Mapletree Logistics Trust

SGX:M44U

Earnings Call Transcript 2022-Q4

[Yuen May Lum, executive]

Hi. Good evening. Welcome to Mapletree Logistics Trust Fourth Quarter and Full Year Results Presentation for the financial year ended March 2022. Here with us today is the full management team, led by CEO, Ng Kiat; Charmaine Lum, CFO; as well as Head of Asset Management, James Sung.

So without further ado, I hand over to Charmaine to begin the presentation.

[Sheh Min Lum, executive]

Hi, everyone. Thanks for joining the call. So let me take you through the key highlights for 4Q FY '21-'22. In 4Q FY '21-'22, we completed the acquisition of 12 properties in China, 3 properties in Vietnam. This is part of the interested person transaction approved by unitholders at the EGM on 13th January. The remaining China property was completed on 1st of April 2022 of the transaction. This brings total number of properties in the portfolio from 167 at the beginning of the quarter, to 183 at the end of 4Q.

For the quarter, gross revenue rose 16.5% year-on-year to SGD 183 million. MTI grew 14.9% to SGD 157 million and DPU of SGD 0.02268 for the quarter is 5% higher than last year. Excluding divestment gains, adjusted DPU would have increased by 8.7%.

As at 31st March, MLT's portfolio occupancy stood at 6.7%. Average rental reversion for leases renewed or replaced in 4Q, 2.9% and WALE at 3.5 years. We are ending the FY with an AUM of SGD 13.1 billion, that increased from SGD 11.5 billion at the end of 3Q, mainly due to [indiscernible] acquisition of 1.1B and SGD 5 million of revenue revaluation gains, which arose from cap rate compression, especially in markets such as Australia, Hong Kong Tsing Yi project and Tier 1 cities in China.

Capital management-wise, aggregate leverage ratio stood at 36.8% as at 31st March. Our debt maturity profile remains well staggered, with a debt duration of 3.8 years and approximately 79% of our debt has been hedged into fixed rates. About 36% of our income stream for the next 12 months has been hedged into Singapore dollars.

So moving on to the financial review; for 4Q this year, MLT started the quarter with 157 properties, ended with 183 properties. So last year, we started the quarter with 156 properties and ended with 163 properties at the end of 4Q last year. Gross revenue increased year-on-year by 16.5%, mainly due to contributions from the enlarged portfolio on...

[Technical Difficulty].

[Yuen May Lum, executive]

Sorry for the interruption. We had a technical issue. Charmaine continue?

[Sheh Min Lum, executive]

Right. Okay. So for 4Q, gross revenue increased year-on-year by 16.5%, mainly due to contribution from the enlarged portfolio and higher revenue from existing properties. Property expenses grew year-on-year by 26.7%, in line with the enlarged portfolio and higher repair and maintenance costs, as well as higher property and land tax. Consequently, NPI increased year-on-year by 14.9%. Borrowing costs increased by 22.4%, mainly due to incremental borrowing -- positions. DI is higher SGD 108 million versus SGD 92.6 million, an increase of 16.7%, translating to a DTU of SGD 0.02268, 5% higher than the [ SGD 0.021 ] last year. Excluding divestment gains, adjusted DPU would have increased by 8.7%.

The trends and reasons behind the variances for the full year, are very largely similar to 4Q year-on-year. In terms of portfolio sizing, we started the current financial year with 163 properties and ended with 183 properties. For last year, we started last year with 145 properties and ended with 163 properties. Gross revenue increased year-on-year by 20.9%, due to the enlarged portfolio, higher revenue from existing properties and full 12 months contribution from the redeveloped Mapletree Ouluo Logistics Park Phase 2.

Property expenses increased year-on-year by 39.3% while NPI increased by 18.6%. Borrowing costs increased by SGD 17.6 million, mainly due to incremental borrowings to fund acquisitions. DI is higher SGD 391 million, an increase of SGD 57.6 million from SGD 333 million last year, translating to a full year DPU of [ SGD 0.087 ], 5.5% higher than SGD 0.08326. Excluding divestment gains component of DPU, adjusted DPU would have increased by 9.9%.

Quarter-on-quarter, with the addition of 16 properties in the current quarter, gross revenue increased by 9.6%. The increase is also attributed to full quarter contribution from 4 properties acquired last quarter. Consequently, NPI increased by 7.3%. Borrowing costs increased by SGD 2.2 million, mainly due to incremental volumes drawn to fund current quarter's acquisition, full quarter impact of loans drawn to fund accretive acquisition, as well as absence of interest savings from loans repayment with temporary deployment of EFR proceeds, Pending completion of the IPG. DI is higher SGD 108 million versus SGD 96.6 million, translating to a 3.8% increase in DPU.

Balance sheet-wise, MLT has a healthy balance sheet during FY '21-'22. We completed the acquisition of 20 properties and incurred CapEx, both of it totals up to about SGD 1.8 billion, Together with revaluation gains of SGD 0.5 billion, total investment properties as at 31st March increased from SGD 10.8 billion to SGD 13.1 billion. Total debt increased by SGD 732 million to about SGD 5 billion, to part finance acquisitions. The acquisitions made during the year were also partially funded with EFR proceeds from a private placement, where we raised SGD 693 million and pref offering, where we raised SGD 200 million. The recent ITT acquisitions were also partly funded with SGD 200 million consideration paid in MLT units.

NAV per unit improved to SGD 1.48 as compared to SGD 1.33 last year. We remain prudent in our capital management. Aggregate leverage ratio stood at 36.8%, while weighted average interest rate for the year is at 2.2%. Debt duration, interest cover and adjusted interest cover remained stable and at similar levels as last year.

So debt maturity profile remains well staggered, with an average debt duration of 3.8 years. For the next 12 months, we have about SGD 534 million. That's about 11% of our total debt due for refinancing, with available committed credit facilities of SGD 921 million on hand. This is sufficient to meet our refinancing requirements for the next financial year.

To mitigate the impact of interest rate within FX, within MLP's DPU, we have hedged 79% of our total debt into fixed rate and 76% of our estimated distributable income for the next 12 months has also been hedged, either through currency forwards or divided in Singapore dollars.

I'll pass over to James, who will bring us through the portfolio review.

[James Sung, executive]

So in the fourth quarter, our AUM -- 70% of the portfolio is contributed by the mature markets in Singapore, Hong Kong, Australia, Japan and South Korea. In terms of operational stability, our outlook remains fairly stable. The occupancy rate remained [ dropped slightly ] in 4Q is at 96.7%, reflecting higher occupancy in India and Japan, however lower occupancy in China, Singapore and South Korea.

The China portfolio as of March '22, includes 12 properties acquired in January '22, as part of [ complementary ] acquisition, which have an occupancy rate of 91.1%. Singapore's occupancy rate dipped slightly because of our decantment of tenants at 51 Benoi, which is due for redevelopment end of this year. So excluding 51 Benoi, with the redeveloped project, Singapore's occupancy will be 89.9%, and MLT's portfolio occupancy will be 96.9%.

Next. In terms of the lease expiry profile, about 29.9% of our leases will be expiring within the year. This has mainly contributed -- mainly from China, where the leases are from a shorter WALE, and these are tenants that we are still engaging. Most of them have expressed interest to renew with us. And the balance is contributed from Singapore -- leases expiry from Singapore and Korea.

In terms of top 10 tenants, we have 4 new top 10 tenants in our portfolio coming from SF Express, [indiscernible]. Bidvest Group, which is in Hong Kong, which is doing cold storage and freezer facilities for food, operating under the brand name of Angliss in our Tsing Yi project in Hong Kong. And the third and fourth is Best Logistics and J&T. J&T Express is an Indonesian company, but co-founded by Chinese founders, and they are expanding very fast in China, after the acquisition of Best Express in China last year.

Next. So 75% of our portfolio are from trade sectors or business sectors that is in the consumer-related sectors, and this remains very resilient and robust because of consumer demand. And our portfolio now has 840 customers.

So I'll also cover the investment portion. Last year, these are the properties we acquired in the course of the last 12 months. In -- from 9 Changi South, the left is Robinsons site. As you will recall, we reported that we acquired this site for strategic reasons, because we have adjoining property in 15 Changi South, which we are trying to amalgamate the 2 properties in due course, to be developed into a larger mega hub facility.

In terms of sponsor, the third property is Tanjung Pelepas, Johor, Mapletree's sponsor in Malaysia, in February this year. And in last quarter, 4Q, we also completed the acquisition of our 16 properties from the sponsor, 13 from China and -- 12 from China and also 3 from Vietnam. So the last property from China, [indiscernible] is going to be acquired in April -- 1Q this year.

In Malaysia, we also reported and announced that we are buying 2 plots of leasehold industrial properties in Subang, which is next to our existing Subang 3 and 4 properties. The plan is to amalgamate the 2 empty parcels for existing sites, Subang 3 and 4 into a much larger plot, so that we can redevelop into a mega hub for logistics use in 5 years' time. So we need to amalgamate the sites in 1 year's time and do a redevelopment 2 years later. So this would be redeveloped to a 6 story ramp-up warehouse, for 1.4 million square feet.

And recently, we also announced the acquisition of a new competed property, Baeksa Logistics Center in Icheon, and this is leased to a single tenant, e-commerce trading house, who is serving coupon for furniture storage and delivery and a real [indiscernible].

So in terms of portfolio valuation, there was an uplift in our valuation, as shared by our CFO, total valuation for our 183 properties stands at SGD 13.1 billion. And this is coming mainly from cap rate compressions in countries like Australia, Hong Kong, Korea and in China.

Turning to a summary of our portfolio at a glance. We have 183 properties compared to 167 in [ 4Q ].

And that's [indiscernible]

[Kiat Ng, executive]

Okay. So this is a slide on affordability. I think it was a very active year for us. We are on track to achieve quite a nice, more than 5% year-on-year reduction in energy intensity across 6 markets. And also, as far as solar is concerned, we are ramping up by 31% year-on-year to 13.8 megawatt day. And it was also a year where we have done -- did our part to add on to the carbon sequestration, where we planted more than 1,000 trees across MLT's regional platform. And of course, we have a quite -- we have a number of CSR activities during the year, where we saw a participation rate of 47% amongst our staff.

And for next year, again, I think we'll be, in fact, doubling down on our efforts. We will be developing a green roadmap, pertaining especially on how we want to plan out our green building certification for our properties. Currently, I think some investors have noted that actually, for us, the green mark buildings are quite a small percentage. And so we do intend to progressively upgrade some of our existing properties, as well as for newbuild, I think we definitely intend to get them green mark certified. And also in Singapore, we will be looking to introduce green leases, piloting it amongst our tenants and with the intention to roll out to other markets eventually.

So I think all in, I think it will be a very -- quite exciting year for -- as far as greening our portfolio is concerned for the next few years.

So I think overall, on the outlook part. Fortunately, the logistics sector continues to be very resilient. Our key markets like Hong Kong, Japan, Singapore, Australia, continue to be very strong and stable. You can see from the occupancies, that we are still able to achieve a high level of occupancies and still get positive rental reversions. So the -- in terms of growth markets, Vietnam and Malaysia, a small part of our portfolio, but they are registering good growth, meaning that we see higher than average kind of rental reversion for them and also the take-up rate is much faster.

So I think the only country that I will be more cautious about will be China and with its current situation -- COVID situation over there. But the thing is, again, although it's one country, we take note that, the eastern side, like Beijing, Shanghai, Guangzhou, continue to be strong, meaning that our -- although they have the lockdown, our tenants continue to be resilient, occupancies are still close to 99%, 100%. We still get positive reversions. It is towards the west, the central part of China, that things get a bit more volatile. But having said that, we are still registering positive rental reversions from the new leases we are signing.

I think just an illustration, we had this rental support option coming from the sponsor for the last round of China acquisition. We will not be utilizing full 100%. We'll be looking at more like 60%. So that shows that the performance is actually better than what we forecasted, in terms of take-up rate and vacancies. So all in all, for the next 12 months or so, you will see us stepping up our activity on redevelopment. So 51 Benoi, we have obtained JTC approval, so that will give us a 2.3x uplift in GFA. And then the other part that you see, that we have started to be more aggressive on the development front. We have acquired 2 pieces of land next to our own properties in Subang area. So we are already in discussion with the authorities for amalgamation and redevelop it into the first ramp-up warehouse in that whole location.

And then the other -- and you've seen us do -- buying the Robinsons warehouse next to our 15 Changi South. So I think we are going to use our development headroom, to acquire some of these properties that we can amalgamate, where we have greater control over the integration as well as the upside. So we will continue to push that front.

Then on the rejuvenation, I think some of you may have already heard in Singapore. We have started a sale process. We will be looking at divesting some of the lower specifications, what we view as limited growth potential for redevelopment potential for Singapore. We will be looking to push out in Malaysia, Korea and even Australia. So with the rising interest rate environment, with the rising utility costs. The good thing about utilities is -- because we are a warehouse operator, meaning that we lease out and we do not get to the logistic activity itself. So the utilization of electricity is actually very low. So we do not see a major impact coming in from raising -- increasing utility costs.

So I think for the next 12 months, we think the logistics sector will continue to be resilient. The markets that we are in all of the -- especially the merchant markets, we think that it will continue to be stable and resilient. So for the next 12 months or so, I think we are still pretty cautiously optimistic on our performance.

[Yuen May Lum, executive]

Okay. We'd now like to open the floor to question-and-answer. Can we have the first question, please?

[Derek Tan, analyst]

Derek from DBS here. Okay. I'll just ask 2 questions. I believe my friends have a lot more. The first question is on China. I think you sound a little bit cautious, and I'm just wondering if you look at your portfolio in China and also what you have recently acquired. So we are seeing mixed signals there. You are utilizing less of the income support. But then again, you are also sharing some caution. Maybe you should -- could you give us a sense on, let's say, if you look at China as a whole, occupancies, reversion, how should we expect, let's say, cash flows from China in the next 6 to 9 months?

[Kiat Ng, executive]

Okay. So I think China, although it's one country, but it's very big. So again, we will look at the Tier 1 and the Tier 2, as well as the lower tier cities differently. So what we are seeing in the Tier 1, it behaves a lot more like Hong Kong. So because of the tight supply situation, because of the strong consumer base, the consumption ability in terms of spending power is still very strong. So these are cities we think that occupancies continue to be high. And having said that, even across our second tier and third tier cities over the next 12 months or so, I think we are still looking at positive rental reversion.

So then the question coming in is, the caution on the tenant side. That means, yes, expansion appetite has definitely tempered down, we are not seeing the kind of short-term aggression, in terms of taking up space and hoping that it will work out and testing the market. So we're seeing a lot less of that. So because we've seen a lot less of that in the second and third tier cities, what we are seeing is, the occupancy rate may be more volatile, meaning that in top-tier cities, we will look at 95% kind of occupancy, but in the second-tier cities, we'll be hovering more closer to the 90%, 91%.

So as the situation -- we hope that the situation stabilizes, and then that will allow us to push occupancy a bit harder, where tenants become more certain and more confident, yes. So I think you are right in the sense that, it is a lot of mix, no kind of situation coming out from China. On the one hand, you will see that people were able to take up the space. They are prepared to pay higher rents. But on the other hand, you will see these tenants becoming more cautious and less aggressive as compared to last 2 years. So I think it will take a while for this volatility, this dichotomy to settle down. So we're watching this space very carefully. But I think cautiously optimistic, meaning that we are not concerned that it's going to cause any major disruption to our performance. Does that answer your question, Derek?

[Derek Tan, analyst]

Yes.

[Kiat Ng, executive]

In terms of rental reversions? So I think, just to give you a few of the rental reversions, maybe James, do you want to give them the rental reversions?

[James Sung, executive]

Okay. For the 4Q rental reversions, we have Singapore coming in --- overall, came in higher on a portfolio basis for Q2, [ 29%, 32.5% ] in 3Q. So Singapore was 1.7%; Hong Kong, 2.9%; China, 3.1%; Malaysia, 2.7%; Vietnam, 4%; in Korea, 3.9%; and India, 5%. We didn't have any leases renewed -- well, there were no expiries for Japan and Australia. So we are not reporting that.

[Derek Tan, analyst]

Okay. Sounds really -- sounds good...

[Kiat Ng, executive]

Yes. So Derek, for China it's not going -- you are not going to get a simple picture. It's not going to be, okay, is it going up, or [indiscernible]. See, you got to have many factors influencing the decision of the tenants, and then you will see. So what you will see is, positive rental reversion, but slightly lower occupancy. Yet you will see shorter WALE, but with rental escalations being factored in. So you will see that in the second tier and the third tier, until this situation stabilize, then that's where we will see a trend. But in the meantime, it will be quite volatile like this.

[Derek Tan, analyst]

Okay. Got it. Got it. Sorry, Kiat, just one more question for me would be on your JPY exposure. Japanese yen has depreciated. So could you give us some color, how protected are you and for how long for now?

[Sheh Min Lum, executive]

Hi Derek. So for JPY most of -- in terms of capital, that's mostly hedged with the JPY borrowings. In terms of income hedged, we have hedged about 68% for a period of 4 years immediate -- for the next 12 months, 70% of income has been hedged to Sing dollars. So 68% is actually across 4 years. So we would -- our strategy is to lock in rates progressively, as the period passes. So the near term, we'll have more hedged, and then further out, lesser hedge.

[Derek Tan, analyst]

Okay. So the 10% depreciation we see in the Japanese yen would have not much rate impact for this particular financial year? Is that how we should look at it?

[Sheh Min Lum, executive]

Yes.

[Brandon I. Lee, analyst]

Can I ask a question? It's Brandon here.

[Yuen May Lum, executive]

Brandon, yes, please, go ahead.

[Brandon I. Lee, analyst]

Just stepping back to the China portfolio, right? Can you share with us for the properties that you acquired in December? How far away are we from the stabilized 4.8% yield? And I think given the market weakness, would it take longer than your initial forecast to hit that market...?

[Kiat Ng, executive]

Great. The occupancy when we first acquired was 89.9%. Now it's gone up to 91%. And then -- even within this portfolio, the leases that we are seeing, some of them are rental reversions, we still get positive rental reversions. The second tier city -- can I have that please? The second-tier cities on the -- in terms of rental reversions, we are looking at about 3.1% and then the Tier 1 cities were looking closer to 3.5%. So how far are we away? So I think another 6 months we should be seeing some stabilization or rather we should reach the stabilization that we are expecting from this portfolio.

[Brandon I. Lee, analyst]

Okay. Well, that's great news. My second question would be, can you share with us how are your top China tenants doing? I mean, if you look at SF Express, JD.com, Cainiao and Best, right? How are their expansion plans, like, how is it?

[James Sung, executive]

So with SF Express, is one of the top tenants in our portfolio, right? They are in multiple locations, right? You just hang on a minute. So SF Express, JD, Cainiao, Best -- Express has sold their Express business to J&T, so leaving only the supply chain and J&T. So they are in multiple locations. Most of them operate regional DCs, right, in multiple locations. These are bigger, so-called regional distribution center of 0.5 million square feet of space or more. And they are doing both the so-called owning their own properties and also leasing, all right? So they tend to invest more in the CapEx and longer leases in our properties and sign longer leases. Then they have -- these are regional DCs.

Then they also have [indiscernible] locations. The leases are smaller, about 100,000 square feet or so, and they tend to lease short term, right? So they take a more flexible approach, where the [indiscernible] locations require less space, so they give them the ability to flex up or shut it down. So they are still -- the industry is still resilient. We have players coming in to do acquisitions like J&T, which I've explained last year. J&T has got private equity coming from Tencent, coming from even Temasek, it's one of the shareholders. So they have acquired Best Express. In Best Express, also 2 of the sites in Jiaxing and also in [ Wan Tsuen ] where they are tenants. So that tenancy has now been weighted or signed to J&T. So again, most of the express companies and big customers are growing thus far. We expect some further consolidation in terms of M&A, right, because they are going for volume, they are going for market share.

[Mervin Song, analyst]

Kiat, it's Mervin from JPMorgan. I just wanted to follow up on China occupancy, based on your discussion for Tier 1, Tier 2. Can I presume, just hover around that 93% currently. And for the rental reversions by 3.1%, there's a chance it may moderate slightly from that number?

[Kiat Ng, executive]

So I think in terms of occupancy, we think that the second-tier cities, barring any further deterioration in China COVID situation. We -- in fact, we think that the occupancy in the second tier cities should improve from the 91%. So the question is really, in terms of rentals, how much we can push. So right now, we are more selective. And like I said, the aggression for expansion from a lot of the noise from all these short-term tenants, meaning that they have very short-term strategies. I think a lot of them have fallen off.

So what is happening now is, when we take on a new tenant, the occupancy is actually going to improve, and we are hopeful that they are now being able to sign slightly longer leases. So like our combo 3, our lease -- our WALE was 2.4 years versus the existing portfolio, which is about 1.6 years. So again -- it's again not going to be one direction kind of picture coming up from China. You're going to see occupancies improving from 89%, 91% and then moving up, but yet the WALE of this portfolio is looking at about 2.4 years compared to the existing portfolio. So you're going to get different signals coming out from China.

[Mervin Song, analyst]

Sure. Sure.

[Kiat Ng, executive]

I think the situation is -- what we need to do is, actually more on our leasing strategy. How we position some of these tenants within our portfolio? So there have been cases where, we would decline taking on certain tenants, because we think that they will add further volatility to a particular asset. And then, where we have greater visibility of a longer-term tenant, that's taking a few more months to decide. So I think this strategy of being able to move our tenants around, being able to select our tenants, comes from the fact that we are in multiple locations. And we are able to offer them expansion-contraction options within multiple locations in China. I think that is becoming an increasing important factor for a lot of our tenants.

[Mervin Song, analyst]

Sure. My second question relates to gearing. I guess that's completion of China properties on the 1st of April, what would the gearing stabilize that, and with the post redevelopments, how high could gearing go to?

[Sheh Min Lum, executive]

Sorry, can I -- just the question again, you're asking what will the gearing be, is after the completion of the last China asset as well as the Korea asset?

[Mervin Song, analyst]

Yes. And then with the redevelopment, how high could you -- will you be willing to push the gearing to? Yes.

[Sheh Min Lum, executive]

We're looking about [ 7.5% ] after the completion of the 2 properties with development that -- and the CapEx for the development will be progressive in nature, right? So that depends -- it's over a period of 2 years, starting end of this calendar year. So it will really depend on where we are at that point in time, but that project will add about 1% to gearing. After -- I mean, if we take the whole TDC to consideration.

[Mervin Song, analyst]

Okay. So this FY it was 37.5% number quoted?

[Sheh Min Lum, executive]

No, the FY is 36.8%, but after including the 2 projects that we completed -- after the FY, is [ 7.5% ].

[Kiat Ng, executive]

So Mervin, to answer your question, how far we are prepared to push our gearing. So this year, things will get a bit more interesting for MLT. We are in the process of divestment. And I think those in Singapore will know that, we already started our Singapore divestment program. So the -- some of that capital will be recycled for sure. And then, we are going to continue to make acquisitions and then redevelopment. So I think looking at that, we'll be pushing our gearing up to about 40%, 41%.

[Mervin Song, analyst]

Okay. Sounds...

[Kiat Ng, executive]

Yes. And that level will depend on our divestment program. I think previously -- I think the question asked is how much divestment opportunity do we have within MLT? I think conservatively, easily SGD 500 million. And then with the current cap rates that are still being -- they are still compressed, than not. I don't see, at least in the market, cap rates being relaxed. So the thing is with that, we think that we can sell and actually get pretty attractive price and any divestment gain, we will be distributing back to unitholders.

[Mervin Song, analyst]

Okay. Excellent.

[Kiat Ng, executive]

Yes. So -- the general message that we have is, yes, China is seeing some volatility, but it is a market of tremendous growth. We are positioning ourselves in there to capture this growth. We need to get our leasing strategy correct on each asset, within each province. And then with that, that will continue to generate stability and resilience to our portfolio. So if you look at -- in terms of performance impact on DPU this year, even what you're seeing now with the occupancies and all this, I think we are optimistic -- cautiously optimistic that the Chinese portfolio will stabilize, and then the impact on the DPU will, in fact, be positive.

Having said that, the other mature markets that we are in, have started to see the economy becoming more active because of the opening up. So that will again add another layer of stability to our portfolio. So in terms of performance for this 12 months, we have China going through a period of volatility, but the other larger markets like Australia, Singapore, coming out to be more active. So therefore, that being the case, we think that we should still see quite a good DPU growth this year.

[Donald Chua, analyst]

This is Donald from BofA. Kiat, 2 questions from me. Just to follow up on your divestment guidance earlier. So conservatively SGD 500 million. Realistically, how much...

[Kiat Ng, executive]

Conservatively SGD 500 million over the period, it very much depends on what price we can get, what -- and the timing. So it is something that we will be pushing up.

[Donald Chua, analyst]

And on average, you were saying that Malaysia, Singapore and South Korea, right, being -- assets...

[Kiat Ng, executive]

And a later stage, Australia. Later part will be Australia.

[Donald Chua, analyst]

What sort of levels are you marketing for these sales above your current book value, which has already seen conversion of cap rates? I guess what I'm trying to drive at is, what sort of divestment gains should we expect?

[Kiat Ng, executive]

So I think, we would like definitely to give you more color, when we have greater certainty. Meaning that as we progress down the divestment path, we will be announcing the divestment gains as we are moving. So at this point, I would say [Technical Difficulty] positive that there will be divestment gains. The range, I think it very much depends. It could be -- overall this year, depending on how much we sell, maybe SGD 15 million to SGD 30 million. But the thing is we have a -- we have a practice. It's not a policy, but we have a practice that we do not distribute all within one single financial year.

[Donald Chua, analyst]

Yes. Yes. So spread over quarters.

[Kiat Ng, executive]

Yes. So we will spread it over quarters. So you see that on the smaller gain amount, we spread it over 4 quarters. But on the larger gain amount, we will spread it over 8 quarters or even 12 quarters. So that's the position that management will take, and have a clearer view when we come closer to the actual realization of the divestment.

[Donald Chua, analyst]

And you were mentioning that you were willing to push gearing up to 40%, 41% with acquisition possibility this year. So if you divest SGD 500 million, then you're willing to push your gearing to 40%, 41%, that will imply acquisition ticket size of close to SGD 1 billion. So where are we looking at this kind of opportunity?

[Kiat Ng, executive]

Okay. We are continuing -- it's going to be the -- it's going to be the same markets that you have seen us been active in. So we are having deals coming out from Australia, South Korea, Japan, even Singapore in a small way, and then even Malaysia in a small way. So it is, again, that same market. And then if you look at the size that we have been doing, it could be -- and even India, we are buying. So it could be within SGD 30 million to SGD 100 million kind of position. So I think we have taken a very, I would say, straightforward method, SGD 500 million divestment and then therefore, implied 41%, you work out the math.

The difficult part in that is timing. Acquisitions do not come at the same time as divestment, and divestment to get the best price may not come at the time that we want for the acquisition. So that number will fluctuate, meaning that it will not be exactly like what you have said.

[Donald Chua, analyst]

Sure. Sure, sure. Understand. Understand. We're not closer to -- even at this kind of portfolio size, at this stage, you're not closer to looking at European or U.S. kind of assets, venture out of Asia?

[Kiat Ng, executive]

I think at this point, it is very clear to MLT, that there is, like I said many times before, there are still a lot of opportunities in Asia Pacific, that we have not been able to capture. So for example, yes, we have the China issue, but we have not been able to capture sufficient exposure to India. So we hope to do something with Amazon in India. Just an example.

So there are tremendous opportunities. We are not deep enough in Australia yet. In Hong Kong, there could be development opportunities that we will use the sponsor's balance sheet. So there's still a lot of activity, and I think the -- barring any major disruption again, I think the most exciting growth region is actually Asia Pacific.

[Donald Chua, analyst]

Yes. I agree. One last very quick question.

[Kiat Ng, executive]

You don't have to agree, Donald, you don't have to agree. But I think -- so every single -- it's not like I have SGD 10 billion sitting, waiting for me to spend. We are not in the private fund business, where we raise equity upfront on a blind pool and all this. We go to the market, we go to the investors as and when we get a deal to show the investors to say, look, this is the deal we're having. We think it's good, and we would like you to come in and share the capital. I think the pace -- the traditional or rather the track record that we've built up, is we are able to build our portfolio slowly, but surely. You don't -- you build up a SGD 1 billion acquisition, not because we buy one portfolio, we buy it over the 12 months, and then we then -- we buy it from different sellers. We buy in different countries. So the ability to have that outreach to different sellers, different countries, I think, is something that we currently have a competitive edge, and that's something that we should continue to push on, yes. So I think we are not going to Europe and U.S.

[Donald Chua, analyst]

Quick last question, sorry. The utility cost, is -- what you're expecting in terms of impact on NPI, for this year and next year?

[James Sung, executive]

It will be minimal. The reason being like Kiat has explained. For landlords, the impact is on the common area. Common area, we need to see those areas that we are responsible for our own expenses. That constitute only 2%, 3% of our overall OpEx expenses. The balance is actually recovered from tenants, or the tenants are actually paying themselves. So the 2% of the expenses is quite limited, even though we know that electricity costs have gone up, and we also have -- mitigated by solar projects in some of these properties and we can see some utilities costs from these properties.

[Donald Chua, analyst]

So it doubles -- it doubles, just 2% to 3% extra costs?

[Kiat Ng, executive]

I think it's 2% to 3% of the 2%.

[Sheh Min Lum, executive]

2% to 3% of revenue. It's 2% to 3% of the OpEx. So the expenses, 2% to 3%.

[Unknown Analyst]

This is [ Tian Xin ] here. My first question is on redevelopment, both in Malaysia and 51 Benoi. Can you walk us through the development cost and expected [ UM ] cost?

[James Sung, executive]

For 51 Benoi, the development cost is about SGD 197 million. Yes. And the other one which you're talking about, the Malaysia?

[Kiat Ng, executive]

No. Yield on cost.

[James Sung, executive]

Yield on cost 6.2%.

[Unknown Analyst]

Sorry, Your line is a bit muffled. Do I get SGD 197 million, 6.2%?

[James Sung, executive]

SGD 197 million and 6.2%.

[Unknown Analyst]

And what about Malaysia?

[James Sung, executive]

Subang is about 17%.

[Unknown Analyst]

And total development cost?

[Kiat Ng, executive]

About SGD 200 million.

[Unknown Analyst]

Okay. And just one more question about acquisitions, right. Is the sponsor portfolio likely to be ready? And without debt, are we more likely to see like a SGD 0.5 billion kind of acquisition for the upcoming year?

[Kiat Ng, executive]

Sorry, can you say that again?

[Unknown Analyst]

Yes. For the next financial year, how likely are we to see any portfolio from the sponsor? And without that, are we more likely to see like a SGD 0.5 billion kind of acquisition pace?

[Kiat Ng, executive]

Okay. I think the -- back to the sponsor. The sponsor pipeline largely is concentrated from China and a smaller percentage from Vietnam and Malaysia, right? And then based on what we are seeing in China, I think I would take a position that, I would like to take a step back from China and let the situation in China, as well as MLT's own China portfolio stabilize. So I think based on what I'm looking at, I don't think we will be making a China acquisition from the sponsor for the next 12 months. Hello?

[Unknown Analyst]

Yes. Yes.

[Kiat Ng, executive]

Yes. So having said that, so the thing is then in terms of acquisitions. So Vietnam and Malaysia, we are still keen, because we see the momentum still building up. The momentum is not lost, even in this current macroeconomic situation. So Vietnam and Malaysia, where it could be opportunities for us to buy from the sponsors. But these will be a smaller dollar value. So really, I wouldn't go to the extent of what Donald, the straightforward mathematical calculation. I wouldn't go all the way to say that, look, we're looking at SGD 1 billion just simply like that. But basically, I think building the momentum, buying from third parties, hitting a SGD 500 million from third party is something that we would like to achieve this year. And then you add on some of the Malaysia, Vietnam, that may -- we may buy from the sponsor.

[Yuen May Lum, executive]

Tian Xin, do you have another question or can we have the next question?

[Nicholas Teh, analyst]

It's Nicholas from Credit Suisse. Can I just ask, I guess, on China. And I mean, I guess, logistics is relatively resilient there. But how do you see the risk of, I guess, from a cash flow perspective, that perhaps if there's disruption to operations in the warehouse, how do we think about any rent rebates or anything like that? And also in terms of like hedging of R&D?

[Sheh Min Lum, executive]

Okay. So in terms of the rebate for the COVID-related rebate, right? For the quarter itself, included in the numbers, we have actually provided for RMB 400,000 of rebate, that's about RMB 1.7 million, of which RMB 400,000 has been actually disbursed. The balance is just a provision, that's what we anticipate in terms of requests from tenants, but it has not been disbursed.

[Kiat Ng, executive]

Yes. So I think, Nicholas, you can see that we are -- I mean based on the value that Charmaine just mentioned, us providing about RMB 1.7 million, making a provision and of which only RMB 400,000 needed to be disbursed over the last quarter. So that gives an indication of the -- what the tenant situation is at the China side. It is not the case that you have 100% or even 50% of the tenants are clamoring for rental rebates.

[Nicholas Teh, analyst]

Okay. And I guess that's because most of them are operating. It's just the ones that can't operate that are asking for the rebates?

[James Sung, executive]

That's right. In fact, because we're still monitoring the situation closely, even though we have provided some potential rebates for 4Q, like our CFO has shared. In terms of -- cases, even after lockdown, not all the [indiscernible] in lockdown. So we have tenants that were able to operate, because they have -- they applied for permits -- special permits for their workers, for the workers to do delivery for the superfood items, essential items. So they do still operate, but not at full capacity for obvious reasons, because some of the workers are quarantined at home due to the testing, right? So looking at a case-to-case basis depending on the [ justification ] for the tenants, right? But in terms of -- news as well, for the logistics parks especially in Shanghai, the lockdowns have been removed or lifted [Technical Difficulty].

[Kiat Ng, executive]

I think the resilience of the Chinese tenants is something that -- sometimes we may underestimate, especially the logistics tenants. They cannot get their big trucks out, they will get their small trucks out. They cannot get their small trucks out, they will get their scooters out. You have pictures that you have seen yourself online that, you are still seeing vegetables being delivered. You are still seeing medication going around. Except that, you don't see the normal big trucks coming, you have them driving the little scooter and going at the site. So I think the resilience of these local tenants from the Chinese is something that is quite amazing.

Just to -- I mean and to take a step back, and you look at our overall revenue coming in from China, is about SGD 133 million, of which Charmaine just mentioned, we provided SGD 400,000. So SGD 133 million and we provide SGD 400,000. So that shows you, it's even less than 1% of what is expected. So if things stay as what they are, we think that it is not a significant impact at all. So the question is, if things deteriorate, how bad does it become? So although James mentioned that some of our tenants are not operating, it's not the case that they don't operate for a month. We have cases where they open up half 50% for 2 weeks, then they close down to 25% for another 2 weeks, and then they open up another 60% for another 2 weeks. So that's what's happening on the ground. So it's only those that cannot operate at all, that we will be more concerned about. But so far, the percentage is very small.

Nicholas, I'm sorry, we took the long way and many illustration to answer your question. Does it answer your question? I hope it does.

[Nicholas Teh, analyst]

Yes, yes, for sure. I mean, very clear. Also just wanted to understand on the RMB hedge as well, that you guys have?

[Sheh Min Lum, executive]

Right. So for the RMB hedge, right, income-wise, we had hedged about 67% for the next 12 months.

[Nicholas Teh, analyst]

Okay. Got it.

[Kiat Ng, executive]

To repeat, yes, 67%.

[Nicholas Teh, analyst]

Okay. 6-7, right?

[Kiat Ng, executive]

Yes, 6-7.

[Nicholas Teh, analyst]

Okay. And the last thing is, I missed the Singapore reversions. What was that number?

[James Sung, executive]

Singapore is 1.7% in 4Q. 1.7%.

[Nicholas Teh, analyst]

1.7%. Okay, lovely.

[Yuen May Lum, executive]

Management, the time is coming to 1 hour, but there's a question from the floor that may be -- like management to take. This person asked, [indiscernible] actually, how does MLT typically hedge it's -- for interest rate and foreign change? Is it on a 3-month, 6-month or 12-month basis?

[Sheh Min Lum, executive]

Is it the interest rate or FX?

[Yuen May Lum, executive]

Either.

[Sheh Min Lum, executive]

So for interest rate, we usually do it by way of interest rate swaps. So for interest rates, currencies like Japanese yen, Sing dollar, USD and all, where you are going to get a plain vanilla IRS, we will do the plain vanilla IRS. Other currencies like Korean Won or CNH, we will do the cross currency swaps. So typically, our hedges, we can go 5 to even 7 to 8 years, depending on the yield curve at a point of hedging. That's on the interest rate front.

On the FX front, we enter into FX forwards to hedge our overseas income streams into Sing dollar. So what we do is, we will hedge this progressively every quarter. Yes. So for Japanese yen, whereby it is a discount, we actually hedge up to even 8 years, i.e., the later the tenure, the rate is actually better for us.

[Yuen May Lum, executive]

Okay. I hope that answers [indiscernible] questions. Do we have any more questions from the call -- in audience? If not -- any more questions? Any more questions? Okay. So thank you very much for your time.

[Kiat Ng, executive]

Okay. Thanks. Have a good evening.

[Sheh Min Lum, executive]

Thank you.

[James Sung, executive]

Thank you.