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Edited Transcript of M44U.SI earnings conference call or presentation 28-Apr-17 3:00am GMT

Thomson Reuters StreetEvents

Q4 2017 Mapletree Logistics Trust Earnings Call

HarbourFront Centre May 27, 2017 (Thomson StreetEvents) -- Edited Transcript of Mapletree Logistics Trust earnings conference call or presentation Friday, April 28, 2017 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory Lui

Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd

* Kiat Ng

Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd

* Ming Rean Lim

Mapletree Logistics Trust - CFO of Mapletree Investments Pte Ltd

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Conference Call Participants

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* Adrian Chua

Citigroup Inc, Research Division - Director

* David Lum

Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance

* Michael Lim

UBS Investment Bank, Research Division - Director and Research Analyst

* Teck Ching Wong

OCBC Investment Research Pte Ltd. - Investment Analyst

* Vikrant Pandey

UOB Kay Hian Research Pte Ltd - Analyst

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Presentation

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [1]

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Hi. Good morning. Okay. Thank you for joining us this morning. So for the start, you'll get Ivan, our CFO, to go through the financials and then Greg will go through the operations, and then we will take Q&A, okay? So Ivan?

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Ming Rean Lim, Mapletree Logistics Trust - CFO of Mapletree Investments Pte Ltd [2]

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Yes. I'll run through -- good morning, everyone. I'll run through with you the key highlights for the fourth quarter for MLT.

For the fourth quarter, FY '16/'17, DPU rose about 3% on year-on-year to 1.86 compared to 1.80 last year. 4Q FY '16/'17 amount distributable to unitholders increased 4% year-on-year to $46.6 million. FY '16/'17 DPU increased by 1% year-on-year to $0.0711 compared to last year, $0.0738. Performance was underpinned by the stabilization of converted SUAs, higher rentals from existing assets, contribution from AEI and accretive acquisitions. Partly offset by lower contribution from certain properties undergoing transition downtime in Singapore and South Korea and redevelopment properties and some divestments as well.

Resilient portfolio. We had a stable portfolio occupancy throughout FY '16/'17, ending the year at about 96.3%, a well-staggered lease expiry profile with WALE of about 4 years. Weighted average rental reversion for lease renewed in FQ FY '16/'17 was 0.4%. Our NAV per unit, $1.04, compared to $1.02 a year ago. During the year, we have completed 4 accretive acquisitions mounting $303 million with initial NPI yield of 7.1% to 9.9%. In Sydney, Australia, 4 properties, AUD 85 million; Shah Alam, Malaysia, 1 property, MYR 160 million; Vietnam, Binh Duong, 1 property for VND 339 billion; and 4 properties in Victoria, AUD 142 million. We have also completed the divestment of 20 Old Toh Tuck for $14.25 million.

On the capital management side, our average debt duration extended to 3.9 years from 3.5 years a year ago. We have a stable weighted average borrowing cost of about 2.3% per annum throughout and aggregate leverage of 38.5% compared to 39.6% a year ago. Approximately 61% (sic) [81%] of our total debt is hedged into fixed rate and 72% of income stream for FY '17/'18 has been hedged into -- or derived in Sing dollars.

So move onto the next page, Page 7, on the 4Q -- year-on-year Q-on-Q changes. Gross revenue. Revenue growth mainly due to the stronger performance from our existing properties, AEIs and acquisition. Partly offset by our lower annual revenue from properties undergoing transitory downtime in Singapore and Korea and some divestments. Property expenses increased 2.6%, mainly due to the enlarged portfolio, partly offset by lower facilities management costs. Borrowing cost increased due to incremental borrowings to fund acquisition, partly offset by lower cost from JPY loans due to the lower average interest rate. So in terms of the DPU, 3.3% compared to last 4Q. So on the year-on-year comparison, gross revenue grew by 6.6%, mainly due to the stronger from existing properties, AEIs and acquisitions are partly offset by our lower revenue from certain properties undergoing transitory downtime in Singapore and Korea and divestments and some redevelopment properties.

NPI grew by 7 points. Property expenses increased by 3.3%, due to the enlarged portfolio and SUA-to-MTB conversion costs, partly offset by lower utility costs, lower facilities management costs and property tax rebate from certain Singapore properties. NPI, up 7.3%. Borrowing costs also up 10.9% compared to last year, mainly due to the incremental borrowings to fund acquisitions and stronger Japanese yen, partly offset by our lower cost from paring of loans with temporary deployment of proceeds from our $250 million perpetual. DPU, 7.44, compared to last year's 7.38, a 1% increase.

On a quarter-on-quarter comparison, our gross revenue grew by 1% in contribution from Mapletree Logistics Hub - Toh Guan and higher solar energy output in Japan, and full contribution from Australia acquisition completed in third Q FY '16/'17, partly offset by lower revenue from certain properties undergoing transitory downtime in Singapore. Higher property expenses by 3.7%, mainly due to the enlarged portfolio and increased operation and maintenance expenses. NPI quarter-on-quarter, 0.5% increase. Borrowing costs increased about 3%, largely due to the full quarter impact of the incremental borrowings to -- taken to fund acquisitions. In terms of the DPU, a 0.5 drop from last quarter's 1.86 compared to 1.87.

So on the balance sheet side. Investment properties, $5.5 million compared to last year, about $5.1 million. Our total assets, 5.6 vis-à-vis 5.2. NTA increased by SGD 1.04 compared to last year, SGD 1.02, largely due to the acquisition and also some -- and also the revaluations that we have -- revaluation and some revaluation gain. So on the capital management side. The total debt outstanding increased by $126 million, mainly due to the additional loans draw down to partly fund acquisitions and capital expenditure during the year. Higher translated borrowing due to appreciation of the Aussie dollar, Hong Kong dollar and Japanese yen. The aggregate leverage ratio, we are 38.5% compared to last year, 39.6%. The weighted average annualized interest rate was stable, 2.3%, as compared to 2.3%, no move. On the debt duration, we actually extended our debt duration from 3.5 to 3.9. Interest cover ratio has dropped to 5.6, and credit rating is still Baa1 with negative outlook.

Maybe we move on to the next one to give you more color on what we have done over the quarter to extend our debt maturity profile to 3.9 years. We have refinanced approximately $199 million of foreign currency loans during FY '17/'18, therefore reducing the remaining balance of $110 million for FY '17/'18. We have been in talks with the lenders to refinance this. So in the next 1 or 2 quarters, probably we will -- you won't see this $110 million in this tower, in the '17/'18 tower. We have also termed out short-term debt with a new 5.5 years loan facilities of $100 million. That brings us to 3.9 years from 3.5 years in previous quarters.

In terms of interest rate risk management, approximately 81% of our total debt is actually hedged or drawn in fixed rate. This is the rough guide, 25 basis points increase in our base rate, may result in about $260,000 decrease in distributable income or 0.01 cents per quarter. So the unhedged portion, 19%, largely 12% on Japanese yen are hedged at the moment.

So on the next slide, on the risk -- ForEx risk management. 72% of our distributable income is actually hedged into or derived in Sing dollars.

So I will hand over to Greg, who will talk about the portfolio review.

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [3]

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Thank you, Ivan. First, occupancy rates. Occupancy rates remained stable through the financial year. We ended at 96.3% compared to 96.2% a year ago. Markets which did slightly better with uptick: Singapore, Hong Kong. Markets which we had slight declines in occupancies: China, ahead of redevelopment of Ouluo; Vietnam, transitionary matters; as well as South Korea, again, transition.

Next slide please. The lease expiry profile you see for FY '17/'18, we have 17.5% of leases due. Out of this, you have 2.9% which are -- of the portfolio, which are SUAs. Now if you look back at that what we've already done and already pre -- done early renewals for, that's about 40% of the SUAs. So right now, we are down to 2.9%. It would have been 5% if not for early renewals. So the team has been working hard on moving through the SUAs earlier and to get ahead of any SUA renewals.

This is the geographic breakdown of our lease expiry profile. So what you see on the left side will be skewed towards your SUAs, which are short-term expiries as well as your MTB assets. On the right side, the FY '21/'22 and beyond numbers. Those will be combination of your Singapore long WALE assets, Japan as well as Australia.

We have a diversified tenant base. So if you look at this breakdown, the key thing to take away is that the majority of our tenants would be involved in domestic consumption-driven sectors, which we have been continue to see growth for across different markets.

This is a picture of our portfolio value as well as revenue by country. So if you look at -- if you take Singapore and Japan, that's now 50%. A year ago, these 2 countries were accountable for about 57% of our portfolio. What has been growing? Australia is now about 10%, was about 5% a year ago; and Hong Kong has been holding its own. So you've seen the shift of our portfolio away from Singapore and Japan towards other markets, which are better step up and growth.

Our SUA versus MTB profile. Again, you see the shifting of the profile away from SUAs towards MTBs. This doesn't take place overnight, but if you compare these numbers a year ago, you would have had about 55% MTBs. Now it's about 57%. And of the MTBs, 50% is accountable for Singapore. For SUAs, we now have about close to 40% in Japan. That's still a market which SUAs are quite commonplace as well as Australia. So 60% of the SUA revenue comes from these 2 markets.

Our top 10 tenant profile. We have 531 tenants. We have increased this over the course of the year. We've added in some high-quality names both in the consumer space, e-commerce space. None account for more than 5% of total revenue. And our top 10 tenants account for less than 25% of total revenue. So if you look across, you'll see a combination of some end-users largely is from Australia; global 3PLs like XPO; and some Japanese 3PLs, Nippon Express; and a Korean, Taeun Logistics.

The remaining years to expiry of our underlying land lease. Again, I will focus on the bars on the right, the long leasehold and freehold. A year ago, that number was about 33%. So right now, we're about 36% in long leasehold freehold and that reflects some of the acquisitions we've made over the past few years -- over the past year.

Redevelopment. As part of our strategy, we've been actively rejuvenating some of the older assets into higher-spec, modern warehouses generally with a significant or a sizable uplift in GFA. So this is 76 Pioneer. We are we redeveloping this into a 5-story ramp-up facility. It increases GFA by 1.8x to 72,000 square meters. We're due for completion in the third quarter. Development cost is about $100 million.

Ouluo. This is in Shanghai. We are redeveloping this into a 2-story modern ramp-up facility. It'll be carried out in 2 phases. Phase 1 commencing in May '17, Phase 2 in October '18. We will get a 2.5 -- well, 2.4x uplift in GFA; 80,700 square meters. We have a target completion of the second quarter of '18/'19 for the first phase of this project. Estimated cost, about $70 million.

Investments over the course of the year. So we have made 4 accretive acquisitions. We have an aggregate value of about $313 million over the financial year. The first portfolio was a portfolio of 4 assets in Sydney, about AUD 85 million, initial yield of 7.1%. These are assets with annual escalations and with a WALE of about 5.5 years.

In September, we completed 2 acquisitions from the sponsors. The first was in Malaysia, Shah Alam. This is a core part of -- this is a core logistics location servicing the Klang Valley; MYR 160 million, about SGD 53 million, initial yield of 7.5% with annual escalations. The second is in Vietnam in Binh Duong, about SGD 21 million at a 9.9% NPI yield. Again, both add good quality tenants to our portfolio.

And finally, in December, we completed the acquisition of a portfolio of 4 assets in Victoria. $142 million, initial yield of 7.6%. Again, with annual escalations with a WALE of 6.4 years.

Divestments. We have divested 20 Old Toh Tuck in March 2017. Sale consideration is about $14.25 million. Again, it's a relatively small land area. It has limited potential for redevelopment into a modern spec, ramp-up facility, but it does fit the needs of the SMEs, owner occupiers who are actually utilizing this.

Portfolio valuation. So as Ivan mentioned, portfolio value has gone up from $5.07 billion to $5.54 billion over the course of the year. Part of it was contributed by acquisition, part by revaluation. In [broker parlance], there was a change of coverage. So we have it, the value was changed to CBRE. So when you compare the cap rate, it's not quite apples-to-apples. But broadly, the comment from our valuers were that we've seen cap rate compression, especially for newer, better quality assets in these markets. And finally, the portfolio at a glance. Just a few of the big numbers. The $5.54 billion portfolio value, a WALE of 4 years; occupancy rate, 96.3%. 127 properties.

And on that note, I'll hand over to Kiat for her outlook.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [4]

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Great. I think for this quarter, we have finally seen a slight uplift on the DPU, so the stabilization of the SUAs is coming to fruition as well as at the same time, the acquisitions are coming onstream. On the personal basis, the acquisition came in slower than what we expected. So and then -- but the stabilization actually -- in the same-store, actually happened faster than what we had anticipated at the beginning of the year. So the key markets, I think, previously, those who have been following us faithfully every quarter, I think -- you notice how we reiterate the reasons why the DPU went down. That is a very simple thing -- I mean, we have this SUA conversion coming up from Singapore.

So I think the Singapore situation, we still face intense competition from the oversupply, especially in the Western area, especially the -- some of our older assets will continue to see that pressure. But fortunately, that impact should not be large because we have the stabilization of the SUAs coming in. We are seeing certain level of organic growth, of course, not as high as previously. And the other thing is we have our -- the new AEIs kicking in like 5B Toh Guan. Last year, it took us about 12 months to hit 100% -- I mean, hit 100% Toh Guan only about last quarter. And of course, I'm not supposed to say this, but we've got some of the top e-commerce guys in our building.

So the -- so with the stabilization of that coming in, meaning all the rent freeze and all this, because we distribute on a cash basis, right, all the rent freeze, incentives is out -- over the 2016 should run out and so that uplift should come in 2017. So I think Singapore, still tough. But we think we have seen the worst. So hopefully, we will be able to achieve the insight -- achieve very modest growth on the Singapore side.

So I think for FY '17, what are we looking at? FY '16 -- FY '17, there are 2 countries that will be our primary focus for the management, that will be China and Korea. For China, it's the macroeconomic situation. We will continue to see pressure on our rents. But nonetheless, the good part is quite a few of our properties are in the Tier 1 cities which has got limited supply. So therefore, the Guangzhou, Shanghai properties like the one that we are redeveloping, we are hopeful. In fact, based on the inquiries we get, we are hopeful that we should see some growth there. But it's the secondary cities like Wuxi and all this, where we see oversupply, and this is where -- the demand is still there but, of course, then the transition, downtime, you're not going to have a new tenant moving in the data or new stock. So there's going to be longer periods of downtime. You may have to compete harder on like giving more set-up periods and stuff. So we are, again, on cash basis, so that could put a pressure on our DPU.

So for -- so that's for China. For Korea, the market itself is stable. We continue to see growth. The big chaebols like Samsung, CJs and all this, they are still growing. So I think you know they have quite successfully brought out the consumer end of the product, not just electronics side, but things like fashion, things like cosmetics. So that itself is compensating for some of the slowdown in the more traditional areas.

So Korea as a market itself is growing. The challenge for Korea is really managing more our own assets, which is, I think, again, some of you can tell me, it will be our Pyeongtaek Port asset. So that itself, the good -- the team has done a very good job last year, meaning FY '16. We could smoothen the transition. So instead of the occupancy and rentals coming -- impacting at the same time, we have smoothened that out. So in fact, Korea was 100% occupied for the whole of FY '16.

So moving ahead, we have signed up about 30% already. In fact, some of them has the new -- about 25% have already moved into the building. So we are at 30% -- close to 30% occupancy for that property. We will ramp it up. We -- again, cautiously optimistic, ramp it up within a year to hit 100%. So the challenge there is how fast can we ramp it up. So we've got guys like Hyundai coming in and all that. So again, it's the pace, all that. So for Korea, it's not so much of the market but is the transition downtime that we have on our property. So I think these are the 2 key markets.

On the SUA front, you can see that we have brought down, if you compared to -- 1, 2 years ago, the SUA percentage was quite high. But I think the lesson that the management working team has learned with SUAs, you engage them early, you help them plan what their next steps are going to be and then with that, we are able to bring down the occupancy impact immediately. When you have a conversion, you're going to have 100 being DPU. So I think we have smoothened that up. So that is on the organic side.

On the acquisition side, cap rates across all the markets that we're operating in, somehow the players are all coming in very strongly. So even in Australia, we are seeing cap rates being compressed quite severely, especially for the long WALE assets. So we will continue to be selective. The underlying tenant quality, not just the initial yield, will be something that we will focus on because that will translate on the ability of renewals later.

So on the acquisition front, we think, are coming up of interesting prospects will be maybe Korea from third party, maybe Australia from third-party. From sponsor, what will be interesting for us will be Hong Kong. They have got 1 property that has done pretty well with the assistance of the [MLTT]. So that can ease. So today, they are at 97% occupied and they have another remaining 1 unit, which is a matter of rental pricing. So that one will be stabilized later. So on the Vietnam side, there could be some stabilization, but we think that may come in later.

So the China piece is the one that seems to be struggling a bit, meaning because of, again, the China situation. You will see majority of their pipeline being in the secondary cities. So the stabilization, because of the general market situation, the stabilization is taking longer. So we may see 1 or 2 properties are interesting, but do -- whether we will bulk it and do it as a portfolio, that's something that we will monitor.

So on the tenant side, what you have seen -- I think, can we go back to the top 10 tenants. I think, what you -- what we are gradually seeing, right, is initially, if you look back a couple of years, you will see all the top 10 are trivial. But slowly the portfolio is shifting more to end-users. And based on what we are seeing over the next 12 to 18 months, we expect more and more end-users coming into our portfolio. The reason is the 3PLs are now more cautious. The contract that they are getting are shorter. So if you think of a contract from L'Oréal and all this previously, they could give you 5 years, now they are doing 2 years. And then they are taking longer. So to be able to become more cautious, they also have become more cost-conscious, meaning that they will take exactly the space that's required for the contract and not take extra space to bid for future contracts.

So I think the strategy that we have import embarked on is now coming -- we are quite glad that we did that is that we have actively shifted towards end-users. So we are seeing in our portfolio guys like Unilever, adidas, Angliss, the -- one of the gourmet meat distributor. These guys are coming in quite strongly. So over time, we should have a better balance of 3PLs versus end-users. End users, their expansion plan, they take a longer-term view. They are more aggressive. So they tend to come in, take bigger space and take it for a longer lease period. So this is what we are noticing. The other part is we are very cautious that we will continue to move towards guys who are storing domestic -- cater to domestic consumption. You still need your toilet paper, whether there's a downturn or not. But your manufacturing guy may reduce the production of the electronics tomorrow. So I think a better balance of that will come in.

So I think that sort of wraps up the outlook of what the team is seeing. So I'm happy to take questions now. I think we will take questions. Yes?

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Questions and Answers

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Unidentified Analyst, [1]

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Curious about Singapore. If you look at just solely your MTB portfolio, what's the current occupancy? And based on what you have stated versus what have in the market in terms of demand, is there a match? Or do you think there's still could be a bit of time to go and start filling that up?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [2]

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I think for the Singapore MTBs, if you're talking about those that are originally started off as MTBs, excluding those that have been undergoing conversion, those will be doing like 90 and above, like our MBLH, it's full, our BLH is full, our Toh Guan is now full. So those that -- are MTBs that are doing well. So those are being converted that we see the ramped-up period. So overall, I think for Singapore MTBs, I give you the range. We are looking at about -- how much? 93.6, that's for Singapore, right? Okay. And then -- but for MTBs, what we have is we have about 85 -- sorry? 92 for MTBs. Yes. Excluding those that -- including or excluding those with the conversions? 92.

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Unidentified Analyst, [3]

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Fair enough. A question, if I may. Are you -- in terms of acquisitions, we have seen a lot of European kind of portfolios up for sale. I mean, other developers are going there in Europe. Is Europe an interesting option for you or for the sponsor?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [4]

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I think definitely, as a group, Mapletree, anything to do with the logistics is of interest to us. So even in Asia, we are, together with the sponsor, looking at markets like India and Indonesia, right. So I think I see a question definitely Europe and even the U.S., logistics is an area that would be of interest to Mapletree as a group. But as far as MLT is concerned, for the time being, we tend to keep it as a Pan-Asian logistic player. So as a group, definitely. Are we looking at European portfolios all the time, MLT and the group? Yes. The answer is yes. Yes?

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [5]

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David Lum from Daiwa. Some questions on the leasing. What is the preleasing for the 76 Pioneer Road?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [6]

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Okay. So the 76 Pioneer at this point in time, there is definitely inquiries. If we want to talk about actual signing, we think we will see signing closer towards June, July period because based on our experience with Toh Guan, I think for those who have been following Toh Guan with us is also the same thing. When we completed, we had about like 30% signed. And then the signing, then progressed from there. So the good old days where we had a MBLH Ban Noi, where we are 100% signed upon completion are no longer a phenomena that we see. So we think that Pioneer will very much mirror what we see in Toh Guan.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [7]

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And for Toh Guan, you mentioned it hit 100% last quarter.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [8]

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Yes.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [9]

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But how about like the rental rates? Do you think you've got -- was that above your budget or...

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [10]

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It depends on whether you say it's a high budget or low budget. But basically I think we -- the target they intend to stabilize it at 6% yield. So that we hope to achieve in FY '17/'18. So that would give you a feel of the yield that we will get (inaudible) yes. It's in this very sensitive market, David. I can't give you the per square foot. Yes. But I think if you work out the asking rent, you put in a typical rent-free, you have an expense ratio, you know our expense ratio, you'll be able to work it out quite nicely.

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Michael Lim, UBS Investment Bank, Research Division - Director and Research Analyst [11]

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It's Michael from UBS. Can I ask for Toh Guan, what percent is it contributing in the last quarter?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [12]

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It's just a cash basis, right. I think it's – what was it, about 40% was in -- yes, yes. I guess if you take I mean, simple mathematics, right. You have starting at 30%, bringing up bring it up to 100%, we're getting on average lease of about 3 years and then you then put rent-free 1-month for every year. So you're talking about 3 months of rent-free downtime. So average for the year even you hit at 50% and then take another 3 months of rent-free, every 1 month is about 8%, right. So you're looking at the most 30%, 40% contribution coming up on the cash basis. But of course because you see our revenue I think some of you know that on accounting basis, we do amortize but I'm talking about the GP side, yes.

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Michael Lim, UBS Investment Bank, Research Division - Director and Research Analyst [13]

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And when you spoke about trends should we (inaudible) Singapore assets, were you solely referring to this one or are there others too?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [14]

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No. In fact this one is not the major issue. The transitory problem is actually on our conversion of the SUAs and some of our older assets. So the downtime that for us to take between the expiry and the signing of the next tenant, this is the period that we see being like this, right? Previously, we could have expiry but we will sign a year -- so upon expiry 1 month later -- sorry, the new tenant moves in and then you have the rent-free. But right now, the signing is actually being lengthened. So I think this is a portion we are more watching very closely, yes.

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Unidentified Analyst, [15]

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And just on the rental reversion, can you give us the breakdown for the different countries?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [16]

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Okay. For rental reversion for 4Q, okay. Singapore is flat, 0. Japan is about 0.5%. Hong Kong, 5%. South Korea, 0. We don't have any leases for Malaysia. China is about 1%. Vietnam, 3%.

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Unidentified Analyst, [17]

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(inaudible)

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [18]

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I think full year we are close flat, yes, close to flat. Because in Q2, is it Q2? I think you'll remember we have this huge negative 20%. So that is the one that that flattens the whole thing.

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Unidentified Analyst, [19]

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[CJ] from [RHB]. Just a few questions. Firstly on the divestments, I remember you were looking at divesting 2 of the properties in the previous quarter. Any update on this? And second, on -- you did mention that we have seen the worst for Singapore, so does that mean market situation has improved from what it was last year to now?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [20]

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Okay. I think Greg has talked a bit more about the divestment. On the Singapore front, we have seen the worst for us because when the Singapore market has the oversupply situation and the economic manufacturing slowdown, at that same time we had a huge percentage of Singapore SUAs coming up for conversion. So we had the market coming in, we had our own portfolio expiry coming in. So that caused a very deep dive in our numbers for Singapore. So now the portfolio itself has gone through that period. So that risk on the portfolio is gone. The market itself, I think -- I mean you're right -- will even be more important than some of us, yes -- is that the manufacturing sector seems to be doing picking up quite well. The services sector, like SME sectors are doing quite well, like for us we have got guys like, if you buy (inaudible) chocolate, they are in our property. So I think that's right. As far as MLT is concerned, the worst is over. But barring any downturn in the Singapore situation, that could shift, okay. You want to talk about the divestments?

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [21]

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So the divestments in Singapore continue. Basically we have SUAs which are -- converted SUAs, SUAs where the SUA tenants have dropped off, where the profile of the assets are older, specifications are not ideal and typically footprints are too small to be redeveloped into ramp-up. These asset sizes are ideal for owner/occupiers who can -- who are more amenable to using the assets for their own use. And we have found that, that makes sense for them to acquire these assets and at yields which are relatively tight compared to what we would be able to achieve at MTB. So that will continue to go on and we expect to continue to see this as an ongoing part of the portfolio.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [22]

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Yes. I think the -- what is -- I mean, I think Greg is being very careful there. But basically if the next quarter, will you hear any news of divestment, I'll say yes. Will you see gains, hopefully the answer is yes. So the situation is -- but I want to make it very clear. I think what is of primary importance to MLT is that, what is ultimately beneficial to the unitholders? So the critical thing for us, our first objective and our first strategy is always can we keep that property? What can we do if we keep it? So the first thing we'll do, we'll try conversion. Even if you aren't certain, that's why you see the conversions happening, we will take a risk, we'll say the rest of the portfolio is still resilient, we can suffer a bit of this downtime, we will take it. So the conversion is definitely an option we consider. Redevelopment is something that we aggressively consider. So therefore, but of course that involves the authorities and all that. So redevelopment is something that we work on all our assets, identifying them on a very regular basis. So the only thing that if we, at that point, in terms of looking at the various options and there is very clear that these options are not viable, meaning that the views are too low, it's going to take us too long to achieve that, then we will look at seeing that can really put the capital to work in something else. The good thing about this logistic platform is we continue to see acquisition pipeline, right. So the option -- the ability to redeploy the capital into some other assets is something that can be executed quite smoothly. So therefore, the divestment becomes a tool for us to increase what is a benefit to the unitholders. So we don't look at divestment as a means of pushing up our performance, we look at divestment more as a means of improving the rental quality of our portfolio, yes. So but long and short of it, you will see some, yes.

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Unidentified Analyst, [23]

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Can you give us an update about Amazon? Do you intend to take out additional space?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [24]

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This is where we sign confidentiality agreements with our tenants, right. And the confidentiality agreements state that we are not even supposed to breathe their name, right. So I can talk about the sponsor side. I mean, on the sponsor side in Japan, we have Odawara, which is their largest distribution center closest to Tokyo. So that -- so therefore our relationship with them is very strong. They have grown with us outside of Japan, right? We are constantly engaging them. Are they with us in Singapore, can we answer that? So yes. So I think e-commerce is an area that we are -- I think to give you comfort that -- or rather to give an indication how close we are to some of our e-tenants, e-commerce continues to be a key focus area. We are working at watching it with keenness, but we are also careful, because I think some of you are even better involved than us. The margin in some of these e-commerce guys because they're competing for market share, are being compressed. And that -- with their margins being compressed, as a landlord, when they come to us then therefore the rentals will be compressed. So for us, it's always a case that, we don't care who you are, we just want the highest rental possible. So therefore, I think the e-commerce is something that we would definitely venture in. So you see some specification are coming in from our properties that are doing more cross docks, meaning the ability to come -- bring the bigger truck in for goods and then the smaller trucks going out on the other side. So the ability to design the warehouse such that you have the, what we call pick and pack. And then redistribution out is something that will be incorporated into their design. So and then the technology that the e-commerce guys are putting in, we are keeping abreast of it together with our tenants. The question at the end, right now you see that we have a very strong discipline, we keep our warehouse specifications as generic as possible so that when it comes to renewals and all this, we're able to convert very quickly. So the CapEx that is put in, like in the Odawara warehouse is by Amazon itself. But we will design the hardware such that they can put in their required structures. But the thing is for us is, so far we have maintained the situation that the structure risk is there. So that means when they leave, they're supposed to reinstate back to the generic warehouse, yes.

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Unidentified Analyst, [25]

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So just a follow-up. You talked about acquisition pipeline in Australia despite the compressing yields. So does it mean that you are willing to look at Western Australia as well as Queensland?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [26]

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I think this is always the constant challenge we have. You go to less attractive locations, your yields are going to be better. You're going to get better pricing in Perth, you're going to get better pricing in Brisbane compared to Sydney. But I think for us, at the end of the day, it's an assessment -- of course, we cannot predict the future. It's an assessment of when the risk comes for conversion or increasing the rents, what is the probability? So I think we continue to like Sydney. We may take a position that it may not be immediately accretive in the first year, but with this acceleration, it will. Or we see an opportunity in 3 to 5 years' time of shifting the rent to a different level, we could do something like that. But still, I think the fundamentals of the market and the tenant will be primary important. So unless -- if we get -- right now, we have Coles in Sydney. Will we do Coles in Perth? Maybe. But will we go to a less -- I mean, lower quality property with a lower quality tenant like an SME with the risk of breaking the lease and replacement difficulty, maybe we won't. But obviously Coles in Sydney and Coles in Perth will have a different pricing, yes.

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Unidentified Analyst, [27]

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(inaudible) from CIC. Two questions. One is on your NPI margin. Given Singapore stabilization, are you expecting NPI margin to improve? Or are you expecting the utilities cost to increase and therefore there won't be an improvement?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [28]

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Okay. I think specifics, maybe Jean or Greg. But I think if you noted about our NPI margin, because we operate in 8 countries, right. The -- any shift in the NPI margin in a particular country and in this case, you're talking about the SUA, which is even a sub segment of the Singapore portfolio, whatever shift that we will see, is going to be, I would say not a significant impact overall on the margin itself. But I think you want to talk specifics in Singapore, maybe you want to speak a bit more? Yes. I think the -- I think between giving sensitive information and not so sensitive information, I think if you take an uplift on the Singapore portfolio of about an improvement of around 0.5%, I mean, or like an improvement on that kind of level.

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Unidentified Analyst, [29]

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Okay. Second question is on cap rates. I understand there was a change in value. But how do you (inaudible) on a like-for-like basis? What countries are you seeing compression in? And is there any country seeing expansion? And especially on China cap rate?

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Ming Rean Lim, Mapletree Logistics Trust - CFO of Mapletree Investments Pte Ltd [30]

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I'll take that question. Okay. So we have different value, hence we use a different methodology between the previous financial year and the current financial year. So in terms of actually making the previous valuer or making the current valuation of the same as the previous valuation, not viable. So what we did do was we spoke to the current valuer and asked them on a consistent basis like-for-like, would there be compression? And the general answer is yes, there would be compression. You will see compression in the likes of China. You will see some compression for the better quality assets in Korea. You will have seen a little bit of compression as well in Hong Kong. But that's obviously, these are not hard numbers.

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Unidentified Analyst, [31]

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For China, is it across the board or different between Tier 1 and Tier 2?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [32]

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No, I think definitely for like Wuxi. What is I think -- I mean, if you use the income stream asset, like for our property in Wuxi because of the lower income coming in and the downtime, the valuation for Wuxi will definitely come down. For China. You have the listing for China? So I -- you are asking in general or do you want specifics?

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Unidentified Analyst, [33]

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It's just that I noticed the China, the logistic NPI yield was about 30 bps compression. So I wanted to get a sense of how much Tier 1 cities compressed or was this all Tier 2?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [34]

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Okay. I think we can get that. Okay. Yes, yes. Like our -- this is yield. So if -- okay. Basically what we have is across the list of the Chinese assets, right, the majority of them have seen values increase compared to last year, right. The values have increased across the board, except for -- obviously other than the 1 we're taking out for this, what do you call that, the redevelopment. And then we have seen also Wuxi very slight, like 0.7 increase in value, right. And then we have this (inaudible) in Shanghai, which do to some AEIs that we're doing over there, we've seen a slight increase about 8%.

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [35]

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I might -- broadly speaking, you would have seen counter compression both in the first-tier and second-tier but depending on the second-tier (inaudible)...

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [36]

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I think I'd like to add to what Greg said. What I've just given you is our value capital -- asset value increase, right? And when you look at asset value increase, you look at rentals and cap rate. It could be a case that the rentals have increased and the cap rate can be the same, you still get your value increased. So this is what I mean by in the case when you think cap rate compression in the value sense, right. Secondly where there is oversupply, definitely, you're not going to see that kind of cap rate compression that we have in last year. So what I've given you is the absolute asset value increase. But it could be driven by the underlying rental increase, not so much by CapEx compression. Yes?

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Teck Ching Wong, OCBC Investment Research Pte Ltd. - Investment Analyst [37]

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Andy from OCBC. Just to be clear on the cap rate question. I know there was a change in valuer, the different cap rates that are used seem to be quite a big difference, as much as 2 percentage point. So I'm just thinking what that specifically (inaudible) or has there been any key market transaction out there that has led you to (inaudible) very low cap rates which is the reason why (inaudible).

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [38]

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So the key defense was the methodology. The previous valuer was using on a gross basis, the current valuer is doing it on a net basis. So what he has applied was these are comparables on a gross rent as opposed to on net rent, hence, you're not really doing a full apples to apples comparison.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [39]

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I think if you have your 2016 cap rates that were given to you, right, if you look across the board, Singapore last year was 6% and 7.25% -- I'm sorry, this year, 6% and 7.25%. Last year was 6% to 7.75%, that was the range. Japan this year, 5.1% to 6.7%. Last year it's 5.3%, 6.4%, right. So the one that Greg is referring to is Hong Kong this year is 4.25% to about 4.5%. And then you have cap rates last year, 5% to 5.25%. And this is the one that there's a difference in methodology, yes. And then for China, you see 5.5% to 6.75%. Last year was 7% to 9%. Again, it is gross versus net. And then for Malaysia, you have 6.25% to 8%. Last year was 7% to 8%, right. South Korea, largely the same as last year. Vietnam, largely the same. Australia, this year between 5.25% to 7.25%, pretty much the same last year. And if you look at from last year's perspective, Hong Kong and China are the ones that in terms of numbers you have seen but the reason is because that time, if you look at the footnotes, right, one is based on gross, one is based on the net. But also overall, the cap rates have some compression, but not severely different.

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Teck Ching Wong, OCBC Investment Research Pte Ltd. - Investment Analyst [40]

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And this question just on the geographic breakdown for lease expiries, about 5.5% from China. Will this be mostly from the Tier 1 cities or Tier 2 cities?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [41]

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What's the question again?

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Unidentified Company Representative, [42]

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(inaudible).

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [43]

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This is yes. This is Guangzhou and Northwest China, Shanghai. Guangzhou and Shanghai.

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [44]

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Yes, so these 2 are both for cities Guangzhou and Shanghai.

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Teck Ching Wong, OCBC Investment Research Pte Ltd. - Investment Analyst [45]

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And last thing, if you think about rent outlook in Australia for the different region there. So how the incentives are trading, because obviously some markets like New South Wales are actually quite strong now, [but they didn't explode]. Just to get a sense of the market outlook.

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [46]

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Yes. So between the markets, New South Wales has been the strongest market. You generally had less supply coming in and demand has been quite robust because you had occupiers moving out from the port areas towards the West. So the West has been the strong market. So you've got slightly stronger rental growth in the West, incentives are also tighter than in the Melbourne market. Melbourne is a market which has a lot more supply. So in terms of the headline rent, it's slightly less growth than Sydney on a year-on-year basis. Again, looking at relatively low single-digit type numbers but you have higher incentive levels in the Melbourne market. But again for Melbourne, you need to differentiate between your new builds, especially your spec (inaudible) which tend to have much higher as well as a large asset. And those are where your incentive levels could be in the double digits, even 20. When it comes down to more normal type assets, which have existing tenants, you probably see tighter incentive levels.

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Vikrant Pandey, UOB Kay Hian Research Pte Ltd - Analyst [47]

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This is Vikrant from UOB. Just wanted to check in on the Singapore portfolio valuations. (inaudible) slight dip in overall valuations, and I think some -- couple of assets actually had high single-digit to double-digit valuation losses. So I was wondering what the value was taken into account given the more robust manufacturing (inaudible) what is so downbeat on these – of these asset prospects? And secondly, just on China's rental incentives, especially in second Tier cities, what kind of incentives are you now giving? Because you mentioned that you're giving more in terms of rental incentives.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [48]

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Right. I think Greg will take the first question on the valuation side. On the China side, like in the first tier cities, I mean, typical market practice is 1 month for 1 year lease, right? So basically the -- in first tier cities, we could do even less than that. So but in the places like Wuxi, we may have to give 2 months for every year lease. So they sign a 2-year lease, we may have to give 4 months. So I think this is -- in terms of the incentives coming in that we have to compete on, yes.

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Gregory Lui, Mapletree Logistics Trust - SVP of Investment - Mapletree Logistics Trust Management Ltd [49]

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Okay. So for Singapore assets where you had root valuation deficits, there are 2 factors at play. One, you had market rental assumption of the valuers being lowered by year. Valuers don't take fast moving -- high, fast-moving indicators as an indication rather, they look at actual transactions. And in their view, market values or market rents have seen some downward pressure. So some of the -- especially so for the Western assets. Now compounding that for some of our older assets, which have shorter ground leases, the shorter ground lease assets have also seen the combination of weaker markets plus the shortening of ground leases. Having said that, within Singapore, we've also had some of our assets, partnered assets, where you have seen valuations increasing. Why? These are better specified assets which have seen slight benefits of cap rate compression.

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [50]

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So I think what we are trying to say here is basically the -- when we work with the valuers, what the emphasis is on the income stream method, right. You know valuers use different methods, right. So of course there's a comparable method -- comparable capital value method. But we need the emphasis for us as a REIT, is now looking at income stream. So if our income stream is undergoing pressure, right, for some of these properties that you know, right, then this is where we expect the value to come down, yes.

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Adrian Chua, Citigroup Inc, Research Division - Director [51]

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Adrian from Citi. Just one clarification. Just now you mentioned that your (inaudible) asset is about 97% occupied and could potentially stabilize this year. So when you talk about stabilization and a potential acquisition of that, would you be thinking of DPU accretion -- DPU accretive acquisition, because I'm just looking at the Hong Kong cap rates vis-a-vis your cost of capital?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [52]

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Yes, Adrian, you touched on a very, very interesting point and this is something that -- you are absolutely right that based on the market cap rates in Hong Kong, it will not be accretive, right, unless we do something very drastic. So then the question is for [10E], right, if sponsor is looking to sell, then we have the right of first look, right. So we'll take -- we'll definitely look at it. And the Hong Kong market has got its good fundamentals. We have seen the good days, we have 30%, 30% rental by now but now it's like 5%. Yes, the fundamental is limited supply. So Hong Kong continues to be market of interest. So then the question is to we want to bite the bullet, and do it, right. And then we need to bite the bullet and do it right. We're not going to do it at any price. It will at least have to be accretive to a [7x] so I think so far, we've not had any (inaudible) we've not done any leases not accretive yet. So we will see. When I say we will see, it depends on negotiating power with up seller, yes. So we need to negotiate, yes. So I think this is the part. But I think the -- at least what I would like to tell you guys is I think we are still disciplined. We still look at accretion as a very key parameter in our portfolio. So will we trade that off and how much we will trade that off, I think right now, I tell you, as far as possible, let's not trade that but it depends.

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Unidentified Analyst, [53]

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Just this is a question on your divestment gains. You've got $1.1 million from Old Toh Tuck. Would you be distributing that out next quarter?

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Kiat Ng, Mapletree Logistics Trust - CEO of Mapletree Logistics Trust Mgmt Ltd & Executive Director of Mapletree Logistics Trust Mgmt Ltd [54]

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Yes. We have about – gain about $1.92 million, right. Yes, so we will – I mean, typically what you have seen – it's not a policy, but what you have seen is we typically distribute it over 4 quarters for small amounts like that, yes. $1.922 million (inaudible), yes.

Okay? All right. Thank you very much for your time. Thank you for coming. Thank you.