Capitaland Integrtd Unit

Good morning, ladies and gentlemen. Welcome to Capital Land Integrated Commercial Trust or CICT's FY 2023 results briefing. We are hosting this event live from our office at Capital Tower. Since this is a new year, we have also decided to try something new So instead of a formal presentation, we will be having sort of a question and answer with the management team of CICT. Please feel free to give us feedback, how you find the session, and we will be glad to improve. So the sequence of the discussion will also may not follow the flow of the presentation that's uploaded on SGXNet, but largely the contents are there. So before we kick off the session, I'm pleased to introduce the panel, starting from 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 Chuan, our Head of Portfolio Management. And on Tony's right is Ms. Wong Mei Lian, our Chief Financial Officer. And I'm Mei Peng, the Head of Investor Relations. So to start off, we are also pleased to invite Tony to give us some of the context and performance of CICG's financial results. Tony, please.

Thank you, Mei Peng. And good morning, everyone. And good morning, those online. I think most of you will agree, 2023 has not been an easy year. You'll agree, 2023 has not been an easy year. It's also not the year that we had expected at the end of 2022, with the China reopening, And hence, there's a lot of heightened expectation of a full recovery in 2023. Obviously, what you've witnessed is a series of things that went the other direction. We have a series of very aggressive central bank rate hikes started from the first quarter. And hence, to a large extent, I think it has affected a lot of market volatility and economic uncertainty. So that's a little bit of a backdrop. To put it in context, FY23, we were actually positioned quite well with some of the portfolio reconstitution that we have done in 2021. And hence, you see the full effect coming in in 2023. So the financial result is to a large extent reflection of the completion of the acquisition that we did in 2022. And hence, in 2023, you see that delta in numbers But having said that, I think operationally, we'll be also very laser focused on, given things were moving quite rapidly during the year, focus on a few things. First is revenue. We need to protect our revenue. And one way to do that is to really, really go all out quite early in our lease expiry to ensure we lock in our renter as quickly as possible. And this is exactly what we did. Secure the rent, the tenant we want, and hence you see across the portfolio, we have a very high level of retention and a good, nice reversion as well. Secondly is cost management. Extremely important to ensure we manage the cost carefully. And we were fortunate that in 2023 versus 2022, one of the highest costs was naturally the utility costs. And we managed to get a lower rate in the second half. So you see a second half improvement in basically the margin from a reduced OPEX. At the same time, we also restructured our property management agreement to get stronger alignment between the REIT as asset owner and the property manager. So what that entails is the typical arrangement with a property manager is that the REIT actually carries some costs. So in the revised property management agreement, we have structured such that certain element of a cost, specifically the manpower cost relating to leasing, is taken away. And we compensate the property manager on a transaction basis. So they close the deal, you get paid commission. So in a way, there's a bit of more closer alignment in terms of where the revenue generation and cost incurrence. So in the long run, I think we should see the benefit even clearer. So we have been cautiously trying to focus these two. And as you see, throughout the year, naturally, obviously, we had a benefit in the first half of 2023. A lower base in 2022, we've seen a big ramp up and gradually taper down in second half. And as a result, all this active work, you see our operating metrics has been very stable. portfolio occupancy has gone up 97.3% just last year, beginning of the year. Valuation has gone up as a result of very strong operational improvement. Rental rate has achieved higher than what we expected. We also started to look at cost minimization in the REIT perspective by looking at where relevant, certain building, the cost, required restructure and hence certain costs would be passed on to the basically occupier. So we adjusted service charts during the year as well. So all this accumulated into a very healthy kind of operational number. So this is a little bit of backdrop on the financial number. In the short term, this is what I've been doing in the 2023. But in the mid to longer term, in fact, during the year, we have started to think about where the new revenue stream is going to come through. With the completion of Clark Key in November this year, and it should be fully ramped up hopefully by second quarter, then we have started to think about where is the new source of income stream. And hence, we announced that we are going to do an upgrade on IMM to reposition IMM stronger as a key regional outlet more, not just in Singapore, but hopefully around the region as well. So that story hopefully could carry through as we start to do the work along the way. And as of now, we are very pleased that even we have even started the work at IAMM, we have already secured 70% of the pre-commitment in our AEI space. So that's a series of work that we are planning ahead. In the very longer term, we also, and this is also in the back of everyone's mind, including some of you that we were talking earlier about what we're going to do with Galileo. We started to embark on a, I would say, fairly defensive to ring fence the asset so that we can protect the value for a longer period of time. If you recall, Galileo was built for own use. Historically, it's owned by a bank built for themselves. Subsequently, it was divested to a different owner and eventually CICT bought over. So that building is constructed not for a general multi-office letting environment. So we want to do that correction so that in eventuality, whichever prospective tenant that we prospect out, we can survive the next five to 10 years without to worry about a single tenant exposure because the building is built for own use. So that is something that we are working on. And naturally, a few things that will come along the way as we completed the Australian acquisition, we knew that there are certain gaps we need to fill, and we started to plan in the necessary upgrade in the field by assets, and hopefully you get some traction. Again, that will bring additional revenue source. So if you look at the long runway, we have crossed the 23, quite successfully. We entered in 2004, a few work to be done. And hopefully once that clarity along the way in 2004, you probably can see even 25, 26, where will be the potential new revenue stream will start coming in, right? So those are critically important for us to manage. So that's a little bit of backdrop. The other thing that was highest, so this is all at the asset level. At the financing level, We also very later focus on making sure we manage the interest expense. I think later a million, we level it a little bit more. So one of the key priorities, very active cash management. Active cash management, active, so I tell a lot of our folks, It's not like two years ago. Today, money is very expensive. It's no longer cheap to hold money. So we need to make sure that we get the cash in as quickly as possible and minimize any unnecessary kind of loan on your balance sheet. That effectively will bring down your average cost of debt. So you can see our average cost of debt has creeped up a little bit at this point, despite the heavy load that we are carrying. So I think that's, in a way, a manifestation of... very active cash management, active deployment of cash efficiently. At the same time, looking at different instruments that we are able to tap to get the different source of financing. So hopefully we will eventually continue to do that in 2024 and hopefully we can deliver surprises for you guys. Yeah. Yeah.

Okay, we just have a couple of slides that we definitely for unitholders out there who will be interested to learn, which is that our distribution for the second half 2023, it's 5.45 cents. So this will actually be paid out in March. So please look out for the details. So now maybe we move on to the next section on the valuation. So I think, Tony, would you like to share a bit about some of the thoughts about what we have actually achieved for valuation?

Yeah, so if we probably can see from the slides, right? So Singapore has been naturally the champion, has been the strong performer in our portfolio. Today contribute more than 93% of our portfolio proposition, right? And the natural strong underpinning on this valuation uplift, strong underpinning reason is obviously the operational improvement that we've seen with the strong rental reversion and the high occupancy. So that, in fact, cut across all the asset segment within our portfolio. We've seen a little bit of downdraft in the overseas assets, largely driven by a expansion of cap rate, particularly in, for example, Australia, it's been a very transactional market where the cap rate has been transacted at a lower, more expanded cap rate. And for Germany, it's factored by essentially a terminal cap. Terminal cap has gone up, and hence overall valuation has came down. So I mean, in short, Of course, there are a variety of reasons from geopolitics, political tension in Europe, as well as the economic winners in Australia. These are fundamental reasons that are affecting and high interest rate environment as well.

Thanks, Tony. So maybe now moving on to our debt maturity profile. Okay. So probably a question for Mei Lian. So given that CICT, we have about $1.5 billion of debt that's coming due in 2024. So what are we thinking in terms of managing this debt financing?

$1.5 billion, about $540 million is debt that is booked at Capital Spring, JV level. So there are plans to refinance the loan for another two to three years. And of the 1 billion, of the 1.5 billion, 1 billion is on CICT's book. So we'll be looking to refinance. But of course, in terms of our available committed facilities that we have on hand, actually we have sufficient lines to actually repay these loans. But we'll be looking to refinance it, possibly with tapping the bond market to lengthen that maturity profile.

And are there any foreign currency debt within this 2024 financing? They are mainly in Sing dollars. Okay. And also, since we are still on the capital management, should we expect any changes to CICT's capital management strategy in 2024?

Overall, I think our capital management strategy has served us well. Notwithstanding the market uncertainty, we continue to have... good access to loans and debt capital markets with our strong financial position. And so this enabled us to achieve the optimal funding costs and our desired debt maturity profile. And also on interest rate, we have kept more than 70% of our debt on fixed rates to mitigate interest rate volatility. And on funding the overseas investment, we've adopted natural hedge. that allow us to mitigate the effects of volatility on a balance sheet.

Okay, I think that's good to hear. And then I guess the question that most want to know would be, what is our outlook for our average cost of debt by the end of 2024?

We don't have crystal ball. So I can make the assumption that, you know, under this current market condition, we're not expecting further rate hikes But as to the question of when rate cuts will come, it's quite uncertain now, possibly in the second half. So if we assume the current interest rate levels, we'll be looking at overall debt costs around the mid-3% range. Thank you.

So now we move on to our portfolio. I think this slide we have here shows the high occupancy of our portfolio. So there's a question for each one. So given our, are you satisfied with the current portfolio matrix? Are there things that you would wish to do more?

I think credit to the team, you know, deliver a good set of operating metrics this year. And I say that generally as a portfolio, we have very good quality and resilient assets that's located in your transportation hub in very bustling bikes. So the intention and objective for us is really to continue to build on this resilience to have that diversification in our asset types across, you know, the retail and office as well as to achieve high committed rates and then to keep our average lease expiry at above three years. I think there's a level that we're very comfortable at.

And then also, are there any major risks that we should expect in 2024?

I think the first thing would then be definitely the question is leasing risk, right? I think we are proactively managing this leasing risk. In fact, actually, in the last quarter, we have actually assigned more than 400,000 square feet or near-renewed leases across both your retail and office, which is actually quite a good performance for year-end, considering a lot of people actually go overseas, right? And so we are already in talks with a lot of the tenants that are due in the first half of 2024. So top of mind, I think, just now Tony kind of mentioned, is that Galileo, right, with the Coba exit, even though, you know, we have shared that the work will take at least about 18 months, we are already in advanced negotiation with the prospective tenants.

So we have a nice uplift in terms of rental revisions for our retail portfolio. So are we expecting a similar trend for this 2024 lease expiry?

So if we look at our numbers for the 2003, we actually got a positive reversion of 8.5%. And I would say that with limited availability of prime spaces in in Singapore, right? Then if we look at it also, we also see very good demand from retailers. And so actually, when we got a lot of interest coming from F&B, your beauty and health, as well as your fashion, both from local and overseas brands, I think this will help to actually sustain that momentum for positive reversion.

And on the operating matrix, would you like to share a bit on the tenant sales, the square foot and the shopper traffic?

Well, tenant sales, on a full year basis, we show positive numbers, as you can see. Of course, there's a little bit of pressure come the first quarter. I think tenant sales was not as clearly a year-on-year sharp increase, but the uplift driven by the surge in tourism arrival over the full year, plus the heightened local consumptions, actually helped to give a good year-on-year number. Gino Fransman, Looking ahead, I think that there might be some challenges when it comes from our pressure in terms of retail sales for the economic uncertainty and just the height potentially. Gino Fransman, So it's really for us to really work very closely with our retailers right to drive more programs to curate more programs to actually help to drive sales and traffic into our more. Gino Fransman, And to just add on it, I think, so trade categories across. I think if you look at the site, across the trade categories, they actually show quite a good improvement. But we also have to take note that potentially in 2024, we might still see the challenges such as manpower shortages and your higher operating costs for retailers will continue to persist. So I think it's good more like ours will probably create better retail offerings and then to really try and build on that more experiences for our shoppers and our retailers.

Moving now to the office side, are there any opportunities that we can see in the office portfolio?

For office portfolio, I would say the year-on-year occupancy, it shows a good improvement across all the different geographies. For Singapore, I think the strong rental reversion was very good to see. In fact, the last quarter was a little bit better than I expected. We continue to see good interest levels coming through from the wealth and asset management, your financial services, legal, and even your flex space operators. On a full year basis, actually, there was more net expansion rather than downsizing. So I would say that for 2.4 looking forward, Potentially, you might see a bit of volatility in your EACBD kind of vacancy, as well as your secondary stock with the completion of IOI. But if we look at it in the mid-term, we are quite comfortable in the sense that with limited supply and then the flight to quality and flight to green, it will actually play and benefit our portfolio a little bit.

How about the overseas office?

Overseas, I think for Sydney, the challenge for leasing side as well as the elevated kind of incentives will continue to persist for 2024. Well, the CBD side, Sydney core CBD is actually having a bit of a bright spot last year and going forward, The sub-markets will probably still be a bit challenged for 2024, especially North Sydney is one of those. So definitely we have to continue to build on that occupancy that we see. And how do we do that? It's really trying to inject some of the new product offerings as well as services that we do. Later we will probably share a little bit more. one of the expiries that we have at 100 after a major exit was actually, we have actually backfilled a big part of it with Gallagher, which we actually signed up for this year.

So I think since we talked through the portfolio and all, I think now we are at the value creation stage. things that we have shared. But I think Tony touched on this earlier, that about our AEI plans for this year. So is there any of the three AEIs that we would want to highlight to share a bit more details?

Probably. Yeah, probably I'll share more. So I think last year, a lot of questions about what are we going to do when CQ is completed. And we said we are actually doing a few studies across different spectrums of projects. So we are happy to share three of those for Go24. So we are quite fair, right? We do one in each geography so that we keep everybody busy. So for Singapore, we start with IMF and we'll do this $48 million upgrading. A big part of the focus is really to refresh and rejuvenate that ground floor, but we will try to introduce even more outlet stores to really kind of strengthen its position as an outlet mall. On top of that, we will also try to right-size the supermarket, improve the circulation, and also the facilities and amenities to actually elevate the whole shopping experience. So this is actually a proactive step that this whole project will take probably all the way until next year, but it will carry out in four phases. So the first phase of it will start this quarter, and then it will probably end by the end of this quarter. So even then, this quarter, and then it will probably end by the end of this quarter. So even then, the mall is still operating, so please do continue to visit the mall. So for Germany, I think we have mentioned quite a bit of it. So this is something that along the way when we have more details, we will be happy to share more. But this is a project that we really probably have to do. And the last one will be As I mentioned just now earlier, I think this whole return to office is an encouraging trend that we see in Sydney. There's actually an increasing return to office. I think a lot of companies realised that the past two years was a little bit sub-optimal in their productivity. So they've been trying to get people back. Of course, the core city is the one that is seeing a little bit more of that. The take-out is actually quite good. But eventually, we hope that it will actually go to the rest of the sub-markets But we have to be proactive about this. And what we want to differentiate our properties in North Sydney is that on top of just the traditional office, Last year, we actually introduced flex in all our offices in Sydney. And then this year, what we are going to do is that we are going to upgrade the 101 Miller. There's this upgrading that we are going to do the main lobby, where we will actually activate a communal space. We will actually provide a better arrival experience and also to actually create a more seamless access between the Greenwood Plaza Mall together with the office itself. So this will actually improve the kind of connectivity at a wider precinct level. And the meeting rooms, all these also help to provide tenants with a little bit more offerings in their attempts. We want to support their attempts to actually bring their employees back to office. And similarly, we are doing something similar at 100 After with TWP. So the lobby that we do, there's meeting rooms in the ground lobby. There's also this activation community that we are doing with the work project.

Thanks each one for sharing about the portfolio. I think now it's timely that we will invite Jacqueline, our Head of Investment. Jacqueline, maybe you can share about the investment market that we're seeing.

With inflation beginning to ease, we see interest rates looking like they may have peaked. There has been an increase in interest in the investment market in the second half of the year. You may recall that in the first half, it was really very quiet. But the interest has been returning more to like the Singapore and Australian markets. Germany remains very, very quiet. The slight to quality theme remains. So for the SG market, I think you will recall that in the first half, most of the transactions were like shop houses and strata offices. But in the second half of 2023, we began to see larger deals being announced in both the office and the retail markets. The pricing was stable and also reflected therefore in valuations, cap rates remain relatively unchanged. In the Australian market, on the other hand, also in the first half, the deals were small and activity was low. But in the second half, there was more activity and larger deals being announced both in the office and retail markets. But in Australia, I think we saw more discounting. And so as a result of that, cap rates also expanded and then it affected valuations. Germany remained very, very quiet throughout the year. There were hardly any transactions. And even when there were, they were like mostly below 50 million in size. So I think in the German market, because they have come from a period of very low interest rates, the market is still trying to find the right level. So there's a very huge gap between the expectation of buyers and sellers. And therefore, we see kind of like a deadlock and hardly any transactions happening. But I think the good thing is that rentals are still holding up.

Then, yeah, I think the next natural question is that, so looking across all these geographies, what would be CICT's focus?

I think CICT's focus will still be on Singapore predominantly. Thank you.

So after hearing from the panelists, we will now open the session to Q&A. For those present in the room, please raise your hand and we will hand you a microphone. And then you please identify yourself and keep your questions to two each time. And for those joining on the online webcast, you can type your questions into the chat box and we will ask the questions on your behalf. So we have the first question from Mervin.

Hi, Mervin from JPMorgan. Yeah, thanks for the format. It saved us... asking a lot of questions, given you readdressed a lot. The first question I have is in terms of the thought process around the DRP. You've addressed investor concerns with gear below 40. Why go ahead with the DRP? And then obviously there's press reports of CICT potentially selling tree properties as well. So maybe some thoughts around that. On the retail side, there are very strong rental reversions. Congrats on that. Four quarters seems a bit slow. Maybe it can help us quantify the year growth and your thoughts about occupancy costs for full year FY23. How does that compare? Remind us how much, how does that compare against FY, pre-COVID levels? How does that compare? Remind us how much, how does that compare against FY, pre-COVID levels and how much harder it can push? Yes.

Okay, thanks, Mervin. Yeah, the question I can answer, maybe you want to drop a little bit on the DRT. I think we always have this tool available for us It's part and parcel of your capital management too. And given where we are trading, I think it's quite fair to allow the investor the choice where they want to redeploy their capital back to our stock side. And hence, at the same time, we can conserve a little bit of cash. Yeah, the valuation came down last year to a lot of effort from our team on the ground to manage the operation. 39.9% is something that's manageable. Ideally, I think I've addressed before, ideally over time, we'd like to bring down the gearing to reflect a different interest rate scenario, an interest rate era. 39.9% is good, but a little bit lower would be better. Second question, the one you read in the news, right?

Yeah.

Generally, we don't comment on it most. But it's actually not unusual for us to engage the market. And time to time, we get people who speak to us and say, we can open up the dialogue. Sometimes it leads to some kind of commercial deal. Sometimes it doesn't. So to us, it's quite possible getting the dialogue in. And in a way, it's a good manifestation of the interest coming back in the investment market, which is very important. We need liquidity to come back. so that the real estate market overall can thrive.

The third question is from the retail department.

Fourth quarter rent reversion is a very low double digit for the portfolio. And it's across all three, across both urban and downtown. Oh, sorry, tenant sales. Tenant sales... Marginal down.

November was weak, December was better, but still down on the year-on-year. But very marginal overall. I think occupancy costs remain healthy. Today we end the year about 16.3%, which is really healthy. And then that is the portfolio, right? We start urban and downtown, naturally will be different. Start urban, you can say easily in the mid-teens. slightly higher on the downtown, but still below 20%. So I think we're in the healthy range.

Yes, Joy. Joy from HSBC. So two questions from me. First, just following up on that investment divestment, I think you mentioned there's a narrowing gap in the aspect in Singapore and Australia. What sort of return do you expect want to achieve when it comes to divestment? How do you think about divestments in terms of pricing and what are the sort of bids or comfort level? Are you all sort of expecting?

I can give a little bit of color. Maybe Jacqueline can help chip in. We don't look at divestment in isolation. For us, it's part and parcel of our portfolio reconstitution. So it's about if we do have to monetize some assets, naturally next in our mind is how you're going to deploy it. So that's the entire equation. And then depending on deployment, depending on timing of deployment, that may to some extent also affect our decision making. So in isolation, very hard to tell you a story. But naturally we want it to, I think most of you have seen in the transacted market that happened is above valuation. So it's not unexpected for us to expect any kind of monetization above our valuation.

And that includes Australia as well, after the write-down now. So you're very comfortable to achieve?

At this point in time, I think we have some work to do in Australia. I think each one has mentioned some enhancement. I think I talked about it at the beginning, some gaps between what our assets are offering and what is in the market there. So we're trying to fill the gaps. To a large extent, we're buying ourselves time because the return to office is coming back stronger in the core CBD. But even within the CBD itself, core CBD is not a uniform phenomenon. Certain pockets are very vibrant. I think we know that there's certain element that's important in a CBD environment. Just take lessons from Singapore. CBD environment is just purely on the Offering CBD environment is just purely on offering a workspace solution without surrounding amenities upgrading. That's going to be more difficult to happen. So one of the challenges for North Sydney is that regeneration of activity hasn't really crystallized yet in a fast pace. It started with the infrastructure work with the Victoria Station, which is coming on due. I think they are operational soon. That would, as the first step, narrow the travel distance between suburb and CBD. So that's an important step. Second, what makes North Sydney more interesting? So that's a few element to play. I think naturally, we have to work very closely with even the Sydney Council, North Sydney Council, to look at placemaking. And to do that, we need to get our asset available in a position where we can take advantage. So the upgrade that each one mentioned, the lobby interfacing with the outdoor space, that's a perfect location for placemaking. And we're doing that work now.

My second question on Galileo, can you update on the tenant potential leasing that you're looking at? And also, as you go through this CapEx process, if market opens up, will you still be able to sell during your CapEx period?

Okay, so we are still in discussion, very advanced discussion, naturally with a single, largely a single tenant for the large majority of the buildings. I mean, it seems to be a drop in occupancy because we do have some retail which we need to clearing up for the upgrade work. So hopefully we can update a little bit more when we cross the line, but quite advanced. In terms of the CAPEX work, I think we elaborate a little bit. It's really about ring fencing. Whether we can sell, I think we will have to assess at a point in time. If you cross the line with a single LAT, then you get a certainty of a good long-term cash flow. Time may be in our hands better to look at the divestment, if we ever happen to think about divestment, the timing.

Thank you. I think this Rachel has a question. Hi, good morning, Tony and Tim. Thanks for this new format and congrats on the strong result. So a few questions for me, just following up on the potential asset divestments, right? I mean, Jacqueline, you mentioned there's more interest. In the article, there was one asset each from each asset class. So I'm just wondering what kind of interest are you seeing that's coming through? Who are the buyers? Like what sort of buyers are there? And which asset class sort of get a bit more interest? Yeah.

We cannot comment on rumours, but if you are asking about the general market, then in the second half of the year, there has been interest returning, and from the transactions that have been announced, it has been in retail as well as office. Obviously, retail, because it trades at a higher yield, would be easier for numbers to work. But I think whether people buy retail or office really is quite asset-specific, because it depends on the location, the asset attributes, and what value add they think they can add when they do the purchase.

Maybe I can just add the state of fare in the market actually is better compared to, let's say, six months ago. It's in a way a reflection of a better risk appetite. You have seen a couple of transactions in the different segments from strata, shop lots, to strata flow, to retail, sizable retail transactions. The more reason why it's a big office transaction. challenges in the general global environment from a real estate perspective is where the private equity are deploying. And a lot of them are doing through internal rationalization, right? So over the last six to 12 months, nothing happened at all. We're beginning to see some interest from private equity as well. So I think it'll start coming back over time. We just need to see transactions happen.

Sounds good. Thanks. Next question is, I think you talked about, you know, ideally you want to pare down gearing. What kind of level of gearing levels would be ideal for you?

I would say the 37, 38% that kind of level will give us sufficient, enough flexibility to kind of give a good yield on your number.

Gino Fransman, Looking ahead, I think that there might be some challenges when it comes from our pressure in terms of retail sales for the economic uncertainty and just the height potentially. Gino Fransman, So it's really for us to really work very closely with our retailers right to drive more programs to curate more programs to actually help to drive sales and traffic into our more. Gino Fransman, And to just add on it, I think so trade categories across. I think if you look at the site, across the trade categories, they actually show quite a good improvement. But we also have to take note that potentially in 2024, we might still see the challenges such as manpower shortages and your higher operating costs for retailers will continue to persist. So I think it's good more like ours will probably create better retail offerings and then to really try and build on that more experiences for our shoppers and our retailers.

Moving now to the office side, are there any opportunities that we can see in the office portfolio?

For office portfolio, I would say the year-on-year occupancy, it shows a good improvement across all the different geographies. For Singapore, I think the strong rental reversion was very good to see. In fact, the last quarter was a little bit better than I expected. We continue to see good interest levels coming through from the wealth and asset management, your financial services, legal, and even your flex space operators. On a full year basis, actually, there was more net expansion rather than downsizing. So I would say that for 2.4 looking forward, Potentially, you might see a bit of volatility in your EACBD kind of vacancy, as well as your secondary stock with the completion of IOI. But if we look at it in the mid-term, we are quite comfortable in the sense that with limited supply and then the flight to quality and flight to green, it will actually play and benefit our portfolio a little bit.

How about the overseas office?

For overseas, I think for Sydney, the challenge for leasing side as well as the elevated kind of incentives will continue to persist for 2024. Well, the CBD side, Sydney core CBD is actually having a bit of a bright spot last year. And going forward, But the sub-markets will probably still be a bit challenged for 2.4, especially North Sydney is one of those. So definitely we have to continue to build on that occupancy that we see. And how do we do that? It's really trying to inject some of the new product offerings as well as services that we do. Later we will probably share a little bit more. One of the expiries that we have at 100 after, a major exit, we have actually backfilled a big part of it with Gallagher, which we actually signed up for.

So I think since we talked through the portfolio and all, I think now we are at the value creation things that we have shared. But I think Tony touched on this earlier about our AEI plans for this year. So is there any of the three AEIs that we would want to highlight to share a bit more details?

Probably. Yeah, I'll share more. So I think last year, a lot of questions about what we're going to do when CQ is completed. And we said we're actually doing a few studies across different spectrums of projects. So we are happy to share three of those for So24. So we are quite fair, right? We do one in each geography so that we keep everybody busy. So for Singapore, we start with IAM and we'll do this $48 million upgrading project. A big part of the focus is really to refresh and rejuvenate that ground floor, but we will try to introduce even more outlet stores to really kind of strengthen its position as an outlet mall. On top of that, we will also try to right-size the supermarket, you know, improve the circulation and also the facilities and amenities to actually elevate the whole shopping experience. So this is actually a proactive step that this whole project will take probably all the way until next year, but it will carry out in four phases. So the first phase of it will start this quarter and then it will probably end by the end of this quarter. So even then, the mall is still operating, so please do continue to visit the mall. Yeah, so... For Germany, I think we have mentioned quite a bit of it. So this is something that along the way, when we have more details, we will be happy to share more. But this is a project that we really probably have to do. And the last one will be For North Sydney, as I mentioned just now earlier, I think this whole return to office is an encouraging trend that we see actually in Sydney. There's actually an increasing return to office. I think a lot of companies realized that the past two years was a little bit suboptimal in their productivity. So they've been trying to get people back. Of course, the core city is the one that is seeing a little bit more of that. The takeout is actually quite good. But eventually, we hope that it will actually go to the rest of the sub-markets But we have to be proactive about this. And what we want to differentiate our properties in North Sydney is that on top of just a traditional office, last year, we actually introduced flex in all our offices in Sydney. Last year, we actually introduced flex in all our offices in Sydney. And then this year, what we are going to do is that we are going to upgrade the 101 Miller. There's this upgrading that we are going to do to the main lobby, where we will actually activate a communal space. We will actually provide a better arrival experience and also to actually... create a more seamless access, right, between the Greenwood Plaza Mall together with the office itself. So this will actually improve the kind of connectivity at a wider precinct level. And the meeting rooms, all these also help to provide tenants with a little bit more offerings in their attempts. We want to support their attempts to actually bring their employees back to office. And similarly, we are doing something similar at 100 After with TWP. So the lobby that we do, there's meeting rooms and a ground lobby. There's also this activation community that we are doing with the workforce.

Yeah, thanks each one for sharing about the portfolio. So I think now it's timely that we will invite Jacqueline, our Head of Investment. Jacqueline, maybe you can share about the investment market that we're seeing.

So with inflation beginning to ease, we see interest rates looking like they may have peaked There has been an increase in interest in the investment market in the second half of the year. You may recall that in the first half, it was really very quiet. But the interest has been returning more to the Singapore and Australian markets. Germany remains very, very quiet. The slight to quality theme remains. So for the SG market, I think you will recall that in the first half, most of the transactions were like shop houses and strata offices. But in the second half of 2023, we began to see larger deals being announced in both the office and the retail markets. The pricing was stable and also reflected, therefore, in valuations, cap rates remain relatively unchanged. In the Australian market, on the other hand, also in the first half, the deals were small and activity was low. But in the second half, there was more activity and larger deals being announced, both in the office and retail markets. But in Australia, I think we saw more discounting. And so as a result of that, cap rates also expanded and then it affected valuations. Germany remained very, very quiet throughout the year. There were hardly any transactions. And even when there were, they were like mostly below 50 million in size. So I think in the German market, because they have come from a period of very low interest rates, the market is still trying to find the right level. So there's a very huge gap between the expectation of buyers and sellers. And therefore, we see kind of like a deadlock and hardly any transactions happening. But I think the good thing is that rentals are still holding up.

I think the next natural question is looking across all these geographies, what would be CICT's focus?

I think CICT's focus will still be on Singapore predominantly.

Thank you. So after hearing from the panelists, we will now open the session to Q&A. Okay, for those present in the room, please raise your hand and we will hand you a microphone and then you please identify yourself and keep your questions to two each time. And for those joining on the online webcast, you can type your questions into the chat box and we will ask the questions on your behalf. So we have the first question from Mervin.

Hi, Mervin from JPMorgan. Yeah, thanks for the format. It saved us... asking a lot of questions, given you readdress a lot of them. The first question I have is in terms of the thought process around the DRP. If a dress investor concerns we're gearing below 40, why go ahead with the DRP? And then obviously there's press reports of CICT potentially selling tree properties as well. So maybe some thoughts around that. On the retail side, there are very strong rental reversions. Congrats on that. Fourth quarter seems a bit slow. Maybe it can help us quantify the year growth and your thoughts about occupancy costs for full year FY23. How does that compare? Remind us how does that compare against pre-COVID levels and how much harder it can push? Yes.

Thanks, Mervin. Yeah, the question I can answer, maybe you want to drop a little bit on the DRP. I think we always have this tool available for us. It's part and parcel of your capital management tool. And given where we are trading, I think it's quite fair to allow the investor the choice where they want to redeploy the capital back to our stock side. And hence, at the same time, we can conserve a little bit of cash. Yeah, the valuation came down last year to a lot of effort from our team on the ground to manage the operation. 39.9% is something that's manageable. Ideally, I think I've addressed before, ideally over time, we'd like to bring down the gearing to reflect a different interest rate scenario, an interest rate era scenario, an interest rate era. 39.9% is good, but a little bit lower would be better. Second question, The one you read in the news, eh? Yeah. Generally, we don't comment on it most. Yeah. But it's actually not unusual for us to engage the market, no? And time to time, we get people who speak to us and, yeah, we can open up the dialogue. Sometimes it leads to some kind of commercial deal. Sometimes it doesn't. So, unto us, it's quite possible getting the dialogue in. In a way, it's a good manifestation of the interest coming back in the investment market, which is very important. We need liquidity to come back so that the real estate market overall can thrive.

The third question is on the retail performance. You want to talk about it?

On fourth quarter rent reversion, it's a very low double digit for the portfolio. And it's across all three, across both urban and downtown. Oh, sorry, tenant sales. Tenant sales... Marginal down.

November was weak. December was better. But still down year on year. But very marginal overall. I think occupancy costs remain healthy. Today we end the year about 16.3%, which is really healthy. And then that is the portfolio. With urban and downtown, naturally it will be different. Urban you can say easily in the mid-teens. slightly higher on the downtown, but still below 20%. So I think we're in the healthy range.

Yes, Joy. Joy from HSBC. So two questions from me. First, just following up on that investment divestment, I think you mentioned there's a narrowing gap in the aspect in Singapore and Australia. What sort of return do you want to achieve when it comes to divestment? How do you think about divestments in terms of pricing and what are the sort of bids or comfort level? Are you all sort of expecting?

I can give a little bit of color. Maybe Jacqueline can help chip in. We don't look at divestment in isolation. For us, it's part and parcel of our portfolio reconstitution. So it's about if we do have to monetize some assets, naturally next in our mind is how you're going to deploy it. So that's the entire equation. And then depending on deployment, depending on timing of deployment, that may to some extent also affect our decision making. So in isolation, very hard to tell you a story. But naturally we want it to, I think most of you have seen in the transacted market that happened is, above valuation. So it's not unexpected for us to expect any kind of monetization above our valuation.

And that includes Australia as well, after the write-down now. So you're very comfortable to achieve?

At this point in time, I think we have some work to do in Australia. I think each one has mentioned some enhancement. I think I talked about it at the beginning, some gaps between what our assets are offering and what is in the market there. So we're trying to fill the gaps. To a large extent, we're buying ourselves time because the return to office is coming back stronger in the core CBD. But even within the CBD itself, core CBD is not a uniform phenomenon. Certain pockets are very vibrant. I think we know that there's certain element that's important in a CBD environment. Just take lessons from Singapore. CBD environment is just purely on the offering a workspace solution without surrounding amenities upgrading, that's going to be more difficult to happen. So one of the challenges for North Sydney is that regeneration of activity hasn't really crystallized yet in a fast pace. It started with the infrastructure work with the Victoria Station, which is coming on due. I think they are operational soon. That would, as the first step, narrow the travel distance between suburb and CBD. So that's an important step. Second, what makes North Sydney more interesting? So that's a few elements to play. Naturally, we have to work very closely with even the Sydney Council, North Sydney Council, to look at placemaking. And to do that, we need to get our asset available in a position where we can take a set available in a position where we can take advantage. So the upgrade that each one mentioned, the lobby interfacing with the outdoor space, that's a perfect location for placemaking. And we're doing that work now.

My second question on Galileo, can you update on the tenant potential leasing that you're looking at? And also, as you go through this CapEx process, if market opens up, will you still be able to sell during your CapEx period?

Okay, so we are still in discussion, very advanced discussion, naturally with a single, largely a single tenant for the large majority of the buildings. I mean, it seems to be a drop of occupancy because we do have some retail which we need to clearing up for the upgrade work. So hopefully we can update a little bit more when we cross the line, but quite advanced. In term of the CAPEX work, I think we elaborate a little bit. It's really about ring fencing. Whether we can sell, I think we will have to assess at a point in time. If you cross the line with a single LAT, then you get a certainty of a good long-term cash flow. Time may be in our hands better to look at the divestment, if we ever happen to think about divestment, the timing.

Thank you. I think this Rachel has a question. Hi, good morning Tony and team. Thanks for this new format and congrats on the strong result.

Sufficient enough flexibility to do a lot of things, even to take on any kind of opportunistic transaction if there's any in the market.

Sounds good. Thank you. Just one last question. Just on the reversions for office, I think you have already done quite a bit on, worked on quite a bit on the FY24 B6 diary. So what kind of reversions are you expecting for office?

On a full year basis, probably we hope that we can get somewhere in the mid-lingual, hopefully.

Okay, great.

Thank you so much. Thank you, Rachel. In front, Shane.

Hi, Tony. Hi, Tony. First question is on Galileo, right? The AI is actually quite sizable. What kind of rental uplift should we be expecting? And is the AI actually accretive to DPE?

I answered the first part of it and I have to be careful what I share so if we look at the we will definitely expect a rental update for certain how much of it is really subject to the finalization of our negotiations if we do secure the work is really quite extensive because a lot of the MEP and the HVAC systems for instance is really a little bit or if this is an understatement in fact. So actually a lot of work has to be done in that aspect.

I can give a little bit more colours. It's definitely a strong reversion from the outgoing. And the question is, of course, we need to fund that, right? It's likely at the moment it's going to be a bit bad funded. How are we going to fund it? That will mean whether there will be a net or Steve Carey. So that's something we are actively managing.

Thank you. Second question is on deployment. Can you talk a bit more about within both CLI and CLD's portfolio, what do you think is more attractive at this moment?

I think Jack mentioned, alluded before, depends on the trading view of that segment or the real estate segment. Currently, retail is still higher than office, and you have seen all the transactions. So from a pure numbers perspective, it looks like more retail is in a way more accretive from that angle. But having said that, I think we will look at it closely when the time comes.

Thank you. Can I go to Yuqiang first?

Hi, Yuqiang from CLSA. Two questions. The first one is... Would you consider initial DPU dilution for a short period of time and then post that you do asset sales to bring down gearing? Is that something you would consider or you would prefer to bring down gearing first than before you do investments? If acquisition comes to your plate, but you might see an initial dilution in the first year by the strategic asset, but then your gearing is a little bit stretched at the moment. Would you consider doing that first?

It's a very good question. I cannot give you a straight answer. It really depends on circumstances of the deal. So without having any specific in mind, um naturally we prefer the the other flow in this area yeah monetization like what your peers are doing um well you can say if they are doing that for the purpose of redeployment perhaps yeah i think that's a ideal situation um but like i say if it's something very strategic i think we ought to think through uh what sort of capital is required um we you know you you probably heard me say before, we will look at different source of capital, not just from the capital market, right? We can look at the potential partnership equity. So we don't have necessary all the time going into a transaction as a single owner. I mean, that's throughout the possibility, right? It all depends on the asset, the size, and our reconstitution plan, you know, the timing, what's going to happen. So all this has to put in place. But ideally, we prefer to, I would say, I think ideally, a little bit of money in the bank is easier from an execution point of view.

Second question is on WeWork and, you know, exposure. How should we think about that? Any major expiries or renewals coming up this year?

It's still a tenant. They're still paying rent at this moment. So we treat them as a tenant So, so long as they are tenant, we treat them as a tenant. So, so long as they are tenant, we're okay. But Yichuan Di alluded just now in one of the comments he made about the fourth quarter, particularly the robustness of the market is still relatively healthy, including agile space operator, the likes of the WeWork and Mindia are still active in the market. So I think we are not overly concerned It's a question whether there will be downtime if it happens, right? If anything happens, do we work? Because it's a single tenant exposure to the gallery, would there be a downtime? And what kind of downtime we're talking about? So that's more the frictional kind of occupancy that we have to deal with.

Okay. Derek?

Just one question from me. Looking at your retail portfolio going to 2024, if we split between Suburban and Orchard, which one do you think has better prospects for the coming year?

I have to be careful. Both have challenges and both have their key drivers. If you look at things that are planning out from a policy direction perspective, general government policy in the mid to long term. We know certain things will happen. They will affect demography, right? It's certainly going to see more people coming to downtown to live. It means live, not just work. It's live and work and play, right? So that's going to happen. And we've seen things happening already. You're probably also going to see more push to increase the commercial activity outside the core CBD. How far can it go? Hard to say, right? So, definition of suburban is, we put it, because we live here, we know, near where residential, you know, the kind of suburb location. But even within downtown, in CBD, you see the sphere is expanding. Used to be the core CBD, reference place, a little bit of Shandong way, today it's spending to federal space, the beach road, the city hall region, new regeneration coming up, and they are not paying low rent. Some of the rent are higher than what you pay in the cost CBD. It depends on the building attributes. So I think there's a bit of a moving part there. But that will affect, in a way, the attractiveness of living downtown. And hence, I think we're going to get more crowded downtown. So from that angle, there's quite a lot of work for us to do in our downtown mall, which we started with Raffle City, the big upgrade. And now we put in the Clark Key. Hopefully, we're able to track these people are living around you, right? And of course, you've got Boogie Junction, you have Boogie Slush, the Plough thing. Every single asset we have planned, it's just a question of laying out the priorities. Sa'aban will continue to be resilient. I think it will continue to be resilient. If the execution of moving people to basically jobs to where people are living, they essentially are saying that the location will create a life on its own. So I think that will stay fairly resilient or depends on ultimately the population growth in Singapore. But we're also trying to, at least in the short, medium term, to take advantage of the sudden surge in interest of having concert in Singapore becomes a very strong attraction. I'm sure you all know about it. And questioning in our downtown mall or even our IMM outlet, can we take advantage of that? Which is why you see what we're doing at IMM. We're also laying ground ready for the RTS opening up. You will know the impact. How that traffic will flow, you probably will know. But we also think potentially there will be opportunity to see some flow in. But who are these people you're going to track? Likely downtown, potentially RMM, hopefully Clarkie. So we need to reimagine our downtown assets.

Okay, thank you. Okay, Terence, we'll just go to online question and I'll come back to you. Okay, I think the question we have received online is from Yufai. The first question is, is there any particular drivers behind the 59% year-on-year spikes in utilities and marketing expenses, each in FY 2023, or were they one-off in nature? Or were they one-off in nature?

Can you talk about this?

I think overall efficiency is a function of reopening. So last year, you can see the reopening only happened in later parts. In 2020, sorry, in 2022, in 2023, you get a full year. So I think it's a little bit of a return to office, higher volume coming in, even though we have a lower contracted rate. The natural consumption has gone down a little bit more. Marketing expense, there's a little bit of a reclassification to some extent. If you recall, we put in the PMA, and I mentioned to you just now, where we take away some part of the manpower cost in the leasing side, but we compensate the leasing activity on the transacted basis. This commission pay is actually in the marketing line. So you can see a bump up in marketing, but essentially it's a reclassification. You should see a corresponding reduction in manpower cost.

Okay, thank you. The second question we have, I think from Yufai again, and also from Michael would be, More about CICT's plans for 2024, whether we will focus on enhancing existing assets or you will be expanding, whether it be overseas or in Singapore. The second question is about valuation. Because Singapore valuation held steady while the overseas assets fell, so in terms of acquisition, will we buy more in Singapore and divest overseas?

So I think I did touch a little bit on priority. It will be all that she mentioned. Essentially, we need to lay ground for future revenue stream, which already announced that AI is going to be one. Galileo, we know we are going to have downtime, but hopefully by mid or third quarter of 2025, we have completed the AI work and hopefully by then we can secure tenants. and hence you can see the revenue stream start coming in again. So it's all about planting the flag along the runway to allow a more sustainable kind of income growth in an entire portfolio. So that naturally will also include, if there's any opportunistic transaction out there, certainly we find part of the whole equation as well.

Maybe right now we go to Terence's question first before we come back to online. Terence Lee from UBS.

Can I go to slide 26 to ask a question? So if you look at the slower tenant sales growth relative to shopper traffic and you strip away inflation, GST high, is it fair to say then that the tenant sales per person actually declined quite a fair bit in 2023? And is this then a worrying trend?

Not necessarily. Well, certainly on the second half, you compare on the base effect, yes, 2022 on the second half, particularly in the fourth quarter, where you've seen a very strong ramp up in 2022, relatively it's a weaker fourth quarter. That's the truth. And whether that translates into a reduction in the per ticket, I don't think you can generalize that way. Our football has not gone back to pre-COVID, that's for sure. with still probably about 15% around there, about pre-COVID. So if on a per ticket, if you use that, may not be a true reflection because sometimes the traffic flow can be very transient, especially in the transportation hub. So again, I don't think there's a single matrix to really define whether per ticket has dropped. But if you look at anecdotally, with the inflation, most people are spending more. The question is maybe a fewer people are spending, but the ticket size may be higher.

Okay. And moving on to, you know, there's this saying that real estate market valuations tend to lag. And assuming this year turns out to be higher for longer and growth slows, I have a question on valuations. Is there a time limit or a typical point where valuers finally have to then raise the risk-free rate, assuming valuations?

You want to talk about this, Win?

I would say that if you talk about valuation in general, I always look at what the valuables assumptions are going to be. And I think so far, the valuation assumptions, I think, generally are still quite not very tight. I think if you compare across peers and what we have been doing, I think our cap rate assumptions have been generally quite OK. And I think part of it is also that at the end of the day, what is a bit question mark potentially is then what is the kind of transactions that we see in the market and whether or not it actually shifts some of these assumptions. But even if you look at the other matrix that goes into our valuation, I think in terms of the market rents assumptions, the growth rate assumptions, we are very comfortable with what we have.

So look at the transacted so far this year. it's well within the cap rate, whether it's office or retail. So I think from that angle, if value starts to look at a market-comparable transaction, I think it's still comfortable. In fact, if you look at some, particularly office transactions, it's on a very tight cap, right? Potentially even low 3% or even below 3%. But then, obviously, there are different reasons behind that. It could be a It could be a fund that's coming in with a certain value at play. There are certain upside in terms of what they can achieve post activity that could command a higher rent. If you use that purely from a benchmarking perspective, evaluate or look at across, scan across for reference point, then there's not a transaction that's transacted below current valuation cap. I'm sorry, about the current valuation.

In other words, higher for longer has no bearing on asset valuations until we see... At the moment, yeah.

But operationally, you need to run it well, right? So this year, we've done decent, 8.5%. I think even officially, we're clocking 9%. So that will translate growth, rental growth, coming down the road. If you continue to do that, hopefully, well, you know, each one mentioned, hopefully a single mid-single digit, then there's a demonstration of a rent growth by sure. I think that the value in general do not move that, whether it's terminal cap or the discount rate very easily. Similarly, in the earlier era, 2010 onward, when it's only one direction, you hardly see value and really move a lot in a terminal yield and the discount rate. So from a purely mathematical point of view, it is quite supportable. And logically, I think it makes a lot of sense because on the declining interest rate environment, you get liquidity in the market system, you get funds chasing after assets, right? As that valuation goes up, risk factors should go higher, theoretically. Similarly, I mean, I would say I would classify today Singapore market as a sort of a beginning to revive. It's gone through a stalemate. It didn't really go through a downdraft. It went through a stalemate. It started to revive and see ticket size coming back. Investment activity seems to be coming back. And investment risk on gradually seems to be coming back. So if all that pans out well, and if it came up in a situation where higher for longer, question is how that longer yield curve will look like, because ultimately it's the long-term rate that's more important than the short-term rate when it comes to valuation metrics. Thank you.

Okay, sorry, I know I said three of you, but I need to answer a couple of online questions first. Can we have the next online question? Okay, this is from Fraser. Are you paying out all cash flow from JVs and overseas entities?

By and large, yes. The net cash flow after servicing interest and operating expense, we will pay out to unit holders. With the exception of Galileo, as you know, we are embarking on the AEI. For the second half, we've actually retained cash at the entity level in Germany, as we anticipate there are more expenses coming on stream.

Thanks, Meilyan. So the other question we have is that, I think this is more on the overseas, the I think this is more on the overseas assets. I think generally it's asking about when do we expect, I think because of the various trends that we're seeing overseas, like work from home status. So what are we expected to see across the three geographies, the kind of portfolio performance?

So I think for the work from home status, I think the good thing is that as we get further away from the end of the pandemic, I think this talk about work from home, remote working starts to come down a little bit more. Let's talk about it more about hybrid working as a new norm. A lot of companies you hear wanting their staff to come back and this narrative is actually also getting stronger so instantly. So by and large, I would say that directionally, I think in terms of office demand, then it's not a bad thing to see. Of course, from an employee standpoint, it's debatable. So I think that in terms of Singapore, I would say that the office side of things, with the exception of a bit of that new completion supply that's coming through, by and large, I would say in the medium term, the office should still hold up pretty well, partly because there's limited supply. And I think for this year was actually kind of delayed to next year. So I think even now, everything is good. Probably we'll see a little bit more bigger delta between your premium grade offices and your grade B properties. And what they will then do is that when the grade B properties start to be a bit more under pressure and they are being taken out for redevelopment, then you will probably see it moving around some of these. So this whole flight to quality thing will still kind of persist as a general trend in the coming years. So for Sydney in particular, as we just now talked a little bit about it, right? So the flight to core is one of the themes that we start to see, core CBD. There's also the broader flight to CBD. Eventually, I think this will only come into play when, you know, when the core CBD starts to get filled out a bit more and the premium space gets filled out a bit more. It kind of press the rents up, right? And then, you know, that's where your flight to value will start to come in where tenants who want to go into good quality assets in good quality centralized location but they cannot afford the premium properties right then they'll start to look at the sub markets for good quality assets to go into so um but for north sydney in particular probably in a supply situation next year you will see a little bit more supply coming through that will probably kind of uh And then, of course, it will take a bit of time for us. I do think that for now, Sydney will take a bit more time. But in the long run, I would say that things should shape up okay.

I think it's a little bit of a phenomenon that's really played out also in the two overseas markets. As a result of a change in the interest rate environment, I think we'll probably see less and less money going to speculative markets redevelopment or speculative development. I'd like you, we witnessed in the past where capital was very cheap, almost free. You've seen a lot of capital driven towards potentially taking a bit higher risk from a development perspective. I think that kind of behaviour will probably come down because financing is also no longer easy. Not only about the actual cost of financing, but getting the financing is also not so easy. So that can move some equation away. Some of the overseas market does had a history of demonstrating supply that really come on stream sometimes a little bit unfettered and to a large extent that created a very unhealthy kind of occupied market because then many will be chasing after the same, unless it's the overall economy grows and you can see a net increase in demand from space, If it's in a very flat, this kind of economic environment where you see a wholesale of streams of development pipeline that keep coming to the market, then naturally the career be a downward force from a rent perspective and hence it will affect valuation. But in a cheap capital environment, you still get transactions happen. But in an elevated interest rate environment, I think it's going to be a bit more challenging. So we hope that will change a little bit of behaviour in the market landscape to overseas market. That's what we're observing. The other thing we're observing also quite clearly is being played out, what we're playing out here and starting to get a lot more talking is to bring people living into CBD. Sydney is the same thing. They're talking about conversion. Not easy. New residential development, also not easy. But they start to think about it. Eventually, whether that building is repurposed or something else, I mean, that's something to watch. But certainly, there's a lot of dialogue going on there. There's a lot of dialogue going on there. Is there a real possibility of creating that ecosystem where living, playing environments are a little bit more integrated? Yeah.

Thank you. I think just two more online questions. The first one is about average cost of debt. So the first part is, what is our average cost of debt for those maturing in 2024? And what is the expected average cost of debt for 2024? Probably missed the first part just now.

The first part is the average cost of debt for the debt maturing in 2024 is in the range of, you know, the low 3% range. And the expected average cost of debt for 2024 I mentioned earlier, it will be in the, you know, it will creep up to the range of mid 3% area.

Okay. Then the last question we have online is more general. From Michael, what is the impact of AI in particular, generative AI on our company and the industry?

That's a hot talking point, right? AI, everyone talking about it. I mean, honestly, we also look at what will be the use case for this new technology, generative AI. There could be different application, could be from a processing perspective, whether we get more efficient, but potentially there are some use case. It could be customer funding perspective, which we experimented before, so it's nothing new, whether it's a more enhanced version of a chatbot, working with the operator, looking at some possibility. Or can it be more predictive in nature? That's something that we at the moment still studying. So there could be different potential use case. At this point in time, we have experimented a little bit here and there, but nothing very, very significant at the moment.

Thanks, Tony. I think we will have Derek to respond. Ask the question first, then we'll go on to Donald.

Thanks. Congrats on the better operations. But just looking at the full year DPU, it's 10.75 cents versus the OCMT's FY19 DPU of 11.97. It's 9% gap still after three and a half years post-merger. We have seen another small retail REIT surpassing the pre-COVID DPU and NAV. So just how do we tell Australian investors that the combined CICT entity is financially stronger than the OCMT in terms of DPU and NAF, especially since some are thinking about examining?

I mean, that's a fair question. But I can also give you a fair answer. The interest rate environment is just different. If you try to extrapolate, at a point in time, where our funding cost is 2.3%, today average 3.4%. I think naturally that delta translate back, I don't think we are very worse off. So the landscape has changed. But certainly as a combined vehicle, I think we are a lot more resilient. Putting aside today, everybody's very positive about retail in Singapore. But it was going through a period was challenging, right? especially during the period of a complete lockdown. Unknown future, low income stream, commercial building health steady. So I think without this combination, we're seeing a lot more volatile and potential outcome that is unpredictable. Today, we have demonstrated that resilience is strong. We continue to deliver growth. Hopefully, the 12 cents that we're looking at is within sight. and we're working hard on it. But to be fair, 2.2%, 2.3%, average cost today, 3.4%, 3.5%, it's just different, I think.

I guess, is there an internal timeline on where you can get to that 12 cents? I mean, I get a point on the high interest rates, but if I tell that to investors, they'll point out that another Singapore retail REIT is suffer through the same set of operating cost challenges, but their own DPU has gone past pre-COVID levels already.

We don't want to give a forecast. If we continue to do what we are doing now, actively reconstitute our portfolio, drive growth, I think we will be there. I don't think it's a 10-year. I don't think it's five years. Hopefully, within the five years.

Thank you, Derek. We'll go to Donald.

Hi there, Donald from Bank of America. A few quick questions for me. On 21 Collier Key, I just want to check whether the valuers give a whole working discount in terms of the valuations, like how it's being applied elsewhere as well. It doesn't seem like it.

Because actually, WeWork is actually currently on a lease model. So it's treated as a normal lease.

So it's treated as a normal lease.

Okay.

That's fine. The second question is, Tony, you said that you want a lower gearing. But your capex is quite meaningful in the next one and a half years. So assuming you don't do any divestments, with all the AI CapEx, what sort of gearing will you end up with?

It's probably still within the 40-41 range.

41% range. 40-41 range. But you're saying you prefer it to be... Assuming no change in valuation. Assuming no change in valuation. So you prefer it to be mid-30s or somewhere under, right? Yeah, ideally you're bringing down a little bit.

So does that mean... At the right opportunity.

Does that mean that divestments is...

imminent because you need to fund the capex and by extension we have an acquisition that is um capex is not day one capex is uh progressive so i don't think we need to draw down 200 million today yeah it will be a very progressive exercise along the way active capital management cash management still key driving or asset performance still key So I think we have enough tools to manage around that. But in an ideal situation, we'd like the gearing to come down.

And one last question also on Galileo. How are you going to manage the lost rent from Galileo? Which assets is going to offset in terms of DPU loss from this in the next 18 months?

There's no specific asset. We do a series of activity. Including organically, we are growing our rental income. Hopefully that's enough to offset. Gallio contribution from a DI perspective is not huge. Looking at a low or maybe need single digit kind of contribution, not huge. Not low as well. If we look at our reversion number, we can cover that. Naturally, we've got to actively manage our interest costs. that will translate a bigger delta. I mean, interest cost is really the key, right? Interest expense is the single largest subtraction for your distribution, yeah.

So, but CAPSpring and CQ and RCS will contribute more? Starting to contribute, yes. Thank you.

Thanks, Donald. Gula?

Yes, sorry, thanks, yes. Tony, yeah, better than I expected. Results were better than I expected anyway. But I have a divestment and acquisition question. So the one is on, can you remind us what the conditions are for you to acquire Capital Spring? It's still, right?

We have a call option.

But what is the price work out to be if you did it today and-

But I think based on what was announced, we do have a call option, which can be exercised within five years from TOP. The TOP was, I think, in November of 2021. So that call option can be exercised within five years, and it would be at market price, subject to a minimum, which is based on the total development cost, less NPIs, and quarterly compounded at a predetermined agreed rate. So I think that was in the announcement. But we haven't worked out the number.

There's a formula there.

There's a fixed formula.

It's higher.

So would you be interested in that, or would you just let it lapse?

When it comes to it, we'll take a look. We still have some time to look at it.

Also on that, so in Germany, you've got that airport office. What is it called?

Main airport.

So was there a decline in its valuation? And would you, I mean, between... divesting that property and something in Singapore, what would you choose? What would you prefer to do?

Well, I think earlier Jack did allude there's nothing happening in Germany at all. So, first thing first, we need to see activity coming back. Then we assess. But in the meantime, I think we can't run away from the fact that we have to get the asset in good shape. and operationally run efficiently and try to get the best leasing outcome.

And then a question on your development. You've got a development percentage which you're not using now. What would that be? And would you be interested in tying up with maybe CLG or CLA? Maybe CLG or? CLA, can you tie up with CLA if they decide to do some redevelopment in Singapore?

So we do have 10% development limit, which today is untapped. I think it all depends on the circumstances and situation, whether it's a redevelopment of our existing asset, potentially, right? I mean, I think each one did mention that there are different things we are looking at. And then the question is, what does the end product fit? And the end product has to be designed for the best use case in that locality. And whether the end product fits in, if it's sold, can we take it? If not, how much can we take it? Then that's the iteration that goes around. If it's not, then the question is, can we get a capital partner? If CLD is an immediate partner, that's okay. If not, then is there going to be a third party equity partner? We've done that before, like Funan, right? Funan, we divested the service resistance, even during the development stage, where the product kind of fit into the integrated development, but that's not something we need to own it.

Okay, thank you, Gula. I think we have Vijay who would like to...

Hi, Tony. Just a couple of follow-up questions on the earlier question. Firstly, on CapitaSpring, do you think this asset has stabilized at this point of time? And if your sponsor made this asset available, would it be open to raising funds from the market in terms of equity fundraising options at this price level? Yeah.

So, I think we... Certainly, it's stabilized. It's 100%, right? It's not gone through one cycle. That's the only thing. It hasn't gone through a one-leash cycle. So, And it's important we witness that because for new development, the expense and post-stabilization expense will be different. So we need to make sure the number works. That's one. Second is, it's a very chunky asset, right? We don't necessarily have to own 100%. We own 45% today. Question is, should we own more?

So that's something we'll take it back and think about it. So you mean creep up by 5-10% if that option continues?

We'll take that back and think about it once we have a clarity in terms of how that number will work out.

Got it. Second follow-up question in terms of Galileo is that look at your AEA cost, it's about 75% to 95% of the exact asset value itself, overall asset valuation, latest asset valuation. Considering the downtime and the market conditions at this point of time, does this really justify putting so much capex in an asset where the market conditions are, maybe instead you can put it in Singapore or buy some other asset which can give you better ROIs. Is that a fair thing to say? Or how do you see this?

Regardless, we think if we put the asset out today on an S-Ease basis, you're not going to interest, right? So regardless, we need to fix some fundamental structure problem with the asset, which is not built for today's use. So we need to do that. Second is, valuation, the way they derive valuation is on the pure discount with assumption of terminal cap rate. With the passage of time, because you have a gap, right? The next 18 months, no income, but you are going to have CAPEX. Naturally, the valuation will come down. But with the passage of time, I think the valuation will creep up. Assuming the interest rate environment stays stable, just With the passage of time, the valuation should creep up again.

Lastly, on operational cost, do you expect this to stabilise and come down a bit this year? How do you look at margins for 2024 compared to 2023? Operational cost? Operational cost, do you expect it to come down this year?

Should margins stabilise? There are some levels they are working on. This 2024, you will probably see the full year effect from the new property management agreement that we have signed with the property manager. Right. And we try to work on the efficiency. That's one. Second, you also enjoy the full year of a lower tariff rate utility vis-a-vis 2023, which had a half year, which is pretty high, right? So naturally that's true. We could take advantage on that and try to be more efficient as possible. Then the ongoing thing that we're doing is looking at efficiency in terms of operation and that's together with our property manager looking at potential clustering of manpower so that we do not need more people even though we are expanding our business potentially. So that's something we have to discuss and work very closely with our property manager. And lastly, I think there are certain interesting a possibility out there where we look, we may go into it, we're still studying it. Would that make sense for us to look at a outsourcing certain part of the maintenance work? That's something we're working on, yeah. And hopefully with that, we can achieve perhaps better efficiency and maybe even better on how we can manage the green building requirement, which is increasingly very important. Thank you.

Okay, thank you. So I think we will keep the last three questions for the online. Oh, okay, there's one more from, yeah.

Hi, good morning. Dexter from Bloomberg. I wanted to ask a few questions. One is on, I took a point just now on the fact that the environment is recovering. I'm just wondering, you sent a shift of permission in terms of, obviously last year there was a lot of big news related to high net worth individuals as well as family officers. Do you see a shift in the sense that more traditional funds shifting away from the commercial retail space in favor of these kind of bigger, deeper pocketed investors. And on the retail side, can you give us a sense of who, in terms of the interest you guys are getting from foreign tenants, what's the makeup like? And last thing is, obviously there's a lot of layoffs now in tech, for example, and finance. Do you see that affecting commercial demand. Thank you.

Just to clarify, your second question is about tenants, retail kind of tenants?

Yeah, from overseas. I think there's been some prominent high net worth has basically set up of family offices in Singapore. I think it's probably well telecast, right? That Singapore is an important centre for family offices. I think they will continue to be interested in look at some kind of investment activity in Singapore. And ticket size varies, different kind of family offices will have different requirements. And you have seen that happening. They can buy shop houses, they can buy strata floor building, or they can buy a few strata floor building. Potentially, maybe even a single entire building possible. but they are motivated by different things. Most of them are looking for protection of the capital, make sure that there's stability in a political environment. So they are, okay, a little bit of flight to safety kind of capital that potentially may come here increasingly. And interestingly, beyond that, I think we're also started to hear at least some of those, Investors, institutional investors, in the past have stayed very quiet in the market, are starting to come back to inquire. So I think all of them are looking at how they could underwrite the, eventually how to underwrite the investment, and a big component is obviously the cost of capital, right? So that's something that I think perhaps versus six, 12 months ago, I think there's a little bit more clarity now, yeah. Then the overseas retailer you want to touch on?

Overseas retailer, right now, as we mentioned, we get interest both local and overseas brands. And I think for the overseas brands, we do actually see more Chinese brands relative to some of the other markets. Largely F&B for a start, but we are increasingly seeing more and more retail concepts coming into Singapore also. So I think a lot of motivation is to diversify their business outside of China.

I think the question was about tech demand.

Tech demand.

Sorry, Dexter, do you mind repeating the last one? There's a growing number of layoffs in finance and tech. So do you see that affecting commercial demand?

Oh, okay. So I think for tech demand commercial, last year, I think there's a good amount of shadow space in the market. I think some of those come up from the tech demand side, right? But some of these is backfield, but also increasing some of them are being taken off market. So if you look at the shadow space stock, right, in 2023, it actually came down quite a lot in the fourth quarter. We do still see some of these tech demands coming through, but a lot of them are also using their current space and building up from there.

Thank you. Okay, we'll just go through a couple of the online questions. First one is about the, go through a couple of the online questions. First one is about the, that we've seen more inquiries from co-working operators locally and overseas, given that it seems that some of them have improving performance. And then the second leading on question was whether do we see positive valuation impact of having co-working operators in our portfolio?

Generally, the performance of co-working operators, we do not always have all the detailed performance matrix on the individual assets where they are located. But broadly speaking, if we look across some of the co-working operators like the work project and our properties, the take-up rate is generally quite good. We always say that usually the ramp up is also quite fast. so that is one we do also see like for example iwg coming through inquiries that we on and off we'll be talking about opportunities so there are inquiries both locally and overseas uh even our overseas i think yesterday although it's not really our portfolio you see that the work project in texas they have also some kind of partnership going on so there is demand to actually grow the co-working the model will probably change along the way right i think in the past traditional lease model uh may start to see a little bit more hybrid models management kind of contract style. And whether or not we have seen positive valuation impact on co-working operators in their portfolio comes, it's very hard to quantify because if it's like, for example, just talk about 21CQ where it's a lease, right? Then it's, you know, it's value as a lease. And typically a lot of the value will still look at the co-working in a way that the income is almost like a lease income. But having said that, what we are seeing, co-working operators, like for our portfolio, we wanted co-working operators in because they add on to their flex offering, which means that tenants can actually pay a little, take out a little bit less fixed space. Arguably, they will give you a little bit higher rent and then they don't want anything else, you know, the part that, you know, they typically will kind of discount off because they are not using actively. We pull it together in a co-working setup and then, you know, that generates income at that level, right? So, by and large, as of overall property, if the income level starts to be sustainably at a higher level, it should have a direct impact on your valuation.

Okay, thanks Lee Chuan. I think the second question that we have also is that, do we foresee further valuation decline, especially for overseas assets? Actually, this one we did talk about it quite extensively just now. So, I think Michael, if you can, we can actually do a playback on this response. So, the last one is, What is the guidance on retail rent reversion? I think we also spoke about this earlier.

We spoke about this earlier.

So Yijuan, you want a quick one?

Yeah, just a quick one. It's just that we do expect, you know, retail rents, both Taliban and downtown to moderately go up still a little bit, hopefully. And with that, then in coming back to the portfolio we are working towards, hopefully we can get a kind of like mid-singles kind of reversion.

Thank you. So I think we will, before we end today's session, I think we will also like to invite Tony, if you have anything to share with investors, what they can look forward to in 2024, the outlook.

I think I say a lot, right? Short-term, medium-term, long-term, I think I've planned out the whole roadmaps. And this is a constant job. While we are into 2024, we are starting to think about 2025, 2026, what we're going to do. It's an ongoing journey. What we want to achieve is ultimately a sustainable kind of DPU growth for our investors. How it come about? Again, I talked about it before. It could be different kind of levers we can do. And we are glad that because we have a large base that allow us that flexibility to look at different time to execute different strategy. Yeah.

Okay, thanks Tony. So for those of you who still have questions, please feel free to reach out to the investor relations team. We are here to help you address your queries. And also thank you for joining us today, listening to CICT. So remember, we are the proxy for Singapore Commercial Real Estate and definitely we've been fortifying our resilience and positioning for growth. Of course, you have to wait for the right opportunities to come. The end, we all together want to wish you all happy Lunar New Year.

Happy Lunar New Year. Those online as well, happy Lunar New Year.

Thank you.

Bye-bye.