CapitaLand Integrated Commercial Trust (CICT) reported a steady performance in the first half of FY 2024, navigating through an uncertain macro environment and the impacts of their Asset Enhancement Initiative (AEI) program.
CEO Tony Tan discussed the trust's positive rental reversion rate and high tenant retention, expressing cautious optimism for the continuation of these trends into 2024 and beyond.
Despite challenges in some overseas markets, CICT has maintained healthy financial ratios and leverage levels, with plans to reduce leverage over time. The trust also highlighted its prudent approach to exploring growth opportunities and managing its diverse portfolio to ensure long-term stability.
Key Takeaways
- CICT experienced stable Net Property Income (NPI) growth and maintained a low portfolio vacancy rate.
- Positive rental reversion was noted for both retail and office spaces with high tenant retention.
- Tenant sales per square foot saw slight growth; downtown sales are stabilizing post-AEI while suburban sales are expected to improve.
- Office occupancy rates in the Singapore portfolio are healthy and above market, with some anticipated volatility.
- The majority of debt refinancing is complete, with an average cost of debt expected to be in the mid-3% range for FY 2024.
- The investment market is active but has not returned to pre-COVID levels; CICT remains disciplined in its investment approach.
- The overseas portfolio shows mixed results, with improved occupancy in Gallileo but elevated vacancy levels in other submarkets.
- Over 650,000 square feet of new and renewed leases were secured in Q2, predominantly in the trade sectors.
Company Outlook
- CICT expects positive rent reversion to continue in 2024 and is cautiously optimistic for 2025.
- The suburban segment's sales, affected by ongoing AEI, are anticipated to improve, supported by government programs and domestic spending.
- CICT is focused on maintaining financial metrics and flexibility for value-accretive AEIs.
Bearish Highlights
- Some overseas assets, particularly in Germany, are experiencing headwinds.
- The German market faces challenges and low transaction levels, while Australia is adjusting prices amid high interest rates.
- Volatility in the market is identified as the biggest risk, necessitating careful cost management.
Bullish Highlights
- CICT secured significant new and renewed leases, indicating strong demand in various trade sectors.
- Limited new supply in the CBD office market is expected to support occupancy rates.
- The trust has a disciplined capital management policy, with a focus on maintaining premier status for debt issuance advantages.
Misses
- Suburban tenant sales were down due to ongoing AEI works.
- Elevated vacancy levels in some overseas submarkets like Frankfurt airport and North Sydney.
Q&A Highlights
- CICT aims for an occupancy cost ratio of around 17.5% and is actively engaging with tenants for sales efficiency.
- The trust is evaluating opportunities for capital recycling, considering divestments before acquisitions.
- There is a focus on balancing positive reversion with total cost perspective and providing total solutions for tenants.
Additional Insights
- Clarke Quay is in a stabilization stage post-AEI, with the CanningHill project expected to anchor the micro market by 2026.
- Refinancing of floating debt at CapitaSpring JV is expected to save about 40 basis points in interest.
- CICT is exploring AEI and redevelopment plans, with some major upgrades for malls in the works.
- The trust has a call option for a 45% stake in CapitaSpring, with the flexibility to exercise it based on strategic considerations.
- Efforts to make malls more relevant and accommodating, such as implementing Cooling-as-a-Service and adding EV charging stations, are underway.
CICT concluded the earnings call by expressing satisfaction with their performance in the first half of the year and readiness to pursue growth opportunities while remaining disciplined in their financial and operational strategies.
Full transcript - None (CPAMF) Q2 2024:
Mei Peng: A very good morning to all of you. Welcome to CapitaLand Integrated Commercial Trust First Half FY 2024 Results Briefing. CICT released our results this morning and the materials are all uploaded on SGXNet and on CICT's website. So similar to what we have done for our full year briefing, we are conducting this session as a fireside chat instead of a formal presentation, so focusing on certain key themes and topics before we move on to the Q&A sessions. So before we start, we would like to introduce the panel. I am Mei Peng, the Head of Investor Relations. And in the center is our CEO, Mr. Tony Tan. And on Tony's left is Ms. Jacqueline Lee, our Head of Investment. And on Jacqueline's left is Mr. Lee Yi Zhuan, our Head of Portfolio Management. On Tony's right is Ms. Wong Mei Lian, our Chief Financial Officer. So to kick off today's fireside chat, we would like to invite Tony to share with us some of the highlights of CICT's first half performance. Tony?
Tony Tan: Good morning. Hope you have a little bit of time to digest the announcement this morning. Needless to say, I think we're quite pleased that we are able to deliver a resilient result in the first half. Bear in mind, the performance of first half -- I mean, number can be a little bit noisy. We have embarked on our AEI program in Gallileo from February this year, which means that we have no income from Gallileo from February onward. And at the same time, we have been able to ride on a positive active known rent discussion over the last 12 months or so, resulting in a higher reversion rate, so that slowly will translate into an income stream. So while we actively work towards our active portfolio, bear in mind that second half generally macro environment is a little bit uncertain. So we will pin our strategy actively to ensure we try to de-risk as much as possible. Looking at some of the key matrices, I think it's been relatively stable other than the NPI, they have grown which is backed by higher rental growth and also inclusion of Clarke Quay started to contribute. We'll also be actively managing our costs which is very important, resulting in NPI growth of 5.4% for first half. Portfolio vacancy remain relatively stable. On and off, you may see some kind of movement here and there, but generally I think we are actively managing our portfolio planning ahead not just the second half of the year, but also looking beyond 2024 to try to de-risk as much as possible, knowing that the environment out there can be highly uncertain. So I'll touch -- our team will touch on -- later on as we move along. So overall, other than the property level that we managed to secure a higher NPI, we have also stabilized our financing cost at around 3.5%, which is quite similar to our first quarter. We are hopeful that with a general market consensus that we're beginning to see some easing of the interest rate that hopefully will translate into a positive outcome from an average cost perspective. Nevertheless, in July, we already announced that we did bond issue. We did a 10-year placement at 3.75%. So that sort of replaced some of the debt that will be coming due in third and fourth quarter. On the passing level, I think it's just a marginal creep up, but importantly also managing the short-term interest exposure is equally important, so that holistically we try to maintain a reasonable, stable overall average cost of debt. Rental reversion quite pleased that actually we managed to gain the confidence of our retailer, very high retention rate, reasonably good rental reversion. We are clocking about 9.3% for the retail and 15% for the office. Thanks to the team who worked very hard to ensure we are able to strike a reasonably good deal with our tenant, balancing the risk as well as the well-being of our own tenant as well. They need to survive to be able to do well in a very uncertain environment. But overall, I think, we are quite pleased to achieve an outcome that we have shown here. So as a result, I think the first half unitholders should expect to see a distribution of 5.43% -- 5.43 cents factoring within a DRP, if you remember, in the beginning of year, DRP it would have been about 5.48 cents. So if you look at sequentially, actually we are still also growing our cash flow on a sequential basis. We're trying to work very hard on the rest of the period this year as well as making sure we are able to secure a stable return in 2025 as well. With that, I passed on to Mei Peng.
Mei Peng: Yes. Thank you, Tony, for the overall highlights. So maybe going to some of the specifics, I think just now, Tony touched on the positive rent reversions which we have achieved for the first half of this year. So I think the question will be that, so are we likely to continue to achieve such positive rent reversion for the rest of 2024? And also whether you can share a bit on 2025?
Tony Tan: I think we are reasonably, I would say, cautiously optimistic. I don't like to use the word, but based on those discussions, we are engaging with our tenant, we should end up high in 2025. Nevertheless, I think '24 should be high as well. I think earlier, we guided we are looking at around high single-digit. We stand by high single-digit. Hopefully, we can outperform, but I think that's the number we're looking at overall. That's for both the retail and the office. Yes.
Mei Peng: Okay. And then -- okay, so other than we have also been touching a lot on the growth from the portfolio. So do you think now that it will be a good time for CICT to look at external growth opportunities?
Tony Tan: This one, I think, is the everyone's question in the mind, right? Certainly, I think as a responsible management, we definitely got to ensure that we are able to look at opportunity in the market. But also bear in mind, we want to be very prudent and be disciplined in how we are going to deploy any kind of new investment. Compared to, let's say, 6 to 12 months ago, certainly the market becomes a little bit more constructive. We see how things flow from there. Naturally when there are good opportunity, I think we would want to take a look. Yes.
Mei Peng: Okay. I think now it's timely for us to move on to get Jacqueline to share with us what's happening and what is she seeing in the investment market in this first half.
Jacqueline Lee: So in the first half of '24, we continued to see reasonably strong investment activity, both in Singapore and Australia, as evidenced by the larger ticket-sized assets in both the retail and office space being transacted and also being put on the market, and of course, the flight-to-quality theme remains. In terms of pricing levels, I think, for Singapore it remains resilient, whereas in Australia, we continue to see some discounting. And as such, cap rates have expanded, affecting asset valuations. Frankfurt office market has remained very, very quiet with very few transactions and very, very small deals. So the huge gap between the buyer and seller expectations there remains. Even though interest rates have started to come off slightly in Europe, the market is still trying to find the right level coming off a very low cost of borrowing environment that we've had experienced before. However, prime office rents in Frankfurt are still holding up.
Mei Peng: Okay. Thank you, Jacqueline, for the sharing.
Tony Tan: Maybe. I just want to add.
Mei Peng: Okay.
Tony Tan: Certainly the investment activity seems to pick up a little bit compared to 12 months ago, but we're still nowhere near back to the pre-COVID days. There's a little bit of wait and see. I think some -- there's a little bit of wait and see in the market as we're sensing, but you can feel that the vibe seems to be coming back a little bit, partly in response to a general less hawkish kind of central bank tone. And then some of the central bank already started to cut rate. But generally we feel that the market will take some time to come back, but we will observe the market carefully. Yes.
Mei Peng: Thank you, Tony. Next we are going to move on to capital market -- capital management. So I think question to Mei Lian would be that are you happy with our financial ratios as at the end of June?
Mei Lian Wong: Okay. In terms of CICT's financial ratios, I think they are fairly steady and healthy set of numbers and also reflect the current gearing level of around 40% range. Given the current interest rate levels, we hope to lower this leverage ratio over time. This could be from driving asset performance and in turn improving the asset values. We also look at selective capital recycling opportunities as and when they arise. This could also help us to give us the opportunity to lower gearing. And meanwhile, we will do our best to manage the overall costs with prudent capital and active cash management measures.
Mei Peng: Okay. So noted that. Actually, most of CICT's debt expiring as at the 30th of June have been actually refinanced post June. We have actually made the announcement. So what kind of interest rate are we seeing and what should we expect the average cost of debt to be by the end of 2024?
Mei Lian Wong: Okay. We have addressed the bulk of our refinancing that's due in 2024, almost 80%, either refinanced already or in advanced stage of loan documentation. So we have recently issued 300 million 10-year fixed rate green notes at 3.75%. So this would give you an indication of the interest rate levels that we are getting from the capital markets nowadays. So with the refinancing at rates that is higher than our previous borrowings, we expect average cost of debt to be around the mid-3 areas for FY 2024. And we also have about 24% of our borrowings in floating rate. So this could be a positive factor should the Fed cut rate and also depending on the magnitude of the rate cuts. So we do have a sensitivity that every 0.5% movement will move interest expense by about $11.5 million per year for the floating rate debt portion.
Mei Peng: So -- okay, this is -- I think there have been -- also been concern about spread of the debt in currency. So the next question will be what would be our percentage breakdown of our total borrowings in their respective currencies?
Mei Lian Wong: We have about 80% of our borrowings in Sing dollars. Even when we raise foreign currency bonds, we have swapped it back into Sing dollars. The balance 20% is an equal split between Australian dollars borrowings and euro dollars. And this is largely taken to fund the investments of the overseas portfolio for natural hedging purpose.
Mei Peng: Thank you, Mei Lian. Yes. So I think now we move on to portfolio performance from Yi Zhuan. So Yi Zhuan, the question would be I think we noted from our presentation that the tenant sales per square foot for the portfolio growth, it's about 0.1% and downtown sales is a slight negative in the first half of 2024. What do we look at in terms of tenant sales going forward in second half of this year?
Lee Yi Zhuan: For CICT, we actually report on a per square foot basis for tenant sales. So the lower downtown sales we see here on a per square foot basis, right, can be attributed mainly to the stabilizing of CQ post AEI. So if you look at the first half of 2024 against first half of 2023, on a quantum basis, actually the portfolio is up on 1.1% where the downtown is actually up by 4.3%, whereas the suburban is down by 1.3%. So the suburban sales, when we see why there's this slight easing, is really because of the ongoing AEI, which should improve with a progressive completion towards later part of this year and next year. So for the second quarter of 2024, increased outbound travel definitely play a part in impacting some of the tenant sales. On the other hand, we also do see government support programs like the climate voucher, the CDC voucher which support consumer spending, particularly in some of our suburban malls. So we are cautiously optimistic that second half of 2024 sales should still remain relatively healthy, supported by resilient domestic spending. And then as far, we do see tourist arrivals for the upcoming events such as F1 in September, as well as continue active promotion by STB.
Tony Tan: Maybe just let me just add, so that we explain why the numbers are a little bit like that, right. So downtown, like you try saying, we typically report on a per square foot basis in a way we measure the efficiency of the space. So downtown is a little bit lower because Clarke Quay is one component. We just open up TOP, right? So it's a stabilizing stage. But we had in the total quantum basis, actually the downtown outperform suburban, absolute rent, absolute reversion where suburban -- conversely the other way around for suburban because we have the IMM AEI. If you were to remove the space of IMM AEI, in fact overall quantum is lower compared to what we reported per square foot. But nevertheless, I think just give you some clarity for us. We always track on per square foot because per square foot could give us an indication of where the health of the trading of our respective tenants.
Mei Peng: Thanks, Tony. So moving on to the next topic would be, I think the other information that we share on our slides is the office occupancy. So do we expect the CICT's office occupancy rates to improve over the next 6 months because -- and then which geographies occupancy are we most concerned with?
Lee Yi Zhuan: I think we as anticipated and shared in our previous sessions, right, we do expect some volatility in our office occupancy this year. So for Singapore portfolio, generally the occupancy remains relatively healthy and above market. And so some of the easing we see in some of our properties is really more transitional in nature. So there's actually a lot of leasing inquiries and we are in active discussions with a lot of the prospects as well as engaging our tenants ahead of time for the upcoming expiries. As for the German -- sorry, maybe I'll touch on a little bit on this. So actually the completion of Central Boulevard has also contributed this quarter to increase in vacancy rate for the CBD office and subsequently the secondary stock may increase also in the coming quarters because as you see, some of the large tenants start to move from their existing locations into Central Boulevard. But internally, we do still reiterate our view that in the mid-terms the supply of new quality CBD stock is still relatively limited and that should help to lend some support in our office portfolio in the longer term. As for the overseas portfolio, Gallileo is not actually in our calculations for the occupancy as is currently undergoing AEI works, but we are pleased to share that actually the committed occupancy for Gallileo has actually improved to 96.7%, up from 93% previously. So effectively we have de-risked this asset, right, from an occupancy standpoint. But there will be definitely some submarkets, for example, our Frankfurt airport district as well as the North Sydney submarkets which are a little bit more challenged with the elevated vacancy levels that we still see. And these markets may take some time to regain footing and backfilling of spaces in some of these assets will take time, in particular for Main Airport Center where we probably may see a little bit more impact in the vacancy in the coming months. We do expect a bit of longer decision making in some of these for prospects. And situations that we see, like for example, longer fit out periods and elevated incentives should persist in the coming quarters also. But nonetheless, our team is working hard on the ground. We do have recent refurbishments done to provide fit-out spaces, improving amenities just to make sure that we help to improve some of the leasing momentums that we see in our portfolio.
Mei Peng: Okay. So on a lighter note, where do we see demand for the -- at the malls and offices in this second quarter?
Lee Yi Zhuan: Okay. For second quarter alone we secured actually more than 650,000 square feet of new and renewed leases across both our retail and office portfolio. And of which about 110,000 square feet of that is new leases. So for the new retail leases we signed mainly from trade sectors such as F&B, your Fashion & Accessories, as well as your Beauty & Health. So this is actually quite in line with the inquiry levels that we do see in our portfolio. We also continue to see new-to-market interest coming from overseas. So we see brands from China, Indonesia, Malaysia and also other international brands. And thanks to our strong leasing team, we managed to secure some interesting concepts that's new to our portfolio as well as to the market. For example, in second quarter alone, we see the opening of SushiSamba in Capital Tower, Lola's Cafe at Tampines Mall, which is a win for those yeasties. And of course we also see M&G Life as well as HOKA in RCS. So office, the new leases we signed mainly so far this quarter is actually from real estate and property services. We have also investment in financial services. Probably it's not on the screen, but we do see the interest level indicated there. But probably just to give a bit more color, for some of these new leases and inquiries that we received, they also include new setups as well as relocations.
Mei Peng: Okay. Thanks. And then I think the last question for portfolio is, I think it's a trending question. So are we concerned with the increasing ease of access from Singapore to the shopping and the services at Johor Bahru in Malaysia? How are we mitigating this risk?
Lee Yi Zhuan: I mean, generally, not just RTS, generally when we look at other market, we do monitor opportunities and threats in these markets that we operate in. And also, of course, some of these evolving trends. So specific to RTS, it will definitely improve some of the excess between Singapore and JB. While we expect short-term impact on -- in terms of sales leakage, right, given our portfolio of downtown malls and suburban malls, any impact we see is slightly just going to be incremental in nature. Over the longer term, the effects on the various retail trades is probably going to vary, so it takes time to play out how the situation evolves. Nonetheless, we will fine tune our malls positioning and trade mix as well as we will have to work quite closely with our retailers, sorry, to make sure that -- enhance their offerings to make sure that our malls remain differentiated. I mean, our asset management team has a very good track record so far in creating very vibrant destinations for malls, retail -- innovative retail concepts, experiential offerings. So definitely we'll continue to curate that diverse trade mix to ensure the relevance of our assets to our shoppers. One example I think we have seen already in play is actually our ongoing AEI at IMM, which will strengthen its positioning as the regional outlet destination and also the largest outlet mall in Singapore. But on the other side of things, I also want to put things in context, right. The increase in cross-border traffic, right, could also present us with opportunities. It's not always just threats, right, to really showcase our malls to tourists coming from Malaysia, while also potentially elevating some of the manpower issues that faced by some of our retailers as well as our suppliers.
Mei Peng: Thank you. Yes. So before we open up for Q&A, maybe it's -- Tony, anything you want to wrap up the session before we open?
Tony Tan: Not much. Hopefully, I'll give you a little bit of flavor how we look at our business and how we're managing the risk and potential opportunity as well. What we are doing is to try to optimize our asset performance as much as possible given a fairly competitive environment, at the same time, also headwinds that we face on and off. But for us to ensure that CICT continue to be able to deliver sustainable return, naturally we got to plan way ahead, which is what we are doing, right. We have been quite proactively looking at our asset positioning, our renewal, we stretch out as much as possible. As we speak today, we are already looking at 2025 expiry, make sure that we're able to secure that stability going forward. So that as a base we are able to maintain the kind of sanity in the portfolio. On and off, there may be opportunity for us to look at any kind of inorganic growth. But like all things, many hands has to clap. The market has to come back. Hopefully we can recycle some capital and then hopefully the opportunity that comes along fits in our portfolio. We will be tactical and we will be strategic in our thinking, looking at short-term requirement for investors, but also planting a milestone along the way. Hopefully, give some stability, give some confidence to our very long-term shareholders. So in nutshell, I think we've been doing that. Notwithstanding solid challenges we face overseas, some of the assets, for example, MAC in Gallileo is de-risk. Australia I think specifically is the 100 Arthur, which is a little bit more difficult, but we make some strike. When we bought over, it was about 60% occupancy. Today we are close to 77%, about there, almost 80%. So it's treading along the way, but headwinds in Australia. The other 2 assets generally in a better shape, 101 Miller, okay, I mean location wise, fantastic, although it's in North Sydney, but it's prime and we're putting a little bit more effort to ensure we are ready with market return, right, which is why in one of the slides and show them the uplifting of the lobby, giving that the residents there in our building a nice feel good factor that be fit a premium grade building and yet offering at a very competitive rate compared to a new supply that comes to the market. The other one is 66 G is a different story. It's very, very resilient. In fact, we are close to 100% occupied. That's in the main Core CBD, but at the southern end. So I would say the overseas assets, we have to deal quite actively with 100 Arthur. In Germany, we have to deal actively for MAC. I think there's a bit more headwind over there. But nevertheless, we will deploy the same tactical and strategic thinking to make sure that our assets are in a good position, which means that we can't compromise on the quality, can't compromise on safety. Because ultimately you want to bring the residents back to the building, which a lot of companies are trying to do that, you need to have a building office space that befit the environment that warrants them the effort -- to make the effort to come back to your office. So along the way, hopefully, we can get it right. Perhaps even the overseas asset could be icing the cake, '25, '26, for example. Hopefully, market return then while we stabilize the other part of portfolio that could in fact may potentially give us an uplift in the future. I think, in short, I hope we can have a little bit pictorial wise, some clarity, how we are planting different milestones, different seeds in our journey to try to drive performance.
A - Mei Peng: Yes. Thank you, Tony. Yes. So after hearing from the panelists, we will open for the Q&A session. Hold on. Yes, you will raise your hand, and then we will hand you a mic, and then we also ask that you keep your questions to 2 each time. We'll come back to you when it be. And for those joining us on the webcast, you can type your questions in the chat box and we will ask them on your behalf at the appropriate time. So, yes, first question. Yes, Brandon. [indiscernible] the one behind. Okay. Okay. Okay. Yew Kiang, yes.
Yew Kiang: I'm Yew Kiang, so not Brandon. Yew Kiang from CLSA. Two questions. First one is on your margins. You managed to do quite a good job on this. But going forward, should we expect this kind of level? I mean, when you re-contracted some of your property management services, is it for the next 2 years, 3 years? So that's the first question. Second is on your Downtown Mall tenant sales. Second quarter seems to be big, and you sort of attributed that to space. The new space created from some of the AEIs. Is it purely due to CQ, Clarke Quay? Or should we also expect a sort of downtrend when you start to do some of your other AEIs? For example, IMM that's coming up and all this?
Tony Tan: Do you want to address the second question first?
Lee Yi Zhuan: Okay. Probably I address the second question first. So, I mean, of course there's a lot of different factors that adds into a downtown dip, right? But I would say that majority is really because of the CQ AEI post completion, right. When we take in the full NLA back, but the increase in sales because some of the -- like for example, we have some of these pop-up event shops, we have some of the tenants who also take a bit of time to ramp up in terms of their sales. So it's just a matter about your sales catching up to your NLA. So your NLA impact is definitely more immediate rather than while your sales catch up. But notwithstanding that, if we do have to drill down a little bit of like some of the sub trade categories, right. Of course there are some sub trade categories in some malls probably see a little bit of negative, but in the context of the downside, it's not really the main contributor. For example, we are spotting equipment probably in one of the malls came off a little bit because they were just doing so well last round last year. We also see that a lot of people actually did a lot of their shopping for travel essentials last year. And so when it comes to this year after that they -- this year is the part that they travel, and last year is the part where they buy to travel. So some of these things will come off. So if we look at the AEI of IMM, I think that's why we shared earlier that if we look on a quantum basis, there's a little bit of impact to the sales for IMM. But if you strip out the IMM impact definitely, then if you see on quantum basis, suburban is doing actually okay as a whole.
Tony Tan: Maybe just add to the point that I mentioned in question 2, right. Certainly, southern trade may be moving through a little bit of time adjustment. I think June has been a bit quiet. I'm sure you can feel it yourself. There's a lot more travel in June holiday. You can see that generally the mall is a little bit quieter and hence I think the sales does get impacted. Whether it's downtown or suburban. Southern trade, we are watching carefully. Like we say, it's part and parcel of adjusting the trade exposure. And we think that if we need to make a major change, naturally we'll do that. The other thing to bear in mind, maybe you want to show the slide on the trade -- the trade sales, there is a slide.
Mei Peng: Which one, the trade mix?
Tony Tan: The trade category sales. I mean a few things that sort of give us a bit of rethink. For instance, you see the education wise, a big jump, 8%. It came from nowhere. In a way it's a little bit reflective of some of the things that are a little bit more resilient. As you start to think about how you want to deal with any kind of sales leakage that may come, right. As a result of Sing dollar, people travel a little bit more, perhaps the education one now seems to stand out quite strongly. There will be others that I think we'll think through. On the contrary, the home furnishing seems to be a bit soft and that's across downtown or suburban. It could be because the general property markets have been also going to a little bit of a softness, but I think -- I would think that a bit more cyclical. So we may not overreact, but we'll see how things goes from there. I think on the question of margin, I mean, we are hopeful that we can maintain it. We -- in fact 2025, we are already locking, we hatch when the rate came off, energy rate for the entire 2025, looking at more than 10% savings from a tariff, right. So hopefully that will translate into a proper savings in utility bill, overall. The New PMA, I think, has kicked in. It does help to remove some fixed cost element, the leasing activity, so that fixed cost will come off, but the variable cost may go up depending on our level activity in the leasing. So -- but overall, I think directionally we should probably see over time a more efficient way of managing the property expense. And hopefully that over time will scale to translate into even better saving. But I think we will certainly aim for improving margin over time.
Mei Peng: Thank you. I think now we have Brandon, Citi, from behind last row.
Brandon Lee: Brandon from Citi. Just 2 questions, right. The first one would be, can you share with us your first half '24 occupancy costs? At this stage, I mean, obviously we have seen sales slowing down and your rent reversion has been so strong. So do you think that we can really normalize back to the pre-COVID level of 17% to 18%? That's my first question. The second question would be on your capital recycling. We have obviously seen a lot of assets being sold over the past 6 months, but it's still pretty quiet on your front. Do you think it's a matter of the quality of assets? Or is it being a bit too aggressive on your asking prices?
Tony Tan: Occupancy cost ratio, we're about mid-17% overall. Downtown is a little bit higher. It's still sub-20%, suburban we are looking at 16% thereabout. So blended, about 17.5%. I think it's a level that's maintainable. Key thing, like you rightfully mentioned, our tenant need to trade well, and that's something we are putting a lot of effort to ensure our tenant be able to trade well, and we have different tools that we can deploy to at least make that higher possibility, right. So we'll do that, yes. About 17.5%, I think, is a reasonably okay level. Then, on the question about capital recycling, generally, I think the market, of course, has seen some pick up activity. Like all things, like for deals to transact, there has to be a meeting of minds. We will watch the space, whether we are asking to higher price, we will be very pragmatic. I think it's more important to think about not just recycle back to the portfolio, obviously it will help on your overall gearing and your interest expense. But also to think about replacing the income stream, which is more long-term in nature. So we have to factor that all in together. And of course, ultimately the investment community must switch on again, right. At the moment, I think it's a little bit on and off. It's very reactive to the market conditions. Yes. Okay. Thanks.
Mei Peng: Thank you.
Tony Tan: Mervin, I saw you raise your hand, Mervin.
Mei Peng: Okay. Then Derek here.
Derek Tan: Tony, Derek from DBS. Just 2 questions, right. For your sales efficiency, for retail in your portfolio, I was just wondering, could you give us a quantum number for Suburban and also Downtown, just to get a sense where sales are, if possible? [indiscernible] This is the first question. Anyway, the second question is on office. I understand the market is very focused on IOI Central Boulevard, but in the background we have Keppel (OTC:KPELY) South tower, also completing 4Q. I'm just wondering whether looking at your portfolio and your expiry profile, should we turn a bit more defensive on office, or do you think you're still fairly optimistic about takeout rates, reversions, et cetera? Yes, just these 2 questions.
Tony Tan: Okay. I think fundamentally, CBD stocks has limited supply. I mean, that's a given, right? Any new supply coming up most likely will be a refreshed, upgraded, or even redeveloped new supply from old stock. So that's more at a fundamental level. In terms of where they are located, there will be pockets of competition, naturally. Keppel, that's one that's closer to Tanjong Pagar, and the precinct is slightly different. Maybe you can compete a little bit with our Capital Tower, that location -- location while obviously we would have a little bit of advantage. So we will factor that into how we look at engaging tenants. Then it's also a question of whether the tenants are new tenants coming in or existing tenants who are looking at a renewal and then they are considering options. So in today's setting, I think most tenants, especially for relocation, the total cost is one major factor, total cost of relocation. So bearing that in mind, when we look at how we should engage our tenants when talk about renewal, we have to be pragmatic overall, striking the right balance from a positive reversion. Hopefully we want to grow our income, at the same time, looking at a total cost perspective. And in sometimes if they need more space, ability to provide total solution in a short to medium-term, there could be also one advantage we may have. Yes. So I think we're dealing with in many fronts. We have a good portfolio of offerings both in the core CBD area and also at the site, Raffles City, Funan. I may even considered The Atrium, which is today fully occupied, and it's Orchard Road location, and then we have CapitaSky, which is very, very new. So we would try to manage as much as possible to retain our tenant within our ecosystem.
Lee Yi Zhuan: Maybe I just touch on just a bit. So building a little bit on that, right. So definitely retention has always been one of the key priorities that we are doing. So if you look at our retention rate, it's actually pretty healthy. We have actually engaged quite advanced with a lot of our 2025 expiries. In fact, a good thing is some of the expansion requirements are also coming true from some of our existing tenants. If we look at it, just the first half alone, in terms of net expansion within our portfolio and net downside actually evens out quite a fair bit. So I think generally that books well. If you have the opportunity to really visit some of the newer buildings -- actually, if you look at it, even if I take my CapitaGreen, I take my CapitaSky, generally the quality of assets is not inferior compared to some of the new builds. I think generally specifications is one thing. Location, our locations are very good, so it helps to build in some resilience. I think the other bit that we are differentiated is really that we have that whole suite solution. So a tenant can come in, they can look at a flex base, cost base together in all sorts of combinations, and we have a portfolio that they actually can expand within. So in that sense, if we look at some of the new deals that we are taking, I think at the start I mentioned about us getting some new tenants coming through. We do see new setups as one. We also see a lot of relocation, right, from previously, like Central [indiscernible] and a few other locations coming into city, and they are actually choosing our properties. So by and large, I would say we are actually quite okay.
Mei Peng: Thank you. Maybe we give to the other side first. Yes.
Derek Tan: Just want to follow-up on the office question for reversions. Given that your rents are north of $12, probably above market already. Just wondering what kind of reversions are you expecting in the second half? I mean, even if it's flat or negative, you will still be high single-digit for full year?
Tony Tan: Yes, I think just generally what we are guiding, high single-digit, even though it may be lower than 15%, but I think we'll likely end up high single-digit.
Derek Tan: Right. So for second half, it's probable that you see that reversions?
Tony Tan: Potentially, yes.
Derek Tan: Potentially, yes. Okay, cool.
Mei Peng: In this case, we do have a slide that shows the expiring rents for rest of this year.
Tony Tan: Even, I mean, as we talk about rental reversion, we are also including leases that are expiring in 2025, because you have to start engaging them now, yes. So looking at 2025 expiring rent, I think, generally, they are still -- I mean, there's slightly -- still slightly below market -- slightly below market. But having known that, what we explained earlier, including each one talking about how we engage in tenants, right, we will be very cognizant. We want to ensure that we keep it within our ecosystem, depending on the budget, overall, to the tenants.
Lee Yi Zhuan: I think I would say that we have to be careful about this, right, for the second half only because of the competitive landscape that we're operating within. So, as I alluded earlier, towards the end of this year, what we expect is to see that the secondary stock that will come up and how the landlords of those secondary stock reacts to the market. So if they are actually able to hold on to rents, actually always good. But if they start to go dive in rents or drop in rents, then of course we have to react accordingly. So I would say that high singles is still a good guidance for year end. Of course, on a case by case basis, potentially some of the leases may have to be competitive. It depends on how the situation goes.
Tony Tan: We're looking at always as a basket with the retail office. This is a basket. There could be some very solid retail reversion because these are catching up, but it will be those that we will take a little bit of position, maybe just flat. We'll move on.
Derek Tan: And for retail reversions, second half, you are also expecting high single digits, right?
Tony Tan: Yes.
Derek Tan: Okay.
Mei Peng: Yes. Thank you. Yes. Joy, you have the mic.
Qianqiao Wang: Joy from HSBC. I just want to follow-up also on office. Could you just share in terms of demand, what are the typical size you're seeing at the moment? And also you mentioned about sort of being competitive. Are you likely to throw in more tenant incentives including sort of renovation costs just to help the -- you know, the overall costs for relocation? That's one. Second question, just specifically on your JCE line there's quite a bit of a drop year-on-year.
Tony Tan: Sorry?
Qianqiao Wang: [JCE] and -- joint ventures.
Tony Tan: JVs.
Qianqiao Wang: JVs. Can I assume that's entirely due to interest rate increase? And for that tranche, is that a floating rate?
Tony Tan: Interest cost, your talking about JVs? Second question, can you repeat, couldn't hear?
Qianqiao Wang: Your JV line. So the JV line actually came off quite a bit, right?
Tony Tan: Contribution from JV...
Qianqiao Wang: Yes, from JV. So is that entirely due to interest cost increase or is there other factors in that?
Tony Tan: Do you want to take the first?
Lee Yi Zhuan: Second question.
Tony Tan: Okay, so second question, generally is both -- effort to retain some cash for AEI. We have some work in overseas including Australia as well as MAC, for example. The Gallileo obviously is funded externally, but the contribution coming back distribution, I think we will retain a little bit of cash over there, just as to make sure we have some capital to look at refreshing the assets.
Lee Yi Zhuan: Yes. In terms of the demand for office, generally what we see is smaller size tenancies. If you talk about new-to-markets, I mean generally 3,000, 5,000, 10,000 square feet. But anything above that is a bit harder. But nonetheless we do see some expansion requirements, especially with our portfolio. Maybe just some examples like one of the demands that we actually saw especially from a co-working service office kind of space. They initially was taking just about 20 desks, but now they're looking at 5,000 square feet of space. So there's kind of demand that we do see a lot more in the market compared to the really big deals, which I think from a portfolio perspective it works generally quite okay, right, 1/2 floor, 1/4 floor because there's a kind of vacancies that we do have now mostly within our portfolio.
Mei Peng: Okay. Thank you. I think Xuan...
Lee Yi Zhuan: Sorry. Okay. In terms of incentives, I would say that for Singapore we don't really have to go all out yet in terms of incentives. Generally it's really the general fit-out, probably a little bit more fit-out period. But rather than giving incentives for tenant fit-out, which is not our primary, what we may look at is, I think generally, I would say probably generally in the market is that we also see some tenants -- actually landlords, sorry, starting to do fitted-out suites to help overcome that bit. So actually when we see some of the rents going up at some point, some of these rents could be because they kind of price in that fit-out into the leases for the tenants. So that's why we see in the market a little bit more gaining popularity to help some of these tenants who have a bit of CapEx constraints, right, to kind of make that case to do the relocation.
Mei Peng: Thank you. Xuan?
Tan Xuan: Tan Xuan here from Goldman. Two questions on capital recycling. So looking at your gearing and also size of deal, is it fair to assume that we should see divestment before any acquisitions come through? And second question is on acquisitions. In terms of opportunities, can you walk us through what's more interesting in terms of overseas versus Singapore and also sponsor versus third-party?
Tony Tan: So first question, not easy to answer because it all depends I know you -- we can't time -- we can't time everything to in sync that perfect that is your blue sky -- that's our blue sky environment recycle back, you get your capital back. But we can't predict. Things will go in that kind of sequence. Certainly monetizing part of the portfolio is an important source of capital for us to look at redeployment besides looking for potential other equity partner whether it's in the public market or in the private market there will be other sources of capital. But put them in line nicely quite difficult tasks to manage, but in an ideal scenario, yes, the sequence should be that way, but again I don't think we can make a prediction how that sequence will pan out, yes. Opportunity overseas I'll touch a little bit, maybe I'll pass on to Jack. I think market overseas generally still trying to find a footing, right. Overall, I thought in general, of course, we only have Germany and Australia, these 2 markets. In terms of the journey, Australia may have come a longer way in terms of how the market has reacted and there's some -- naturally some price adjustment. Australia's rate unfortunately stay very elevated, so on an overall basis this is how we look at deals, right. On the net after tax -- after tax cash flow where do they land vis-a-vis what we can do outside Australia, within Singapore. So I think we have taken into consideration that factor. Germany, unfortunately, I think they are harder hit by the war effect and as a result I think the economy is going to tough time -- tougher time in fact probably tougher time than Australia. So I think we need to see the economic cycle gaining a bit more momentum before we see some kind of stability over there. But overall, you can find that the investment market in Germany is less active definitely very, very few transactions went to...
Jacqueline Lee: Yes, I think, for Australia, I mean although we have seen like discounting, I mean probably may not have totally bottomed out. So we're still watching because, like Tony said, interest rates remain high, even though their yields have come up a bit in terms of what has been put on the market and being transacted. But I think we are still watching to see some kind of stabilization. I think that interest rates remain high and I think even the RBA said that they were not going to reduce interest rates for the next 6 months. So I think interest rates remain elevated. For Germany, of course, it has come off slightly, but really there are no transactions in the large deal space, especially like in Frankfurt. People are not putting things out on the market and so there's really no benchmark or pricing level. So it's quite difficult to say once if there is going to be some kind of, let's say, for sale or something that comes along, we might see some kind of activity coming in. But so far everyone seems to be holding up well. And so because of no transactions, actually there's no pricing level that has been established at the moment. So I think for overseas markets, it's a bit more challenging.
Mei Peng: Okay. Thank you.
Unidentified Analyst: [indiscernible] from Bloomberg. Just 2 questions for Yi Zhuan, first, and then 2 for Tony. Yi Zhuan, on office specifically in terms of foreign firm demand, in terms of office spaces, is this still holding up or has it come down at all? And in terms of the retail side, in terms of both tenant mix -- tenants, on the tenant side, do you see like demand more coming from like kind of a small scale foreign brands now? And in terms of -- I think Tony mentioned a little bit of it just now, but in terms of demand from consumers, has kind of like interest in luxury spending, things like that come down at all? And for Tony, 2 questions. On the pricing gap, do you see that coming down all in Singapore? Obviously you mentioned little bit of that just now, but I was wondering, do you see that resolving at all in your favor or in terms of buyers interest in the next few months? And in terms of the -- one broader question, obviously you've mentioned a little bit about Malaysia and stuff like that. But what is the biggest risk you see now for us, or what's keeping you up at night right now? Is it Malaysia? Is it interest rates? Is that war? Or what's keeping you up?
Tony Tan: Okay. So, pricing generally, I think it's been stable in Singapore. In fact, we look at some of our peers have reported, in a way, the valuation of their portfolio to a large extent reflects to some extent the stability of the value of the assets. I think our peers have all reported a higher valuation in Singapore portfolio, especially. In terms of transactable market, there have been a few transactions that have gone through. But every transaction very different. Very hard to say, this is a very rich price by a 4% or 4.2% yield, because buyer coming with a different view. It could be a -- and also the nature of the buyer may be motivated quite differently. So I will say the -- I'll split into the 2, the retail and office asset. I would say retail asset on a net basis has been very stable. The transactable kind of view possibly already reflected into those transactions that we've seen in the last 12 months to 18 months. They're done by our peers. I would imagine that level would be probably what a market could expect. On the office side, range also quite wide. Also our peers have sold at 3.8%. Bear in mind, it's a different kind of dynamics and the nature of the buyer is quite different. They're looking at a bit of value at play. So we have to factor in and they are actually selling above valuation ultimately still. And the valuation cap was not -- it's not any major change from the year before. So I would say, in a nutshell, office has strong footing, but because of where the absolute yield, then you -- depends on what kind of buyer are prepared to come in.
Tan Xuan: [indiscernible] specific kind of buyer for your properties, then, like, I mean office...
Tony Tan: We would -- okay, so office and retail are quite different, right. We definitely will engage the potential investment market pragmatically, what kind of thing they're looking at. And bear in mind also what I mentioned earlier, how we should look at redeploy the capital. So we try to find the right point where we want to do a deal. But naturally, I think the guiding principle is that it has to be something that makes sense for us and also makes sense for the buyer. And the buyer motivation can be quite different. Okay. So on the...
Jacqueline Lee: I just -- maybe wanted to add on the yield, right, that's reported for all these deals, right. So sometimes it's actually quite difficult to compare property to property or transaction to transaction, because it's the yield that's reported is at a particular point in time. So it really depends on whether that property is under rented at that point in time, or whether there's additional enhancement work that can come in maybe in the next few years. So -- but that yield as reported is in that particular point in time. So it's not that like-for-like when we compare against properties, property-to-property.
Mei Peng: I think he has one more question. It's what keeps you awake?
Tony Tan: What keeps me awake? Many things, right. The volatility in the market is certainly keeping us awake. Like you see, we're trying to deal with any kind of headwinds that come from operational level and we -- actually we try to ensure we are able to still drive revenue growth at the same time manage the costs effectively. So that kept us on our toe. That means you can't slip, you can't slip, S-L-I-P, not S-L-E-E-P. But this is a broad picture. As you know, you -- REIT is a yield product. Investors are -- we are very cognizant of that fact that investors, in fact, especially our retail investors are highly dependent on our distribution. So I think that's something we bet on our chips and try to be able to deliver the [indiscernible] distribution as stable as much as possible at the same time, over time can drive growth. So -- and that your loan itself keep you awake.
Mei Peng: Thanks, Tony. We have a question from Mervin to answer there, and we have to go online and come back to you, Guha.
Tony Tan: You want to address the Malaysia change of trade? Maybe just do you want to add...
Lee Yi Zhuan: I'll probably just touch on a little bit on the demand side of things, right. So office and retail, I'll touch on office quickly. So for office, I think generally financial services, investment services, professional services, these are still the drivers of most of the demands we see. But interestingly, we also see that, for example, in our portfolio, we do get some requests coming from overseas, kind of like co-working operators again. So that's something that we do have to -- that's one area that we look at things. As for the retail side, generally, a lot of the new-to-markets, still F&B from Chinese brands coming in, but we also do see international brands. Just that unfortunately for the international brands, they take a little bit longer time because for them, sometimes they have to find the right partners first, they have to find the right location before they can actually progress. So the lead time in terms of conversion to pursue and convert takes a little bit longer. For the luxe brands, of course, I think we see how the luxe companies have been performing generally these past couple of quarters, right. In terms of expansion, it's something that probably they may not be as aggressive in this coming year or so. We will continue to watch this space again.
Mei Peng: Mervin?
Mervin Song: Mervin from J.P. Morgan. Maybe if you can touch on the asset level performance and outlook. Maybe Bugis Junction and Bugis+, we see a lot more office being built in the area potentially for upcoming residential. Can you touch on opportunities for that property? Raffles City seems to be doing quite well in terms of occupancy side. Can you talk about the upside for that property with that level of MICE activities coming through hotel performance? Therefore, Junction 8, it's not that close to the Malaysian border, but it's closer than Downtown properties. And I know based on personal experience, the immigration clearance is much -- significantly much faster this year, any AEIs for that property? My other question will be electricity costs. What have you been able to sign this year and then next year as well?
Tony Tan: I think last one I earlier mentioned, maybe you need to set, so this year is more or less...
Mervin Song: I know it's down 10%, but do you have the absolute rate in terms of what power?
Mei Peng: I don't think we'll share the absolute rate because the other component is the consumption. So we can only just get a general trend. Okay, that's basically as said, broadly, I think there are opportunities in those assets you are looking at. I can let each one address specific assets.
Lee Yi Zhuan: Okay. Okay. So I hope I remember all the assets that's listed there. So for B+ and BJ, definitely we do expect some of the shopper traffic as well as sales to improve. We are working with some of the retailers to kind of reposition their offerings to capture that, improve the kind of catchment area that we see in that area. So of course, we all are quite aware that [indiscernible] office tower has came up. The residential part is probably, if I'm not mistaken, end of this year or next year sometime then. And of course that will be another bit of a boost for some of the retail. Probably, I will draw attention to B+, right. If you look at B+, we recently have actually opened up, have fun. I'm not sure how many of us managed to go, but it's really changing the kind of sales performance. It's doing very well, sales. It also improves a lot of the traction in terms of the shoppers that we get, especially in the night time. So that will actually help to improve the performance of the asset. So it injects a bit of new life to that floor, to the upper floor. In the past, it's been relatively quiet, but now I think on most Thursday, Fridays or Saturdays, if you go, it's pretty well packed. So hopefully we can actually bring that energy, continue to improve on the energy for B+ and BJ in the coming quarters when the rest of the residential kind of start to move in. For Raffles City, I think, generally, it should be still resilient. I mean, of course, there's a little bit of huge jump in the past year's performance. It will stabilize. I think we will have to see how things pan out in the second half of the year. Definitely, we do think that there's room for improvement. Of course, the second quarter, we do see a little bit like news on the room rates a bit -- not easing off a little bit, in terms of occupancy, easing off a little bit, but I think it's more of a function of the quarter. And hopefully in the second half of the year when we have F1 with other major events coming through, that will actually help to improve the hotel performance as well as the retail performance to that. Did I miss out on any property? I think there's one more.
Mervin Song: J8.
Lee Yi Zhuan: Okay, sorry. What's about J8?
Mervin Song: Any AEI portion...
Lee Yi Zhuan: J8, it's resilient. I would say that J8 generally the traffic performance has...
Mervin Song: I mean, your other REIT thinks they're going to do some AEIs there. So the competitive set may commit more...
Tony Tan: I think J8 is a very unique location. It's suburban, it's not too far from town, fairly wealthy catchment, overall vision location, well connected transportation node. So all things looks same in the checkbox. One of the weaknesses is it's a little bit subscale. So I think we are trying to think along that line, whether we could really scale it up. That will take some time. But otherwise the footfall is strong. We want naturally to translate that footfall into conversion. That's more important. But overall it's a bit subscale for one that's so well located with 2 MRT line below, yes, I think it's a bit upscale. But we'll see. Beyond J8, there are other assets that we also think about in the future. Downtown office where you can do AEI, and also even in other suburban retail mall. But we need to pan it out carefully. Like earlier mentioned planting milestone, hopefully that would give some stability income because each time we do AEI, sometimes it will be affected. Just the IMM will affect the sales, affect the rental. But we know that it's in a stronger footing post the conversion and give us a stronger competitive edge.
Lee Yi Zhuan: Just a very small point. It's really about planning out how we are going to do our AEIs for the different things. So one is one of the other ongoing AEIs we have. I think the other part that we have to consider also sometimes it's not just us, right. It's also the authorities, what their plans have -- they have in the precinct and how each time some of these things a little bit better. So at the right moment, we will share our plans.
Mei Peng: Thank you. We need to go to the online questions first, then Guha, come back to you. Yes. So - okay, the question is from Donald. The first question, how much is capital spring contributing and when will contribution stabilize?
Tony Tan: Do you want to take it?
Mei Lian Wong: Okay. In terms of the DI contribution for first half, this is in the range of $3-plus million. And I think largely, contributions have stabilized.
Mei Peng: Okay. And the next question is from Ming Liang and Hong Wei. It's about will the -- with the anticipated higher gearing limit of 50% by MAS, whether we expect acquisitions? And then would there be any update to CICT's capital management policy given that? Yes.
Tony Tan: I think we want to ensure CICT is on a strong footing for long term. So maintaining the right metrics, financial metrics, is critically important, notwithstanding MAS relaxing, the -- in fact, the -- for the borrower to be able to borrow all the way up to 50% on a reduced ICR. But we remain very disciplined, not forgetting our stakeholder involved, not just equity and investor, we also have debt investors. And naturally they are on the opposite side, right. So on a sustainable level, and given what earlier mentioned, what are the plans we have from upgrading our building, I mean, we need capital. So we need to maintain certain level of flexibility, so that when we embark on any kind of AEI work, which is value accretive and DPU accretive over time, that we have the capacity to do it. So it's important that we want to maintain the discipline.
Mei Peng: Okay, the Cooling-as-a-Service -- the question from Hong Wei is that we have actually shared that we are undertaking Cooling-as-a-Service. How much cost savings do we expect for this utilities and expense? And also for the other initiative that we have, the electric vehicle charging stations, does it help to increase carpark income? And how much margin is there from such charging stations?
Tony Tan: Okay. I'll address little question first, then I will leave to each one to talk about the rest. I think, overall, when we start to look at Cooling-as-a-Service, I think we came with a view that the few things we need to ensure CICT remain the premier investment vehicle. That's when we look at how we treat our assets, looking at sustainability angle. So those are all very important elements. And that means -- what that means we translate that from an operational level, your building has to be very efficient. So what drives efficiency? Energy consumption. Energy consumption is a factor of many things, including the equipment, maintenance or equipment. So while we look at Cooling-as-a-Service, the primary driver is really to think about can we consistently maintain the efficiency in a prolonged period of time. So we know that we can do a good job, but perhaps there are even better operators out there who do this as a rice bowl, who can be even more efficient. So to some extent, when we start to look at what the vendors can provide services, then we realize that actually there are a lot of people out there who could provide the certainty of energy efficiency to maintain a high level of green building status for our portfolio. So that's a starting point. Whether that translate into real savings? I think over time it should, because it all depends on the CapEx cycle. Let's say if it's a much older building with very aging equipment that may come closer to the end of cycle, your immediate conversion into that could mean a lesser saving because we could have done it yourself. The immediate savings from a replaced ME equipment accrued ourselves immediately. But if it's an equipment that's somewhere in between, that's a little bit difficult to say. The CapEx required to upkeep that as a moving target. The capital that need to deploy and the cost of that capital is also a moving target. So it's something a little bit more challenging to sort of manage. So if you can able to get a service provider to basically de-risk that, then technically, in the long run, we have more stability in maintaining the efficiency. But overall, based on what we have contracted, we do see a net saving given what we have to pay the service provider and our so-called interest expense that's been avoided because when you do your equipment upgrade and you bear your CapEx yourself, essentially you've got to carry the cost of the CapEx. Now, you actually move out to the third-party. So that's how the concept works.
Mei Peng: Okay. The EV charging...
Tony Tan: [indiscernible]
Lee Yi Zhuan: Yes. I would say that probably the EV charging is not so much. I think starting point is not so much about income per se, right. It's really about making sure that our assets remain relevant in terms of these things. We do see the EV car population actually coming up quite a lot. In fact, I think one of the top sales has been BYD (SZ:002594) over the past coming -- past months, right. So that's the need for us to then actually progressively expand our EV parking lots and facilities to make sure that our shoppers, our office tenants are able to actually use some of these amenities when they are in our property. So I would say that that one is actually the primary driving at this point.
Mei Peng: Thanks, Yi Zhuan. Do we have -- okay. Okay, the last question is from Amanda is asking about CQ @ Clarke Quay's performance after the AEI. I think it's asking about performance in terms of tenant sales, will...
Lee Yi Zhuan: Sorry, let me see CQ, maybe I'll start off first. Then you can...
Mei Peng: Also to clarify, we don't share specific tenant sales for individual asset.
Tony Tan: So CQ, I will say, going through a stabilization stage. If you have visited CQ, we call CQ @ Clarke Quay, by the way, CQ @ Clarke Quay. It's actually the holistic precinct, including the current redevelopment work at CanningHill because the whole micro market, to a large extent, need to be anchored by that product coming on stream and it's not ready yet in 2026. So while CQ has completed all our AEI work, there will be this sporadic need to ensure we sustain a regular footfall. So curation of tenants naturally is very important. I make it very honest. Not all tenants will perform well. So during this in between period, definitely going to think of whether is it a transitory kind of issue that we need to deal with or is it really a mismatch in terms of trade mix in Clarke Quay. So we have to do that adjustment potentially. But once that CanningHill thing come on stream, you would naturally have a little bit of base load footfall, residents, hotel, service residents will create some kind of stability. Then the vibes and dynamics will be quite different. Although we say that we wanted to de-risk a little bit Clarke Quay in the past, not wholly relying on the night trade, but Clarke Quay is still very well known around the world as the place to go for your negativity, right, entertainment, clubs, disco. So with that in mind, the position of Clarke Quay, and also with the more living resident component that's next to it in CanningHill, that curation of what goes there is really a little bit of art and science and also factoring sometimes what authority requires to put in place. You can't definitely have very loud music close to where residents are living. So we have moved further away, closer to the car park location where the current [indiscernible] location is located, closer to the early part of the entrance coming from the South Bridge Road, North Bridge Road, I think, yes, the location. You have a little bit louder music vibes. But moving towards near residential, there's some kind of a constraint. So the overall curating that makes to get it at the right sweet spot, I would imagine we need 1 or 2 cycle post completion of AEI, which is what we are doing now, at the same time, post completion of CanningHill, where your base load will start coming in. In a product like Clarke Quay, it's really people, begets people. It's the thing where you start drawing people, you get the crowd people. The crowd coming in has to be the crowd that we effectively can do conversion. Currently, the footfall has improved quite a fair bit. It's not back to the pre-COVID days for sure, because the nightlife part is still a little bit quieter generally over there, but it's coming back and hence we want to sustain that. But the crowd coming back are also quite different. We have a lot of tour bars coming in, but very transitory, no transient kind of crowd, doesn't immediately lead to kind of conversion. What we need to imprint in most of our -- in a longer term basis, visitors may, whether it's foreign or local, is that this place actually day and night can do something right. So you come here on your own, whether you're tourists, you just venture and this place is a must visit place, riverside, good lifestyle. Give you that kind of feel that they have been to Singapore. In Clarke, he has been in Singapore, but at the same time also experience that rather than just a very kind of transient crowd who come in and take photographs and instagram,and that's it. Yes. So that's the art and science of part that we try to get you right overtime.
Mervin Song: I think, Tony, has given quite a good perspective of CQ performance or what's happening. So I think we have one more question online which is related to CapitaSpring. We also at this point, wants to also draw in just another question on the JV line part, just to add is that actually there's higher operating costs because due to the end of the defect liability period which ended last year, this was something we already shared, which is why operating expense is higher for the first half and also higher interest expense. And the question online is asking whether we have refinanced the floating debt at CapitaSpring JV and what is the interest savings when the debt is refinanced?
Mei Lian Wong: The loan documentation is in the final, almost final stage. So anytime you know this few days, you'll be signed. The interest savings from the refinancing will be from slightly lower loan margin, about 20 basis points. And then on the conversion of floating rate to fix, considering all that, I think in terms of interest savings, it could be in the range of 40 basis points.
Mei Peng: Okay. Thanks, Mei Lian. So given time, we have a last question from Guha.
Unidentified Analyst: I'm just wondering, everyone's been asking about acquisitions and divestments, but what about redevelopment? Because have you looked through your portfolio to see where you can do really extensive AEIs or redevelops something like -- was it Lot One? Is there anything there? Or Bukit Panjang Plaza is also very low rise. I mean, is there any chance of any redevelopment in any of those assets?
Tony Tan: I'll pass that to Yi Zhuan. I think I touched -- I alluded a little bit on that. Maybe you want to give some color.
Lee Yi Zhuan: Yes. So definitely without naming any properties in specifics, I would say that generally we would actually explore various scale of AEIs as well as redevelopment plans potentially. It's just that some of those plans may take quite a while to materialize. So it's not something that, especially if you talk about redevelopment, right, you look at the whole process of FS, engaging authorities, everything to the eventual carry out. We are talking about easily 2, 3 years down the road at the earliest. So that will take time. But definitely across both retail and offices, we do explore some of these opportunities that we see how to actually better position our assets and optimize the assets. Yes. So in the near term, then of course, then along the way, we had different scales of AEI or major upgrades that we are also starting for some of our malls to make sure that we keep them relevant. I think some of the malls we do find that there are pockets of opportunities for us to try and explore. Again at the right time, then we will probably share, because the last thing we want is to say something that at the end doesn't materialize. So we will share more in due course.
Unidentified Analyst: So then there's a CapitaSpring acquisition. I don't know whether you plan to acquire. Is it 45% of CapitaSpring that you don't know...
Mei Peng: I think you're referring to the call option 55% commercial component.
Unidentified Analyst: Do you plan to acquire because of [indiscernible] just coming up.
Tony Tan: I think we do have the call option. So we have, in a way, business is call option. We have the flexibility to decide whether we want to do it. At 45% actually it is not a bad contribution. We'll see. We'll see how things pan out for them. It's all about prioritizing any kind of capital, what you want to redeploy, assuming the market comes back in a nice way.
Mei Peng: And then just one last question. This is about your ratings, because there's all these questions about the higher leverage, aggregate leverage, ceiling and all that. So how important -- I mean, you talked about your debt market, debt investors. So how important is the ratings to you? And what do you have to keep your aggregate leverage and your ICR at to maintain your rating? And there's also the debt to EBITDA ratio that the ratings agencies...
Tony Tan: So I think it's important to maintain the premier status of CICT. The advantages of having that title, because you get some flexibility when it comes to looking at potential debt -- debt issuance. And it keeps us in check in terms of making sure we are able to get an overall basis, a more competitive cost of capital. So cost of capital, not just equity, also debt, right. So I think it's important. So we'll strive as much as possible to try to be able to manage that. Rating agency, obviously, will look at different financial matrices, it's important to them. They also look at whether you are able to -- ability to generate growth at the same time so that you are able to sustain the current financial matrices. So sometimes in between there could be a blips. That's something we have to engage the agency to explain. It could be a timing difference. We are embarking on a prolonged kind of AEI world, and it could be a bit downtime. And then if we talk about, let's say, so that I said we may be interested to monetize, but the timing may not be right, so we just have to engage them. Do you want to add anything?
Mei Peng: Okay. Thank you, Tony. So thank you very much. That's the last question we can take. Just given time, I think we have managed about close to an hour of Q&A from both online and offline and on-site. So if you still have more questions, please feel free to reach out to the Investor Relations team and also management will be around after this session, you have more questions. And then, so we are pleased that CICT, we have delivered a steady first half this year 2024 performance and we're definitely primed for growth. So thank you very much for joining us today. See you Next time.
Tony Tan: Thank you. Thank you. Thank you all.
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