MPCMF (MPCMF) Q2 2027 Earnings Report, Transcript and Summary

Good morning, analysts, investors and members of the public. Welcome to the analyst briefing and live webcast of Mapletree Pan Asia Commercial Trust, or MPACT, for our results for the second quarter or first half from 1st April to 30th September 2026. I'm Li Yeng. I will be your host for today's results briefing. Our speakers today are Ms. Sharon Lim, Chief Executive Officer of MPACT; Ms. Janica Tan, Chief Financial Officer; and Mr. Koh Wee Leong, our Head of Investments and Asset Management. We will be presenting our financial results, providing key business developments and sharing market insights. Following the presentation, we will open the floor for Q&A. You are welcome to ask questions. So without further ado, I will hand the floor over to Janica, our CFO. Janica, please.

Good morning, everyone. Let me start with our second quarter results for FY '26-'27 compared with the same period last year. Gross revenue for the quarter was $207.5 million, while NPI was $153.5 million. These were down 5% and 6.3% year-on-year, respectively. Contributions from our Singapore properties remained steady. VivoCity delivered stronger performance, following the completion of the B2 AEI, alongside sustained rental growth. This was partly offset by transitional downtime at MBC and mTower, lower compensation income at MBC and higher property taxes across the Singapore properties. Overseas contributions were lower, mainly due to the previously disclosed nonrenewal at Fujitsu Building in Japan and the challenging conditions in China and Hong Kong. We also no longer received contributions from the assets divested last year, and the net proceeds from those divestments were used to repay debt. On expenses, property operating expenses were 1.2% lower year-on-year, primarily due to the divestments. Finance expenses fell by 10.1%, reflecting lower interest rate on our Sing dollar borrowings and continued interest savings from debt reductions. DPU for second quarter was $0.0194 with Vivo City's growth and interest savings partially offsetting the softer overseas contribution. Turning on to Slide 9 on the performance across our markets. Singapore continues to underpin MPACT's resilience. At MBC, we are progressively backfilling space with a key committed lease expected to begin contributing rental income progressively from next quarter onwards. For our overseas properties, longer downtime and negative rental reversions weighed on contributions. Moving on to first half results for FY '26-'27 compared with the same period last year. Gross revenue was $413.9 million and NPI was $308.3 million, down 5.3% and 6.5% year-on-year, respectively. Singapore's gross revenue grew 1.2% year-on-year, while overseas contribution was affected by the same factors I mentioned for the second quarter, as well as a stronger Sing dollar against Japanese yen and Hong Kong dollar. Finance expenses were 14.4% lower at $83.4 million, and DPU for the first half was $0.0390. On Slide 11, our core assets, VivoCity and MBC, continue to anchor portfolios earnings. Together, they contributed 58% of gross revenue and 59% of NPI. VivoCity's gross revenue grew 7.5%, while NPI increased by 6.9%, benefiting from the B2 AEI. Moving on to our balance sheet on Slide 12. Our NAV per unit remained relatively stable at $1.73 as at 30th September 2026. Yes. So now, I move on to capital management on Slide 13. Gross outstanding borrowings stood at $5.9 billion with aggregate leverage 38.1%. Interest coverage was 3.3x on a 12-month trailing basis. Our weighted average all-in cost of debt declined to 2.95% from 3.23% a year ago. And of the total gross debt, 71.8% was either fixed rate or hedged through interest rate swap, and the average term to maturity was 3.2 years. Okay. On the financial flex, MPACT has approximately $0.6 billion in cash and undrawn committed facility at the close of the reporting period, providing sufficient liquidity for working capital and financial obligations. So we continue to maintain a natural balance sheet hedge by aligning our debt currency mix with our geographical distribution of MPACT's AUM where feasible. Debt maturity profile remains well spread with no more than 22% falling due in any single financial year. Facilities are already in place to refinance the remaining borrowings due in these financial years. Moving on to risk management. To manage interest rate volatility, we continue to keep more than 70% of our debt on fixed rate. So, as at September, this portion stood at 71.8%. FX remained volatile against Sing dollar. On a rolling 4-quarter basis, approximately 94% of MPACT's distributable income was derived from or hedged into Sing dollar. We will continue to take a risk-based approach to capital management with a focus on overall financial resilience. Financing costs remain subject to market conditions, and we expect the scope for further savings to narrow as rates rise. Finally, let me cover the distribution detail. DPU for the second quarter, $0.0194. Unitholders can expect to receive the distribution on 16 December, and the book closure date will be on 10 November 2026. With that, I'll hand over to Wee Leong. Thank you.

Good morning, everyone. Maybe let's start with key numbers. So MBC continues to see leasing process . We're able to -- we've been able increase the committed occupancy slightly from 94.3% to 95.4%. As mentioned in previous quarter results, these committed leases will gradually contribute to revenue from the third quarter onwards. So majority of them will come in towards the later part of this quarter, as well as in the early part of next year -- next quarter. VivoCity remains fully committed, and the contribution of AEI is included to the numbers this year. For the other SG properties, we have a little bit of transitional vacancy at mTower. That's gradually being filled up, and we are maintaining our committed occupancy at [indiscernible] so far. At Festival Walk, the mall remains fully committed, 99.9% and has some transitional vacancy at the current moment. For the China properties, leasing continues to be challenging. While the numbers on the committed occupancy have increased slightly, there are still weaknesses in the market, and you'll see that flowing through in the negative rental reversion on the next slide. For Japan properties, they remain stable. Committed occupancy increased slightly, but we are continuing to see weakness in the Makuhari assets despite -- we are continuing to see weakness in the Makuhari assets. There are some green shoots. We are seeing some increased rental inquiries in the Makuhari area. We have talked about Makuhari being a challenging market in the past 2 or 3 years. We had very few inquiries for large spaces. And in the current market, because of the increasing rentals in Central Tokyo, there is now a little bit more traction for Makuhari. There are more leasing inquiries, and we are slowly converting some of these into leases. And hopefully, we'll get a bit more progress over the next half year or so. Pinnacle Gangnam continues to be performing well, with fully committed occupancy, except for a small unit in the basement for F&B. So moving on to rental reversions. So for MBC rental reversions remain positive. Market rentals at MBC are still around [indiscernible] mark. And for most of the BP, we are signing leases around [indiscernible] that space may be a little bit higher. VivoCity continues to perform well in the current market, and we see 15% rental reversion this year so far. And for the other SG properties, reflecting the improvement in the general office sentiment, there is a slightly positive rental reversal of 5.5%. Festival Walk still remains weak in terms of rental reversion. The market has come down over the last 2 or 3 years, and that's reflected in the rental reversion numbers we are seeing. As I mentioned earlier, China remains challenging. Market rentals in the central area, as well as in the [indiscernible] area in Beijing remain low. On a quarter-on-quarter basis, we're still seeing market rentals come down. That's reflected in our rental reversion numbers, which as you can see, is close to minus 30%. Japan, most of this rental reversion is coming from the leases outside of Makuhari are, where the market is slightly improving, and we are able to increase rental slightly. And for Korea, Pinnacle Gangnam continues to perform well and -- because of the tight space in the Gangnam area in particular. And that delivered a rental reversion of 30%. Lease expiry remains at 2.3 years, roughly consistent with the last few quarters. Moving into performance of VivoCity. Shopper traffic and tenant sales are up. Shopper traffic up slightly and tenant sales up about 4.1% year-on-year. Large part of this is contributed by our F&B and some of it due to the improvement in the tenant sales due to the AEI that we concluded last year. So you see some of the new tenant remixing that we have done over the past quarter, as well as some of the events that we have done over the last quarter as well [indiscernible]. Looking at Hong Kong, starting to see a little more green shoots in the Hong Kong retail market in general. So that's also flowed through a little bit to Festival Walk, where shopper traffic is up 6.7%. Tenant sales is up 3.9%, largely driven by improvements in the F&B sector, as well as some of the luxury, in particular the jewelry side of the -- jewelry tenants. So we continue to remix the tenancies to improve. And like I mentioned, because we are seeing improvements in the F&B sector, one of the things that we've been doing is trying to put in a bit more F&B in the mall. And lastly, F&B continues to be very strong in running traffic to -- running events to bring traffic to the mall. And these are some of the things that we have done over the last quarter.

Thank you, Wee Leong. Now, we can start Q&A session. [Operator Instructions] So now, let's open the floor for questions.

Terence Lee.

Terence Lee from UBS. So the outcome from the Circle Line and HarbourFront Center closure is intriguing. I think sales was up 3% in the quarter when shopper traffic seems to be slightly down. Would you say that some of this incremental tourist spend coming from Marina Bay is perhaps more higher spending and ticket size? And I guess, can we extrapolate this sales pattern for the rest of the year? And I guess, anecdotally, has there been any meaningful impact to the Sentosa traffic due to the...

Thank you for your question. It's very hard for us to quantify who exactly comes from Marina Bay. But I would say that the Circle Line completion with connecting Vivo within the line, it's definitely a huge plus for VivoCity itself in terms of traffic and all. But precisely whether they come from Marina Bay, we won't be able to tell, okay? But it's definitely a huge plus with the Circle Line completion for Vivo. HFC, there is -- they have already started closure. So there's a little bit of impact on the linked lease. But I would say that our business is carrying on as it is. Our car park is way more full than before. Vivo itself, I think, is steady. We have completed our AEI, and the numbers are all flowing through today. That's where you see the increases of about 7%. For a 20-year-old mall to still be generating very positive NPI year-on-year is a combination of effects. okay? So the second line completion is definitely one, or AEI effects also one. And of course, our regular changes in tweaking the trade mix to complete experience for our shopper is also another factor, yes.

Okay. And maybe on Festival Walk, how much should we make of the disparity between the negative rental reversion despite sustained sales increases? Granted, I know -- I mean, on the ground, there are certainly more challenges. Especially, I think Pinduoduo is giving, I guess, malls a run for the money. Like how should we think about the time line of when reversions start to flatten out from here?

Okay. I think the spread of increases in sales for different category is different, okay? F&B is a very clear sector that is doing well. The luxury end, I would say that it's only the -- for example, like grocery shops and all jewelry shops, they were -- in the last few quarters, they were doing extremely well. On the flip side, the fashion and all, I think it's not just specific to Hong Kong, is on the weaker side, okay? So when we look at sales, I think we are comforted that there is positive sales growth, and definitely in sectors of the F&B, it's positive. So how do we look at rental reversion? Rental reversion looks at a specific cluster of leases that is due for renewal, and that's how we -- and numbers are reported accordingly. So it depends on who is up for expiry. I would say that in quarters where there is fashion, there will definitely be a little bit more downside. So over time, what have we been doing? We have been tweaking a little bit of the fashion and personal cosmetics, which is a little bit more challenged, okay? So next year, for Festival Walk, we are already on track to rezone our entertainment cluster, which is the cinema. Cinema operations is slightly different between Singapore and Hong Kong. In Hong Kong, I would say that the sentiments are way weaker than in Singapore. So when we look at the viability of the unit, we thought that what we could do better was to reconfigure it, reduce the size. Whilst we like some format of cinema, it doesn't have to be in that format and convert it to a combination of F&B. So that's well on track. The planning is well on track. And upon expiry, we will be downsizing our cinema in Festival Walk. So I think if you talk about rental reversion and all, I would say we still have a few handful of tenants that we see that we need to weed out, that needs to be taken care of, and that will still affect the rental reversion. But for the F&B cluster, we are very confident that it is okay.

Got it. And maybe after the cinema, is there anything else you think needs to be refreshed?

Okay. I think the cinema was -- is a nice corner cluster that we could act on. The MTR floor, certain subdivision is also underway, okay, which I think what we're trying to do is to create -- add more tenancies, okay? So a little bit of resizing for the MTR floor is what we are trying to do. Also in certain corners where lots are bigger, which we may -- we are also looking at tuning it to make it a little bit more tenant-friendly because tenant size requirements have changed over time. We know that sometimes a 12,000 and 10,000 doesn't work anymore. Tenants look at slightly smaller, and those are the things that we are doing.

Okay. It sounds like one more year to go.

Yes. Actually, if you look at our F&B, when we did our H&M transformation, H&M was split over a few floors set up. We took back that unit, and we carved to a few restaurants. Those were a very big hit, and the numbers jumped. It was over a 50% change in terms of numbers and definitely did help the sales and also the footfall. So I think that gives us a lot of confidence in terms of the food. I think where we are located next to the university is also a huge positive on F&B. So from that angle, we are also looking at spreading -- widening the spread of our F&B offering to better cater for it. So I think the last quarter's AEI that we did for the H&M was a very huge plus for us.

Jialin.

I just wanted to ask on the Festival Walk AEI. Do you have a time line for this or any target kind of quantum to deploy if you are ready to share? And cinema space conversion to entertainment sounds like quite a big uplift to expect?

Okay. Just as a general, I think we're expecting a positive ROI, okay? The timing itself, there will be a bit of downtime next year. But I think it's a good change. ROI is looking positive based on the tender that we're receiving for the construction works, but we are still fine-tuning it to see what else we can do to tighten the cost a little bit more, okay, but it's positive ROI.

Okay. Understood. Just to clarify, the cinema space is a tenant replacement? Or are you rejigging the space and...

Rejigging and...

Okay. Got it. I think Festival Walk, you still have quite a few anchor spaces to renew, and some of these rents are from the protest or COVID lows. Should we still be expecting a good positive reversion uplift from this?

I would say immediate few quarters, no, because when we look at the numbers, we calculate on a cumulative basis. So whatever numbers that you are seeing on a minus, the next quarter is accumulated.

Okay. Understood. Also, I think that on the Makuhari area inquiries, I think you shared that this could be a tenant for Fujitsu. Are you able to share a bit more color on this?

Currently, we are still in negotiations with quite a few tenants, including one for Fujitsu Building. Discussions are still fairly preliminary, and the decision-making process, we understand from the tenant, is fairly long drawn. So I think it's not opportune at this time to share more on that at the moment. But what we can say is that in general, compared to a year or 2 years ago, leasing inquiries in Makuhari have definitely picked up. In the past, most of the inquiries for Makuhari were small, right? If we look at '25, it was something like 1,000-plus, 2,000 square feet to maybe 3,000, 4,000 square feet spaces. In the last 2 years, we signed 1 tenant that took up more than 1 floor. But in the current market, because there is so much price pressure in Tokyo Central, there is a little bit more inquiries coming out from tenants who potentially are looking to relocate out of Tokyo Central or in the Tokyo suburban areas. And we are seeing tenancies that are coming through asking for 50,000, 100,000 square feet of spaces. Most of these are not immediate. We are looking at next year before these leases will start, but discussions are ongoing with a few tenants on this type of spaces, including one tenant who potentially could take the whole lots. But as I said, tenants are taking a little bit of time, rightly so because it's a very big change for some of these tenants who used to have offices in Central Tokyo and now are looking to move probably 1 hour away to the Chiba area. So internally, they have a lot of hurdles to cross as well. When we are able to sign off the lease, then we will have something to report.

Are they from the same sector, various...

A wide variety of sectors, electronics, financial services, entertainment.

Terence from JPM. Nice to see you again, Terence.

This is Terence from JPMorgan. Just wanted to ask on MBC. What can you share on the physical occupancy as of 30th September versus committed? And how should we think about the ramp-up to that 95% number? And did I hear correctly you say there's a one-off impact on MBC last quarter? Just the first question.

Okay. To answer the easy one first, MBC doesn't have any one-offs this quarter. In terms of occupancy-wise, physical occupancy, so what really happened was, if you look from last financial year to now, right, at the beginning of the previous financial year, we were -- in terms of physical occupancy-wise, we're probably around the 90% mark plus, just around that level. It dropped to about -- it dropped to about 88%, 89% at the end of last quarter, and it's slowly ramping upwards now. So in terms of the gap between our current committed and physical, that will gradually close towards the end of the financial year. So by the end of the financial year, we should be north of 92%, 93% in terms of physical occupancy. There will be a few tenants whose leases will start next FY rather than this FY, and that's a small part of it.

In short, about [indiscernible] are starting. It's so-called physically vacant, but it's committed, but the bulk of it is starting rental payment on 1st of November. [indiscernible] is committed but has not started.

Okay. And maybe on my second question. I mean, we have seen this focus on sharpening the portfolio. And I guess, it's been mentioned a few times before. But could you share with us like is there further urgency to sharpen the portfolio? Are we looking at maybe accelerated pace of divestments? How should we think about refocusing on your core markets? And what's the time line for that?

Okay. I think it has been ongoing. If you look at what we have done for the last 2 years, we have -- we have trimmed about $1.2 billion of assets for various reasons, one, better offer, higher yields. Yields are worse than interest rates. The other thing is future tenancy issues that we brought forward to divest, to not be helped in a challenged position. So for various good reasons, we divested $1.2 billion, okay? I don't think that's the end. I think we are in a combination of trying to trim where possible the weaker assets. But I think I will not hide away from the challenges in the market of -- certain markets in terms of divestment. I think the weaker ones definitely like Makuhari, okay, but I think the challenges remain in terms of divestment. So there are certain things that we try to do along this line that for like Fujitsu, if we can successfully lease it, I think the chances of divesting it will be higher, right? So I think we are working along those directions to trim -- to continue to trim weaker yielding assets and try to replace with better ones, okay? So I think the focus is still the same. It's not a matter of the challenged market. It's not a matter of whether I put my time line, I want to do it next year or I want to do it in 3 months' time, okay? It's not a scenario of a Singapore market, okay? So I would say that our focus is still the same, trim all those that is not doing as good. And we will definitely continue to look at assets that may even out the portfolio in terms of strengthening the portfolio further, okay? So, no change to what we have been doing.

I guess, I mean, as you mentioned that $1 billion over 2 years, I mean, you still have about $6 billion of overseas assets. Would that take -- I don't know how long would that take? Because I guess, the overseas environment still seems to be very, very challenged. Is that...

Yes. Terence, I think there is a balance there between what investors would -- what buyers will potentially look at or the existence of certain buyers for certain zones, okay? If we are willing to take certain huge haircuts, which I don't think is warranted, and I think that there is -- on a sustained basis, it shouldn't go down to that level. Those are the decisions that we will take that we will continue holding it. There are certain markets that I am willing to that goal, okay? But buyers are limited due to the investment environment, where interest could be higher than any other property yield. And the next is interest level on locations like certain parts of Japan. okay? So we have to think slightly differently of trying to couple the whole thing and mix and match certain things for -- to make it more palatable. But unfortunately, Japan interest rate has started to move up. That makes viability of an investment case for any potential buyers slightly more difficult. That being said, our focus on trying to get all these done is still there, okay, albeit that is slightly longer in view of the changing environment.

Jonathan, over to you please. Jonathan?

My first question relates to Festival Walk. The retention is about 56%. Is that typical sort of -- is it the typical level in Hong Kong? Or is it kind of like lower than industry average? Is that low level of retention causing the negative rental reversion? And how can you kind of like improve that retention? Second question relates to South Korea. One of your peers have divested and I think recorded a handsome gain. Is that something that you're looking at? And does MPACT benefit if that was to be divested? Is it something good to do?

Okay. I think Korea, our asset is very stable, giving us decent operating metrics in terms of rental reversion, stability, tenancies and so on and so forth. The -- right now, the impact of which will be quite nominal because we are sharing a 50-50 on the building with the sponsor. I think if there is any decent offers, we'll look at it. Recently, the interest rate has climbed quite tremendously for Korea, okay? So I think we need to be a bit more balanced. I mean, for us, whether we sell or we don't sell, it doesn't have much impact to us. Similarly, for Japan -- Japan is also quite small, okay? We have revalued to the point where it's maybe 10% of our portfolio, okay? So Korea is even smaller than that. So whether we sell, we don't sell, it doesn't have much impact, but it's a very stable asset.

Sorry, Jonathan, can you repeat your question on Festival Walk?

Let me -- the other question is on Festival Walk retention rate. How does it relate to rental reversion? Okay. I think -- I don't see there's a lot of change due to, for example, we -- I don't see very drastic change, okay, because depending on the part that is up for renewal, we count the reversion and the retention, okay? So there were certain little bit of changeover, like, for example, Rolex became Tudor and whatever, so it changes, but it's still in the same trade. So it became a 2-brand trade as opposed to a mono. So, on an annual basis, I'm not quite -- I'm not actually alarmed with the numbers. I think it's a substance over form. If you look at Festival Walk, we are not changing the trade very much, okay? So for example, this watch group, we sought to 2, okay? Then, one of the fashions we sought to 2 other similar but slightly different types of fashion. So I think it's not alarming for Festival Walk. Like H&M, we spit to 5 -- sorry, 4 F&B. So I'm not too alarmed.

Okay. So, as you continue to reconfigure, this number will be -- like 50%, 60% is quite typical?

50%, what rental reversion?

Retention.

Actually, the truth of the matter is, retention is not in my KPI. When we look at the tenancy, we look at whether the trade still fits, whether this tenant still can survive, this exact tenant in this trade, okay? If we think that there are better options, we will go. I don't go like I need to retain 80% and we go, okay? No. If subdivision changing trade makes sense or keeping the same trade changing tenants out makes sense, we will do it. The truth of the matter is retention is not on my KPIs. We look at individual lots per se when we do the assessment.

Okay. For rental reversion, would you be able to kind of narrow it to a negative single digit in, say, second half?

This quarter was because of one big one, okay? There's one tenancy, actually, his cost was okay. I think it's decent. Okay, okay. But because he opened another lot, okay, in a mall in [indiscernible], okay? And when they first started, they had very preferential rents. And that was used as a comparison. But I would say, over time, that kind of rents cannot hold for my competitor. So it will come up to a certain normality. There are certain things that I will take it up because we -- the trade is something that I -- that we still want, but yet my competitors are throwing a bit of rents because they were new. So right now, I would say, after the first term, it will come back again, okay, because any new malls cannot hold rents at that level. It's only to attract. And that tenant rightfully used the leverage. And I think over time, it will normalize because rents cannot be in that manner. So, that was one of the big hit that we took.

So if excluding that exception going forward, it's quite likely that you can narrow it to a single digit?

Okay. So, a few things. There's a few handful that may deal with the cinema, okay, the grocer, one of the leisure, and plus one -- I suddenly just fell off my -- there's a few -- a couple more of the bigger ones, not anchor per se that we have to deal with, okay? The rest are in terms of cosmetic, they are small but PSF higher. These are the 2 weakest areas, I would say.

Tabitha.

This is Tabitha from DBS. So my first question is on VivoCity, continues to be the standout performer in your portfolio. How long more do you expect to sustain the double-digit rental reversions? And what is the current op cost? And are there any plans over the next 2 to 3 years to further optimize the mall?

Okay. Op cost is around low-20s, okay, say plus/minus [indiscernible]. Any rental reversion for -- positive rental reversion for a 20-year mall, I would say, is positive. So I will not commit to double digit because it's typically not that easy, okay? So for us, I'd say what we have done a few rounds was, number one, a few years ago, we started looking at rightsizing. Then we went on changing -- tapping on tenants who want a face, who want a stand-alone from the athleisure side as opposed to coming up from a multi-brand to a single store, okay? Then, we went on a basis of weeding out all tenants that have been very loyal but have not been -- have not been performing well recently. All these were giving us all the rental pluses, okay, the rental reversions. So I think we will continue to start -- continue in scrutinizing individual leases and clusters to strengthen it, whereby we are hoping to see rental reversion. Now rental reversion has to come together with positive sales growth, okay? So the cost question, I think, is good in a way that I think you're trying to ask me whether -- how much more can we push, okay? So I need sales to grow, then we can move the rental further, okay? So I think we are on the right track. Places that we cannot, we do AEI, where we transform lower-yielding to higher-yielding spaces. I think that is like what we have done for the entire basement too, okay, which is increasing kiosk from 30 to 24, upgrading everything else, changing car park to retail and creating NLA of 21,000. So all these are positive also. It may still start with the 20, but 20 with a bigger base. That's how we get our $7 million out, okay, numbers along the way. So what other AEIs that we do? I would say that we are in very -- I think I've been guiding that we're in very advanced planning for 2 big ones that will carry us for another 2 years. okay? So what does it include? If you look at a mall, you say, what else can you all do? You have touched Basement 2. You have touched Basement 1. You have touched a lot of corners everywhere. What else can you do? So now, if you look at VivoCity, like I always said, our back of the house can be turned to some form of a front, which is our top line, okay? So much traffic pass there, and it's quite a shame. That is technically back of a house. Who is at our back of the house? The back of the house is actually units connecting to our hypermarket and also to the back of our so-called prime unit, H&M. So I think there is a lot of work that we can do to turn the whole strip, to change and to add a new cluster. I'm quite confident that we are getting on the right track, but it's just that we are not tendered out. We are already in a very advanced drafting stage. We don't see big hurdles, but we just have not tendered out to get all the number to get the AEI going, okay, but all our plan. Other things that we are looking at is retrieving GFA, retrieving GFA from pockets, that means detachment of GFA and redeploying into higher yielding. I think if we creatively look at how certain of our trades have -- certain of our tenancies are sitting on excess GFA based on old design and old code, that gives us some flexibility in extracting the GFA and to redeploy. So where else I'm going to redeploy besides the drop-off point, the whole entire bag is definitely Level 1, and certain slabbing over of Level 2 to create a Level 1 space, okay? So I think that gives you -- give me some time when we -- we are very advanced, just not tendered. When we are done, we will definitely come out to talk about it, okay? All are positive ROI, we are trying to minimize disruption. There will be disruption, okay? But we need disruption before we can get the numbers. So that's how we have been planning our AEI. When one disrupts, next year number comes out, I will start the disruption again, and that's where -- the numbers can come out the following year and so on and so forth, okay? So I think we have a good 2-year program. We are trying to make sure that the program limits disruption. And when income comes in, we bring down another part. And after it's well, we will stabilize to a higher number. So I think I'm quite positive that good 2 years -- we have very good 2 years around.

My next question is on the cost of debt outlook.

The outlook for FY '26-'27?

Yes.

Okay. So we made a guidance. So, as I previously mentioned, we expect to end this financial year with the cost of debt to be above 3%, hopefully should be below the 3.16% a year ago, but it's likely to be 3%. As you know, interest rates are all climbing up. So far, we do have -- we will still see savings from the swapping out of the Sing dollar interest rate swap. We do not have much or any Hong Kong dollar interest rate swap this year expiring. So you can still see some positive, but whether it's a big positive or small positive will really depend on the market.

Just to let Donald go first. Terence, I'll get back to you later. Donald, can you please go ahead with the question?

Just a couple of questions. First, on the lease expiry for the second half and also FY '28, what's the proportion of the lease expiry coming from both Hong Kong and China?

Hong Kong and China, in terms of the portfolio is actually not that big in terms of leases. So roughly proportional. The big chunk that you see there is -- if you're looking next year's lease expiry for Hong Kong and you're looking at the retail number, I'm assuming, that should be split about half-half for -- in Hong Kong.

For both 2H '27 and FY '28, it will be half-half?

Roughly around that proportion. They will be around that proportion.

And then, China?

China will be a smaller -- much smaller proportion and in the office and business park side. The most of the office and business parks in expiry is actually Singapore MBC.

We have sort of a range like how many percent of the GRI?

Second, we are probably looking at -- I don't have the breakdown for you, but we are looking at 60% to 70% Singapore.

Okay. So maybe about 30%, 40% will be China. Okay. That's fine. On Festival Walk, I appreciate the stronger sales, but clearly, reversions to normalize -- the negative reversions to normalize will take some more time. Where -- in terms of leases that's expiring in the next 18 months, how much over-renting at this point for the leases that are rolling over versus market rents now? How much is it above the current market?

I think the big one would be the city park, okay? Because the expiry comes, then we will revert to the so-called lower rents today. But I think we have been giving them -- I think I've been saying for a few quarters that we have been giving them rental rebate if they don't hit a certain sales over the last term. So the current term that is going to be expiring by end January, okay? Now, the rental rebate has kicked in and already been booked into our numbers. But the rental reversion number, when it comes to expiry, we will still use the higher number to come, okay? So I think that will also be one pain, but actually it's been flushed out in the NPI pertaining to that lease. I'll give you an example. There were -- actually, the cinema rents were roughly maybe about, let's say, shy of HKD 100. Then the rental rebate, we are talking about 1/3 off, okay, roughly about 1/3 off, and it has kicked in and has always been in our books. So when the time comes, rental reversion, we will start looking at it again, then we will have to think about -- the numbers have really been flushed out. I think that's one point in terms of cash. So the...

Sharon, are you...

Yes, go ahead.

Sharon, are you prepared -- or at this point, given that there has been a couple of years, do you think will it be a year or 2 years? If you look at your leases now, when do you think will we start to see the rents for all leases being at market or starting to...

We look at profiling our NPI because rental reversion is certain bucket -- package of leases at some point in time. It doesn't reflect the entire -- so if we look at the mall performance, we have been looking at, what, minus 30% before, minus 20% rental reversion. But if you look at the true impact on the NPI, it's not in the minus 30%, minus 20%, no, it's not. So if I look at NPI profile, I would say that it's not in the same magnitude as what you're seeing, okay, as what you're seeing in terms of rental reversion because there's other components in the performance of -- in the P&L of an individual asset. There are other revenue. There are operating expense. And rental, whatever you see is spread over 3 years. There is also AEIs that we do, so a combination of all these. I don't see it dropping the same manner as the rental reversion that we reported, okay? Not in a year, not in 2 years.

Maybe just on your question earlier, so the 60%, 70% MBC is correct. Then there's another 10%, which is Singapore -- the other Singapore assets. And the remaining 20% is, about 10% China, 10% Japan.

Okay. So Japan is 10% of the lease?

Of the leases -- of the office and BP part.

Yes. That's very helpful. Maybe my last question. At this level, is buyback an option, a viable option?

I would say that the buyback, we would like to couple it with other things. If we can free up capital somewhere else, and I think be it for short term or for -- if we think that is a long-term viability, I think we will look at buyback. But it has to be coupled with something else. It can't be just borrowing money to give money back. You know what I mean? I won't borrow money to give you money. It's like going to the bank and take $200 and go down and...

Not really, Sharon. You're borrowing money to buy back your own assets, right? It's not like borrowing money to...

I agree with you, but what I'm saying is, we will prefer to free up capital in a different manner, free up capital first and I'll definitely consider a buyback. I think buyback has always been on our books, okay? But for the last few deals, when we look at what is the better use of cash, I think we made the call to pare down debt, okay? The borrow money to give you money back, I think that is only a simplified manner. I think you have rightfully pointed out, there is certain other considerations. So we are on the same page, okay? I think there is a benefit of doing a buyback. I'm not denying that, but we will do it when there is another capital free-up. We didn't do it for the first round -- first 3 months. But I think we are seriously considering once we can free up certain capital.

Can we have Derek? Derek Tan, can you go ahead first?

Just on the Festival Walk, Sharon, you were saying that the reason for the sharp decline this quarter is because existing tenant leverage on his other lease at The Wai to get a much more favorable rate. Is there any concern that the other mini anchors whose expiring could use that same trick as well? I mean, since, I guess, information will be pretty porous.

I mean when we did a match of the tenancies, there's, I think, about teens that we -- teens that are similar. We did a match before. I'm only naming the significant ones because tenants always threaten you with anything. Because any way to cut rent, for any reason you can think of the book, it will come up, okay, just to get the negotiations -- to be ahead of the negotiations. I think when we look at it, we always look at do we need this tenancy? Do we see completing a certain trade mix, okay? I think we have helped -- if you have a walk in Festival Walk, you will understand that we were still trying to keep a certain integrity of a mall, as opposed to shoving any tenancies in there just for rents, okay? So I think the discipline is still there, a bet that the rentals may be slightly lower. But I think on the long haul, it will keep the integrity of the valuation of the property. We don't take a short-term approach when we look at renewals now. Sometimes, we do take an approach of who can sustain longer and we go. We are also very practical. If we find that we cannot find anybody, obviously, what do we do? Take whatever that's on the table. But for this case, it is a trade that we wanted. And we had a very, very long discussion about it to the point where we know that the next term, it will be similar, okay? They cannot continue to hold at that kind of rent. But because they are still in the same term, they get -- they positively leverage on it. But I would say on a sales basis, we are technically not that worse off compared to our neighbors.

Okay. But is there any risk of the -- I mean, as you said, tenants will do whatever -- will use whatever information to nego hard on rents. Is there a risk of the upcoming ones?

Cinema, no. Cinema is everywhere threatening everybody. So it's not specific to a competitor. It's the industry that is weaker, okay? The cinema industry in Hong Kong is not good. So it's not a matter of competitor. It's a matter of the industry. So I think there are different issues in Hong Kong retail. The luxury end, I was educated that, that is the biggest drop. Our drop is nothing compared to the super high end, okay? So I think there's a combination of effects. So what we think on the long haul, we still need to refine the trade mix a little bit more, okay? I think the -- like I always mention, we are slowly trying to get out of some of the personal cosmetics, painfully so, because the buyers are now comforted to buy locally and all those brands cannot survive on so many outlets. And that means rentals will come down because of them reducing their platform or number of shops in Hong Kong. So from that basis, we are tweaking, okay? I think the changes, I think you can see along the way, we are also tweaking along the way, okay? We would love to keep the rentals of the old personal cosmetics, but we will continue to change them up, okay, when the time comes. I will hold onto every single dollar now because the rentals are still high. But when the time comes, I will switch out. I will switch out.

Okay. Got it. And my next question would be, given what -- given everything that has been said on this call, is it fair to say that we would still -- we should still expect DPU to see some slippage, I guess, for the next 2 years with interest rate higher, AEI disruption, NPI for the overseas assets still challenged? And I guess the inflection point, 2029.

I hope to be faster. But next, let's see, about 1/3 of our contribution is coming from overseas, okay? About 1/3 is coming from overseas. Singapore has been holding the fort, okay? But certainly not enough to cover. It did cover for the first 1 year-ish, 2. Then currently cannot. Why? I think the AEI that we tear is not small in Vivo, okay? So next year, I'm tearing more, okay, because we are very confident of the output. I am not going to hold back on what we think that is good just because I want to even out the pain, okay? I think the challenges of the -- in China will continue. The challenges in FW, Festival Walk, is way, way, way lesser than China, way lesser than China, okay? So what I'm saying is the -- on top of that, we have single tenant of festival in Fujitsu that left, which we have guided the market for good 2.5 years or more. So when you do year-on-year comparison, the drop will still be there. If you look at our NPI, 1/3 of our current NPI is divested assets, okay? Then majority of -- then the balance of the 2/3 is operations, which is majority, some parts of MBC because of the transitional, which income will start coming in 1st November for about 6% part of it that is committed but have not started. They are starting in 1st November. So the 2/3 that are down in the NPI can be accounted for on overseas and not all overseas because there's a big chunk from MBC, okay? And MBC numbers will kick in 1st November. A big lease will start. All of the 6% that is committed but have not started will start 1st November, okay? So year-on-year comparison, Fujitsu will kill me already, right? My downtime next year, I am tearing a lot on Level 1 in Vivo. But I'm trying to spread the pain and still get the gain, okay? So the team is working through the detailing of trying to maximize the time line, okay? Technically, in hunky-dory, I would love to thrash one time all pain together and get the income as fast as we can. But I need to balance the team's work, okay? We have a good team that I don't need to exhaust them to the point where they cannot -- they don't have time to breathe, yes. So we also need to manage the mental state of our team because the work is a lot, okay? We are talking about thrashing tenancies, we're talking about rebuilding tenancies, we're talking about building new tenancies, the construction work and all the operational opening and everything is a humongous exercise behind. So based on numbers, my downtime will kill me, but I'm comfortable to do it. I'm comfortable to face investors to say, yes, I acknowledge my China is going down. But I always tell myself, my team, that we have to beat the market. Macro is macro, but we have to beat internal, as well you got to beat your own competitors. If you beat your own competitors, you are ahead. If you -- because we cannot control macro, but we cannot 100% blame macro. We just have to draw comparison to your competitors. So today, I think I will acknowledge that China will continue to go down in the next year or so, okay? The magnitude is way more than Festival Walk. Festival Walk magnitude is peanuts compared to China.

Yes, agree. I mean, NPI is just down 1%, right? But Festival Walk, China, Japan, 18%, 36% declines.

Yes. And the contribution is small, but it's big, yes? When it can show up, it means the pain is more. So China is our biggest pain, if you ask me. It's the biggest pain, okay? Japan is -- Makuhari is maximum pain, nominal impact. Except once I clear out Fujitsu, the pain, the year-on-year comparison of Fujitsu, it will be lesser and lesser because by year-on-year comparison, you will see the negatives. And last year, when we divested the Hong Kong office of Festival Walk, I think the deal was done. I received a lot of feedback that we have actually charted a very good price for Kowloon Tong for office, okay? I think we were lucky in that spot where suburban office may not be that good, but we had a very willing and dedicated buyer. So that deal, I think, was a very, very nice deal done for Festival Walk office. So I think we will continue to explore pockets of this. Certain things I cannot commit. You ask me, would you all like to sell certain parts of China. I will tell you, yes. Realistically, who's going to give me a very decent price? China today. I think we all have to be realistic that China is a long-term focus. China, we're not saying yes. We are saying bye-bye to China today. I am unlikely not to add anything on China today. But that also means that there will be very little takeoff of my China portfolios today. So we are trying to drive our whole forward. If I just purely look at our overseas without Singapore, I think it's very, very weak. It's weak, okay? But we are trying to mitigate the pain with Singapore moving, okay? So I think the Vivo and MBC has done its job. A bit of a flu in terms of downtime for MBC, but it's catching -- it is coming back. It's coming back to its good old self. It caught a bit of flu in terms of downtime, okay? But 1st of November, big leases are all starting, okay? So we are still -- we can't clear out China's problem today. I can't confidently tell you, yes, I'm going to be dealing with China. If can, I would have done it.

Thank you, Sharon. Thank you. Just before we move on to the web, we have one question -- invite questions from Brandon first. Brandon?

Sharon, I just have one quick question, right? If we look at your NPI yield for Festival Walk today at 3.5%, after 2 years of AEI, right, where should we see this number go towards, assuming your valuation doesn't change?

You're talking about Vivo?

That's it.

The 2-year AEI...

No. Festival Walk...

I am referring to...

Festival Walk, sorry. FW.

FW will hover around the 3-ish. 3.3% to 3.6% is 10% increase in NPI there.

Yes, yes, correct. So that's what I should be looking at.

So I will tell you it will hover around the 3%-plus of where it is.

Mervin, let us move on to the web first before coming back to you. We have one question from Darius, an individual investor participating online. The questions relate to the Greater Southern Waterfront development. So the upcoming developments on various fronts, including Sentosa and residential developments. So how does MPACT look at this? And are we already involved? Or do we have any plans to participate in such developments?

Okay. I think the Southern Waterfront, I think the announcements were around residential and all. We are not into residential, but it's a very positive. Towards definitely -- the VivoCity will definitely enjoy the outputs of the redevelopment of the Southern Waterfront. In terms of control, I think our government, URA, is very, very meticulous in terms of what they develop and they have a grand master plan. Vivo is definitely benefiting from -- will benefit from the increased residential population in this area, okay? Anything that Sentosa do positively will have a direct come indirect impact because we are next door and we are a pass-through or you have to pass through Vivo when you go there. So we are looking -- we are very happy to hear of any new developments that Sentosa itself is bringing, is doing, okay? Anything that is positive on the tourism front or bringing Sentosa to a different level, it will benefit Vivo. It's a very direct impact.

Thank you, Sharon. So just to round up the Q&A session, can we have Mervin?

So MPACT share price is now at 2013 levels, which is 13 years ago. MPACT now trades at a 34% discount to book. And the market conditions have also changed significantly over the last few years, making the rationale for the merger between MCT and MNACT less compelling today. So ahead of sponsors' potential listing next year, is it time for a more radical change in MPACT strategy? Would management of MPACT recommend to the Board and sponsors to consider splitting MPACT into 2 REITs, Mapletree Singapore Trust and Mapletree Outside Singapore Trust to unlock value? If the answer is no, why would the current strategy of trimming assets and waiting for a cycle turn restore confidence to cause a sustainable re-rating of share price and close the large discount?

Mervin, I'm not sure if you are directing the question correctly to us or whoever that may be. It doesn't seem to be in my realm of ability to answer, okay? I can only tell you about MPACT. Anything beyond, I'm not aware, neither do I have any comments to it.

Aren't you in charge of managing the share or helping improve the share price from here? And I mean, the discount is huge.

If you talk about broader strategy of the group, that should be redirected to the group, okay? If we are talking about MPACT directly, I will be able to tell you where we see things moving.

Okay. Maybe I'll ask the second question. In terms of Japan assets, can you talk about the rental differential between Makuhari and Central Tokyo? What's the discount at this point in time? And how wide does it need to get to...

You can take it as Orchard Road rent versus industrial rent in Singapore. That gives you a sense.

Okay. So we need a significant, what, 30%, 50% increase in Tokyo before we see a jump in demand?

Okay. No, no, I think your question is what's the difference between the rent. The variance if you take as Orchard Road rent versus industrial rent that gives you Tokyo core rent versus Makuhari. So I'm answering your first question. I'm not talking about anything that trickles will have to go by Tier 1, then trickle down to Tier 2. I think that is correct to say for any office industry or any office market.

Yes. Okay. Yes, I'm just trying to figure out, like, how much wider does it need to get before we see a significant pickup in demand?

Okay. Anything that -- it will positively trickle. But if you're asking for granularity, like Sharon, if the occupancy hits 88% from 80%, will it move 1 percentage? I won't be able to tell you that. I can safely tell you that there is positive impact when the central moves up to a point where rentals become too high, then it will trickle.

Okay. Yes, Sharon, just want to mention, yes, you're one of my favorite CEOs, and I see significant inherent value in the share price. So that's one -- that's why we have overweight rating.

Thank you. I feel the love, Mervin. Mervin, I feel the love. Thank you.

I think the market is overly punishing for the overseas exposure at this point in time.

Thank you.

Thank you, Mervin, for your very kind comments. So with that, we would come to the close to our results briefing today. Thank you again for your active participation. So if you have further questions, please reach out to any of us in the IR team. Again, thank you for making time. We wish you a great weekend ahead. Thank you.