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Good afternoon, everyone. Thanks for joining MLT's second quarter results briefing for the financial year 2021. The full management team is here. Ng Kiat, CEO; Charmaine, CFO; Head of Asset Management, Jean Kam; as well as our Head of Investment, Fion Ng.
To start the session, Charmaine, our CFO, will begin the overview. Over to you, Charmaine.
Hi, everyone. Thanks for taking the call this evening. Let me take you through the key financial highlights, financial review and capital management section. The DPU for the quarter is $0.02055. This is a year-on-year increase of 1.5% from $0.02025 last year. DPU rose on the back of better performance from existing properties across most countries and lower borrowing costs. For first half of the financial year, DPU is $0.041 year-on-year increase
[Audio Gap]
venture relates to the co-investment of 15 China properties of the sponsor and comprised of both MLT's share of interest income and profit from the JV. The year-on-year increase is due to contributions from 4 properties that were added to MLT portfolio in November last year.
Distributable income to unitholders higher at $78 million, an increase of 6.2% from last year, translating to a higher DPU of $0.02055 despite an enlarged issue unit base. The profit of the 6 months ended September 30, 2020, is very similar to 2Q, which we've gone through. Year-on-year, gross revenue increased by 9.4% to about $264 million, including for this half year, year-to-date rental rebates tenants affected by COVID would be $1.2 million, $0.9 million granted in first Q last -- in first Q and $0.3 million granted this quarter. This exclude another $3 million, which we have provided for in 1Q to be granted to Singapore SME under the [fortitude] budget, which is still sitting as a provision as we are yet to disburse to SME tenants. We have lower borrowing costs and higher contribution from joint ventures. MLT's distributable income is higher year-on-year by 6% at about $156 million. This translates to a higher half year DPU of $0.041, a year-on-year increase of 1.2%.
Quarter-on-quarter, gross revenue is slightly lower due to Forex, offset by savings in property expenses and savings in borrowing costs. Distributable income to unitholders higher by 0.7% from last quarter, translating to a 0.5% increase in DPU at $0.2055 this quarter versus last quarter's $0.02045.
Balance sheet-wise, about $20 million is added to investment properties due to the completion of our acquisition in Australia. Total assets and total liabilities both lower as we used some of our cash on hand to repay borrowings. Our arrears continue to be stable at about 1.5% of annualized gross revenue. Net assets attributable to unitholders is slightly lower due to translation losses, $1.20 compared to $1.21 as at June 30.
Prudent and disciplined capital management remains as one of our key focus. During the current quarter, we repaid some borrowings with working capital cash, which explains the decrease in total debt, a marginal drop in aggregate leverage ratio to 39.5%. Overall, the interest costs also decreased 2.2% mainly due to lower interest rates. Average debt duration remains healthy at 3.8x with interest cover ratio at 4.9x.
Our debt maturity profile remains well-staggered with an average duration of 3.8 years. Debt due for refinancing for the rest of the year is 2%, i.e., about $61 million. With available committed credit facilities of $582 million on hand, this is more than sufficient to refinance not just what's due for the rest of this year but also the 6% or $219 million due in the next financial year. To mitigate the impact of interest rate risks and FX fees on MLT's DPU, we've hedged 80% of our total debt into fixed rate. 75% of the estimated distributable income for the next 12 months has also been hedged either through currency contracts are derived in Singapore dollars.
Kiat will now take you through the portfolio review.
Thank you, Charmaine. Okay. I'll quickly go through the portfolio review for this quarter results. Okay. In terms of the occupancy level, our portfolio has slightly improved from 97.2% to 97.5% mainly due to higher occupancies in Singapore, South Korea and China. So for Singapore, this is largely driven from 1 property in 73 Tuas, whereby there is a local 3PL that has gotten a MOH PPE contract. And then for Korea, it's mainly coming out from our Deokpyung acquisition. If you recall, during acquisition, our occupancy is about 83%. To date, we have achieved about 97% occupancy. The other one is coming up from China, largely coming out from our Ouluo Phase 2. So this quarter -- sorry, there's actually -- we have leased out 44% of the Phase 2 NLA, so it leads to 3 tenants. We have tenants like [ Jodies ] that's handling luxury products as well as another local 3PL that's handling cosmetic products.
Next slide. In terms of the lease expiry profile by NLA, there WALE remains -- is about 4.2 years. For FY 2021, for the MTB lease expiry of 10.4% is still having up from Singapore, China and Korea. For the SUA lease expiry, 0.9%, it's from 2 countries, one SUA in Malaysia, [indiscernible], and the other one in Korea. So since the 2Q closing, the team -- we have already signed the Malaysia tenant. So we are just left with one SUA to go for the balance financial year.
In terms of top 10 tenants, I think we still -- top 10 tenants account for about -- still about 37% of the total gross revenue. On tenant rate, in terms of tenants in operations, all tenants have resumed operations except for 0.3% of the tenant base, mainly all in Singapore, and we still have a handful of tenants in event management and construction-related industries that is still not fully resumed in their operations. Other than that, we still remain largely diversified with a tenant base of close to 700 account in various and diversified sector and also 75% of our tenants are serving in consumer-related sectors.
So as part of the risk mitigation and diversification, we continue to increase our revenue contribution from MTB. So this quarter, there's a slight increase in revenue contribution of MTB from last quarter 64% to this quarter about 65%. Mainly, we have converted one SUA to MTB, and that's coming out from Tianjin Wuqing, and the property is now 100% fully occupied. In terms of our focus, we remain focused on developed markets and it continues to be about 80% to 85% of our AUM and gross revenue.
Next on the investment overview. So for this quarter, we have acquired this modern logistics property in Melbourne, Australia, located at Truganina. And Truganina is one of the fastest growing industrial precincts in Australia. The property is now fully leased to a single tenant and this tenant is a family-owned kitchen and laundry appliance specialist.
So I think that sums up an overview on the portfolio as well as the investment review.
So I think on the outlook, logistics sector has been fortunate in the sense that we are one of the sectors that is least affected. So the performance continues to be resilient. So I think in the last 5 minutes or so, we have just announced a transaction with the sponsor of over SGD 1 billion. I'm not sure whether you all have the access to the information or the PowerPoint, but just to give you an idea of what we have just announced, I'll get Fion, our Head of Investment, to take us through and Charmaine to take us through the financial impact before we go into Q&A. So Fion, can you take us through?
Yes. So I'm referring to the debt that we have uploaded on the acquisition, on Slide 2, on the transaction summary, I'll just go through very quickly what we are acquiring in this portfolio. Essentially, we are acquiring the remaining 50% of 15 properties that are currently held in JV with the sponsor. So these 15 properties are already in MLT portfolio. They are not new to us. We are just acquiring the remaining stake.
In terms of new properties to the portfolio, we are looking at only 9 properties. In China, 100% interest in 7 properties in various cities; in Malaysia, one asset acquisition in Johor; Vietnam, 100% interest in one property in Bac Ninh, which is essentially off Hanoi. And in summary, the agreed property values for each asset are all below valuations. On an aggregate basis, the grid property values are about 1.7% and 0.9% discount to the valuations by the independent valuers appointed by the trustee and the manager, respectively.
I'll move on to Slide 3. This acquisition is merely a continuation of our strategy. I think we have been very consistent in our intent to build a network of modern logistics facilities in key nodes of connectivity that will enable our customers, which are essentially 3PL tenants as well as e-commerce tenants, to reach their end users, typically sizable population, big consumption centers within x hours across Asia Pacific.
So in both China and Malaysia and Vietnam, you're looking at positive supply-demand dynamics that underpin the demand for modern logistics space and the logistics industry growth rates in these countries are one of the highest. I'll just move on to Slide 4, which gives you a overview of the entire port. So at the agreed property value, the overall NPI yield of the portfolio is at about 5.2%, with the total NLA of 1.2 million square meters, committed occupancy of about 94.7%, WALE of 2.3 years, reflecting the mainly multi-tenanted nature of our -- most of the assets that we're acquiring. And so out of this part of $1 billion, about 50% is made up of the remaining 50% stick of the existing JV properties.
Move on to Slide 5. This is just a breakdown of the various parts of the portfolio by country. You can read at your time -- own timing.
Moving to Slide 6. This acquisition will allow us to expand our footprint as well as our exposure to high-growth markets of China, Malaysia and Vietnam. However, overall, post-acquisition, developed markets still continue to make up more than 70% of MLT's portfolio. That will give us the stability that we need and -- as well as augmented with 30% of higher growth markets.
Moving on to Slide 8. I think you all can read all the various details of our acquisition rationale. Essentially, we are looking at, as I mentioned earlier, fundamentals that will underlie all 3 markets that makes it -- continues to be very attractive logistics markets to MLT, essentially, underlying demographic and economic fundamentals of urbanization growth, rising middle-class income as well as increasing consumption expenditure per capita, all of which are expected to drive logistics growth and therefore, the growth in the demand of logistics space.
Slide 11, I think we're all very familiar of how e-commerce growth is a key demand driver for logistics space. I think in our conversations with our key tenants as well as established e-commerce players, the understanding and the belief is that the pandemic has materially accelerated a shift to consumption online that is broad, deep and irreversible, meaning that post-COVID, they think that this trend is likely to stay. And some have even quoted as a shift from physical stores to digital shopping by about 3 to 5 years. And we also have relatively younger populations who are more Internet savvy. In Malaysia and Vietnam, they have seen a jump in online adoption versus 2019, this year. And e-commerce logistics growth CAGR-wise is expected to be 15% to 20% in all 3 markets. So in short, this acquisition will allow MLT to ride on the accelerated growth in these 3 markets because e-commerce tenants prefer Grade A space, and secondly, our combo 2 assets on average within an hour from the city, which allows e-commerce tenants to meet their time to customer.
Yes. So Slide 12, I think the COVID has accelerated some of these pre-existing trends on supply chain resilience, and we see these 2, essentially China Plus strategy as well as moving from just-in-time to just-in-case, benefiting the logistics market demand also in these 3 markets that we're looking at.
Going to Slide 13, I think we have talked about this in our last acquisition last year. The same kind of supply dynamics remains in the market. We're still looking at very limited supply of Grade A space in China, Malaysia and Vietnam. And this acquisition will allow us to acquire at one go 13.2 million square feet of Grade A modern space in 3 fast-growing markets that're facing a high shortage of demand -- supply.
Moving on to slide -- can we just jump to slide, yes, 16. So as I mentioned, all the properties are strategically located within established logistics clusters. These are just a sample snapshot of some of the properties. They are all well connected to key infrastructure, expressways and well linked to seaports and airports. They're also located within an hour to key consumption hubs of at least about 5 million population that supports e-commerce players because it brings about operational and cost efficiencies.
I would just jump to Slide 21, yes. So this is a portfolio of assets that are relatively new. They are less than 3 years old, modern with Grade A specifications. What we liked about them is that they are very flexible and modular in design. They have good, clear, high, large floor plates. And they are mainly single-storey assets and even for the 2-storey assets they have direct [van] access.
Moving to Slide 22. You can see from the pie chart on the top left-hand corner, more than 90% of the tenants are catering to domestic consumption, less of import, exports. So it's underpinned by the strong consumption expenditure group that we spoke about earlier in all 3 markets and almost 60% of the tenants are involved in e-commerce. So if you look at the bar charts on the top, you can see that some of the big e-commerce players are reflected here in this portfolio, jd.com
[Audio Gap]
players like Best Logistics as well as [Shenzhen] Express. So this acquisition will also give us access to 30% new tenants. You have people like Gill Mix Green, which is actually equivalent of Zara in China for menswear. We have the Decathlon, we have [indiscernible], which will help us to diversify our tenant base and reduce concentration risk. So after -- on enlarged basis, we have 2 new tenants that will appear as our top 10 tenants, which is jd.com and Cainiao.
I think -- okay. Moving on to the financial part. Charmaine, do you want to cover that?
Yes. Yes. On the financials, we are aggregate agreed property value for the portfolio is at $1.04 billion. This represents a 1.7% discount from the valuation by the trustee's valuers and 0.9% discount from the valuation by the management valuers. The individual discount for the different countries are on the right side of the slide. Right. Based -- the agreed -- as I mentioned in the previous slide, the aggregate agreed property value is at $1.04 billion. We add on another $27.4 million NAV adjustment to arrive at a total acquisition price of $1.0674 billion, right? The MAP adjustment is necessary because we are buying the China assets and the Vietnam assets through the acquisition of property holding companies.
We intend to finance the total acquisition -- adding on to the acquisition fee of $5.3 million and professional and other acquisition-related fees of $17.5 million, we have a total acquisition cost of $1.0902 billion. Lessening out the subsisting PRC bank loans, which we are taking over from the vendor, total acquisition outlay is actually SGD 1.0238 billion. We will be financing this outlay with a debt of $118.5 million, equity fund raising proceeds of SGD 600 million, which would be either -- will be through a combination of placement -- private placement as well as pref offering. The sponsor has also agreed to take on $300 million in terms of consideration in units.
Based on the method of financing illustrated in the previous slide, an illustrative issue price of $1.96, the transaction is accretive, adding 1.3% to pro forma DPU. Pro forma aggregate leverage will be brought down by 2.4% from 39.5% to 37.1%, and pro forma NAV will also increase by 6.6% to $1.28. This is a summary of the portfolio metrics that MLT will have pre and post-acquisition.
Okay. We'll now open the session to Q&A. Can we have the first question, please?
This is Derek from DBS. Can you hear me?
Yes, we can, Derek.
Well, it was just a big deal of $1 billion. Blow my estimates away. Anyway just a few questions from me. Yes. But this time around, I noticed that you have -- yes, your acquisition appears to pivot back to China, while the last acquisition was a pivot towards Asia. I'm just wondering whether is China the right time to be acquiring at this moment. I mean [indiscernible] supply, over supply. If you can give us some color on that front, it would be helpful.
So I think we -- what is important is I think we have embarked on this creating a massive logistic network across Asia Pacific with logistic hubs having the ability to reach x million of local population within x number of hours. So that strategy has always been there. We are doing this at a continuation of that strategy. And the -- unfortunately is we can't time everything perfectly, meaning that if we have a choice, we would have a good mix of China, Southeast Asia, Vietnam, Malaysia, even some in Hong Kong, some in Japan. So the thing is, when it comes to acquisitions, the timing is something that we cannot control all the time. So what we are looking to do is continue to build on this network. So although this time around you see quite a fair bit of China, but if you look at it, there are actually 15 properties, Chinese properties that we already own 50%. So we are ready there. So the new additions, if you take it from that context, the new additions are actually 9 properties, out of which 7 are from China, 1 from Vietnam and 1 from Malaysia.
So it's not that we have suddenly gone on to take 22 properties in China. We actually already have the 15. It's just that we only have 50%. So now we're just buying all of it. What we are adding on is actually another 9 new properties. And the thing is, if you look at the pipeline that we have, I think it's in the investor's deck, right, that is a slight -- I can refer to you. So you will see that in terms of completed projects in China, the list has become a lot shorter for completed. We only 10. We have one in Vietnam that is completed. But if you look at under development, can you go to the next slide? So you again see a much shorter list of China, but you see Malaysia, Vietnam and Australia. So what I'm trying to say is, don't take our acquisitions as a single snapshot. It has to be a series of acquisitions that we are trying to reach in terms of getting to our ultimate goal of being the largest Asia Pacific, the most efficient logistic network with hubs that we can offer to our tenants. So I think that will put things in context.
And the other thing is, in China, what we are seeing as China itself has not just -- previously, it was like the factory of the world, it was the producer. But China has become a very large consumer itself. So the logistic activity within China is going to be growing quite substantially, especially if you're talking about the strong urbanization that we will see in some of the cities. So the way we will look at this acquisition is, we are going in at a time where things are a bit uncertain, tenants are a bit more cautious. So the positive side is actually meaning that the rentals that we are currently seeing are on the conservative side. So the optimistic side will be that when this pandemic becomes better or things are under better control, we should see some of the rentals uplift that has been suppressed by the current situation.
So Derek, I'm not sure whether I took a long way to answer your question.
Yes. No, that's very helpful and good color. Maybe just 2 more for me. One of my first question on that would be, you're aware on China the target property is 2.1 years. Maybe can you give us some comfort that demand post these 2 years will be resilient? Then my second question is, can you break down the yield of 5.2% by countries?
Yes. I'll take the breakdown by the yield and by country first. So we have overall at 5.2%, China at 5.1%, Malaysia at 5.4% and Vietnam at 7.25%.
The first question was on WALE, right? So the WALE is about 2.14 China. This is pretty much in line with our current portfolio at -- yes, about 2 as well. So we see that the trend in -- for the Chinese tenants' behavior is that they tend to -- typically across our MTB across the country, they usually sign 3 year. So 2 years is quite representative of the situation and they tend to sign preferred leases. But that is sustainable going forward.
I think, Derek, you would have -- I think you have been joining us on a lot of these analyst calls. I think you would have remembered that I mentioned the behavior of the Chinese e-commerce players, like Alibaba, jd.com. They behave quite differently from the Amazons that we see. So what we are seeing is, for the Chinese e-commerce players, they tend to have their own warehouses, and they will supplement it with third-party leases, leasing from third-party warehouses to support the operations. And when they do that, they tend to take a shorter term, higher velocity to -- high leasing velocity kind of approach. So they tend to sign shorter leases, but they tend to renew it on a rolling basis. So for example, some of our assets, we have seen jd.com. They have got 1 year, 2 years, and then they go over as well as Cainiao.
So for Malaysia, I think you should talk about the lease for Malaysia, the WALE for Malaysia?
Yes. The WALE for Malaysia is at 4 years, 4.4 by NLA. So that is actually longer than our typical Malaysia profile at about 2. Then for Vietnam, we are at about 2.6. This is quite in line with our current Vietnam portfolio, yes. That makes it an overall WALE of 2.3 for the entire portfolio.
Okay. We have some questions from the audience. First one, Nicholas, can you share about the competitive acquisition landscape in logistics in China? And has the sponsor considered selling the 7 China properties to a third-party to achieve a higher price?
Yes. I think, Nicolas, the first question, Fion will take. The second question is, has the sponsor tried to sell it to a third party? They -- there are -- in China, there are always inquiries, unsolicited inquiries, informal, formal inquiries. So of course, the -- and then we all know that logistics sector continues to be one that is very much sought after in China as well. So investors are looking at putting money into the logistics sector. So there are claims made to us, whether real or unreal, but basically, there are claims made to us that they can find buyers at below 5%, at 4-plus percent NPI yield compared to what we are getting.
Yes. On competitive landscape in China, I think it's very -- in our efforts to look for third-party opportunities is quite rare to find a sizable portfolio that is good grade, that is without title problems, and we have seen third-party portfolio deals, like what Kiat mentioned, done at below 5%, for sure. So it's quite difficult to gain assets. Of course, regarding the earlier question about why now, I think it's a matter of if we were to say we want to buy it later, would it still be available because the logistics locations that are being developed are getting further and further away from the city. So we think that we may not be the best time, but we think that going forward, it may be even worse, yes.
Kiat, this is Michael from UBS. Can I ask a question?
Yes, Michael.
So I just want to go back to the China portfolio. When we look at these properties, you've got 20 completed properties in China. So why not take a stab at the 20 instead of just these 9 properties? Are the rest not ready? Or are there other reasons?
Yes. The -- for these -- the list here, we basically went through the list with the sponsor because it's a -- it's good that they are -- have the need to sell. So the thing is, if you look at the list here, the stabilization has not happened for quite a few of these properties, meaning that the occupancies are not high. They are still being filled up, and the stabilization of the rents are still happening. So that's why they are not included.
Okay. That's clear. And for the properties that you've owned 50% of, can you remind us whether there's any change in valuation from the March valuation that was done?
For the agreed property values versus March '20 valuation, we're looking at an average overall increase of about 14%. 1-4, yes.
From the ones that you own? Do you think that's a fair figure?
Okay. I think the -- if you just look at the cap rates, we bought last year at 5…
5.5%.
5.5% and now the cap rate is 5.1%. So definitely, there is cap rate compression. And we do see that for China logistics sector, cap rate compressions have continued and have not stopped. So that compression is something that we view is reasonable. On top of that, the NPI of these properties have also grown, meaning that they have enjoyed an escalation of about 2% to 5%. So that's why it constitutes to this overall valuation or purchase price is higher than our March valuation of 14%.
Okay. And if I were to look at the other portfolio, which you own 50% of, that is -- that you haven't purchased, would it be fair to say that the valuation there should increase about the same amount as well when it comes to year-end -- when it comes to March next year?
So you are saying that for the 50% stake that we currently own, when it comes to March, will the valuation of this 50% be adjusted to match the 50% that we are buying now? Is that your question, Michael?
No. The -- you've got another portfolio, which you own 50% of.
We are buying the 50% of -- well, we are buying the remaining 50% in the properties that we already own. So that mean the Chinese properties, the 15 properties that we have, that we own 50%, we are buying now the whole lot of it. We are buying 100%.
So those portfolios.
Yes.
Yes.
Okay.
So in other words, then we'll…
I understand. I got this.
Yes.
Yes. So in China, we will now have 100% ownership of all our properties, which allows us a lot more flexibility in terms of our financing, in terms of our adjustments to our lease structures that we have. Michael, does that answer your question?
Yes, it does.
Brandon here. Can I ask a question?
Yes, Brandon.
Just one question on the funding structure. May I ask why don't you use a higher proportion of debt? I think given that some of your peers are now growing above 40%, and I think given the valuation outlook, it seems that the logistics properties are giving quite a good price at this stage. And secondly is, can you share with us why is it that the sponsor has to come in with that $300 million? Why don't you just do a larger equity raise?
Okay. I think on your first question is, why do we not use more debt headroom, I mean the debt headroom that we have, right, to make these acquisitions? We are taking this opportunity to strengthen or to -- our balance sheet, meaning that we hope to be doing some third-party acquisitions. Hopefully, we will be able to announce something soon on the third-party side as well. So what we are saying is a -- yes. So basically, what we are saying is, while this sponsor acquisition -- acquisition from sponsor, it allows us a good opportunity to come out in a very organized manner because when you have a third-party Chinese of essence, you do not want funding to be a condition to the sale -- to the purchase or the -- so the vendor -- third-party vendors would prefer that you have certainty of funding and all these. So actually, if you look at it, we will end at about 37%, max I mean, 37%. Every 1% would give us about $100 million. So if we bring ourselves up to 45%, we are looking at only about $700 million. If you remember the CWT deal was about $700 million. So I think we're taking this opportunity to position ourselves so that if there are third-party acquisitions, we will not have to put in funding as a condition in our negotiation.
So I think that's the first question. And the second question, what was the second question? Sorry, Brandon, I forgot your second question.
It is regarding why do we require the sponsor to come in with some consideration. I think why don't [indiscernible] MLT sort of announce that kind of arrangement.
The consideration in units are essentially to show their alignment with us.
Okay. Okay. Yes. Yes. Yes.
So the sponsor will take $300 million consideration in units.
Okay. Okay. No, my question is more like why don't you do a -- just bundle it together with $600 million and not ask a sponsor to come up with the $300 million?
Brandon, is your question, why we allow the sponsors to take $300 million in units and not raise more? Is that your question?
No, no. As in why don't you exclude the sponsor from the participation and give -- yes, yes, that's my question.
I see. They -- we are quite happy for the sponsor to have alignment in interest with us. It's been a long time since they took consideration in units. And I think after this round of fundraising, the [indiscernible] will be 31.55%. So it's quite close to the threshold of 30%, Brandon. So the 30% is always a sensitive level. So with that, it takes them comfortably to 31.55% threshold or other stakes above the threshold.
Okay. Yes. Can I just have one last question? I just want to ask, when is this moratorium on the [indiscernible] site from CLEP ending?
The Megahub, it's probably another 5 years to go.
This is Donald from Bank of America. A couple of questions from me. Just so touching back on the previous discussion on the China cap rates and valuation appraisal for the end of the year. So just to be clear, you're going to -- you are going to reappraise the existing 50% stake that you have in the China portfolio and bring the cap rates down to 5.1% by end of the fiscal year?
You're right.
Okay. Okay. The follow-up on this is, for the China portfolio, in fact, for the entire acquisition portfolio, what's the rent structure? Is there any step-up rents for -- especially for the new 7 China properties that you are you buying?
I think, in general, the leases mostly have built-in annual escalations of about 3% to 5%.
3% to 5% is across the portfolio that you're buying? Is it?
Yes. Correct.
Okay. And pre-COVID, for the existing Chinese properties that you own the 50% stake, there were some worries on tenants consolidation over the last couple of quarter, even pre-COVID. Has this been resolved and that's why you're acquiring it now? Or what's the situation?
I think if you recall jd.com in our Zhenjiang property, so they used to be as tenant, 100%. And then they vacated half the space. And now over the last 6 months, we have actually backfilled it, and now this property is fully occupied.
Okay. So less of a worry now. And this is indicative of the general trend as well, is it in China?
Yes. I think the other one that I can give example is the Tianjin one, the Wuqing property. So previously, it was a single tenant, Final Tranche. They have also vacated the property. But now the team has actually replaced with 2 tenants. So it's also fully occupied. Yes.
Okay. My final question is I mean just outside of the acquisition announcement. Could you run through the rental reversions for the quarter for each market, please?
Okay. For this quarter, Singapore, 0.6%; Hong Kong, 2%; China, 2.4%; Vietnam, 4.3%; Japan, 1%; Australia, 1.5%. Malaysia and Korea is flat.
This is Tan Xuan from CLSA. I have 2 questions. The first is on the acquisition portfolio. Can you share how is the passing rent versus market rent?
Okay. They are all at market rates. So for -- I think I'll just start with Vietnam. For Vietnam, it's about VMB 7,500 per square foot. For PTP -- for Malaysia, it is MYR 1.75 per square foot. For China, it's about RMB 0.92 per square meter per day.
Okay. Got you. Good. And the second question is on the third-party acquisitions that you're looking at. Can you share like what kind of assets are you looking at? Which countries are they in? And how are cap rates briefly? And where do you see more opportunities at this point? And mostly, are they more of development or stabilized assets?
I think over the next 6 months or so, we hope that -- we hope to make about $200 million to $400 million of third-party acquisitions. The countries will most likely be coming out from Australia. In terms of dollar value, maybe a smaller portion coming out from Korea, Malaysia and Vietnam and Japan.
And in terms of cap rates, how different are they versus what you are carrying on the book?
I think in terms of cap rates, for example, Japan, we did Kobe at about 4%. We think that Japan's cap rate has stayed around that level. So Japan, we don't see compression that severely. In Korea, we are seeing some acquisitions coming below 5%, which is significantly lower than what is in our portfolio. So that, I would say, in Korea, compared to what we have existing, we have seen quite a bit -- what we have in our current portfolio, we have seen quite a bit of Korea cap rate compression. For Malaysia and Vietnam, it will be similar, the cap rates will be similar as what we are seeing in the sponsor acquisition.
And these are all stabilized assets, I assume?
Yes. Usually when we buy from third-party, majority -- well, we have ventured into like [Vulcan], which is a small forward deal. But typically, majority, I would say, we will buy completely stabilized assets.
Okay. And just one last question. Can we assume that if it is about $200 million to $400 million, it should be debt-funded?
Yes. It will be debt funded. Yes. Thank you.
We've got third-party question from Joy Wang, HSBC analysts. First question, could you share how much of the portfolio of -- or rather your tenants are now multi-geography? And second question, for e-commerce, there's quite a fair bit of increase in exposure to e-commerce. Is there any rental evaluation differential for e-commerce tenants? And then her third question is, in Vietnam, there has recently been quite a few new regional and global players have entered. How do you see the change of competitive landscape in Vietnam?
I'll take the first question. Post acquisition of this portfolio, 42% of the entire portfolio of tenants will be in more than one location. What's the…
I think the -- if you're talking about just plain ambient warehouse, which the specifications are standard, even when we lease it to Amazon or [indiscernible], right, the rentals will not be significantly different. I would say it will be the same as you rented out to any third-party. You will get a rental premium if you are able to make modifications to the warehouse specific to their needs. So for example, like in 5B Toh Guan, when we have our asset -- where we have Amazon in, we -- they had -- we had to work with them on vertical expansion of the Amazon infrastructure. I mean, they are used to having direct expanding horizontal because there is a [indiscernible] in America. But it is the first time outside of America that they are expanding vertically, so the American engineers came down. So with that we are able to command a 20% to 30% premium over what you will give to a typical 3PL that doesn't need modification to your warehouse.
Joy, I'm not sure -- I hope that answers your question.
Yes. I think there's a third question on Vietnam.
Yes. I think suddenly, everybody is very interested in Vietnam because the China Plus 1 strategy or China Plus 2 strategy -- China Plus strategy is becoming more and more significant and more important to logistic players. So the -- we are currently the largest logistic, non-government operator in Vietnam, and we intend to maintain that position. So there are a lot of competition. I think a lot of funds are going in. They have announced the substantial fundraising for Vietnam.
So how we view this is -- okay, real estate -- one thing about real estate is there is really an advantage to the first mover, meaning that when you get into real estate, just like what Fion was saying, the later you come in, no matter how the locations, you will be pushed up. So the domestic consumption centers, the first 5 kilometers from the city center, will be the first to be taken up. And then thereafter, it will be pushed up. So the advantage that we have is we are one of the first movers in Vietnam. So that's one.
And then the other thing is, in Vietnam, because it is a fairly young market with pretty, I would say, opaque regulations and governmental structures, so the network that we have with the government officials and network that we have built up with the local communities in terms of their committee members, the Prime Minister, the whole Chairman People's Committee, so these are all the networks that we have, and I think we can be quite confident to say that we have delivered what we promised them in terms of creating jobs, in terms of bringing up the economic activity in that -- in those locations that we are in, in increasing the qualifications of the labor or the expertise of the labor force that we have at our warehouses. So I think we have that track record. So that should stand us in a pretty good position to continue to compete. So you're going to have big boys coming in with money. The good thing is Mapletree balance sheet still -- is very strong. So we also have that. So then we really have to leverage on our connections, our network and our track record in order to still continue to maintain our #1 position in Vietnam.
We have a few question -- go ahead.
Kiat, it's Nicholas from Crédit Suisse. Just a quick question from me on divestments. I guess just wondering how that is -- how your position on divestments is going. I guess, particularly also thinking about the -- if I'm not mistaken, some of those capital distributions from the gains that you've seen in the past, divestments are coming off in FY '22. So just wondering how you're thinking about sort of topping that up and so.
Okay. I think we will continue on our rejuvenation story. We are a very old REIT, and we're not going to pretend that all our assets are of the latest specifications and going to remain relevant for future logistics use. So divestment will continue to be a tool that we will use. The challenge we face in divestment is, honestly, there are some assets that are small because we started off being small. So the assets, they are small, they are old, the specifications are bad. We are keen to sell them. The challenge we face is we're not able to get a correct price, meaning that the pricing we get is low because they are non -- I would say, they are non-ramp up, they are cargo-less and their specifications are bad. So with -- and also, they have shorter lease tenants like those that we see in Singapore.
So for those, they are not sitting idle, they are enjoying good occupancies. Some of them are delivering us NPIs yield on cost about 6%, 7%. So I think those will be -- we'll continue to try to divest but we are quite happy to keep them. There will be those that we will sell and the challenge is what kind of price can we get. And in this current market, will we get the best price for an asset that's not so good? We don't think so. So I think this is the issue that we have to get ourselves around. So hopefully, we'll continue to see some divestment. But with these assets, we will not see divestment gain.
So then on the other side, you're going to have the very good class assets that will give us a huge divestment gain, and then will we sell them? And I think this is then where the replacement strategy will have to come in. If we sell them, are we able to find an equivalent asset that generates as attractive a yield? And that will be like what we have in Hong Kong. If we sell one of the warehouses that we have converted to data centers, it will be very -- we can combine a huge premium. But the question is, can we find a replacement asset in that market to do -- to generate that kind of yields that we have been enjoying? So I think 2 buckets, good assets, we are looking to sell. They not-so-good assets, we're also looking to sell. One will give us divestment gain, one will not.
Having said that, the portfolio now is going to be $10 billion. We are going to be a lot stronger. I mean just to give you an idea, 72% of our portfolio are Grade A compared to, let's say, when we first started in 2005, only 17%, 1-7 percent, was Grade A. Now our portfolio has 72% Grade A. So we are able to stomach some of these divestments that will not be able to make a gain. So divestment gain is definitely good to have so that we will always distribute back to unitholders, but it is not a core strategy for us to drive our DPU. The whole idea is always to continue to deliver long-term return to unitholders and the repositioning of the asset is the primary focus.
So long story short, if we're able to sell, get a gain, we'll share it with unitholders. But that chasing divestment gain is not a core strategy.
Kiat, this is Mervin from JPMorgan. Just a couple of questions. Maybe you can touch on the rental outlook because I think previously, you had some concerns about maybe Hong Kong and some of [indiscernible]. And maybe some commentary in terms of some of the temporary storage that has started to drop off. And then my second question in regards to the borrowing costs, what are we assuming.
Mervin, your first question is on the rental outlook, is that right?
Yes, in your key markets. Yes.
Okay.
Okay. In terms of the rental outlook, I'll probably start with Singapore. So I think for Singapore, we will continue to see this bifurcation, meaning those in Grade A, I think we're still enjoying a good reversion. But then, we will face challenges in getting a positive rental for those that are
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assessed building. But having said that, I think if we look at the supply situation for the coming 2 years, we are actually 4x below the past 4-year average. So that should give some firm rental in terms of the Singapore rent outlook. So as overall, I think for Singapore, we're probably looking at a range of maybe about 1%.
So next on Hong Kong. Even though there are trade tension going on, the retail sector is facing a little bit of challenge to meet the…
I think someone should mute the speaker, please. We are having a lot of background noise.
So for Hong Kong, despite the pandemic as well as this trade tension between U.S. and China, I think because of the low new supply and also this shortage of…
Sorry, it's Mervin here. We can't hear anything about Hong Kong at all. You mind repeating?
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as well this trade tension between U.S. and China. But if we look at the supply situation, in terms of the new supply, it is pretty on the low side. And if we look at the vacancy rate, it is also similarly pretty low, and there's no -- not a lot of land available for warehouse development. So in terms of the outlook, no doubt, it is not a double-digit kind of growth rate, but we are looking at about 2% to 3% for Hong Kong market.
For Japan, majority of our properties are located along Route 16 and serve as a good distribution center for local consumption. So when there are leases due for expiry, what we will do is we'll try to educate our tenants, and we'll be achieving some rental reversions. As you can see, like in this quarter, we managed to achieve a reversion of 1%, and that's for the Noda property.
For Australia, I think the Major east coast cities, like Sydney, Melbourne and Brisbane, they are -- actually make up almost 85% of the demand, and there are no new warehouse cluster. So if you look at the vacancy, they're actually well below the long-run average of 3% to 6%, and the new supply is also pretty modest. So I think that should underpin some rental growth over time. We're probably looking at about 1% to 2%.
In China, for Tier 1 market, the demand is still firm, and as you are all aware, there's actually very limited supply, especially in Shanghai. So we think the reversion should stand up pretty good, 2% 3%. For Tier 2 cities, I think in terms of the supply that's probably quite a fair bit in the Midwest location, but supply do get absorbed. And based on the national average, I think, right now, the -- most cities are enjoying occupancy about 90%. And a lot of the landlords, I think, are focusing more on the occupancies instead of the rental. So probably the rentals, we're probably looking at about 1% to 2%.
I think I touched upon the key markets.
Can you just -- the second question is regards to the borrowing cost for the $180 million of debt for the acquisition as well? What was the borrowing cost?
Yes. Yes, we're looking at about 4% to 4.5% borrowing cost.
Okay. I would like to wrap up with one final question, which several people have asked about the tax [implications] in the China structure and whether having 100% will make it more effective or efficient?
Yes. We are looking at an effective tax rate for the China port of between 10% to 15%. This is not really more effective, but it allows us to bring back the capital return, which we have not been taking back so far.
Okay. Any more questions from the crowd? If not, we will wrap up this session. Okay. Thank you. Thanks for joining us.
Thank you. Thank you.