Mapletree Logistics Trust

SGX:M44U

Earnings Call Transcript 2021-Q4

[Yuen May Lum, executive]

Hello, good evening. Welcome to MLT's Fourth Quarter Results for the Financial Year Ended 31st March 2021. [Operator Instructions]

Okay. Thank you for joining this evening's call. Sheh Min Lum, our CFO, will begin the presentation.

[Sheh Min Lum, executive]

Good evening, everyone. I'll take you through the key highlights and financial review before passing on to Jean, who will bring you through the portfolio review. DPU for the quarter is at $0.02161, a year-on-year increase of 5.5% from $0.0204 last year. DPU rose on the back of better performance from existing properties as well as contributions from accretive acquisitions this year and last year. Contributions were also received from completed redevelopment of Mapletree Ouluo Logistics Park Phase 2, which is at 100% occupancy.

On a full year basis, DPU is $0.08326, a year-on-year increase of 2.3% from $0.08142 last year. Occupancy of our portfolio remained stable at 97.5% with a well-staggered rail of 3.6 years with rental reversion for the quarter at 2.4%, mainly coming out of Hong Kong, Japan, China and Vietnam. During the financial year, we acquired 18 well-located logistic facilities from both the third parties as well as sponsor for a total value of SGD 1.6 billion. This brings MLT's total number of properties as at 31st March 2021 to 163 properties with a value of $10.8 billion. Our balance sheet remains healthy with a well-staggered debt maturity of 3.8 years. We ended the quarter with an aggregate leverage of 38.4%.

Year-on-year 4Q FY 2021 results. Gross revenue increased by 22.6% due to better performance from existing properties and accretive acquisitions from the year and last year. Property expenses increased by about $7 million, mainly due to acquisitions. We had savings in property expenses from the same-store, but these were partly offset by a onetime provision for doubtful debts of about $1.7 million. MPI increased by 19% or about $22 million. Share of joint venture relates to MLT's share of profits in the 15 joint venture properties in China.

On 1st of December 2020, we completed the acquisitions of the remaining 50% interest in these 15 JV properties. These properties are now wholly owned subsidiaries of MLT and consolidated as part of MLT Group. For the quarter, There's a small contribution of $1.3 million as this relates to MLT's 50% share of precompletion results, which was finalized in 4Q.

Borrowing costs increased by about $2.7 million largely due to interest incurred on additional borrowings drawn to fund acquisitions. This is partly offset by lower average interest cost. Against 4Q last year, current quarter's distributable income increased by 18.9% or about $14.7 million. DPU is higher by 5.5% at $0.02161 after taking into account the enlarged unit base.

Year-on-year full year FY 2021 results. The profile and explanation behind MLT's full year results as compared to last year are very similar to that of 4Q. DPU for the full year, 0.08326, 2.3% higher than full year FY '19, '20, after taking into account the enlarged issue unit base. Gross revenue is 14.3% higher, mainly driven by same-store performance and contribution from equities acquisitions.

COVID rebate bond by MLT for the year, SGD 3.1 million. NPI is 13.8% or $61 million higher compared to last year. Borrowing costs increased due to incremental borrowings taken to fund acquisitions, partly offset by lower average interest rate, repayment of loans with higher interest rate divestment proceeds last year and temporary pay down loans with EFR position 3Q until the completion of acquisitions. DI increased by 10.4% or SGD 31.4 million. Quarter-on-quarter, DPU $0.02161, 4.6% higher versus last quarter. Quarter-on-quarter variances and the results are mainly due to full quarter contribution from acquisitions completed in 3Q.

Balance sheet-wise, MLT's investment properties grew to $10.8 billion from $8.5 billion last year. This is mainly due to acquisitions amounting to $1.6 billion during the year and revaluation gains of about $184 million. Total assets and total liabilities both higher due to higher investment properties and loans taken to partially finance these acquisitions. NAV per unit improved to $1.33 and from $1.21 last year. The increase is mainly driven by acquisitions during the year, which are funded by equity and borrowings as well as revaluation gains.

This is our distribution sales for the quarter. DPU $2.61 per unit, payment date on 10 June 2021. Capital management-wise, we remain prudent and disciplined in our capital management. Total debt as at 31st March 2021 increased by $676 million to $4.2 billion, mainly due to net additional loans to partially fund current year's acquisition, working capital and the tax, issuance of medium-term notes amounting to JPY 9.5 billion, and lower net translated foreign currency loans of $58 million [ using the weakening ] JPY and Hong Kong dollars, offset against appreciation of Australian dollar against Sing dollars.

The acquisitions were also partially funded with $644 million raised via private placement and pref offering as well as $300 million considerations that were paid in MLT units in third Q. We ended the year with a gearing ratio of 38.4%. Average interest rate improved to 2.2%. Our debt maturity profile remains well staggered with an average debt duration of 3.8 years. Debt due for refinancing in the new financial year is 4% of total borrowing i.e., $161 million. We have available committed credit facilities of about $668 million on hand, and this is small and sufficient to meet our refinancing requirements next year. To mitigate the impact of interest rate risk and FX risk on MLT's DPU, we've hedged 75% of our total debt into fixed rate. About 79% of our estimated distributable income for the next 12 months has also been hedged either through currency forwards or derived in Singapore dollars.

[Jean Kam, executive]

Thank you, Charmaine. I will now go through the operational highlights in 4Q. On the occupancy level, this quarter, we reached 97.5%. It's an improvement compared to last quarter at 97.1% due to higher occupancy in Hong Kong, South Korea and China. The occupancy remains stable in Singapore, Japan, Australia, Malaysia and Vietnam. In March, we completed the acquisition of 2 assets in India with an occupancy of 98.2%.

On the lease expiry profile by NLA, our WALE remains at 3.6 years. In terms of the lease expiries due in FY '21, '22, out of the 26.4%, the team has already finalized the negotiation for about 8% of the leases. So for the FY '21, '22, we are now with a balance of about 18% expiries.

On the top 10 tenants by gross revenue, with the acquisitions of 5 assets in Korea that was completed in March, We have seen TE Logis becoming our top 10 tenants. As a result, the -- our tenant in Japan and Singapore, Nippon Express, is out of top 10. In terms of the tenant base, we remain diversified of close to 750 customers And approximately 3/4 of our portfolio continue to serve the consumer-related sectors.

On the SUA and MTB profile, it remains largely the same as the previous quarter with a contribution of 67.2% of the revenue from the multi-tenanted building. On the geographical diversification, this quarter, with the acquisition of 2 assets in India, we remain diversified in our geographical spread from 8 markets to 9 markets, and our presence in developed markets constitute about 72% of the revenue base. FY 2021 has been a busy year for the investment team. We have strengthened the portfolio quality with acquisitions of 18 modern specs warehouse as well as acquiring the remaining 50% interest in 15 properties in China with a total investment value of $1.6 billion.

On the portfolio valuation, we have seen cap rates compression in most countries, in China, Japan, Korea, Australia and Vietnam, and cap rates remained stable in Hong Kong, Singapore and Malaysia. In terms of the portfolio weighted average cap rate by value, it has declined from 5.3% last year to 5.21% this year. And in terms of the valuation gain on the same-store basis, looking at the 130 assets that we had in last March and including the 50% interest in JV assets in China, we have a 2.4% uplift mainly coming from Hong Kong, Japan, Korea, largely due to higher rentals as well as cap rate compression. However, it's mitigated by a short remaining leasehold of less than 20 years in Singapore. And taking into account the FX loss in Japanese yen and Hong Kong dollar, our net valuation gain for same-store were looking at 1.7%. That sums up the portfolio review in 4Q.

[Kiat Ng, executive]

So I think we had a fairly exciting year. We are fortunate that we're in the logistics sector, which is least affected by the COVID situation. So I think that has allowed us to grow our DPU at a decent pace. And It also allows us to actually make quite a fair bit of acquisition. So moving ahead, really, I think we will continue on what we have been doing, and is focused on the same-store, ensure that the stability and the resilience, both in terms of the tenant mix as well as the WALE is properly managed so that we do not have unnecessary bumps.

And then on the acquisition side, I think MLT continues to have a very strong balance sheet that we can continue to use. So as with every year, we have been able to make quite sizable transactions such that we will come to the market for EMR. So I don't see any difference for this new financial year. So I'm happy to take questions now.

[Yuen May Lum, executive]

[Operator Instructions]

[Derek Tan, analyst]

Sorry, Derek from DBS. Can you hear me now?

[Kiat Ng, executive]

Yes. Derek, we can hear you.

[Derek Tan, analyst]

Kiat. Congrats on a good set of results. I was just wondering if you can give us some further color on your same-store, the strength of the same-store for the next financial year. Just looking at your various markets, right? So like, for example, key markets like China, Malaysia and Singapore. Is there any potential bumps that you foresee? And what are they? And what is your team currently looking to work on? Could it be downside to occupancy? Or do you think that the rental reversion of trends may be can -- just want to get a sense on the sector, yes.

[Kiat Ng, executive]

So I think if you look at what the reversion numbers are showing. maybe, Jean, you can give the reversion for each country, so that is -- then we can discuss.

[Jean Kam, executive]

Can you give the breakdown of the reversion by country for 4Q for Singapore reversions at 0.8%; Hong Kong, 3.2%; China 1.7%; Malaysia, 3.3%, Vietnam, 3.8%; Korea, 1.5%; and Japan, 5.7%, overall portfolio, 2.4%.

[Kiat Ng, executive]

So I think, Derek, if the question about Singapore is whether we will see stronger reversions, so I think Singapore is a very controlled market. We -- our government intervention is very, very strong. So I think for Singapore, what we are continuing to see is very, very moderate kind of rental reversions, even for the grade A. But again, the poor specs, we expect that to come under quite a fair bit of pressure.

So as far as China is concerned, I think the Tier 1 cities will continue to do well because of lack of supply. The location continues to be a key parameter where -- especially for tenants who are very time-sensitive, such as the e-commerce side. As we move further and further out to the west, the supply -- I think there's someone talking on the phone.

All right. So I think the situation is as we move further and further west in China, the supply situation actually gets larger. So meaning that for Tier 2, we will continue to see a lot of competition in terms of availability of space being offered, yes. I think the 2 markets that we think may see an uplift, continue to see an uplift will be Malaysia and Vietnam. Again, this will be very sensitive to locations. So we think very close to KL, very close to whole Ho Chi Minh, very close to Hanoi. There's no reason why the reversions will not continue. So I'm not sure, Derek, which -- does that answer your question? Is there any specific area that you would like us to discuss?

[Derek Tan, analyst]

I was just looking at China. I mean it's been something that you have, like, rather down last year. So I was just wondering that you saw an uptake in occupancy this year. Are we still looking at them delivering you your positive rental reversions and will occupancy continue to trend up? That's probably the key market that I'm looking at.

[Kiat Ng, executive]

I think the occupancies for Tier 1 cities will continue to be very good We think that it -- like our same-store, we are doing Tier 1 about 96%, 97%. But once we move out to the west, the -- for example, Combo 2, the occupancies that we are seeing is about 93%. So as we move further and further west, the supply situation will become more significant. So the ability for us to actually fill it up at the rentals that we won will definitely be more challenging.

[Derek Tan, analyst]

Okay. Okay. So just 1 more question for me. I think at last year, you really moved the needle in terms of acquisition. So -- and you mentioned just now that you like to do something similar this year. So with Australia out of the way, could you give us some color on where you're looking on the -- was this pipeline available for this year?

[Kiat Ng, executive]

Yes. We were hoping that we could do something large with Australia this year, but fortunately, we lost a bit. So the -- in terms of acquisition, I think, Derek, you've been following us for very long. Starting with about $200 million, $400 million. Right now, we are getting closer to the $600 million to $1 billion. So I think this year, I don't see why we cannot continue between the $600 million to $1 billion kind of acquisition.

[Derek Tan, analyst]

Okay. Sounds exciting. I hope you do more in India.

[Kiat Ng, executive]

Yes. I think India is the market that we have planted our first foot in It is a difficult market. We are building up our traction there. So hopefully, just like what you have seen previously with us, there were certain the, what you call growing pains, like, for example, you could see us struggling a bit with Vietnam, Malaysia back then. And then in one stage was Hong Kong, which can be stagnant until we've got Tingyi. So I think with India, Hopefully, the -- as we get more traction, we get more experience, we can see a more stable pipeline coming out from that, yes.

[Donald Chua, analyst]

This is Donald from Bank of America. A couple of questions from me to follow up on Derek's acquisition question. So we had Korea and India in the last couple of months. So going forward, which are the markets that will interest you? And equally important, as we continue to acquire, is there any room to divest especially with the cap rates coming off? The Australian portfolio was sold at a fairly tight cap rate, so is there any opportunity to divest and distribute to investors?

[Kiat Ng, executive]

Yes. I think -- let me take the second question first. With regards to divestments, we have held back our divestment plan last year because of the COVID situation, partly also because to show support to our tenants to give them the stability that they would like to see in the operations. So I think now we are going to be stepping up our divestment again.

The value of these divestments are not going to be large like what you have seen. Basically, what it means is we will be divesting the poorer specifications. So the poorer specifications, cargo lift type of assets tend to be smaller in value. So yes, we'll be looking at divestment, Singapore, for sure, continue with Malaysia, there could be some coming out from Korea and maybe 1 or 2 coming out from Japan -- not Japan, China, sorry. So I think divestment, that's where we are looking.

In terms of growth, a very obvious pipeline that you all are very familiar with is obviously from the sponsor. So what you will see is you will see the China, Malaysia, Vietnam will continue to come into the sponsor pipeline. So we will continue to see that outside of the sponsor where we have less control. So I think the Australia, Korea, should continue to see us making quite active acquisitions. And then the opportunistic ones like this Hong Kong and Singapore, there is more strategic like what we did with Shatin 3, where we were able to gain control of the whole building and immediately reposition it to higher-value usage. So I think these are the more opportunistic markets.

Japan, we will -- we are getting traction. Tokyo will be difficult because of the pricing. But I think the secondary cities like Kobe, Nagoya and all this, these are the places that we can see potential coming up.

[Donald Chua, analyst]

Kiat, would this year or maybe going towards the next 12 to 18 months, be the time to look elsewhere, perhaps in Europe or U.S. outside of the Asia mainly?

[Kiat Ng, executive]

Okay. Donald, the -- there is -- I mean, I think I have taken the position, and I still stick to it, is I think there is so much happening in Asia Pacific and MLT is far from done with it. I think India, Indonesia, even Vietnam, we're still small. You look at the values we are in. Australia, we are only about $800-odd million. So I think there's still a lot of work that we can do in Asia Pacific. And I think the fastest-growing regions for the next 12 to 18 months are almost all to be found in Asia Pacific.

So I think it's a good time to actually pull in all the resources. I mean, both in terms of financial and human, to actually continue to grow our position in Asia Pacific. I mean, we see new entrants. You have our competitors trying to grow very big within a very short span of time in Asia Pacific. So I think the focus will be in Asia Pacific for the next 12 to 18 months.

[Donald Chua, analyst]

Would India, maybe -- sorry to hog this thing. But my one last question, would India be meaningful in the next 2 years? Would you be considering platform deals to accelerate the growth.

[Kiat Ng, executive]

We're definitely keen to grow India as fast as we can. The challenge is, like I mentioned, we are starting to gain traction. We need to build that traction. We need to deepen our expertise there. So the next 2 years, I would say, yes, we will grow, but I think it will be shaky, meaning that I don't foresee ourselves doing like $1 billion out in India in the next 12 to 18 months, but smaller deals, yes.

[Qianqiao Wang, analyst]

This is Joy from HSBC. Can you hear me?

[Kiat Ng, executive]

Hi, Joy.

[Qianqiao Wang, analyst]

Just a follow-up on Donald's question, maybe a bit more on sort of acquisition and the plan for the next few years. I mean given your portfolio sizes gone fairly large, would you be more keen to sort of take on larger-scale development, especially in some of these emerging markets?

[Kiat Ng, executive]

I think we are doing a lot of development with the sponsor. I think we're using the sponsor's balance sheet to build a pipeline of development projects that as that will be fed at the -- into MLT at this time.

So the -- whether MLT will use our balance sheet, ourselves, to actually do development. I think we will use it for opportunities that will enhance our current MLT position. So it is like asset enhancement initiative, which you have seen us do. But besides that, what we have done is we have started in a small way with a development project in Melbourne, in Laverton area. So I think we will continue to do that. So those development projects that we will take on in MLT will be strategic, meaning that we see that it will have very immediate enhancement to our current MLT portfolio.

What I'm trying to say in a very long way is, Joy, our financial position is not unlimited. It is limited. We always have to come out to the market to do EFRs. So the situation is if the is if there's opportunities to put that dollar into it immediately into an income-generating property or portfolio that is accretive. I think the preference will be that direction still.

[Qianqiao Wang, analyst]

Okay. Understood.

[Kiat Ng, executive]

Yes. I think, basically, what I'm saying is I don't intend to turn into a semi-developer. The focus on DPU accretion with every acquisition dollar that we put in will continue to be our core focus.

[Qianqiao Wang, analyst]

Okay. Okay. Understood. And I'm not sure if you are at liberty to share a bit more on the Australia deal that you've looked at. And I guess, more specifically with cap rates moving down, would you foresee that accretion from acquisition will be more moderate this year for the same dollar you spent?

[Kiat Ng, executive]

I think, definitely as cap rates compressed. One thing that has to happen is MLT share price have to go up. So if the -- if we see cap rate compression and if MLT share price continue to go up, we will still be able to make accretive acquisitions on a percentage basis. So I think the percentage of accretion is will be very much dependent, not just on the cap rates, but also MLT share price performance.

[Qianqiao Wang, analyst]

Sure. And just last 1 for me. I think now you have a sizable in our portfolio, especially in places like China first, [ the entity ], do you see redevelopment opportunity within your portfolio?

[Kiat Ng, executive]

I think -- Jean, would you like to answer that?

[Jean Kam, executive]

I think we constantly, we are actually reviewing our assets for potential rejuvenation of our properties. So definitely, I think -- in the immediate term, I think we've shared large front is that we are currently looking into 1 property in Singapore. So we are now working with the authorities for our potential product ratio enhancement. And specifically on China, we have also earmarked 1 potential property in China. But I think that one, we are still probably looking at more on the medium-term kind of plan.

[Kiat Ng, executive]

I think that you specifically mentioned China. So the thing about China is The -- first, especially the Tier 1 cities, which where our older assets are, the situation over there is the government is getting a lot wiser. So they are allowing for conversion of use to commercial, not logistics anymore. So the ability for us to actually redevelop into a logistics facility, again, at the same prime location, let's say, for example, in Guangzhou, right? We'll face a lot of resistance from the government. So I think these are the dynamics that we are dealing with. And so the team is actively working on things like that.

[Qianqiao Wang, analyst]

Okay. And if I could just follow up on that. Would you consider selling that as a potential conversion opportunity then, instead of...

[Kiat Ng, executive]

Yes, definitely, we will. I think is -- the recycling strategy does not change. We will continue to look at that. So once we think that there is potential for us to recycle a -- what we call a property that has got very almost no potential for growth anymore, I think we will do that.

So for example, our Guangzhou property, I think there's still potential to see rental growth because it's Guangzhou, it's very prime location and there is lack of supply. So whether -- I think it's always the Catch-22 situation. I mean if we have sold Hong Kong, when it was -- we bought Hong Kong at 6-odd percent. If we have sold it at 5-odd percent, yes, we will make a very nice gain.

But today, it's trending even with what is happening, we're trending at about 4%. So will it go below 3%? So I think that is always the forecast that we don't know. So I think we will continue to keep on the discipline as rentals' potential. If it's possible to push that, we will continue to focus on that.

[Nicholas Teh, analyst]

It's Nicholas from Credit Suisse. Can you guys hear me?

[Kiat Ng, executive]

Nicholas, we can hear you.

[Nicholas Teh, analyst]

Okay. Just a quick question on the divestment side. I guess you talked on acquisitions looking at $600 million to about $1 billion. Is there a similar kind of target that you're looking on the divestment side?

And given that you're talking about, I guess, selling some of the lower-quality assets, like you mentioned, the cargo list and so on, what kind of -- I guess, are you still expecting much internal percentage gains for those assets?

[Kiat Ng, executive]

I think the -- we should be looking at about $200-odd million, hopefully, this year of divestment. And we will see some gains on some of them. But unless -- we did some that are quite good, meaning that -- like, for example, Tai Seng, which was able to be sold for data center use. We were able to do, like, Waigaoqiao, again, to be sold for data center use.

So I think if the specific property has the ability to be converted to a usage that has -- that is high value, then we will see the account gain. But if not, if you see, traditionally, the smaller assets that we've been selling, yes, we get a modest gain. So I would say out of the $200 million that we're targeting to offload this year, a modest gain is probably something we are looking at -- but yes. So basically, I think divestment gain is not going to feature as strongly as what you have seen over the last few years.

[Nicholas Teh, analyst]

Okay. Got it. Got it. And just one last question on the -- earlier, I guess you guys mentioned that you had 8% of the expiring leases renewed already. Could you give us some sense on the reversions there?

[Jean Kam, executive]

Okay. I think the 8% is mainly coming up from China, Singapore, and Korea. So I think if we look at Singapore, like what Kiat mentioned earlier, the kind of reversions in Singapore, being a very heavily regulated market, it's very mild at less than 1%. And then for Korea, we are looking at about 1% to 1.5% kind of reversions. And then for China, basically, the leases deal are mainly coming out in Tier 2. So in terms of the reversions, it's pretty moderate, I would say, at about less than 2%.

[Mervin Song, analyst]

Kiat, this is Mervin from JPMorgan.

[Kiat Ng, executive]

Mervin, right?

[Mervin Song, analyst]

Yes.

[Kiat Ng, executive]

Mervin, can hear you.

[Mervin Song, analyst]

Just a question on China. I think the rental reversions was about 1.7%. I'm just wondering what was the rental reversion for Tier 1 versus Tier 2. Is there a big divergence?

[Kiat Ng, executive]

Okay. I think for Tier 1, previously, we saw about 3%. Yes, so the Tier 2 is more like between the 1.5%, 1% to 1.5% kind of range.

[Mervin Song, analyst]

A question I have is in regards to demand. Compared to previous quarter, are you seeing a pickup in demand? Or is it still a steady level that you're seeing?

[Kiat Ng, executive]

I think demand -- I mean, we will -- I mean, to our surprise as well, you're talking about any specific country or just overall?

[Mervin Song, analyst]

Just overall or any particular country you want to highlight.

[Kiat Ng, executive]

Right. I think we were very thankful to our tenants. The demand continues to be good, I would say. So that's why you see our occupancy this round continues to be strong. Can you get me the occupancy page, Emily? Yes. So I think in the current climate, we were able to maintain occupancy at about 97%. So I think if you notice about MLT, what we try to do is we will try to create stability and get some growth.

So we do not foresee ourselves doing 100% occupancy kind of scenario. The reason is because when you are full, right, there is not much you can do. So what we have done, I think we illustrated, I think the last quarter or so, is that think, for example, Amazon, they were in 5B, they wanted to move to Mapletree Benoi. And we had to move our tenants.

We have to do what we call musical chess. My team are telling me they have to do musical chess as we have to move our tenants in Benoi to other locations or shift them upstairs, downstairs, left and right such that we create a contiguous space for Amazon. So I think in order for us to be able to capture growth opportunities like that, we need to have some space available.

So the situation is we will look to create stability. That means ensure that it is high occupancy, but we will always have this so-called room for us to move high-value tenants very quickly, yes. So I think overall, the occupancies are healthy. I mean, we are hitting 100 for Australia, Vietnam, Malaysia. I think Malaysia, I would expect it to come down to the 97%, because I would like to create some relief over there so that I can capture some upside when some of the tenants that we are eyeing.

So I think We have highlighted that the strategy that we have done is we built very strong relationships with the tenants, not just on the existing plants, but also the growth plans for the next, not just 12 months, but 3 to 5 years. So I think when we see a particular tenant coming up and we'd like to capture them, that's where we start creating this relief space that we'll see.

So I think Malaysia will probably come down a bit, but that is because we want to capture higher value tenants. And then the rest of the markets are all strong. Japan, we expect it to hit back to the -- closer to the 99%, 100% kind once we fill up this property on Hiroshima, right, yes.

[Mervin Song, analyst]

Okay. I was just trying to understand the demand go up because you're pretty much close to full, whether you couldn't push the rents a bit harder given you're in a cyclical upturn in various economies.

[Kiat Ng, executive]

Yes. I think the -- our -- the type of tenants that MLT have, these are long-term tenants, meaning that they have the ability to continuously get new contracts and grow their business. So in order for us to support them with that growth, I think we have taken the long-term view with them. We will push our reversions, but the idea is to also get them to continuously expand with us.

So I think that it is a balance of both. So we want to create stability, but we will try to push for growth. So I think you have seen us do about 5% DPU. So for the next 6 months or so, perhaps we can continue to push that kind of levels. But I always tell my team what goes up must come down, right? So the thing is while we -- if we push something very hard, the next year, the reversions is not going to continue on that kind of pace.

[Mervin Song, analyst]

Sure. Just a final question for me. Just on Malaysia, just noticed it was down year-on-year significantly on the NPI line. I guess, I'm just trying to understand what's happening there. Is there a one-off impact.

[Kiat Ng, executive]

Tell me?

[Jean Kam, executive]

We have a provision for doubtful debts of about $1.7 million specific to 1 tenant in Malaysia itself. That explains why this quarter's NPI for Malaysia is lower.

[Yew Kiang Wong, analyst]

Hi, Kiat, Yew Kiang here. Can you hear me?

[Kiat Ng, executive]

Yew Kiang. Hi, Yew Kiang, we can hear you.

[Yew Kiang Wong, analyst]

Yes. I just have 1 question on the -- I don't know how much you can comment on it, but the Australia deal that was announced, that was high profile. Should we say that, that will probably -- that deal, in terms of pricing sets the floor in terms of cap rates as far as you would pursue in that market?

[Kiat Ng, executive]

Are you -- okay. So again, Yew Kiang, you are trying to ask whether what kind of cap rates we are prepared to pay for Australia? Is that what the question is?

[Yew Kiang Wong, analyst]

Yes.

[Kiat Ng, executive]

Okay. I think the test is always we have kept the discipline of keeping gearing about 40%, and the deal is accretive. So the besides cap rate, the other part that plays a large contribution is MLT share price. So if the overall balance, cap rate, share price, NPI at the underlying property, they are all aligned, then the deal will be accretive.

So I think back then, when our share price was lower, we could only do accretive deals at 5%. But now our share price have gone higher, we can do accretive deals at 4%. So I don't think that there is a so-called floor that MLT will be satisfied with. We will continue to push that floor, yes. So I think the most important thing is we have to deliver what we say we would do.

We have to ensure that the DPU continue to grow. Investors continue to have faith in us. And hence, hopefully, that translates to share price appreciation. And if the share price appreciation comes, the low interest rate environment continues, I think we can push that floor, as you call it.

[Yew Kiang Wong, analyst]

I mean, can you share like how far away, in terms of a bid -- from the winning bid were you guys at?

[Kiat Ng, executive]

How far? Not that far but far enough.

[Yew Kiang Wong, analyst]

Like a risk -- kind of like dismissed it by a riskier kind of deal?

[Kiat Ng, executive]

Okay. For that deal, there are 2 components. One component is the property, meaning in assets. The other component is the management company. I think you probably are aware, there is a management company, and there is a property aspect. Of course, the property percentage plays a larger -- large part of it, I would say, almost 80%, 90% of that. So as far as MLT was concerned, we were prepared to go to the level that we're going to see 1%, 2% kind of accretion. But other than that, we -- we're not prepared to go further. Yes. So Are we the #2? I think we are the #2.

[Yew Kiang Wong, analyst]

Yes, just to sort of establish whether you are a very close #2 or sort of like a distant #2.

[Kiat Ng, executive]

I see. I think the -- I mean as far as the asset side is concerned, I mean percentage-wise, because it's a very large deal. So a few percentage points difference in terms of pricing. But the main core is the other factor. So I think that is the part.

[Yuen May Lum, executive]

We have a couple of questions from Anne Chen from the webcast audience. Her first question, in the last 2 years, we had a few events such as China Plus, which benefits Malaysia, Vietnam. We also had COVID. Their move business strategy to just-in-case inventory management. So as we came out of COVID, do we see normalization in either of these strategies, which may lead to normalization of space take up? And the second question is, how have lease structures changed? Are we seeing longer leases and step-ups.

[Kiat Ng, executive]

Sorry, what's the question again, Lum May?

[Yuen May Lum, executive]

Okay. The first question is about China Plus and Just-in-case strategy which we have heard so much about, whether there is normalization in these strategies. Maybe that, I guess, the pace of these strategies have it slowed or picked up or whatever? And whether that means that there is a normalization of space pickup? And the second question is how have the lease structures changed? Are they getting longer, shorter?

[Kiat Ng, executive]

I think the China Plus strategy will continue for a while. We continue to see nervousness or uncertainty that the tenants face, whether they should just move back to the China production, using China as the world's factory again, or should they shift some of it to Vietnam and Malaysia. We think that trend will continue for a while.

The diversification of risk for our tenants have become a more important consideration for them. So we think that will continue. They're moving out from China to India, to Indonesia to Vietnam to Malaysia. We think that will continue.

As far as leases are concerned, the -- it's going to be very country-specific. So countries like Australia, Japan, we will continue to see long leases. I think Yew Kiang just mentioned the Australian deal. You can see that the WALE in that portfolio is about 6 to 7 years and some of them running even another 10, 15 years. So I think it's very country specific.

The shorter-WALE countries such as Hong Kong, China will continue. We don't see the tenants -- they will rollover, meaning that they will renew. But I think the commitment to longer leases are not going to be there for a while because I think the Chinese tenants are still trying to gain market share, figure out new locations so that they want this flexibility to increase or cut their space within a very short time as what we have seen with Alibaba and Hangzhou property. I'm not sure whether that answers Anne's questions.

[Yuen May Lum, executive]

Okay. Can we have the final question.

[Kiat Ng, executive]

Okay. I think it's Anne. Thank you very much for taking time to have this call with us. And if there are any further questions, please feel free to write to Lum May, and then we can get back to you. Okay. Thank you. Have a good evening. Thank you.