Mapletree Industrial Trust

SGX:ME8U

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to fourth quarter and FY 2019/2020 results briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Melissa Tan from Investor Relations. Thank you. Please go ahead.

[Hwei Leng Tan, executive]

Hi, good morning, everyone. Thanks for joining us this morning. It is a challenging period for everybody. And we are trying the virtual conference for the first time, so bear with us if there are any hiccups or if anything is slower than usual. So today, we have the management team of MIT. We have Kuo Wei, our CEO; Lily, our CFO. We have Peter, the Head of Investments; Serene, the Head of Asset; and we have Khim, who is the Head of Marketing. And today, we also have Paul, who is the Head of Property Management. So we have the full team here today. Let us begin with the presentation by Kuo Wei. Kuo Wei, please.

[Kuo Wei Tham, executive]

Hello, good morning, everybody. I hope you can hear me loud and clear. This is the first time we're doing it. And hopefully, we don't need to do it so often, and we can meet face to face. So what we have sent out last evening is our financial statements and results for fourth quarter and full year and also a presentation deck. And I'll run through the presentation deck and outline some of the key things to look out for. We have the usual 5 segments: highlights, financial performance, portfolio update, investment update and, of course, outlook and strategies. For key highlights, you can see that on Page 5 for the financial year '19/'20. We have, of course, seen an increase in the distributable income, 14.5% to $265.3 million. Year-on-year basis, we have a 0.7% increase in DPU to $0.1224. And the distributable income has gone up 15.4% year-on-year basis for the fourth quarter. DPU on a year-on-year basis, you see a 7.5% reduction to $0.0285. So this is, of course, because of us having withheld $6.6 million in view of the uncertainty, and we wanted a bit more flexibility in managing our cash flow for this current financial year. So I think we have the second bullet point on the slide. If we had included the $6.6 million, which is the tax-exempt income we received from our joint venture in North America for the fourth quarter, the DPU for financial year '19/'20 would have been $0.1254, that's a 3.1% increase year-on-year basis. And for the quarter, fourth quarter, the DPU would be $0.0315 or a 2.3% year-on-year increase. So this would have been a business as usual kind of outcome. We don't have the better level of certainty in the financial year 2021. And some of you might have read in our earlier release in the middle of April, 15th of April, when we have outlined a program, we call it the COVID-19 Assistance and Relief Programme, to help and support our tenants, mainly the smaller tenants in our portfolio. The aggregate amount that we have set aside is $13.7 million, which will probably be dispensed progressively over the next couple of months this year. And the next point is portfolio update. I think occupancy has seen an improvement from 90.9% to 91.5% for the quarter, driven by better leasing in some of our new projects and also completion of new projects as well. And the average lease expiry for the portfolio has also increased 3.9 years to 4.2 years at the end of the financial year. We did the portfolio valuation as well. This is, of course, required by regulations. We have seen an increase 23.6% year-on-year to about $5.9 billion as at the end of the financial year. Of course, a big part of this increase was from the portfolio that we acquired and completed in November and January. And for the capital management part, we are, of course, happy to note that all the loans that were due in financial year 2021 have already been refinanced in the fourth quarter. So we don't have any outstanding so-called borrowings that we need to refinance for this next 12 months.

The balance sheet, I think, is relatively healthy. Interest coverage ratio is still at a fairly good level of 7.7x as at the end of the financial year. So moving on to the next slide. This is the profile of our distribution, that's on Page 6, where you see a dip in the distribution per unit of $0.0285 compared to, say, $0.0316 in the previous quarter and $0.0313 in the earlier quarter. But the distributable income, I think, is relatively strong at $69.2 million. And going on to the next segment, talking about the financial performance, that's starting from Slide 8 onwards. For the fourth quarter, year-on-year basis, we have seen a 3% increase in gross revenue. Property expenses, following a similar time -- uptick, 2.5%. Net property income, we are seeing a similar growth as well, 3.2% to $78.3 million. And if you look at the share of joint venture results, of course, there has been a fairly large increase mainly driven by the new portfolio that we have taken on from $13.2 million in the previous year to $60.9 million this -- fourth quarter for this year.

So of course, you see the net fair value gain, those are more valuation gains. If you back all the numbers out, the amount available for distribution, you can see towards the bottom of the page, is 15.4% increase from $59.9 million in the fourth quarter of last year to $69.2 million for the fourth quarter of the financial year that just ended. And because of the holding back of the $6.6 million, we see the DPU being 7.5% lower and $0.0308 in the fourth quarter in the financial year '18/'19. So we move on to the next slide, page -- on Page 9 for the full year comparison. On a full year basis, of course, the growth is a little higher. When you compare that with the fourth quarter, we are seeing a close to 8%, 7.9% increase in revenue from $376 million to $406 million. Property expenses, we have kept it quite well under control; only a 0.6% increase from $88.3 million to $87.8 million. As a result of that, the net property income has improved 10.5% from $287.8 million to $318 million.

Of course, borrowing cost has gone up a little. Now MIT’s borrowing rates are fairly stable. So it's mainly due to additional borrowings for our new projects and has increased by 12.2% from $40 million to $45 million for the financial year. The net fair value gain, you can see down there, is essentially the portfolio valuation gain. We see a slightly higher contribution from the development projects from $30.8 million last year. This year, we have recorded a $50.8 million valuation gain. So that's a 65% increase on a year-on-year basis.

And moving the figures down, putting the noncash valuation gain figures in sight, amount available for distribution, we are seeing a 14.5% increase from $231.8 million to $265.3 million. So on a year-on-year basis, you see a 0.7% increase in the DPU from $0.1216 to $0.1224 for the financial year '19/'20. Moving on to next page, Page 10, where we compare the quarter-on-quarter performance. Change from third quarter to fourth quarter is fairly small, is 0.8% dip in gross revenue from $102.6 million to $101.8 million. But property expenses, we have seen a slight increase, 13.7% from $20.7 million to $23.5 million. This is mainly due to certain cyclical works that have been recorded in the fourth quarter and the period just before the end of financial year. So the net property income margin is a little lower. But I think if you look at it on a full year basis, it's still around the 78% level. So specifically for this quarter, of course, the net property income has come down a little because of the property expenses.

We are seeing a 4.5% reduction in net property income from $81.9 million to $78.3 million. And when we compare the amount available for distribution, the gap is fairly small between quarter-to-quarter $69.4 million in the previous quarter, down 0.4% to $69.2 million for fourth quarter. So for the DPU comparison, we are seeing a 9.8% reduction quarter-on-quarter basis from $0.0316 to $0.0285. If we had added in the tax-exempt income of $6.6 million, which we have withheld, we would see a $0.0315 number, so very close to the third quarter's number. And moving on to Slide 11, where we outline the balance sheet. As at 31st March, end of the financial year, we have about $5.2 billion worth of assets, $1.6 billion worth of liabilities. And NAV, we are seeing a $1.62. NAV per unit compared to last year was $1.51, a 7.3% increase in NAV per unit. And next, we move on to our portfolio valuation, that's on Page 12. In the middle, you can see the current valuation figures we have in aggregate SGD 5.894 billion. Of course, that includes our interest in the North American portfolio, you can see towards the bottom of the table, SGD 1.446 billion. That's equivalent to about USD 1 billion. And the increase in the portfolio value for the Singapore portfolio, as you can see in the first bullet point, essentially is driven by revaluation gain of close to $80 million, plus another $32 million from the capitalized cost of our development and improvement works. And of course, the increase in the North American portfolio was mainly due to acquisition of the 13 data centers just recently completed. And on Page 13, we give a snapshot of our balance sheet. Total debt is about $1.4 billion. And because we have done some of the refinancing a little ahead of time, our weighted average tenor on debt now has increased from 4.1 years as at 31st December to 4.7 years as at 31st March. And aggregate leverage ratio, just a shade below 38%, 37.6%. And moving on to our debt maturity profile, that's on Page 14. You will see that we have nothing that's new for refinancing in the financial year 2021 as at 31st March. Even if you look at the next couple of financial years, we have very little that is due, financial year '21/22, only $100 million. And the financial year '22/'23, 2 years out, we're talking about another $220 million. So as of now, we have more than sufficient committed facilities to meet our needs in the foreseeable future. More than $380 million worth of committed facilities available in the current financial year.

And moving on to Page 15, where we look at our risk and exposure. The amount of debt that is fixed is about 73.4%. So we think that would, say, reduce a lot of volatility we may see in the portfolio. Weighted average tenor of the hedge is roughly 3.8 years, following quite closely with our debt tenor as well. And weighted average funding cost is relatively stable, 2.9% for the fourth quarter of financial year '19/'20, partly helped by a little bit of the base rate reduction that you can see in the market, and it's driven by the Fed cuts as well. Interest coverage ratio has moved up a little, now at 7.7x. And on the right, you can see the capital hedge we have in place for the U.S. dollar investments, about 81% hedged, and for the income for the first quarter of financial year '20/'21, about 70% has already been hedged into Singapore dollar. And next, we move on to our portfolio update, that's on Slide 17. The AUM number, of course, at $5.9 billion reflects the current elevation or updated valuation figure. In aggregate, we have about 21 million square feet of net lettable area and, of course, the updated chart for our portfolio, at the present moment, we have more than half of our assets in Hi-Tech, 55% of Hi-Tech Buildings, out of which you can see 31.6% of data centers, 24.5% in the U.S. and Canada and, of course, for Singapore, we are seeing a 7.2% representation. Flatted Factories, of course, over the years, has been coming down. We're seeing just about 1/4 of our assets that are Flatted Factories; Business Park, just below 10%; Stack-up/Ramp-up facilities, 8.3%; and a very small representation, 1.3% in Light Industrial Buildings. And going on to Page 18, portfolio overview. The more interesting part, of course, is the occupancy figures. Singapore portfolio, we continue to see a little bit of improvement from 90.5% to 90.7%. For the U.S. portfolio, mainly because of the new facilities that we have taken on, which are at 100% occupancy, so the aggregate occupancy level for the U.S. portfolio has increased a little from 97.8% to 98.7%. And of course, for the overall portfolio as a result of these 2 components, Singapore and the U.S. portfolio, both experiencing a bit of occupancy growth, seeing an increase in overall portfolio occupancy to 91.5% from 90.9% in the previous quarter. And going on to next page, Page 19. We look at the lease expiry profile, very well spread over the years. Overall, weighted average lease expiry is 4.2 years. If we are looking at the current financial year, only 17.7% of the business are due for expiring. So we don't think there will be any big exposure to any one segment or really any tenant lease for this financial year. So it's a business as usual, engagement we have with our tenants for the expiration of the leases and renewals. And going on to the next page, Page 20, where we outlined our top 10 tenants. We see them contributing just below 30% of our revenue. We have a very large tenant base, more than 2,200 tenants. Largest, of course, is Hewlett-Packard, 8%. The rest are very strong stable companies. And progressively, you see smaller and smaller kind of exposure as we've gone on to the ninth and tenth, just a little bit above 1% contribution. And moving on to our tenant diversification chart, that's on Page 21. You can see that no trade sector accounts for more than 80%. Of course, Hewlett-Packard, our largest tenant, which contributes 8%, is the single largest trade sector of about 18%. So the rest have carried out a spread of all the different trade types. InfoComm, which is represented by the blue sector, has been increasing progressively over the years as we take on more data centers, and a lot of our tenants and data centers are represented in the InfoComm space. And moving on to Page 22, where we outline the portfolio performance. You can see that the occupancy level has moved up a little from 90.5% to 90.7% in the bar on the right. And weighted average rental rate has come down a little bit from $2.12 to $2.11, which are outlined in the next few slides, details in the next couple of slides. On Page 23, you can see the occupancy levels we have registered for all different property types. You can see reductions in Flatted Factories partly due to the Kolam Ayer 2 redevelopment project because we have been progressively moving tenants out of the cluster while we prepare the site for redevelopment. So that resulted in low occupancy in Flatted Factories cluster. Same thing for the Light Industrial Buildings, we have seen a slight drop in occupancy because we have some tenants who had not renewed with us, but this is a very small part of our portfolio, just 1.3%. So other than that, we have seen increases in occupancy levels for our other property types. And more significant one is the Stack-up/Ramp-up facility, 90.4% to 94%. So that helped to improve our overall portfolio occupancy level by a 0.2 percentage point from 90.5% to 90.7%. And going on to Page 24 is our rental revision. You can see that it is fairly stable across all the property types. Some of the cost -- or some of the property types, like Hi-Tech Buildings, we continue to see improvements in the revisions, rental revisions from before renewal to after renewal, $4.44 to $4.55. Business Park is very stable. And even for Flatted Factories, we're seeing a very stable representation down there, $1.88, down just by $0.01 to $1.87. We are seeing slightly lower revision or negative revision for the Stack-up/Ramp-up facility from $1.40 to $1.32, partly because some of the tenants that we have renewed in that quarter, some of the larger ones that we accommodated at fairly lower rents.

And one thing to note for the Flatted Factories is that the new rents are a little lower than renewal rents, just $1.73 compared to our renewal rents at $1.84, but that's mainly because of preferential rates that we have offered to our tenants from the Kolam Ayer 2 cluster, who have relocated to other Flatted Factories clusters. So if we have excluded these new leases and preferential rates, the average rental rates for the new leases would have been about $1.87, which is very similar to our renewal rent level. So we are seeing some level of support exhibited in the fourth quarter. That's, of course, before we see this additional stress coming into the market now. But I think last quarter was quite a good quarter for us as far as rental revision is concerned. Going on to Page 25, we outline the retention rate. From the bar chart on the right, you can see 77.5% of our tenants have remained with us and renewed for the quarter. And in aggregate, about 64% of our tenants are with us for long periods of time, more than 4 years. And right now we are seeing close to 30%, 28.6% of the tenants stay with us more than 10 years. So it is really an indication of the level of stickiness of some tenants they have in our portfolio. And going on to the next segment, which is our investment update on Page 27. The key thing to highlight is just the completion of our Powered Shell portfolio that's towards the bottom of the table, 14th of January 2020. So it has started to contribute meaningfully to the portfolio, and from this quarter onwards, you'll be seeing a full year kind of effect of this contribution. And going on to the next page, that is our Kolam Ayer 2 redevelopment project. The key thing to highlight is that we have right now 67 out of 108 tenants, that's the fourth bullet point in the table at the bottom, 67 out of tenants who have committed new leases at our alternative clusters. So work is on schedule. And by the time the last tenant leaves, around July, we will start our redevelopment project based on the plan. And finally, we move on to our outlook and strategy page, that's on Page 30. This time around, I think we have a little negative. The outlook, I think, for Singapore, it is challenging. Essentially, the pandemic has created quite a bit of stress in the environment. As you would have read, GDP growth forecast has been revised out a couple of times. And even in March, we are looking at minus 4% to minus 1%. But I think we're looking at some of the figures outlined by analysts. We are seeing -- we are anticipating further cuts to the GDP growth. So business confidence, of course, is affected quite significantly. And a lot of our tenants, who are small and medium enterprises, are feeling the pressure. And as the ratio we have outlined in a bullet point, in a sub-bullet point, about 55% of our portfolio, SME tenants, on an aggregate basis, is about 45%. So we are keeping a close eye on the health of our tenants, and we certainly try to see what we can do to be of assistance to our tenants who are feeling these pressures. Now if you keep an eye on the median rents for the industrial space in Singapore, of course, this is expected from JTC. Multiuser space, fairly flat, $1.77 per square foot. So we have not seen any big downward shift in any of the rents yet. So it's probably too early to see any of these figures being affected. Business Park space, a very marginal 1.2% quarter-on-quarter adjustment, but still at a fairly healthy rental level of $4.20 square feet per month. So I don't think we can read too much in this set of figures yet. But as I've outlined earlier, we support our tenants during this very difficult period.

And as you know, the circuit breaker period has been extended, and so we will be looking at June 1 for the circuit breaker period to end. And during this period, of course, not all tenants can operate in their premises. And the government really allowed tenants in essential services or in key economic sectors to continue operations. But because quite a lot of our tenants are in this space, we kept our buildings open and operational. I think as of our last check, based on our engagement with our tenants prior to the further tightening, we have about 70% of our tenants that are still operating. And of course, over the next couple of weeks, we think that may come down a little as the measures get tightened a little. But we think a healthy level of operations is still being registered in the portfolio unlike certain segments like retail where the impact is a lot more significant. And as far as assistance is concerned, of course, other than the usual rent so-called restructuring and deferment considerations, we're also looking at direct help, which is the COVID-19 Assistance and Relief Programme, we have set aside close to $13.7 million in the form of mainly rental rebate that will help cushion some of this impact for our tenants. And the next thing to note, of course, is the COVID-19 Temporary Measures Act, which provides temporary relief for businesses and individuals. In our context, it would be our tenants, who are unable to fulfill the contractual obligations and manage the rental payment. As of now, we don't have any big arrears issue yet as at March 31. The arrears ratio is still relatively low, 0.2% of the previous 12 months gross revenue. So nothing significant due to the -- not yet, but we anticipate this ratio to creep up over the next couple of months if the situation doesn't improve and the tenants run into cash flow issues. So we need to keep a close eye on this ratio. And moving on to the next page, that's on North America. Of course, all our facilities are data center facilities, very healthy demand. And we are seeing continued kind of growth in the key markets that we are in, big absorptions even in -- the biggest kind of representation we have now is Northern Virginia. The absorption has been fairly strong, and pipeline has continued to be robust, and we are seeing transactions continuing to be done at more and more competitive, compressed rates. So I think if you look across the industry -- across different asset types, this is still one of the more resilient asset types in the current situation. So of course, as these are essential facilities, all our data centers in North America have continued the operations. So I think, finally, we move on to our strategy. Generally, we want to remain diversified and resilient, as on Page 32. It's supported by a 3-pronged strategy, keeping our portfolio stable and resilient. And if you look at the weighted average lease expiry because of the long leases that we have in place on a quarter-to-quarter basis, we have improved it to 4.2 years. And tenant base is very diversified. And certainly, especially in the current time, we expect more stress in the market. We look at the strengthening our balance sheet and improving our financial flexibility.

And if you look at the bullet points in the middle, we don't have any loans due that we need to look at refinancing in financial year '21 -- '20/'21. Coverage ratio, interest coverage ratio is fairly strong at 7.7x. We have set aside some amount, $6.6 million, from our tax-exempt income in the fourth quarter. And without that, that will give us a little bit of -- a little bit more flexibility in cash management in this current financial year. So the growth of the portfolio, of course, we continue to look at acquisitions and development possibilities.

And of course, the first bullet point, we have outlined the final completion of the portfolio acquisition around January 14 this year. So the portfolio will start to contribute meaningfully. And of course, our redevelopment project in Kolam Ayer would be -- is on track, and we think this will be a meaningful addition to the portfolio once completed in about 2 years from now. So this is on track.

And I think that sums up what we have for the presentation. We can move on to question and answers.

[Hwei Leng Tan, executive]

Operator, I think we can move on to Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Mervin Song from JPMorgan.

[Mervin Song, analyst]

Just a few questions. Thanks for the stat in terms of 70% of the tenants who are operating. Maybe you can give us a stat in terms of the difference between Flatted Factories tenants and the Hi-Tech Buildings in Singapore. And the 45% of SME tenants, how much -- how many of those are actually operating at this point in time?

[Kuo Wei Tham, executive]

Can I -- am I able to speak now?

[Hwei Leng Tan, executive]

Yes, you can. We can hear you.

[Kuo Wei Tham, executive]

Okay. No problem. Okay. The 70% of the tenants being in operations was -- through the engagements and checks we have with them when the government outlined the circuit breaker measures because, as you know, they wanted to reduce nonessential kind of activities and then the number of nonessential workers moving around. So a lot of these are MNCs, a lot of these are essential services, food services as well. The food factories, of course, continue to operate and some of our larger tenants which we continue to operate.

So I would say a larger representation in the High-Tech space than your Flatted Factories space. But our sense is that with the further tightening of some of these measures, we understand that Ministry of Trade and Industry is asking some of the companies that were previously considered essential services to reduce the kind of workforce they turn up for the activities and operations. So we think, of course, some may be asked to suspend the operations for the time being. That 70% level, we think, will probably come down a little, 10%, 20%, until the end of this more restrictive circuit breaker measures are removed.

[Mervin Song, analyst]

In terms of the rental deferrals, obviously, you're giving half a month and a bit more for the retail tenants at Tai Seng. But have you -- what percentage of returns have started asking you? What's the number you anticipate?

[Kuo Wei Tham, executive]

As of now, we have requests for assistance from slightly more than 1/3 of our tenants by revenue. So in terms of numbers, it's a little larger. I think it's about 800-plus because we -- quite a lot of these are coming from the smaller, medium enterprises. So about 1/3 have asked for some form of assistance. So we are evaluating whether we are able to help or -- I think we have articulated before in our release on this assistance and relief program is going to be a bit more targeted and help those in greater need of help.

So for those who have looked at some form of deferment or kind of delay in rent payments, I think, as of now, we are seeing probably lower than 10% of the tenants who have asked for some form of deferment. But none of them have actually put in the kind of request through the application of the act, this Temporary Measures Act. So this, of course, is newly introduced, and then a lot of the details are still being awaited now. But I think as the situation and the conditions become a bit clearer, we do anticipate some of the tenants that would ask for some form of deferment or delay in the rent, so-called payments over the next couple of months. But as of now, we have not done any...

[Mervin Song, analyst]

I guess in terms of the rental reversions, negative pressure was kind of reducing, bottoming out, but this was before the full impact of the lockdown and, I guess, the recession that we'll have. In terms of sensing, in terms of spot rent declines or occupancy -- sorry, vacancy increases, what's the gut feel at this point in time?

[Kuo Wei Tham, executive]

Okay. I think before we have this pandemic, we were, at that time, cautiously optimistic of maybe the market bottoming up. As you can see in our rent revision figures last quarter, which is the third quarter and fourth quarter, we are seeing a flat rent revision profile really on an aggregate basis. So we thought maybe, yes, that support level is there.

But now with this, the market being under this kind of pressure and with recession looming, I think kind of positive outcome in this situation will probably be a minus 2%, minus 3% kind of rent regression in terms of the impact on the portfolio. But I think on an individual renewal basis, sometimes we are seeing a little more significant adjustment in the rent, sometimes up to minus 10% or so depending on what rents our tenants have in place prior to the expiration of the lease. So that is the engage we have now. And in terms of occupancy, I think the momentum for getting new leases probably will slow down. And while we try very hard to work on our retention, as you can see, we have been always doing roughly the 75% level of retention level. So we will trade off rates with occupancy, in other words, or whether we would trade-off rents with occupancy, so we'll go for a slightly higher retention level, probably slightly lower rents or we'll have some negative revisions so that we can keep our occupancy healthy. So occupancy level, we certainly want to try to maintain. We are realistic about the new leases that we can secure for the existing vacant space or space that would be given up by tenants who will naturally not renew with us. So occupancy may drift down another 1, 2 percentage point from current level.

[Mervin Song, analyst]

Okay. Just finally for me. In terms of the occupancy pressures, are tenants coming to you to reduce space or rightsize space, even though they may stay?

[Kuo Wei Tham, executive]

Yes, they are. We are seeing cases of this kind of request for space adjustments. And of course, to be prudent, we would encourage the tenants to help for, say, replacement tenants for the space as far as possible so that we can reduce the downtime. And hopefully, the tenant themselves would have a slightly better sense of who else in the industry, who else in their own ecosystem that might be able to take up that space and help us also keep the space used and occupied. But we have seen more instances of downsized requests from some of the tenants.

[Operator]

Our next question comes from the line of Brandon Lee from Citi. [Operator Instructions]

[Brandon Lee, analyst]

Just 2 questions. Basically, can you quantify for us the reason for retaining $6.6 million? That's my first question. And my second question is, could you also break down for us the $13.7 million in rebates that you've given so far? I understand 1.5 months is from 18 Tai Seng. And I think that works out to slightly above $0.5 million. Yes. And how is that being broken down between canteen operators, 18 Tai Seng retail tenants as well as your industrial tenants?

[Kuo Wei Tham, executive]

Okay. The $6.6 million set aside -- amount that is set aside is not a magical number. This is essentially the tax-exempt income we have coming from the North American portfolio for fourth quarter. So it is the entire sum down there that we have set aside. And we're also looking at the relief that the Minister of Finance, MAS and IRAS look at for REITs. They talk about allowing REITs to defer distribution for up to a year, so around the financial year 2020, in their kind of definition is until December 31, 2020. So REITs would be able to defer the distribution of the income to the unitholders for up to a year. But for -- in our context, our financial year has already ended 31st March this year. So we don't have a lot of kind of additional amount that we can set aside.

And even if we do not distribute the taxable income in 12 months from now, we still need to account for it anyway. If not, you need to pay tax. So looking at the current situation and looking at the kind of arrears condition, our arrears are still very well under control. And looking at the kind of requests we're getting from our tenants, we think we need to set aside an amount. We don't need to set aside too much because I think, as a portfolio, we're not as badly affected as the other property types like hospitality or retail. So the -- while the impact is there, it is not as significant.

So we do not want to set aside too much, and we'd prefer not to mess around with the taxable income bit for financial year '19, '20 because that is we need to make good anyway eventually and very soon after unlike -- reach with financial year ending December 31, 2020, we have December 2021 to look at the distribution. So we don't have that kind of long time frame to work on to manage this kind of deferment of distribution. So our consolidation at the end of the day was to just distribute whatever that is the taxable income due for the full financial year '19, '20, carry out the rest so that we don't have any residual kind of tax considerations or issues. Then we look at the balance that is available, produces tax-exempt income coming from the North American data center portfolio. $6.6 million is roughly 2.5% of our distributable income for the last financial year. It's not too large an amount. I think it helps -- has built a bit of cushion. And we think this being tax exempt and not being bound by the tax transparency consideration would give us a bit more flexibility, say, when we can and should apply this amount. So that is the consolidation for setting this aside. And now on the breakdown of the $13.7 million, I think, as you rightly pointed out, our 18 Tai Seng retail tenants is a very small part, is close to 0.5 million assets, what we have outlined. So our intent is to, of course, to help the tenants who are more affected by this current circuit breaker measures, especially the retail tenants. So we have set aside that 1.5 months in addition to the full pass on of the property tax rebate. And the next group of tenants, our canteen and food cart operators, I think they are similarly affected maybe to a slightly smaller degree compared to some of the retail tenants who are very much dependent on this footfall and the patronage of delivers. So we set aside a month. For the rest of the tenants, there are across many, many different industries, small, medium enterprises and also the larger companies in growing MNCs. We have done some rough allocation, but I think we are, at the present moment, looking at maybe up to 0.5 month first for the tenants who, say, in greater need, especially some of the small, medium enterprisers. So the 7.5% is a reference level. This is, of course, in addition to the property tax rebate that is passed on. And that part is what we see as a bulk of our so-called allocation, and that also, includes our carpark operators as well. As you know, the carpark operators will also depend on the kind of season plus hourly carpark charges. And then during this period of time, the utilization of our carpark is fairly low, and we have already received requests from the operators to ask for some form of assistance. So we'll probably be looking at that as well. But we are unlikely to, say, allocate much to those that are still, say, operating pretty well. For example, the data centers that we have. They are very well used during this period of time and I think quite low, like cases of them needing additional assistance. Some of the larger MNCs, we think they are probably quite well prepared and quite well cushioned. They have a strong balance sheet and probably less likely to require this kind of assistance.

[Operator]

Our next question comes from the line of Donald Chua from Bank of America.

[Donald Chua, analyst]

This is Donald. So a couple of questions from me. So to follow up on that, the release that was announced, is this $6.6 million that is being retained part of the provision for that $13.7 million, i.e. it has already been partially provided for from the $6.6 million? And on your valuation, the revaluation for this financial year, is it, at some level, taking into account COVID situation already? Or is it purely pre-COVID and could be revised later on?

[Kuo Wei Tham, executive]

Okay. Now the funds that we have set aside, of course, this is a cushion, at the end of the day is fungible. And the relief that we are offering to our tenants is actually a kind of rental rebate. We do not give cash out directly. So in effect, it is just us giving kind of credit not equivalent to some of the rents that's due in a month that we intend to give the rebate or the relief. So it is essentially a lower amount that we are collecting for revenue -- or rental revenue for the tenants. So the effect is very different, but at the end of the day, the $6.6 million that we have set aside is, in a form, a way to partially offset the effect of the lower collection from this relief that we have given. Of course, a very natural question is did we want to set aside an equivalent amount, in other words, this whole equivalent $13.7 million or close to $13 million from financial year '19, '20 so that we can so-called fund fully whatever relief that we think we're likely to use. So that is possible. But as I've outlined, I think, in my earlier answer, if we were to -- this whole amount beyond whatever is tax exempt goes into the taxable income part that eventually we will need to square that off. And if we do not square that off, that means to say we would have tax due on the amount that we have not distributed. So instead of going into complications and kind of residual, kind of long-tail issues on the tax front, we have decided just to distribute whatever we have for the taxable part and be done with that, and we don't have any issue.

So that leaves us with, say, setting aside the $6.6 million, which we think would be adequate to cover about half of whatever we have envisaged for this relief. This $13.7 million, of course, is based on some gauge on how much each of the tenants might require and how many of the tenants will require the help. And we have set aside some broad allocation. This is, of course, not the exact science. And hopefully, at the back of our mind, we hope that the situation is not as bad. Maybe really Singapore is able to get it under control. Some other parts of the world are gradually opening up cautiously. Yes, maybe we may not need to consume everything. So I think to be prudent, we also wouldn't want to over kind of provide for in terms of withholding of this kind of additional buffer. So it is, in effect, a good offset because, at the end of the day, it is just one form of cash -- allocation of our cash.

So it is one approach in terms of mitigating the impact of our so-called downward drag on distribution in financial year '20/'21. And it just happens so that this tax-exempt amount that we have set aside still allows us -- having set aside, this amount still allows us to deliver a small growth in terms of DPU for financial year '19/'20 over the previous financial '18/'19, the 0.7% kind of increase in DPU. So I think, fine, that is about the kind of balance that we're looking at having some level of provision that we would have for, say, the relief program for this current financial year.

And I think your next question is on the valuation. It was a long discussion with our valuers and of course, with our Board as well. At a time where the valuations were assessed and done, they are, of course, aware of some of this pressure or looming issues, and they have taken some consideration of that. But as you know, valuations, they would need to look at transactions or need to look at, say, evidence of rates and leases being locked in, in place for them to assess and calculate the kind of burn level, the valuation levels through our life ahead. So while they might have taken some of this near-term effect into consideration, I don't think they have fully taken in future impact beyond 31st March on what kind of, say, cap rates would have moved to, what kind of rent levels would have been adjusted down to because if you take reference from even official numbers coming from JTC, very marginal shift even until the end of March in terms of recorded rent numbers. And I think there's very few transactions in this period as well -- during this period of time. So it's difficult for the valuers to pin down. And that -- what they say is that they have taken this into consideration, but the full effect probably not easy and impossible to quantify in this current set of valuation. But I think if you look across the board from -- most of the valuation statements or reports from valuers where they have put in this qualification that is probably better to review it a bit more regularly later on if the market really shifts somewhat. But as of now, I think they're hard-pressed to get transaction evidence and data to make big -- any big adjustments to the numbers.

[Donald Chua, analyst]

Would you review on the half yearly given the exceptional circumstance going the next 12 -- 6 to 12 months?

[Kuo Wei Tham, executive]

We -- okay, I don't think we want to set a definitive time period, but we'll be keeping a close eye on the transactions and rent levels. And of course, at the end of the day, you probably would see some other so-called valuation done, especially for some of the other platforms with financial year ending -- towards the end of the year with some ending third quarter calendar year. So there might be some references for us because those are published and clear references. So we keep an eye on that. We keep an eye on transactions. We keep an eye on REITs. But I don't think we want to set a very strict, definitive time line, and say, okay, we will definitely review it 6 months from now. So we will monitor the situation a bit more closely for the time being.

[Operator]

Our next question comes from the line of Derek Tan from DBS.

[Derek Tan, analyst]

Just 2 questions from me. First question on your earlier commentary that 1/3 of tenants asked for assistance, right? Just wondering, based on what you have planned for the assistance package, would their request be satisfied? Or do you think they'll be hungry for more?

[Kuo Wei Tham, executive]

I think you know the answer.

[Derek Tan, analyst]

They're always hungry, but just want to get a sense.

[Kuo Wei Tham, executive]

Okay. I think when we outlined our intent to pass on property tax rebate and help a little with the rental rebate, the first reaction, of course is "Yes, yes. Good, good. I'm thankful -- from tenants thankful that you are doing this." But the next thing they will ask is can we have a bit more and some more. So I think it's difficult to satisfy fully because from the tenants' perspective, if you look at, say, even the nonretail tenants, maybe tenants, of course are starting to get -- starting to see the effects probably from February, March onwards. So -- and it's going to play out until end of May earliest. And we won't be seeing their own customers going back very quickly or they won't experience the full recovery in June. So it'll be quite a few months. Could we accommodate 3, 4 months of rebates or relief? I think probably not -- we are not prepared for that. Now same thing for the industrial tenants. I think most of them started to see some effects around the Lunar New Year time and beyond because that's when China started to shut down, and some of their own supply chain would get affected. So they have a slowdown in their volumes and capacities, ability to meet the demand even then when they still have some good level of demand elsewhere in the world. But I think they're seeing the effects towards the end of March and early April when the rest of the world closed down and the demand shrink. So the -- for the industrial tenant, they'll probably be seeing parts of March, parts of April. Now we think some of them are probably experiencing in May. From their perspective is, a couple of months, we'll be able to handle like a couple of months of relief, I think, as I said, probably not something that we are prepared to do on a full-scale basis, but we are sensitive to the challenges they are facing. So any relief will be welcome from the tenants, and we will continue to do in the meantime this year.

[Derek Tan, analyst]

Some color on your collections for April, and most of your collections are in GIRO, right?

[Kuo Wei Tham, executive]

Yes. The collections in April, I think is a little -- somewhat less prompt compared to the previous few months. I think on the GIRO front our so-called successful GIRO deduction rate from the bank accounts from our tenants has always been roughly 98% in the past. There will always be some tenants who don't have enough money in a bank account or forgot to top up the account or for whatever reason would not have the GIRO deduction being executed successfully. So it's always 98%. In April, we're seeing a 94% number, so in terms of percentage point drop, roughly 4 percentage points. So it is, of course, an early indication on the level of stress our tenants have. Some of them might have cash flow issues. So of course, when you see this kind of GIRO deduction so-called rate, it is not indication that this will all become -- say, those are not collected through GIRO or become better to continue to engage our tenants and see if they have any issues on the bank account, whether they can pay through other means or whatever. So that's a usual process we engage, but it is an indication of the cash flow constraints our tenants have. And some of this will probably eventually ask for some form of assistance or relief or deferments. So April might be a bit early to pin down that venture so-called the number or ratio of the -- but I think you'll probably have a better picture May, June.

[Operator]

Our next question comes from the line of Vijay Natarajan from RHB.

[Vijay Natarajan, analyst]

Vijay here. Just 2 questions from me. One, I note that in terms of the management fees for the next year, you have mentioned that you will be taking a lower fees based on the last year's valuation. Maybe can you give some sense in terms of how much reduction in the base fees this would be and the reason -- the rationale for using such methodology compared to, let's say, 5% to 10% reduction in base fees? That's my first question.

And my second question is in terms of the Kolam Ayer redevelopment plan -- sorry, redevelopment option, how would this COVID-19 impact it? Maybe you -- would you extend some of the tenants who are already there or you would be delaying the redevelopment plans? Maybe can you give some sense on this?

[Kuo Wei Tham, executive]

Okay. Okay. So I think the management -- base management fee that you have talked about is essentially, of course, tagged to the deposited property value. And that, of course, gets adjusted over time, every month as the deposited property value gets adjusted. And they are usually adjusted 2 ways: first one when you do transactions or when you have revaluations. So when you do transactions when you buy or sell assets, then your portfolio value will change very naturally. And when you do revaluations, the second way this number gets adjusted is our year-to-year valuation.

And if you look at our year-to-year valuation, there's always a little bit of valuation gain. So that a little bit of valuation gain is where that differential is. And if you refer to the slides that we have outlined, we talk about $80 million worth of -- I think it was $79.7 million, so it was $80 million worth of valuation gain. So that is the delta we are looking at. So our base fee is 0.5% on that. So mathematically, you're talking about $400,000 of -- kind of differential.

[Vijay Natarajan, analyst]

Okay. But for U.S. properties, there is no revaluation gains, is it?

[Kuo Wei Tham, executive]

There is. There is. It's all embedded inside. Because our so-called acquisition price was, I think, about 2-or-so percent below valuation, the one that we did recently, so there was some valuations gained from acquisition.

[Vijay Natarajan, analyst]

Okay. But the calculation of base fees only -- will be only be based on the revaluation gain of Singapore properties? Or would it take into account U.S. properties also?

[Kuo Wei Tham, executive]

Whole portfolio, whole portfolio. So on an aggregate basis that delta is $80 million. So there is...

[Vijay Natarajan, analyst]

Okay. Okay. And maybe why -- yes, sorry?

[Kuo Wei Tham, executive]

Yes.

[Vijay Natarajan, analyst]

No, no. Sorry, just wanted to say why such methodology may be compared to, let's say, 2%, 3% reduction in terms of base fees, which you can?

[Kuo Wei Tham, executive]

Well, I -- that one, I think, is partly a sponsor consideration because the fee is charged by the manager through the trust. So in most cases, I think in -- even now, I think base fees should normally increase proportionately to your valuations and valuations or valuation gains have been registered over time. And the reason why I think the sponsor has taken that posture is that they recognize that most of the platforms will have some valuation gains registered. So instead of paying the fee to, say, higher valuations of the deposit of property portfolio, they just use the previous one, which is a bit lower. So that is part of alignment. So at the end of the day, it is more of a signaling of the alignment and also indication of the kind of systems, and the sponsor would have as a manager -- as owner of the manager in this current condition.

[Vijay Natarajan, analyst]

Okay. Okay. And probably on Kolam Ayer site.

[Kuo Wei Tham, executive]

Yes. For Kolam Ayer, the existing tenants, we have down there, the 108 tenants that are moving out from that premise, none of them, of course, are going into the redeveloped cluster as of now of course because a lot of them have moved to other clusters within our portfolio because the operations will continue on, and we redeveloped a precinct positioned as a high-tech precinct and specifications are a little higher and of course, rents will be a little higher compared to what the existing tenants are paying. So this is not a one-for-one kind of replacement premise for the cluster or that precinct that we are redeveloping into. 1/4 of the space is already committed by a German biotech company. So we, of course, have a very long lease committed. And once we complete the project, we would have that space locked away. The rest, balance, 75% of the area available, we would need to look for other alternative tenants, and this is a time for the next 2 years or so for us to look for suitable kind of space users that value the location, value the specifications and configurations that we will be having at that precinct.

[Vijay Natarajan, analyst]

Okay. So there is no change in the time line as it is?

[Kuo Wei Tham, executive]

Yes. So I think the time line remains the same because I think, as far as the existing tenants are concerned, they have already moved away. And from the precinct, of course, they have another 3 months or so before the very last of them will move away. As of now, I think we have already outlined in presentation, 67 out of 108 have already committed elsewhere. Of course, within our portfolio, some have moved to other premises. And as at the fourth quarter, 31st March 2020, we have about 30% of our tenants still remaining. So most have moved out already, and it's just a very last bit for this current quarter before we start taking existing building down. And the -- of course, the redevelopment project and plan is on track. We have important clearance from the authorities for most of the pending approvals. So it's going according to plan. Of course, one thing to look out for is the impact on construction costs and time duration. And now with a lot of the workers being held back from going to work sites naturally and construction contracts, in terms of contract period, in terms of contract price will probably be affected in the next couple of months. So we're looking at that closely in our contract management and tender management.

[Operator]

Our next question comes from the line of Tan, Xuan from CLSA.

[Xuan Tan, analyst]

My first question is on payout ratio in FY '21. Can you elaborate more on what you're thinking about the payout ratio for both MIT to shareholders and also from the U.S. portfolio to MIT?

[Kuo Wei Tham, executive]

Okay. I think the U.S. distribution or payout from the joint venture around there is, of course, the second order kind of consideration. That one, I take, we see as fairly stable. The assets are having very long leases in place. So I think unless there's any change in the U.S. tax law, we will just pay out as normal based on what we have been doing in the past. So all the distributions coming from U.S. being tax exempt would come back to our Singapore site. Now the payout ratio is a little more difficult to calibrate, as you know, in view of the current situation. And we -- at this moment, while we have some initial gauge, it's very difficult to pin down how many of our tenants would seek for deferment or run into real issues and whether there's a big gap between accrued revenue and so-called actual cash receipts because of the deferment of payments. So it's difficult to pin that down. But I think our general guiding consideration is that we would not avoid paying tax because of -- or rather, we do not want to pay tax unnecessarily because of our inability to meet the tax transparency so-called guideline of 90%. And as we have seen in the relief given by Minister of Finance and by the Trade Authority of Singapore and IRAS, concession is only for financial year 2020, and our financial is over. So practically speaking, whatever that is accrued will still need to be -- as good as taxable income will still need to be paid out before the end of the financial year, which is, for our case, 31st March 2021. If we do not pay at least a minimum threshold or meeting a minimum threshold of 90%, there will be tax implications. So we will want to avoid getting in that kind of situation, which penalizes unitholders unnecessarily. So we want to see how big that mismatch is between accrued taxable income and also actual cash receipt. So for the coming quarters, as long as we have sufficient distribution -- sufficient collection, we will pay out the distributions that can meet the taxable income. So when it comes to the tax-exempt income, so we have to see whether that is needed to top up that difference between the accrued and cash receipts. If it is sufficient, I think we will probably also release that as well. So it's a bit difficult to pin the exact payout ratio now, and I think it will be guided less by fixed ratio as in a big percentage than the profile of the kind of revenue we get from the tenants in the coming 1 or 2 quarters. We take -- it might be a bit early now to fix a 7-figure number. We might have better clarity, I think, in the first quarter after we get a better sense of how the tenants will behave in the current situation. And by that time, we will know whether our enhanced quicker measures in Singapore, at least, would have worked and whether things are returning to normal. There will probably be a better judgment then. So now it's probably a bit early for us to just pin a very specific percentage level, percentage point.

[Xuan Tan, analyst]

And if I can just follow up on that, right? Earlier that you mentioned about 10% of tenants have asked for deferral. That's roughly around $40 million. How much of this $40 million do you expect to materialize in terms of deferrals? And if all of that materialized, then should we expect the chunk -- big chunk of the U.S. tax-exempt income to be deferred?

[Kuo Wei Tham, executive]

Okay. Of course, I think the close to 10% level that we are seeing and looking at tenants are asking for some form of deferral is probably a headline number. It is an aggregation of the kind of impact just based on the first look. Hopefully, in terms of actual -- how it actually plays out, we won't see this kind of level, at least in kind of normal and we can encourage some of them not to, say, book on a significant amount of deferral or maybe just book around 1 or 2 months of assistance or relief. So that is what we hope to work towards. But smartly, you have rightly pointed out. So if it turns out that we have a significant deferral, yes, it may be up to $10 million or $20 million. And we would have to see whether it is meaningful for us to use the tax-exempt income to cover that differential so that we don't get into any tax transparency issues later on or we just for the coming quarters, payout on cash receipt basis and monitor the situation a little longer before we release the rest of the funds because, at the end of the day, the kind of the period that is for due, there the period we need to use for -- to reckon the tax transparency effect is still at the end of financial year, which is 31st March. So we can still make some adjustments along the way until the end of financial year. But of course, I really recognize from the unitholders' perspective, this profile will probably be a little bit more volatile already because of this uncertainty in the market.

[Xuan Tan, analyst]

I understand. And the last question is on gearing. The Q-on-Q movement, is it due to purely the U.S. acquisition completion? And can you also update us on the progress payment for Kolam Ayer in terms of the schedule? How is it like over the next 2 years?

[Kuo Wei Tham, executive]

Okay. Yes. I think your straight answer to the leverage is because of the completion of our Powered Shell part of the portfolio on 14th of January, so that resulted in quarter-to-quarter increase in the leverage level, I think, 37.6%. Of course, if we had not had the valuation gain, we will be slightly higher, marginally higher, but because of the valuation in -- this has been kept a little below 38%. But the relief of what we have is -- and now the leverage ratio threshold has been raised from 45% to 50%. So it is certainly very helpful for us. Your question on the Kolam Ayer, I think it is on the schedule. I think we are still planning to stick to our original schedule, about 2 year development period. And from the precinct will be ready second half of 2022. So of course, as I outlined earlier, the main contractors are facing a bit of issue due to the manpower constraints and also possible supply chain disruptions on supply and materials. So we are keeping a close eye on that. And at the end of the day, we have some level of flexibility because while we have a precommitment of build-to-suit project, therefore, only 1/4 of the space, we still have some flexibility for the balance of the space where we could manage the time line and time frame is necessary.

[Hwei Leng Tan, executive]

Okay. Thank you very much. Thank you, Tan, Xuan and everyone, for joining us today. I think we had quite a robust discussion already. We will be ending the call. But Lily and I will be happy to take any questions that you have offline. Thank you, everybody.

[Kuo Wei Tham, executive]

Okay. Thank you.

[Hwei Leng Tan, executive]

Thank you and have a good day. Bye.

[Kuo Wei Tham, executive]

Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.