally depends on the tariff rates and also the track rates and the wholesale market rates, what we can secure in the next few quarters. So of course, in a worst-case scenario, if the rates remain elevated and you see the SGD 0.40, SGD 0.45 per kilowatt hour kind of situation will probably be SGD 10 million, SGD 12 million plus another SGD 5 million, SGD 6 million that kind of situation 2x, 3x. I hope that is -- I think more specific in terms of costs already.

So anyway, that one, I think, is a very big moving part. I think if we were to have this conversation 2 or 3 years ago, I will probably be able to give you to maybe the nearest million now, I think it's a magnitude of 2x or 3x that kind of a possibility because it's really a very volatile market, and it's very difficult to get that clarity even from the energy retailers. So that one, I think we'll keep a close eye on. The provision that we have outlined and as what you mentioned for the tenant works, it is a rectification works on some of the installations for a tenant in our discussion with the tenants we have committed to, so we have to provide for that at our data center assets.

[Derrick Heng, analyst]

And North America?

[Kuo Wei Tham, executive]

Yes, North America data center. It basically is what I call infrastructure installation rectification works. So that part, I think, because there is an ongoing engagement and discussion, we have some rough figures. So we have made some broad provisions first in our books. So the books have not really started yet. Right now we're getting the contractors in place and construction, so-called book in place. So over the next couple of months, we should have a more certain number because now they're [ following ] contracts.

[Hwei Leng Tan, executive]

Can we have Nicholas, please? Nicholas Teh.

[Nicholas Teh, analyst]

Just to clarify on the AT&T one. So basically, the San Diego asset will renew until end of 2024, the Milwaukee and Tennessee ones will -- you're expecting those two not to renew? Just want to make sure I get that right?

[Kuo Wei Tham, executive]

That is a great read, but we do not know finally what's going to be happening to the Milwaukee and the Tennessee one because they are not extended. And the expiration is about a year and 70 months from now for the first one in September and November 2023. So they did not say for sure, I'm not saying, but I think logically, if it had the longer-term plans, we would have the initial discussions now. So we need to plan for the possibility that it's not going to renew or extend. So that is our gauge now when we are looking at replacement tenant possibilities so that we are a little better prepared next financial year.

[Nicholas Teh, analyst]

Okay. And then I guess my second question is just for these data center assets, I guess, even if we lump in like the Sungard one, for example, from what you're saying on the San Diego asset, you're looking to perhaps convert it more to life science rather than a data center. Is it the case that some of these data center assets are sold specifically built for the previous tenant that it's quite hard to bring another DC tenant in and you'd have to convert it. And in which case are the rents pretty much comparable because it's kind of [ Shelly Koh ] or you'd expect lower rents?

[Kuo Wei Tham, executive]

Yes, for most of these facilities because our involvement in the leases on a core in short basis. So the kind of rent shift is not going to be much. And conversions, I don't think is a big issue because most of the new prospects would not need very significant upgrades to the facilities. So if you're talking about like-for-like data center use, I don't think there will be a lot of capital expenditure that we anticipate. But of course, it will be a different case, say, if you were to switch to life sciences for the San Diego facility, we might be able to retain the structure and will probably involve cutting out of everything else just to suit because it's an entirely different industry, but you are talking about like-for-like data center use, I think we can retain the structure and the building and especially when our lease -- our exposure is only on the core, in short.

[Hwei Leng Tan, executive]

I think I'll read one question from the web. What is the expected month at Kolam Ayer will start contribution to MIT? And with the data center moratorium listed, are there plans to add more data centers to the portfolio?

[Kuo Wei Tham, executive]

Yes. I have this indication been sign language from one of our [ shares ]. Okay, just kidding. The contribution from Kolam Ayer to probably be 6 months after the DOP. So we are looking at next financial year, not the current financial year. So if you're looking at modeling any contributions, you have to take it to financial year '23-'24. So you'll probably be talking about the beginning of '23-'24 financial year, you see some contributions.

[Hwei Leng Tan, executive]

I think the other question is on the data center moratorium.

[Kuo Wei Tham, executive]

It gives us a bit more clarity, but it doesn't, of course, tell us exactly how receptive [indiscernible] will be in final proposals, as you would have seen in the type -- they have 60 megawatts in terms of what they are looking at for the next 1.5 years, and they are looking at these, what they call CFA call for application only in September, based on the time line, 2Q. So we will, of course, certainly be on the lookout for opportunities. We don't have any certainty on that.

And if you look at the moratorium kind of lifting -- the kind of conditions they have outlined when we listed the moratorium, it is skewed towards the operators. In other words, for landlords or builders or developers or REITs like us, we don't have strong leverage. They are looking at say, new business activities or data center activities that they can -- any participant can bring into Singapore. The PUE, the power usage effectiveness 1.3x, which is mainly in the domain of what the operators can have the [ efforts ], less so for landlords or builders or developers. So it's very much driven by end users and the operators of these facilities. We certainly will be very interested to participate. Singapore is a very tight market and still seeing strong demand. So when the CFA opportunity is open, we would certainly want to be able to be a part of it and see whether we can be competitive. We like to do more, I think, in short, in Singapore.

[Hwei Leng Tan, executive]

We have David to ask you a question, please.

[David Lum, analyst]

Again, back to the electricity costs. Of the SGD 6 million that you mentioned for this recent financial year utility expenses, is that mainly concentrated in the Singapore data set of the portfolio? Or are there other assets that the SGD 6 million was allocated to? And then I still don't understand why you cannot pass it on. If it's going to increase SGD 10 million to SGD 12 million, why can't you pass it through to the tenant? And why are you -- it seems like you're absorbing all of this?

[Kuo Wei Tham, executive]

Okay. The cost is entirely for our multi-tenanted facilities non-data centers because the data center partners are taken care of by the tenant. So that's what we characterize as landlord cost our own electricity costs for our common area, for air conditioning systems. So the effect on the tenant -- sorry -- so is [indiscernible].

[David Lum, analyst]

So it's the multi-tenant properties, okay.

[Kuo Wei Tham, executive]

Yes, multi-tenant properties. So that does not include the tenant's own consumption or own costs. In the past, you might remember, we do aggregate a tenant requirement, but that is mainly for us bargaining with the energy retailers on a better rate. But I think the tenants would, of course, pay whatever they need to pay. We don't subsidize them.

So the delta that we're seeing now is essentially on the rate increase from what we have been paying in the past to what the -- say, whether it's a track price or whether it's a SP tariff rates will be if we are able to switch to the SP tariffs, but there are certain constraints in some of our clusters, which we will need to get from the energy retailing market, which I think are still seeing fairly elevated rate in the SGD 0.35 to SGD 0.40 per kilowatt hour basis. So I think that is uncertainty.

I think your question whether we can pass it through to the tenants, that is on our landlord side. We probably won't be able to pass directly that way. But one way we are thinking of is, of course, increasing our service charge indirectly to pass on some of these higher operating costs. But it is not easy to execute. Whenever you try to and pass on some of this operating cost through the service charge to the tenant, but it is something that we are exploring now. And our take is if we were to do that, we will probably be looking at a couple of segments or property segments that have a bigger impact like the air conditioned buildings, the Hi-Tech facilities where energy or electricity consumptions were a little higher. So another avenue is us adjusting our aircon charges because we charge our tenants at aircon for some of -- for air conditioning usage for some of building, so we can look at adjusting the rates up to offset the energy cost increase.

[Hwei Leng Tan, executive]

I think just to clarify on the question earlier on the Kolam Ayer. We have just checked the income. It can be expected to come in maybe from the start of the calendar year. So we're looking at probably January, February time frame.

[Kuo Wei Tham, executive]

Yes. 2023.

[Hwei Leng Tan, executive]

So I think if we can take 1 question each on Derrick and [ Tan Xuan ], we can cut off the session. Derrick Heng.

[Derrick Heng, analyst]

I think I just want to ask a question on interest rate sensitivity, right? Because given that you're 71% fixed, what would be the DPU impact if interest rates go up by 25 bps? And I guess where do you see your all-in going towards by the end of this financial year and the next one, assuming you refi at current rates?

[Kuo Wei Tham, executive]

Okay. Lily is going to look at the crystal ball and give you rates.

[Lily Ler, executive]

As I always say, if I know, I won't be here, as a lot of us too. In terms of the sensitivity, so if you look at every, say, 15 bps increase in the interest rate cost, you are probably looking at impact on our DPU by about SGD 0.0013 for this financial year. About 50 bps. So I think in terms of the all-in, if you just use that as a gauge then, I have no idea where my interest cost will be the end of the year. So it very much depends on where the rate hikes are going, how many hikes are there, and how front-loaded the adjustment would be, right. But I think currently, we are at about 2.4. So you definitely expect that to increase by about, I don't know. It's a question mark. Every time I do a forecast, by the time we come for discussion, the rates went up further.

[Derrick Heng, analyst]

Assuming you refinanced at current levels, where would the all-in go up to?

[Lily Ler, executive]

I think if you talk about the refinancing, the refinancing part actually is -- if you compare what we have locked in previously for the refinance, the loan that is due for refinancing, that was actually done somewhere earlier back in the 2018, where the rates are still -- which is a similar level to now, right? So I don't think you expect to see a significant increase on that basis.

[Derrick Heng, analyst]

Okay. Got it. And just know that you get 50 -- every 50, a bit surprising.

[Lily Ler, executive]

50, yes.

[Hwei Leng Tan, executive]

Hi, [ Wong Yew Kiang ].

[Unknown Analyst]

So looking into FY '22, right, there is quite a bit of cost pressure around both interest rate and utilities. So -- and I'm just thinking how likely are we going to see acquisitions to offset this for this year?

[Kuo Wei Tham, executive]

Well, even more difficult to read than there. Crystal voice, very cloudy. So the market is still very competitive in the space that we are interested in. So not so easy to crystalize transactions. Of course, the larger one, which is more visible with the balance 50% stake in the data center portfolio, which we have with our patent. That one, my sense is probably not likely this year 2022. Sponsor is very busy with tons of other things really, and is also providing fairly decent property income as an investment.

So my sense, if you want to come -- will probably be next year, but of course, we have fairly regular dialogues with the parent. Any time I think we are open to us taking on, we'll be very happy to do so. But I think one thing to note is that with our unit price at this level, so the accretion will not be terribly exciting. So this is a kind of a trade-off that we need to be very mindful of and especially in view of the rising interest rate environment. So whether this is the right window for us to push on that. That aside, I think we'll continue to look for investment opportunities as what you have pointed out rightly, if we are able to crystallize any interesting transaction, that would help us drive the DPU, because the cost pressures are, I think, very real, and everybody is experiencing it now.

[Unknown Analyst]

So can you also just do a quick follow-up, right? Given the current unit price and better [ gery ], can we expect DRP to drop off? Or are you likely to continue there going forward as well?

[Kuo Wei Tham, executive]

I think as what you have read in our current announcement, we are continuing with this quarter. Our original plan was to at least cover the development period for our Kolam Ayer 2 project, so that will last till early part of 2023. So essentially, we're trying to match the proceeds to the construction, so-called cost progress payment needs. So there will probably be a little more than what we need. So that will help us say, moderate the leverage level, but I think the primary focus is to match the funding needs. And at 38.4%, but it's a healthy level, we won't characterize this as a low leverage level. I think you might remember some time back the previous two rounds where we did the distribution reinvestment plan. We had that turn off when we were below 30%.

So of course, there is a fairly low -- objectively speaking, a fairly low level. So if we are using the distribution reinvestment plan as a tool to adjust our leverage period is probably not a level which we are turning out yet. But I think for the time being, we look at this after we complete the construction of Kolam Ayer 2 and we see where we are and whether we have more needs.

[Hwei Leng Tan, executive]

Thank you, everyone, for staying with us for so long. If there are any other questions, please contact William and myself offline. All right. Thank you, and have a good day.

[Kuo Wei Tham, executive]

Yes. Thank you. Bye-bye.