Mapletree Logistics Trust (M44U) Earnings Call Transcript & Summary

Hi. Good morning. Welcome to our results briefing for the second quarter and first half of FY '23, '24. So the full management team is here with us, Kiat, Charmaine and James. So now Charmaine will kick off the presentation.

Hi. Morning, everyone. Okay, I'll bring you through the key highlights for the quarter first? So for -- in 2Q this year, we completed the divestment of 4 assets, 2 in Malaysia, 1 in Singapore and 1 in Japan. The net proceeds that we received, we used to [Audio Gap]. This brings our total number of properties from 193 at the beginning of the quarter to 189 at the end of the quarter itself. 2Q financial performance remained stable. Gross revenue is higher by 1.5% year-on-year. NPI is higher by 1.2% and DPU [ was recurring ] SGD 0.02260, 0.9% higher than 2Q last year. Our diversified portfolio continues to be resilient. Portfolio occupancy remained stable, 96.9%. Average rental reversion is a positive 0.2% on a portfolio basis. Excluding China, we are looking at 9.1% higher year-on-year. WALE is stable at 3 years. With the repayment of loans through divestment proceeds, our aggregate leverage as of 30th September stands at 38.9%. About 83% of our total debt has been hedged into fixed rates with a debt maturity of 3.8 years and about 80% of our income have been hedged for the next 12 years -- next 12 months. Moving on to details of 2Q results. So gross revenue is 1.5% higher, while NPI is higher by 1.2%. This is mainly due to higher contribution from our same-store portfolio as well as acquisitions completed in 1Q. This is partly offset by lower contribution from our China assets as well as a loss on revenue by -- for assets that we have taken off for AEI upgrading purposes. FX impact at the top line level is a negative SGD 8.4 million FX loss. After taking into account hedging gains of about SGD 4 million, we are looking at an overall FX impact of SGD 4 million. Borrowing cost increase of 10.2%, about 1/2 of -- 2/3 of this is due to interest costs incurred on additional borrowings to fund our acquisitions in 1Q as well as higher -- and the remaining 1/3 is due to higher interest rates [Audio Gap]. Divestment gains for the quarter, SGD 8.8 million. Including the divestment gain, we are looking at DPU of SGD 0.02268, 0.9% higher than last year. 2-year basis, gross revenue is lower by 0.7% and NPI lower by 1%. This is mainly due to the loss of revenue from divested assets as well as an FX loss of about SGD 18 million. The lower gross revenue on a same-store basis is offset by contributions from acquisitions made in 1Q. Hedging gains for the period about SGD 8 million. So net-net, we're looking at FX impact of SGD 8 million. After taking into account divestment gains, we are looking at a DPU of SGD 0.04539 versus SGD 0.04516 last year on a one-half basis. Quarter-on-quarter gross revenue is 2.5% higher and [ 2.4% ] higher as compared to 1Q. On an FX level, I mean, in terms of FX, we're looking at minimal impact between the 2 quarters. DPU is marginally lower as compared to SGD 0.02271 last quarter. Our balance sheet -- moving on to Slide 9. The investment property as well as total assets lowered by about SGD 200 million, mainly due to divestments of about SGD 100 million as well as translation loss on our investment properties of about SGD 100 million. Total debt is also lower from SGD 5.6 billion to SGD 5.4 billion, mainly due to the repayment of debt with our divestment proceeds. Accordingly, gearing ratio decreased from 39.5% from 38.9%. As for interest rate, we are able to hold it stable at 2.5% versus last quarter and debt duration interest cover as well as adjusted interest cover ratio has remained stable as compared to last quarter. Moving on to the next slide. Our debt maturity profile remains well staggered with about SGD 1 billion of available committed credit facilities on hand. This is more than sufficient to meet our refinancing needs for the next one -- the remaining half of -- the remaining half of this year as well as next year. In terms of our interest rate and ForEx hedging, about 83% of our tool debt has been hedged into fixed rates. About -- with every 25 basis point increase in base rate, we're looking at an impact of SGD 0.01 per DPU per quarter. As for FX, we have hedged about 80% of our DI for the next 12 months into Sing dollars. James will bring us through the portfolio updates.

In terms of assets under management in second quarter, the developed markets, you see it's still contributing a fairly high 73% to our overall portfolio. These developed markets are giving us a lot of stability and resilience to our portfolio. Next slide. Overall, in terms of the operational environment, in 2Q, we still registered a fairly high occupancy rate of 96.9%. Most of the markets still remain as close to 100% occupancy. However, we continue to be dragged down by China's lower occupancy as compared to 1Q. So China came in at 93% compared to 93.4% earlier on. And this is mainly due to the weaker occupancies in the Tier 2 cities where we are experiencing excess supply coming from North West and Central China. So overall the operational situation in China itself, we expect to recover, hopefully in the 4 quarters around there and earlier, if the government has stimulated the economy with a booster. So in terms of rental reversions, we are registering high rental reversions in markets like Singapore, Korea and Hong Kong. And in China itself the rental reversion still remains fairly weak. In fact, the Chinese reversion was minus 8.6% in 2Q as compared to flat reversion in 1Q. So next. So without China's rental reversion, just to share a bit more, the rental reversion for MLT will come in at a positive 9.1% for 2Q. This shows the lease expiry profile for our leases in the next few years. So next year, we have a pretty high lease expiry coming up due to the shorter lease. Leases are coming in from renewals from China, but we're trying to do the early renewals and extensions of these leases for the rest of this year so that we can move and lower these rental expiries for next year. So from quarter to quarter, you should see this rental expiry however in FY Q4 coming down. The top 10 tenants account for about 22% of our total gross revenue, and most of them are across these consumption sectors and e-commerce sectors. So we have customers coming like from Woolworths and Coles in Australia. CWT continues to be the #1 customer. But in terms of the contribution has been packed down in 2Q. Our diversified trade sectors contribute about [ 900-odd ] customers that we have and serving -- 75% of them are serving the consumer-related sectors. So that gives us stability on the domestic consumption demand that we are targeting in our portfolio.

Before we go on to rejuvenation, I would like James to give more details on the rental reversions across the different countries.

So for 2Q, the rental reversions will start from the highest, right? Singapore was in -- Singapore -- sorry, I will start from highest rent reversion in our portfolio. Overall portfolio registered 0.2% rent reversion. Hong Kong came in at 16.5%; Singapore, 8.1%; Korea, 7.7%; Vietnam 4.8%; Malaysia, 3.2% and China, negative 8.6%. So Hong Kong was -- the revision was very strong coming from one of the lease expiries and renewals that we recorded for the quarter.

Can you go back to the impact on the revenue diversification?

This is Kiat here. So I think what is -- what we are seeing is the diversification of our portfolio on the revenue side. Right. So you can see that the diversification of MLT as a platform is supporting our results in very resilient and stable way. So while we see China being hit by a negative rental reversion of about...

8.6%.

8.6%, right, we have Hong Kong, Singapore and the other countries pushing it up. So I think this diversification will continue to serve us very well. I have read some of the reports that have come in from the analysts. And I think some of them are still not understanding how MLT as a platform works. Our year-on-year performance, the revenue is up only by SGD 2.8 million, but without FX impact of SGD 8.4 million, our revenue would have increased by SGD 11.2 million, which is a 6.1% increase. So I think in this current climate, to register positive revenue growth across the different markets, I think you all know, is very challenging. So while you look at the results from -- when we report the gross revenue, can we have that slide, the revenue side?

Slide 6.

Yes. So if you look at it, SGD 186 million to SGD 183 million, you would think that we have only increased it by 2.8%. But what is included inside is the SGD 8.4 million ForEx loss. Without the ForEx loss, the increase would have been SGD 11.2 million, and that proves the resilience of the diversification of MLT portfolio. So that's the first point that I want to make. And then the second point that I want to make is I think there is some misconception that divestment gains is the one lifting our DPU. And if you have that conception, it is wrong. Without ForEx, our revenue was increased by SGD 11.2 million. Our divestment gain for the period only increased by SGD 7 million, show that divestment increase is not even enough to cover the ForEx loss that we are experiencing. So that is the first point. And the second point is, for those who have been following us, you would have known that we have divested SGD 700 million of assets to date, and we are in the process of divesting another SGD 500 million. And the reason we are doing that is not because we are keen to harvest and distribute divestment gain to unitholders. The reason we are doing that is because we were listed in 2005, and we are very old REIT. And some of the assets, whether we like it or not, their specifications are going to be more and more irrelevant as we move forward. And you know that there was a structural shift in logistics, the specifications have taken leaps and bounds in terms of automation, in terms of design, in terms of speed, velocity of turnaround goods within the warehouse. So with that, in order to keep MLT relevant, this divestment strategy will be a critical tool to keep our platform young, relevant and competitive for the next 10 years. So you will continue to see this. So the divestment is not coming in as Oh, it is part of something that we need to do when we need to fix our DPU. It's not. It is an ongoing process. Whether -- whatever DPU is the rejuvenation of our portfolio cannot stop. Whether that's ForEx impact, whether there is interest cost increase, the rejuvenation cannot stop. And the reason is because, very simple, our tenants are not stopping. So I think to be able to understand where MLT is going because after that, you want to talk about the outlook, right, you have to understand what is our strategy, you have to understand what is our objective and what are the tools that we are pulling, what are the levers that we are pulling to drive this platform forward. We are not looking at the next year, we're not looking at the next 2 years, we are looking at the next 5 to 10 years. And the objective is to deliver a stable and resilient DPU to our unitholders. So having said that, James, can you continue with the rejuvenation?

So we are doing a revelation, in the next few slides, we will show you -- this is -- this time, actually, just to help recall, we did the acquisition of [ Amazon ] in assets in the last 2 quarters ago, 6 properties in Japan, 1 each in Seoul and Sydney. These are very good properties, help to rejuvenate our asset portfolio, particularly in countries of Japan, Seoul and Sydney. And these are young properties with good specs and good underlying tenants. So in terms of rejuvenation value creation, if you can recall, this is a site we acquired next to our existing properties in Malaysia, Subang. And this -- we're in the process of seeking approval for land amalgamation of these 4 sites from government authorities. So this process should be completed by middle of next year. That's when we start the redevelopment of a mega hub of 6 more buildings and it will increase our GFA by 5x to 700,000 square feet. This project is about [ SGD 170 million ]. And this is a core location for last mile logistics, which we foresee very strong tenant demand. Next. This is a project in Singapore, west side of Singapore, Benoi. We started the construction just this month, and this project should see us completing it in mid of 2025. It's a 6-story mega hub modern specs building, we're going to attract all the multinationals and the 3PLs that is interested in this property. At the moment, this modern spec to ramp up properties. In Singapore imports there is still shortage in demand -- shortage in supply.

Yes. So you look at the momentum we have in Singapore due to the supply situation. This year -- this quarter, rental reversion for Singapore is...

Close to 10%.

Yes. So if this trend continues to 2025, then this AEI [indiscernible] will augment our contribution from -- revenue contribution from Singapore very well. So it's again, the timing, right, that we look at what is the supply situation in Singapore and then this project came up. It was a good time for us to do the rejuvenation and the ability to take a 5-year view on this property when we spoke to JTC and bring it up in a year of 2025, where Singapore logistics market should be on an upward trend.

So as Kiat has mentioned, we have divested some of our older properties to rejuvenate our current portfolio and these are lower yielding assets. And we also achieved a divestment gain reflected in the tables there. So these are 2 properties in Malaysia, 1 in Singapore and 1 in Japan, Moriya Centre.

So that is an ongoing process. I think with the interest rate environment increasing, the challenge for MLT will be to find buyers who has still the liquidity and the ability to buy some of our assets. And so far, we have been fortunate. Portfolio sale about SGD 400 million, SGD 500 million, the buyers in our view, have dropped off a lot. But if you're looking at the local SMEs with the ability to buy SGD 20 million to SGD 50 million and even like in more expensive countries like in Hong Kong, some -- where the, what you call the ticket price can even be higher. We're still fortunate to see that bracket of buyers, and that is the part that we will take advantage of to rejuvenate our portfolio. The next slide is on sustainability. I think I won't go through -- just as Charmaine has shared about our GRESB rating has gone up to 4 stars and also our green space and all that. So I will not. So let's go to Q&A. Can we have the first question?

Can I ask this first question?

Yes. Brandon, is it?

Yes. Just 2 questions I think -- just wanted to ask about China, basically. So I think this quarter, the negative 8.6% reversion as well as the 93% occupancy. Is it correct to say that this could be the worst that we have seen? Or you think that the negative 10%, which you guided earlier is still going to hold for the next 3 to 6 months? That's my first question.

So Brandon, this is James here. So the signs of recovery is still not there. It's still very soft in terms of some of the underground feedback we get from tenants because the consumer confidence currently is still pretty weak, right? It's not clear. Even the recent [indiscernible] holiday spending and all is small services related rather -- and tourism related rather than goods purchase related. So in terms of the forecast, we expect the reversion to remain negative, at least for the near term. And this is -- the reason is very simple. We are trying to keep our tenants, right in many of these Tier 2 cities where we are experiencing excess supply. Competition is much tougher. So this is, if not for the more incentives they're giving to tenants, this 93% you see will even be worse.

Yes, James give a flavor on the Tier 1 and Tier 2 occupancy.

So in terms of Tier 1 occupancies, it is in the mid-90%s, 95% and above. For Tier 2, it's low 90%s, about 92%. So you can see that the Tier 1 occupancies is still holding up because the supply is still more or less balanced, right? And we experienced a positive, albeit positive but smaller rent reversions of 2% or so.

So Brandon, what we are -- what management -- MLT management is looking at is for the next 12 months, we expect China to be -- continue to be soft. And that is where the uniqueness of our platform come in. From this chart, you will see that the revenue contribution from China is about 20%. So we are going to be banking on the 80% that is outside of China to lift China's weakness. And so far for this quarter, you will see that overall revenue increased by SGD 11 million that, that resilience and the stability from the revenue from the other countries should be able to help us to provide some stability. I wouldn't say some, I would say provide a certain significant level of stability while we navigate through China's weakness. Does that answer your question, Brandon?

Yes, yes. But are you able to just quantify it? Because do you still think that we can -- you still see the negative 10% for the next 4 quarters in just saying that next 12 months will be soft? Or you think that's going to be negative 5% like negative 10% or they come down?

It will be negative -- okay, it will be negative high single digits to negative low double digits, depending on the city you're in, especially the second tier. Does that answer your question? Does it give you some guidance on how you're going to...

Yes.

Yes.

Okay. And also just second question would be, I think the earlier acquisition of the [indiscernible] property and the divestment of the Hong Kong one, are those still in the process? Or are you trying to only delay that?

So for the [ staffing ] properties, the vendor is unable to satisfy certain conditions in the legal agreements. So therefore, the deal is no longer on the table. So we are walking away from the staffing purchase. And then on the Hong Kong one, it is still ongoing. We hope to close the transaction, meaning sign the SPA, hopefully, in the next few weeks. The reason being that there was authorities approval that need to be sought for certain conversion of use that we are putting on the property.

Got it. Got it. Okay. So just one last one, right. I think going forward, we know that you're still divesting, but however, acquisitions and given this higher for longer environment, are you still looking to buy?

Yes. We will be buying some more. Before the year-end, you should hear us buying some more. And the reason is that we have a very strong balance sheet. And we are having a very active recycling program. So the proceeds from the sale, the divestments together with the gearing headroom that we have will enable us to make further acquisitions and -- in this current climate where interest rate cost is very, very high. The good part is we have Mapletree Logistics. The name itself is giving a lot of comfort to bankers. So the differentiation between a blue-chip borrower and a not so blue-chip borrower, I think that importance to the banks is coming into play. So in fact, I've got bankers asking us to draw more on the lines and the rates they are giving us will be one of the best in the market. So that being said, so it allows us to take advantage of this current market. Some, I would say, a substantial portion of the buyers, especially speculative buyers have dropped off, and then we expect to see some cap rate expansion. So we want to take this opportunity to get some good value properties from both third party and our sponsor.

Can you share the specific geographies they are looking at?

Okay. So what we've seen in Asia is we are going to have -- we continue to see very strong growing targets in places like India, Vietnam and Malaysia. So obviously, acquisitions coming up from those few markets will be of great interest to us. And then we look across the different markets. We see this Korea and Australia has seen cap rate expansion. So that gives us an opportunity. Do we think that the cap rate expansion has reached the bottom, we don't think so. So maybe we will wait a bit. But if it's a good effect in a good location, and we're able to get it at a good price, we will do that. And then you -- of course, you have the other countries like this Japan, Hong Kong, which continued to see tight supply in very prime locations. So for example, in Greater Tokyo. So -- and because the benign -- I mean, the not so high interest rate environment in Japan, it's going to make Japan acquisitions more accretive. So I think the -- using the recycled proceeds, using our gearing headroom and the preferential interest rates that we will get from banks that will enable us to make quite substantial acquisitions over the next few years.

Okay. Okay. And sorry, I just want to -- just pardon me. Just one more. I mean, I realized for this quarter, you didn't call sort of like how you're going to distribute the gains for the divestments. Will you be doing that going forward?

Sorry, what was the question?

You didn't guide on the gains. Let me say, we don't break it out.

Yes. I think when we...

No, no. [indiscernible] over how many quarters and what not you...

If you look at the divestment gain that we have been distributing it's usually distributed over 4 quarters to 8 quarters. So it depends on when the divestment gains come in, and then we will be distributing over 4 quarters or 8 quarters. [indiscernible]

Very, very clear enough.

Okay. We've got -- I think [ Shanshan ] you've raised your hand. Would you like to proceed with the question?

Yes, Shanshan. Come.

Can I ask a bit more about acquisition. What kind of size are you looking at this year from sponsor and then also third party?

Okay. This year, this financial year, which [ half is gone ], is that the year you're talking about?

Yes.

We have redone SGD 900 million, right. And then we'll be looking at another SGD 200 million to SGD 300 million.

This is actually from sponsor or third party?

Depending, but it will be from the countries that we -- like I highlighted earlier, Malaysia, Vietnam, India.

Okay. What about divestments?

Divestments. We have -- I think if you are in the local markets where we are operating, you will hear of us putting out what we call specification -- assets with specifications that we feel are no longer going to be relevant for our growth. So countries like Hong Kong, Japan, Singapore, Malaysia, Korea, Australia, you will hear that. So as to what -- which one will come into fruition, it depends very much on the specific buyer and the price. So there are ongoing discussions. So there will be divestments -- further divestments that will be announced for the later part of this year. But at this point, it's going to be difficult for me to give you an exact number. But over the next few years, we're looking at SGD 500 million. So each year, SGD 100 million -- SGD 200 million, if you need it for your numbers.

Okay. Got it. That's very helpful. And just one last question, right? Can you guide us on cost of debt for this and next year?

This year we are looking at about [ 2% ]. Okay. So we report on a quarter-by-quarter volume basis, right? For this quarter, we're reporting 2.5%, probably by end of this quarter, 2.7%. And then next year, about 3%.

Question from the online audience, how much capital gains do we have remaining?

Divestment gains or capital gains?

Divestment gains.

About SGD 20 million that is not distributed yet. Excluding this quarter's distribution -- this quarter's DG, we still have about SGD 20 million from completed projects.

Yes.

Okay. Mervin, you put up your hand. Can you ask now?

Yes. Thanks for the opportunity. Yes, I think maybe can you turn to Slide 32 -- congrats for the very strong -- 32?

Mervin, slide?

32.

32.

22?

32. 3-2.

3-2.

Yes. 3-2. Lease expiry. Is it?

Yes. So further expand -- obviously, you guided in terms of the rental reversions for China this financial year. Any color in terms of the weightage for China next year? Is it first half, second half? And how does this expiry rents compare to market rents at this point in time?

Yes. So usually for this chart here, the expiries for China to be more precise for next year 40% is coming from China, right, annually in FY '24. In terms of the spread, typically it's quite evenly spread out. That's how we manage our concentration risk of bill or expiries each quarter. So you can assume it's fairly spread out first half and second half.

Sure. And how does the expiry rents compared to market?

Yes. So -- sorry. Sorry, Mervin, what's your question?

How does the expiring rents for China compared -- how do they compare against market at this point in time? For the leases of renewal in FY '25.

So most of the -- as we go through this financial year, right, the negative reversions we experienced is coming from the new leases and replacement leases and some renewal leases. So come next year, we should see a full cycle, more or less.

Yes. So Mervin, I think your question is, if you look at this chart, you see a tall bar green color coming up from China. And China, because of the softness in the market, the tenants have taken a very cautious view. So what we're experiencing is shorter leases, like what James elaborated a year -- they're going to do a year, 15 months, 18 months kind of extension. So that tall bar from FY '24 will continue to remain as we push out some of the tall -- the green bar coming up from '23. And then I think is your question whether our rental reversion is in line with the market? Is that the question?

No, I'm just trying to guess will the rental reversions get worse or actually improve into the next financial year.

Yes, it will get worse. Our outlook is for the next 12 months, we expect China to continue to soften, meaning that we continue to see negative rental reversions and we are looking at high single-digit or low double-digit negative rental reversions like I told Brendon earlier.

Okay. So at least, 80% of your portfolio still has very strong. So I think that's a positive.

Yes, correct. So this is where the diversification -- diversification sometimes does not work very much for MLT, especially in the golden days of China, right, because we have a very small exposure in China when China was booming we only had a small exposure. So we did not -- we were not able to capture that completely on our platform. But on the flip side, which is what we are seeing now is that China makes up 20%, but we have 80%. Hong Kong was doing 16% rental reversion. Singapore is doing 8% rental reversion. So I think James read to you all these. So the 80% is the one that will lift the overall portfolio from China's witness. So that is one part. So I think investors need to understand what MLT platform is about, right? It is not about a single country focused kind of platform. It is a multi-country providing diversification to the investors. So like I mentioned, we have got tenants who want to move out from China go to Vietnam, go to Malaysia. We have got American companies coming out from -- wanting to come to Vietnam, India, you have seen Apple, you have seen Google, right, James? And then you have seen Samsung doing very intense expansion in Vietnam. So you will see that. And then the other part is investors need to understand, we are not a stagnant platform, meaning that we have these assets, and we're going to pretend that these assets that we have are going to be relevant for the next 5 to 10 years. The logistics industry has taken a very big structural shift, especially during COVID. The requirements for automation, the requirements for design, the flexibility of expansion, removal of walls, increase of dock levelers, right, the ability to call us, let's say, 6 months later, we want to expand double the space by taking the next unit. So these are all the things that our platform has to be ready. And because of that, we're not going to pretend and tell investors that the assets that we have since 2005 are going to be relevant in 2025. So that is why divestment will be a critical part of MLT's strategy, which is rejuvenation, keeping our platform competitive and relevant for the long term, not the short term, but for the long term. So I think the rejuvenation, I cannot over emphasize the importance of this rejuvenation. For MLT to continue to compete, we must rejuvenate. We must admit that some of our assets are going to be irrelevant. What are we going to do? We've got to tear it down. We're going to rebuild it. We're going to sell them if we cannot rebuild. And then we're going to recycle all these capital into better assets. So that has to be the case. And those investors who have been with us will know that we've divested SGD 700 million, and there's more to come.

Yes. I think...

We're not interested in growing AUM. We're not interested to be the biggest AUM boy in town, but we are interested to have the most modern fleet of warehouses that we can offer to our tenants in diversified locations as they need. They want 5 locations, they can come to us. Right now, our repeat customers across locations is 43%, and that's not good enough for me. [Audio Gap] in different countries, but that's not good enough. So the uniqueness for them to come to us and say, do you want to talk to us in Vietnam, China, Singapore, no problem. You want to talk to us in India, China, U.S., of course, that's a different platform, but we have Mapletree presence that we have the ability to serve. So I think that diversification is going to be our core strategy and the rejuvenation as well.

Yes. I think most investors understand the strategy and you've done a fabulous job when you took over from all the to SUV to MTV conversions. [indiscernible]

Sorry, Mervin, if I may add. And that if we make divestment gains, we'll distribute to investors. If we don't make divestment gains, we won't distribute. So it is not about divestment gains that we're doing it. We're not trading. We're not interested in trading. But this is rejuvenation. And then we have kept to the principle that we'll recycle the capital and then share with our loyal investors any divestment gains that we make, right, that we have bought the assets in 2005 and now we are able to sell it for a gain, we share that benefit with our investors. So that is the whole strategy about Mapletree Logistics Trust.

Yes. Just on the divestment gains, it's much higher than historical. And just following on Brendon's question, basically commentary that you typically pay out over 4, 8 quarters. Should we be expecting like SGD 8.8 million per quarter going forward? And how much do you have in the bank to still pay out? And the other question I had in terms of the fees in units, it's much higher than what we're used to. Like is there a guidance in terms of fees and units that we should be assuming in terms of our models?

Go ahead, Charmaine.

Fees in units. About 55% of our fees are paid in units.

This is the guidance going forward? Is it? Or -- because...

Okay. Yes, about 55%, 60%.

Yes.

55%, 60%. Okay? But I think the question was in this quarter -- we have reported a higher proportion. I believe that it's taken from the cash flow statement. On a technical basis, performance fees are paid once a year in 1Q. So if you take that component -- so performance fees for the whole of last financial year is included in that adjustment for this quarter's result. So if you take that component aside, it will be about 50-plus -- 55%.

So I think it is a discussion we had with the sponsor about alignment of interest, right? So the -- while we make acquisitions, while we manage this platform, we want them to have a long-term interest in us. So that's why the management fees and units of a proportion of about 50%, 55% is something that we will continue to manage, Mervin.

Okay. And then going back to my question on divestment fees.

Divestment.

Yes. Divestment gains, sorry.

We have about SGD 20 million.

[indiscernible] mentioned earlier.

We have about SGD 20 million less, excluding whatever is announced this quarter. And this SGD 20 million completed transactions and announced transactions. So more to come.

Yes. So I think the question, Mervin, that you have is do you expect our divestment gains to become bigger or smaller as we move forward, right? So if you look at what we have divested earlier, the SGD 700 million, a lot of them are smaller assets, right? So therefore, the gains are smaller in dollar value. But as we move, we are buying bigger assets in Hong Kong, we are buying bigger assets in Japan. So what was considered small back then of SGD 20 million. What is small to us is SGD 50 million. So the 50 million guys will get divested. The 50 million guys will get divested and a gain, that will be higher. So depending on what we divest, we expect that to come. But what is important, Mervin, is not every divestment will have a gain. I think that is the part that I'm trying to say. We are not doing it for divestment gains. We are doing it to rejuvenate our portfolio. What's the point of keeping an asset in our portfolio when it is not going to be able to compete in the market. So that is what we are doing. And then as we get bigger, right, the assets that we have already sold the SGD 20-odd million. So what's going to be left is going to be the bigger asset like SGD 30 million, SGD 40 million, SGD 50 million. And then these will get sold over time, right? Because they are -- look, the site is going to be too small for efficiency, you're going to have cargo lifts. You're not going to have automation, the velocity of goods -- turnaround time in the warehouse is slower. So these are all the considerations. So I think on the divestment, there will be gains when we are able to divest at a higher price, but there will be cases where we will not be able to make a gain. And that is the part that we need our investors and the audience to understand.

Sure. I think everyone understands you need to rejuvenate the portfolio, it's just that -- because historically, as Brandon mentioned, you disclosed that your -- this x amount for the next few quarters. Is this that at this time around, we have no visibility. So that's the issue. So just want to clarify. Yes.

Yes. So I think, Mervin, you take the guidance 4 quarters to 8 quarters. So there is no benefit to us to hold the divestment gains on our books for too long. So if it's a small divestment gain, 4 quarters, if it's a bigger divestment gain, 8 quarters. If it is a very, very big divestment gain, which we will be very, very happy, I think we'll try to keep it to 8 quarters as well. Does that help you?

So can I assume you got now SGD 20 million that you could still pay out? So we've got about SGD 5 million per quarter going forward. Is that something that is conservative..

For the SGD 20 million that have been announced, yes, you can assume SGD 5 million for the next 4 quarters. And then there will be more divestment that will be announced over the next 6 months, Mervin.

So yes. I mean I have projected divestment gains even though you haven't...

Thank you for having [indiscernible].

No, no. That's very consistent. It was much higher than what I thought. So I just don't know how to forecast. Yes, I didn't need your guidance. Okay. I'm taking a lot of time. I'll just turn it over to other people.

Okay. Joy, would you like to pose your question?

Just a few questions for Kiat. I think one on rental reversion. We've seen out of China, we've actually seen an acceleration of a few locations like Hong Kong and Korea. How much of those are going to sustain and how much were one-off? Do we get a bit of guidance?

Yes. For example, in Hong Kong the market is not like pre-COVID days where it's growing like 4% to 5%. In fact, this is kind of a one-off, right, because it's -- one of the -- I mean, the tenant, Equinix in all the properties actually renewed at least once. And so those mark-to-market. [indiscernible]

So I think it is -- yes, I think what you asked -- what you are saying is the 16% will be what we call at the top range of Hong Kong reversion, right? And then what will be a typical one for ramp-up like, right? We'll be looking at 5%, maybe 8%. And then for those cargo lifts, maybe 2% to 3%, does that help you, Joy?

Yes, it does. And for Korea?

Yes, for Korea, we have revisions coming up from top assets in [indiscernible].

Yes. So it's again, the same thing. The range will be for the higher tax assets, we should be looking at above the 5%.

Okay. Okay. Cool. That's very helpful. And second question on just to help us think through sort of acquisition and also redevelopment. Looking at your Malaysia Subang redevelopment, what sort of targeted return would you focus on? And also how does that compare with outright acquisition?

Okay. We are looking at high 7% to 8%, over 8% on NPI yield for the Subang redevelopment.

And that will be a...

And the acquisitions that we have made in Malaysia is about 6%. So if you do your own AEI, we probably can make about 200 bps, 150 bps, 200 bps by taking on that development risk because the developer's profit, you know is going to be around that kind of range.

And how much opportunity do you have in your existing portfolio? The low hanging fruits?

The low hanging fruits, okay. The problem I have with the low hanging fruits my main obstacles are the authorities. So there are actually quite a number of properties that we are keen to do AEI, but we need to engage the authorities over a significant period of time. So on that front, I think over the next 12 months, we don't think there will be another AEI that we will announce because we won't be able to get the authorities approval in time. But over the next 2 to 3 years, there will be more AEIs for sure.

I see. And these authorities any focus countries, Singapore, Malaysia or other countries?

Across the board. We are speaking about Guangzhou. We are speaking about Korea. We are speaking about Japan. So we are speaking about Q2 in Japan. So this -- that is how expensive. And of course, we are Malaysian site as well. Yes. And Malaysia is also -- there's a redevelopment potential for [ Shalam 1] is a single story. And in Malaysia, you know we have started to build 4 stories.

Oh, I see.

Yes. So that's how the market has grown. In Shalam a single story. But today, the next or a few minutes down the road, we're having a 4-story warehouses.

Got it. And for all these markets, you're looking at...

Sorry?

You are looking at speculative redevelopment, right?

Yes. Because I think our lessons that we have learned, especially for us, is multi-tenanted, speculative developments have surfaced very well. So for, for example, 5B Toh Guan, we have Amazon inside. We have all the top players inside and we also have 5A Toh Guan which is just next to us and they're all multi-tenanted.

Sure. And one last question, if I may. Just on cost of fund. I guess you mentioned around about remix currency sort of debt nomination. Is this part of -- when you guide 3%, is it already including sort of mixing some of the currency from high cost to lower cost?

Yes. So to extend -- so I think to clarify on this, the 4.5% that we are giving right now, this is really an outcome of what we have done in the past. We have always been proactive in locking base at between about 7% at least, hedge rates. [ 25% ] So this is really an outcome of our past assets where we are able to lock in lower rates at less than 1% for non-JPY currencies, but this will slowly be replaced and it is a part of our strategy as what we have previously shared that we will -- as all this Aussie dollar, Hong Kong dollar, Sing dollar comes due we will replace with lower costs such as CNY borrowings. So that's already incorporated in our forecast.

Okay. Derek, if you have questions for us?

Just 2 questions from me. Can I circle to Singapore, I just understand -- I just want to understand whether you think reversion is still going to be about 8% plus given that next year a fair amount leases are for renewal.

Yes, I think, Derek, if you look at the supply situation in Singapore, it's going to remain tight for the next 12 months. So I think high single-digit reversion is something that we're optimistic about, especially for our ramp up. That's why I was trying to say the region. Our cargo lift, I'm not going to say they're going to give us good rental reversions. I'm talking about the ramp-ups that we have, like 5A, 5B, Pioneer and all that. So these are the ones that we will see high single-digit reversions in the next 12 months.

Okay. Sounds good. And for -- can you remind us again for CWT lease, right? So are they going to expire soon? And is there something where you may take over?

We have started to take over like [ Pandan ].

Yes, 2 properties we have taken over.

Pandan and...

[indiscernible] and -- the other balance 3 is, one is next year and the other 2 are further down the road. So this is...

So we have already -- I mean, ever since acquisition, I think I've told everyone the objective of buying CWT is there are some of the top quality in terms of specification in Singapore. And then the second thing that we were interested in are the underlying tenants that are occupying these properties. So we have been talking to them. They have been aware of our intention and so we have started taking over the underlying leases.

Okay. So you'll take over next year, like essentially, it will be an MTB for you, just to clarify.

Okay. We have taken over 2. Next year, 1 more and the following about..

5 to 8 years more.

Yes.

Yes. Okay. Sorry, just last one, right? I believe that when you did this acquisition, the opportunity was for you to acquire the Benoi property, right? So is that still on the pipeline for you?

Yes, Mega Hub, right? You're talking about the CWT mega hub. See the main challenge we have is the underlying lease, which is going below -- is now about 22 or 24 years, remaining land lease. So that is something that we are not comfortable with.

Okay. Unless they sell you [ 8% ].

Derek, you know me well.

Okay. Okay. I understand. Okay. That's all for me. All right.

Okay. We have a few questions from the webcast audience. One is about the exit NOI cap rates for the divestments announced presented on Page 23. Yes. So they range from about 3% to 4% for the -- these 5 transactions that are presented here okay? And then there is another question on whether for the plan or potential acquisitions, whether we'll be doing any capital raising as well -- and also what would be the comfortable gearing ratio.

We won't be doing any EFR in the near future because looking at our cost of equity now looking at our share price, it is becoming very, very expensive. So it will be from recycled proceeds of our existing cash or the new cash generated from the properties that we will use. And the gearing ratio, we'll keep it at a comfortable level of below 40%.

Okay. Do we have any more questions?

Just read the question, Charmaine.

Okay. Sorry, there's a question that says 63% increase in income this quarter, which was partially attributed to divestment in Singapore. So what happened this quarter would be because -- I mean, we mentioned previously -- just now earlier that we divested 2 assets, 1 in Singapore and 1 in Japan. So we will actually -- because of the -- in Singapore, we will usually put a site 17% pending confirmation of IRs can be distributed. And then in Japan, there's actually capital gain tax, revolving tax on my capital gains. So that one, we also have to put aside. So the increase is really because of tax provided on this divestment gain.

Okay. Any more questions from analysts? -- now we call it a day. Okay. So I think to summarize the environment going ahead will be very volatile. What we can see is China is not going to recover very soon. And then -- but the other countries, we continue to see resilience and stability coming up from them. So on the operating front, we are confident that we will be able to maintain that growth that we have achieved so far. What is going to -- what is keeping me awake at night is the interest cost and the ForEx. So these are the 2 elements that we do not have much control over, but these are the 2 elements that can impact our DPU performance. So on the operating front, we continue to be very stable, very strong, very resilient. It will take quite a lot of market changes to impact that. But the ForEx and the borrowing costs will be the ones that we may be in for some surprises. So like I said, for this quarter results, if it's not for ForEx, our revenue would have increased by 6.1% versus the current 1.5%. So you can see how big that impact is. So I think we are cautious. We remain vigilant, and we continue to be very active. We intend to continue to be very active on the recycling front, meaning acquisitions, meaning divestments. And then if we make divestment gains, we'll be more than happy to share with the investors. Okay. Thank you for joining us. Bye.

Thank you.