Good morning. Welcome to Frasers Centrepoint Trust first quarter business update analyst briefing. Today we have a management team here. We have Richard, the CEO, Audrey, the CFO, Pauline, the Head of Investment and Asset Management, and myself, I am the VP for Investor Relations. We are very happy today to be able to present the business updates. The slides have been uploaded to the SGXNet yesterday evening. If you have a chance to look at it, please do. Without further ado, let me hand this over to Richard to kick off the presentation. Richard, please.
Yeah. Thanks, Fung-Leng, and a very good morning to all of you. Thanks for joining us again, and a very happy New Year to all of you. Can we have the first slide, please? Thank you. Happy to continue to be able to share that the strong performance that we have seen for the FY 2023 has continued to our first quarter. This is kind of a snapshot that you can see right in front. Can you mute everybody, please? Thank you. You can see right in front of you here, just a very quick overview, quick highlight, and we will go into a little bit of details and probably a discussion as well.
To begin with, you can see that in terms of occupancy, it is at 99.9%, close to 100%. In some instances, it is actually frictional vacancies. Shopper traffic has gone up by 3.1% year-on-year. Continuous recovery at the front of the shopper traffic. For sales, perhaps I can explain a little bit here. You might have seen a 0.7% year-on-year drop, but it is actually mainly due to renovation of some key tenants. We looked at it. We were also initially wondering why was there a drop. After some further drilling into the numbers, we realized that because there were several key anchor tenants that were under renovations. Those are big tenants across some of the malls.
At the same time, also happy to share that some of those anchor tenants have since reopened, and their sales, in fact, are doing better than last year. Tampines 1 progressing very well. This is something that Pauline will share in a little while. In terms of construction, timing is on track, in terms of cost is on track as well. Yeah. Capital management. We have, since the divestment of CCP and Hektar, been able to bring down our gearing. As of December 31st, the leverage level is at 37.2% compared to 39.3% as of S eptember 30th, 2023. It is also putting us in a very healthy position. All-in costs compared this quarter to last quarter.
Last quarter was 4.1%, and this quarter has gone up slightly to 4.3%. We have also been able to share later on, Audrey will share with you some of our more recent hedging. Happy to also share that the rate has come down from this 4.3%. What we have also focused a lot during this quarter is the various initiatives we spoke about from the ESG front that will help us in our roadmap towards achieving our target. At the same time, we shared before, some of this actually will give us decent savings in OpEx. There was a launch in terms of the food waste valorization. Again, we will share a little bit more details later on. We have also planned to roll out our solar panel.
This is not a situation whereby we spend CapEx to install the panels, but rather we are going into what we call a purchase agreement. This is where we do not spend CapEx, but it is in a way, somebody else install, but we get to enjoy a very good rate as a result of this installation. Very quick overview of the market. I am not going to go into GDP, etc. You guys probably know as much as I do. For retail sales, it has been, again, continuous momentum from the last nine months or so that we have seen. Even at the end of the calendar quarter, where RSI is concerned, we are continuing to see improvements from the various sales and also from F&B sales.
For the rental wise, suburban prime retail rents gone up quarter-on-quarter by about 1% and year-on-year about 3.1%. We are pretty much ahead in terms of rental reversion compared to the wider market. Partly one of the main reasons you could see, we shared about occupancy. The demand is very strong. We will share with you guys a little bit more about some of the new leases and new tenants that we have been able to bring in. We still see very strong demand, and at the same time, supply side is again, very muted. We have this table in front of you. If you add this up, probably you are looking at about 1.2 million sq ft coming up from 2024 to 2026. If you even scrutinize it further, some of them are just ancillary retail.
You do not really have significant more, with the exception of the completion of the Pasir Ris Mall. That is in probably May, June 2024. Other than that, it is pretty fragmented, pretty spread out. High demand, limited supply, and then that is in a very good position for us. The next segment, I will hand over to Audrey to take you through our financial position. Audrey, please.
Thank you, Richard. Can everybody hear me? Okay, good. Good morning, everybody. I will run through the financial metrics. Aggregate leverage is down to 37.2%. This is mainly due to the repayment of the loans using the divestment proceeds. We have also drawn down new loans for working capital and distributions and also to fund the CapEx at Tampines 1 AEI. ICR is slightly lower at 3.35%. This is mainly due to the higher interest expense, but we feel that it is still a healthy ICR. The average debt maturity is lengthened to 2.8 years with the Tampines 1 refinancing. Our average cost of debt is at 4.2%. This is higher as compared to last quarter of 4.1%, mainly due to the higher floating rates and interest rates. About 63% of our debt are hedged through fixed rates bonds or hedging.
As shared by Richard previously, we have actually entered new hedges post the December FOMC meeting, taking advantage of the recent decline in the interest rates. With this, we actually increased our hedge percentage to 72%, and the all-in blended cost of debt we are seeing is below 4%. This will help us to bring down our cost of debt in 4Q. Our credit ratings remain stable at BBB stable by S&P and Baa2 stable by Moody's. Next slide. There is no refinancing risk in FY 2024 as shared in the last quarter results, and we are well distributed on debt maturity profile. With this, I will hand over to Pauline, who will share more on the portfolio performance.
Thank you, Audrey. Good morning, everyone. I am very delighted this morning to share with all of you what I would say a very good set of results. I wanted to also emphasize that we do not stop here. We do see that building on the strong performance of our portfolio, there are opportunities for further growth. Very quickly run through some of the key retail metrics. For retail portfolio, the committed occupancy, we are close to 100% at 99.9%. We see this across all the assets within our portfolio, all coming in at above 99%, barring Tampines 1, which is undergoing asset enhancement works. On a year-on-year basis, quarter-on-quarter basis, the committed occupancy has actually also improved. This is attributed to, I think, some of the points that Richard touched on earlier.
The fact that in terms of prime suburban retail, Singapore's prime suburban retail is limited. We are looking at very healthy retail space per capita. Kudos to the government in terms of their very balanced space planning in Land Scarce Singapore. Also, as mentioned by Richard earlier, in terms of the growth of organized retail in the suburban space, we do anticipate that growth is very limited in the near term. The other takeaway from this very healthy occupancy picture is the fact that the retail scene still remains very vibrant. Amidst cost, labor pressures concerns, retailers are generally prioritizing the prime locations, the well-managed malls that are well located, and that are well connected. Sitting in very good locations within dense and growing catchments. Next slide please.
For this slide, we look at the sales trend. Sales continue to remain strong and on a growth trajectory over the course of 2023. Richard mentioned earlier that there is some dilution from a few of our key anchors that are renovating, mostly in the months of October and November ahead of the festive season. These are reaping returns and positioning our portfolio for even stronger growth. Some of these retailers, in terms of their sales performance, post-renovation, they have actually come in higher than expectations. That bodes well for the future performance in terms of sales for our portfolio. On a year-on-year basis, we have seen sales growing by 7% over 2022 in 2023. Versus pre-COVID, sales have come up by 18%. On the traffic front, footfall has not come back to pre-COVID levels.
I think in general, we are still hovering at around 10%-15% below pre-COVID. T herein lies the opportunity to actually improve this retail matrix. We are very focused on marketing, driving footfall back to our malls with the current reopened state. Activating the malls, and also, more importantly, driving the sales conversion through signature events, signature programming, targeted conversion, and also leveraging our loyalty program, our Frasers Experience loyalty program. Next slide, please . Takeaways from this slide. We see very strong at two years. That has actually been improving over the quarters as we progressively get out from the drag of the COVID years. We do see good traction in terms of leasing. If I may draw your attention to the first column, FY 2024.
If you recall, we actually ended FY 2023 with a leasing stock of about close to 30% for FY 2024. I am happy to report that, and you can see it from the occupancy indicators as well, that leasing has gone well. In fact, to date, we have de-risked more than 30% of the stock that is coming up in FY 2024. The other observation is the robustness of our cash flow. If we look forward to the near term, over the next two to three years, we do not see any significant lumpiness in terms of the lease expiries. This indicates that, in terms of concentration risk for our portfolio, that has been largely well managed. Where does this take us going forward?
I would say that if we look back at the past few years or so, and especially over the COVID period, the Singapore suburban retail has actually proven its resilience. We see it in the performance of the portfolio today, and this is attributed to its very everyday lifestyle convenience positioning, the limited supply of Singapore suburban stock, and the fact that a lot of these assets are irreplaceable. Our conviction is that FCT is well positioned for further growth. We are leveraging on our quality portfolio. We have four dominant malls with the latest edition of NEX in our portfolio. NEX has actually done very well. We are very happy with this recent acquisition. The strong operating performance as well is actually the foundation for further growth.
When we look at occupancy, when we look at the sales performance, the effective occupancy cost and so forth, there is room to actually drive the performance of the portfolio further. Also in line with the fact that the active management to actually drive the growth further. For the next segment, I will talk a little bit more about the active management that we have undertaken across our portfolio to drive the performance and also to position it for further growth. Next slide, please . For this slide, we wanted to say that notwithstanding the challenges of the market over the past few years, we have not lost sight of the fact that we need to constantly refresh our offering to delight our shoppers. With this strong set of operating fundamentals currently, it actually supports our focus, a more deliberate focus on tenancy refresh.
We are seeking to infuse differentiation and also to update the offering within our portfolio to drive stronger growth. How are we doing this? I think there are various ways. Bring in new to portfolio brands that are currently not in our portfolio. We bring them to our malls, and we grow them within our portfolio. New retail concepts as well. If I may draw your attention to the pictures of Cathay and also some of the banks. These are existing brands that we are familiar with in the Singapore retail space. We are working with these retailers to bring in new concepts, to bring in new offering. As we mentioned earlier, the refresh of some of the existing stores. These are brands that are doing well, that meet the needs of our shoppers.
We work with the retailers to refresh themselves, to update the concept so that they can actually reap higher, stronger sales productivity. N ext slide please . In this subsequent section, I wanted to do a little bit of deep dive to illustrate with a few more what we mean by active or proactive asset management, and how that has actually positioned the portfolio for further growth. What you see here is Tiong Bahru Plaza. Tiong Bahru Plaza sits within the city fringe. It is actually in an area of gentrification. With people going back to office, there is actually stability in the catchment. How are we positioning it for these trends? We have actually brought in more interesting F&B concepts. We have also looked at driving the sales productivity of our anchors and bring in more variety to the retail offering.
Recently, Kopitiam, which is the food court operator on Level 3, they have right-sized. With the right-sizing, they have significantly improved their sales productivity. With the space that has been released, we have brought in another strong operator, Don Don Donki, to meet a gap in this catchment. Lot One City North Wing, another case example. It is a very strong mall in terms of sales, in terms of occupancy and so forth. N otwithstanding that, we still continue to drive the performance higher by bringing in better operators, more contemporary brands to cater to their catchment needs. If we look at some of the results year-on-year basis, the occupancy has actually maintained at 100% for this very dominant asset and strongly performing asset. Next slide .
W e move to White Sands. For White Sands, the focus is to position the asset for the change in the retail landscape and also the catchment growth in the Pasir Ris area. Richard mentioned earlier, Pasir Ris Mall will be coming up in May or June this year. Do we see that as a risk? We look at it as an opportunity. If you look at the combined NLA of the two malls, we are looking at a combined retail offering of about 400,000 sq ft or so, and that is quite similar with a Waterway Point in the Punggol area. We feel that with the focus on rejuvenating Pasir Ris area by the government, there is a lot of growth potential. With the scale, it actually positions, the combined scale, it positions the two malls to actually capture the catchment in the area.
Because currently, White Sands by itself is just about 150,000 sq ft. By itself, it is not able to cater to the full range of the retail needs of the immediate catchment. What have we done at White Sands? We have done a physical upgrade through repainting, relamping. We have updated the façade of the mall. Some of the key shopper touchpoints, like the toilets, the nursing rooms, the car parks, that has been refreshed. On the softer side, we have worked with our tenants, some of our key anchors, the food court, as well as the supermarket, to actually do a refresh in anticipation of the upcoming competition as well as the growth catchment. We are focused on building certain trade clusters as well, the F&B tenant, the fashion.
The key thing is not to compete directly, but to complement with the incoming mall, and also on a combined basis, leverage on the growth of the catchment. Next slide, please . For Century Square, Century Square is another case example. I think during the COVID years, it was very much impacted by some of the measures and the fact that the access to the malls were limited compared to some of its sister malls. It was more impacted due to the fact that the timing of its bulky lease expiries actually coincided with the worst of the COVID period. The mall lost two of its anchors, the cinema and also the supermarket. We have actually leveraged on this as an opportunity to improve the performance. W e brought in Cathay, which is a familiar brand.
They brought in new concepts as well, in terms of the technology for cinema spaces, in terms of differentiation in the seating. I am also happy to share with everyone that NTUC will be coming back to the basement, and there will be a differentiation in terms of their offering at Century Square. The focus is also on activating some of the floors. For example, if you look at Level 2 and 3 today, that has been very much activated by the fact that we brought in popular brands like Sushi Express. Also the bank on Level 2 and 3 has actually drawn a significant footfall to the upper floor. Next slide, please . Community engagement. I think I mentioned earlier that there is still opportunity to grow the footfall to our portfolio, and we do this with signature events.
But the key focus is that the programming, the marketing has to be very targeted. At the end of the day, we are looking at not just bringing people to a mall, but giving them the opportunity to spend, right, and creating that or driving that sales productivity for our retailers. Next slide . With this, I think I have touched quite extensively on organic growth. I will talk about another pillar of growth, which is enhancement growth, Tampines 1 AEI. I am happy to share that the AEI has progressed well. We have to date pre-committed more than 97% of the spaces that were affected by the AEI. About one-third of the space is actually affected by the AEI. 97% of that space has been pre-committed to date.
We brought in an interesting slew of both F&B as well as retail brands, of which more than half are actually new to mall. This is very important for the repositioning objective that we have set ourselves for this mall. The first batch of completed AEI units are on Level 4 and 5. They have actually fitted out, and they have commenced operations from December. In terms of the overall construction progress, we are tracking to expectation. Works are expected to complete by September 2024, and this actually positions the asset to actually come back in a bigger way for FY 2025. The full improved income stream will be enjoyed by the investors in FY 2025 upon the completion of the AEI, right? In terms of enhancement growth, we do continue to see opportunities within our portfolio, but AEI entails careful planning and engagement with the authorities.
We also want to stage some of these works in order to actually preserve the stability of the revenue for our investors. Next slide, please . With this, I will hand over to Fung-Leng. I think I have spoken a lot about how we want to drive the top line. Fung-Leng will touch a little bit about sustainability and also the savings for OpEx. Thank you.
Thank you, Pauline. This slide shows the update on the operating cost reduction initiative that we have shared in the last quarter. We have added in the solar PPA in this quarter's update. This quarter, we have launched the food waste valorization. This is a process where we recycle all the food waste into something useful, and I will share a little bit more in the next slide. The other initiative that we have launched is the solar PPA, as what Richard has mentioned about in the start of the presentation. We have rolled out the installation of the solar PV cells across six FCT malls from this year onwards. Coming to this slide, this is on the food waste valorization. The picture shows the ceremony on January 15th, so this is very recent.
Essentially, this is first started as a proof of concept at Causeway Point, and it has proved to be very successful, and we are rolling this out to six other malls, as you can see. This basically is a process to convert food waste into higher value products. For example, like aqua feed and some of the feed for animal purposes. B esides the reduction of food waste, it also save us a lot of money or a lot of OpEx in terms of avoiding the tonnage of the food waste haulage fees. We can see that we expect more than 4,745 tons of food waste to be diverted annually. Th is is basically converting into savings in terms of the haulage fees. T he equipment itself will give a payback of around five years.
If you do in terms of ROI perspective, that would be 20% a year. I t also gives us the reduction in terms of CO2 emissions annually, as well as the CO2 from the garbage truck movement. T his is in line with our push towards a zero waste and the sustainability food resilient future. The next one is the solar PPA. As we have mentioned, we have rolled out across six FCT malls, and this is unique in a sense that in the space constraints rooftop of all the commercial buildings, we are able to do quite a bit of innovation to find space to install all these solar panels. W e are rolling out this across six malls from this year, and we have partnered the SP Group for this on a solar PPA model.
There is no upfront CapEx, no maintenance expense required from us, and there will be a fixed tariff rate and solar energy generation over the contract period. P rojected savings is about SGD 2.3 million over the contract period. T he process not only gives us in terms of the source of renewable energy, but it also help us to support the reduction of Scope 1 and Scope 2 greenhouse gases by 2/3 from the baseline of 2019. T his itself is quite an exciting project for us. I t will not replace our current energy supply, it will only supplement. I t will be enough to power the lights, the car park lights, the elevators and things like that, but not total replacement. With this, let me hand this over to Richard for the concluding remarks. Richard?
Yeah. Thank you. This is a very quick summary then we can move on to Q&A. As you can see, what we have shared so far is a continuation from the strong performance that we achieved in 2023 going into 2024. I t is important that we continue this momentum. V ery strong demand. We share about the limited supply, and also this helps us in terms of moving on the right direction for rental reversion and retention going forward. Our enhancement work for Tampines 1 is on schedule, and as what Pauline mentioned, this will then provide a full contribution coming into the year FY 2025. A t the same time, she has also gone through outlining the various work that has been put in place at the various malls.
These are in some ways also asset enhancement, maybe on a smaller scale, but it does create value for the mall. It does help in terms of improving the revenue as well. In terms of financing, we are in a strong position at a leverage of 37.2%, and Audrey also shared some of the recent hedges that we have made. Generally, we are positive, as mentioned, in terms of performance and also in terms of the outlook for this particular sector, the Singapore prime suburban retail sector. This is partly on the back of the fact that we, being a provision of essential goods and services, non-discretionary, we still see continuous demand. The sales is holding up. Also, most of you listening here today would have received between SGD 200- SGD 800 that was given out in December, the CDC vouchers that was given out in January.
Just for your information, if you just take the CDC voucher, for example. Out of SGD 500 that was given to each household, 50% of those can be used at supermarket, and that is SGD 250 multiplied by the number of households in Singapore. That works out to approximately SGD 318 million. That can be spent at the supermarkets, and we can expect a substantial part of that would then come back to suburban retail space, suburban malls. We have in most of our malls, or rather in every one of our mall, we do have a supermarket space. We do expect again, to get a big share of that coming back in terms of our sales for the year FY 2024. We spoke about demand, we spoke about supply.
This is where it put us in a very good position because retailers are still looking at expanding, but not expanding just across the board. They are looking at good spaces. They are looking at spaces that they believe can continue to thrive, can continue to do good business. They may consolidate some of their other activities in a fringe location or location that do not really give them good return, good revenue. They will probably redeploy their staff and make better use and full use of whatever capacity that they can at this point in time. Proactive capital management, again, top of mind. Audrey and her team are very focused in looking at, and monitoring the market to make sure that we take advantage. Like what she did when the rates came down, we moved in very quickly.
We tried to lock in rates that are very attractive and before it went back up again. This is where proactive capital management comes into play, and this is an important part that the team is playing today. full-year contribution from acquisition. In FY 2023, we made very significant acquisition in Nex, the 25.5% stake and also Waterway Point. These assets have or these additional stakes in Waterway Point and the acquisition of NEX has started to contribute to the bottom line, and we expect this contribution to also help us uplift the performance for the entire year. There's no running away from the fact that the asset management team, the property management team, have to continue to work very hard on the ground. Pauline has shared many examples of what we are doing.
So we are not just looking at it and say, "W ow, we are close to 100% occupancy, so there's nothing much to do." But in reality, we are looking at changing our tenants. We are looking at bringing in new tenants. We are looking at, say for example, Tiong Bahru Plaza, how do we cut out space? How do we improve the productivity of space, enhance the area, and at the same time bring in tenants that the shoppers are looking for? We right-sized the food court. We brought in Don Don Donki, and that will again, help to bring in more traffic to the mall. I t is very crucial. Similarly, at White Sands, the team on the ground are very focused on enhancing the physical aspect of the mall in view of a new mall that is coming on stream.
And also, we look at that as an opportunity because with the size that is about 400,000 sq ft, we believe it is sizable enough for people in Pasir Ris to shop around this area. All right. With that, I will end our presentation, and then we can move on to Q&A. Fung-Leng, back to you. Thanks.
Thank you, Richard. We are happy to open the floor up for Q&A now. We invite the first question. Allow for a few seconds for the queue to build up. Right. Okay. Can we have the first question from Terence, from JPMorgan? Terence, please unmute yourself and proceed with your question, please.
Hey, thanks so much, Richard and team, and Happy New Year. Congrats on the strong operational update. I just wanted maybe three questions from me. Firstly, on rent reversions. Richard, you sort of alluded that the rent reversions are ahead of rental growth in the wider market. Could you give us a little bit more color on that? Second question, more to Audrey in terms of the financing costs.
Given that you are seeing better refinancing opportunities and opportunities to hedge out, could you share on what is your updated financing cost guidance for this year? And would you actually look to increase the proportion of debt which is hedged? And finally, a question to Pauline. You shared so many examples of what you are doing across the many malls in FCT's portfolio, but maybe could you share a little bit more on what you could look at for your newest mall, which is NEX. Thanks.
Yeah. Hi, Terence. You have allocated the question pretty well spread out. I will take the first question on rent reversion. We shared that in 2022, if you recall, we did about 4.2% average reversion. Then we had a 50 basis points adjustment up to 4.7% for FY 2023. This is only the first quarter, so we still have another three quarters to go. W hat we are seeing is this is definitely in excess of that 4.7%, quite significantly. T hen again, we also recognize that it is only a first quarter, so some of the leases could be smaller leases, may not be the anchor space or mini-anchor space. B y and large, it is the momentum. I think that is very important. We see good traction in demand.
When we want to reposition, we want to subdivide a space, we do get demand, very healthy, strong demand. In terms of sales for the tenant, continue to move in the right direction, a good momentum. That helps in the OpEx cost. When the occupancy cost is maintained or at least it is reducing or maintained, it helps us at our rental reversion. I do not really have a number because we did not share for this quarter, but I would like to share that we are very happy with what we are seeing so far. We continue to work very hard. It is definitely in excess of what we have achieved in 2023, and at this point in time, it is actually in quite a significant way. Maybe, Terence, I hand over to Audrey for the next question.
Okay, Terence, on the question of financing cost. As you know, post December FOMC meeting, the benchmark rates actually came down, and we took advantage of the declining interest rate environment, and we actually increased our hedge percentage from the 63% to 72%. The all-in was lent at less than 4%. You can see that the cost of debt is actually coming down. What we are seeing in terms of the floating rates is also coming down vis-a-vis what we are seeing in first quarter last year. First quarter of FY 2024. We are continuing to monitor the market and see any opportunities to enter into further hedge to take advantage of the declining interest rates. Terence?
Sure. Thanks. You had all-in financing cost of about 3.8% last year. Do you see financing cost this year being higher or lower than FY 2023?
On the average, if you look at last year's benchmark rate, for the first half of the year has been very low. W hat we recognize is that depending really on how the markets actually move in terms of interest rates. Based on today's environment, we think that low fours will be more palatable number vis-a-vis. I f, let's say, interest rate were to trend down further, it has the opportunity to come down below four.
Okay. Thanks so much.
Thanks.
Okay, Terence, your third question with regards to NEX. Yeah, so personally, I am very excited about the acquisition of NEX. I think to date, the performance has actually exceeded our expectation. W e are very happy to have a stake in this very well-performing mall. In terms of opportunities, when we actually do internal benchmarking across our portfolio comparable malls, we do see opportunities for significant organic growth.
That comes in through the fact that the mall is actually operating at 100% in terms of committed occupancy. There is actually a lot of opportunity for right sizing as well. When we look at the larger spaces within NEX compared to some of our dominant malls, there is a bigger component of anchors and mini anchors, and therein lies the opportunity to drive the rental productivity. The other area that we are also actively exploring is also asset enhancement.
There is potential to actually unlock significant commercial GFA for this asset. This, as I mentioned earlier, for all AEIs, it requires careful planning. It requires engagement with the authorities. We are also looking at the overall catchment as well. What are some of the missing gaps? We recognize that it is a growing catchment. It is a very dense catchment to start with, but there are actually a lot of growth that is happening in the immediate vicinity of the mall. I think you would have read recently that there is this polyclinic, the largest polyclinic in Singapore, that is just next to NEX, directly connected to the NEX. These are some of the opportunities that we are cognizant of, and that we will actually take into consideration in the repositioning of the mall as well. We are very actively involved in the management.
We sit in the ExCo that convenes on a monthly basis. At the board level, there is actually a quarterly meeting with the other investors as well. There is a lot of hard work that is ongoing for NEX. I must say it has been very gratifying so far. I hope I have answered your question.
Thank you. Very helpful.
Thank you, Terence.
Right. Thank you, Terence. Next question from Vijay, RHB Bank Singapore. Vijay, please go ahead.
Yeah. Hi, morning, Richard, Audrey, Pauline, and Fung-Leng. A couple of questions from me. Maybe I'll take it one by one for easier use. My first question is in terms of the trend for shoppers traffic and tenant sales in the malls. We noticed that from second half of 2023, we can see that shoppers traffic is slightly starting to trend up and tenant sales is starting to ease or come down a bit compared to earlier half in 2022 and 2023, where the trend was in the other side. How do we explain this? Is it because of post-COVID spend, revenge spending declining or some belt-tightening by customers or people going out and spending it? And how do you see this trending up in 2024? How do you see shoppers traffic and tenant sales moving up, and how does this impact occupancy cost as such?
Yeah. Okay. Maybe I will try to explain from my perspective and Pauline can jump in as well. I n terms of shopper traffic, I think it's a gradual increase that we have seen. There's still a gap, as Pauline mentioned, and again, because of the flexible work arrangement, right? That is something that we believe is a structural change, something that it's rather permanent. It's a question of between three days, four days, four days or two days, etc.
S ome company are a little more flexible than others. T hat's where you see some differentiation and also some minor movement in terms of traffic. B y and large, we are still seeing, as what she mentioned, 10%, 15% across the board. We do see perhaps some more visits during the lunchtime and so on. D ifferent periods that's where you see a slight increase in the traffic.
For sales, the trend is still pretty much on track. The only difference is now if you compare year-on-year, you're comparing now with a very high level. Not forgetting for the full-year of 2023, our sales were 17% higher than 2019, and that is a very impressive number, right? And 2019 was pre-COVID, if you take that into consideration. I would imagine that the sales may compare year-on-year may taper a little bit because you're working on a very, very high base. T hat is fine because with that kind of level, we can still get a very good, healthy occupancy cost. As of end of last year, we reported an occupancy cost of 15.6%, and that again is at a very healthy level given that cost has gone up. A t the same time, the product price has also gone up, right?
Effectively, if you look at the margin of some of the retailers, yes, they have been eroded, but it is also lifted by some of the pricing. With this in mind, that the sales continue, I think it is important that the sales continue to grow, even though it may be weaker, but it is still way above pre-COVID, and that would underpin the healthy occupancy cost of our retailers. To me, and also to the team, as what Pauline mentioned, is for us to continue to drive, to bring in more people to the mall, to bring in new people to the mall, and also to help to improve the conversion rate and help to lift the sales.
If the sales can continue, and we can continue to have this healthy OpEx cost, then the rental reversion will follow suit. This is where we are always very focused on asset management, on property management. We have to continue to drive that.
Okay. Thank you. My second question is, you mentioned that demand is very strong. Can you just give some workaround on which sectors are driving the demand? We have heard of some tenant exits in F&B sectors, some coffee shops closing. Has this impacted your demand? Maybe which are the sectors you are seeing demand from at this point of time?
Definitely, F&B is still continuing to be one of the strongest. It is a phenomena, as what you have mentioned. You do see coffee shop closing, restaurants closing, but it is a rather strange phenomena where demand continues to pour in. If you look at the spaces that we have are more, if any restaurant comes up, we do have the opportunity to replace it rather quickly. The question really sometimes is a case of matching location. Are they opening in the wrong location? Are they also having a wrong product, for example, that is why they are not doing well? I am not saying that every F&B guy are doing exceptionally well. There are the stronger ones, there are the weaker ones. The weaker ones may fall out, but the good thing is there is no lack of demand from F&B.
F&B definitely is still one of the biggest demand for space. We also see other retail tenant sets coming on. Retailers, say, for example, we used this before, but again, they are still growing Love, Bonito. Online retailers now, they want to go offline. We do see retailers as such, a couple of more other brands that is also looking at having a presence in some of our malls. Again, the question is really about quality. Where do they want to go? We do see demand coming in, but demands are largely on prime suburban mall. If not for the fact that we have reconstituted our portfolio, perhaps our occupancy may not be at 100%. It will probably be maybe 97%, 96%, thereabout. Because we used to own some of the malls that means is much smaller, not well-connected, not well-supported.
Maybe we will not be getting this number. There is definitely a flight to quality. They want to expand, they want to grow, but only in prime location that they can really, and they believe that they can perform well. I will talk about F&B, I will talk a bit about fashion retailers, and also some new brands that is coming in. Those are the ones that shared by Pauline. Generally, we still see tenant expanding into our mall. They may have consolidated somewhere else, as I alluded to just now. They may have closed some of the shops, some of the spaces that is not delivering the kind of numbers that they want, because do remember that there is a constraint in manpower.
If I do have only 100 people working for me, I will place that 100 into the best performing outlets and close those outlets that are marginal or even non-performing. It is really about quality of space. I hope I answered your question.
Yes. Thanks, Richard. Just my last question in terms of you touched upon the manpower constraints. Can you touch a bit on the operational cost? Are you still seeing operational cost pressures, and how are your margins like? Maybe also can give some guidance on utility cost for this year.
Yeah. Okay. Utility cost, maybe Pauline can help out in a short while. O verall, I think cost in Singapore is still rising. This is where we had to put in a lot of initiatives, a lot of effort, to mitigate this cost increase. We cannot really completely remove or reduce it to zero or zero rise to it. W hat we can do is mitigate the cost. For example, the couple of initiatives Pauline has shared with you. These are initiatives that we expect cost savings. We are trying to push out to roll out as soon as we can. It is not about just on planning. We shared two examples. Food valorization is works undergoing, the solar power purchase agreement is in the works. We are going to be able to roll out this year.
These are all the initiatives that we reign in. These are only those that we have picked up. We spoke about some of the initiatives that we have done before, and we will continue to work on it. Things like security services, cleaning services, that again, are very heavy reliant on manpower, and we continue to work on the service provider to see how can we, again, utilize technology, right, to replace some of this manpower cost that we are looking at, the cost escalation that we are looking at as a result of manpower. These are things that we are currently working on to mitigate as much as possible and at the same time driving the top line. If you can drive the top line, then we can try to maintain the margin.
It is a case of how much we can drive the top line and how much we can mitigate the cost, the bottom line, so that we try to work towards at least getting close to what we are getting in terms of margin. Maybe for utility cost, Pauline, you would like to share a little bit more light on that?
Yeah, sure, Richard. Vijay, I must say that we have actually done very well in terms of maintaining the cost of utilities. I think the latest in terms of if I look at the blended cost for our portfolio, we are looking at all in, including some of the admin charges that is put on top of the utilities, the rates. We are looking at a low SGD 0.20 /kWh . If you look at what some of the other industry players are actually achieving in terms of utilities cost, that is on a higher level. That is largely attributed to the fact that for utilities procurement, we have adopted tranching and staging of the procurement. We are able to actually hedge or rather to monitor the market and hedge on a more optimal rate. That is on utilities cost.
I think as a percentage of OpEx, last year we were looking at about 10% of our overall OpEx. It hasn't shifted. We are still looking at 10% over OpEx currently, and also going forward. We significantly hedged a large part of our portfolio in terms of electricity cost for this financial year.
Okay.
Thank you.
Thank you for the time. Thank you. That's all I have.
Thank you. We are conscious of time, so please limit your questions to two. Next up, Brandon from Citi. Please go ahead.
Hi, Richard and team. Just a couple of questions on the gearing side. Are there any excess cash that you are keeping on the balance sheet? Given that the gearing this quarter of 37.2% seems to be below the estimated 36.1% last quarter. That is my first question. T he second question relates to NEX. What is the latest update on the tax transparency application and also the GFA expansion that Pauline was saying? Is it more the civic space or is it more plot ratio maximization? Thanks.
Brandon, I will take the gearing questions. The increase, the last time when we give the pro forma numbers is based on September 30th, 2023. I t is based on September's balance sheet. I n terms of the cash level, we are always keeping it at the optimal level, whatever the operational needs and working capital. With regards to your question, why is there an increase in terms of gearing? It is because of the new loans that was actually brought down for working capital and also distributions. If you recall, distributions in November last year. A lso coupled with the fact that we actually fund the T1 AEI of CapEx requirement about SGD 5 million. I hope this clarified.
I s it correct to say that this 37.2%, it is going to stick around for the next quarter?
It varies from quarter-to-quarter, then when it comes to first half distribution, the cash flow and the working capital requirements will actually fluctuate.
Okay, got it. Yeah. The next question on NEX?
Okay. On NEX, firstly, in terms of the tax transparency, I think this will be something that is going to take a while because we need to talk to the other JV partners because it involves them agreeing to change the nature of the company, the joint venture company that we are in today. I would imagine that it requires them to be agreeable, not only in terms of the team that we are working on, but also their management team. I t's a work in progress. There is no update to that. We continue to engage them, and I think they will need time, and they also want to understand how are we in terms of coming in as a partner. W e're just barely a year being a partner, so it takes time to build that relationship, I suppose.
Hopefully at some point in time, they will be prepared to consider this. N othing to update on that front except that it's an ongoing work in progress. For the next, in terms of some of the enhancement work that Pauline mentioned just now, probably she can also jump in after this. It is largely on GFA that we can call back from some of the car park spaces that the building used before. This is because the site that NEX is sitting on is actually a white site, and in the days when it was first built, in order to get to that level of car park that they wanted, the number of car park that they wanted, they actually used some commercial GFA to build that.
But in today's computation and calculation, some of those can then be recycled back or be free up back for conversion into commercial and retail spaces. Right. Pauline, you want to add on that?
Yeah. If I may clarify on that doesn't entail, or rather that shouldn't entail the reduction of the car park lots at NEX, right? It's just a matter of decanting the GFA that's sitting in the car park area and converting that to commercial, but the overall car park lots will remain. Right. I think there has been some feedback that parking at NEX is quite challenging, right? It's always very full. Right. I think the other thing that I wanted to address also, Brandon, you mentioned the GFA from CSFS as well. I am sure you are aware that the CSFS is the National Library Board. Currently, in terms of area, it's about 17,000 sq ft. For National Library Board, there is some concessionary GFA. There's potential to increase it to 3,000 sq m or 30,000 sq ft. T hat's opportunity on that as well.
But I think our first priority will be to actually convert the non-commercial GFA, and there's quite a good proportion of that into commercial GFA. Right. Have I-
Can you share the space? Are you able to share the space?
What do you mean by?
The amount that you can convert.
Okay. I t is still very preliminary, right? If we look at the GFA stock itself, we are looking at something like close to 6,000 sq m. Right. T hat is on the basis that we can actually redeploy the space, in areas where it makes sense from a retail perspective as well. T hat is as much as I can share now. We are actually working very closely with the JV partners, and we also need to engage their authorities as well.
Okay. Thanks so much. Thanks so much, everyone. That is it. Thank you.
All right. We are going to extend the session by a little while to take in all the questions. Geraldine, please proceed with your question.
Hey, good morning, Richard and team. I just have two questions. The first one, the recent sponsor announcement of the strategic review, does it change any timing you had in mind for your Northpoint City South Wing injection into the portfolio? That's my first question, and the second question will be on NEX. It seems that there are many anchors within NEX. I think three supermarket and one department store. Generally, what kind of percentage are we looking at in terms of anchor space, and how does it differ from the rest of your portfolio in terms of anchor space exposure? Thank you.
Okay. I'm going to take the first question, and then, Pauline, you can chip in on NEX. Okay. For the recent news that came out to the market, I think FPL has also put up a statement to confirm that they have not heard or they are not aware of anything different that they are doing. It's business as usual as far as we are aware of. They will decide as and when it's timely for them to redeploy, recycle capital.
We have not been told that NEX or rather, South Wing is available today or otherwise, right? If that happens, we will come back to you guys or to the market. This is as much as the information that we are aware of. Even FPL has already put out and said they are not aware of anything that is different. Maybe in terms of NEX, Pauline, you want to take that?
Yeah. Geraldine, just a correction, we have two supermarkets at NEX and not three. Y ou're right in terms of the quantum of anchors and mini anchors. When we benchmark it across our portfolio, and especially with the other dominant malls, we do see a higher percentage at NEX. For NEX, we are looking at about 50% in terms of anchors and mini anchors. Compared to the comparable malls, we are looking at about sub 40%. Have I answered your question?
Yeah. Thanks, Pauline. Waiting for your blessings to replay on NEX.
Thank you.
Okay. Next question, Jonathan, please go ahead.
Yeah. Thank you for taking my question. My two questions are, firstly, earlier you mentioned you locked in new hedges at below 4%. You mentioned a certain timing or quarter. Sorry, I missed it when you mentioned earlier. Secondly, on medium-term notes as a source of fund. Medium-term notes is only 3.6% of your total funding. Do you intend to increase that to lengthen your duration of debt? Is the interest rate for MTN attractive relative to bank loans? And whether this MTN for this product, whether they have sustainability feature. W ould like to understand your view on MTN as a source of financing. Thank you.
Okay. Jonathan, maybe on the first question on the new hedges. I have shared that for the new FY, this financial year, we have actually increased our hedge percentage from 63% to 72%, taking advantage of the low interest rate environment that it was post the December FOMC meeting. For these hedges that we have entered into, we look at it, the all-in blended cost was less than 4%. We reckon that this would help us to bring down our average cost of debt. On your second question with regard to MTN, definitely MTN is a source of funding that we evaluate. We look at what makes sense, whether it is a bank loan or a bond. For the past two years, we have noted that the bond markets, the rates are higher as compared to the bank loans.
The MTN notes are higher than the bank loans. This is a market that we will continue to look at to tap in for sources of funding. We do have a program that was updated two years ago that enable us to quickly able to tap. With regards to sustainability link, yes, there is a feature in the sustainability. We can make the bond screen by, for example, being at least GRESB four star or some benchmarks. There are features for bonds to be sustainability-linked.
Okay. The below 4% only refers to the new hedges, it is not referring to the overall?
Yes, that is right.
Okay. Thank you.
All right. We have the final showing of hands from Derek. Please go ahead, Derek.
Hello. Hi. Good morning. Can you hear me?
Yes, loud and clear.
Hi. Good morning, Richard and team. I just have one quick question. I was just wondering whether, you mentioned that you have a very strong rental reversionary performance this quarter, but you now have a very sizable portfolio, right? If you rank your malls from best performing to good performing, can you just share with us in terms of reversionary performance and potential, which are your top three that keeps you most excited about in the next one to two years?
Okay. I would say that not just for this period of time. We have seen this effect before and also during the pandemic. Typically, the more dominant, the stronger mall would be performing better. The likes of your Causeway Point, the likes of your Northpoint City, Waterway Point, or NEX. Just now, I think we alluded to the fact that today, if you look across Singapore, if you look at the top 10 largest prime suburban mall in Singapore, we have either fully own or own partially four out of 10, and these are the four out of 10. This is where usually the dominant malls are able to attract demand, supply, and also shopper base. As a result, the tendency is that you do get better performance around this group of assets.
T hen again, sometimes because there are certain smaller spaces that comes up for renewal in the other assets, and those could also be key drivers to your overall reversion. W hen you look at in totality, the bigger malls have the tendency to actually deliver stronger numbers.
Yeah. Richard, if I may supplement that. I think if we look across our portfolio, I mentioned earlier in my presentation that there are certain malls whereby we are looking at repositioning. I must say for some of these malls, the likes of Century Square, Tiong Bahru Plaza, we do see strong reversions coming in, and that is very encouraging because it is also an affirmation that we are actually moving the asset in the right direction. Not just the dominant malls. Some of these malls where we are actively working on repositioning, improving the performance, we do see the good results as well.
Okay. It looks like you've got a great portfolio. All right, that's all from me. Thank you.
All right. Thank you for the comment, Derek. As there are no further questions, we thank you for your participation, and this brings us to the end of today's analyst briefing for the first quarter business update. Thank you very much. You may log off now.
Thank you. Bye.