Mapletree Logistics Trust

SGX:M44U

Earnings Call Transcript 2019-Q4

[Unknown Executive]

Coming on a Friday night. There will be -- we can finish it quickly. Sorry for being slightly late. Okay. So shall we start?

[Ming Rean Lim, executive]

Yes. I will run through with you the key highlights for the results, the 4Q results and also our year-end results. So on Page 3, if I may direct you, the key highlights.

4Q FY '18/'19

[Audio Gap]

attributable to unitholders $73.3 million, 23.8% year-on-year increase. Correspondingly, we did 2 placements. Our unitholder -- unit holding base also increased about 18.4%. That's why that translate DPU increase of 4.5% year-on-year or $0.02024 for the 4Q FY '18/'19.

And in terms of gross revenue grew 13% to $121.4 million and NPI grew about 15% to $105 million. Performance largely driven by the 2 completed redevelopments in Singapore: The 76 Pioneer and China, the Ouluo Phase I and accretive acquisition, partly offset by the divestments, lots of contribution from the divestments. In terms of the full year, '18/'19 DPU increased by 4.2% year-on-year to $0.07941. Last year, we were at $0.07618, so that give us about 4.2% increase. On the amount distributable income is about 26.8% increase or $270 million. Correspondingly, because of the 2 equity fundraising, our unit holder base also increased about 18.4%.

Portfolio basis. On a portfolio occupancy increased 98% compared to last year, 96.6%. We have a very well-staggered expiry profile a will of about 3.8 years. Rental reversion for lease renewal are repaid in FY '18/'19 was 2%. Jean will go through in details later.

And the next page on the portfolio rejuvenation. Has been a very active year. We did acquire '19 modern specification over the past financial year. 11 from China, 5 from Singapore, Australia 1, South Korea 1, Vietnam 1. We have total value of $1.2 billion. We have also divested 2 properties in Singapore for 90 -- about $90 million. Completed. We have completed Phase I of Ouluo Logistics Centre in China, which achieved 100% occupancy upon completion. Post year-end, divested 5 properties in Japan for JPY 17.520 million -- sorry, JPY 17.520 billion, or SGD 213.2 million. Divestment gained approximately $8.5 million.

So on the capital management, well-staggered debt maturity profile of 4.1 years. Leverage 37.7% as of 31st March. Post divestment of the 5 properties, the leverage ratio will go down to about $36.2 million. So that give us -- that get you to about close to $435 million before we hit 40%. Total debt due for FY '19/'20 very small percentage, 3.6% or $110 million, largely due -- largely Malay -- ringgit Malaysia and Chinese Yuan. So I think I'm quite confident to refinance this earlier.

Then we have approximately 84% of our debt has been hedged or fixed into fixed rate. And about 78% of our income stream for the whole entire FY '18/'19 has been hedged. So on the financial review, just a very quick run through. Revenue grow mainly due to contribution from 76 Pioneer and Ouluo and accretive acquisition, also partly offset by divestment as well. So borrowing costs increased largely due to the borrowings to fund acquisition. So on the DPU, as mentioned earlier, $0.02024. Last year was $0.01937, so 4.5% increase.

So on a full year, 12 months versus 12 months, revenue mainly due to existing portfolio contribution from redevelopments and accretive acquisitions. Borrowing cost increased largely due to the additional borrowings to fund acquisitions. In terms of DPU, we will end the year with the distribution DPU of $0.07941, a 4.2% increase from last year. So if you look at the unit base, the -- over the past 1 year, we increased by about 18.4%.

4Q versus last quarter 3Q, in terms of the revenue increased by [ 0.5% ], largely due to the acquisition completed in third Q and fourth quarter. Borrowing cost increased due to some incremental borrowings to fund acquisition. DPU wise, higher by 1.1 compared to last Q, $0.02024 compared to $0.02002. So on the balance sheet, investment property at $7.7 billion. This one excluding the 50% of the JV properties. If we include the 50% of the JV properties, it would be about $8 billion.

Liabilities increased over to $3.4 billion. NTA, $1.17 compared to $1.10, largely due to the revaluation from our existing properties. So on a capital management perspective, leverage ratio at 37.7%, fairly similar to last year 37.7%. In terms of the weighted average interest rate higher from 2.4% to 2.7% largely due to the additional borrowings in Chinese Yuan, which is higher, and also Singapore for the acquisition of project [ Crystal ]. There were -- the interest rate were higher. So we averaged up from 2.4% to 2.7%. And debt duration of 4.1. Cover ratio is about 4.9 and credit rating is at Baa2 outlook from Moody's.

So on the total debt that is hedged, 84% of our debt has been hedged or fixed. We did a sensitivity here, 25 basis point increase. The DPU impact will be $0.0001 per quarter. So on the foreign currency, we have hedged about 78% or derive into Sing dollar.

So I will pass on to Jean to talk about the portfolio.

[Jean Kam, executive]

I'll start on with the occupancy levels for this quarter versus last quarter, there is a slight improvement from 97.7% to 98%, mainly coming from Singapore, Hong Kong and South Korea. That's a slight dip in China, just to give you some flavor. So for the project [ Jadeite ] property, so for the JD.com, so we have since the last quarter we announced that we'll give up some space. So we agreed to fill some of it. So now we have [indiscernible] additional 13% of the area. At the same time, for property in Shanghai, there is some transitional downtime. So for that property, there is some slight dip, which is [indiscernible] there is a slight dip. But since 1st April, the team has managed to replace it. So for the OR, for occupancy for China, remains pretty stable.

Next, in terms of the lease expiry profile by NLA, over the next 3 financial years, it's largely around 20% of leases due and we remain well-staggered lease expiry profile by 3.8 years by NLA.

[ Energy sector ] diversification remains largely the same. We remain to be primarily pretty domestic consumption industries. Top 10 similarly -- for all our top 10 tenants also it didn't account for more than 30%. So it's still within the 30% of product gross revenue for this quarter versus last quarter. Next slide, [ as to able ] this MTB as was mentioned earlier, so it was our strategy to actually keep it within about 60:40 ratio. 60% MTB, 40%. So this quarter is still within 60:40.

In terms of the next slide, geographical diversification. So this quarter, there is a slight increase in contribution from Vietnam due to the acquisition of property, which was leased back to Unilever. So that reflects increase in the Vietnam contribution to about 1.9 this quarter. On the investment review, Ivan also there mentioned. So for the whole FY, we have acquired the 11 direct properties and also the 8 properties across the whole country. So we got total AUM of about $1.2 billion. And correspondingly, our NLA product portfolio has also increased to -- by about 1.25 million square meter.

Next slide. For Ouluo development Phase 2, it remains on track. Development is still in progress. So TOP is still targeted March 20. Next on divestment. So besides divesting the 2 properties in Singapore. Since the close of the FY, we have just recently also divested a portfolio of assets in Japan on 10 of April. We have about $200 million portfolio of 5 properties.

Next on the property valuation. So this is the latest revalued figures across the 8 countries. So right now in terms of the total properties that we have, 130 properties, including the 8 acquisitions that we have done, so AUM, we're looking about 7.7 B, as at 31st March, including the 50% interest from [indiscernible] of about $300 million. So our total MLT portfolio as of 31st March is about $8 billion.

Next slide is just to sum up on the -- our portfolio at a glance. So it was up from last year 6.5 to about 80 and properties have increased from 124 to 141.

I'll pass it to Kiat to share a bit on outlook.

[Kiat Ng, executive]

I think in terms of the outlook, there are still certain areas or sectors of the economy all different and in different countries that we think will cost a volatility due to the slowdown. So for Singapore, the oversupply situation has tapered off. So we've seen very good stabilization coming in from Singapore. I know what your favorite questions will be later on. So we will discuss that more. And then, for Hong Kong, the supply-demand dynamics will continue to be very tight. Meaning that, we don't see the government pushing up new land sites until much later. So I think, Hong Kong will continue to enjoy this tight market, hopefully, translating into rental reversions.

Japan, still very stable. 100% occupancy tenants. So very loyal and city, meaning that they like to stay where they are. China is a very big country. We see different dynamics in the different tier market. So I think I said that before, that tier 1 behaving more like Hong Kong, very tight supply. So the rental reversions continue to be quite attractive. Their concern, of course, that we are watching very closely are the second tier and the third tier markets where those with the oversupply situation. So those we'll see some volatility. But small because the asset size in this market -- in this stock market. So for us, we continue to keep a very keen eye on tenant retention as well as very proactively in Asset Management. We will continue our recycling rejuvenation strategy. You have seen us done that in Singapore. You have seen us starting to do that in Malaysia. We hope to -- we have started to divest. On acquisition side, the sponsor, you see the pipeline, hopefully, the sponsor pipeline for Malaysia gets into fruition. So hopefully that makes 12 to 18 months something to come up from there. Next of course, Vietnam is small, but right now, we are seeing Vietnam being a very active market.

So in the past with the sponsor, we do 1 project a year, but right now, we're doing 3 projects a year. And so you will see that traction has -- the momentum has picked up quite a lot for Vietnam. The unfortunate thing about Vietnam is area is very big, value is very small, right. I mean, I'm just commenting on this. The passing rent for Vietnam is like Singapore dollars, SGD 0.30-odd whereas in Singapore, we're doing closer to above SGD 1. So I think, this is the -- took a deviation that will continue to see in our portfolio.

So I think the -- on the appendix side, you will see the pipeline. So for the next 12 to 18 months, will some of these properties in the China pipeline coming to fruition? We think there's a chance. So we are talking to the sponsor. They seem quite happy with what they're seeing now in the first portfolio that we did, so there could a chance that some of these will come up this year. Then, of course, in that list, the next page you will see that just Japan side. So again, the -- there could be opportunity for us to rejuvenate our Japan portfolio. You have seen us divesting. I think we started off with $200-odd million last year. Recently, we divested another $200 million. And then moving ahead, we will continue to do that, do more of Japan portfolio. Locations are very good, but unfortunate things, I don't know -- we don't have a slide here. You will see that we don't have ramp up, these are older specs.

So some of those will come under rental pressure when lease expiry come up, right? So maybe that's a good opportunity that for us to be able to rejuvenate and recycle Japan. So Vietnam, like I mentioned earlier. So this is from the sponsor. On the third-party side, we are actively looking at Singapore sales, and then we did something in Hong Kong but that's going to be -- not going to be a regular feature because it's got to be quite a unique situation. On Australia, we're still pursuing. We've got to do something. Korea, we're still pursuing. So these are some of the third-party activity that we will continue [indiscernible].

I think we'll open the floor for questions now.

[Unknown Analyst]

Kiat, just wanted to ask a few questions on CWT. Basically just want to find out what the latest update of the lenders fees, some of the asset that you own. The other question is, does this give you a chance now to perhaps buy some of the remaining assets that CWT has at a discount perhaps, the one, I don't know, I think 47 [indiscernible]?

[Kiat Ng, executive]

Okay. I think the -- I think it sat back. I think when we first did the acquisition, there was quite a lot of discussion. I think when we were on the roadshow with some of you guys out here, as well as the financial stability of the shareholder in [indiscernible] Singapore was in question at that point. So we have 3 million square feet of space in CWT. 1 million square feet what we call the end users, meaning that they are not dependent on CWT for any operations, they're just using the space. So in fact, before this situation happens, right, we are really in discussion with them. So we are looking hopefully in the next few months to be able to take over this 30% directly under us that means move it up from CWT. So that remains with 2 million square feet. And that 2 million square feet, the largest contributor in the whole portfolio especially we thought we had got the food license with the [ City Scott ] in Singapore. So it is going to be quite difficult for the -- have the current tenants over there to find an alternative location so easily to that one. And then of course, the other part that we know is, there are in fact 3PLs who are keen to compete for some of these CWT operations. So we have the international guide. So when this thing happened, they, in fact have clearly coming to us and saying, "Hey, can we take over some of these operations logistics?" [indiscernible], let me deal with that from CWT. So that is the level of interest that we are seeing.

So I think your question is, I think the easier one is are there opportunities for us to start acquiring some of their Singapore assets? I think Jalan Buroh is one that we have the right offers received also. The unfortunate thing is, there is a moratorium by JTC. I think right now, there's 4 remaining years, right? Yes, so we only can lay our hands on this 4 years later. So that is the unfortunate fact, so that's the JTC restriction. Then as far as what we are hearing and we have been -- based on our network been able to set up the situation, maybe in a bit more detail like the lender, what are the intentions? And who the receiver is? What are the intentions? So some of these are confidential. So I am not able to share in detail based on some of the things that we know. What we have been told at present, of course, the caveat is everything at present. The receiver has no intention to disrupt the business in Singapore. They -- their focus is on getting some of these divestment done at the certain asset level. CWT international owns U.K. properties. They own U.S. properties. So I think the intention is to focus on those for the time being. So for us at this moment, that is what we know. The Singapore operations side, CWT has also told us this is business as usual. Based on our network and our contacts, the end tenants that or the end-users that are using them. They are -- still think -- they are telling us that it's business as usual. They do not see any weakening of the support coming from CWT. The -- so that's the thing.

And I think CWT gave us some comfort in the sector. They were able to redeem the first tranche of the MTN 100 million. And as of to date, there are no arrears. They've always been on time. The next rental payment is in May. So they have given us assurance they have full ability to fulfill our obligation under the contract with us. So that is where we are. So unless something drastic happens, that the receivers are not able to exercise their plan at the initial stage, which is more going after certain quick sale of assets, then, perhaps, CWT Singapore may come into their focus. But right at this moment, that is not the case. So we're monitoring that situation very closely.

I think those who have been with us or following us for the last 5 years or so, you remember the SUA transition period and all that. So I think if you ask the Singapore team now, the challenges that we face in a CWT situation, I think the team is a lot more confident because the CWT portfolio has some of the best specification assets. These assets are full house, that means they have the existing tenants, compared to where we had actually situation. When you have demand, there are a lot of things you can do. But you can restructure, you can find replacement, should be out to take over. But when you have the SUA situation, the -- because the specifications are weak, you don't even have underlying demand that is strong enough. There's very little that you can do. So I think the good part is these assets are some of the top assets in terms of specification and in terms of rare licenses, the food licenses, the dangerous goods licenses, these are not something that you can easily move to the next warehouse and obtain the same level of activity. So I think we're monitoring the situation. We are in close touch with CWT Singapore and CWT Hong Kong, even the Chinese owners. So that's what we said.

[Pratik Ray, analyst]

Pratik from HSBC. Just to follow-up on that CWT situation, right, to understand the mechanics of this. So basically right now you have a 1/3 of the tenants who have leased the space on CWT. Is there a possibility that they may stop payments to CWT themselves because CWT, then receivership, that's the first question. And the second thing is how easy or how quickly can we change those tenancies from via -- instead of going through CWT, we, directly relays with those tenants? I mean, that's my first question on the CWT situation.

[Kiat Ng, executive]

Okay. So I think there are 2 parts. They have the 30%, that's the nonanchor. This 30% is just a novation of lease agreements from CWT and tenant and then to Mapletree and tenant. So that one can be fairly straightforward. There is no regulatory approval required from JTC, correct? Yes. So those can happen very quickly. The challenge will be on the 70%, which has to get qualified as anchor tenants under JTC ruling, but we had done that before. I think if you remember a couple of years back when we have the [indiscernible] situation, UPS was our tenant at [ Sunoco ], but they then fall off and underlying result was CJ. So we applied to JTC to get CJ classified as anchor tenants. It takes time. It will take time, of course. But it is something that we have done before. And that we were able to bring in good quality 3PL. We will have the conversation with JTC, get them qualified anchor tenants, then we are in.

[Pratik Ray, analyst]

Right. But I'm just trying to like assume a very bad situation where the independent tenants who are there, who are subleasing from CWT, is there a chance that they could like just sort of play foul and say, okay, I don't want to -- like, take advantage of the situation and not pay rents? Is there a possibility at all?

[Kiat Ng, executive]

I think this -- that comes back again to the same question. If they play foul, what alternatives do they have, right? Because technically, if they play foul they have to vacate. CWT has the right to kick them out. And the question is, if CWT kicks them out, where can they go? So back to the point that we were looking at is that these are high spec buildings, some of the latest spec buildings is quite difficult to find alternative. Let's say, for example, [indiscernible] McDonald's. Why would they do that? They need a food license warehouse and they need substantial size. So if they stopped payment unless there is another food license warehouse they can move easily to, and that's one. The other thing is -- so then the thing is, even if they move, there will downtime. There will be sit-up periods and this will disrupt the operation. So I think what we have heard and based on what we have spoken directly to some of these underlying tenants is...

[Unknown Executive]

Tenants are happy.

[Kiat Ng, executive]

The tenants are happy there. In fact, a few of them actually asked for more space. And I think the promise that everybody is hoping that CWT quickly stabilize the receivership problem at the Hong Kong level so that the stability can be assured here.

[Pratik Ray, analyst]

So basically, I mean, if you're in receivership, you can still kick out the tenants if you really want to, that's what I guess.

[Kiat Ng, executive]

Yes.

[Pratik Ray, analyst]

Okay. My second question is really on the China side, like for the acquisition portion. I mean, I -- we've heard you say before the Tier 1s, doing fine Tier 2, Tier 3 is the problem area. How does that view of yours kind of gel with the acquisition strategy for the China part going forward?

[Kiat Ng, executive]

Okay. I think the situation is, for us we look at -- we take lots of view. So do we look at the market and because of the oversupply situation, is it a long-term issue or is it a short-term transitional problem? It is a short-term transitional program. We are prepared to go in and write it out. But it is a long term. If we think that there is something fundamentally bad with that particular location, then we won't go in. So if you see from the list of pipeline that we have, we don't buy every property that is in the pipeline. I think you have seen -- I mean, just to give you an example, for example, #1, if you track back the number of years, you will see this #1 for the last 6, 7 years. So this is the kind of revisions that we had been putting on and say that, look sponsor is not there. Everything that you have, we will take. I mean, they're not very happy with that. But I think, at the end of the day, we will have to look at it. So 7 properties that MLT cannot buy and if the sponsor can find some other buyer, I mean, that may be an option for that, yes. So it's not that every asset that we will buy. So it has to remain -- it has to be only detailed study of the particular location in that particular city.

[Pratik Ray, analyst]

So just to close this one, right, so basically, the 50% that you purchase, I mean, you're happy with all the cities where you are in right now? And from a longer-term perspective, you think those cities are fine, yes?

[Kiat Ng, executive]

Yes. I think, of course, it's less than -- it's not even 2 years since we bought it. But so far, we've seen that other than JD.com, which for whatever reason decided to return 50%, the rent of the properties have got pretty stabilized occupancies. And the rentals, there's some positive rental reversion. So I think the initial assessment that the stability of this market will further improve or at least not deteriorate, I think, still holds.

[Unknown Analyst]

Three questions. But quickly, just give the rental reversions by country.

[Jean Kam, executive]

It was mentioned by Ivan earlier for the 2%, so mainly coming from Hong Kong, 5.8%; China, 2.6%; Vietnam, 2.8%; Singapore, 0.3%; Malaysia, 1%. Full year is pretty flattish.

[Unknown Analyst]

[indiscernible]

[Jean Kam, executive]

No, there is no [indiscernible].

[Kiat Ng, executive]

[indiscernible]

[Jean Kam, executive]

That is correct.

[Unknown Analyst]

Australia is [indiscernible]

[Jean Kam, executive]

No.

[Unknown Analyst]

And for the divestment, the $8.5 million for Japan, will you cap the usual practice of distributing order gains, and if yes, how many quarters?

[Ming Rean Lim, executive]

That will be Q1 onwards. So basically, based on our historical territory costs, it will be anything above 2 million will be spread out to about 8 quarters, 2 years. Yes.

[Unknown Analyst]

If we can just talk quickly on the cap rates, I think there were [indiscernible] compression [indiscernible] Korea. So maybe just give a bit of color.

[Kiat Ng, executive]

Maybe we have the slide, just look at the compression market.

[Jean Kam, executive]

Okay. For the cap rate compression, there's, in general, roughly ranging from about 10 basis points to 25 basis points coming from, for example, in Vietnam, so I think Vietnam compression -- what happened to the slide? Okay. Vietnam, the compression, that's largely because of good warehouse specifications in Ho Chi Minh and Hanoi remains well sought-after, especially from the manufacturing as well as demand level from domestic consumption. That's also the effect from the trade war impact. So that's all the compression for Vietnam. For Japan, there's also compression, especially in the Route 16 in Greater Tokyo as well as Greater Osaka area. So there's also some compression there. Similarly for Korea as well. For Australia, in terms of the cap rate compression, it comes mainly from the asset in New South Wales. The Victoria one remains the same. And for Hong Kong, it's very mild, about 10 basis points. The growth is mainly driven from the healthy rental market rents due to limited supply. For Singapore, there's a bifurcation. So those assets of good qualities are enjoying a healthier market rent as well as some slight compression, and this is dedicated by some assets due to a short lendees and a poor specification.

[Kiat Ng, executive]

I think that this chart is what we're looking at, you can see the 2018 valuation, the cap rate in the different countries and 2019.

[Jean Kam, executive]

Yes. So overall, the portfolio cap rate, we are talking about 10 bps compression from 5.4% to 5.3%.

[Kiat Ng, executive]

[indiscernible] okay. Sorry. I think there are some questions coming up from here. Seems right. I'll answer the ratings. Okay. Okay. This is [ TK ], right? So the DPU impact on projects.

[Ming Rean Lim, executive]

DPU. Okay. It's about -- we're yet to announce. It's about $0.00221 on the DPU impact.

[Kiat Ng, executive]

This is from [ Shen]]. Revaluation gain, I think we have spoken, right?

[Jean Kam, executive]

Yes. it's about 208 million.

[Kiat Ng, executive]

I think the question is on the JD.com.

[Jean Kam, executive]

Okay. So far, JD.com, last quarter, we mentioned they gave up about 50%. So this quarter, we have actually [indiscernible] a few by about another additional 13%. So for the property in [indiscernible], so its occupancy has improved from 50% to about 63%. And in terms of the tenant profile, it's actually a local 3PL player.

[Kiat Ng, executive]

Any other questions? Yes, Derek?

[Derek Tan, analyst]

Derek, DBS. Just wondering about, you mentioned just now briefly about Japan pipeline. Just your thoughts on after selling Japan, are you keen to maintain there or deploy in other countries? Or how is it looking in terms of availability?

[Kiat Ng, executive]

Okay. I think when we first started about 5 years ago, Japan was like 20-odd, 25% almost of the portfolio. And then we have actively grown the other markets, right? So the percentage of Japan declined. And then, the other thing is, over, I think, last year, we started to divest. So the question is -- well, Japan is a very stable market, long rail, good quality tenants, logistic demand, especially around Greater Tokyo, some of the key areas like the prime -- Kobe prime, Osaka, the demand is very strong. And so the domestic consumption e-commerce continue to be very strong drivers. So it is a market that is positive. The negative is it's flat, right?

So what we noticed is the Japanese tenants are very adverse for escalation, so there is no escalation within the lead top. But what we have done is, I think, at Ayase, we managed to get like a 1.5% rental reversion. So that is when the lease expiry comes up, there is opportunity for us to increase the rents. So we have done that from Ayase, which is about 1-point-something-percent. And then we had done another one, which is 2.2%, this property is Kyotanabe, which is in Kyoto.

So they are not so adverse to rental reversions, meaning when the lease expiry comes, they look at their situation, they look at their business, they're prepared to have this. So then the question is do we sign long leases with them or do we try to break it up shorter because especially they are -- they don't want escalation but they like -- they are okay with reversion. So this is market dynamic that we're watching because it's quite unusual. And for prime location, we see that coming.

So to answer your question, we like Japan for stability. It's not real. But we are mindful that if we bring too much of it into MLT, it will flatten our growth. And so based on what we have looked at for us to enjoy a, I will say -- I won't say good, but at least have some growth of like 2%, 3% percent in our DPU, we can afford to have Japan forming our portfolio about 20%, 20-odd percent. It is from that perspective. And then, of course, we will push to see whether rental reversions will get higher.

So to answer your question, the Japan portfolio in MLT, majority of them are older specification. Our concern is it becomes less competitive. When now I think the -- you see the buildup in Japan over the last 3 -- 5 years ago, you don't see so much. But 2, 3 years ago, you start seeing the [indiscernible] launches of DRP ramp up in all this. So the movement of tenants moving to higher specs is already starting.

Previously, when I first joined MLT, I don't see that because you don't have this lean specs coming into the market. But now, the Japanese tenants, they are prepared to move, versus the previously where they just want to stay put at one place. So we're starting to see that phenomenon. So we think that, for us, to stay in Japan, we have to rejuvenate our portfolio. But we don't want to grow it to a percentage that's too large that would dampen our DPU growth. So I think that's where we are.

So you're see us starting to divest market. We are divesting. We will continue to divest. There's some more divestment coming up in Japan. We are keen to get some of the newer specs warehouses into our portfolio in Japan. And we are also looking at going into what we call multi-tenanted, shorter WALE where we get the opportunity to push rental reversions, as opposed to the -- new Japan previously, 10-year SUA, that's their tender offering. But right now, we are seeing that MTB, 3 to 5 years WALE, rental reversions coming up. So these are the things that we will be considering. Yes.

[Derek Tan, analyst]

For opportunities, I mean [indiscernible] has assets. [indiscernible]

[Kiat Ng, executive]

Okay. We -- good specification assets, we are keen to explore. Question, price, right, and of course, availability. What we are seeing now is a lot of the good specs assets are going from Japan sponsored to Japan JV, right? They're selling, but they don't really offer to third parties. So it's quite difficult for us. So we have to rely quite a bit on our sponsor. The sponsor has got 1 or 2 good ramp-ups coming up. So we will see what happens.

[Derek Tan, analyst]

Sorry, last question. Just wondering what -- China growing. You mentioned there's a 4-year moratorium.

[Kiat Ng, executive]

Yes.

[Derek Tan, analyst]

So how about transfer of shares in [indiscernible]?

[Kiat Ng, executive]

Yes.

[Ming Rean Lim, executive]

[indiscernible]

[Unknown Analyst]

[indiscernible] just wanted to -- I mean, correct me if I'm wrong, in China, I understand that I think trend of some bigger e-commerce players sitting at their own logistics facility. Was that the case in JD.com when they gave us the 50% fees? And do you think this is a bigger threat in terms of China logistics market going forward?

[Kiat Ng, executive]

Okay. Aside from the JD.com, why [indiscernible]?

[Jean Kam, executive]

They were actually trying to expand in another place, so they consolidate in a much bigger place that they have on their own.

[Kiat Ng, executive]

So I think you spotted a [indiscernible] that yes, this is something that we are watching very closely. What we noticed about these e-commerce, Alibaba, JD.com, is they would want to control their highest value warehouses. That's where they put in a lot of robotic automation, and this, they will tend to want to own. But they understand that their primary business is still in e-commerce, not so much what we call real estate ownership. So it is not possible for them to own the full string of network that they are looking at. So what we're thinking is, their primary focus is delivery time to customers, if they can reach x million of the population in x number of hours, they will want to be in that space. And in order for them to do that, they will have to be at multiple spots, and it will be difficult for them to own every single one of these locations because it will tie up their capital. They still need to compete on the e-commerce side.

So what we think we will see over the next 3 to 5 years is mega warehouses where they have their latest automation, they will want to own. And they will get demand directly from the government. But what we call the distribution centers, the smaller distribution centers, along the networks that they are building, most likely they will lease. So they will not take the 2 million square feet kind of space. They will most likely take a few hundred thousand square feet kind of space. And their leases will not be 10 years. Their leases will be 2 years, 3 years because they are always looking to move to be closer to the customer because they're always looking to deliver faster to compete.

So that's what we want to see. So you look at our warehouses now, we are building smaller GFA warehouses but many more and along a certain effective network that we are looking at here. So that's where we are with China. It's building up this whole ramp of network distribution centers. And what we notice is if this is in a location that gives them an advantage, they will pay. So in other words, tenant loyalty. With Chinese, no. It's a model very different from Amazon, right? Amazon, they're more measured and they will -- what we're experiencing, yes, they will take a longer-term view. Quite a different model.

Sorry. There's some more questions from where?

Which third-party market looks most attractive for acquisition now? Is it Australian, Singapore or Korea?

Okay. Third-party acquisition, very dependent on competition, meaning acquisition entry, cap rates. And then, as we all know, not only do we look at entry cap rate, we look at the yield spread.

[Ming Rean Lim, executive]

Yes. Yield spread by accretion is up.

[Kiat Ng, executive]

Yes. So I think the yield spread with countries...

[Ming Rean Lim, executive]

So far, Japan, because of the cost of borrowing is cheap, the yield spread is still very good. It's about 3% based on entry NPI for about 4% for Japan. Then followed by Korea. Korea also gives a very good yield spread because the cost of borrowing in Korea has gone down a lot significantly. These are the 2 countries interesting in terms of the yield spread.

[Kiat Ng, executive]

In terms of opportunity, I think we spoke about Japan, it's quite difficult to get third party, a lot of Japan's sponsor going to Japan J-REIT. So then, we will then have to rely more on the sponsor pipeline.

Then I think the question Donald has is, which region is MLT looking to divest in the next 12 months in Japan?

So I think we have some warehouse in Sapporo and some of these -- so I think location is definitely a factor we look at. But for us, what is more critical is the specification. If you are in a good location but your specification is week, you will still not be able to enjoy the full competitive edge that you have.

So the next question Donald has is, how should we look at MLT's portfolio in the next 12 months? Will China and Singapore be bigger?

I think, China, yes. I think you all are familiar, they will be sponsored by coming up. Will Singapore be bigger? I think, third-party acquisition, quite difficult. We are in the process of looking at some BTS competition, meaning some of these are end-users talking about having a BTS for taking land directly from JTC. So that could be it. But I think China will be more definite in terms of yes here.

And then, Malaysia, we wanted to push the recycling phase. And then, we also mentioned Vietnam, we want to increase. And then, of course, Japan, we have divested. So are we be able to push the other effects we have divested now, are we able to bring in the newer, better spec asset? So these are some of the markets.

The next question is more for Jean. Rental reversion for the backfill space for JD.com? I think it's about...

[Jean Kam, executive]

I think it should be about 2%, 3%. Yes, roughly.

[Kiat Ng, executive]

Fraser has a question from JPM. Recycle proceeds from recent divestments in Japan. I think you want to repeat that.

[Ming Rean Lim, executive]

What we'll do is we'll pay down debt. That's why I mentioned, from $0.377 to $0.362, that gave us that [indiscernible] about 435 million for opportunities for MLT.

[Kiat Ng, executive]

The next question that Fraser has is, what other transactions yield for assets similar to the sponsored Odawara Center in Japan?

I think we have seen it's gone down as low as 4% percent. So that's where -- so for the Odawara Center, I think 4%, around that range is what we think. Similar transactions are happening. Because of -- I think the [indiscernible] -- project at [indiscernible] we did was about 4.5%, because there is a -- these are smaller assets, and one of them has got what we call the traditional lease, meaning there is no break clause, there are certain restrictions on the landlord. So -- and then the other ones that we have is the [indiscernible] license warehouses that we're divesting. So warehouses with restrictions will tend to enjoy a lower price, meaning a higher cap rate and lower specification. So for Odawara case, you have Amazon, long lease, blue-chip tenant, so therefore, the cap rates, we expect it to be more compressed compared to what we are getting for our acquisition -- I mean, divestments, sorry, the divestment of the core project -- of the 5 assets that we divested recently.

I think we have captured, I think, almost all the questions. Anybody else? Yes.

[Mun Yee Lock, analyst]

Mun Lock from CIMB. I just wanted to know your thoughts behind divesting the assets in Japan versus redeveloping them.

[Kiat Ng, executive]

Redeveloping. Okay. We will definitely -- the first thing we look at on the lower specs asset is, can we redevelop? And the question is redevelop to what specification. So the asset that we have divested so far, their land plots are too small to -- for us to put in ramp up. So that is really a restriction, meaning that we'll be redeveloping into something that's [indiscernible]. So is that going to set us a much higher rent? Or make it more resilient on longer term? I think the answer will be no. Then the other thing is restriction on the allocation. So for example, in [indiscernible], that one, we can put in a ramp but the situation is that our restrictions imposed by the local government -- [indiscernible] means -- not [indiscernible] license means that they control the number of trucks that can accept the site. So when you have restrictions, our accessibility 3PL tend to be more resistant. They will not be keen to take us the space. And even if they take up the space, their activity will -- cannot be maximized because of the restriction on truck accessibility. So these are the things that we will consider here. So if we can, we will want to redevelop ourselves. Any more? Okay.

[Ming Rean Lim, executive]

So on the divestment, all 8 quarters, that's what's standard for us for anything more than $2 million on the divestment deal.

[Kiat Ng, executive]

Okay. The question is, you saw your Japan asset NPI use of about 5%, and then the NPI use are 4%, does it mean asset recycling in Japan should be DPU dilutive for the next couple of years?

Okay. I think the first correction is we sought the lower using asset is about 4.5%. And then the sponsor asset being better quality asset, definitely we're expected to pay higher price. So the question is, will it be immediately dilutive? I mean, if you look at pure mathematics, $100 million, 4.5%, $100 million, 4%, for sure is dilutive. But when it comes to rental reversion, when you have the rental reversion, will you have an uptrend or will you have a trend that's going down? It is an experience that we saw where we have the SUA. SUA assets, lower specs. For sure, when we sell them, they'll be lower price, meaning higher cap rate. But as -- even if we keep them, then what will happen is the rentals will start coming down and then this will impact the DPU. So if you look at mathematics, immediately, you move, yes, it could be DPU dilutive. But on a longer-term basis, 2 years, when there's rental reversions, rental escalation, this is where you then see the DPU being impacted, if we keep the lower [indiscernible] assets.

[Ming Rean Lim, executive]

It's important that the recent acquisitions -- or the recent divestment that we have sold, there are 2 properties that we have seen the rentals renewals are actually coming down, so that's the target reason why we decided to sell them off. Those are actually regarding the [indiscernible] restricted license, those 2 assets.

[Kiat Ng, executive]

Yes. Then, of course, I mean, I'm not sure that, first of all, to answer your question, but basically, of course, then your question is, why do you sell Japan and go somewhere else? Of course, right? I mean, we're agnostic. I mean, we're not Japanese or anything like that. But the question is, like what Ivan mentioned, the yield spread, right, that is still attractive. So yes, you can get something of a higher cap rate in a country, but the yield spread in the capital country is less attractive than Japan, it will still have an impact. So I think that's just a complete story.

Okay. The question is, do you see opportunities to divest any more assets with data center developments? Would you expect to see similar gains at [indiscernible]? Just to excite you a bit more on a Friday night, if we sell one of my properties in Hong Kong, right, I get 100% gain. And that's SGD 40 million, SGD 50 million. And that can feed the DPU for I don't know how many years.

Okay. So are there opportunities to divest any more data center asset? The question is yes. But I think we are very mindful, we are in the REIT business, we are here to create a stable and growing DPU. We're not a trader. So we -- our primary focus is not via trading gain. The primary focus is to consistently deliver stable and, hopefully, growing DPU to our investment. So we'll continue to manage that.

So we still have a couple of data centers, yes. And then, just to excite you more on a Friday night, you know [indiscernible], the one that Jean mentioned where there is a vacancy -- I mean, there is occupancy drop, we are talking to the authorities for data center use. Okay. So I think that management is very clear. We are here to maximize value for the unitholders. And -- but we will overlay that will long, stable, growing profile.

Okay. All right. Thank you for coming here, and have a good Friday night. You're young people. You should be out there.

[Ming Rean Lim, executive]

Yes. Thank you.

[Kiat Ng, executive]

Not sitting here. Okay. Thank you.

[Jean Kam, executive]

Thank you.