Mapletree Logistics Trust (OTCPK:MAPGF) Q2 2024 Earnings Conference Call October 24, 2023 10:00 PM ET
Company Participants
Sharifah Aljunied – Investor Relations Manager
Charmaine Lum – Chief Financial Officer
Kiat Ng – Executive Director and Chief Executive Officer
James Sung – Head, Asset Management & Marketing
Conference Call Participants
Brandon Lee – Citigroup
Mervin Song – JPMorgan
Joy Wang – HSBC Global Research
Operator
Hi. Good afternoon. Welcome. Just before I start, Sharifah, I like to test, are you able to hear me well? Sharifah?
Sharifah Aljunied
Yes. I hear you.
Operator
Okay. Good. Hi. Good morning. Welcome to our Results Briefing for the Second Quarter and First Half of FY 2023-2024.
So, the full management team is here with us, Kiat, Charmaine, and James. So, now, Charmaine will kick off the presentation.
Charmaine Lum
Hi, morning, everyone. Okay, I’ll bring you through the key highlights of the quarter first. So, for — in 2Q this year, we completed the divestment of four assets; two in Malaysia, one in Singapore, and one in Japan. The net proceeds that we received were used to [Technical Difficulty]. So, this brings our total number properties from 193 at the beginning of the quarter to 189 at the end of the quarter itself.
2Q financial performance remains stable. Gross revenue is higher by 1.5% year-on-year, NTI is higher by 1.2%, and DPU was recurring [ph] S$2.268, 0.9% higher than 2Q last year. Our diversified portfolio continues to be resilient. Portfolio occupancy remains 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 three years.
With the repayment of loans with divestment proceeds, our aggregate leverage as of 30th September stands at the 38.9%. About 83% of our total debt has been hedged into fixed rate with a debt maturity of 3.8 years and about 80% of our income has been hedged for the next 12 years — next 12 months.
Moving on to details of the 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 AIS West [ph] upgrading purposes.
FX impact at the topline level is a negative S$8.4 million FX loss. After taking into account hedging gains of about S$4 million, we are looking at overall FX impact of S$4 million.
Borrowing cost increased, up 10.2%, about half of — two-third of this is due to interest costs incurred on additional borrowings to fund our acquisitions in 1Q as well as higher — and the remaining one-third is due to higher interest rate on exiting debts.
Divestment gains for the quarter, S$8.8 million, including the divestment gain we are looking at DPU of $2.268, 9% higher than last year.
Full 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 net debt as well as an FX loss of about S$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 S$8 million, so net-net we’re looking at FX impact of S$8 million. After taking into account divestment gains, we are looking at a DPU of S$4.99 versus S$4.516 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 two quarters. DPU is marginally lower as compared to S$0.271 last quarter.
Our balance sheet. Moving on to Slide 9. Investment properties as well as total assets lower by about S$200 million, mainly due to divestments of about S$100 million as well as translation loss on our investment properties of about S$100 million.
Total debt is also lower from S$5.6 billion to S$5.4 billion, mainly due to the repayment of debt with our divestment proceeds. Accordingly, gearing ratio decreased from 39.5% to 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 coverage ratios, which remained stable as compared to last quarter.
Moving on to the next slide. Our debt maturity profile remains well-staggered with about S$1 billion of facilities — available credit facilities on hand, this is more than sufficient to meet our refinancing needs for the next one — the remaining half of this year as well as next year.
In terms of our interest rate and ForEx hedging, about 83% of our total debt has been hedged into fixed rates. About — with every 25 basis point increase inventory, we’re looking at an impact of S$0.01 to DPU per quarter. As for FX, we had hedged about 80% of our DI for the next 12 months in the Sing dollars.
James will bring through the portfolio update.
James Sung
In terms of our assets under management in second quarter, the developed markets, you see, it’s still contributing a fairly high 73% to our overall portfolio. This 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% early 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, over the, operational situation in China itself, we expect to recover hopefully in four quarters around there and, — or earlier if the government has stimulated the economy with a booster.
So, in terms of our rental reversions, we are registering high rental reversions in markets like Singapore, Korea, and Hong Kong. And, in China itself, the rent to reversion still remains a fairly weak. In fact, China’s 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 rent reversion for MLT will come in at a positive 9.1% of 2Q. This shows the lease expiry profile for our leases in the next few years. So, next year, we have very high lease expiry coming up due to the shorter leases are coming in from the 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 this lease expiries for next year. So, from quarter-to-quarter, you should see this lease expiries however, in FY 2024 coming down.
The top 10 tenants accounts for about 22% of our total gross revenue and most of them are across this consumption sectors and e-commerce sectors. So, we have customers coming like from Woolworths and Coors in Australia. CWT continues to be the number one customer, but in terms of the contribution has been paid down in 2Q.
Our diversified trade sectors contributes about 900 over customers that we have and assuming 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.
A – Kiat Ng
Before we go on to rejuvenation, I would like James to give more details on the rental reversions across the different countries.
James Sung
So, for 2Q, the rental versions — I will start from the highest, right? Simple was — I’ll start from the 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 reversion was fairly strong coming in from one of the lease expiries and renewals that we recorded for the quarter.
A – Kiat Ng
So, can you go back to the — back 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. So, you can see that the diversification of MLT as a platform is supporting our results in a very resilient and stable way. So, while we see China being hit by a negative rental reversion of about–
James Sung
8.6%.
A – Kiat Ng
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 S$2.8 million, but without FX impact of S$8.4 million, our revenue would have increased by S$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 slide?
Charmaine Lum
Slide 6.
A – Kiat Ng
Yes. So, if you look at it S$186,000 to S$183,000, you would think that we have only increased it by 2.8. But what is included inside is a S$8,4 million ForEx loss. Without the ForEx loss, the increase would have been S$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 had that conception, it is wrong.
Without ForEx, our revenue was increased by S$11.2 million. Our divestment gain for the period only increased by S$7 million. So, 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 S$700 million of assets to-date and we are in the process of divesting another S$500 million. And the reason we are doing that is not because we are keen to harvest and distribute divestment gains to unitholders. The reason we are doing that is because we were listed in 2005, and we are very old RIET. 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, 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. It — whether — whatever a DPU is, the rejuvenation of our portfolio cannot stop. Whether there’s s ForEx impact, whether there’s 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 two years, we’re looking at the next five 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?
James Sung
So, we are doing the rejuvenation in the next few slides, we will show you. This is — this slide actually just to help recall, we did an acquisition of [Indiscernible] in assets in the last — two quarters ago, six properties in Japan, one each in Seoul and Sydney. These are very good properties, helped 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 four sites from government authorities. So, this process should be completed by middle of next year.
And that’s when we start the redevelopment of a mega hub of a six-storey building and it will increase our GFA by about four or five times to 700,000 square feet. This project is about S$170 million. And this is a core location for last-mile logistics, which we foresee very strong tenants demand.
Next, this is a project, in Singapore, Westside of Singapore, Benoi. We started the construction just this month and this project should see us completing it in mid of our 2025. It’s a six-storey 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 ramp-up properties in Singapore is still shortage in demand — shortage in supply.
A – Kiat Ng
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–
James Sung
Close to 10%.
A – Kiat Ng
Yes. So, if this trend continues to 2025, then this AEI of 51 Benoi 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 five-year view on this property when we spoke to JTC and bring it up in a year of 2025 where Singapore logistic market should be on an upward trend.
James Sung
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 reflecting the tables there. So, these are the four, two properties in Malaysia, one in Singapore, and one in Japan, Moriya Centre.
A – Kiat Ng
Yes. [Indiscernible] 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 S$400 million, S$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 S$20 million to S$50 million and even like in more expensive countries like in Hong Kong, somewhere, 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.
Charmaine Lum
The next slide is on sustainability. I think I won’t go through it. I just thought [Indiscernible] GRESB rating has gone up to 4 Star 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?
Question-and-Answer Session
Q – Brandon Lee
Hi, can I ask the first question?
Kiat Ng
Yes. Brandon, is it?
Brandon Lee
Yes. Hi, good morning. Good morning Kiat.
Kiat Ng
Good morning.
Brandon Lee
Just have a few questions. Good morning. 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 negative 10%, which you guided earlier is still going to hold for the next three to six months? That’s my first question.
James Sung
Yes, 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 — on the ground feedback we get from tenants. Because the consumer confidence currently is still pretty weak, right, it’s not clear. Even the recent holidays, spendings and all the export services related rather and tourism related rather than a good purchase related. So, in terms of the forecast, no, we expect the reversion to remain negative at least for the near-term.
And this is — the reason it’s very simple. We’re trying to keep our tenants, right, in many of these Tier 2 cities where we’re experiencing excess supply, competition is much tougher. So, this is, if not for the more incentives they’re giving to tenants, this 93% you’ll see will even be worse.
Kiat Ng
Yes, James, give a flavor on the Tier 1 and Tier 2 occupancy.
James Sung
So, in terms of Tier 1 occupancies is in the mid-90s, 95 and both for Tier 2, it’s low-90s, about 92%. So, we can see that, the Tier 1 occupancies is still booting up because the supply is still more or less balanced, right, and we experience a positive, albeit — positive but smaller rent reversions of 2% or so.
Kiat Ng
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 banging 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 S$11 million, that resilience and that stability from the revenue from the other countries should be able to help us to provide some stability. I would 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?
Brandon Lee
Yes. Yes. But are you able to just give quantified answer — you still think that we can — you still see the negative 10% for the next four quarters since you’re saying the next 12 months will be soft? Or you think that’s going to be negative 5%, like negative 10% or that–?
Kiat Ng
It’d be negative 5%. Okay, it’d be negative high single-digit to negative low double-digit 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–?
Brandon Lee
Yes.
Kiat Ng
Yes.
Brandon Lee
Okay. Thanks. And also just second question would be, I think the earlier acquisition of the two Tsing Yi property and a divestment of the Hong Kong One, are you still in the process or are you trying to probably delay that?
Kiat Ng
So, for the Tsing Yi 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 Tsing Yi purchase.
And then on the Hong Kong One, the — 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 authority’s approval that need to be sought for certain conversion of use that we are putting on the property.
Brandon Lee
Got it. Got it. Okay. So, just one last one, right. I think going forward, we know that you are still divesting, but how about acquisitions and given this hire for longer environment, are you still looking to buy?
Kiat Ng
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 costs are very, very high, the good part is, we are 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 speculated 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.
Brandon Lee
Can you share the specific geography they are looking at?
Kiat Ng
Okay. So, what we’re seeing in Asia is we are going to have — we continue to see very strong growing titles in places like there’s India, Vietnam, and Malaysia. So, obviously, acquisitions coming up from these three markets will be of great interest to us. And then we look across the different markets, we see, Korea and Australia has seen cap [ph] rate expansion. So, that gives us an opportunity.
Do we think that the cap rate expansions has reached the bottom? We don’t think so. So, maybe we will wait a bit, but if it’s a good asset in a good location, and we’re able to get you a good price, we will do that.
And then then you, of course, you have the other countries, like, there’s, Japan, Hong Kong, which continue to see tight supply in very prime locations. So, for example, in Greater Tokyo, so — and because the Benoi, 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 recycle 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.
Brandon Lee
Okay. Okay. Sorry, I just wanted 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 or the divestments, will you be doing that going forward?
Kiat Ng
Sorry, what’s the question?
Charmaine Lum
Didn’t guide on the gains. I mean, you didn’t break it out.
Brandon Lee
Yes.
Kiat Ng
I think,
Brandon Lee
How you’re going to distribute it over how many quarters and whatnot?
Kiat Ng
Right. If you look at the divestment gain that we have the distribution is usually distributed over four quarters to eight quarters. So, it depends on when the divestment gains come in and then we will be distributing over four quarters or eight quarters.
Brandon Lee
Okay. Thanks so much. Very, very clear enough. Thank you.
Operator
Yes. Okay. We’ve got a question. I think [Indiscernible] you’ve raises your hand. Would you like to proceed with your question?
Unidentified Analyst
Yes. Hi, good morning. Can I ask a bit more about acquisition, what kind of size are you looking at this year from sponsor and also third-party?
Kiat Ng
Okay. This year, this financial year, which half has gone, is that the year you’re talking about?
Unidentified Analyst
Yes.
Kiat Ng
We have redone S$900 million, right? And then we’ll be looking at another S$200 million to S$300 million.
Unidentified Analyst
Is this actually from sponsor or third-party?
Kiat Ng
Depending, but it will be from the countries that we — like, I’ve highlighted earlier, Vietnam, India.
Unidentified Analyst
Okay. But what about divestments?
Kiat Ng
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 that specific buyer and the price.
So, there are ongoing discussions. So, there will be divestments, the divestments that we 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 S$500 million. So, each year, S$100 million, S$200 million you need it for your numbers.
Unidentified Analyst
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?
Charmaine Lum
This year we’re looking at about 2 — we report on a quarter-by-quarter rolling basis, right. So, this quarter, we’re reporting 2.5%, probably by end of this quarter, 2.7% and then next year about 3%.
Unidentified Analyst
Okay. Got it. That’s all for me. Thank you so much.
Kiat Ng
Thank you.
Sharifah Aljunied
Question from the online audience, how much capital gains do we have remaining?
Kiat Ng
Divestment gains or capital gains?
Sharifah Aljunied
About 20?
Charmaine Lum
That it’s not distributed yet. Excluding this quarter’s distribution, this quarter’s DG, we still have about 20 from completed projects.
Operator
Okay. Mervin, you pull up your hand. Can you ask now?
Mervin Song
Yes. Thanks. Thanks for the opportunity.
Kiat Ng
Hi, Mervin.
Mervin Song
Yes. I think maybe you can turn to Slide 32.
Kiat Ng
Slide?
Mervin Song
32.
Kiat Ng
22?
Mervin Song
32.
Kiat Ng
32. Lease expiry, is it?
Charmaine Lum
Yes.
Mervin Song
Yes. Just trying to understand, obviously, you guided in terms of the rental reversions for China this financial year. Any color in terms of the waiting for China next year? Is it first half, second half? And how does the expiry rents compared to market rents at this point in time?
James Sung
Yes. So, usually for in this chart here, the expiries for China to be more precise for next year 40% is coming from China, right, by NLA in FY 2024. And in terms of the spread, typically, it’s quite evenly spread out, right? That’s how we manage our concentration risk of will or expiries each quarter. So, you can assume it’s a fairly spread out this half and second half.
Mervin Song
Sure. And how does the expiry rent benefit market?
Kiat Ng
Yes. Sorry? Sorry, Mervin, what’s your question?
Mervin Song
How does the expiring rents for China compare? How do they compare against market at this point in time for the leases on renewal in FY 2025?
James Sung
Yes. So, most of the — as we go through this financial year, right, the negative reversions we experienced, it’s 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.
Kiat Ng
Yes. So, Mervin, I think your question is if you look at this chart, you see a tall bar green color coming out 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 2024 will continue to remain as we push out some of the tall — the green bars coming up from 2023.
And then I think it’s your question whether our rental reversion is in line with the market. Is that the question?
Mervin Song
No, I’m just trying to guess will the rental reversions get worse or actually improve into next financial year?
Kiat Ng
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 Brandon earlier.
Mervin Song
Okay. So, at least 80% of your potential portfolio still has a very strong setting, that’s a positive.
Kiat Ng
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 flat, 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 reversal. Singapore is doing 8% rental conversion. So, I think James read to you all these.
So, the 80% is the one that would 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, then? 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 five 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 and say six 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 overemphasize 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’re going 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 S$700 million and there’s more to come.
So, we’re not interested [Indiscernible]. 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 as diversified locations as they need. They want five locations, they can come to us. Right now, our repeat customers across locations is 43%, and that’s not good enough for me. 43% that is in different countries, but that’s not good enough.
So, the uniqueness for them to come to us and said, you want to talk to us in Vietnam, China, Singapore? No problem. You want to talk to us in India, China, US, because that’s a different platform, but we have — Mapletree has presence there. We have the ability to serve. So, I think that diversification is going to be our core strategy and the rejuvenation as well.
Mervin Song
Yes. I think most investors understand your strategy and you’ve done the fabulous job when you took over from all the SUV to MTB conversions. Just trying to sense —
Kiat Ng
Sorry, Mervin, if I may add. And then if we make divestment gains, we’ll distribute to investors. If we don’t make divestment gains, we won’t distribute. So, it’s not about divestment gains that we’re doing it. We’re not trading. We’re not just saying 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.
Mervin Song
Yes, just on the divestment gains, it’s much higher than historical. And just follow on Brandon’s question, basically commentary that you typically pay out over four, eight quarters? Should we be expecting like S$8.8 million per quarter going forward? And how much you have in the bank to still pay out?
And the other question I have in terms of the fees and units is much higher than what we used to, like is that guidance in terms of fees and units that we should be assuming in terms of models?
Kiat Ng
Go Charmaine.
Charmaine Lum
Fees and units? About 55% of our fees are paid in units.
Mervin Song
This is the guidance going forward, is it? Or — because —
Charmaine Lum
Okay. We’re looking at 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 results. So, if you take the component, you’ll will be about 60%, 55% — plus 55%.
Kiat Ng
So, I think it is a discussion we had with the sponsor about alignment of interest, right? So, they — 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 about 50%, 55% is something that we will continue to manage Mervin.
Mervin Song
Okay. And then back to my question on guidance fees?
Kiat Ng
Divestment?
Mervin Song
Divestment gains, sorry?
Charmaine Lum
We have about S$20 million. We have about S$20 million left excluding whatever is announced this quarter. And this S$20 million have completed transactions and non-transactions. So, more to come.
Kiat Ng
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 S$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 S$20 million, what is small to us is S$50 million. So, the S$50 million guidance will get divested, the S$50 million guidance will get divested at 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 divest gain, 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 S$20 million odd. So, what’s going to be left is going to be the bigger assets, like the S$30 million, S$40 million, S$50 million and then this will get sold over time, right?
Because, yes, look — site is going to be too small for efficiency. You’re going to have cargo lift. 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’ll 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.
Mervin Song
Sure. I think everybody understands you. You do need to rejuvenate portfolio, just that, yes, because historically, you would, as Brandon mentioned, you disclosed that you paid this ex-MLT [ph] for the next few quarters. Is this at the time around, we have no visibility? So, that’s the issue. So, I just want to clarify–
Kiat Ng
So, I think, Mervin, you said the guidance four quarters to eight quarters. I — 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, four quarters, if it’s a bigger divestment gain, eight quarters. If it’s a very, very big divestment gain, which we’ll be very, very happy, I think we’ll try to keep it to eight quarters as well.
Mervin Song
So, can I assume you got now S$20 million that you could still pay out? So, you’re going to be about S$5 million per quarter going forward, is that something that is conservative?
Kiat Ng
For the S$20 million that have been announced, yes, you can assume S$5 million for the next four quarters. And then there will be more divestment that will be announced over the next six months, Mervin.
Mervin Song
Yes. I mean, I have projected divestment gains even though you haven’t.
Kiat Ng
Thank you for having faith in us.
Mervin Song
No, no, I know is very consistent. It was much higher than what I thought. So, I just don’t know how to forecast I just need your guidance. Okay. I’m taking a lot of time. I’ll just hand it over to other people. Thanks.
Kiat Ng
Thank you.
Operator
Okay. Joy, would you like to pose your question?
Joy Wang
Yes, thank you. Just a few questions. Kiat, I think one on rental reversion, we’ve seen — out of China, we’ve actually seen acceleration of few locations like Hong Kong and Korea. How much of those are going to sustain and how much were one-off, can we get a bit of guidance?
James Sung
Yes. For example, in Hong Kong, the market is not like a pre-COVID days where it’s growing like a 4% to 5%. In fact this is a kind of a once off, right? Because it’s one of the — I mean, the tenant, Equinix, in [Indiscernible], all the properties actually renewed at least once and so those mark-to-market.
Kiat Ng
Yes. So, I think what you are — 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 our 10 E [ph], right? We’ll be looking at 5%, maybe 8%. And then for those cargo lifts, maybe 2% to 3%. Does that help you, Joy?
Joy Wang
Yes, it does. And for Korea?
James Sung
Yes. For Korea, we have a good reversions coming out from two of our assets in [Indiscernible].
Kiat Ng
Yes. So, it’s, again, the same thing. The range will be for the highest specs assets. We should be looking at above the 5%.
Joy Wang
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 target return would you focus on? And also how does that compare with outright acquisition?
Kiat Ng
Okay. We are looking at high 7% to 8% — over 8% on NPI yield for the Subang redevelopment.
Joy Wang
And that will be — versus current–
Kiat Ng
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, 200 bps by taking on that development risk. Because the developer’s profit is going to be around that kind of range.
Joy Wang
And how much opportunity do you have for your existing portfolio? The low-hanging fruits.
Kiat Ng
The low-hanging fruits. Okay. The problem I have with the low-hanging fruits is my main obstacle of 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 authority’s approval in time, but over the next two to three years, there’ll be more AEI for sure.
Joy Wang
I see. And these authorities, any focus countries, Singapore, Malaysia or other countries?
Kiat Ng
Across the Board, we are speaking about Guangzhou. We are speaking about Korea. We are speaking about Japan. So, we are speaking about Kyoto in Japan. So, these –that is how extensive and of course, in Malaysia, inside as well, yes. And Malaysia is — also there’s a redevelopment potential for Shah Alam One. It’s a single storey. And in Malaysia, we have started to build four storeys.
Joy Wang
I see.
Kiat Ng
Yes. So, that’s how the market has grown. In Shah Alam, a single storey. But today, the next store, the — a few minutes down the road, we’re having a four-storey, warehouses.
Joy Wang
Got it. And for all these markets, you’re looking at–
Kiat Ng
Sorry?
Joy Wang
You are looking at speculative redevelopment, right?
Kiat Ng
Yes. Because I think our lesson that we have learned, especially for us, is multi-tenanted speculative developments have served us very well. So, for, like, for example, [Indiscernible], we have Amazon inside. We have all the top players inside, and we can’t — we also have [Indiscernible] which is just next to us and they’re all multi-tenants.
Joy Wang
Sure. And one last question, if I may. Just on cost of fund, I guess you mentioned around about remix currencies [Technical Difficulty] of the denomination. 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?
Charmaine Lum
Yes. To the extent, so I can clarify on this. The 2. 5% that we are achieving right now, there’s really an outcome of what we have done in the past. We have always been proactive in locking rates at between about 7% at least hedge rates, 75%. 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 part of our strategy as what we have previously shared that we will — as this — as all this Aussie dollar, Jong Kong dollar, Sing dollars IRS [Indiscernible], we will replace with lower costs such as CNY borrowing. So, that’s already incorporated in our forecast. Yes.
Joy Wang
Okay. Cool. Thank you. That’s really very helpful. Thank you.
Kiat Ng
Thank you, Joy.
Operator
Okay. Derek, if you have questions for us.
Kiat Ng
Hi Derek.
Unidentified Analyst
Hello. Hi, Kiat, can you hear me?
Kiat Ng
Yes. I can hear you all the way in Tokyo. I’m in Tokyo now.
Unidentified Analyst
Okay. Okay. Good morning. Just two questions for me. Can I circle to Singapore? Just understand — just want to understand about that you think reversion to still going to be about 8% plus given that next year’s fair amount leases are for renewal. So, I’ll be — is it–?
Kiat Ng
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 — our cargo list, 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 the next 12 months.
Unidentified Analyst
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?
Kiat Ng
We have started to take over, like, Pandan.
James Sung
Yes, two properties we have taken over.
Kiat Ng
Pandan and–
James Sung
Pandan and Penjuru. And the other balance three is, one is next year and, the other two are further down the road. So, this is–
Kiat Ng
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 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 thesis.
Unidentified Analyst
Okay. So, you’ll take over next CLI essentially, you’ll be an MTBE for you just to clarify.
Kiat Ng
Okay. We have taken over two, next year, one more and the following.
James Sung
[Indiscernible]
Kiat Ng
Yes.
Unidentified Analyst
Okay. Sorry. Just last one. I believe that, when you did this acquisition, the opportunity or so was for you to acquire the Benoi property. Is that still on a pipeline for you?
Kiat Ng
Yes. Mega hub, right? You’re talking about the CWT mega hub?
Unidentified Analyst
Correct. Correct.
Kiat Ng
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.
Unidentified Analyst
Okay. Unless they sell you at 8% now.
Kiat Ng
Derek, you know me well.
Unidentified Analyst
Okay. Okay. I understand. Okay, that’s all from me. All right. Thank you.
Sharifah Aljunied
Kiat, we have a few questions from the webcast audience. One is about the exit NOI cap rates for the divestments announced, presenter on Page 23. So, they range from about 3.5% to 4% for the — these five transactions that are presented here.
Okay. And then there’s another question on whether for the plan or potential acquisitions, whether we’ll be doing any capital raising?
Kiat Ng
No.
Sharifah Aljunied
As for — and also, what would be the comfortable on gearing ratio?
Kiat Ng
We won’t be doing any EFR in the near future because looking at cost of equity now, looking at our share price, it is becoming very, very expensive. So, it will be from recycled proceeds 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.
Sharifah Aljunied
Okay. Do we have any more questions?
Kiat Ng
Just read the question, forgive me.
Sharifah Aljunied
Okay. Sorry, there’s a question that says, 63% increase in income tax this quarter, which was partially attributed to divestment in Singapore — in Japan.
Charmaine Lum
So, what happened this quarter would be because — I mean we mentioned previous adjustment earlier that we divested two assets, one in Singapore and one in Japan. So, we will — actually because of the cap in Singapore, we would usually put aside 17% pending confirmation of IRS that this can be distributed.
And then in Japan, there’s actually capital before we discuss 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.
Sharifah Aljunied
Any more questions from the analysts? If not, we call it a day.
Kiat Ng
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 out 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 it’s going to — what’s keeping me awake at night is the interest cost and the ForEx. So, these are the two elements that we do not have much control over, but these are the two elements that can impact our DPU performance. So, on the operating front, we are — we continue to be very stable, very strong, very resilient. It would 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, this — 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.
Sharifah Aljunied
Okay. Thank you for joining us. Bye.
Kiat Ng
Thank you.
