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Mapletree Logistics Trust
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Hi, good morning. Sorry, for the slight delay. So can we start? So Ivan, you'll take us through the financials, please?
Yes. I will take you through the key highlights for the quarter, 4Q, and also our year-end results as well.
For the 4Q FY '17/'18, we registered amount distributable to unitholder of $59.2 million, a 27.1% year-on-year increase and a DPU of $0.01937, a 4.1% year-on-year increase. As compared to our -- what we have put in the forecast in -- for our Tsing Yi acquisition, our forecast DPU for last quarter -- the 4Q was $0.01919. So we outperformed our forecast as well for this 4Q. The improved performance was driven by organic growth from existing properties and also accretive acquisition and initial contribution from newly completed redevelopment in Singapore, the 76 Pioneer, partly offset by the absence of contribution from our 4 divestments and the redevelopment of Phase I Ouluo Logistics Centre.
FY '17/'18 DPU, the full year, increased by 2.4% year-on-year to $0.07618. Amount distributable to unitholder rose 14.4% year-on-year to $212.9 million.
On the portfolio, we have stable portfolio performance. We maintained a high portfolio occupancy rate of 96.6%. Average rental reversion for lease renewed or replaced in FY '17/'18 was 2.6%. NAV per unit rose 5.8% to $1.1 compared to $1.04 a year ago due to the acquisition and also the revaluation gain.
The active portfolio on a portfolio rejuvenation, we had been very active. We have completed 2 acquisitions in Hong Kong: Mapletree Logistics Hub Tsing Yi and the remaining 38% in strata value of Shatin No. 3. So we -- so now we own 100% of Shatin No.3 in Hong Kong.
We have also completed the redevelopment of Mapletree Pioneer Logistics Hub, MPLH, or previously known as 76 Pioneer in Singapore. We also completed the divestment of 4 properties in Japan, Singapore and Malaysia.
On the capital management. The -- all refinancing requirement in FY '18/'19 has been completed. We have nothing to refinance in '18/'19. We have an average debt duration of 4.5 years and aggregate leverage of 37.7% as of 31 March 2018. This is confirmed during [this year]. Approximately 78% of our total debt has been hedged into fixed rates and about 70% of our income stream in -- for FY '18/'19 has been hedged into or derived in Sing dollar.
So just a quick update on the 4Q FY '17/'18 versus 4Q last year, FY '16/'17, year-on-year. So you see, revenue actually grew by 11.4%, mainly due to organic growth from existing portfolio and contribution from newly acquired Tsing Yi and also the 76 Pioneer -- newly completed 76 Pioneer. We are at 79% occupancy rate for 76 Pioneer.
Growth was partly offset by the noncontribution from these 4 divested properties and one block in Ouluo Logistics Centre undergoing redevelopment. Borrowing costs increased 15% due to incremental borrowing to fund acquisition, partly offset by lower average interest rate from Japanese loan due to repayment of Japanese loan with the divestment proceed from Japan.
In terms of DPU, 4.1% increase, $0.01937 vis-à-vis last 4Q, $0.01860.
The next slide. Looking at the full year performance. In terms of gross revenue, increased 5.9%, mainly due to the organic growth from our existing portfolio, contribution from acquisition and also completion of our 76 Pioneer in Singapore. Also partly offset by the reasons mentioned earlier, the 4 divested properties and one block in Ouluo Logistics Centre undergoing redevelopment. In terms of property expenses, increased, due to the acquisition completed during the FY, financial year, partly offset by some of the divested properties.
On the borrowing costs, increased by 11%, due to the incremental borrowings to fund acquisition. DPU-wise year-on-year. This year, we registered $0.07618, a 2.4% increase from last year, $0.07440.
So on quarter-to-quarter, 4Q versus last third Q. In terms of revenue, is 9.4% increase, mainly due to the full-quarter contribution of Tsing Yi and a completed redevelopment of Pioneer Logistics Hub in Singapore.
Property expenses increased due to the acquisition and high operating and maintenance expenses. Borrowing costs correspondently increased due to the additional borrowings to fund the 2 acquisitions in Hong Kong, the Tsing Yi and also the 38% of Shatin 3. In terms of DPU, 1.6% increase quarter-on-quarter. Last quarter, we registered $0.01907. This quarter, we -- it was $0.01937.
The financial position, the balance sheet. Investment property increased to $6.5 billion compared to last year, $5.5 billion, partly -- largely due to the acquisition and also reevaluation gains. So in terms of our NAV, increased to $1.1 compared to last year, $1.04.
We can go to the capital management. So on the capital management side, debt increased to $2.5 billion compared to last year, $2.184 billion. Leverage ratio lower than last year, 37.7% this year. And the weighted average annualized interest rate increased slightly to 2.4%, largely due to the acquisition. And the average debt duration has been lengthened to 4.5. In terms of our interest cover ratio, we are still hovering at 5.6x. Credit rating still maintained at Baa1 with stable outlook.
Page 14. As mentioned earlier, we have no debt due in the coming financial year. We have termed out the '18/'19 debt to the various years, lengthened the debt maturity profile to 4.5 years. On the risk interest rate management, 78% has been hedged, 22% is unhedged. So if we run sensitivity, every 25 basis point increase in the base rate for the unhedged portion will impact -- DPU impact will be 0.01 cents per quarter.
So on the risk management, the ForEx risk management, 70% of our amount distributable has been hedged or derived in Sing dollar.
So I'll pass on to Greg for the portfolio review.
Thank you, Ivan. First on our occupancy rates. If you look at the portfolio occupancy, it's risen from 96.2% to 96.6%. Three key markets saw improvements in occupancy. This came from Singapore due to improvement at 76 Pioneer. We also had improvement at South Korea, and that's due to the Pyeongtaek asset where we have increased occupancy to 89%. And in China, where we have [ central ] and the [ link ] and the [ Guangdong ] asset, which are doing better. The -- 3 of the markets had flat occupancy. The only market which had occupancy decline was in Hong Kong, and that's due to the acquisition of strata space in Shatin 3. If you exclude that factor, Hong Kong would have been 99.9%, and we would have had the occupancy rate of 96.9 for the portfolio.
Next slide. This gives you a snapshot of the lease expiry profile over the next few years. We have a 3.5-year WALE. In the coming year, we will have about 19.8% of MTB leases due, 4.6% of SUAs. As you'll note from this, the SUA -- the amount of SUAs have declined dramatically from 2 or 3 years ago.
Next slide. This gives you a snapshot of the lease expiry profile by country. So we just focus on '18/'19 numbers. The bigger bars are from Singapore, Malaysia as well as in China. In Singapore, we have 5 SUAs, 2 of them -- 3 of them already done. We are still working on 2. The remainder of the space for the SUAs account for less than 1%. The rest of the space will be MTBs, and MTBs will be an ongoing renewal process. The other big bar is for Malaysia, where we have 7 SUAs due. We're already in advance negotiations for at least half of them, and we are confident that a lot of these tenants have been rolling the SUA leases over time.
Next slide. This gives you a picture of our trade mix. And as you would see over time, we've seen this evolution of our mix moving away from industrial-type users towards more consumption-based, F&B, fashion, consumer. And you will see this pie continuing to move in this direction. Most about newer assets have actually had that tilting of consumption-based occupiers and users within the asset.
Geographical diversification. So you would note 2 things from this: One that, with the acquisition of Tsing Yi as well as Shatin -- as well as strata space in Shatin 3, Hong Kong has displaced Singapore as the largest market by AUM. Hong Kong is 34%, Singapore is down to 27%. In terms of revenue, Singapore is still the #1 market, 34%, followed by Hong Kong at 25%. And this again will change and shift with the acquisition of the assets in China, and we will show you how that pie chart evolves in the next few slides -- sorry, in the next presentation.
This is the breakdown of our SUA asset versus MTB exposure. We have been shifting this again more towards MTBs away from SUAs. And if you notice, the SUAs are now predominantly in Japan as well as Australia, and these are markets where SUAs are very commonplace and our SUA tenants are more part of the market rather than the MTBs. The more MTB-centric markets would be Singapore and Hong Kong, which are accounting 42% and 34% of the MTB's revenue share.
Next slide. Our top 10 tenant profile. We have 556 tenants, none of them account for more than 4% of revenue. And if you look across this and how this has evolved over the last few years as well, you would see the shift from 3 -- from smaller domestic 3P -- from more national 3PLs to end-users as well as international 3PLs. So if you look at the top names that we have in our list, Wesfarmers Group, Coles; XPO, adidas, very strong end-users have been making its way into our tenant roll.
This slide gives you a snapshot of our lease term of underlying leasehold land. You'll note from the left, we do have assets about 5.6% of the portfolio, which are entering that 10 -- that 0 to 20-year range. But also very important in our portfolio is that we have balanced this with our freehold component. And the freehold assets are predominantly in markets such as Japan, Korea, Australia as well as South Korea.
Next slide. Let me walk you through our investments as well as our divestment activities over the course of the year. We completed the divestment of 4 properties: 2 in Japan, 1 in Singapore, 1 in Malaysia during the financial year, a $189 million in total. We are still awaiting completion of -- we are still pending 7 Tai Seng for government approval, that's $68 million.
Next slide. All of you would be familiar with Mapletree Tsing Yi. We acquired that in October 2017.
Next slide. And the acquisition of Shatin -- the remaining strata space in Shatin No. 3, that was completed in January. This gives us a 100% control of the building. And fully-owned assets are in scarce supply in Hong Kong. The bulk of assets have strata subdivided and having full control enables us to add value to the assets as well as extract full value.
Redevelopments. This is Mapletree Pioneer Logistics Hub. We have now committed close to 80% of the space. Completion was [indiscernible] November to January this year.
And in the case of Ouluo. Ouluo Phase I is due for completion in the second quarter, somewhere around October. And the space is all -- we are already about 60% pre-committed.
Property valuation. We completed our valuation exercise as of 31st March. And what you'll see across the markets, we've seen generally a few trends: One, we've seen cap rate compression for almost all markets. The most pronounced of these have been for Hong Kong, where we've seen about 60 basis points at the tight end of the cap rate range. Markets such as Singapore and Japan saw 20, 25, but more focused on the modern, specified, grade A properties. The smaller, older properties as well as short ground lease properties do not enjoy the same -- similar benefits.
And finally, our portfolio at a glance. And this gives you a snapshot of what we have talked about over the course of the presentation.
And finally, the outlook. We -- the Singapore leasing environment is still relatively competitive in the near-term. It will -- we know that supply has actually peaked out, but it does take some time for the remaining vacant space to be absorbed by the market. Nevertheless, what I think is very encouraging is that supply falls off over the next 2 years. Hong Kong, we continue to see very healthy occupancy rate as well as positive reversions. And Japan as well as Australia are very stable markets.
I think looking ahead, we are cautiously optimistic, right? The largest market that we are in, Singapore, we have seen quite good -- or rather positive rental reversions that are less alarming than in the previous quarters. So like for example, 76 Pioneer, we think it's on track to do a 6% yield very soon. And then with that, it should be going up. And the other market that we are very big in, I mean in terms of dollar value, is Hong Kong, okay? You know that we bought the remaining of Shatin 3 -- [ Gerald ], can you go back to Shatin? So for that, we are also quite happy with the progress we are making there. We are looking to reposition this whole building. We think we can do fantastic potential, yes, on that property, even based on the site that we have bought.
And so I think the ability to reposition this property is a unique opportunity -- is a unique opportunity in Hong Kong, yes. So we think, overall, this property, based on the previous Class A -- when I said the 5% is based on the additional space that we have bought, so the overall property should be doing progress, we think, over time. And then the lease is going to be quite good as well. We are looking at a 10-plus, 10-year lease. So the stability coming from Hong Kong is going to be much stronger as we move ahead in the next few years.
So I think before we go into [ Project Jade Eye ], which is the acquisition of 50% in China properties, do we get any questions -- do you have any questions on the results that you want us to clarify?
[indiscernible] Can I check on your MTB lease expiries in FY '19. I think that quarter-on-quarter it went up.
MTB lease?
MTB lease expiry. I think last quarter it was 18.5%. This quarter, it's 19%.
You mean...
MTB lease expiry portion. Is this due to the acquisition or are there some short-term leases?
I'm sorry, I don't see any questions.
The gray bar, right, is 19.8 this quarter. Last quarter it's 18.5%. Is it due to acquisition or were there some pre-termination?
Yes, it's due to the acquisitions and also it's part of the normal business, some of the leases are up for expiries and then so we have that. So -- yes.
Okay. So some of the acquisitions have high MTB expiries?
Yes. Like in, for example, Hong Kong. We bought Tsing Yi last year, right? And then some of the leases are coming up for expiry this year.
Yes. So when you look at it from a quarter-on-quarter basis, you also find at the end of last year, if you have any leftover leases, that goes into the vacant space. So they are with -- so their base of lease space. Obviously, we do have leases which do come in at the same time as well. So you see the shifting slightly on a quarter-on-quarter basis.
Xuan Tan from CLSA. Can you share more color on the rental reversion by country? Which are doing better or which are flat?
For this quarter or the full year? This quarter?
Yes, full year is fine as well.
Yes. Okay. I think overall, for this year, Hong Kong continues to be the strongest. We're looking at about 5% rental reversion. And then that is followed by China, which is 3.4% for FY '17; Australia and Vietnam about 2.5%; and then for Malaysia, about 2%; and then Singapore, about 1.3%; and even Japan you are able to do about 1.5%.
Can you give us the figure for the quarter?
Okay. For the quarter, there were no -- Hong Kong did about 6%. There were no leases for renewals in Japan and Australia as well. So -- and so for China was largely flat, meaning about 0%, 0.5%. And then Singapore was about 2%. The rest of the countries are -- either have no leases or they are still planning.
So what's the blended for Hong Kong?
1.6%.
[indiscernible] your comment on the outlook for Singapore. Just wondering whether -- is there any redevelopment opportunity or any potential structure vacancy, given that your portfolio, some of them, are selling very old.
Yes, yes. We are a very old [indiscernible], and as old as [indiscernible] so our properties are very old. So I think for Singapore, the strategy continues to be -- it's going to be like a flat renewal, flat transition thing. So we look to begin some of the older flats that has got more potential, and then we will recycle that. So redevelopment, we still have 51 Benoi. We still have a couple of others that we are working on. We are working with some tenants to get landings extension of some of the properties. But JTC will take some time because the old -- the anchor tenant and then the business plans and so on, yes. So I think the recycling strategy will continue, especially for Singapore, the older assets. And we will shift -- we -- it's very clear we need to rejuvenate the specifications of our portfolio in Singapore. So meaning that we will continue to look for redevelopments in Singapore, yes. So what we are doing is, this year, we have Ouluo from China, right. So again, we are pacing out. Again, we are balancing the decline or the drop-off in revenue when we go through redevelopment, right, versus the need to rejuvenate the specifications. So once we finish Ouluo, we will see another redevelopment -- 1 or 2 other redevelopment opportunities, yes. So we are working on it, yes.
A sense of the -- your rental reversion, is it going to reaccelerate from FY '18 onwards?
For Singapore?
In general.
Okay. I think Hong Kong is stable, meaning that we -- I mean, the good old days post year 2014, we saw like 15% rental reversion. Now, we constantly see about 5%. So single digit, mid-single digit, so we expect that to continue. The -- there is no eminent supply coming out from Hong Kong. There are few land tenders that are coming up. And you know that we are always keen, just like the Tsing Yi. So -- but these will take a couple of years down the road before it comes up. So we think Hong Kong market will continue to be tight. The -- for Singapore, like what Greg mentioned, the -- I had tapered off, so -- but the thing is the absorption -- I mean, the absorption was quite a lot, but I think as we -- question is how long does the full absorption take, right? So the question we have is, does it take 12 months or 24 months for this absorption to happen before we can hit back to get vacancy rates across the country in the single digit? Right now, sometimes we are seeing like 10%, 11% vacancies, although our portfolio is doing better. So Singapore is still very cautious -- we are still very cautious. Yes?
Just on Derek's question, right. I noticed that you've been acquiring very chunky portfolios very rapidly in the last 12 months. But when I look at the rental reversions, it's all coming pretty low, even for high-growth markets like China, Malaysia is down to low single digit. So is this a strategic shift towards acquisition, to drive DPU growth rather than -- because we see the organic businesses getting a little bit...
More competitive, right. I think you guys will -- you come by the entities, as well. Definitely, China is very interesting. I think we'll talk about that later. The -- on the demand side, we see a lot of positive parameters, okay? So it's all on the supply. And then -- and China supply is abundant, it's very easy to get land, especially in the second tier cities. So I think China growth will not be like Hong Kong, where it will be based on rental reversions. That means, I think your point, doing that. So basically what we need to do is we need to continuously push the occupancy. Ensure that our value-add as a landlord is there so that we become the first choice of -- for the business expansion or consolidation or something. So basically, I think it's the ability to compete on vacancies, the ability to compete on conversions, meaning converting from one tenant to the other. So I think these are the elements that are going to come in to become a more important play compared to just, okay, my rent, is it going to increase by X percent? So I think the competition has shifted more towards the other elements.
Regarding the rental reversions. I understand the different companies have different practice reporting the reversion. Some companies by the starting rent of the new lease or the average rent of the previous lease. And someone [ replace ] by the average rent of the new lease what's the average rent of the old lease. So may I know what's your practice here?
Yes. So we actually have a column where we have rent for the new lease over the expiring rent. And the reason why we don't do it on an average basis is that scrubs out all of your escalations that we have built into our portfolio. Because when we start, we typically will have escalations. So by the time you end, the last year will be higher than the first year. And what we want to show is how the next lease starts against that. And...
Yes.
You mentioned about the land that you're looking at Hong Kong. Is it safe to say that you are looking at the 2 known sites coming up?
We look at all land tenders in -- in all -- I think I will safely say that all land tenders in all the countries we operate in, we will definitely actively look at it. And so yes, the -- I mean, we all know that Tsuen Wan, I think, is on the newspaper that's out today. Are we keen now? Definitely, we are.
Any sense of the development yield compared to the implied property yield that you're currently getting?
Maybe we can answer that question after we win the bid. There's still a few more hours before the tender close. It closes at, I think, 12 p.m. or 1 p.m. today. So I think one of the questions is we are going to -- why are we doing chunkier acquisitions? Is it a deliberate attempt to go and boost up our DPU? Okay. I think fundamentally, organic growth on the DPU is our primary focus, right? The competition in the market has shifted such that it's no longer just a play on the rental, can you get rentals of X dollars and then you will get a tenant. A lot of that has shifted. So now tenants, especially e-commerce players or the high-value goods players, they are looking for value-add. So our ability to bring in a tenant, the time to bring in a tenant, the ability for us to convert from our existing tenant to the new tenant, meaning CapEx changes, specification changes, regulatory approvals, these are all the elements that will come in, okay. So having said that, the other part that we are more mindful of is in order for us to become more efficient as a warehouse player, scale is very important. So it is -- it has always been our intention to grow in all the markets that we are in. That means scalability is a key consideration. And we are keen to do chunkier portfolios when they become available and also when the price is competitive. So we don't just look at it from the sponsor, which is possible, but also from third parties, because that will allow us to very quickly go in and have economies of scale and have -- when we go to a tenant, we are able to offer a series of operations. I think we all know that the warehouse phenomenon is -- or rather the dynamics are changing, right? Are we going to continue to see large warehouses, regional distribution centers? I think we still will, but what we are going to see is we're going to start seeing smaller distribution centers that where location plays a part, where the time-to-customer becomes more critical. So -- and also as we move into the higher-value goods, for example, [ cold store ], junk foods and all this. The time to convenience store is going to be a key factor. So I think these dynamics what we are seeing as will play -- you will see us coming into play in our strategy. And the other thing is -- may I also add is, I think you noticed acquisitions does not necessarily mean DPU accretive -- accretion, right? So therefore, the balance we have is, while we like chunkier acquisitions because of the competitiveness in the market pricing, you will start seeing that acquisitions, I think even in our competitors, the accretion coming from chunkier acquisitions as a contribution to DPU is no longer a -- I would say, a definite phenomenon. You may get acquisitions that your accretion is going to kick in after 1 or 2 years as opposed to immediate.
A couple of quarters ago you mentioned you were reviewing whether divestment gains will be distributed, future divestment gains. Have you come to a decision? And is there any outstanding amount that is pending?
On the divestments, really have been distributing those divestment gains. The latest pending divestment is this 7 Tai Seng. We have not decided how to distribute this 7 Tai Seng market yet.
Yes. But I think...
But we have been very consistently distributing the divestment gain out to unitholders, either for -- through 4 quarters, 6 quarters or 8 quarters, depending on the...
I think -- yes. I think, to answer your question, were we distributing divestment gains? The answer is a definite yes. The question will be for the smaller gains, for sure, it will be 100% distributed out. Then for larger, chunkier gains, do we distribute 100%? Or we'll recycle some of that and then do we then distribute? Because, so far, we have distributed over 2 years, okay? So now the thing is, do we continue to keep that? I think, so that is the part that we are looking at our needs. But definitely, divestment gains distribution will continue to happen. The question is how long and how much? If it's the small one, chances are 100% will be distributed out.
[indiscernible]
Yes, so I think the JTC is taking longer than expected to review the incoming tenant and all that. So basically, we hope it to be Q1, mid-Q1 -- late Q1 of 2018. So hopefully, in the next 2 months, yes.
Okay. Shall we move on to [ Jade Eye ], or is that [ Jade Eye ], which is the acquisition of 50% in the 11 properties in China.
So I will probably run you through the transaction summary and try to explain -- well, I'll explain to you in detail how we stack up the numbers. Greg, will go through the overall property of these 11 Chinese assets across the different regions. Then, probably, Kiat will come in for the strategy, why this acquisition.
So for the transaction summary, what you have picked up from yesterday's announcement, we have proposed to acquire 50% interest in each of 11 Hong Kong special-purpose vehicle, each holding the PRC asset. The sponsor -- after this, sponsor will be our joint venture partner. They will -- we will hold 50% of the SPV and the sponsor 50% of the SPV.
So on the total acquisition cost, let me explain this in more detail. So how we arrived at this acquisition cost is actually basically derived from the property values. If you look at the aggregate agreed property value, 100% of the value is RMB 2.846 billion or approximately SGD 593 million. So 50% of it is RMB 1.423 billion. So RMB 1.423 billion, we -- of this RMB 1.423 billion, we have external bank loans at the Hong Kong SPV put by the seller and the sponsor. So this external bank loan is actually, 100% is about RMB 944.2 million. Its 50% share is RMB 472 million. So after you less off this one is -- the total consideration of the acquisition cost will be about RMB 985 million. So this is how we stack the numbers. So RMB 985 million actually represent the enterprise value of all these 11 SPVs that we are buying. So the enterprise value of RMB 985 million plus the underlying loan at the Hong Kong -- respective Hong Kong SPV, RMB 472 million, we get now to RMB 1.4 billion, which is very close to the aggregate value, 50% of the aggregate value of RMB 1.4 billion, yes. So this aggregate value is actually 1.7% lower than the JLL valuation and 3.7% for this evaluation. Oh, the other way, sorry -- 1.7% of Colliers valuation and 3.7% of JLL valuation.
So I'll pass on to Greg to explain about this.
Okay. Next slide. This gives you a very good overview and snapshot of the portfolio. The implied net property yield 6.4%. Net lettable area, about 822,000 square meters. We've got committed occupancy rate of 97.7%. A WALE of 3.3 years. There are 11 assets as Ivan had mentioned in 3 broad clusters. The biggest cluster is in Eastern China, Jiangsu, Zhenjiang region, the area surrounding or close to Shanghai. These are -- these account for about 60% of the asset value. Followed by the midwest China assets, about 37%. These are Xi'an, Wuhan, Changsha and Nanchang. And finally, in the north, we have an asset in Tianjin, about 4%.
Let me move on to Slide 7. So what's the attraction about China for us? First and foremost, it is the largest economy as well as population base in the Asia Pacific. It's also one of the world's fastest-growing economy. If you can look at in that, how it stacks up in terms of both consumption growth, having a large population base, with real GDP per capita growing quickly and the large economy. More importantly, right side, you'll see that growth drivers of the China economy have been shifting from investments towards consumption. This is part of the government policy, to shift towards consumption, which is a lot more stable as well as sustainable.
Next slide. So what does this mean in terms of consumption as well as consumer patterns. If you look at China as a consumption -- in terms of consumption expenditure per capita, it is a fraction of more developed markets. And hence, it's at a low base and growing much faster than your developed markets, close to 8%. And once you start to drill down between China, first tier, non-first tier. First-tier cities, growth is expected to be above 6.5% CAGR up to 2030. Non-first tier cities are expected to grow even faster, again, driving that household consumption.
Next slide. And this gets crystallized into what you see as the growth of e-commerce. Already, China is the largest e-commerce market in Asia Pacific as well as the world. It is -- and if you look on left side, you'll see that e-commerce spend per capita is still on the low side. If you compare that to where Korea, where Australia is, there's still room for the Chinese to spend more online. And this will continue to spur growth in e-commerce sales. The forecast, about 16%, it's been growing fast in the past. And all of this growth in e-commerce drives growth in your 3PLs. It also drives growth in your express. And we will show you how that pans out in a few slides from now.
Next slide. This gives you a snapshot of where China stands right now in terms of grade A warehouse space per capita, much a fraction of where Singapore, Japan, Hong Kong is. It's still a market where, really, grade A warehouses more than logistics were almost nonexistent 10 years ago. This is a relatively new market and it's still catching up with other more developed markets in terms of warehouse space per capita. Demand continues to be very strong. And you see that the occupancy rates have been moving upwards together with rents.
Next slide. One key very macro theme for China has been the One Belt One Road. And if you look at the different corridors which they are promoting, the China-Mongolia, that's close to our Tianjin asset. The new rail link linking Europe to Asia. That, again, feeds into both our Xi'an asset as well as our asset in the Zhenjiang, Jiangsu province. And the China-Indochina Peninsula Economic Corridor, which feeds the mid -- our midwest asset.
Yes, I'd like to add here is, I think we all know that this One Belt One Road is, I think, is going to take a long time to come, right? It's not going to happen overnight. And so the question is we are not banging our strategy of acquiring these assets because of the One Road One Belt, but -- because one thing that nobody is able to stop is the rapid urbanization in China. Whether they have the One Belt One Road, how long it takes, urbanization will continue, the domestic consumption will continue. You have seen, over the last few years, we were concerned about China, about the stability, but it has proven itself. It has been able to restructure its economy from a more action-oriented to domestic consumption. It has been able to control its capital structures. And I think, right now, the confidence in the Chinese government in driving the domestic consumption, I think, has risen. I mean, I as far as business investors like ourselves. So the One Belt One Road is good, but, in the meantime, one thing that we want to capture is the rapid domestic consumption and urbanization.
Okay. Next slide. So as we talked about, there are 3 broad factors, and there are slightly different dynamics in each of these. In North China, we are in Tianjin, that is just behind the big 4 in terms of GDP -- in terms of actual GDP. It's behind Shanghai, Beijing, Zhenjiang, Guangzhou. This one is also very highly densely populated, very well developed transportation area. The cluster in East China, we have prominent cities such as Hangzhou, Wuxi, these are large cities. But even some of the names which you might not immediately recognize, like Zhenjiang, that is at the fringes and closer to Nanjing than Zhenjiang. Changshu is a city of Suzhou. So you have high spending power within this area and a high level of affluence. And finally, the Midwest. These are capital cities, large population base. Wuhan is a top 10 in terms of GDP for China as well as population.
Next slide. So this gives you a snapshot of warehouse growth forecast from our independent market consultant, Colliers. You noted that 7 of these markets are -- all of these markets are showing good growth. Some of these markets are expected to have better growth next year than this year. And the trends have generally been positive.
Next slide. Connectivity. I mean, the lifeblood of logistics is moving goods. And what is very important for us is that all of these assets have the connectivity to the highways. 5 to 10 minutes away from highway entrances. A lot of these are key highways. For example, the Jiaxing asset is on the key highway between linking Hangzhou to Shanghai, high level of affluence as well as spending power. And you would see that you're close to airports, ports as well as key infrastructures.
I think, the difference in China -- compare, let's say, China and Singapore. Singapore is slightly -- logistics slightly dependent on ports and airports, right? But in China, logistics distribution, the main mode of transport is by road, meaning that the rail is still not there yet. They have river transportation, they have key logistics, but by trucks, by roads, that is the key movement of goods.
Okay. Next slide. What's also key for us is that the portfolio is a modern very well-specified asset -- portfolio. It was purpose-built by the sponsor. Median age for the assets are 1.7 years. The oldest is 2.3 years. They have modern features such as there are cross-docked assets. We have a couple of ramp-ups in there. Good, clear height -- good, clear ceiling height; floor loading, which enables your customers -- your -- our tenants to do a range of activities. The cross-docked assets are in particular high demand right now from your transporters. Express companies who need to move goods between geographies. The other point is that the remaining land lease on these properties are 47 years. So -- because they are relatively new.
Next slide. This is the top 10 tenant list. You would see large names, JD.com, one of the largest e-commerce companies in China by market cap. Cainiao, which is the logistics arm of Alibaba, the big 2, followed by Best, Sinotrans, China Post. So we were -- this enhances the quality of -- as well as diversifies the quality of our portfolio, it also increases the component of e-commerce from the current, about 18%, which is under 20%, to about 42% of our -- of the China business being e-commerce-centric.
One of the key reasons why I personally am very interested in this portfolio is this feature. Not so much from the China angle, because you look at these guys, they are more or less done with China. Meaning that, "Okay, they have their position, there are continuing to grow." But what they are looking is expanding out of China. And one of the key markets that they are looking at is outside of China, the rest of Asia, especially Southeast Asia. And this is where MLT, we are one of the biggest players in Southeast Asia and this is where we have very good value proposition to them. So right now, we already bring Sinotrans to Malaysia. We're already talking to Lazada, which is acquired by Cainiao, to go into Vietnam and all these. So one of the key things that we are going to compete -- I mean, in China itself, we have the GLPs and the likes will compete for them. But what we have under MLT is we have the Southeast Asia and the Asia Pac platform, which a lot of other competitors do not have. So the cross-selling, the cost-leveraging of the 2 networks is one of the key factors why I'm personally very interested in this portfolio.
Okay, next slide. So this is how our top 10 tenant list in China will evolve with the addition -- with the acquisition of this portfolio. You'll find JD.com, Cainiao coming in as the top 2; followed Deppon, a long-term tenant of ours, 3PL; and you see 4 new entrants into our top 10.
The difference, you take 50% of the revenue...
We take 50% of the revenue.
Yes. So if we seek -- eventually, we have the right of first refusal on the remaining 50%. So when -- if we buy over the remaining 50%, then the numbers you see here will be doubled because this is only 50%, okay?
Yes. And these will appear in our top 10 tenant list of the portfolio when that happens.
Yes.
Next slide. Okay. In terms of the valuation, we are acquiring this at a 1.7% discount to Colliers' valuation and a 3.7% discount to the Jones Lang's valuation for the portfolio. In terms of the NPI yield, we are getting 6.4% versus the existing portfolio of 6.2%, 20% basis points pick up.
Next slide. How does this change the look and composition of our portfolio? It brings up China from about 5% of valuation to about 9%, and it brings up the revenue from China from 6% to 11%. In turn, most of the other countries will get diluted down.
I think, from this page, I think this -- you also have the other slides in your original deck, which shows the pipeline, the remaining other China properties that are coming up. So I think, while this is a first step in acquiring from the sponsor for 50%, we could have waited and waited and said, "Look, let's acquire 100%, let the property stabilize." But I think the timing, like I mentioned just now, the political environment in China, the stability of the economic system that they have and also the continued, what we see, very sustainable growth in urbanization, in domestic consumption, I think the timing for us is just right at this point, especially the other parts I have mentioned, which was on the page of the tenants, this is, I think, you've read in the papers and then, this is something that we know. This is also a good time where a lot of the Chinese companies, because of the constraints they face in their own country, they are [ pushed back ] to now invest aggressively outside of China. And one of them -- one of the key areas they're looking is at Hong Kong. So we think that the timing is right and -- so that's why we preferred to take our first step. But moving ahead, we are targeting, we are working towards building up this platform in China. And the cross-selling between the rest of Asia and China will -- they'll be further really important [indiscernible] as we move.
Now I'll hand over to Ivan for the financing consideration.
All right. So back to the earlier explanation. We always start with the aggregate value. Aggregate value is about SGD 300 million, right? There's 50% of the whole valuation of these 11 properties, 100%. So from the aggregate value of SGD 300 million, there's the external bank loan at the Hong Kong SPV, so that is about SGD 100 million. So the enterprise value we are seeing now is about SGD 200 million. So total is SGD 300 million tied back to the aggregate value. So how are we going to fund this purchase consideration of SGD 200 million?
Next page. We are contemplating a SGD 200 million -- okay, we are contemplating SGD 200 million of equities fundraising. For illustration purpose, the SGD 200 million of equity fundraising, that means it's 2/3 funded by equity and 1/3 funded by debt. So the debt cost, we have a few in China 5.25%, right? So the equity piece, based on the pro forma, we use the $0.07618 and the issue price of SGD 1.20. So if you work that out, that will give you a yield of about 6.3 -- the distribution yield of 6.3%. So the NPI of this property is about 6.4%, right? So 1/3 of the debt cost is about 1.75%, right? You just take 1/3 multiplied by the 5.25. Then we have other tax and other expenses about 15 basis points, so you can get to a 4.5 -- 4.5%. You [ deposit ] back 2/3, you will get a 6.7%. So 6.7%, you minus your 6.3%, 0.4%. This is how we arrive to the next line, 0.4% accretion. So it's as simple as that.
So I think to drive the overall growth, I think, back to the question that was raised by -- I think the MLT is to continue to deliver DPU growth. I think if you -- if we do acquisitions like this, the accretion is only 0.4%. I mean, that's going to be a very difficult [indiscernible]. So for sure, the management and the team sitting around at my side, majority of time is pumping the same-store. Without the same-store providing that organic growth and the stability, the acquisitions, especially for the first 12 months -- the first 1 or 2 years, is not going to give you that kind of DPU growth that we welcome, we have seen at MLT, right? So I think that is the structure of the market. The pricing has gone up, so the yields that we are getting at are more compressed so, therefore, the accretion from acquisition is moving ahead. In fact, will be lower. So really, the same-store organic growth is the one that we have to grow. And that is where all the other non-financial elements have to come from the ability to cross-sell, bring Cainiao from Hangzhou all the way to Vietnam. The -- why they chose us? Why they come with us? Why they are prepared to pay a premium -- flat premium compared to other competitors? These are all the things that will have to come from that.
One -- Page 13. 1-3, Page 13. Yes, the -- this is from the -- our market research report. They have actually pointed out the growth of these cities that we are buying. So it's quite promising. You have ranging from 2.7% to 5.1% from 2017 to 2018. Then we can see, 3.5% and 5.9% from 2018 and 2019. Those really, we are buying for the growth of these 11 properties in China.
Okay. We are open to questions. Yes, [ John ], yes?
First, which of these cities are you more concerned about? Because I remember [indiscernible]. Secondly, how much of [indiscernible] post the acquisition will come from e-commerce? Is there a number that you share or a range? Lastly, is on the rental. The accretion of 0.4%, how should we think about next year? Because if all of these are growing at about 4%, 5% and you have 3.3-year WALE and it makes it [indiscernible] should be a bit higher.
Yes, we don't have a public forecast for this round so we can talk about that next year. But...
This isn't right, don't you think?
Yes, this will give you a guidance what it will be on the growth side, yes.
Right. We you take the potential [indiscernible] and then you put in your overall lease of 2, 3 years, which will then give you rent fees on...
Big tenants that have rental caps?
We -- in fact, we have rental escalations in the research. And typically, what we have is a clause that will say that, after a certain period, the rentals will be reviewed and it will be then mark to market, right? So there could be clauses like that, yes. But basically, as far as the 2-, 3-year lease, we're looking at very short escalation -- I mean, short lease with escalations built-in the contract. And your e-commerce?
Yes.
What was your first question, again?
Which of the cities that you are most concerned about? Wuxi. I think at some point, Wuhan?
Yes. Okay. So your e-commerce question. If you add up both e-commerce direct as well as e-commerce related, currently the portfolio is about 24%. This will increase to about 26% after the acquisition of this portfolio. Bear in mind that in terms of the percentage of our portfolio, it's -- and obviously, you'll get more if we had a 100% in.
This is revenue or...
This is revenue. Then in terms of the markets, yes. So let me address the Wuxi and Wuhan. So it's -- I have another slide that shows it. Actually not. Okay. So you're right, Wuxi has had a lot of surprise coming in for the last 2 years. And what's very telling is that actually a lot of the supply has been absorbed by the market. So when we -- when -- if you look at the snapshot of where the space as well as the absorption, the market has had very strong supply, this has been absorbed, and if you look out forward, the new supply for Wuxi is actually falling off. So Wuhan is the other market which, as we mentioned, as one of -- the markets, which has a bit more supply coming on stream. What we have in Wuhan is a very, very strong tenants, within the asset, which is committed to that particular location. So --
I think what we are saying is basically we have a property ourself, [ NLT ], in Wuxi, right. And then, I think recently there was a lease that was up for expiry and then we're able to renew it and -- renewed it and then we got a positive rental reversion, so we think that Wuxi supply situation has tapered off. So -- and now, the demand is much more resilient, meaning that we don't see cannibalization or we don't see consolidation. In fact, we've seen expansion. So I think you'll see [indiscernible]. Wuhan is a new market for us. And also for the sponsor, because I think this is their first property there and then they're only opened for 2 years. But so far, what we are seeing is the demand from the end-users or the GPL are so strong. So I think the way, what I'm trying to tell you is, the growth rate -- the good thing is the active growth rate. Are you going to see the 4%, 5% moving ahead? As we seen more supply coming up, as we see more competition, the growth rate may come down. But the whole idea is there is still going to be a growth rate. So meaning that today, whatever our rent is, we are still going to be able to grow it although the rate of growth year-on-year can be fluctuating or slightly slowing down.
As I've already mentioned, the one that a couple of years ago was negative rental reversion --
Yes, yes.
Turn it around.
One more point on Wuxi, in terms of the new release of land is actually being slowing down. So when you receive the stuff like you see, we have independent market report and a [indiscernible] the supply growth and actually is tapering off. There isn't a lot. There is very marginal new supply coming in on a prospective basis. And demand's actually very strong, so occupiers who are in the market have been pre-committing space.
[indiscernible] the market?
I think it is at market. I think based on what we have seen ourselves, I think we are at market. Yes, that could be -- because now we are at 97%, 97.7% so there is still an opportunity for us to bring the occupancy up, because I think we can do 98%, 99% or even 100%. So there is still this upside with more vacancy upside.
[indiscernible]
We have a very...
We have a varying completion period.
Yes.
So, of course, that lease, you might have a bit of reversionary upside coming through in that. Especially from the earlier petition. But I think on the portfolio you shouldn't assume it's under the portfolio.
[indiscernible].
Okay, I'll speak about the tenant.
I'm speaking of the tenant because [indiscernible].
Okay. I'll speak to the other tenant.
I think they - there is -- there are going to be two groups of tenants. One group like, for example, [indiscernible], they take the whole property, right, and then they put in a lot of feedback. In that scheme of things, in Alibaba, amount they put in is actually small, but in the warehouse scheme of things, it's actually quite substantial. So we have a group of tenants that are like this, like the JV.coms and all these where they are putting in a lot of feedback. And of course, we have those that are just the normal warehouse GPL users or end users, then the CapEx [indiscernible], yes.
Have you fixed variations to [indiscernible]?
The single asset -- single user tends to be longer, and tenants which have put in a lot of [indiscernible], so for example, the ones which have put in [indiscernible] components who put in equipments, they tend to actually ask for longer leases because they have committed CapEx. Got more than 5 years.
Why don't you give them a number?
5, 10-year type leases.
Yes. So we got some of these guys here in the 5- or 10-year lease. Yes.
[indiscernible].
When we refer to stabilization, we are looking at typically process of 100% occupancy, right? Some of these properties, they have just signed new leases, meaning it's their first lease in the hope of [indiscernible] completed by last year. So that's what -- for us, that is not what we call stabilized. Stabilized means the tenant is already there, it's probably at the end of their first round of lease or they're going into their second lease term.
On the funding structure, is there a reason why you are coming to the market [indiscernible]. Actually, I think you could have funded [represent that]. Is it because you are expecting something more? [indiscernible].
You want to maintain a healthy registration of the [indiscernible] acquisition of these 11 properties and give the proposed equity fundraising of $400 million. Our gearing will be 37.5. I think we want to go around that 37.5. If there's opportunity, of course, we will look into it. We can still have the debt capacity for future acquisition.
I think they -- we are always looking for acquisition, I think we all know that. And then I think over the last 12 months, it has been a very active market, I mean, across all the very active investment market across all the different countries that we operate in. So are we looking at deals? Are we looking at acquisitions? The answer is yes. Are we looking at [indiscernible]? Yes.
Can you please repeat why you only [indiscernible]?
The reason why we are acquiring 50% stake is because some of the properties are just newly stabilized, meaning the occupancy now is 97%. Typically, I think if you look at our history, we tend to buy 100% occupied -- occupancy. And then, usually when we buy from sponsors, the tenants are at the end of their first term or going through the second term. Well, in this case, some of the tenants first lease, first year. In fact, first quarter of [ 6 ] months.
Are moving in.
Are moving in, in the process right, now. Yes. So that's why it's not fully stabilized. But we felt that instead of waiting one more year, we think that the timing this year is good, because of the local dynamics or rather the country dynamics and also our platform is also ready. We would like to bring some of these Chinese tenants into Asia as well. Yes.
[indiscernible]
Yes. We have ourselves and then we also have the sponsor FX. Right? So in Malaysia and in Vietnam, for example, we have -- in Vietnam, not only do we have we also have the [indiscernible], we also have land, vacant land under the sponsor. So it's very easy for us to bring them and do like a BCS for them and then [indiscernible] buy the land.
[indiscernible].
Yes, sponsor, yes. And of course, the other part is under MLT when we have tenants vacating. We can always give them the first rights to come in. So these are the some of the things that we are able to offer because we have visibility over the next few years what are the leases coming up. We have visibility what their needs are over the next few years, how they intend to build up. So we've got cases where tenants ask us that can we pick this space and can we have the option for the next few units as we expand over the years or expand over the next few months. So these are the things that we're able to do. But most important is, we need to know their needs and they need to know our needs.
[indiscernible].
Yes. I think right now the opportunity -- the timing is such that they are prepared to come out. So this is where they can actually have [ pictures ] with MLT. They can start with one unit in MLT first and then they can then take the second unit. They want to test the market, they have never been to Vietnam. They want to just see because their intent is to grow but at the beginning they will just take 1 unit. So they can always start with MLT on that.
[indiscernible].
Currently, in Japan, our natural hedge is about 90%, in Australia 70%. So as we ramp up some of these overseas costs, we will try to put on more natural hedge. For this instance, we put one as natural hedge in Chinese [indiscernible]. Then 2/3 we are contemplating for this. So on the income stream, we normally hedge one year to 2 years, some even longer than 2 years for the income stream coming back. We do some hedging. We're quite active in the quarter for the market [indiscernible] and forward on all these income stages.
[indiscernible].
I think China's portfolio is about 50%, yes.
I think we have a strategy to increase the hedge over time, that's why we basically [indiscernible] more visibility and the stability as we go forward on income stream.
[indiscernible]. It seems to me that [indiscernible] there's not much difference between 200 million and 400 million. [indiscernible] pay more for that portfolio.
I think the honest truth is, David, we would have loved to buy 100%. And we would have loved to buy that [indiscernible] property behind that [ list ], but that would be our position. But it depends on the stage of the stability and it also depends on how we negotiate with our sponsor. So I think you have seen [indiscernible] and now you are seeing us do this with the sponsors. So I think we have to also negotiate with the sponsor and the ensure that the timing of both parties are also right. So yes, we will love to get 100% of this property. So the remaining 50%, hopefully, we're working on it and hopefully we can also acquire that soon.
Yes, this is a follow on question to David's question, I think I was wondering whether if you look forward after this deal, you would be keen to still stay -- to add more in China or will you be look markets like Japan, like previously you've given [indiscernible].
I think, the strategy on Japan previously we looked at Japan. I think to drive DPU growth, Japan is flat. So if you have a whole portfolio and then if the Japan piece -- we allow it to grow while the other growth markets do not grow, that's why you have a dampening effect on the DPU growth, because it's flat. So what we need to do is we needed to grow the growth market, even the non-Japan piece where you're going to get escalations rental reversion to a point that the overall DPU for MLT is growing at a decent rate and then we will overlay Japan. So what it means is, actually grow the other growth markets, it gives us the opportunity to increase the Japan piece. Because you know what I mean, that means, you do a 100%, you have 20% Japan, 80% growth markets. If you grow your Japan piece to like 40%, then your DPU is going to come down. So therefore, you need to continue to grow the other piece while you maintain. So I think what we're trying to say is the proportion. So as the dollar value will grow in the growth market, we can increase the dollar value that we invest in Japan. So there will come a time where we'll be able to look at Japan and I hope that's soon.
[indiscernible]
[indiscernible] if you want to see the overall growth and stability of this set of results and then that will -- you need to grow the growth part and then this stable part which has long wills and all these things [indiscernible]. I think the management -- okay. We are -- we think there are tremendous opportunities still on track, as far as MLT is concerned in Asia. For example, India or Indonesia. I mean from the dynamics of logistic market growth. So do you think Asia is still going to keep us [indiscernible]? But we are always looking at enhancing our network, enhancing our outreach, bringing ourselves to be in stronger competitive advantage compared to other peers in terms of attracting tenants. So it could be a possibility, we don't know, but I think right now, I think we are focusing on China, we are focusing on Asia.
[indiscernible]. What is the [indiscernible] the 6.4 assumes that [indiscernible].
Yes. So the 6.4 is based on 97.7. So 97.7 is based on what has been already signed and replaced as well as what's been committed. So in terms of when these renting tenants come in, they will -- their leases will be starting within the next...
Few months.
Few months.
So what we are saying is the committed tenancy agreement, not just those who have moved in, but also those who have signed, in the process of moving in, that is 97.7%. So we are buying based on that percentage. And if we're looking at 83%, what it means is today that occupiers are actually in these buildings. That means those that are still under renovation or under fix-up period, we don't count that as 83%. Do you understand what I'm saying? If we are to [indiscernible], that one is a slight [indiscernible].
It's $1.8 million in total for 2 years.
[indiscernible] in a year.
Yes. [indiscernible] I think it's about 6.1 [indiscernible]. 6.1 or 6.2. [indiscernible].
[indiscernible] we learned that there's very strong composition. We definitely will look at the [ DPS ]. We'll -- we are always in the process of exploring new tenants. Our preference is we prefer to put in the generic [indiscernible] specifications. There are some things that, of course, we will [ protect ] more but we wouldn't go in if it's -- we wouldn't commit or we wouldn't put in the CapEx if it's very [ respective ] and specific to the tenant. Meaning that, if we lose this tenant, whatever CapEx that we have put in that is unique to them will be going through this. So yes, we'll be looking at [ DPS ], but the way we go into [ DPS ] is we're going to, like, [indiscernible] at least go in more on the generic spec, and then the rest we expect the tenant to put in.
[indiscernible].
Yes, it's including accounting.
Okay. Any more questions? No. Okay, thank you for your time. Thank you for coming. Thank you.