Capitaland Integrtd Unit

Hello everyone. A very good morning to you in a big picture and to those joining us online. I'm Alison from the CRCT Investor Relations team. A very welcome. CRCT released its full year 2022 results this morning and we have the management team here with us to share the highlights of CRCT's results. I'll introduce them later. For today's briefing, we'll start off with a presentation by our CEO, Mr. Tony Tan, followed by a question and answer session. Please note that this session is live, recorded, and will be uploaded later on our website. Now, I'd like to invite Tony to start his presentation. Thank you, Tony.

Good morning. Just commented that it's a big place for a small crowd. So we reached the result this morning. I hope you have a little bit of time to digest. I'll just quickly run through some of the key highlights and then of course our management teams are here to take some questions. Okay, move this. Is it moving? Yeah, okay. So just a few key highlights which can be elaborated in the following slides. A few things I think will work out quite well in 2022. We have seen some nice improvement in operating metrics. Committed occupancy, for example, has been going up over the year, over the quarter as well. And we have achieved rental reversion positive both for the retail and office, as well as a tenancy that has now already surpassed 2019. That includes downtown and suburban. So I think we're quite pleased with the overall general trends we've seen in 2022, which is quite in line with what we talked about when we met in different locations. On a sequential basis, we think running to Towards the end of the year, which you see nice uplift given there were a few momentum that has already triggered as a result of more relaxation from the COVID measures. Shopper traffic has been rising as well over the years. And of course, towards the end of the year, we've seen in a way leading to the festive period, we've seen quite nice uplift as well. Throughout the year, I've been very, very careful about how we look at costs, very active managing the costs. Everyone knows that inflation is hitting us in off-front. Interest rates have been going up. Utility bills have been going up as well. So we have been very proactively trying to manage all these different things, dynamics that has been hitting our expense line. I think we have achieved a reasonable output. I've given a little bit of guidance on how the utility rate vis-a-vis 2021 has moved up almost 90%. Rough estimate on how that would impact on the DPU front, but I think we came up better than that. We also secured quite a fair bit of financing for the market, in total $2.7 billion. they will secure in 2022. And we have hedged our energy rate throughout the course of the year. And 2023 is protected. LBIT is a higher rate. 2024 is protected as well. Given that we know that the volatility of the energy price is going to be still, notwithstanding all the geopolitical and war issues that we've seen around the world, I think energy price will continue to stay elevated for quite a while. Capital management is going to be active this year. Hopefully we are able to manage our balance sheet more effectively as well. We have done some proactive and very conservative management of balance sheet. You see the gearing came down a little bit, about 14.4% at the end of the year. I'm looking forward. We've been quite pleased to hear that China is opening up. At the end of the year, they talk about coming February, they're going to release more or less the floodgate to the rest of the world. That certainly will be helpful for the retail business, especially in the downtown business. So we hope to see that trajectory coming through in 2023. um also improving on the hospitality side you know we have a couple of hospitality related uh assets in our portfolio the hotel in raffle city uh live funan in uh basically funan we've seen very healthy kind of uh repa or occupancy yeah so that's training out pretty well So from the number perspective, full year we achieved almost 1.73% improvement on DPU. I know it's below market consensus, but I think we have done a little bit of things. Hopefully, going forward, we have seen some improvement from there. Bear in mind that we also have certain, hopefully, potential measures that will help improve the operating number as well going into 2023. On the revenue side, distribution income side is up by 4.1% to $702 million. I'll talk a little bit more later on. so overall um portfolio occupancy has creeped up to 98 95.8 percent uh from third quarter we reported 95.1 so it's going up as well um wheels has uh came like slightly from 3.8 years to 3.7 um from a retail perspective the uh earlier i mentioned i think the the number trending well quite quite well the quarter we closed uh the quarter as in the year today september retail sale was 21.3 percent today we are looking at full year 22.5 is improvement as well uh suburban mall um again um downtown mall lead the subway more in terms of recovery but surely because uh downtown wall has been um getting a wider a bigger hit during the throughout the covid period and as you've seen the rebound very robust and all the various measures like the relaxation of the mass mandate, I think it's a critical turning point. A lot of people are starting to flow back to office and we've seen very healthy returning rate to the office. So downtown more is seeing a little bit of uplift, a little bit of tourists trickling in as well. So we've seen a little bit of uplift from the tourist crowd as well. And Suburban, as usual, remain pretty resilient. People are still working for either three days, two days from home or for one, depends on which company you look at. But overall, I think Suburban has been pretty resilient. Portfolio, overall traffic has gone up, like I mentioned earlier, and it's led by downtown. Overall rental reversion, I did touch on earlier, I think it's all positive now, both the office and retail. And it's in fact, I think, whether you measure it from an average perspective or incoming, outgoing perspective, I think the retail reversion has gone positive as well. Valuation overall, if you look at overall for the whole 12 months, it's gone up by close to 9%. With a little bit of portfolio adjustment we did in the year, We divested One John Street towards the end of 2021. And then we had divestment of JQ. We acquired Capital Sky. We acquired and completed the three Australian assets. So there's a bit of movement. But overall, I think the valuation has gone up by about 9%. In terms of geographical split, slight movement only, I think Singapore portfolio shares gone up about just 1%, 93%, with 3% in Germany and 4% in Australia. This one I don't touch too much, I think it's self-explanatory. So second half full year, I think revenue has gone up quite nicely, 14.4% and MPI 13.1%. Margin-wise, I think we helped steady. We are trying to guide the market a little bit, try to move it. Given all the different inflation numbers that have been coming in, we are hoping that we will achieve more than 70% margin. I think we achieved a reasonable margin, close to 72 plus percent overall. That's for the full year. I think for the first time we crossed our MPI by 1 billion. That's a big milestone. Of course, 1 billion is just a digit, but certainly it's a major milestone for CICT. We continue to be probably one of the most diversified REITs in terms of different revenue streams as you can see our layout here. Singapore by far still the largest and of course we have some minor contribution from Australia and Germany as well. So we continue to build on that. Hopefully we get even a wider diversification. Singapore will still be very prominent, dominant. And I mentioned before, we hope that over time we are able to scale up in some of the two markets they are already in. Balance sheets are healthy. NAV closed about 2.12, including the dividend, 2.06 excluding the dividend. Funding-wise, I think we can rest assured that it's all covered, 1.166 billion, more than covered. We have all the funding in place. It's about timing, drawing down, closing the documentation, and of course, at the right moment, we'll do the interest rate hedge. We have also done a little bit of sensitivity on the interest rate movement and earlier I was just discussing with some of you out there. Overall, I think we are quite happy because I think we had a pretty high hedge rate and as a result, I think you see lesser volatility in terms of the impact from interest rate increase. On the balance sheet wise, we closed here with some improvement in the matrixes. Gearing has came down to 40.4, a bit more proactive, make sure we don't have either cash sitting around. Total borrowing came down a little bit, which is what I meant. Fixed rate has gone up slightly from September, 81%. And then interest curve came down slightly from 3.9, 3.7, a reflection of the higher interest cost that we are paying now. So average cost of debt creeped up by about 0.2, from 2.5 to 2.7. I think I want to run through in too much detail. All I can say is that the portfolio occupancy remains pretty stable and it's creeping up as well. The whales, slight movement, nothing to shout about. And this again, the main thesis is about diversification. I think the top 20 now contribute less than 20% of our overall contribution income-wise. Okay, I won't touch this. This one I mentioned before. And yeah, I think overall, we still seen a nice improvement in overall retail occupancy. Raffle City, I mean, because we completed the AEI, we took the entire space back into the market, and hence we are about 91%. uh not all the space in ai has been fully led you know it's about 70 percent i think later on i don't show whether you'll be participating in the uh the walk at rafa city uh post lunch and post lunch yeah so we have a kind of look at what we have done over there yeah Overall reversion, I mentioned earlier, I think we have achieved positive reversion, even for downtown mall, and that's a positive development. And in the fourth quarter, it's gone positive for both downtown and either incoming or average-average. I won't talk about this too much. I think this one I mentioned before, when downtown continued to lead the uplift in terms of the sales improvement. And we surpassed 2019 sales overall, both downtown and suburban. I won't say about this too much. Office-wise, occupancy has improved, 94.4. In Singapore context, 96.2. Average rent, about the same as what we reported in September. Reversion remained healthy, 76.6%, compared to third quarters, about 7.9%. Retention rate remained very healthy, 81%. And this is just a breakdown. We've seen some creep up in occupancy at the Australia side as well. We hope to be on that momentum as the return to office hopefully will pick up throughout the course of this year. So all these are a little bit more things for you to digest at your free time. I won't delve too much. In terms of outlook, naturally, I think there's a little bit of a dark crowd out there. Everyone knows about it. There's no surprise. There's been news about various job attrition, tech company particularly. Some impacted Singapore. We have not seen a very widespread impact in Singapore yet. But naturally, because the environment is in the mood of rationalization, we tend to quite in line with what some of the consultants are saying. I think going to 2023, we'll see probably a little bit of slowdown in terms of rental growth. But nevertheless, there are other positive factors underpinning Singapore's office market. Demand beyond the trade sector, I think, has been, I would say, quite decent. FMCG, we have Business support services are still expanding, the legal fraternity are also looking at expansion. Some interesting things like, which Singapore has anchored strongly in this part of the world, as being a champion on ESG and sustainability. And we see a lot of companies starting to move into Singapore as a base. So we have seen some nice traction. Hopefully that will transmit to some real demand for space. I think retail-wise, trajectory-wise, hopefully first quarter, riding into the festive period, we'll see nice improvement. And as the floodgate I mentioned, China, I don't know how many will flood into Singapore. Certainly, there will be more tourists coming in and hopefully downtown mall will continue to get that push, momentum. S'alba mall, as I said before, will remain pretty resilient. So overall, a little bit about crowd, some things to match on. What we have been actively doing in 2021, cost management is important, interest rate, cost management is very important. We'll continue to do that. This is what I mentioned. So we are looking also to hopefully complete our AEI Kratky this year. We are already planning ahead, you know, what next. There are a couple of projects we are studying and at a timely moment we will just let you guys know, right? Okay, I think I'll stop here and our colleagues can join me. Yeah. Very fast.

Sorry, I'd like to invite the rest of the management team up on the stage for the Q&A. Before we start, I would like to introduce the management team. To Tony's right, we have Ms Wong Mei Lien, our Chief Financial Officer. To Tony's left, we have Ms Jacqueline Lee, Head of Investment. And to her left, we have Mr Lee Yijuan, Head of Portfolio Management. Some housekeeping rules before we start. For the physical audience, if you have any questions, please raise your hand. When the mic comes to you, please stand up, say your name, where you're from before you ask your question. We'll be limiting two questions per person per round. If you have more questions, we'll come back to you.

Slow down your question. Sometimes I need to remember.

For those online, if you have any questions, please drop them in the chat box. If you are ready, we would like to invite the first question from the floor, please.

Hi Tony and team. Congrats on a good set of results and Happy New Year. Maybe the first question for me is retail rental reversions, I think 1.2% average for a full year. Any sense on what was the number in the fourth quarter and outlook from here? Are you having difficulty pushing through the high electricity cost service charges. Second question I have is regards to the distributable income adjustments. There's a negative 36 million of rollover adjustments, I think, related to some tax issues. Maybe you can explain exactly what's happening there. Thanks.

The fourth quarter overall, we achieved close to 4% reversion. That's combining the suburban and downtown. Whether it's enough or not, I think I was talking to you down there, I think this year going forward, not just the expense line, I think of course we try to manage the revenue line as well. But we're also very concerned of the fact that the inflation is hitting the retailer quite quite badly. Some of them have moved up the CPI. I mean, basically, the retail sales price. I'm sure you guys feel the heat, right? But not all of them are able to fully absorb the cost. So we'll be very cognizant. But more importantly, to be able to drive their sales. So we still think that the sales component of the rent will be very, very important. And that's where I think we'll put a lot of effort into it. So it'll be a little bit more... I would say accommodating from a fixed rent perspective, but we'll try to drive the 10 over rent. And we had a year pretty decent. I think overall, I think GTO is about 7 plus percent, which is slightly on the high side. Second question, abatement I have passed to maybe. Is it abatement? Talking about the distribution adjustment.

Yeah.

Yeah, I think this disclosure was made earlier in the first half results. It's non cash in nature. So this relates to the COVID-19 cash grants that was received in 2019. And it was actually distributed as a tax exempt income. Subsequently, the IRS came back to us to sort of confirm the position that it should not be a tax-exempt income, it should be under the taxable income. So there was a rollover adjustment to adjust for the over-distribution of taxable income in 2019. Non-cash in nature has no impact on TPU.

It's a bit like reclassification.

Yeah, it's a reclassification.

Can we have David from Taiwan?

Good morning. Tony, you mentioned that last year you were very proactive and prudent in the management of your balance sheet. But as a consequence, did it limit your ability to make opportunistic acquisitions? Because you gave a few major deals amiss in the second half of last year. So can you just remind us, what is your stance on potential opportunistic acquisitions last year and then looking ahead to this year? The fact that you're gearing is still 40%, will that still limit the size of investment you can make?

Yeah, sure. Thanks. So I think we, of course, we look at holistically, right? Portfolio reconstitution, what we want to do overall portfolio. We look at market condition, we look at our portion out there. So it's a triangulation of all this with factor in. in any kind of deal assessment. So it's no different in 2022, 2023. So we'll continue to be able to see whether we can fine-tune our portfolio construct market condition is allowable, obviously we would like to participate and hopefully can have some kind of accretive acquisition. So it's triangulation of everything. So I don't think 2023 will be any different from the way we look at it in 2022. 2022 has been very, very volatile, especially in the third, fourth quarter, you probably know. The market condition is not exactly there. Hopefully 2023 market condition is a little bit more favourable.

Brandon here from Citi. Just one question. I think the past two quarters you have mentioned that some feasibility studies are in the midst of some of these redevelopment opportunities. Can you share anything on that, on the progress? What kind of things are you looking at? Properties or is it AEI? Is it going to be a big major redevelopment?

So cut across different scale. AEI ongoing. We just have to prioritize timing wise. Redevelopment, certainly we have put a little bit more effort into studying that. Both downtown and suburban, both retail and office offsets are under study. At this moment, we can't say more because there are different aspects of the redevelopment that we need to consider. Cost is one, obviously. The other fact is of course the scheme, whether the scheme makes sense in the location. And ultimately, there's a lot more time that will be required to negotiate, right? There's a negotiation time that you require to go through with the authorities. So it takes some time. I think I've mentioned before, even if we, I think last year I mentioned a couple of times that even if we say this is what we want to do, it won't transpire in two or three years. You take some time for things to work through. Especially if it's a live mall, you don't just queue a live mall on day one, you need to plan ahead.

Okay, thanks. And just going back to the DAI part, I don't see a lot of outstanding AEI actually, so is there a chance that, any reason why you didn't give back some of the distributions from CLCT as well as Central?

Oh, the two reed holding.

I know traditionally you have always withheld those.

I think it's always been very helpful. We have the cash flow stream coming from these two reeds to help supplement the CAPEX cost requirement. So I think we still maintain that stand. I don't think we need to dip into that. We have enough. I think we have sufficient things we can work on.

Next, can we go to Tan Shen?

Hi, morning. My first question is on Galileo. Can you give us an update on that?

During the quarter, I'm not sure what I meant, but certainly some people have made up. I think we are still working on a potential scheme, not ready to mention anything yet. So this year, we still have income. By January 2024, officially the lease will expire. Between now and then, we are looking at different potential kind of configuration, if we were to do an AEI or a major uplift. So I think we're still working through the detail. Concurrently, I think there are prospects we are speaking to, and hopefully, that will transpire into something more concrete. At the moment, nothing more to say there.

Thank you. And my second question is on acquisitions. I think earlier you mentioned diversification. Does that mean you're looking more at overseas acquisition? And also, what are your thoughts on sponsor assets like Aion?

Okay. I need to clarify. One of the major reasons why we look at overseas diversification is precisely we think we have growth in Singapore that we need to ride on. Earlier, Brenda asked the question, AI and redevelopment, all these will have a drag on income. And if you're going to just depend on the one source of opportunity, I think you're just limiting your options. So for us, in the long run, I think it's good to have the optionality in place in the market that hopefully over time we can scale up so that you'll get the economy of skills impact. At the moment, the two markets we are in there, we are not there yet. So Singapore, has opportunity. We have obviously explored some different deals flow, but we didn't proceed. We'll continue with that in 2023.

Next, can we have Kula before we turn to the questions online?

hi thanks thanks congratulations tony for the results okay just well i can only ask two questions right okay so the first one is uh will you be writing down galileo any further that's the first question and the second one is you know raffle city convention and hotels comprise of around six percent of the aum can you remind us what the lease structure is like is there some any upside from the revenue if the hotels fill up etc okay convention

So we certainly hope this time right now would have absorbed most of the impact that Germany is facing. The inflation is one big one. Of course, the war is a risk that has gone up, right? So overall, hopefully that reflects the risk has been priced with the valuation. Ultimately, it all depends on how we execute the plan. Today, the valuation takes into consideration the cash flow expected from potential CAPEX that may be required, the downtime as a result, no income stream, and hence on a discount basis, an elevated discount rate pricing in the risk premium. So they all contribute from a DCF perspective, a low valuation. Hopefully that has been fully captured. Whether there will be further write down, I can't tell. It all depends on how we execute the asset planning. And of course, the war in Ukraine is still ongoing, yes. Even though recent months we begin to see less pessimism, less pessimistic numbers coming up from the Eurozone and especially Germany has been seeing a little bit of a surprise upside in economic activities. So maybe people got used to it, maybe they got over the the deep winter where the fear on the energy rationing will have a major drag on the economy. That's not pan out as best as they anticipated.

I think Golan has a next question on the RC hotel structure.

So RC structure, if you recall in 2020 when In the darkest moment, we had a little bit of readjustment on the restructure with the hotel. Essentially, in short, we really bring down, like no different from what we have done for some of the retail, the most affected retail tenants, bring down the fixed cost, fixed rent, and then bump up the turnover. and we adjusted the duration of the lease because the hotel said there's a need for them to have a longer lease period to make up for the time. So that's been factored in. In the course of the last two years, things sort of reverted back. The fixed rate went down a little bit, variable rate came down. Overall, on a net basis, I think we have probably done the right thing because we have seen quite a nice uplift in the the sales, the room rate, and then the F&B has been doing very, very well in our tail. So in fact, 2023, RCS is one of the big boosters in our performance. So I think we are quite pleased with the outcome.

I'll come back to you, Yukiang and Derek, Rachel. Turning to the questions online, we have a few on tenant sales from Terence UBS and Joel DBS. So the question is, for Q2022 tenant sales, how does it compare to 2019 levels in terms of overall downtown and suburban? And also, how much of this came in November and December? Is it due to GST front loading? do we compute tenant sales net of tax and expectation on tenant sales in this year?

Okay, quite a lot. Luckily, I did my homework. So fourth Q on its own versus 2019.

Yeah, that's right.

2019, your number, I don't know. But versus overall for the fourth Q, For the fourth quarter, that means the whole 2022 and 2019, downtown improvement by about 4.4%, and then suburban is about 7.5%. Overall portfolio about 7.2%. I don't have the fourth field number. Maybe our teams will check later.

Tennis' guidance for this year.

I hope I had, I mean, I also hope that we had that crystal ball gazing. Earlier I alluded, there's some positive momentum, positive attributes that we can carry through in 2023. Overall, it looks like the inflation number has been tapering down. So hopefully that will transpire into a less than expected adverse impact on consumer sentiment, right? Because ultimately it's inflation that they are concerned about. Hopefully, the economy will ride through well. MTI has marked down the economic growth this year. There's seen some headline job attrition, but overall the unemployment number is pretty low in Singapore, still very tight. Wage certainly is going up, whether it's enough to cover inflation to the extent where it affects the consumption of anyone's gas. First quarter, we think we have a little bit more visibility. Hopefully, in January, February, things will be okay. People are still in the bonus period, right? So, there'll be a bit of discretionary spending and, of course, the usual necessity spending will be still there. I do go around the property a lot and speak to tenants. While you see some media report that, in fact, even today, some media report that the chicken people are selling less in the wet market. But I've asked around some of the retailers and surprisingly, they are saying that this year, Chinese US sales picked faster than last year. And overall, the number has been very robust, stronger than 2019. But we'll see. We will see the number, how that transpires. But from F&B perspective, I'm sure you guys on the ground, you know, right? It's always full. Even leading up to Chinese New Year, of course, now it's really full. But leading up to Chinese New Year, it's been very, very packed.

We have a next question from Sutai from Mercury. DPU lags behind revenue and MPI growth. Was this due to interest costs being higher than expected? Can you guide us on the borrowing cost trend in this year?

I think borrowing cost is definitely one factor that is below MPI line. So that will be affecting DPU growth. The other element is that in Late 2021, we also did a small placement. So there is an enlarged number of units. So that also is one of the factors as well. So these are the two key factors. Boring cost trend. I think we all know that we are in a rising interest rate environment. And going into 2023, I think there's all eyes on the Fed. There seems to be some signs of cooling. But having said that, I think rates have stayed quite high. So we will be watching carefully over the next few months for the indication of where interest rates will be. And we'll react accordingly for the debt maturities that we have in the next six months on the timing of hedging these fixed rates.

I can also add to what Meilyne said. If you look at 2022, we did some work in terms of portfolio movement. So earlier I mentioned we saw J-Cube in March. We did some placement in December 2021 in anticipation of the three Australia asset, which was completed only in April and June. So there's a little bit of timing difference. So we have naturally a couple of months of DPU impact drag. Then we sold Sky, we acquired, so we sold J-Cube and we acquired Sky. So again, it's a bit of timing difference. So that's one element. The other element, if you do recall that when we acquired the Osiris asset, we also had a bit of guarantee income, which we have not touched. So we keep it as an option that we can look at it in the future. Then the other element will be some of the AEI downtime that was not on a performa basis, you don't build that in. So downtime from AEI as well. So going to 2023, you'll see hopefully the downfall effect from Rafa City in 2023 will be lesser. We have some remaining space in the AEI space to lease out. And club keywords. go through a little bit of a quiet period, especially for SAF. Second half, hopefully, you'll catch up. Some of the rent amortization effect will slowly taper off in 2023. Some of the bigger lease that we signed in 2021, 2022, for our commitment, when lease commence, you recognize the revenue, but the underlying cash flow has to amortize over the period of time. So that will taper down in 2023 and you'll see more cash impact coming in. So I'll just give you a little bit of hint where the potential trigger of the number will come.

Okay, coming back to the physical audience, maybe we can go to Jarek first.

Hi, Tony and team. Just wanted to follow up on the interest rate question. For fourth quarter, what was the all-in interest rate? And some of your peers have mentioned they expect to see 40, 50 bps increase in the all-in across this year. Would that be a fair statement to say as you refinance into higher rates?

The 4Q interest rate is at about 3%. yeah so going into the new year we are looking at the higher average cost um 40 to 50 bp maybe may be possible uh depending on where interest rates levels would be yeah all depends on your uh your hedging um strategy right you take a neutral position 50 50

You see, I'm not very sure how they will go. It could be a 50-50. Of course, then your average hedge rate will come down, right? But we can live with that. Assuming we unhedge everything, but those refinances as required in 2023, our hedge ratio will come down to close to 70%, which is okay, right? That's the extreme. But of course, if you hedge 100%, then we remain at 81%. So it all depends on your hedge ratio. But on a neutral level, I think our average is about close to 3, high 3s, yeah.

expectation is for high threes and i think so based on today what we see now yeah but of course things will change in the months ahead yeah sure then just wondering on um acquisition opportunities um given the evaluation declines for for galileo do you similarly see um opportunities to buy at uh fairly distressed levels and you know which markets do you see that happening jack you want to do that

I think, yeah, we have seen yields moving up in some of the markets, but I think we are still watching because they haven't moved up as much as the interest rate increases. But we are watching to see when that will stabilise. But we are beginning to see some yields move up in some markets. Which ones? Say, Europe, Australia, for example.

Yeah. Just a caveat, when we acquired three Australian assets, we actually went in at an implied yield of about 5.1%. So we have sort of, based on the negotiated income guarantee that we get, implied yield is about 5.1%. So we've seen the market now potentially creeping up, the office space, the yield.

Can we talk about Australia? What's the long-term plan? Can we expect you to do retail in Australia over the long term? And then secondly is on the next acquisition, do you think that the pricing is fair? Can you give maybe some views on that? Is it a structure that you don't like? Would you prefer to have full control of asset when it comes to acquisition, especially if it's a non-related party?

Okay, three questions, right? So Australia retail, I don't think we'll rule it out, right? I don't think we'll rule out. If you look at some, at the end it's still about diversification, right? So far we have office assets and some small retail in one of the JVs. So that's not full retail, it to me is a small retail. Not so management intensive, even though it's a CBD retail. A bit more challenging than what you look at sub-urban retail. But overall, management intensity, attention span on retail is a lot higher. That's a given. So the question is whether we have the capacity to take it. So eventually, I think we need to have an in-country level, so a bit more diversification, eventually. Currently, it's mostly office. And not every market, okay, so you talk about Australia. the australia retail market and the retail related real estate has gone through the adjustment a lot earlier than what you're seeing now as a result of interest rate impact affecting the expectation of the cap rate right but retail has been since i can recall is 20 or 18 or 17 has been going through the adjustment because e-commerce, people are worried about Amazon going in. So there's already a lot of repricing. And historically, retail assets are very chunky, owned by a lot of superannuation. They also want to lighten the load, right? So there's been a bit of portfolio reconstitution among the major owners. That's why you see the adjustment multi-years. So it has come to a point where I think the adjustments have come lesser now. And then the new trend as a result of COVID, working from home, it's not just prevalent, it's prevalent in many markets, right? And so urban retail has been pretty resilient. We've seen some of the peers reporting the results. Not bad. I mean, the retail is doing quite okay. So there'll be, it's a reflection of the cycle, you know, real estate cycle that will come and go. But eventually, I'll take those countries outside of Singapore. First, we must have the scale. Second, we must have the resource to be able to manage. And retail asset is highly, highly management intensive. So we must have that knowledge there. At the moment, we are not there yet. Next move. You want to say anything about where you see or where transactions? I think there are some reported transactions out there. in Australia as well, not just in Singapore. So there are some reported transactions out there. Like I earlier mentioned, we look at it holistically. As a REIT manager, you manage your portfolio design, what the REIT represents, you manage the source of capital, And then you look at how you want to redeploy your capital. So again, it's back to triangulation. And of course, when the market is conducive enough, they will raise a little equity from there. It's simple as that.

Thank you, Tony. Next, can we have Rachel?

Hi. Hello. Hello, hello. Happy Chinese New Year. Just a few questions from me. I think firstly is on office, Singapore office. Do you feel that there's a shadow space creeping up in your portfolio and also in your market? Yeah. And secondly, my question is on how do you see, looking at your portfolio, I think everything seems quite stable. So what's your thoughts? Where do you feel you would prefer to add, like retail, downtown or suburban or is it office? And divestments, are there still opportunities for you to divest? Is it retail or office in your portfolio? Thanks.

shadow says uh so michael hi um happy new year to you too uh so for little space i think on generally we in the market we were acting a little bit of creeping up in the coming quarters um i think it's quite known that the tech space right uh we'll see some of these things uh coming up i think roughly now some of the statistics is around 600 plus thousand and so suddenly you'll go up but notwithstanding that i think um CBD office supply generally is still quite tight. So even with this, I think it's not something out of expecting. I don't think it's a big challenge or problem at this point in time.

Thank you. Your question regarding whether downtown is an open retail, it's an ongoing iteration that we're looking at too. At the moment, we are quite balanced, 50-50. Somehow, I don't think it's by design, but it just pans out that way. We are about 50% downtown, 50% suburban. A few trends we watch out carefully. Of course, the work from home will have some impact on how the consumer travels and behaves. The reopening of borders, certainly will have a little bit of dynamics. The increased connectivity between Singapore and neighbouring countries is something you want to watch carefully as well. So there are implications. And your implication on more the out movement of locals rather than the other way around. So I think we are watching all these different dynamics quite carefully. So I can only say that at the moment we are in a nice sweet spot, quite balanced. Whether we should swing heavier to downtown or suburban, there are a few configurations that we think through and also depends on the opportunity out there and earlier brandon asked about where the uh ai potential or redevelopment potential i mentioned it could be downtown and office downtown urban can be office and also can be retail that we are studying now okay next can we have xavier

Thanks for the presentation. Can you help us understand for your integrated developments, those with office and retail component, how reliant are they on the office crowd or shopper traffic versus the tourist traffic? That's my first question. The second question is on your office leasing activity. I think fourth quarter seems to be your lowest number of new leases, number of committed leases, about 120,000 square feet. Is this a seasonal thing or do you think this is a sign that the market has been cooling off in terms of the leasing demand for office?

So your question on the impact downtown integrated, I would say at the moment, it's still more return to office impact, less so from the inbound travel. It's not very, of course it has gone up, right? But not very significant in my view yet. And you can read all the statistics coming out from the Tourism Promotion Board, right? The number has crept up, I think, but we're still a long way from pre-COVID. So my view is that that's why I mentioned the dynamics on the border restriction lifting and many countries are lifting all the COVID measures. We should see a more healthy two-way flow and hopefully more inbound catching up with the COVID level.

For the office leasing, I think if we look at the fourth quarter, There's a couple of reasons why the number is a bit lower than usual in our portfolio. Because on one hand, it's year-end also. Of course, the market cooling down may be a little bit of a concern. But at the end of the year, it's also a time that you'll see festive season tend to be a bit slower. But notwithstanding that, I think we do still actually see demand from financial services and legal, real estate also, for some of these things. But actually, for our portfolio, there isn't any tech use for the portfolio. So actually, we do expect some of this demand to come back a little bit more in the first quarter. If I look ahead, I think we are also in talks with some of the renewals that actively, I think things are shipping out quite okay.

Got it, thanks. Just to clarify, so is it fair for me to think that, you know, with all this hybrid work arrangement right now, for integrated developments, say Plaza Sing, it may not recover, the chopper traffic may not recover back to where it was, even with the tourist recovery?

Today, we are about 75 overall pre-COVID, around 75 to 80% levels from pre-COVID, traffic-wise. uh yeah potentially but the buying happy has changed a bit more intentional you go to the shopping mall and more intentional that habit was cultivated during the kovit with all the restrictions right uh whether they'll be cut off and more leisure i mean those i think will come back uh whether it's 2023 or 2024 i think we'll go back to recovery yes my firm belief you will be thank you

Okay, I'd like to turn to some questions online. We have a couple on leverage. Are we looking to divest some assets to pare down and what is the target leverage?

That's part of the portfolio reconstitution I talk about. Maybe I talk without. Daniel? So that's part of the portfolio reconstitution I talk about. When you look at investment, sometimes you look at divestment because

how best to look at the portfolio, whether it makes sense to quantify some assets, or partial market conditions, and whether the market conditions are favorable.

So we look at all these and try to make five-year relationship. And of course, we also assess whether this asset is one of the candidate, maybe not this year, but five or 10 years down the road for any type of average uplift rate. So those are factors that would be important before we look at whether we should swap the asset out into something different. So if the market is okay, we can afford to hold the asset and ride through, continue to essentially, I don't know how to use the word cream, but optimize further, make sure your asset hard further. Market condition is okay. There's no real need for us to swap it out. Then I think we don't have to do it. So it's many, many factors that have to be considered.

Thank you, Tony. We have a next question.

Because there will be ideal position, we hope. uh at some point i will be able to today we are okay you know i always use the same analogy you know we we are managing the different stakeholders interest equity stakeholder the debt market stakeholder the rating agency looking at us uh and of course the consumer right so we we just want to find a position that make sure that we do not under work your balance sheet And of course, it's a factor of where your cost of capital in the different pockets of money is at the right moment, whether we should lighten the balance sheet. So there could be different factors that may result for us instantly to look at a readjustment on the balance sheet. But in the long run, I think ideally a 35, 40% kind of balance sheet will be pretty safe, which is what a lot of investors want. A safe, predictable, low vols income stream with no stress on the balance sheet and give you that firepower event opportunistic opportunity came along where you had to react fast right you had a 40 level of course you have less flexibility you have 38 35 nine never you probably have a lot more flexibility but it's all again about Whether you are able to hold the 35-38% and continue to deliver the return you want, that investor expects. Because technically, you may be underworking your balance sheet. You look at private equity, it's quite easy to go 50-60%. They are working their balance sheet very hard. But in the public market, we have to weigh the different stakeholders.

I have a question on Capital Spring. Did Capital Spring contribute any distributions for you last year? And in a steady state normalized situation, like what type of annual distributions should you receive from Capital Spring?

2022 capital spring don't really contribute to 2022 DPU because there are a lot of rent-free and incentive given in 2022. For 2023, we do expect some distribution to come back. On the question on steady state, I think we have to come back to you.

Essentially, you're asking the amortization effect as one. Of course, at the local entity level, the level where you're able to upstream the remaining cash out after settling all the different costs and expense, that's another matter.

Okay, jumping back to the online question. Sorry, Melvin, I'll come back to you. We have Raven from Martin Curry asking on the profile of new tenants who have been taking up space in the past two years, and what's the guidance on the rental revisions going forward for retail and office?

Which one you'll take there?

The first question is on the profile of new tenant coming in office. Well, I think just now, just to kind of So for the fourth portal, just to recap, most of the new demand that came to our office is actually the financial services and legal, making up most of it. And of course, I don't think it's really that, you know, it's just a function that in the fourth quarter we didn't see any tech deals, but I don't think it's anything very specific at this point to point to anything. We also see some real estate companies coming through. I think the co-working space, we're also seeing some inquiries and demand. And of course, it depends on the kind of models that we are going to actually see going forward. Yeah, that's for the fourth quarter. And the next question.

Guidance on reversion. Okay.

For the reversion, I would say the first quarter going forward, we should still see pretty good reversions. And similarly for office, I think If you look at the rental growth, I think the market rents generally is higher than the expiring rents we are seeing for 2023. Hopefully, this works out well for us. But I think the rental growth is probably going to slow down a little bit for this year, especially second half of the year is going to be a bit more uncertain. But I think it should still be holding up okay. Thank you.

Okay, Mavin, circling back to you.

I've got a question in terms of the borrowing costs. Questions from investors who have emailed me. I think in the end you were saying that borrowing costs could go up 40-50 pips. Then Tony mentioned high threes. Is the high threes related to when you refi or the weighted average for the full year FY23? Refi. So it should be in the mid threes as per the other reads that we've seen. Or if you're lucky, carried around 3%. Maybe we can touch on the occupancies for a couple of buildings, Capital Tower and Six Paths Railroad. Do we expect improvement in occupancy this year, why are you seeing those negotiations? And then turning to Australia, what's the plan there? Are you aggressive with offering that incentives given the income top-up that you have?

Thanks. So for the occupancy for Capital Tower and Six Pack Tree Road, Maybe I think of, for Cable Tower, I'll start first, right? I think generally we previously had JPM space and we have actually backfilled a big part of it. There's interest in some of the balance space, so definitely think for Cable Tower, you can expect some of the occupancy to go up. I think 613 Road similarly will be finishing some of the upgraded floors and then we'll start to actually fill up some of these spaces. So I think it should also be going up. As for Australia, okay, so For Australia, the occupancy, right now we do see actually the return to office is a little bit slower compared to Singapore. So the plan there, for some of our assets, we are also trying to put in certain differentiating factors and we are starting some of the plans to find how we can actually best position the asset to capture the return of office and the interest when it recovers.

Some of the trends we see in Singapore is also beginning to shape up in Australia. Like the prevalence of certain hybrid model, co-working space model seems to be shaping up. So one of the properties that we are working together with our JV partner is really looking at the utilization of the co-working space. So I think that as a result, we are upgrading some of the aspects of the office. The lobby, I think, is going through a major revamp. So we are bringing up the level higher. The other one that Yichuan alluded to was, I think, more 66 Corbin Street, which is in the CBD, not North Sydney. And there has been some departure which allow us to fast track some of the planned CAPEX where we look at our underwriting. We actually had some CAPEX that we set provision to cater for the upgrade. Because the building, it's a little bit like capital tower. I mean, it's grade A, but it's not premium, premium grade, right? But we think that there are certain aspects of the building can be further improved. But they have a live tenancy there, which you can't do anything. So when the lease expire and tenant decided to move on, we decided to take back the space and do a major upgrade. So we are quite reasonably positive on 66G that we will creep up again.

This final question from me. How should we take care about the remaining stake in Capital Spring? Is it just the coverage too low at this point?

Well, it's in our radar. We think about it as well. Of course, in the midst of different opportunity, we will see which makes sense.

Just to add on a point, I think I missed out earlier. When we talk about incentives, I think for the Australian market, the incentives generally have crept up in the past year or so, but I think it's currently around 30 to 40% range. I think it's quite normal. Do we expect this to go up? It's really hard to say because it's really on a deal-by-deal basis.

Rachel?

Hi, just one quick follow-up question. For Clark Key, I saw you sign on two tenants. Just wondering what's the pre-commitment level and what's the interest like for the remaining space? Thanks.

At the moment, including those we are in deep negotiation, around 80%. Around 80%, yeah.

Sounds good. Yep. All right. Thanks.

we have two online questions on valuation on the drop of valuation for the germany asset how much is it due to the weakening of the euro versus sing dollar and how much is due to the the assets in euro terms i think uh in terms of the fx translation effect uh

We have about 170 million of the loss due to FX devaluation of Euro and Aussie dollar against Sing dollars. But this is largely mitigated by the corresponding fair value gain. on the Euro and Aussie dollar borrowings that we've taken to fund these overseas assets. So the impact on net asset overall is actually mitigated to a large extent.

Maybe each one you talk about the Euro valuation, which I earlier in the presentation touched a little bit. Maybe each one you want to give a little bit more colour on valuation on our German assets.

So I think for Germany, this time round, actually, because a lot of the, we actually, the valuation dropped partly also because we took in some of the latest assumptions that what we are going to foresee in this property. So for example, there's a bit of higher capex actually taken in. It also reflects the kind of downtime that we're really expecting. So as far as possible, we think that this valuation, hopefully it really kind of takes the hit that we will see in Germany. But of course, eventually, it's hard to predict next year how the valuation will hold because a lot of variables are moving. But by and large, let's say once we have a bit more certainty of the plan, hopefully some of these things will reflect in the valuation at that point in time.

So it's a bit, if you look at purely from a revale gain or loss on the portfolio, it's a mixed bag because you have the corresponding balance sheet effect, right? Liability asset netting off a little bit and as a result of your natural hedging on your borrowing side. So that can mitigate. Absolute valuation number for for individual property I think in range in Germany it's probably about 15% for gallery room 15 right I think 15% markdown and then the MAC single digit I can't remember the number but single digit markdown yeah

Another question on valuation from Andy, Bank of Singapore. Why did Police Plus register a slight cap with compression while a couple others had a mild expansion?

Boogie's Plus.

Cap rate compression.

For Boogie's Plus, some of the value cap rate changes are actually more function of change of valuers. So you will see probably a few of them actually have a very marginal expansion and the Boogie's Plus has a slight compression.

I would suggest do not read too much into the cap rate. we had a change of value, it's through rotation. Every two years we do rotation. So some value will have their different views, how they look at asset, they have different growth assumption. And then they will look at the risk-premium adjustment in the cap discount. So by and large, different value will have different view in the specific asset in the specific locality. But on a net basis, I think the adjustment of the cap rate was like five to 10 pips is very marginal. So don't read too much into it. More importantly, look at the trading, basically operating yield of the individual asset. Current is all above the current cap rate that's represented.

Next online question we have from Gerard. What is the physical occupancy for the offices in Singapore, Germany and Sydney and what is the current trend?

For Singapore, we actually see a range across our properties. Some are actually as high as 90 plus percent. It's almost like back to pre-COVID levels. Of course, some is trending a little bit lower. I think broadly, we... 70 plus percent. For Germany and Australia, the physical occupancy return to office rate is actually much lower. I will say that in Australia, if I were to put a number to it, it's probably around in the 50, 60 plus percent range. And in Europe, it's probably going to be a little bit lower. I think it's also the sentiments generally and how the return to office has, I think in Singapore, there's a little bit more push for people to come back to office. And actually in this aspect, Probably this year we might even see more companies taking a clearer stance on their return to office and hopefully this will then translate to higher return to office rates.

Thank you.

Just to give you a sense, in terms of rate varies, different property to different building to different building, it all depends on the company's policy. But generally, Monday, Friday is lesser. You can say Monday is Friday lesser. Tuesday Wednesday Thursday January quite high in the 80s and 90% some building above 90% return rate which is very very healthy but then you can taper down to 60% 50% on Monday and Friday on a portfolio-wide basis on an average on a week you're looking at maybe 60 plus 60 mid 60s kind of return rate which is decent. We don't really track so intensely the pre-COVID. So I'm not sure. I even get a sense that some of the buildings are already back to pre-COVID days. 80-90% certainly sounds very high. Given that some of the people will be either travelling or maybe they could be working from maybe they have meeting clients out there But it sounds pretty much to me back to normal on a busy day. But that's only on the three days I mentioned. The Monday and Friday tend to be a little bit lower.

We have an online question from Andy, Bank of Singapore. What is the retail occupancy cost? And for Australia properties, how long do we expect for occupancies to ramp up to above 90%?

The retail occupancy cost generally is around the 16 plus percent range. So it's actually quite in line, generally within the acceptable range of what we're looking at. As for the occupancy in Australia, I think to get it above the 90% range, probably it will take a little bit of time, given that's how things are translating. I think a lot of things are actually relying on how things pan out in the North and East side of things. But I think it will come back. I think we're not that far off. It's just something needs a little bit more time to work on.

Just to add what Yichuan is saying, countries in the 80s, 80 plus, mid-80s and above, That's the retail office, retail space in Australia. And what each one you're alluding to, coming back, the office is a little bit low in Australia. We don't track the number, but anecdotally from our ground guys on the ground, they say it's probably 50%, 60% back. At the same time, we are together working with our JV partner, MoVac, looking at the retail space. And we need to rethink. So we started with the integrated project. It's connected to the main subway line, the metro line. So on a busy day, it can be very busy. But the kind of retail space configuration needs to be a little bit of a rethink. And at the same time, because of the connection to the office building, we started embarking on the upgrading of the office building, including the entire lobby area. So it makes a lot of sense for us to extend to the retail space, which is connected. So that will be a work in progress. It may involve a little bit of AI, potentially.

I see Donald has a question.

Donald for Bank of America. Two quick questions from me. First is, can we have an update on Twitter? Are they still paying rent? Will they be paying rent? And if... we need to backfill this space. Are we expecting positive reversion on that or flat? Thank you.

So for Twitter, are they paying rent? Yes, they are paying rent. Will they pay rent? I hope they continue to pay rent. But I will just say, I mean, just for Twitter, I think right now they're still a tenant of ours. But broadly across the board, I mean, we constantly talk to tenants about the expansion and right-sizing plans along the way. And I would So while some of these discussions are happening broadly as a whole, I don't think I'll comment too much on Twitter itself, whether there's any reversions. So I think it's a little bit ahead of time. What's the exposure to tech now for the portfolio? As a portfolio, our exposure to tech is actually quite manageable. It's actually below 5%.

uh and actually if you look at it right uh twitter is not on the one of our top 10 tenants in terms of exposure so i think the exposure quite site is actually quite manageable one last question is could you remind us about the utility costs for this year again the the repricing and what sort of uh impact are you expecting uh and if there's any mitigation from uh service charge you know yeah thanks so so i think

Also for utilities, we are probably looking at tariff alone is probably somewhere, I think the last time we mentioned is probably about 90% over the current one. We have been actually increasing service charge from a few of these properties with the effect of 1st January. Generally across If we look at both retail and office, unfortunately for retail, right, because of COC, we can't immediately, you know, any increase in service charges. It will really only take effect kind of in the next renewal cycles. But broadly, I think in terms of whether the service charge can actually cover the increase in tariff. I think the coverage ratio is currently around 35-40% range. And then progressively this number will go up as you know, if you look at how the expiry lease profile will go, we'll start to put in back some of these things and then subsequent renewals.

When is the next contract renewal, the rollover for the utilities?

It already end 31st December, so we have another locked in 2 years rate. Earlier I mentioned, I think it's higher, potentially around 50% higher than blended 2022. But 2024 will taper down a little bit. Got it, thanks.

Do we have any one last question? Okay, then I think that we have all the questions addressed. Thank you for your time. We look forward to seeing you again.

Thank you.