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Mapletree Logistics Trust
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Hi. Thank you very much for coming. And are there people on the line? Okay. Very sorry for the delay. Hopefully, you will know why the delay in the next few minutes. Okay. But anyway, right, at this point, we talk about the results. Okay.
Yes. I'll run through, review the highlights for the second quarter for Mapletree Logistics Trust and also the financial -- the details of the financial and the balance sheet and the capital management before I hand over to Jean to talk about the asset management.
Just on Page 3, the key highlights for second quarter. In terms of the DPU, it's a 3.4% year-on-year increase. Gross revenue rose about $121.8 million or 14.2%; NPI, about $109 million or 21%. The improved results reflect stable portfolio performance from Hong Kong and also the AEI of Ouluo Phase 1 and also the acquisition done in '18/'19, partly offset by the absence of contribution from the divestment in first Q FY '19/'20.
On the portfolio, we have a very resilient portfolio. The occupancy remained fairly stable at 97.5%; average rental reversion, about 1.8%. Jean will talk about this more later. And we have WALE of about 4.6 years for MLT portfolio.
Then on the portfolio rejuvenation, we first -- or second quarter, we did enter into a forward purchase agreement to acquire the modern logistics property in Melbourne, Australia.
Down on the capital management. The maturity profile, well staggered, debt duration of about 3.7 years and a weighted average borrowing cost of 2.6% per annum. Last quarter, we reported 2.8%. This quarter, there's some extension of the interest rate swaps, so we managed to reduce all-in borrowing to about 2.6%.
Leverage ratio held constant, about 37%. Then approximately 83% of our debt has been hedged to fixed. 80% of income stream for the next 12 months has been hedged to protect the downside to unitholders.
Then we move on to Page 5 on financial review. If you look at it on a quarter, second Q was this last -- second Q, the revenue higher, mainly from the Hong Kong -- contribution from Hong Kong and also the completed AEI and the accretive acquisition. Correspondingly, if you look at the DPU, we are 3.4% higher compared to last year's second Q.
And the second -- the Page 6, first half of this year versus first half of last year. Again, gross revenue higher, 13.9%, largely due to the contribution from Hong Kong and the completed Ouluo Phase 1 AEI and also the acquisition in -- done in '18/'19, partly offset by the divestment of 5 Japan properties in first Q '19/'20 and 2 properties in FY '18/'19. You look at the DPU, we registered 3.4% year-on-year increase.
So on a quarter-on-quarter and variance, 2Q versus first Q, in terms of gross revenue, a 1.6% increase; NPI, 2.8% increase. In terms of the amount distributed to unitholder, you look at the amount at the bottom, $73.7 million versus last Q's $73.6 million, so about $100,000 increase. So on a DPU perspective, 3Q -- second Q versus last year first Q, constant at $0.02025.
Balance sheet remained healthy. The NAV is constant at $1.17. No significant variance for this quarter. Only liability is higher by a bit because of the stronger Hong Kong dollar and also Japanese yen. There's some translation on net currency where we borrowed Hong Kong dollar and Japanese yen for our assets.
Then if you move on to Page 10, capital management. Again, the aggregate leverage, quite flat last quarter, about 36.8%; this quarter, 37%, but increased due to the translation from the foreign currency. In terms of the average annualized interest rate mentioned earlier, we have some extension of the interest rate swaps. So that actually averaged down the interest rate from 2.8% to 2.6% this quarter.
Debt duration, that is the -- okay. We move on to the well-staggered debt maturity profile. We have 2% more to go. I think we're likely done in third Q. So we don't have anything to refinance after we finish refinancing this more stock around $41 million.
So on the interest rate and foreign risk management, well hedged at 83% for the interest rate. On the income hedge for the next 12 months, we have actually locked in the forward close to 80% our amount distributed in next 12 months.
Then I'll pass onto Jean to talk about the portfolio review.
Right. Thank you, Ivan. In terms of the occupancy for this quarter, it remains relatively stable. So we're looking at 97.5%. So the lower occupancy mainly came from South Korea and China, South Korea being MLHPT. There were some nonrenewals. China in a few properties, we are looking at -- there are some lower occupancy in Wuxi and Changshu. However, it's actually mitigated by improvement in the properties at Changsha. So the -- remember, I think a few quarters back, we talked about the JD.com returning 50% of the space. So it has now been backfilled to 83%. And the occupancy, there's an improvement in the Hong Kong portfolio. The occupancy right now, it's higher than last quarter, mainly because there's a new lease on Tsing Yi property. Singapore remain stable at 96.5%. The rest of the markets maintained 100% occupancy.
In terms of the lease expiry profile for this year in terms of estimate, we are about 2% less. That's in terms of number of properties, we are looking at 4 for SUAs. So we're, right now, in advanced discussion.
And next slide, on the -- I think the portfolio remains diversified. So tenant base, 600 over tenants and mainly in consumer-related sectors. And SUA versus MTB, largely the same, so 60-40. So we're looking at MTB about 58.5% of the gross revenue and SUA about 40% of the gross revenue.
In terms of the markets, we remain largely focused on the developed markets with Singapore, Hong Kong, mainly about 60% of our revenue.
Pass on to Fion on the investment highlight.
With purchase of the asset in Australia, West Melbourne, this is a very established logistics cluster, relatively small asset, which we have confidence of filling it up very quickly with good connectivity to especially the port where the bulk of imported goods come from as well as a new west tunnel that's coming up. So based on feedback from our tenants, this location is very well sought-after. So we expect to complete this deal in third Q next year, in about 12 months' time.
I think that sums up our performance for this quarter. And then on the outlook, maybe Jean, you want to take a...
Of the current outlook on the -- as you know, the U.S.-China trade war, and for -- as I mentioned earlier, Singapore and Hong Kong are the 2 largest market for MLT, and these 2 markets are also where we are exposed to international trade and the trade volatility.
So in terms of the demand, I think the tenants are pretty cautious. The renewal and expansion plan, they are just taking a little bit longer time. And in terms of the reversions for Hong Kong especially, in the past, we're probably looking at 3% to 4% kind of reversions. Moving forward, I think the outlook on the rentals will be moderating. So in terms of Hong Kong reversions, we can no longer expecting a 3% to 4%, probably looking at a range of about 2% to 3%.
Then for the Korea, just to share, is that we're actually seeing the impact not so much from the U.S.-China trade war, but rather it's the trade bet with Japan. So there are some leasing, for example, where there's a space that we have where the tenants import Japanese beer, so that's a little bit affected some of demand. However, having said that, in terms of the markets that we benefited the -- coming from Malaysia and Vietnam arising from the supply chain shifts, so we are getting healthier and more leasing inquiries as a result of some supply chain shifts to these 2 markets. Yes, that's something. Yes.
I think you can see that the 2 core markets of MLT is Singapore and Hong Kong. And then these 2 are -- these are international trade hubs. You have the busiest air cargo hub coming up from Hong Kong. You have the busiest seaport coming up from Singapore.
So by what we are seeing on the ground, especially for Hong Kong, the dynamics there is there is actually a shrinking warehouse supply. So right now, we are not seeing any decline in demand. In fact, we see a pretty perverse effect because the retailers do not want to store their goods in the shopping malls anymore. They are pushing all the goods back into the warehouse. So actually we have demand from our tenants needing extra space because they're having all these goods that they are trying to protect in the warehouses rather than on the retail. So we get some our tenants, because we don't have enough space in Tsing Yi, we get some of our tenants going into the surrounding competitors' area. So that's what we are seeing.
In Singapore, the ramp-ups continue to be in good demand. CWT warehouse is still full. There is no cutback on the big tenants like Mitsui, like ExxonMobil, like McDonald's. So that one is still strong. So what we will see -- what we think we'll see is actually the pressure coming on what we call the lower specification, non-ramp-up properties. But all in all, I think we are confident that the demand is pretty resilient based on the portfolio we have. And so the question is really how much growth can we generate up from there.
Right. So you want to take questions on -- from you guys? Yes.
[indiscernible]
Singapore, 0.6%; Hong Kong, 2.9%; South Korea, 2%; Malaysia, 3.1%; China, 0.9%; Vietnam, 3.3%; overall, 1.8%.
Vietnam and Malaysia going above the 3%, and then you see Hong Kong slowing down to more like below the 3%, right? And then you still have China and Singapore going positive but at a lower rate.
On price [indiscernible]. Okay, yes, this quarter did -- because I explained earlier, we did an extension of some of the IRS. We -- those IRS are actually Hong Kong dollar -- Hong Kong dollar borrowing IRS and Australian dollar IRS. We managed to extend it and lower down the borrowing cost.
Brandon from Citi. Just a couple of questions on Australia. Can you give us some color on how your strategy is going to be like for sure there? Because I think the first time around we are seeing you undertaking greenfield. But on the sponsor pipeline, we also saw one in Brisbane. So how is it going to be split up between you guys and the sponsor?
Yes. So I think for Australia, the MLT strategy doesn't change. We -- basically, we are looking at obtaining properties that we'll see rental revenue very soon. So for the Australia deals, the Truganina one, it is a case that the construction is already underway and then the leasing is already underway. So in the next 9 to 12 months, we expect pretty healthy commitment coming out from that. So that is a strategy that we will continue, meaning that the stabilization of assets will be relatively short period, and then we will take it on our books. But if you're talking about mega investments like what you see in China or you see in Vietnam or Malaysia, where it's a greenfield, that means where you take from the land, you still have uncertainties of government approvals for the design, the construction permits and all these. So for these megaprojects greenfield, this is where the sponsor balance sheet will be used.
So we are working very closely with the sponsor, and then hopefully, in the next month or so, we will be able to confirm to you that we have quite a big greenfield site coming up from Australia under the sponsor balance sheet.
So just to give you a feel. This Truganina is $18 million. That kind of size, we're talking about $300 million. So that gives you the difference. So for us, smaller asset stabilization, very quick. We have to take it on our books, especially when we have a strong revenue stream coming in. Questions? Yes, Derek?
Yes. Derek from DBS. Just wondering your thoughts on your performance outlook for China versus some of your island cities. You mentioned, I think that you are seeing that supply chain shift, right, is it going to be sustained going forward?
Yes. I think we talked about the trade war and all that. Can you get the slide number? I think that's the same as UBS. Can we see the question again from UBS? Right. Again, very similar with Derek's question, more leasing. How is that -- I think it's very similar. Okay. So can we show that? Yes. Yes. And I think for those who are on the line, I think the last few minutes, we have just announced an acquisition portfolio from the sponsor. And really we [indiscernible] next -- yes, so those of you who are on the phone, if you can get access via your Internet. Right.
Can we talk about Vietnam and Malaysia?
Yes, yes.
Can we get into the slide? Yes.
[indiscernible] and Malaysia, are 2 of the few markets where -- enjoy positive spillover effects from the trade war, given the relocation of supply chain that we spoke about. So from the chart, you can see that it's an estimated as additional export of tariff goods to China and U.S. amounting to about 7.9% of Vietnam's GDP for 12 months to first Q 2019.
So we have seen this translating to higher leasing inquiries. Having said so, our warehouses currently under the MLT portfolio are already at 100% occupancy. So we -- going forward, we think we will continue to see [ Bridge 3 ] has built-in escalations as well as rental reversions. Yes.
I think just to give you an anecdotal example. A few -- just a few weeks into the first tariffs that were announced, immediately we have the solar panel guys coming out from China, right? The biggest importers of China solar panels are the United States, right? It's very hard for United States to find an alternative source for that kind of volume in such a short time. So what they did is they gave us a call, and then very quickly, they want a space in Vietnam, our Vietnam [ GM ]. So they wanted space, and then they want to set it up in 6 months. They will move the last stage of their production into Vietnam and then export it out as Vietnam products, right, solar panel. So that is the shift that we see very quickly.
And then in Vietnam, what we are seeing is especially north of Vietnam, near Hanoi, near Bac Ninh area, and that is one of the acquisitions that we are making in the proposal that we have just released a few minutes ago. In that portfolio, very close to our site in Bac Ninh is where you have the production of the iPhones. I mean the Apple phones, the Samsung phones. So that has driven, again, the demand for warehousing space. So we are seeing that shift.
And then for Malaysia, so what you have seen is you have seen manufacturing site move. And then on e-commerce side, what we are seeing is the e-commerce companies in China, they have seen a slowdown. They're expecting a slowdown in growth. They're still growing but a slowdown in growth in their domestic market. So the next big market that they think they can compete in is the Southeast Asia e-commerce market, which is very fragmented. There's no clear market leadership. So in the Malaysia portfolio that we are proposing to acquire in Shah Alam, that is very close to KL. Over there, we have the Lazada, which is backed by Alibaba; we have Shopee, which is backed by Tencent. So these are the other guys, they are very quick to take out space with us outside of their domestic country, meaning China.
So we are seeing 2 fronts, the shift in supply chain in manufacturing basis. We are also seeing the shift in investments in e-commerce. Like Alibaba now, we know is talking to one of the -- looking to acquire one of the largest e-commerce company in Vietnam. And that company is in talks with our GM on taking space in our warehouse. Yes.
So I think with that, do we have any more questions? Okay. We finish -- well, I'd like to finish out the questions on the results first before we go into the portfolio.
Hong Kong revenue is up 4.7%. NPI is up 6.2%. What is the reason for this disproportionate [indiscernible] have the question again, [ Sharuk ]?
The disproportionate -- okay, the NPI increased 4.7% -- sorry, the revenue, 4.7%, NPI, 6.2% because we had some -- also Hong Kong had some saving in terms of the property expenses. What drove this disproportionate increase with just occupancy?
Jean is the facility manager.
And other questions on the results? Yes, sir.
[indiscernible]
Yes.
[indiscernible] Are they expanding? I heard they're looking at a lot of space, yes?
Yes. And then I think you read in the papers they are in an alternate site. That is actually Mapletree Benoi -- our Mapletree Benoi Logistic Hub. Yes.
Yes. So I think -- okay. The e-commerce guys will explain to you in their technical knowledge, but basically, they are moving their fulfillment center -- I mean they're keeping their fulfillment center up from 5B, but they are moving the...
Yes. Warehousing, their stocking facility at our Benoi sector. They actually operate out 2 location: One as a fulfillment hub; the other one more as -- to stock up their goods.
Yes. So they are moving from Benoi, the goods into 5B, and that's where you get all the small vans coming in to pick up the goods and then distribute out.
No more? Why don't you just read out the question? Oh, no more questions.
Okay. So now we want to talk about the proposed acquisition. So I think previously, you have seen us do very country-specific. We did Tsing Yi, Hong Kong, and then we did China and then we did Singapore. This time around, we're doing project combo, which is actually a portfolio coming out from different countries. So Fion will take you through -- yes, can we go to the slide, please, Sheryl?
Yes. So before I go into the [ Cube ] acquisition rationale, I'll just very quickly talk about the transaction.
So essentially, we're looking at 7 properties: 1 in Malaysia, 2 in Vietnam, 4 in China, okay. So for Malaysia, it is via asset acquisition, 100%; Vietnam, same 100% interest in 2 properties. We're acquiring the property holding companies. China, we'll continue our 50% acquisition from the sponsor to acquiring the property holding companies. The other 50% will continue to be held by the sponsor. So a total acquisition cost of $422 million, including the acquisition price, acquisition fee of 0.5% as well as estimated professional fees and expenses. And then all the agreed property values or the proposed acquisition value is below the valuations, both by the valuation from the trustee as well as appointed by a trustee as well as the manager. On aggregate, they're about 2.3% to 2.5% discount to the valuation.
Can we go to the slides where the properties are, Sheryl? That is in your Appendix C, Page 37. [ I don't ] think that the values [ were cited ].
Yes. So all of this portfolio, the major contribution to the gross revenue is Malaysia at about 60%; China, about 25%; Vietnam, about 15%. So that makes up 100% of the portfolio.
Yes. The total property value is about $406 million, including our 50%.
Yes. That's assuming 50% of our interest in our China properties that will give you a total 6.3 million. In terms of the total [ amount ], NLA we are looking about 4.8 million square feet, 6.1% NPI yield for the portfolio, 100% occupied.
Can you give the property value of each one, please?
Okay. Yes. So Malaysia asset, MYR 826 million; Vietnam, Bac Ninh 2, to USD 16 million; Binh Duong, $20 million. China, I'll talk about it in 100% terms because of the agreed property value. We're looking at CNY 99 million for Chengdu; CNY 135 million for Shenyang; CNY 287 million for Jinan; and then lastly -- last one, Changsha, we are looking at CNY 381 million, yes.
So you can see that out of the $400-odd million, more than half actually is from Malaysia.
Yes.
And then China component is only about 80...
20% for AUM-wise.
Yes. It's about $80 million.
Yes. Right.
So we are hoping that this combo portfolio will allow us to leverage on this shift that we are seeing in terms of dynamics because of the trade war and all this. So Malaysia and Vietnam will form the core of this acquisition. China will take a much smaller presence now.
These are all multi-tenant assets, no single users, which reduces our concentration risk. And because by virtue of the fact that they are multi-tenant, most tenants in these markets sign about 2 to 3 years, which is why you have an average WALE of about 1.9 years.
So I'll move on to the key acquisition rationale. Next slide, please. Yes. Next slide. Yes.
Okay. These 3 markets, Malaysia, Vietnam and China, they are among the fastest-growing economies of the world with GDP about -- growth about 3 to 4x average of the other developed markets that MLT is present in. I think it's no surprise they share very similar economic characteristics of rising middle class; young demographics, especially for Malaysia and Vietnam, where you have 70% of the population below 35 years old. So these 2 factors will drive consumption expenditure, as you can see in the right-hand side chart, with significant growth potential, especially for Vietnam and Malaysia coming from a very low base.
So beyond trade war, which will affect almost every economy, we believe that domestic consumption will continue to be the key driver for logistics services as well as logistics space.
On to the next slide. Yes, these 3 markets are also some of the fastest-growing e-commerce markets, faster than some of the other markets that we are in, especially -- again, especially Malaysia and Vietnam because these -- Malaysia and Vietnam are still at a nascent stage of growth. They also have very high growth potential going forward in terms of e-commerce. And why we like e-commerce because they require modern specs to meet very quick turnaround time. I think when -- I think maybe about -- even escrow as 2 years ago, the standard used to be same-day delivery. I think increasingly, our e-commerce tenants are completing to deliver within X number of hours.
So I think last time, we talk a lot about the difference in behavior for e-commerce companies coming out from America versus this China [ voice ]. So I think I would like to add on to this -- Fion's point is, yes, we like e-commerce in Asia backed by the Chinese [ voice ]. But the situation is we know they are very volatile as well. So it is very important. So you look at our assets, none -- very -- in fact, none of them are single user.
Yes.
Right? They're all multi-tenanted. And then the ability for us to replace them, that means we're not having what you call build-to-suit that are specific design that is only applicable because we know what works for Alibaba, Amazon will never use. What Amazon is using, Alibaba will never use. So I think the warehouses are deliberately kept generic. It can be converted very easily to other users such as co-store, such as domestic consumption, 3PLs, end users, pharmaceuticals. So I think we have kept that, right?
So while we like e-commerce, it is interesting, but we are also cognizant of the fact that it can be very volatile. So we are balancing all these by having it multi-tenanted and no concentration from them.
I think if you go down to the slide on the top tenants for this portfolio, Page 20, right? It further illustrates the point. So you have your Sinotrans. You have your GD Express. You, again, have your Watsons Group. You have your Lazada. So I think this is what we are looking to diversify.
And even when we overlay this on our portfolio -- do we have that, the top 10? Yes. The enlarged portfolio. Sheryl, can you show that? Oh, it's in this. We don't have that information, but basically, if you look at that, this portfolio being overlaid on our enlarged portfolio, you're not going to see -- yes.
We only have...
You will see that the e-commerce guys do not form a concentration. So you still have your Coles, your adidas and all these inside the portfolio. Where is it?
Just to add on to Kiat's point. The other reason why we like e-commerce tenants is they tend to grow pretty fast. And they are also not just looking at one market. They are looking at regional market like Southeast Asia. So when we -- after we acquire Shah Alam, we will gain access to tenants, for example, like Lazada and Shopee, which will then -- we can then start talking to them about the other markets like Vietnam and Singapore as well.
I think unfortunately, you don't have it on you now. But basically, if you look at the enlarged portfolio, you will see your CWT, Coles, adidas, Nippon Express in the top 10. And in fact, in the top 10 for Mapletree Logistics Trust, you still don't have a significant e-commerce concentration. Right. So this one, you will see in the circular that in time, we'll distribute.
The other aspect that we like about this portfolio is that it allows us to gain access, again, to the markets we are already in, are familiar. And the dynamics continue to present this opportunity for us to fill the market gap.
I think across the markets, you will see that there's very limited supply, especially for China, Vietnam and Malaysia. It's so small per capita that you can't really see the number. But you're looking at Vietnam, 0.03 square meters per capita; Malaysia, 0.2; China, 0.7. And Grade A space also tend to come on at rental premium of about 20% and a lot more resilient in demand compared to lower-grade assets.
And this trend of shifting to Grade A specs is long term and is going to -- and we see that picking up pace as well.
I'll move on to the next slide.
I think the other thing is even after we acquired this portfolio, you can see, whether fortunately or unfortunately, we are still concentrated in what we call developed markets, right, Hong Kong, Thai -- Hong Kong, Singapore, Australia, South Korea continue to form the majority. So the enlarged portfolio goes up to...
84% in terms of AUM. But in terms of revenue, it's still 80% in developed markets.
Yes.
On to Slide 12. I think one of MLT's competitive advantage has been -- always been our ability to offer tenants a network of logistics facilities across the market. So we are currently in 45 cities in 8 markets in key logistics hub with direct access to large consumption markets. So this acquisition will allow us to continue building on this network, especially in Southeast Asia, where our tenants are growing rapidly. And in this economic downturn, this Southeast Asia region is a region that they will be looking to grow more from. And the result of our assets to grow multi-tenanted, multi-location tenants, as you can see, we have grown from 25% 2015 to 34%.
I think they -- you see us creating dots around Asia Pacific, right? What is that rationale? Why are we -- so what has happened is if you look at China, first, we started off with the coastal. We have Shanghai, Beijing, Shenzhen, Guangzhou, sorry. And then what you see us doing is we have gone central west. And the reason is if you look at the dots, each one that we put, it is the ability to reach X million domestic population in X number of hours. And so that is a key criteria of our selection of the site.
So you see us going towards that. We know the One Road One Belt (sic) [ One Belt One Road ] initiative is on. We know that the trains are really leaving Shanghai, reaching London across 9, 10 countries, Kazakhstan, Belarus, Poland. So they are reaching there in 18 days. If you go by the traditional sea route, it's 36 days. So they are going out from Shanghai full. They are coming back half empty. So the efficiencies are not there, but it's increasing.
So we see that as a potential, but we are not so interested in participating directly, meaning in this export-oriented business. We are -- what we are doing is we are looking at nodes that can reach X million of population that's going to build on this One Road One Belt.
So at the end of the day, right, if Alibaba and Tencent is to compete, one is reaching the clients in 4 hours. The other one is reaching in 3 hours. You know where the competition is going to be. So the selection of that location is very important.
So I think you see us doing -- going central west. You see us coming down. So what you have is you have the largest air cargo hub coming out from Hong Kong. And we are -- we know that Hong Kong is quite prepared to lose their sea logistics to the cheaper southern city sea ports. But Hong Kong itself as an air cargo hub is going to remain very strong.
I don't know whether we have the pictures here. If you have seen the infrastructure that is being built around the airport itself, it has got the necessary certification, which is very rare for airports who handle pharmaceuticals. Their ability to clear customs within X number of hours, maintaining the medicines at X temperature is very critical. So these are some of the things that -- so you see us doing China, Hong Kong.
Coming down, we have Vietnam, Malaysia. That one can be by rail, can be by road. And then we then have Singapore, and then we have this Australia. But what we are missing is on the west side, India; and the bottom, Indonesia. So these are the countries that we are in.
We have to find some ways to present to you guys where we are. But at the end of the day, we are in places which allow us to get to a domestic consumption with growing GDP, spending power in X number of hours.
And so you don't see us doing a mega regional hub. You see us doing multiple hubs because this ability to reach X population, X hours cannot be replaced that easily, right? So I mean even if you are by drones, you fly it from a shorter distance 0.5 hour, you fly it from a longer distance 1 hour, it's going to cost a lot difference, especially in countries like China. So I think that is where we are. So I think with this, it will strengthen our network in these places.
If you go to the next slide, I think that proves the point. This, all these are not 35 hours. It's minutes. The warehouses claim that the trucks can reach city centers and key population catchments in less than 60 minutes. So I think you can see the various nodes. So we are not just restricted to one particular node.
Slide 14 onwards, we go into the different markets and the specific logistics faster that the assets are located in. So for Malaysia, which forms 60% of the portfolio, is located in Shah Alam, which is part of Klang Valley, which you can see from the chart is the -- Klang Valley is the largest contributor of the country's GDP at about 39%, 25% of population as well as they host the most affluent residents with about 33% of the nation household income. This is why this location is highly sought after by logistics tenants because in terms of where it's located, it's between KL City, which is within 35 minutes or 30 kilometers; as well as Port Klang to the west, 20 kilometers, where the bulk of the imported good come from; and also giving it a close access, close proximity to populous residential districts such as Petaling Jaya, Subang Jaya, as well Puchong. So very highly sought after for domestic distribution as well as last-mile delivery.
The -- I think for Vietnam, we are building our presence in the same 2 locations, Binh Duong and Bac Ninh. I think I mentioned earlier, especially in North Bac Ninh, we saw a huge increase in activity, especially from the electronics guys such as the Foxconn manufacturing for iPhones and Samsung and all that. So I think these 2 locations, if you have been following us, you will be very familiar.
I think for China, there are some new cities that we're adding, too.
Yes. Turning MLT on Slide 16. MLT has 20 properties in 14 cities. So in this acquisition, we are acquiring 4 new properties, out of which 3 are in cities which are new to MLT, namely Shenyang and Jinan in the north as well as Chengdu in midwest. So as Kiat mentioned, we are pushing our presence more towards -- beyond the east and Tier 1 cities into Tier 2 as well as further down west. And these Tier 2 cities are expected to outpace the growth in Tier 1 cities going forward.
In particular, you will note that these 4 cities are all provincial or capital cities of their respective provinces, which means that when logistics tenants look at entering a new market, a new province, usually these provincial cities will be their first stop where they will set up regional DCs to observe not just the city itself, but the rest of the cities in the province.
I think what is most important is the ability for these warehouses to ride the growth -- right to get a ride along the growth of the cities. So today, extreme example, it can be storing shampoo, toilet papers, but it can be easily converted. As the affluence of the city becomes stronger, it can be converted to co-store, storing chilled meat, chilled protein and storing pharmaceuticals. Demand for higher-quality medicines are there. So I think that is where we are positioning ourselves to capture that growth, not -- in the immediate term, there's some accretion, but the whole idea is these assets must have the ability to ride as these cities mature.
So I think we have spoken quite a bit. I think what you will be very interested in is the value proposition at the end of the day, right? I think I could see all the -- all of you looking at us and saying, "Okay, come. Let's get to the numbers," right?
So can we get straight to 4A? Is it accretive? Are we getting it at a good price? So can we look at Page 4A, Ivan?
Page 22, 4A, as mentioned earlier by Kiat and Fion is actually discount to the valuation, both valuation by the -- appointed by the trustee and the manager. So if you look at the left-hand side, it's about 2.3% discount from the purchase price that we are getting from the trustee valuation and a 2.5% discount from the manager's valuation.
So if you look at this segment, the Malaysia, Vietnam and China, you look at the appropriate discount, the Malaysia, the -- is 1.1% discount from the trustee value; 1.4% from the manager's value. So on Vietnam, it's 3% to 3.4%. For China, it's about 3.9% to 3.7%.
So on Page 23, 4B, the accretion. So assuming we fund this through a combination of equity fundraising and debt, equity fundraising, we put an illustration of about $250 million, then the balance debt-funded. The accretion will be about 1%. So from $0.07941 to $0.08019. Bear in mind, when we did project [ ADAC ] last year, the China acquisition, it was 0.4% accretion. This is -- Tingyi was about 1.3% accretion. So this one is in line with what we have always announced.
And then in terms of the NAV, slightly accretive from $0.0117 to $0.0118, assuming all those assumptions that we assume for this pro forma.
Then on Page 24, this will position MLT -- with the increased free float, we will have a better index representation. So it will benefit MLT's trading volume.
So on the Page 25, you look at the MLT after the some of the matrixes for MLT of the proposed acquisition. NLA increased by about 9.9%; asset under management from $7.95 billion to about $8.4 billion after this, which is about 5.2%. WALE is -- will decrease from 4.6 to 4.4 largely due to the shorter leases in Malaysia and also in Vietnam.
For the number of tenants, we'll increase 9.6%. Occupancy will increase by 20 basis point. Leverage slightly, assuming $250 million of equity fundraising balance funded by debt, the leverage actually increased 0.1%. So NAV mentioned earlier, about $0.0118.
So on the financial consideration, this shows the source and the application of the funds. The total acquisition cost here is total $422 million comprising of the acquisition price of the Malaysia, the Vietnam and the PRC and also the fees paid to the manager, 0.5% fees paid to the manager; estimated professional fees, about $8.3 million. And also at a PRC level, we have -- at the SPV level, we have onshore debt. So we are actually putting our 50% pro rata share for the bank loans owned by the Hong Kong SPV.
So how are we going to fund this? Mentioned earlier, $250 million equity fundraising. We assume the issue price of $1.53. This is just for illustrative purpose. Then the balance are loan facilities. You have debt facilities, including a senior take-out medium-term notes to be issued in relation of the Malaysia acquisition, then PRC bank loan about $27.8 million, then approximately 1.3 million acquisition fees (sic) [ fee units ] based on $1.53 price.
So I think that gives you a brief -- I mean I won't say brief, but a summary of what we are trying to do across 3 countries at 7:00 p.m. What time? Right. So you want to digest it and ask questions? Or you want to send us questions later? I'm open. Yes. Well, there's someone behind us.
Yes, can we just have a split on the NPI yield by the current geographies as well as the WALE? And also how under-rented is this portfolio of property?
I'm sorry.
Under-rented or over-rented. Either way.
So NPI yield for China, 5.7%; Malaysia, 6%; Vietnam, 7.9%. Rental rates are -- all our end market, except for Malaysia because of its premium specs, is about 10% to 20% higher. Because there simply isn't a comparable asset in Malaysia.
Yes. Okay. So I just elaborate a little bit why. Two key features of this Shah Alam asset that is not found in any other third-party warehouse available for leasing. Number one, the floor flatness is 35 FM2, which means the floor deviation cannot be more than 2 mm, which is very important for e-commerce tenants and tenants who will use automation. And also, it also allows the stability of the racking system to go up to 6 to 7 levels of racking.
The other key feature which is a very key competitive advantage for us is we have what we call a ESFR, Early Suppression Fast Response fire sprinkler system, which then allows tenants to save on in-rack sprinklers. This is in compliance with latest fire [Foreign Language], local fire department regulations, which out there, there is no other like it right now.
I think just to give you a feel of what is happening especially for Shah Alam. It is a 2 million square feet property. I think you remember Changi. That's 800,000 square feet. It took us -- I mean this, we're talking about Hong Kong, right? It took us 12 months to fill up 800,000. This one, 2 million square feet, it took us 12 months to fill up 2 million square feet. And we are turning away about 500,000 square feet -- 1 million square feet of request for the last 6 months. And the reason, if you go there, it's a 2-story building ramp-up by -- the highest there. And the rest are no ramp-up. So that is what we call a first-mover advantage. And then if you go Shah Alam, we're happy to host you there, you will see that there's no substantial land plots available to build such high-specs building anymore. Yes.
Maybe -- you went through the financial metrics of borrowing cost. What's the borrowing cost for the China debt? I assume you're borrowing in, is it Sing dollars for the rest?
The Singapore, you have the onshore debt, and we will over levy for a little bit of [indiscernible]. So we're assuming, China, about 4.2% to 4.5%, so all in. Malaysia all in is around about 5% all in. Then for Vietnam, because Vietnam dong is not very liquid, so we will fund it through Sing dollar borrowings. So Sing dollar borrowings or U.S. dollar borrowings depending on the -- whether at the point in time we do a [ CC ] IRS or not. But just on Sing dollar borrowing, you are looking about 2.5% to 3%. Yes.
On a blended basis, you are looking at about -- I think it's about close to 4.5%, thereabout, 4.5%, 4.6%.
Just in terms of the WALE, quite short, I guess. If we can run through what the WALEs are for Malaysia and Vietnam. And then as -- how about the Far East, there is some incentives you need to pay or which means -- so what is your initial NPI yield?
The WALE for this average is 1.9. For China, it's -- by geo, it's 2. For Malaysia, it's 1.8. For Vietnam, it's 2.
I think if you look at what MLT current portfolio is, you will see it's very similar. So what we have in our portfolio is you have the long WALE guys, Singapore, about 6, 7 years; Australia, Japan, 5, 4 years. On the short WALE, you have your Hong Kong, you have your Vietnam, Malaysia, Korea doing 1 year, 2 years plus. So that is the way we are balancing the diversification.
Those are incentives upon expiring 2 years' time, is -- or do you think the market is growing so fast to offset that [indiscernible]?
I think traditionally, we have always guided that it's 1 month for every year of lease. So if you are doing a 2-year lease, you're looking at 2 months. If you're doing a 3-year lease, looking at 3 months. We don't see, even in current climate, having to adjust that specifically for -- especially Vietnam and Malaysia. Yes, Derek?
This is following up on your thoughts on, especially Malaysia, given that's a big part of your portfolio, right, Malaysia. Tell me what is valuations for this? Is it very different from what you have currently? They're much more expensive or...
The valuation?
Yes.
Yes.
On a [indiscernible]
Our valuations, cap rates.
Not comparable in terms of specs. So Fion did mention that this property that we are buying, the specs are very different from the one in our existing portfolio. So if you compare, the categories are not very comparable because the existing one, we -- of course, they are lower specification. They don't have the flat floorness. They don't have the floor-to-ceiling height for some of these e-commerce players to come and want to rent this property.
The average unit size, we're talking about [ mega ]? Yes. So compared to currently what we have, 30,000 to 50,000 square feet, it's much smaller. And the smaller ones? Yes. So if you imagine a warehouse where you have a much larger floor plate, the efficiencies of the flow of goods, the racking system and all this is a lot more efficient. So the turnaround time of the goods in and out the warehouse is a key factor.
Just can you sort of confirm on the premium that this warehouse currently charge? I mean I totally understand on the current lease it's...
Yes.
But just want to end, the leases come due, right? Your thoughts on reversions then, I think given it's a premium really, do you think it can still command the kind of upside when the leases come due?
I think we're not supposed to give you forecast, right? But basically, I think we are confident that it will be positive rental reversion. And then you have seen like this quarter, we're doing about 3% for Malaysia. Is there any reason that we will not achieve that? I don't see why there should be any reason we won't achieve that kind of rental reversions. Will we get higher? Well, it's very much dependent 2 years down the road, especially now with such a volatile market situation. Yes.
Looks like there's a question from [ DJ ]. Is there a downside risk to -- for occupancy in the near term? That's the first question.
Second question is can you remind us on the hedges currently in place, especially for Malaysia and the currency?
You do the hedge.
For the hedging, interest rate, the Asia, about close to more than 50% in China. Malaysia, for this acquisition, because of the size, we are actually looking to borrow in Malaysian ringgit more than 50% in ringgit so that we create a nice, natural hedge for this asset.
So the interest rate I mentioned earlier, we are looking for Malaysia around 5% for this acquisition. Of course, if we can do more, it will be better. Or of course, if we can get a lower pricing, it will be better for unitholders. We are still negotiating with the bank on the final terms of the loan.
Is there any downside risk to full occupancy in the near term?
I think as with every property, it is not realistic to assume that everyone will just renew and continue, right? So I would say that the retention probability will be high 70s, 80s. That could be 20% that will want to move out for various reasons or there could be 20% that we want to actually move them out.
I just give you an example, what happened with Lazada. They were with us in one unit, and then Watsons was next to them. And in less than 6 months, they inform us they want to take the next unit. So we had to move Watsons down to another unit. And then for Watsons as well, there was an increase within 6 months. So within the 12 months, we had to do a lot of movement because there were actually expansion requests from some of the top tenants.
One more question from Derek. Can you share NPI yield for the various markets?
The -- for this...
Outside of Malaysia, Vietnam and China.
Oh, the [ mix current ] in our valuation cap rate?
Yes.
The valuation cap rates, right?
Yes. NPI yield for the various markets.
China is 6.4%; Malaysia, 6.9%; Vietnam, 9.7%.
So that's from Derek. Which Derek? Is it DBS Derek, no? So obviously, what you have seen here is that definitely, cap rate compressions, right? And then I think our sponsor is also getting smarter. There is a ability for us to negotiate for attractive pricing is something that we will still continue to try. But what we are very certain these are what we call market entry cap rates. That means in other words, if you put this out into market, will you find somebody else taking at these values? Definitely.
Okay. Any more questions? I think maybe a lot to digest. So a short 1 hour, yes. Okay. Is there any more questions? Please feel free to --Sheryl, no more online, right? Okay. So feel free to let us know you got more questions. We're happy to give you more color, right? And then thank you for your time. Sorry we have to spring this on you on such a short notice. Thank you.
Thank you.