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What’s Behind MPACT’s Profit Decline in 2Q FY25/26? · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, we're really getting into the weeds with
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  MPAC, Key Tea, Maple Tree Pan-Asia Commercial Trust.
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  That's right. We're looking at their latest results, Q2, and the first half
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  of their fiscal year, 2526, ending September 2025.
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  You've seen the announcements, the financials. Our mission today is,
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  well, pretty straightforward.
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  How did MPact-T handle this tricky economic climate?
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  You know, rising rates, uneven growth across Asia. And still managed to deliver for unit holders.
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  It's quite the balancing act. Exactly. How'd they pull it off?
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  Well, it's really a fascinating study in, let's say, strategic defense.
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  If you just glanced at the headline figures, you might think, oof, tough quarter.
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  But the real story, I think, is this tale of two portfolios.
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  You've got exceptional strength coming out of Singapore, particularly their
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  big retail asset. Guvacity, yeah.
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  That combined with some really sharp strategic portfolio moves,
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  basically selling off certain assets smartly that cushion the blow from some,
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  you know, pretty significant overseas challenges.
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  Okay. And this is where it gets interesting, almost paradoxical right off the
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  bat. Let's hit those key numbers for you. Go for it. Second quarter distribution per unit.
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  DPU, that's a payout to unit holders, it actually saw a small increase,
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  up 1.5% year-on-year to 2.01 Singapore cents.
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  Which is, at the end of the day, what they aim for, a positive result for the
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  unit holder. That's the positive takeaway.
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  Yeah. But then you look at the underlying property performance,
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  and it tells a different story. Uh-huh.
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  Gross revenue for Q2 was S218.5 million dollars.
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  Net property income, NPI, was S163.9 million dollars.
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  Both of those were down. revenue fell 3.2%, MPI dropped 2.2% compared to last
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  year. And there's the paradox we need to solve for you.
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  Lower income coming in from the properties. But higher distribution going out? Yeah, exactly.
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  How does that compute? How did they manage to boost the DPU when the core MPI
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  was actually shrinking? It feels counterintuitive.
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  Well, we need to break down the different levers they pulled.
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  And the biggest one, the most obvious positive, is the sheer resilience of their Singapore assets.
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  That domestic strength was really substantial. What was driving that specifically?
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  Was it across the board in Singapore?
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  It was strong, but mostly concentrated. If you strip out Maple Tree Anson,
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  which they sold earlier in the year.
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  Comparability. Exactly. On a comparable basis, the rest of the Singapore portfolio
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  saw really robust MPI growth.
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  We're talking 6.1% year-on-year growth in Q2 and 4.5% for the first half.
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  That's significant growth. It is.
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  And almost all of that boost came from their flagship mall, Vivosity.
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  We'll definitely need to talk more about that one. Okay, so Singapore was the strong anchor.
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  But it was working against some serious drag from the international side, wasn't it?
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  The overall revenue and NPI dips, you said, were mostly down to lower overseas contributions.
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  That's correct. And it was really sort of a two-pronged issue hitting the overseas numbers.
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  Okay, prong one. Prong one was divestments. They finalized the sale of two office
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  buildings in Japan back in August 2025.
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  The TS Aikibukuro building and the ABS Shin Yokohama building.
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  Right. Older assets, maybe lower growth potential.
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  Precisely. So selling them made strategic sense, but it also meant their rental
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  income just wasn't there for the last part of the quarter.
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  That naturally pulls down the total revenue figure. Makes sense.
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  And prawn too, usually the suspect in these diversified trusts.
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  Currency. You guessed it.
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  Unfavorable foreign exchange. Specifically, the Hong Kong dollar and the Chinese
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  renminbi depreciated against the Singapore dollar. Ah, so even if the property
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  is performed OK in local currency, when they convert that income back to SGD
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  for reporting and distribution.
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  It just buys less Singapore dollars. It shaves off value. OK,
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  so lower income from divestments, lower value from FX. Yeah. Yet the DPU went up.
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  This brings us to the cost side, right? The financial maneuvering. Exactly.
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  This is the critical part that makes the math work. They pulled hard on two cost levers.
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  First, property operating expenses. They actually managed to reduce those by 5.8% in Q2.
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  Oh. Partly due to the divestments, fewer properties means fewer running costs.
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  But also, crucially, they secured lower contracted utility rates in Singapore.
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  Just good operational management, saving money on bills.
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  Okay, that helps. But the really big move, I suspect, was on the financing side,
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  using those divestment proceeds.
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  Absolutely key. Finance expenses saw a massive improvement.
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  They dropped 16.4% in Q2, and the same for the first half. Huge savings.
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  16%. Wow. How? Well, part of it was benefiting from lower interest rates on
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  some specific HKD and SGD loans, but the main event was using the cash from
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  selling those Japan offices.
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  The capital they unlocked. To immediately pay down debt, especially more expensive debt.
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  Less debt means less interest to pay. Right. So let's synthesize this for you, the listener.
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  The DPU didn't really go up because the properties overall were suddenly earning loads more rent.
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  No, not overall. It went up because the savings they made primarily on interest
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  payments from reduced debt, plus those operational cost cuts,
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  were actually greater than the rental income they lost from the Japan sales
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  and the FX headwinds. You've nailed it.
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  It's classic financial management. If you can't boost the top line everywhere,
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  you defend the bottom line fiercely through cost control.
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  They essentially engineered the distributable income upwards.
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  OK, that makes sense now. Let's drill into the operations then,
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  because Ivosity keeps coming up as this shining star. It really is the anchor right now.
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  This one mall seems to be holding up a lot of the stability for the entire trust. Yeah.
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  What are the specifics? What kind of numbers are we seeing there?
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  Just exceptional numbers, frankly.
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  Vivosity hit 100% committed occupancy. You can't do better than that. Perfect score.
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  And maybe even more impressive, it achieved an absolutely eye-watering 14.1%
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  positive rental reversion for the first half of the fiscal year.
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  14%. So new leases signed were, on average, 14% more expensive than the old
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  ones. That's exactly what it means.
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  For a major mall in this environment, that's phenomenal.
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  It directly fuels NPI growth for that asset. And it's not just on paper,
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  right? People are actually spending there. Seems so.
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  Tenant sales growth actually picked up speed in Q2, hitting 4.8% year-on-year growth.
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  And this was despite having ongoing renovation works, the Asset Enhancement
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  Initiative, AEI, causing some disruption.
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  Ah, the AEI. Tell us about that. That's the investment they're making into the
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  mall. Yes, and it seems to be paying off.
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  They finished phase two of the Basement 2 AEI in late August.
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  What they did was clever. They converted underused car park space. Low yield space.
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  Into about 14,000 square feet of new prime retail area.
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  And they're projecting a return on investment, an ROI, of over 10% from turning
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  parking spots into shops.
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  That sounds incredibly high. It does, but it shows the value of smart planning
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  and curation. They didn't just create space. They filled it strategically.
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  They brought in popular, new-to-mall tenants, big names like Din Tai Fung, Kikan Bo.
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  Brands that draw crowds. Does that boost foot traffic?
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  Justifies higher rents and drives that strong reversion. Precisely.
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  It creates a positive cycle within that asset.
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  Okay, so vivacity is firing on all cylinders. But let's zoom out to the whole portfolio again.
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  Overall committed occupancy was what, 88.9%? Still pretty healthy, yes.
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  88.9%. But that overall portfolio rental reversion, it wasn't 14%.
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  It moderated quite a bit, didn't it?
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  It did. It came in at negative 0.1% for the first half, portfolio-wide.
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  So basically flat, maybe slightly down on average across all assets.
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  That's a huge contrast to Vivosity.
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  What does that tell you about their strategy elsewhere?
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  It tells you that outside of their star performer, management is being very pragmatic.
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  Their priority in the overseas market seems to be tenant retention and keeping cash flow stable.
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  They're not pushing for aggressive rent hikes where the market is tough.
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  Better to keep a tenant paying slightly less than risk a vacancy,
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  especially now. Exactly.
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  Losing tenants in places like Hong Kong or the China business parks right now would be very costly.
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  And let's look at those specific overseas pressure points. You mentioned Hong
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  Kong's festival walk. What's the story there?
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  It's mixed picture. They did manage to drive shopper traffic up by 6.1 percent
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  in Q2 using marketing initiatives.
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  And occupancy is still very high, over 98 percent. So people are coming.
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  But tenant sales are still under pressure.
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  The report specifically mentions high outbound travel by Hong Kong residents.
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  Basically, people are going elsewhere, maybe Shenzhen or Macau,
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  to shop where things might be cheaper. Ah, the cross-border effect.
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  Yeah. And that pressure translated into a pretty significant negative rental reversion there.
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  Minus 10.1%. Ouch. 10% down. And mainland China.
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  Particularly the office and business park side. That sounds structurally difficult.
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  It really is. Mostly due to a flood of new supply.
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  Look at their Shanghai business parks occupancy softened, dipping to around
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  71.3% in the third quarter of 2025.
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  71%. Yeah. That was quite a bit of empty space. It is. And it's because there's
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  just so much new competition coming online, they're projecting something like
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  4.1 million square meters of new supply between 2025 and 2027.
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  Wow, that's huge. It puts enormous downward pressure on rents,
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  which we're down nearly 3% just quarter on quarter.
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  Beijing's office market is facing similar issues, persistent vacancies, pressure on rents.
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  So in that context, aiming for tenant retention, even if it means flat or slightly
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  negative reversions, makes a lot of sense. It's about stability.
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  It's the prudent path in those specific markets right now.
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  OK, given all that turbulence overseas, their financial footing,
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  their balance sheet discipline becomes even more critical, doesn't it?
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  Let's pivot to capital management.
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  How are they looking there? They look very disciplined. Their aggregate leverage
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  ratio, basically debt relative to asset value, actually nudged down slightly.
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  It's at 37.6 percent, down from 37.9 percent in June.
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  So comfortably below the usual thresholds, giving them headroom. Loads of headroom, yes.
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  Plenty of financial flexibility. And that debt reduction we talked about using
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  the Japan divestment money, that directly helped lower their weighted average all-in cost of debt.
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  It fell by nine basis points to 3.23 percent. Every little bit helps there.
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  Lower borrowing costs flow straight to the bottom line, supporting that DPU. Absolutely.
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  But stable debt levels aren't everything if you're exposed to market volatility.
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  Like interest rate hikes or currency swings.
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  What about their hedging? How protected are they? This is really important for
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  you, the listener, to understand the risk profile.
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  Yeah, the hedging strategy is crucial and it looks pretty robust.
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  They have 77.5% of their total gross debt either on fixed rates or hedged against
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  interest rate movements.
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  That provides a strong shield. So less exposed to rising interest rates on about.
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  Three-quarters of their debt. Correct. But maybe even more important for the
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  unit holder receiving distributions is the income hedging.
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  Ah, hedging the foreign income back into Singapore dollars. Precisely.
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  And here's the key number.
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  Approximately 93% of their distributable income is either generated directly
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  in Singapore dollars or is hedged back into SGD.
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  93%. Yeah. That's huge. It is. So that explains why those negative FX impacts
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  we talked about earlier, the weaker HKD and RMB, were more of a headache for
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  the overall revenue number. but didn't crush the actual DPU payout.
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  Exactly, because the vast majority of the income that actually gets distributed
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  was protected from those currency fluctuations.
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  It largely neutralizes the FX risk or the unit holders distribution.
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  Very smart risk management. Yeah.
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  So pulling it all together, this picture of resilience, defense.
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  Strong Singapore anchor, what's the official word from management on the outlook?
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  How do they see things playing out?
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  Well, they're certainly not sugarcoating the challenges. They explicitly acknowledge
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  the persistent global headwinds, geopolitical stuff, economic policy uncertainty,
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  and that these are hitting their overseas operations harder.
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  Understandable. Their forward path, they state, really relies heavily on that
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  Singapore portfolio. Now that it makes up 57 percent of their total assets after the divestment.
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  It really is the anchor. It's the bedrock of their stability.
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  And the strategy going forward, more of the same. Pretty much.
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  The message is continued focus on portfolio optimization, maybe more tweets
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  to the asset mix, sharpening focus on their best markets and very careful judicious capital management.
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  Play strong defense, keep the balance sheet healthy and maximize performance
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  where they're strongest, which is Singapore.
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  So if we were to wrap up our analysis for you, this quarter really was a classic
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  case of strategic defense meeting exceptional domestic strength.
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  The fact that DPU nudged up wasn't because the whole portfolio was booming.
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  It was down to, frankly, some clever financial engineering on the cost side.
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  Cutting those finance costs significantly.
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  And the truly standout performance of one key asset, vivacity.
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  Which brings us to the final thought we want to leave you with today.
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  Management's making sensible, prudent moves overseas, prioritizing keeping tenants
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  in tough markets like Hong Kong and Shanghai.
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  That makes sense for stability. It does. But the DPU increase relied so heavily
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  on those one-off or hard-to-repeat factors.
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  Big cost savings from debt reduction, using divestment cash that's now spent,
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  and that incredible 14.1% rental uplift from just one mall, Vivosity.
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  Right. That level of reversion might not be sustainable forever,
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  even for Vivosity. Exactly.
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  So the question for you to ponder is, if that Singapore anchor strength,
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  particularly Vivosity's massive rental growth, starts to normalize,
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  maybe settles down a bit.
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  And with the easy wins from debt reduction already banked, where does MPankti
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  find its next significant growth driver?
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  Given that heavy 57% waiting to Singapore now, do they need to look beyond just
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  optimizing the current portfolio?
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  Do they need a new acquisition, perhaps? Maybe not in the challenge China-Japan
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  office space, but somewhere else offering higher growth to rebalance that stability
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  versus future growth equation.
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  Relying on financial tweaks in one superstar mall can work for a while,
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  but what's the next engine?
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  That's the strategic question they and investors need to grapple with.
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  A crucial question indeed as the global picture keeps shifting.
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  We hope this deep dive into MPAC-T strategy has given you some clarity on how
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  financial maneuvering and operational strength can navigate choppy waters.
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  Keep digging into the data, keep asking questions, and we'll see you next time.