Good morning, and welcome to Frasers Centrepoint Trust third quarter financial year 2023 business update briefing. The business update presentation was uploaded on the SGXNet last evening, and it is also available on our website. Let me introduce the management team today. We have Richard Ng, the CEO, Audrey Tan, the CFO, and Pauline Lim, the Head of Investment and Asset Management. My name is Fung Leng, I am the Head of Investor Relations. Let me hand this over to Richard to kick off the presentation. Richard, please.
Thanks, Fung Leng, and good morning to all of you. Nice to have all of you joining us again this morning. As Fung Leng has mentioned, this quarter is our business update, so a lot more focus will then be looking at the various operating metrics. Let me just kick off this morning's presentation, and again, happy to share the result from our third quarter. In terms of occupancy, we are 1.6% up year-on-year at 98.7%. If you look at this set of numbers together with the next set of numbers in terms of shopper traffic, 16% up year-on-year, tenant sales 5% up year-on-year. If you look at year-to-date comparison with pre-COVID, we are about 16% higher. The trend continues. We had questions during the first quarter whether, are we going to see this trend continue?
Even at the second quarter, we also had the same question. This is again, a testament to the strength of the portfolio that we have. Occupancy continued to remain very high. Our shopper traffic is recovering, so we are about probably 10% thereabout compared to pre-COVID, and it continues to strengthen. Sales definitely is a key highlight. The concern we had previously from various quarters were whether the increase in sales is going to continue. As you can see, again, these numbers are there for all to see, continue to increase year-on-year and also, especially if you compare to pre-COVID at a double digit of 16%, that is a very strong growth number. Financing, slightly higher. Borrowing cost at 3.7%. I think it is no surprise as we continue to see volatility in the interest rate market.
What is good is also we are able now to extend our debt maturity to more than 2.5 years, compared to about 1.9 years previously. On our ESG front, I think this is where we strive to continue to make progress and we recently announced our first collaboration with OCBC on the green loan offering. Probably Audrey will be able to share a bit more later on. This is actually one area in which we continue to strive, ESG front, looking at the various initiatives, including increasing our green loan proportion as well. On the next slide, you can see again, these are the market environment. Again, if you look at suburban retail malls especially, continues to be seeing very strong numbers coming out from the market as a whole. Suburban prime rents, we are looking at 3.1% year-on-year growth.
This of course, is looking at the broader market, where it came off from some of those that were not doing as well too, right? Even the Orchard Road prime area is also seeing a pickup in terms of rental reversion. This is on the back of the fact that we have shared this in our various quarter results as well, that the supply continued to remain very limited, and this is a positive information for the landlord in the market. With this, I am going to pass on to Audrey for the next section. Audrey, please.
Thanks, Richard. On the capital management front, I am pleased to share that the refinancing for FY 2023 is completed. With this, we have extended our average debt maturity to 2.5 years. Our green loans now accounts to close to 50% of our total borrowings. In terms of the metrics, our aggregate leverage is up from 39.6%- 40.2%, but it is mainly due to the loan that was drawn down during the period for working capital purposes. Our ICR is at 3.89x . This is slightly lower compared to last quarter due to the higher interest expense. Average cost of debt is about 3.7%, and 63% of our loan are hedged to fixed rate. So we have facilities about SGD 557 million that is available, and we are rated credit BBB stable by S&P and Baa2 stable by Moody's.
For the refinancing that is due in FY 2024, we have recently announced in terms of collaborations with OCBC to secure funding to refinance the SGD 353.5 million loaned, and the loan documentations is currently in progress. We already have funding in place for the SGD 34 million loan. So, we have ready plans in place for FY 2024. Next slide, Fung Leng. We are also pleased to share that FCT is first in Singapore to collaborate with OCBC on this green loan to offering carbon credits. This solution actually helps companies want to accelerate towards carbon neutral as part of its plans to decarbonize. This is in line with our target to be net zero carbon by year 2050, across our scopes one, two, and three. With this, I will hand over to Pauline for portfolio updates.
Thank you, Audrey. Good morning, everyone. I am delighted to take you all through our operating performance for the quarter. I will start off with committed occupancy. So like Richard mentioned earlier, it stands at 98.7% as at the end of June. This is actually a year-on-year improvement of 1.6%, riding on the tailwinds of the recovery in the retail market. Also kudos to our team on the ground for all the hard work that has been put in. So at this healthy level of occupancy, do we stop there? The answer is no, right? It is actually a good foundation for us to drive the performance of the portfolio further. So maybe I will just illustrate a little bit of what we have done in some of our malls. So say, for example, Changi City Point.
It's a mall whereby we are focused on repositioning. If you see the vacancy at 93%, which appears to be a drop from the last quarter, is largely due to transitionary vacancy. We are actually repositioning the mall. We are strengthening the mall as the outlet mall in the east. Even for Century Square as well, improving the operating fundamentals, bring in exciting brands. For example, we are bringing in NTUC FairPrice Finest at the basement. We have a cafe will be coming on board as well, and also the likes of Starbucks. These are some of the improvements that we are doing, notwithstanding the fact that we need to still maintain the occupancy at a healthy level. We don't have NEX information on this slide. NEX, since our acquisition, we are very happy with the performance of the mall.
As at end June, the committed occupancy stands at 100%. Next slide, please, Fung. This is a very familiar slide to everyone. We've shown it over the past few quarters. In terms of the trending, we do see footfall. It has actually improved with the reopening, and it's actually about 10% compared to pre-COVID level. I think there's still some structural shift in our lifestyle coming out from the pandemic. On the other hand, if I may draw your attention to the chart on the right-hand side. We see a story whereby sales have actually substantially surpassed 2019, which is the pre-COVID level. That outperformance has continued to sustain over the past few quarters or so. As we come out from the pandemic situation. What's the key takeaway?
We do see trading performance of suburban retail malls are being resilient, notwithstanding some of the disruption, and it's also continuing to show growth, sustainable growth. Next slide, please. This slide, we see the three years lease structure, the average lease structure or lease tenure for the retail leases actually lending stability to the income stream for this asset class. In terms of the WALE, we are looking at about close to two years in terms of WALE by NLA and gross rental income. The other takeaway from here is that the leasing trajectory continues to be very healthy for Singapore suburban retail. We started FY 2023 with a leasing stock of close to 30%. As at the last quarter, we are down to 4.2%. That is actually testament to very healthy take-up in terms of renewals as well as new leases. Next slide, please, Fung.
Maybe just to share a little bit about a recent flash survey that was done by CBRE for APAC retailers. I think some of the key takeaways from the survey is that retailer sentiments have actually turned positive on the back of the waning pandemic impact and also the strengthening of the business momentum in retail across the Asia Pacific scene. Retailers have expressed that they are still keen to grow, notwithstanding the headwinds of inflation, manpower shortage, but the focus is on prime location. We also do see overseas retailers actually are on overseas expansion mode. Coming into market, new-to-market retailers in Singapore. Leveraging on this trend, we have continued to focus on refreshing our offering and improving our offering to our shoppers.
What you see in this slide is a collation of some of the new to portfolio as well as new-to-market brands that we have brought into our assets over the course of FY 2023. For example, Coach has actually come in to Changi City Point to enjoy the I think it started during the Mother's Day in May, right? Some of the exciting new F&B brands. It is not just limited to F&B. We do see the interest in retailers to grow across the various trade mix. Next slide, please. This slide, just a little bit about corporate ethos. Our corporate ethos is inspiring experiences, creating places for good. We intend our malls to be the third place for the community, to be a landmark in their respective catchment, and to be part of the everyday lifestyle of our community.
This is the S part of the ESG, the social part. There is a lot of emphasis on events and programming to activate and drive footfall to the mall, especially with the reopening. What you see here is a signature event at Waterway Point, the picture on the left-hand side. Some of the exciting promotions that we brought to our malls, as well as a little bit of the CSR element in terms of sustainability as well as inclusion. The Paint It Forward, which we have actually rolled out at our various malls. All that helps to draw footfall back to the mall and also to activate the sales of our retailers. Next slide, please. A little bit more about the asset enhancement for Tampines 1.
I think we did share that we have commenced the AEI in April this year, and I am happy to share that in terms of the progress of the works, we are tracking to our targets in terms of budget, in terms of timeline. I think the progress on the leasing front has been exciting. The first phase will be coming up only towards the end of the year, but to date, we have actually achieved pre-commitment exceeding 90%. What is to note is also that in terms of our repositioning targets, that is progressing well. More than half of the retailers that we have brought into the spaces that is affected by AEI are actually new to mall. This is in line with our goal of refreshing and updating the young and trendy positioning of Tampines 1. Next slide, please, Fung Leng.
With that, I will hand over to Richard to take us through the summary for this presentation. Thank you.
Yeah. Thanks, Pauline Lim. Just to wrap up our presentation for this morning. This is something that we have shared before in terms of looking forward where we see growth coming for the portfolio itself. Firstly, of course, in terms of organic growth, this is where the operations metrics are very important to us. We look at how can we continue to improve rent, continue to improve sales for the retailers, in which then we get a portion of that through the GTO. Also other revenue. We spoke about this before in terms of the atrium coming back fully reopened. So that is one of the benefit that we are seeing coming through this year. Something work in progress, we continue to drive all this element in terms of improving the top line. Managing cost is, of course, another aspect. We all know that there is an inflationary pressure.
But I think, again, this is where we have done a lot of work around looking at the use of technology in terms of managing our manpower dependency. For example, we spoke about security services, we spoke about cleaning services, and the team is on the ground continuously working towards getting more efficiency out of this. Other areas we are exploring, of course, one key component is looking at how can we be more efficient in terms of usage of energy. This is where a lot of effort is being spent in terms of reducing consumption, looking at various ways. For example, we will be rolLeng out instalLeng solar panels across some of our malls progressively. Again, this is a way in which we can continue our journey towards achieving net zero carbon.
Also at the same time, we are looking at also ability to reduce consumption and be more efficient as well. Secondly, growth coming from asset enhancement. We also shared that progressively we do asset enhancement all the time. But of course, some of those are smaller scale in nature. It is a bit about subdivision of units, recutting the bigger units into smaller units, resizing units, for example, or looking at opportunities to make some retailers be more efficient, et cetera. But we also have started commencement at Tampines 1 asset enhancement. This is a bigger one, where we see a lot more upside coming from this asset enhancement. This is one of our growth engine, and we continue to explore other possibilities as we speak. We see that there are opportunities for us to also undertake asset enhancement in some of our other malls.
The third one being inorganic growth. That is from additional stake or additional assets that we acquire into the portfolio. Not only are we looking at expanding our size, but also looking at improving the quality of our portfolio. So with our recent acquisition in terms of our 25.5% acquisition for Nex and as well as the additional 10%, these are excellent malls. For those of you who are familiar with the malls, you know the strength of these malls. Not only for now, but this is where you see opportunity for growth going forward because these are definitely talking about very dominant mall in their respective areas. Nex, if you look at in terms of suburban mall, it is probably the second largest in Singapore. In terms of Waterway Point, that is the dominant mall in the northeast of Singapore.
You would have read that there is going to be a lot of development, infrastructure development, business park development. Singapore Institute of Technology is going to commence their operation probably next year. So there is going to be a lot more happening in Punggol. You are going to see increase in population because a lot of construction of Housing & Development Board is also going on there. You are going to see a student population coming to that area. Of course, the business crowd is going to be starting there once all the business park or progressively as the business park are completed. With that, I will end my presentation and let us move on to Q&A. Back to you, Fung-Leng.
Right. Thank you, Richard, and thank you to Audrey and Pauline. We are now moving to our Q&A session. If you have questions, please raise your hand in the Zoom function, or you can send me a text via WhatsApp or email. We have a queue of people who want to ask questions, starting with Terence Khi. Terence, please unmute yourself and proceed with your question. Thank you.
Okay. Thanks so much. Thanks, Fung-Leng. Thanks, Richard and team. Just three questions from my side. Firstly, on gearing. Gearing has reached the 40% level. I wanted to check whether this is comfortable for you and whether you may look to divest assets or maybe raise equity to sort of pare that down. Secondly, on electricity costs. I understand that most of the old hedging contracts have rolled off. I still wanted to get a sense of what is the impact of higher electricity costs coming into the portfolio. It would be good if you could share a number. Finally, on the vacancies. Could you share on the vacancy impact on Tampines 1 AEI and what is the sort of stabilized vacancy after Changi City Point, some of the repositioning. Thank you.
Yeah. Okay. Maybe I can take the first question in terms of gearing. Morning, Terence. Yeah, just marginally crossing the 40%. That is because we just draw down for some working capital. If you ask me, if you look at from Singapore perspective, the REIT sector perspective, it could go up to 50%, if you satisfy a certain ICR based on Monetary Authority of Singapore guideline, or minimally it can go to 45%.
So today we are at 40%. Is it the best gearing level? I do not think so. But is it the worst? Similarly, I do not think so. I think we are in a position whereby there is not really for us to say we must take any action at this point in time. But having said that, we are always exploring possibilities in the market. We look at what makes sense at any point in time. There are many variables, right?
We look at market condition, we look at market volatility, we look at where certain headwinds are coming, where we see interest rate, where we see opportunities, and all this has to come into play when we make any decision. Our options are always open. Do we reconstitute our portfolios? We have done so, and that's something that we can continue to do if we think that that's the opportunity that we have in that area. In terms of raising equity, when we look at it, we have to evaluate the market, as I said, whether is it a time need to do so and when do we do it? Do we do it because there is an opportunity available? If there's a good opportunity available, we will definitely take that into consideration.
I gave you a long answer, but Terence, the reality is at 40% point, just slightly over 40%, I don't think there is a real need for us to do any action at this point in time. We continue to monitor the market and do what's right for our various stakeholder, for investors, for example. This is something that we always have to bear in mind whenever we take any course of action. In terms of electricity, and also vacancy, maybe I will pass it on to Pauline Lim to respond to that. Pauline Lim.
Hi, Terence. Hi. I'll try and provide as much numbers as I can based on memory. You are right. I think in terms of some of the hedging contracts, we have been progressively hedging the utilities for our portfolio over the course of FY 2023. Also just to kind of like set the context, the way we actually manage utilities cost is, I think two key things. We tranche out as well as we time out. We have a contract for electricity, but then the timing in terms of the hedging, it actually varies. We've batched it out. The good thing about that is that then it protects us against sudden surges in electricity prices. I think if you look at the market there are some rates that are floating out there. Those are fixed rates.
There are various formula for electricity pricing. All in all, that accords us some flexibility as well as stability in the cost. If we're looking at, say, for example, first half of FY 2023 vis-à-vis second half of FY 2023, if we're looking at the blended rates, I think it has gone up somewhere in the 10s level. Not in a significant way. If you take reference to some of the rates are out there. FY 2022 was when the Ukraine war started, and that's where we started seeing the surge in terms of utilities cost. As a proportion, land auto consumption for utilities as a proportion of our OPEX, that has gone up by perhaps about 2%-3% on a year-on-year basis. Yeah. That's utility. Have I answered your question, Terence?
Yes. That's very helpful. Thanks. Thanks, Pauline.
Okay. All right. Your third question was on Changi City Point. What I forgot to mention is that although you do see the dip in terms of the committed occupancy, it's on actually a cluster whereby we are repositioning. The key terms have actually been negotiated and agreed. What is holding back the commitment level is actually the documentation process. If I take into account some of those leases, which as we stand now, has been signed, we are looking at the occupancy of Changi City Point actually recovering very close to where it was as at the last quarter. So in the high 90% mark.
Thanks. Also on the Tampines 1 AEI, what's the occupancy there? Thanks.
For-
What's the impact, yeah.
For Tampines 1 AEI, we are actually progressively recovering the spaces. If you are looking at the passing occupancy, but it is not a good reflection of how the mall is trading because the spaces are recovered to facilitate the physical works.
Maybe I could add. Terence, if your concern is whether the vacancy is going to affect the performance. We shared before, when we undertake AEI, we will look at utilizing the AM fees, asset management fees, to cover the impact that is caused by our AEI. I would say that in terms of performance-wise, it will be neutralized. But of course, during the course of the work, you will see volatility in terms of occupancy because we need to recover space. We need to work on the space before they are ready to be given back to the new retailers coming in to fit out, et cetera. There is a bit of volatility right now in terms of occupancy.
Okay, thanks. Thanks for sharing, Pauline. It is very helpful.
Thank you.
Right. Thank you, Terence. We move next to Geraldine Wong from DBS. Gerry, please ask the question.
Thanks. Good morning, everyone. I have just two questions. The first question would be regarding the green loan with OCBC. Are you able to share some of the matrices, the rate secure margins, and as well as just some understanding of how the loan works? Say, if you hit certain green milestones, will there be cost savings? That is the first question. My second question would be with regards to Tampines 1 AEI. Can you remind us if there will be any changes to the mall's NLA? Upon completion, will you be asking for higher rent for that particular AEI area as compared to your original passing? These two. Thank you.
Hi. Thanks, Geraldine. I will attend the second question before I pass to Audrey for the first, and Pauline, you jump in for Tampines 1 AEI as well. Geraldine, when we look at asset enhancement initiative, I think there are usually a couple of objectives. One is perhaps we need to refresh the mall. Some of these assets that we have could be looking slightly tired because not much work has been done over a period of time. So first objective is to refresh the mall. Secondly is to look at value enhancement. When we do it, we hope that, or rather when we do it, we expect increase in rental to support the cost that we are putting in. This will give us two things.
One is increase in revenue, and secondly, also we will be looking at increase in the valuation because that is a value enhancement to the asset. So if you ask me, we definitely going to expect a better rental reversion coming from some of this because not forgetting one of the key aspect of this AEI is transferring lower yielding space into prime space. For those of you who are familiar with Tampines 1, before we hoarded up the space, if you go to Tampines 1, once you step out from the MRT station, what you will be greeted by is actually a sunken plaza. Maybe perhaps in those days when sunken plaza was the in thing, some developer developed it with a sunken plaza. You come in, and then you go down to the basement level. To us, that is prime space.
That is a space that is facing the MRT station. That is a space on the ground floor. What we are doing is currently we are going to slab over the entire sunken plaza, build space on where it used to be, and this will be prime Level 1 space that is facing MRT station. For those of you, even if you are not familiar with Tampines 1, you just visualize stepping out of the MRT station and you see that spaces. You could imagine the quality of space that we are going to create. Once we step over the Level 1 prime space, we can also then expand on the basement level. Basement 1 level for Tampines 1 is again, one of the highest yielding space in the mall.
We are going to be able to bring in more offerings, more options, and at the same time enjoying an upside in terms of revenue from the basement 1 performance. When we built the Level 1, we could then also expand Level 2. Again, if you go from the retail center or shopping center perspective, basement 1, Level 1, Level 2 are your key prime areas. We also going to expand Level 2. From that perspective, you can appreciate this AEI itself is going to give you moving spaces from higher level. Those may not have good visibility, back-end spaces. We are giving that to a CSFS or a childcare in terms of the community service side of things. Vacant that space, put it onto Level 1, basement 1, and Level 2, right?
From there, you can appreciate that firstly, our ability then to increase the revenue for Tampines 1 and improve the valuation for Tampines 1 as well. Okay. If nothing to add from Pauline, maybe Audrey, you can take the question on OCBC loan.
Yeah. Tampines 1 is currently Green Mark GoldPLUS assets, and with these collaborations with OCBC, they will help us with regards to the carbon credits. Tampines 1 itself as a mall is working on various initiatives like the DDC, the cooLeng district, and also the likes of solar panels to reduce its carbon emissions. The residue carbon emissions that cannot be neutralized or reduced, we look into the possibility of using carbon credits to reduce the carbon emissions for Scope 1, Scope 2, and energy-related for Scope 3. This is the collaborations that we have with OCBC to reduce our carbon emission for T1. As regards to margins-wise, it is very competitive, it is competitive, and on an onset we just get competitive margins from OCBC.
Okay.
Yeah.
Audrey, if you can share the rate for this loan that you have secured as well. It looks like it is around 4.25%-4.5%.
Currently the loans has not been drawn down yet, so we are unable to advise in terms of the total pricing.
Okay. I will ask again next quarter. Thank you.
Sure.
Okay, moving on to the third in the queue. Joy from HSBC. Joy, please go ahead.
Morning, all. Thank you for the presentation. Two questions from me. First of all, could you share a little bit on the color in terms of the sales growth? What are the trade sectors that are doing well? What sort of patterns do you observe from there? Second question, in terms of demand for space, I think you mentioned about new-to-market tenant. If you look at where you're seeing a lot more interest coming through from your discussion with your tenants. Thank you.
Okay. I'm going to just jump in first and then Pauline, you could add in some other colors. In terms of sales growth, we continue to see improvements coming from the F&B sector. I think that's one sector that has continued to perform very strongly. Again, that's a function of probably our lifestyle in which we do eat out a lot, and also we continue to improve our offerings across the mall. So there's an attempt by the various centers to make sure that we bring in the offerings that the residents around the area are looking for. We bring in freshness, we bring in new brands. We bring brands that maybe started off initially at the city center, and then we bring it to our suburban malls as well. So that is one sector that continues to perform very well.
That again, similarly, if you ask me in terms of demand, we don't see any short demand from F&B. Whenever we have a space coming up for F&B in any of our malls, we do have options to look at, whether it be kiosks, whether it be fast food, sit-down restaurant, casual dining, or even food court, right? So the demand for F&B is very strong, and the performance for F&B is also very strong. The other component that we are also seeing growth is from the fashion and accessories. I guess this is also a function where people are going back to work now that you need to probably rejuvenate, refresh your wardrobe as well. So again, that has proven to be very strong from the demand perspective.
Similarly, I think what we have done and what our malls have done very well is we have again, refreshed our offerings, right? If you look at, for example, a good example will be Waterway Point. We used to have a fast fashion retailer, I'm not going to mention the name, but probably you guys may know. Was there from day one, occupying two levels, big spaces. They were not doing well, right? But they took on a prime space. So what we did is when the lease expired, we took back the unit. We subdivided the unit. We brought in offerings like Love, Bonito and a few others, specialty retailers, and they are doing very well now. And I think, again, this is about ability to bring in freshness, bring in what is relevant to the mall, and what works for the mall, right?
We did that. We did it very well. Again, even on our other malls, we continue to get opportunity to refresh, opportunities to bring in relevant brands. It is a case of both a demand from the shoppers, our effort in terms of changing out, and of course, in terms of retailers themselves, they are also helping themselves. A lot of them are also looking at increasing their channels of marketing. They are no longer just dependent on, say, for example, brick and mortar. A lot of them are now on omni-channel. That helps them in order to reach a wider audience in order to also increase sales, right? These are all the various efforts collectively from different sources, right? Pauline?
Richard, maybe I will just add on. I just wanted to make the point that we do see very positive retailer sentiments across the board, so it is not just limited to specific trades, right? If you take reference to where our occupancy is at, you get a sensing that I think the Singapore retail scene is generally still very healthy. Now, some of the trades, aside from what Richard mentioned earlier, we do see good improvements for electronics, right? Also beauty as well. I think increasingly people are going back to work, so some of the beauty services, some of the beauty retail, the sales have actually picked up in terms of momentum. Also not to forget some of the trades which were actually performing off a higher base during the pandemic period, right?
The more essential trades like, say, for example, supermarket and healthcare, although the growth trajectory, there is still growth, the growth is not as steep as some of the earlier trades that we spoke about. But it is actually performing still at a very healthy level and still above pre-COVID. I hope I have provided more color to your question, Joy.
Sure, thanks. If I can just do a quick follow-up. Basically, we are seeing very broad-based recovery in retail sales. Maybe if just specifically to fashion and all that, do you see any trend of down trading at all?
Not at the moment. In fact, one classic example, as Pauline shared, is the Tampines 1 leasing out. I mean, we are more than 90% committed on the spaces that we are creating or spaces that we are rejuvenating. Again, we see very strong demand. Some of those brands are expanding across the board, right? If you look at some of these brands, you can see them now coming into Waterway Point. They are going to come into Tampines 1. They are looking at spaces in our other malls as well. I mean, just to share, recently we had what we call a tenant engagement day, in which we invited more than 100 of the retailers, different brands across Singapore, and we had a very good turnout. More than 100 retailers actually came for that function.
We are talking about the CEOs of the brand, the MDs of the brand, and really the decision-makers of brand name. The conversations we had is we see what was mentioned earlier on, the positivity. Especially, I think there is a lot of positive vibe coming from especially the prime suburban retail malls. Again, in the conversations, we understand these guys are looking at expansion, of course, in terms of space, whether do we have space today. If you look at our occupancy, that is 99% or even above 99%. That is sometimes a challenge, right? We don't really have space when some of these retailers are looking at, but they are hoping that when we do have space, we could give it to them. Just also to continue on that point, even on beauty, right?
Again, that is where we see a lot of demand coming back to the market. The beauty about the beauty trade is because there are many different things that it is happening today, right? Perhaps the usual beauty service regime will continue to grow, but we also see various new type of beauty treatment that is coming up, and these are, again, getting very strong demand. They are looking for space, which we can't offer them at this point in time. I hope that will give you a perception about how the retail market is generally, Joy.
Thank you. Very helpful.
Right. Thank you. Moving on to our next in line, David from Daiwa Capital Markets. David, please proceed.
Hi. Good morning. With regard to the Tampines 1 AEI, you mentioned it's already 90% pre-committed. Given the very upbeat picture you presented of how the space will look after the AEI, do you think you may have pre-committed a little too early?
David, this is something always a balancing act, right? What we try to do typically is to secure a certain level of pre-commitment before we embark on an AEI, right? Because that provide you with the solid foundation, the base, and in which then you can then try to stretch and get whatever that you want subsequently. So it's a case of a bit of both. I wouldn't say it was too early or too late, because we really gotten the brands that we want to come in. So that is the priority, right? Getting the right mix at the rental that we target to achieve, right? So I wouldn't say that it's too early. We still have another 10% to go. We still can continue to make sure that we get those brands that we want to come in.
Okay, thanks. The follow-up question is, one, when you say something is under documentation, is it just a matter of getting the signatures, or are there other issues? I mean, is there like a due diligence? I mean, I'm just curious why-
Okay
Documentation seems to be taking so long.
Okay. I suppose that is a process that we have improved significantly, but nonetheless, there is still a process that we need to go through. For example, when a retailer comes in, we need certain documentation. We need to get the ACRA information to make it complete so that when we sign the documents, everything that is required from them is already in there. Sometimes it takes a little bit longer because the signatory of those documents may not be in Singapore. Certain brands, the signatories could be overseas, could be in Europe, could be in other parts of Asia, and that is where it takes some time. That is one. Secondly, sometimes there could be certain clauses within the documentation that may need a bit of time for us to agree on both sides.
When we say documentation, meaning that it is really all the head of terms would have been settled, meaning that the rent is settled, the tenure is settled. It is a case of some fine lines, especially international brands, right? They are very particular on how the clauses are being structured, right? Because they want to have certain control across the board, and that is the one that usually hold up in terms of documentation. But when we say documentation, meaning that the head of terms are all clear.
Great. Thank you.
Right. Thank you. Moving on quickly, to Derek Tan from DBS. Derek, please go ahead.
Hi. Good morning. Can you hear me?
Yeah, we can hear you loud and clear, Derek.
Hi, Richard. I just want to ask a simple question. I am just trying to triangulate around your tenant sales, your reversions, and your OPEX. I am just wondering whether, is tenants operating in a high inflation environment, they need to see sales really convincingly cross 20% over, for example, above pre-COVID, before we start to see your reversions inching a little bit higher. I am just wondering, how we can get comfort around how you can really push your revenues going forward. Thank you.
Derek, your question has never been simple.
Oh.
Yeah. Anyway, I think we need to again look at the overall perspective. Firstly, we understand that core inflation in Singapore is about 4.5%-5%. The sales that we are achieving is year to date, pre-COVID, is 16%. So the delta between what we are getting and the core inflation. Okay, maybe core inflation is average. Some may be slightly higher, some may be slightly lower, depending on the cost of their produce, the cost of goods, et cetera. But there is still a pretty decent margin beyond the basic cost. In other words, we believe our retailers are doing well at our malls, and this is where we have already turned positive in terms of our rental reversion. We did a - 0.6% in 2021, I believe. And then we are now hitting close to 2% when we announce our results first half.
Again, this is an average number. If you look at the average in, average out, it is a lot more significant because that takes into account the step-up rent, because that is something that we always need to bear in mind because it goes forward. Going forward, I think we will be using more the average number because that is again to compare with the market benchmark, because some people they are confused because they look at another REIT announcing 3%-4% reversion, and why are we only getting less than 2%? But because the measurement, the methodology is different. So maybe one way is to align that so that we can have a simple basis of comparison. Coming back to reversion, we definitely want to make sure that we get the best that we could.
But at the same time, we also mentioned that we are continuously looking at opportunity to refresh, opportunity to also bring in some tenants that we want. We acknowledge that we do have some malls that were facing a little bit of challenges, Century Square being one, Changi City Point also being one. So we are doing a bit of work in some of those malls, and that could have been a result of why, on the average rental reversion, we are not stronger than what we were. Because some of our dominant malls are definitely getting higher reversion than what you are seeing on the headline numbers. This is where, again, the triangulation that you are looking at is right, because sales have gone up, occupancy cost has come down significantly.
That is where we see opportunity for us to continue to push on in terms of rental reversion. At the same time, we want a balance. We want the best of both. We want a positive reversion. We also want good brands that is sustainable over a longer period, right? So it is not a case of getting the best rent, and these guys are out in six months' time. Again, this is where we will calibrate to give us a good growth and at the same time, a good check mix to go forward with. I hope I have given you that answer that you are looking for, Derek.
Okay. I think we are looking for a win-win relationship, essentially. Yeah. Okay. Thanks. Thank you very much.
Thank you, Derek. Moving on next, to Tan Xuan from Goldman Sachs. Tan Xuan, please go ahead.
Hi. Morning. Two questions from me. First is, can you share your latest thoughts on acquisition and fundraising environment?
Okay. Acquisition, as what we mentioned, is always opportunistic, right? We want to buy the case whether the seller is ready, right? The seller could be a sponsor, the seller could be third party. There is always a case of, do we see opportunities in the market? We want to be able to assess the opportunity whenever it comes to us, right? This is, again, something that is opportunistic. When it comes, we have to look at it and see whether it is something that we could acquire at that point in time with the market condition that we have, with the accessibility to funds that we can have. Tan Xuan, to answer you that question, it depends at any point in time and if the market is right for us to make that acquisition and if the opportunity is available to us.
I think last quarter you talked about sponsor stake in NEX. Is that still on the table?
Oh, the stake, we all know, right? The sponsor bought 24.5%. It is there, right? But again, it is when the sponsor is ready to divest this asset. That is something perhaps, you guys could check in with FPL in the next update. Sponsor also have South Wing, it has been there for quite a while. Again, like what I say, acquisition is opportunistic. Much as we think that we like to have access to those assets, but the seller also has to decide when they want to sell.
Got it. Second question is FY 2024, the secured bank borrowing. Can you share roughly what rates are they on?
Audrey, do you want to take that?
Yeah. Tan Xuan, for FY 2024, is it?
Yeah.
Okay. Those, we have already secured the facilities with OCBC. It currently is in loan documentations. I am not able to advise the rates now because we have not drawn down the loan. Something that maybe in the next quarter announcements we can actually share more.
I am sorry. Is the rates already factored in the 3.7% all-in?
No. Currently, the green loan facilities is actually used to refinance the loan in FY 2024, the SGD 353 million that you are seeing.
Okay.
Yes. Currently it is in loan documentations, and we have not drawn down to repay the debt.
Okay, got it. Can you share, is there a very big difference between the refinancing rates or roughly what is the level?
If you were to refinance at current environment, if it is based on the current floating rate, you will be at the high 4s. But if you base on the five-year IRS, it will be at the low 4%.
And that versus the loan that is expiring?
No, in the current environment, if you were to-
Okay
Yeah. It is not versus the old loan.
Okay.
Just to give you an indication in how the cost of borrowings is like in today's environment.
Are you able to share the expiring loan? What's the interest level?
I am not able to advise you now, Tan Xuan, maybe something that I can get back.
Okay, thank you. That's all from me.
Thanks.
Great. Thank you. I recognize we are running short on time because some of you all need to leave at 10:30. We need to proceed a bit faster. Yueheng, please go ahead with your question.
Yeah. Thanks. I'll just keep it to one. Tenant sales has been trending up sustainably 20% higher than pre-COVID, but it has been hovering there for this level. Do you think this is as best as it can get for the next, say, one to two years? Secondly, can you give some color on NEX, tenant sales from NEX? Is it similar to the 5% that we are seeing?
Okay. I think if I look at NEX, the metrics are pretty similar to what we are seeing at our portfolio. Some of them are in fact even better, like what Pauline mentioned, the occupancy is-
Actually, we should be comparing against the bigger malls, right?
Yeah, correct. For example, the occupancy is at 100%. If you compare with our dominant malls, I see a similar trend, similar pattern. Coming back to your sales numbers, I think, a growth of double digits, 14%, 15%, that has been sustained for a pretty long period of time. That proves the fact that the retailers are doing well in our malls, and this is something that we want to continue to ensure that they can do well in our malls by, again, doing things, upgrading our malls, getting a lot of events coming back to the mall so that we bring in the crowd, bring in the community. We look at trade remixing. We look at opportunities to trade out or to exchange out those tenants that are not doing as well. Then we bring in better performing tenants.
To make sure that overall we don't have a situation whereby we have certain group of tenants that are doing very badly and certain tenants that are doing exceptionally well. We want to make sure that this is something that we continue to focus on, that our retailers, our tenants, can continue to do good sales and at an occupancy cost that is sustainable. I think that is paramount. You don't want a situation whereby you have to change the tenants every six months, nine months, and so on. That for us is paramount.
Okay.
If I may add to that. So you can, basically what we are saying is that we are not just riding on the tailwinds of the market recovery, improving retailer sentiments. There's a lot of proactive asset management as well as property management that's going on. Maybe in the form of large scale AEI, like Tampines 1. This is where you get that injection to actually move your sales, your mall performance to a higher level, a step up in the performance. Across our malls, I think we do recognize there are some that are actually performing more optimally than others. It's how do we then optimize the performance of some of the other malls. There are still areas of improvement that goes beyond just that organic increase.
Can you share the OPEX cost for this quarter?
Occupancy cost? It is still at a very healthy, I think quite close to the mid-teens kind of level.
It is below 16%. I think we can share that. We have shared that before.
Yeah.
Last year in our annual report, we announced that it was 16.2. What we can share with you at this point in time is it is below 16%.
Yeah. Okay. Thank you.
Average occupancy.
Thanks.
Right. Thank you. Moving on to Joel from DBS.
Hi, Joel.
Joel?
Maybe we can move on.
Yeah, we move on to Mervin before we come back to Joel again. Mervin, please go ahead.
Thanks, Fung-Leng and Richard. I got a question for NEX. You guys probably know that Terz and I do like the acquisition is a great one, but the market clearly is not excited about it. We had a few broker downgrades. Appreciate there are restrictions on what you can talk about NEX, but is there anything you can reveal in terms of AEIs to get people a bit more excited on this property itself? The second question I have.
Yeah, sorry, maybe the first one on NEX. I think that is the challenge that we are trying to overcome, talking to our partners to convince them to allow us to share a little bit more, and we believe that we could be able to do so at some point in time. In terms of AEI, same thing. We are currently working very closely with PGIM Real Estate, who is the asset manager, and also with our partners on developing the AEI plans. There is opportunity for AEI. What we want to do is to be able to identify this, work on this, get the consultants on board, get the numbers to a level whereby we are comfortable to share with the market. What I can say at this point in time is we do see opportunities. We do see a lot of opportunities coming from NEX.
It is to be able to package it together that we can articulate to the market. I think you are right. We were a bit disappointed that the market has not responded as well on the post-acquisition. Of course, then again, it could be also a function of the current market volatility, right? People look at things beyond what they have acquired. We certainly have very high expectation of this mall. We think it is an excellent addition to the portfolio, something that doesn't come by in the market. Like what I mentioned earlier on, this is the second-largest suburban mall you have. Very well-connected, good location, strong dominant mall, and this is where we believe we can harness the opportunity within this particular mall.
The only thing that we are doing right now, perhaps, is to ask for a little bit more time so that we can come out with a plan collectively with the partner and the asset manager and something that we can then share with the market.
Yeah. Just on second question, in terms of rental reversions, first half was about 4.3% on average. Can we assume that second half will be stronger given that tenant sales are actually higher compared to COVID and
Yeah
occupancy cost below 16%?
Yeah.
Does Polly need to be a bit more aggressive or not as friendly with your
Yeah.
Pre-tenants? Yeah.
Don't worry. She's being stressed out enough. All I could say is that we are looking at around that kind of numbers, probably a little bit better. But again, it's a function of what was the type of leases renewed in the first half versus the second half, right? Sometimes you may have some anchor tenants coming up, depending on the timing, depending on the duration, and so on. But definitely, the kind of numbers is what we're going to be at least expecting to come in for the full year, right? That's something that we continue to work on. As mentioned, Mervin, we are also looking at improving some of the retail mix in some of the other malls. So that kind of average out the whole thing, right?
Sure. Just a final question from me to Audrey. In terms of the proportion of fixed rate debt has fallen to 63%. Just wondering your thoughts going forward. Should we expect it to maintain around 63% or even fall further towards 50%, which Dr Chew used to have because he thought that the banks were charging too much for hedging costs? Yeah.
Audrey, you're on mute.
Thanks, Mervin, for the questions. The lower hedge percentage of 63% was because of the maturing IRS and the loans, and the refinancing of the EMTN that was on fixed rates. As in whether we will further hedge, I think the market currently is still very volatile. As you can see in Q3, we do see the rates coming high. As we refinance our loan, the rates has actually moved up significantly. I think we will continue to monitor this market, and see opportunity moments to hedge. Our hedging policy, as what you have highlighted, is at 50%, but we will look at right opportunity moments to hedge more.
Look forward to more positive news be that rental reversion, so more details on the upside from NEX going forward.
Yeah.
Right. Thank you. Moving back to Joel. Are you able to connect? Joel?
Hi, Fung-Leng. Yes. Can you hear me?
Yes.
Yeah.
Right. Okay.
Yeah. Hi, Richard and team. Thanks for the presentation. I have two questions. The first is based on your tenant mix. Are you happy with the current makeup? If not, which sector would you like to increase exposure to and perhaps others to reduce? My second question is regarding the tenant sales slide 11. I understand probably there are some malls that are actually strong performers, performing above the average. Could you share maybe what are these malls and what is driving their advantage? Yep. These are my two questions.
Right. Joel, in terms of trade mix, what I would say is that managing portfolio retail assets is trade mix is something that you need to evaluate, you need to change. It's not a constant, right? Today, a certain trade mix may be relevant, right? But then again, over time, change in taste, maybe some of the younger population growing or some of the mid-age population are getting old. The trade mix will have to evolve as the residents, the catchment population evolves. That's something we are very cognizant. What we are saying is that we are not going to say today, the makeup of the trade mix that you're seeing is going to be something we're going to keep for the next 5 years, 10 years, right? We have to evolve. We have to change.
But one thing is clear is that because we are still predominantly servicing the suburban market, that is our bread and butter. So essential services will still be a basic foundation, a key for our portfolio. That is something that we will continue to develop and also maintain. The other components in terms of fashion, what is fashionable today may not be fashionable in three years' time. So we have to be relevant. We have to be cognizant of what's happening in the market, and we have to bring in what our shoppers want. That is the fundamental. If you bring in trade that is not suitable for the catchment, you will see it very soon because the retailers are not going to do well, right? That's something evolving, something we change, something that we would have to do.
Your second question is in terms of sales performance across the portfolio. What we are seeing is definitely the dominant malls are the leader in this space. Again, that's the whole fundamental of a certain dominance in the market. This is where you can then expect them to be the leader in terms of the overall performance. Some of the malls, like Century Square, we are remixing, Changi City Point we are remixing. These will be the ones that probably lagging a little bit behind. What we are doing, we're making effort to make sure that they catch up. You know which are the dominant malls, and so those are the ones that I'll say that continue to lead the pack, Joel.
Sorry, could you share which are the malls that are doing very well?
Dominant malls, I'm looking at the likes of our Causeway Point, Northpoint City, Waterway Point and so on. Those are the dominant ones. Tampines 1 was also one of those, but of course now it's a bit disrupted because of the AEI.
Nex as well, Richard.
Oh, yeah. Nex. Yeah.
All right. Thank you. Thanks.
Right. Thank you. Moving on to the last questions of the day. Derek from Morgan Stanley, please go ahead.
Hi. Thanks all. Just a quick question on the all-in borrowing costs. What is it for the quarter, and what is your outlook for that, taking into account the FY 2024 refinancing?
Derek, on the average cost of debt, we are looking at today's market, we estimate it's about, forecast about high 3%, but this market continues to be volatile. As to FY 2024, as what I have shared, we have not refinanced the debt for the Tampines 1, and then once we have refinanced it, we have more details we will share.
Okay, sure. What is the all-in for the quarter? Because you shared the year to date, but what will the quarter be?
We don't share for the quarter, but as a whole portfolio, we always share in terms of the all-in cost. To date is 3.7%.
Okay. All right. That's all the questions I have. Thank you.
All right. Thank you. We have come to the end of this briefing session, and we thank you for your participation this morning. You may log off now. Thank you.