Mapletree Logistics Trust (MLT), a leading provider of logistics solutions in Asia, reported its financial results for the fourth quarter and full year ended March 2024. The company saw a slight increase in gross revenue and net property income (NPI), but a decrease in distribution per unit (DPU). The earnings call highlighted several strategic initiatives, including acquisitions and divestments, as well as challenges faced in China and the impact of foreign exchange (FX) losses and higher borrowing costs.
Key Takeaways
- Gross revenue rose by 1.2% to S$181 million, and NPI increased by 0.6% to S$155.3 million.
- DPU decreased by 2.5% to S$2.211.
- Occupancy rates remained stable at 96%, with a positive rental reversion of 4.9%.
- The portfolio grew to 39% green certified and now generates 59.8 megawatts peak of solar energy.
- Debt increased to S$5.3 billion, with the leverage ratio moving up from 36.8% to 38.9%.
- Portfolio valuation increased by 3.2% year-on-year to S$13.2 billion.
- MLT completed the acquisition of one asset in India and divested 73 Tuas South in Singapore.
- Proposed acquisitions in Malaysia and Vietnam were announced.
- The company is facing challenges in China with expected negative rental reversion in Tier 2 cities.
- MLT's hedging strategy for the Japanese Yen is expected to provide support for six to twelve months.
Company Outlook
- The company plans to continue its asset recycling strategy to maintain growth.
- Divestment plans for the new financial year are projected to be between SGD 200-500 million.
- MLT expects the next few quarters to be uncertain and challenging, particularly due to the market volatility in China.
Bearish Highlights
- Weaker performance in China and FX losses have impacted financial results.
- Higher borrowing costs have contributed to the increase in debt.
- Negative rental reversion is anticipated in Tier 2 cities in China.
- The DPU is expected to continue decreasing due to lower divestment gains and higher interest rates.
Bullish Highlights
- Positive rental reversion in Hong Kong and Tier 1 cities in China is expected.
- The portfolio remains diversified, with stable occupancy rates.
- MLT's green initiatives and sustainability goals are progressing well, with a 4-star GRESB rating.
- The company is actively acquiring assets in developed and high-growth markets and embarking on redevelopment projects.
Misses
- DPU declined by 2.5% compared to the previous year.
- Rental arrears in China are being closely monitored, with signs of improvement in collections.
- Divestment gains are expected to be lower in the future due to a softening market.
Q&A Highlights
- MLT is open to share buybacks as a strategic option.
- The company is not planning to buy assets in China until the market recovers.
- Valuations for recent acquisitions in Malaysia reflect a cap rate of 5.7% based on NPI view.
- Bad debt provisions are lower this year, with proactive measures to ensure collectability from smaller tenants.
- The FX hedging strategy is dynamic, with hedges up to 8 years for the Japanese Yen.
Mapletree Logistics Trust (ticker: MLT) has demonstrated resilience in the face of a challenging market environment, particularly in China. The company's strategic acquisitions and divestments, along with its focus on sustainability and portfolio diversification, provide a foundation for navigating the uncertainties ahead. However, investors are cautioned about the potential decline in DPU and the ongoing impact of foreign exchange headwinds and higher interest rates. MLT remains committed to its growth strategy and prudent financial management as it looks to the future.
Full transcript - None (MAPGF) Q4 2024:
Sharifah Aljunied: Hi. Good afternoon. Welcome to MLP’s Results Presentation for the Fourth Quarter and Full Year Ended March 2024. We have the full management team with – here with us today. We’ll start off the presentation with the Charmaine, our CFO. She will go through the key highlights.
Charmaine Lum: Hi, everyone. Thanks for dialing in. I’ll first run through the highlights for 4Q FY ‘23-’24. So for the 4Q, our gross revenue increased 1.2% year-on-year to end at S$181 million. NPI is higher by 0.6% year-on-year at S$155.3 million. However DPU is 2.5% lower at S$2.211 versus the S$2.268 we announced last year. In terms of our portfolio, our portfolio remains resilient. Portfolio occupancy remains stable at 96%. Average rental reversion is a positive 4.9%, including China. Excluding China, we are looking at a positive 7.1%. WALE remains at about three years. Full – capital management-wise, our leverage pretty sure is at 38.9%. That’s about 84% of our total debt have been hedged into fixed rate with an average debt maturity of 3.8 years, about 78% of our income for the next 12 years have been hedged into Sing dollars. So we continue to be active in our rejuvenation of the portfolio. We started 4Q with 187 properties. We completed the divestment of 73 Tuas South in Singapore and completed acquisition, completed the divestment of 73 Tuas South in Singapore and completed the acquisition of one India asset during the quarter. So our portfolio remains at about 187 properties. During the quarter, we also announced the proposed acquisition of three well-located building assets from the sponsor of about S$230 million and one in Malaysia and two in Vietnam. In terms of sustainability, about 39% of our portfolio is green certified and we are generating about 59.8 megawatt peak of solar energy and also during the quarter itself, we issued our maiden S$75 million green bonds under the Green Finance Framework. Foregoing, the details of 4Q results, so for this quarter of financial performance continue to be impacted by weaker performance from China, FX losses due to weakening of the regional currencies, as well as higher borrowing cost. Gross revenue is 1.2% higher, mainly due to contributions from acquisitions made at the beginning of the year, also higher contribution from exiting properties. However, this is offset by lower contributions from China which is down about 8% year-on-year absence of revenue contribution from divested properties, as well as currency weakness. Our fee expenses is higher mainly due to acquisition made at the beginning of the financial year. Gross revenue and NPI would have increased by 3.6% and 3% respectively on a constant currency basis. Our borrowing costs were higher by 6.9%. This is mainly due to higher average interest rates due to higher base rate on our unhedged loans, as well as higher replacement lease on the hedges that have expired during the financial year. And this is partly offseted by, as well as incremental borrowing cost to fund the current year’s acquisitions. Then this is the higher interest cost which actually offseted by loan repayments with proceeds from private placement, as well as divestment proceeds. Including our divestment gain of S$12 million, amount distributable to unitholders would have increased 1.1% of DPU sales, or 2.5% due to the enlarged unit base. For the 12 months, results year-on-year and the reason behind the variances in some of gross revenue, borrowing costs are largely the same as 4Q this year versus 4Q last year. So we are reporting a higher sorry - DPU of S$9.003, which is 0.1% lower than S$9.01 for the full of last year. On 4Q versus 3Q, revenue is down 1.7%, mainly due to absence of revenue contribution from divested properties, as well as lower contribution from China and Singapore. For Singapore it’s really because of rental incentives given in 4Q, as well as currency weakness which is about S$1 million lower for the quarter. Property expenses is higher, mainly due to higher property tax and maintenance expenses. NPI 26% lower this Q versus, 4Q versus third Q and borrowing cost increased due to higher average interest cost, interest rate, as well partly offset by loan repayments with the properties on divestments. So DPU is 2.21%, 1.9% lower than 2.25% in 2Q. Our balance sheet as of 31st March 2024 versus last year. IP has increased from S$12.8 billion to S$13.2 billion, mainly due to acquisitions of about S$1 billion during the financial year partly offseted by divestment of about S$180 million and currency translation loss of about S$470 million. We have also had an S$1.8 million at the fair value loss in terms of the IP value. Debt increased from S$4.9 billion to S$5.3 billion, mainly because our investments of about S$1 billion during the year is funded with S$180 million of the divestment proceeds, a mix of equity as well as debt. NAV, has moved from S$1.44 last year to S$1.38 this year, because of FX translation loss due to the weakening of regional currencies. Leverage ratio moved from 36.8% to 38.9% and our weighted average interest rate, 2.7%, compared - I mean, 2.7% this year compared to 8.7% last year. The interest cost has kept stable, really notwithstanding the rising interest rate environment, mainly because of the proactive capital management we do. So this is due to, I mean, number one, borrowing JPY loans to fund our acquisition, as well as active utilization of divestment proceeds and EFR. Proceeds were paid down the more expensive loans and we expect this to increase to about 3% in the new financial year. Our debt duration remains stable at 3.8 years and interest cover – debt to interest cover is at 3.7 times and 3.1 times respectively. So our debt maturity profile remains well-staggered with a healthy average debt duration of 3.8 years. We have about S$950 million available committed credit facilities on hand, more than sufficient to refinance the S$270 million that's coming due this – in the new financial year. Green financing total about S$964 million accounted for about 18% of our total borrowings. In terms of interest rate risk management, about 84% of our total debt has been hedged or drawn in six weeks. As for ForEx, about 78% of our total amount distributable in the next 12 months have been hedging to Sing dollars. And the next Slide would be the distribution details for this quarter distribution. I'll now hand over to James to go through the portfolio update.
James Sung: Hi, everyone. So, James here. so I’ll update the portfolio. In 4Q, in terms of our diversification, we still offer a good mix of participation between the developed markets which contribute 70% of our – of the new AUM and gross revenue, each gives us much stability that we need yet the 2% comes from the developing markets which offers us the growth potential that we need. In terms of the occupancy rates, our offer remains very resilient. For 4Q, we registered 96% occupancy that will change from the previous quarter. Most of the countries recorded people or consumer mix except for Korea and Australia. In Korea, there were lease expiries in two of our properties to older Specter property that we have in Korea and in Australia it was due to a non-renewal of a small lease in our Brisbane statutory reach[Ph]. Overall, we achieved 2.9% positive rental reversion in the portfolio in 4Q as compared to 2.8% in the previous quarter. Without China, the portfolio reversion might been positive 7.1%. For south China, rental reversion rate was a negative 10% in 4Q. So overall, we have a well-staggered lease expiry profile in and extremely hedged and our top 10 tenants now contribute about 22% of overall gross revenue. And the top 10 tenants are coming from a mix of e-commerce companies and GPO companies supporting those e-commerce companies. And so hypermarts in Australia and GPOs supporting the consumers’ people sector in our portfolio.
Charmaine Lum: On the active portfolio rejuvenation, so in the financial year ‘23-‘24 we have acquired over S$1.1 billion in acquisitions our 12 modern Grade A assets. Announced of end of completed in FY across the developed and high growth markets. So we have acquired - in the financial year, we have acquired 8 assets in across Japan for real and Australia with a total value of S$900 million. In the recent quarters, we have also acquired four assets or in the process of acquiring four assets in these emerging high growth markets to capture demand from the growing consumption of Farrukhnagar, Delhi Kula Lumpur, Ho Chi Minh City and Hanoi. So in February, we've completed the Delhi asset and in the same month February, we have signed SPA to acquire two new assets from our sponsor, one in Malaysia and two in Vietnam with a total value of about S$12 million, S$14 million. With the four recent acquisitions, it deepens our footprint in Malaysia, Vietnam and India. So these offer attractive fundamentals are driven by positive drivers such as the strong economic growth, foreign consumption across these three markets, as well as rising urbanization pick up in this market. It also offers us favorable secular trends. As you can see, the supply chain diversification post-pandemic as this daily e-commerce growth and as well as there's still a limited grade A warehouse supply in these three markets and all these presents growth of opportunities for MLT. So with as exposure to development - developing markets it augments the MLT growth and at the same time complements ability from the developed markets from the recent assets that we have acquired in the Japan, Korea and Australia. Next, as part of the MLT ongoing asset enhancement plan, we have identified two projects with total development cost of about S$380 million. So the first one is on this Subang asset enhancements. We have specifically acquired two land parcels in Subang and we are currently in the process of seeking approval from authorities for amalgamation with our existing MLT assets in Subang 3 and 4. Once the amalgamation is approved, we can potentially use about 1.4 million square feet of modern Grade A assets, which is about five times the increase on Subang 3 and 4. Our next project is on this redevelopment project at 51 Benoi. This is currently ongoing. We have started construction in July last year and expected completion in first half 2025. And also as part of MLT active portfolio rejuvenation strategy, we have divested over S$200 million of older specifications with limited redevelopment potential. So we have total 7 - 3 in Malaysia 3 in Singapore and one in Japan and two assets are under the selling process. We have set SPA to sell about S$40 million worth of assets in Malaysia. Next on the portfolio valuation. In terms of the valuation, it remains resilient. Portfolio valuation was about was S$13.2 billion, 3.2% higher year-on-year due to acquisitions of 9 assets, as well as a capital expenditure incurred on existing MLT assets. And a 51 Benoi property that’s undergoing redevelopment. This was partly offset by divestment of 7 properties. Currency translation loss of about S$471 million and S$1.8 million net fair value loss on investment properties. In terms of the net value - net fair value loss it’s mainly attributable to properties in Australia, China and Korea and offset by the gains in the 6 other geographic markets and the main bar of the gain is coming out from Japan and Hong Kong. If you look at the cap rates movement, I’ll start off with Singapore, so for Singapore, there is actually no change in the cap rate. In terms of Australia, there is a cap rate expansion of about 75 to 100 BPS. However, this is partly mitigated by a strong rental growth. In China, there is also no movement in the cap rates. What they have been here is that in much 2023 it was a growth average that was adopted. And then there was a change in value also in March 2024 this valuable worth took a net cap rate basis. However, if you look on a like-for-like basis, there is actually no movement on the cap rates as according to the value there’s actually no transaction. Hong Kong, there is also no change in cap rates and the valuation increased in the Hong Kong portfolio is due to a rental growth. Similarly for India, there is also no change in the cap rates and beside the acquisition of the assets in New Delhi, the same store assets actually also rise due to rental growth. Next on Japan, there is a slight compression of up to about 40 basis points. And this is due to a continued investor interest changing for our good quality assets, as well as rental growth phasing seen in this portfolio. For Malaysia, there is also no change in the cap rate movements. And the portfolio valuation there is a slight decline, it's because of we have sold three assets over the year. But if you look at the same-store basis, it is actually increased in the same-store assets in Malaysia due to rental growth. For South Korea, there is a slight expansion, mostly about 10 BPS. And also at the same time, there was a - on the same-store basis, it declined due to the lower rents signed for the lower specifications assets in the Korea markets. For Vietnam, there's no change in the cap rates and then the same-store valuation increased in Vietnam due to the rental growth. So, all in all, that sums up including the rent of used assets which is also value we're looking at for MLT portfolio valuation is about 20.2 BPS for this year. And that sums up my slides on the valuation.
Jean Kam: Thank you. So just a quick update on the sustainability front. I am pleased to share that we have made quite good progress on our Green initiatives this year. To recap, MLT has an interim goal of achieving carbon neutrality for Scope 1and 2 emissions by 2030, which is in line with the Mapletree Group’s long-term goal of reaching net zero emissions by 2050. So we are focusing on two main initiatives, solar and green buildings. On solar this year our sell-funded solar capacity had more than doubled from last year to about 36.2 megawatt peak. Our interim goal is to reach 100 megawatt peak by 2030. But if we include third-party funded installations, then on the entire MLT platform, our solar capacity has reached a total of almost 60 megawatt peak, which we believe is the largest amount achieved today. For green buildings, our 25 a new buildings got certified this year. So that brings to a total of about 39% of our portfolio by GFA is now Green certified. Our interim goal is to reach amount of 80% for our portfolio to reach - to achieve Green certification by the year 2030. Just a couple more points, Green Financing, I think just now Charmaine mentioned that we issued our first Green bond S$75 million, under our Green Finance Framework, which recently got a second-party opinion from S&P. And this will be channeled towards eligible projects like green buildings and renewable energy. And for the third year running, we have planted an additional - more than 1,600 trees across our platform. So that is under the Plan a Tree with Mapletree initiative. And in line with this efforts, we are pleased to share that we have about – we have attained a 4 star rating under GRESB, as well as being named a Joint Winner by SIAS or the Singapore Corporate Sustainability Awards under the REITs category. So with that I'll now hand over to Kiat for the – for her outlook.
Kiat Ng: Okay. Thank you Kate [Ph] This quarter, we see the first DPU decline for MLT. so I think we're one of the last few weeks have managed to maintain positive and then I think we cannot fight against the macroeconomic situation. The ForEx - weakening of the foreign currencies, as well as the higher interest rate environment. So, I think, we have been telling investors, we’ve been telling analysts and the message unfortunately will have to continue. So on the macro side, slow - the ForEx, as well as high interest rates. Then on the operational side, China continues to be weak than - weaker than what we would like it to be. James did you give the rental reversion?
James Sung: I can go for now?
Kiat Ng: Yes.
James Sung: The rental reversions. So overall, the rental reversion for 4Q was 2.9%, compared to the 3.8% in the previous quarter. So Singapore had highest rental reversion of 11.1% due mainly to the strong demand for rental properties, stretching into the shopping supply in Singapore, followed by Vietnam 4.0%, Malaysia, 3.1%, Korea 2.6% and China, negative 10%, which I mentioned earlier.
Kiat Ng: So the China environment we expected to be volatile, uncertain for the next 12 months and maybe even beyond, we're trying to get greater clarity on whether we are seeing the bottom. But I don't think we are seeing it now. We will have to wait for a while. So, if you look at the stability of our portfolio 20 – 19.2% – 20% of our revenue comes from China. The emerging markets Malaysia, Vietnam, India, about 10%. So if I take this 30% out, we are looking at 70% of the revenue coming from countries like Singapore, Japan, Hong Kong and to a smaller extent, Australia and South Korea. So while we continue to put a lot of focus on maintaining the tenant retention, maintaining the occupancy in China, we will have to work even harder to push our Singapore, Japan and Hong Kong, because these will make up about close to 60%. So if we are able to push these three markets and deliver stronger results, then it will compensate for what for the weakness that we see in China. So, on the operational front, I'm confident that on the occupancy side we will continue to see high occupancy. On the tenant retention side, we have about over 900 tenants. Very diversified across many countries. Not just e-commerce, which we are seeing a slowdown, but we are seeing higher value goods such as pharmaceuticals, such as cold starts, such as electronics. So we're seeing this movement coming in our portfolio in the other countries outside of China. So, I think the headwinds really for us can be summarized in ForEx weakness, higher interest rates in China that will continue doing this.
Sharifah Aljunied: We now open the floor to questions. Mervin, please raise your hand. Would you like to go first?
Q - Mervin Song: Yeah, good evening Kiat and team. Thanks for call. Maybe just start on the same [Indiscernible]. I was looking at the general report for the March quarter. They noted a negative absorption of about 900,000 and vacancies rate seem to have creeped up to 7.3% from 5.8% in the fourth quarter. And rents are falling for the first time year-on-year in and Q-on-Q falling. So a bit shocked by that. Can you give us a update on in terms of what's happening in the Hong Kong market? I still expect – presumably soon expect positive rental reversion. But obviously in demand and I think next year, you have Hong Kong TV which is a top 10 tenant. I think there's some renewals in June of next year. So maybe starting off with that. And then in terms of China, any guide in terms of rental reversions, occupancy outlook for over the next few quarters? And whether we'll be able to collect on the rental arrears which we disclosed in the previous quarter? Thanks.
Kiat Ng: So I think for Hong Kong, the ramp up access – ramp up warehouses continue to see very, very tight supply. So we will start to see this dichotomy and others this differentiation for better quality - flight to quality, if you want to call it that. So I think for ramp up, we'll continue to see positive rental reversions. Not the good old days like in 2015, 2016, double-digits, but we should see still good positive rental reversions coming out for ramp up. And then, as you know, some of our portfolio in Hong Kong rented to datacenters. So these are very resilient users and then we know that Hong Kong is very difficult to get our supply - increase in power supply. So these are the assets that will continue to hold very good resilience and in some - and I think recently we did a rental reversion with one of them.
Mervin Song: It was a double-digit rental reversion?
Kiat Ng: For one of our datacenters in Hong Kong.
Mervin Song: Yes. So, if I could – to add on – we’ll get to the Hong Kong, what you had mentioned for we think purely conclusive. That was mainly due to huge supply coming from the [Indiscernible] overall, it’s 4.5 million square feet that a chocolate company reports the China Project. So we are just – so that is catered mainly for the air filter and consumer-related customers in China, obviously to me, occupying part of the building, yes, to trying to rent out the balance. So that is very unique product at airport. So because of excess capacity, you drag down the vacancy in regional walker.
Kiat Ng: And there are restrictions in terms of the tenant, so it's not as white space that we not have reached, tenant will qualify for use in that China property.
Mervin Song: That’s been in for China, so because of the guidance for the next few quarters, we believe the next few quarters continues to be uncertain in terms of the outlook. Or if you're looking for signs of recovery? There emerges any signs, but sustained kind of a recovery and we're still keeping our fingers crossed. So in terms of rent reversion, we are looking at low teens, negative low teens in the next few quarters
Kiat Ng: In the tier-2 cities.
Mervin Song: In the tier-2 cities, right. Tier ones are still doing much better than the tier twos. In terms of occupancy rates, we don’t see it going down or below 90%. We will still hover around 92%, 93% like what we are working now.
Kiat Ng: Yes. So, I think - I think I did not mention about divestments earlier. So we will continue with our recycling strategy. So we will look to sell some of the poorest specification assets in China and then in fact, we're in the process - James is in the process of evaluating quite close to closing some of those now. And then of course, Hong Kong, the lower spec starter title units, these are also the ones that will be keen to divest. So Mervin, that gives you some…
Mervin Song: Yeah. But, now it’s – yes. thanks for the color. But just in terms of any updates on the Hong Kong TV lease. I think that’s expiring next year. And then also asked about the rental every years in China, probably at the end you will collect the rents that are out due? Thanks.
James Sung: Yeah, Hong Kong TV is our one of few tenants continuing project from we’ve been engaging with them constantly. So we are looking to, what you call it, expand the impossible, but the moment they are still taking purchase view. So we don't think there will be any movements of their end. And in terms of the reversions, I want to - Kiat has mentioned for Hong Kong, we're still looking at a positive rent reversions. But clearly none. Two new warehouse because it’s still a good location, good specked warehouse issues in a marketing short in supply.
Kiat Ng: But the new supply that is coming out like what James message on - so that time to customer that parameter still continues to be a key driving factor in some of the usage that we are seeing in Hong Kong. So can it be much closer to the city that [Indiscernible] and two more not as close compared to Chinese. So I think the location and also the spec of some of our ramp ups are going to continue to be attractive for our tenants. Mervin?
Mervin Song: Yeah, but the China rental arrears have we collected those people have to pay on time? Thanks.
Kiat Ng: China arrears. For the China arrears, we are still - we are monitoring closely. But we are seeing some tenants are still a bit lack in terms of the payment. But I think the ground team is actually monitoring very closely and then trying to extend certain helps or in terms of maybe extending installment plans for the tenants as necessary. But we are seeing signs of improvement in terms of the collections. Yeah, especially this quarter, it has come down quite a fair bit, yes, yes.
Mervin Song: I think last disclosed was…
Kiat Ng: Sorry?
Mervin Song: It’s moving like what’s seems to had its vision.
Kiat Ng: Yes.
Mervin Song: Last quarter, I think it was 6% of annual revenues in China which were in arrears. So I was to make sure in the group.
Kiat Ng: 5.9%
Mervin Song: 5.9%?
Kiat Ng: About 5.9%.
Mervin Song: So hasn’t really changed much. Is that?
Kiat Ng: 5.9%, we need put all of that into [Indiscernible]. Because [Indiscernible]. Yes, Mervin, I think the long and short of it, China will continue to be very challenging for us. So occupancy we think based on the specifications and the location we are in. Occupancy we should be able to maintain still a very healthy level. But reversions that something that we are going to be seeing negative double-digit, yeah. And then arrears, we're going to monitor for the next few quarters. But this quarter seems to be – I mean, what we are receiving now seems to be strengthening over the last quarter.
Mervin Song: Okay. Thank you very much. Hand it over to Aljunied.
Kiat Ng: Yes.
Sharifah Aljunied: Okay. Derek DBS, you'll be next.
Kiat Ng: Hi Derek.
Derek Tan: Hi, good evening, Kiat. Can you hear me?
Kiat Ng: Yes.
Derek Tan: Yes, Hi. Just – I would just ask two questions. First one is on China again, right? If you look at China, I remember you mentioning that Tier 2 is only like half of your overall exposure. And just wondering if you look at Tier 1 cities while it's looking still fairly resilient, are you seeing signs of weakness? And should we be worried about it? That’s for my first question.
Kiat Ng: Okay. So, I think the – okay you want give us your second? So, we see whether we need to take it together.
Derek Tan: Okay. My second question is on the Japanese Yen. It is great for consumers, but it’s bad for investors like yourself. I just wondering, I mean your hedge on, how long is your Japanese Yen hedge going to defend you against the current currency drop just wondering if you can give some color on that? So yeah, just the two questions with you. Thanks.
Kiat Ng: Second question is easier to answer. So go on Charmaine.
Derek Tan: Okay.
Charmaine Lum: Okay. So specific with Japanese Yen, I mean, our strategy was to hedge up to 8 years actually. So immediately for the next 12 months, it is 7% have been hedged. And then of course progressively, as the year - the second year would be a slightly smaller amount and then it’ll be smaller amount, but it's all the way up to 8 years. So for the immediate year, FY 2024-25, we - 87% our hedge rate is at about 84% 85% levels versus the current 115%.
Kiat Ng: Yeah, 84% 85%.
Charmaine Lum: Yeah, so this is because…
Derek Tan: Wow, okay.
Charmaine Lum: This is clearly because we hedged this more than like 7% a long time ago. So some of it as far as 8 years ago.
Kiat Ng: Yeah.
Charmaine Lum: Yes. So while we will continue to benefit it, but I think like what we are trying to say in our outlook section is yes, we hedge it, it will gradually fall off and then the new hedges that we get in will become more and more expensive. So, while that's it for Japanese Yen. We have been support at least for the next six to 12 months, yeah.
Derek Tan: Okay, so it sounds good.
Kiat Ng: So now back to your, yeah, Tier 1 and Tier 2. So what is happening now is in fact we are in the process of divesting all specs, old specification, China assets some of them in Tier 1. And the reason is because if you look at it the blend tenor, some of them are going below 30 years. So we have been engaging the government to see whether we can redevelop and then some of them has been rezoned to commercial. So that causes a strain on the occupancy and the uncertainty of what the tenants. Yeah, so, I think, your question is, for Tier 2 that excess supply, the double-digit rental reversions negative will come from the Tier 2. Then the Tier 1 we should still see modest
Derek Tan: Positive…
Kiat Ng: Positive rental reversion. Yeah.
Derek Tan: Okay. Okay. Sorry if I .. yeah.
Kiat Ng: Sorry, Derek, I want to add on to it.
Derek Tan: Yeah.
Kiat Ng: We have to be the better specification properties. So if you go through our annual report, you will see some of these older properties but there with the specification and not so good. These will be the ones that will also see what we call rental reversion pressure.
Derek Tan: Okay. Great. So just one last one is what...
Kiat Ng: So you can’t just for like now and see old Tier 1 that’s going to be good.
Derek Tan: Yes. Okay, okay. But you have some land that’s rezone to commercial. So meaning when sell, it would be a big upside?
Kiat Ng: There will be divestment gain, but…
Derek Tan: Okay.
Kiat Ng: Until we actually sell, until we actually get the money, then we will be able to have a better feel on what the gain amount yet, but there will be divestment gains.
Derek Tan: Okay. Okay. Sounds really good. All right. That's all for me. Thank you.
Kiat Ng: Yeah, but Derek, we are entering negative DPU zones. Okay, so things are not going to sound so good moving ahead, because hedges are going to come off in – our new loans are going to be coming in at higher rates. So really, this is a part of the portfolio and then we said China weakness coming at 20%. So really the 80% of that portfolio has to be generating potential power to funnel this - what I call the growth that we want to see and as opposed to the decline that we are seeing.
Derek Tan: Okay. Okay. Sounds good. Thank to know that. Thank you.
Kiat Ng: We will continue with our recycling strategy for low yielding assets that specs we sell it out. And then we will recycle. So you see that we are doing a transaction with the sponsorship on Malaysia and Vietnam, yeah, and then they yields is about 7.5% to 5% to 5.5% point.
Derek Tan: 7.5%.
Kiat Ng: Yeah, Yeah.
Derek Tan: Okay. Sounds really good. All right. Thank you.
Kiat Ng: Some more questions please.
Sharifah Aljunied: Okay. Next is Yiew Kiang.
Kiat Ng: Hi, Yiew Kiang.
Wong Yiew Kiang: Hi, hi. Thanks, thanks, Kiat. Also on China, can you give the breakdown in terms of rent reversions for this quarter between tier 1 and tier 2, tier 3? And then, looking at your least expiry for this year, right, 13% coming from China. How much of that is coming from Tier 2 Tier 3 cities? And then lastly is on acquisition and divestment given where your share price is and where your gearing is? Is it safe to assume that acquisition is going to take a back seat? And if so, I need to focus more on divestments and investment case is it going to be the same amount of quantum that we are seeing in this financial year end? That's it.
Kiat Ng: Okay.
Wong Yiew Kiang: Quite a lot.
James Sung: So let me take the first two questions. For China itself, the most of the expiries in 4Q will 94% were from Tier 2 cities, all right? For Tier two, the rent reversion was minus negative 11% and the Tier-1 was slight positive 2.2%.
Kiat Ng: And you can be, I was just confirming the numbers with Jean. I mean, this year we did S$1.1 billion. And then we managed to pull off an EFR sometime last year March. Yeah, before things went even more down here alright. So, I think looking at – you are absolutely right, cost of equity looking at where our share price is, cost of debt where the individual countries are going. So, we really have to rely a lot more on the recycling strategy. So that means we will divest and then recycle from low yielding and then recycle it into higher yielding assets. So that will drive us and then the other thing is, we will continue to divest coming out from Malaysia, we will continue divest in Singapore, China, Hong Kong, maybe some more from Japan. So to answer your question, the pace we are looking at we’re looking at about S$200 to S$500 million for this new financial year. It's very much depends on our recycling strategy.
Wong Yiew Kiang: Okay. But it seems like all your divestments are pretty small.
Kiat Ng: Yeah, I think that's interesting. Yeah if you see, that mean, this is the comment I get, because, but if you track us, we have divested almost S$ 1 billion, let me correct or more than S$1 billion. We have redivested S$1 billion over the last five years. So each one ii 2050 but we’ve divested a lot. So the MLT is a very old REIT. We started in
Sharifah Aljunied: 2005.
Kiat Ng: 2005. And then, so we have a lot old assets to sell you guess. So hopefully, we can get the price that we have. I think I always tell you guys at S$500 million that I would like to get rid of. So, it is still there. It's still sitting on my books. They are not empty. Some of them are 100%, doing very well. So we will continue that. So the thing is we want to divest when we have a positive acquisition or what. So that means we're not doing divest and follow out our revenue while we wait for the new acquisitions because these assets are still hitting 100% occupancy. We still see positive rent, but we purchased. These are not in China. So that's where we are coming from. The other interesting point on how we can make our divestment more interesting is the pairing of assets. So for example, if we buy S$200 million, I buy S$100 million, Japan, I buy S$100 million, let's say in another country. And then if I'm able to pair it together and that raised a gearing of S$50 million using majority Japanese Yen debt, the accretion is enough because you know that at MLT we do not – Charmaine, we do not do what we call…
Charmaine Lum: We do not over gear in a currency.
Wong Yiew Kiang: Oh okay.
Kiat Ng: Yeah, we gear 90 odd percent by Japanese Yen. You don't do a mortgage type of financing. We borrow at the MLT Trust level, right? So therefore when we go to the banks, we are able to look at raising loans as a combined basis, but versus I am buying a Australian asset and I need to pay Australian interest rate now is how much, James?
James Sung: 5.5%.
Kiat Ng: 5.5% , yes. So if I were to buy Australia and Japan, I put it two together and then I can raise more Japanese Yen that than the accretion can be more interesting. So these are the avenues that we look at.
Charmaine Lum: So I think to add on to Kiat’s point I think what we’re trying to say was because we looked at on a portfolio basis. So like for the acquisition we did in the beginning of the year and some of it we actually took on Chinese land loan because we were under weighted in terms of the Chinese borrowings. In the past, we have always funded our Chinese acquisitions with equity, but then now there's an opportunity in the Chinese loans are of a lower interest expense. So we actually borrowed more Chinese. We are into actually catch up on our capital hedge with regards to Chinese lands.
Kiat Ng: Yes. So, I think that is where the diversification of our portfolio has helped us to provide a base that we are still - we can still be quite active on acquisitions you guess. I'm not…
Wong Yiew Kiang: Okay. I just want to go back to Slide 34. That 13.2% from China, how much it’s Tier-2, Tier-3? Slide 34 yeah. That green bar there,13.2%, how much of it is Tier-1,Tier-2 and Tier-3?
James Sung: We will see almost 8% to 90% will be Tier-2.
Kiat Ng: Yeah, 2 and Tier-3.
James Sung: Yeah, 2 and Tier-3.
Wong Yiew Kiang: Okay. Okay. That's it for me. I'll jump back to the queue. Thanks Kiat.
Kiat Ng: Thanks.
Kiat Ng: Okay. Tan Xuan.
Kiat Ng: Hello, Tan Xuan.
Tan Xuan: Hey. Hi, good evening. My first question is on acquisition, right. It's the quantum also S$200 million to S$500 million that you're looking at and what drove the feed in? Looks interesting to you now.
Kiat Ng: Okay. We already doing S$200 plus million coming from sponsor. Jean has mentioned that. So, there are some more Vietnam assets and India assets that we can take from the sponsor. So, if you talk about being that easy way out there, there is this Vietnam and India coming out from the sponsor. But if you look at third-party acquisitions, we are watching it. We hope that the prices will come down to more realistic level, then we can do the recycling. So to answer your question, S$200 million through S$500 million I mean we are already doing S$200 million. Will we be doing another S$200, that's a possibility.
Tan Xuan: Okay. And second question is on rent reversion for FY ‘25 right? Do you think the balance of the 60% of the lease expiry from other countries will be sufficient to offset in China with this?
James Sung: We think so, alright? We are talking about FY ’24 right, not FY ’25.
Tan Xuan: 24/25, the next financial year basically should we still expect positive rent reversion on a portfolio basis?
James Sung: That's right. We are very confident of overall positive rent reversion.
Kiat Ng: Yes. On constant currency basis, we are confident right. So the only big part that we get hit very badly is actually on the - you look at, like for example, this year without ForEx, our revenue have gone up year-on-year of 3.6% but with ForEx it’s 1.2%, a decline of more than 50%. But that would be the main factor that hit our topline.
Tan Xuan: Got it. And lastly, cost of that. I think previous guidance is 2.9% for next financial year, is that still the case?
Kiat Ng: Yeah, 2.9 and then it depends on your view Tan Xuan, you are from Goldman Sachs. Yeah, so unlike I am not interested. Everybody is telling me get hold your breath if they're going to be longer. So, 2.9% 3% the cost of debt, yeah.
Tan Xuan: Okay. All right. And thank you and let’s pass on.
James Sung: Thank you.
Sharifah Aljunied: Okay, Jonathan?
Kiat Ng: Hi, Jonathan.
Jonathan Koh: Hi, thanks for taking my question. I hope that you can hear me clearly. I have two questions. First question relates to the currency translation loss of S$417 million. It looks quite big. Which are the major countries contributing to this loss? And I presumably see this mainly translation. Secondly, can we have a breakdown of the occupancy in China in to Tier-1 and Tier-2? I read that a lot that a lot of the new supply is coming from actually Tier 1 city. So is there some reason we may have some deterioration in occupancy for your Tier 1 portfolio?
James Sung: I take the China question first on the occupancy. The breakdown for 4Q, we are looking at Tier 1 is up 95.6%, Tier 2 is about 92% plus, that is the breakdown. And we’d say some softness towards the end of last year in terms of vacancy reach in Tier 1 cities including Shanghai, because there was quite a huge supply coming into Shanghai in Shuncheng District and it affected the market dynamics, but we're confident because in Shanghai our assets are located more closer to the city of Shanghai itself, rather than in Shuncheng District. So that’s for Shanghai. So, this way most of the – half of the new supply was concentrated in outskirts. And Guangzhou again Guangzhou is very supply limited market. And our location is near to find airport is quite a key location for logistics. And we are confident that we can achieve a high - above 90 odd percent of occupancy rates.
Jonathan Koh: Do you have a – to let’s say, Beijing, are there Tier 1 cities like Beijing?
James Sung: No.
Kiat Ng: At Guangzhou, we have.
James Sung: Into the Shanghai.
Jonathan Koh: Okay, thanks.
Kiat Ng: Okay. So in terms of the FX, the translation on IP value about S$470 million. JPY is down year-on-year 11%. And then currencies like Vietnamese dong, Chinese yen, ringgit, they are all doubt about 6%. And actually, I mean, the rest of the currencies down about 2%, but in essence, for the financial year, every single currency that we have exposure to is down against us.
Jonathan Koh: Yeah, yeah, unfortunately Single dollar is quite strong last financial year. Hopefully, that reverse in the new financial year. Yeah, thank you very much for the update. Thank you.
Kiat Ng: Thank you, Jonathan.
Sharifah Aljunied: Okay, Brandon, you want to try? And voice out to see, so we can hear you.
Kiat Ng: Hi, Brandon.
Brandon Lee: Yeah. Hi, can you hear me?
Kiat Ng: Yes.
Brandon Lee: That’s okay. I just want to touch on a bit on China valuations. I mean, just looking at your guidance or reversion and what you have achieved. Do you achieve things that the unchanged cap rates on kind of fair in this market compared to some of these secondary port visits on for sale or by doing here they obviously are between 7% and 9% cap rates. That's my first question. My second question would, based on what you have sold, are you able to share how much divestment gains that are left for FY ’25? That's my second one. And the last one would be your stock that’s now trading at 3% discount NAV. Would you be open to doing partial share buyback? Yes, thanks.
Kiat Ng: Yes, share buyback. Yes we are open yet. We are - okay. Let's take the simplest question are we open to share buybacks? Yes. And then the other question, please.
Sharifah Aljunied: China gains.
Kiat Ng: I think the divestment gains is, we have about, balance of about S$10 million including the completion of what we have announced. So we have two Malaysian assets that we have announced, but not completed. So including the divestment on those assets, as well as wherever it completed this financial year we’ve about S$10 million.
Charmaine Lum: For FY’24.
Kiat Ng: That is unutilized that we can use in the new ones.
Charmaine Lum: Yeah. And then in FY ‘24 we will make further divestments and then we'll build on divestment gains. Yes.
Kiat Ng: Okay. So on the…
Brandon Lee: And what was challenging that?
Kiat Ng: Yeah, so on the China cap rates, yeah, so we have also, but with this we’ve adopted I mean an advice given by our interview taken by our valuers. So we have also asked the same question, why there are no movements? So simply because there's actually no transactions that are we can you don’t take easier to let transactions, but if you look at the valuation year-on-year, it has actually dropped. So the drop is a primary cause by this weaker rental reversion, lower rental as well as the lower occupancies. So that that has impacted the year-on-year year drop. No doubt that there's no change in the tax rate.
Brandon Lee: It’s really - if you are just looking at that Kiat, on it your out growth China seems very uncertain. So if you are possible if the FY say ’24, ‘25 valuation, right, is there a good chance that then we actually come down?
Kiat Ng: I think, if you are looking at constant currency basis and then looking at just cap rates alone, I think the question is, will we see cap rates expansion. Yes, so I think right now it’s difficult to give you an answer. The reason is because we do see Chinese capital chasing some deals. Because we are out in the market to sell, right? So we do see Chinese capitals are chasing some of these deals. These are no longer like the offshore guys. These are the offshore guys. So let’s see whether the transactions materialize and let it gain to when we have greater clarity, but yes.
Brandon Lee: Are you able to share what this Chinese capital looking at in terms of you?
Kiat Ng: I think they are looking at about between 5%, around 5%.
Brandon Lee: Okay. Great. Thanks. Thanks so much, Kiat. That's all for me. Thank you.
Kiat Ng: Yes, but that is for the general, but I mean, if you talking about more prime or so-called very tight supply micro markets, maybe we can get slightly better pricing, but yes, that's where we are.
Brandon Lee: Okay. Okay.
Sharifah Aljunied: Next we have, Terence, UBS
Kiat Ng: Hi, Terence.
Unidentified Analyst: Hi. Hey, good evening. Can you hear me?
Kiat Ng: Yes, Terrence. Okay.
Unidentified Analyst: Hey, thanks. For the arrears can I just clarify for my understanding, it is bad to assume that while we say areas that this will actually be written off as opposed to it being collected at a later date?
Kiat Ng: Arrears basically, it means it will be collected. I mean, you make provision for - we only make provisions when it's not full that the tenant be able to use. So we did make provisions last year. This, there was some that was made last year. This year, not so much. Much less than last year actually. So, yeah, but definitely the number that we're reporting is what we intend to collect. Not what will be written off.
Unidentified Analyst: And my next…
Kiat Ng: Terence, does that answer your question? Yes.
Unidentified Analyst: I'll have to think about it, but I'll just move on to another question. Wait, but these two divestment gains, can you do you mind reminding us like in the past what is the divestment premium percentage that is achieved and is that a premium expectation this year that need to be much lower?
Kiat Ng: For the year transaction, the average premium that we achieved was about 13%.
Unidentified Analyst: So this is FY ’24.
Kiat Ng: Correct, two three - two four. 23, FY ’23, ’24 moving ahead.
Unidentified Analyst: Yeah, and looking at FY ’25, is that percentage going to come down?
Kiat Ng: It's very likely, yes, because the market is softening. So that we would still get gains because of the advantage of being a very old REIT, as you know we got it at prices that were much lower. Say about 10 years ago, but the thing is, in terms of buyers’ appetite. so we are going to see more competitive pricing. Yeah.
Unidentified Analyst: Okay. And just another question. What is the financial impact of the solar power generator?
Kiat Ng: Impacts of solar energy - you're talking about revenue or the MBIU of the returns we can get. We can get high teens
Unidentified Analyst: Anything.
Kiat Ng: Okay. So in terms of solar energy, our returns on investment in the high teens.
Charmaine Lum: So I think in terms of contribution to our revenue is not, say like 10%, maybe less than 5, 5%.
Kiat Ng: Yeah.
Unidentified Analyst: For the 50% less than 5%?
Kiat Ng: Yes. So, Terence, I think just the EBITDA numbers in terms of loss allowances, provision for bad debt or the good debt, last year we provided for S$1.9 million. This year is only about 200.
Unidentified Analyst: Okay. So I should think of this 200 as incremental to the 1.9 million as of the latest date?
Kiat Ng: It's the P&L, yes.
Unidentified Analyst: Okay. Thank you very much.
Sharifah Aljunied: Okay. Next Vijay, in the interest of time, can we keep it to like max two questions?
Kiat Ng: Hi, Vijay.
Unidentified Analyst: Yeah, hi, hi, Kiat. I have a couple of questions. Maybe I'll take it one-by-one. My first question is again, pertaining to the divestment gains. I mean considering that you have about S$10 million in divestment gains for this year, I mean, the divestment - total divestment gain for this year seems to be a bit high. What is your policy of divestment gains? Will you be fully distributing all the divestment gains in a financial year? And will you also be looking at DRP, turning on DRP for this year?
Kiat Ng: So in terms of divestment gains, I mean, depending on the divestment gains quantum, we will distribute over four quarters eight quarters.
Charmaine Lum: Yes.
Kiat Ng: So this year, I mean we did make most of the divestments this year. So the distributed part I said in each financial year. And for next year you will have to consider divesting in these two. Yeah, and that will contribute to the divestment [Indiscernible] if any. Is in terms of DRP, we will continue for the new financial year.
Charmaine Lum: Yes.
Kiat Ng: So, Vijay, I think your question is, what - do we have a policy of how we distribute our divestment gain? We don't have a fixed policy. We will divest, I mean, we will distribute the divestment gains four quarters to eight quarters, because anything beyond eight quarters, I think it's quite meaningless. So we are going to keep within that kind of ratio, that means whatever you divest you should see it in that year, if not the gain will be the following year, but that's next.
Unidentified Analyst: Okay.
Kiat Ng: We don’t hold that - we don't intend to hold that gain on our books.
Unidentified Analyst: Got it. Got it. I was just looking at it from a smoothening of impact from a borrowing cost perspective. Then more of it will come in next year, would you be I mean looking at it? But yeah, I got the idea. My second question is, in terms of asset enhancements, what kind of ROI are you looking for that 51 Benoi Road, and Malaysian property asset enhancements. And for the 51 Benoi Road, are you looking at a single tenancy or multi tenancy? Is there any update in terms of occupancies?
James Sung: For Singapore and Malaysia –
Kiat Ng: About the 51 Benoi Road.
James Sung: So for 51 Benoi, both properties we are looking at multi tenants. But we are not looking at a single tenant.
Kiat Ng: And the progress.
James Sung: For 51 Benoi, it’s about 22%, 23% completion ready as of a 4Q. And in terms of the target news we're looking at for Singapore is, we are looking at the close to six for Singapore and more than seven for Malaysia.
Kiat Ng: Yes.
Unidentified Analyst: Got it. So if I may squeeze in one last question, I mean your sponsor has a huge pipeline of China assets. Considering the market condition at this point of time, do you think it is a market to bottom fish? Or would you be passing on these assets to third parties eventually?
Kiat Ng: Okay. The sponsor has set up a China fund, I'm not sure whether you are aware. So that is an evergreen fund. So this fund takes on more development risk. So some of the assets may – will be attractive for this fund. But for as far as MLT is concerned, we stick to our investment discipline whether it is from sponsor or from third party. So it has to be accretive. So we're not going to buy from sponsor just because it's from sponsor.
Unidentified Analyst: Got it. Thank you. That’s all I have.
Kiat Ng: Yeah. Yeah, so we're not going to be buying China for the next 12 to 18 months.
Unidentified Analyst: That's clear. Thank you.
Kiat Ng: Until we see China recovering and then there is potential for rental reversion upside and there are some assets they're coming from the sponsor then we will consider, but if not, no. Discipline, accretion, that’s not changed.
Unidentified Analyst: Got it. Thank you.
Sharifah Aljunied: Okay. Raison [Ph] HSBC.
Kiat Ng: Hi, Raison.
Unidentified Analyst: Hey team. Hello. Just wanted to check for the recent Malaysia acquisition, about 5.7% Just wondering if it's a little bit underwent, because I think it seems to be a bit tight compared to your variation cap rate of about 6.5%, 6.75%. And then maybe moving forward, if you are likely to acquire at a similar cap rates from your sponsor.
Kiat Ng: Okay. I think just to take a step back, Raison, we just mentioned just now that we do our own ABI in Malaysia. We are looking at 7% view on TDC, meaning construction. So but because there's going to be a profit margin that any seller will look at. So therefore when we buy from sponsor, buy from third party we're not going to get the 7% yield that we are talking about right? So Jean? We recently bought at 5.7% and then but the valuation that we have is in the range of 6.5% to 6.75% with them.
Jean Kam: So for the 5.7%, right. It's you know the NPI view that we are looking at. Yeah, so versus the cap rates in Malaysia, that is typically a gross basis.
Kiat Ng: So what Jean is trying to say is the valuation that the cap rates that you are seeing in that presentation is basically a different methodology.
Charmaine Lum: Yes.
Kiat Ng: Typically, I think in the market they value based on the gross basis, because I think the fee structure and expense for each of the country is different. So for Malaysia, what is being there? 5% to 6.75% is a gross basis. For us, the NPI view that we acquired from these sponsor of 5.7% is after the management as well as addressed expenses.
Unidentified Analyst: Okay. And thank all. Yeah, that's very clear. And if I can just squeeze one more, right, is there an update to the Hong Kong divestment? Is it still pending regulatory approvals?
Kiat Ng: Yes, it’s pending regulatory approval for the potential buyer to bring his funds out from Beijing.
Unidentified Analyst: Okay. So..
Kiat Ng: Yeah, so, I think if one of those very uncertain that, so, I think we have activated other potential divestments in Hong Kong, which we will disclose when we get there. But what we are seeing now is, buyers from China, we have to be very careful because the ability for them to bring funds out from China is subject to a lot of regulatory processes, out from central government, it also depends on their business, it also be depends on their personal track record with the government. So I think the lesson we learned is dealing with Chinese buyers we - for them to bring offshore money is going to be very tricky.
Unidentified Analyst: Okay. Okay got it. Yeah okay. Yeah, Kiat. Thank you Kiat and team, yeah.
Sharifah Aljunied: Okay. Karen, JP Morgan.
Kiat Ng: Hi, Karen.
Unidentified Analyst: Hey, thanks, Kiat and team. Just I am going to ask could you sort of clarify a little bit more on the bad debt provisions again? Was it? S$200,000 for FY ’25 versus S$1.9 million in FY ’24?
Kiat Ng: Yeah, so I think. Yes, this year, it’s S$200,000, last year it was S$1.9 million, mainly because, I think last day we have shared before that we had a Malaysian tenant that was giving us some issues, haven't paid rent for a long time. So because there was court hearings and all that we made the full provision for it. Also, I think that end of last financial year we have one of the tenants in China, I think they went past right. So we also provided info for that. This year, 219, it came from smaller tenants. They are also not doing well and there were doubt and fulfilled collections. But it's a small message numbers as compared to last year. And I think James side would proactively look into the collectability and if the tenant shows signs of impotent and all we were looking at replacing them effectively bills on their next bad debt.
Sharifah Aljunied: Karen, does it clearly your?
Unidentified Analyst: Yeah, yeah. Thanks. Could you just share on the same-store valuation change by country?
Kiat Ng: Same-store valuation. Yeah, we got the numbers on that? Putting with FX on over here.
Sharifah Aljunied: Karen can go we come back to you we'll get the numbers?
Unidentified Analyst: Sure. Thanks. That's all I have. Thank you.
Sharifah Aljunied: Okay. Shall we move on to Derek?
Kiat Ng: Derek from?
Sharifah Aljunied: DBS.
Kiat Ng: Hi, Derek.
Derek Tan: Hi, Kiat. This is Derek from DBS. Thanks for taking my questions. I actually have two questions. I think firstly, with regards to your FX hedging, I think it's fantastic that you are able to hedge up to 8 years. But just want to understand, is this a mechanical process? How do you do it? How do you decide what kind of proportion to hedge up to 8 years? Wherever I'm really coming from is I'm just trying to find out when will the power of the FX impacts to your earnings really be seen?
Kiat Ng: Okay. So the eight years that we're looking – we are talking about is for [Indiscernible] alone. I mean, and we took this as a strategic set up approach because of the volatility of – cost volatility in JPY and as mentioned earlier we start doing the hedges. Okay, so like now we will hedge 8 years, so because we got at this prompt. So eight years ago, we would have locked in certain percentage. And then, as the year passes, we will do it progressively. So like immediately for the big for 87% or DI has been hedged. But if you look eight years ahead, only 16% has been hedged. And of course the rates may not be as good as what we did years ago because of the current levels that we're looking at. Notwithstanding there is still discount from the 114, 116 levels that we're looking at. Thank you. Derek, that’s okay? So.
Derek Tan: Okay. So, meaning this hedging is dynamic and according to current scene also you guys would decide as and when you think it's a good time to hedge more.
Kiat Ng: Correct, correct, correct. So monitored the market and JPY is the one that both the longest tenure. So I mean, if you're looking at the other currencies, for Hong Kong dollar, or the two dollars, were the hedge we provide here.
Derek Tan: Okay. Okay. Got it. Got it. Okay and my second question here is, back to China. I think it's good that you're looking at our divesting some of the older lower specs properties. And then, just now I think that you mentioned that there could be some gains from the reclassification of one of the property, right?
Kiat Ng: Yes.
Derek Tan: But in general, should we be expecting some losses when you divest the China asset, is this the best time to be divesting? Also because like you mentioned your valuations they held up because of lack of transactions. But once you start crystallizing this business values hold it actually impact your portfolio?
Kiat Ng: Yes. So I think they - in terms of divestment for China, we will be able to get gains from the older assets that we bought long much longer ago, primarily because the real estate prices at that point were lower. So that is one angle that that we will be using. And then in terms of if you are talking about the assets that we recently acquired and then now because of excess supply, rentals actually come down and we are going to divest those, then definitely there'll be a loss.
Derek Tan: So, I think…
Kiat Ng: Yeah. So I am not exactly sure which angle you're looking at. But if you look at our annual report, let me correct me if I'm wrong. We have the purchase price and then we have the valuation. So if you look at our annual report, look at our China asset. You have a good feel of where the valuations are and where the original cost was. So the - to generalize the older the assets are, the higher the chance we have of getting a divestment gain.
Derek Tan: I mean compared to your initial acquisition definitely there's high chance of getting a gain. But just wondering compared to your latest valuations, are you able to get divestments at valuations or that could be even more downside from current valuations?
Kiat Ng: Okay, I think we have to take a very practical view in our valuation. Valuation exercise is a – is one that we do every year. So we do not just take whatever values that the valuer gives those to us. We actually challenge them. And then we actually ask for proof of transactions. So even if there are like what Jean said, even if there are what we call no visible transactions meaning especially in China it could be one anchor will be selling to another. So you don't get great visibility. You don't get actual third party arms line of transaction, but from there we have a gauge, as well. So to answer your question, where we where we - if our valuation realistic, I would confidently say that 95 and it should be realistic meaning that we should be selling at valuation. If not higher, but I don't see us selling to no valuation.
Derek Tan: Okay. Okay. Got it. Got it. That’s fair.
Kiat Ng: Because the valuation should have come down. That means, if you look, the valuation should have come down just compared to the original cost.
Derek Tan: Yeah, yeah, yeah. Okay. Okay, got it. Yeah, thank you.
Kiat Ng: Okay. Shall we go back to Terence from JP Morgan? Shall we answer Terence questions? Yeah, yeah, let me come. Yes, you don't have to deconsolidate it to make sure we can edit up. So okay, I'll just cover the countries. So for Singapore, on the same-store basis, it's a 2.6% increase. Okay. For China, it's a drop of 1.1% year-on-year. For Hong Kong, it’s an increase of 2.1% year-on-year. For Malaysia, excluding the divestment just on the same-store basis, it’s a 1.5% year-on-year. Japan, on a same-store basis, 3.4%, excluding divestment and acquisition. Korea, negative 1% and consistent in the local currency. Vietnam, 4.2% up, yeah. Australia dropped by 8.1%. India increased by 2.9%. So all the figures I have mentioned are on local currency basis and excluding divestment and acquisition. Yeah so it's like-for-like on a same-store basis.
Unidentified Analyst: On Australia, it seems like a very substantial drop. Could you just highlight a little bit more on that?
Kiat Ng: Yeah, so for Australia, I mentioned earlier in terms of the cap rates movement are it's quite a lot of 5 to 100 BPS. So for Australia, same-store dropped by 8.1% on local currencies basis, yes.
Unidentified Analyst: Okay. Thanks.
Kiat Ng: Okay. Junied, do we have another question?
Sharifah Aljunied: Okay, only Mervin coming back. Mervin, do you still have one more question, is it?
Mervin Song: Yeah, just wondering what is the rental reversion guidance, ex China. Yeah, is it going to accelerate from the Singapore is being accelerating?
Kiat Ng: It’s just the rental reversion for us. That’s different countries, I mean.
Mervin Song: Yeah, I will repeat the rental reversions, well, I was asking for outlook rather than actual same-store, your thoughts? Yeah.
James Sung: Look for the portfolio for the next few quarters we will be wedging around this level between 2% to 3%
Mervin Song: So, okay. So…
Kiat Ng: Including China.
Mervin Song: Including China. So, yes, such that. I mean, basically I told it. The DPU could be still be falling this coming year. Would I be correct given potentially lower lot of divestment being, the distributed FX interest – interest rates, yeah.
Kiat Ng: Yes.
Mervin Song: Okay. So…
Kiat Ng: So, let me giving up on that yet right?
Mervin Song: I just might be, what? I mean, it's – but is there something else which should be positive do you think?
Kiat Ng: Yes. So, hopefully, the next round of results you guys are still in the cars. Yes.
Mervin Song: Possibly look for. We are going to wait. I will be – my heartful – that’ll be to low in terms of the DPU performance. Is that - how much about all this? Are we close to FX – close to the end of the FX headwinds or how we should be thinking about that?
James Sung: More on cost seem to be…
Kiat Ng: Yes. I think Mervin, in terms of macro, I think you may even have more information than us, right? So I think the replacement of new loans, at higher interest rates, we are not done yet. Our loans –you can see, we showed that right just now. The expiries of our loans. So you will see that impact if you put in, whatever estimate you would have a feel of the impact and then the outlook on FX you have a feel on the impact. The only good part is the hedges will help a bit, right? But you will not be at cushion 100%. So that will be the main hit, means that we are not able to control very much. But in terms of the portfolio itself, like I keep on telling our team, as well 20% from China, you have 80%. Of the 80%, 10% not large but coming from emerging markets like Vietnam, Malaysia, India. That was to continue to see grow. So really if you're going to have to bank on the Singapore, Hong Kong, Japan, this large mature markets that have demonstrated very deep markets - very deep tenants relationship and supply in a very manageable way. So we're not seeing like excess supply being doubling to the market. So what I hope is the 60 or 70% of MLT portfolio will be able to cushion. Some of the negatives that we will see from the treasury side, the interest and the FX. Yeah, so, we think that the DPU will continue to come down, yes.
Charmaine Lum: Mervin, don't get carried away with the JPY rates like this year on the call.
Kiat Ng: Yeah.
Mervin Song: I appreciate that pause. Just everything all ends up it’s – of love is our flight control. So, anyway, hopefully that’s what’s you got slightly more positive concern with us, yes.
Kiat Ng: Yes, yes. So, yeah, so I think that we are entering into a time, a period where the uncertainty, the volatility of a lot more pronounced.
Mervin Song: Okay. Anyway I hope to see things – things will be very hard. I think…
Kiat Ng: Okay. Thank you all. That's all we have. Any last question or last words that you want to get onto the call?
Sharifah Aljunied: I don’t see any more raised hands.
Kiat Ng: Okay.
Sharifah Aljunied: So I guess, we got. Okay. Anyway, thanks for joining this rather long call.
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