CapitaLand Investment Limited

Hi, good morning ladies and gentlemen. A very warm welcome to CICT's first half 2023 financial results briefing. My name is Clarice and I'm from the CICT investor relations team. It's my pleasure to be our MC for today. CICT released our first half 2023 financial results this morning and we are pleased to have our management team here to share the highlights with you. We will be starting off with a presentation by our CEO, Mr. Tony Tan, followed by a question and answer session with our management team. I will be introducing them later. Before we start, please take note that this briefing is live, recorded and will be uploaded on our website later. Without further ado, let's welcome Tony on stage for his presentation.

Good morning. It's a little bit formal. I don't know why. That's not my typical style. Thanks for coming. First thing in the morning, I think we released our result this morning. You probably have seen it, a little bit of glimpse. I will not want to delve too much on the details. I think they probably have a lot of burning questions you have, given the diverse kind of probably what you see out already released in the market against our peers. And hopefully it will give you a little bit more insight into how we look at the business, which is more important from a forward-looking perspective. So I'll just give you some very high-level update. So overall, I think we helped quite steadily first half. I think on the back of, you probably know, the reopening started last year more intensively from April onwards. So second quarter to second quarter comparison, naturally you are comparing against a high base. So the first half, you look at the first half result and the first quarter result, you see a little bit of tapering off in some of the numbers. But nevertheless, we were quite pleased that the momentum in second quarter seems to be holding quite okay. against our earlier expectation to have a deeper decline given the macro outlook. So second quarter looks pretty decent, both from the operational level and also from the macro level. It looks like things are panning out not as bad as what some of the analysts or economists are painting the picture out there. But nevertheless, we know the headwind in the second half potentially can build up. But there also seems to be some sign of a little bit of green shoot. Inflation seems to be peaking in many places. That's probably the key factor underpinning the performance of the REITs. And then for us, obviously, on the ground in Singapore and some of the market in overseas, we are also seeing a little bit of that impact coming through. So some high-level numbers. MPI, 10.1% increase year-on-year. Again, it's a moderation from first quarter. DI went up by 1.7%. So a lot of the distribution has been eaten away by interest costs, largely. And the DPU increased by 1.5%. Overall, we've seen the portfolio pretty resilient from an occupancy point of view. Across the board, both the retail and office assets, we've seen the occupancy creeping up. It's in a way a manifestation of a little bit of confidence level hopefully coming back into the marketplace against a backdrop of maybe three months ago where there seems to be a little bit more uncertainty. Tenancy is also trending well. Very pleased that we have seen both downtown and suburban mall are picking up. Downtown mall naturally helped a little bit by the increase. Incrementally, we see more tourists coming back. Going back to office seems to have normalized to a large extent and seen a little bit busy cloud nowadays downtown location. Suburban holding out pretty well against my earlier rejection that I thought when the border start reopening, we've seen a lot of probably outbound traveler, which we have seen a little bit, but seems like the sales have been tracking quite nicely. So overall, I would say the outlook for retail office, while we are cautious, but we think that there's a little bit of green shoot coming up. Hopefully that will pan out through in the second half onward. So the NPI I mentioned earlier, so DI I mentioned earlier, up by 1.7%. DPU is up by 1.5% against the last year, first half lower base. Hopefully second half will deliver a bit better numbers. We also since started to receive distribution coming from CapSpring. If you recall CapSpring, we list up quite well, but there always been a little bit of different timing gap. We begin to see distribution coming back from CapSpring. Our overseas assets are starting to contribute, albeit at a lower level than we hoped for, but I think they are starting to contribute. And obviously the CapSky that we computed last year are going full steam and it's trading very well. um overall like i alluded to earlier the portfolio number has been very encouraging from the occupancy perspective it creep up uh overall about uh from 96.2 first quarter to 96.7 you know about 0.5 point on the quarter quarter movement um the total In fact, the rental reversion, we were quite pleased that we were able to extract a little bit more reversion out from both the retail and office. And as a result, you can see quite a nice uplift between the first quarter and the first half rental reversion. And within the office and retail, quite diverse range, the retail side, office side, we've seen a low of a 3 plus percent kind of reversion, depends on your expiring rent, to a high of 20%. So that blended up into a about six point, this office is about six point something percent. Retail, we're looking at a range of around 2% to up to about 31%. So it's quite a wide, diverse range. But nevertheless, pretty healthy across the board. Shopper traffic momentum, I think, which is expected next second half, probably will slow down a little bit given the higher base last year. But still a very decent shopper traffic we are seeing to the more. Although it's already, in fact, higher than what we've seen in... probably close to almost 2019 level, not far away from 2019 level. And tenant sales, we continue to maintain, in fact, higher than pre-COVID. On the overall portfolio-wide, it's about 8.3% higher than pre-COVID. Total borrowing, we have fixed up to 70%. We have done some issuance, which I elaborated later on. And now we have a very healthy maturity profile, 4.3 years left in the debt side. Just some colours. Clark Key, you hope to complete by later part of fourth quarter, as in TOP. Progressively, as you visit, if you do go down CQ, Periodically, you're seeing some movement of tenants, some movement in terms of the hoarding. Progressively, we will remove some hoardings. Hopefully, we can start to bring in some of the tenants that we have pre-committed and start trading earlier. But gradually, we see a little bit more ramp up, probably towards the later part of this year, where the bow of the handover will happen. Raffles City I've seen also quite a nice refreshment. We have done through quite a significant reposition of Raffles City. I would say we are only at phase one of the repositioning. roughly 40% or plus each of our brand and target positioning has been achieved. And we're looking to look at remaining about 25-30% of the tenancy that we need to do a little bit of adjustments. Nonetheless, I think the refresh city, we are quite happy with it. And we've brought a lot of our investors from overseas and is local as well. to explain to them what we are doing, why we position Rafa's cities where I think most of them has been quite pleased with what they see the outcome. Overseas assets, sorry. Yeah. I think overseas, as I alluded earlier, it's a little bit of a green shoot. We have ramped up a little bit on the occupancy for Sydney. It's gone up from first quarter 83.4% to today we are looking at 88.6%. Pretty healthy take-up rate, for example, 66 Goldman. Today we are close to 96% committed. And we are working through some of the other asset plans. And we have seen some interesting phenomena which we tested in the market over there. They seem to have a bit of preference for, at least in this environment where there's some level of uncertainty. Pre-fitted up units seems to have a little bit of traction there. You know, when you get a place well decked up, very conducive environment for their staff. And if they want to make the decision quick, I think they can come in quite quickly. So we thought that decision to do some fit of space was right. But we are trying out the other building as well. In Frankfurt, a little bit creeped up in occupancy, largely from MAC. I think last quarter we were looking at 94-ish percent, today we are 95.3%. So, largely pulled up by the MAC, the airport office asset we have. All y'all know that Galileo will undergo AEI from January next year, 24th. That will be the last day we get rent. February onward, there will be no rent. But we're also very pleased to say that we are actually in quite advanced discussion with a major tenant that will take up large majority of the building. So hopefully we can give a little bit more news as we progress along. Financial-wise, I think I won't dwell too much. Maybe just a few points to note. So there are some plus and minuses, first half, second half, we're looking at. Generally, from a trading perspective, at least for retail, the second half will typically perform a little bit better than the first half because of the seasonal factor. From an operational level, first half we have seen the peak of our tariff rate, which is very high. We lock in about 30, made 30 cents. Come for second half and for 2024, it is quite a significant reduction, about 16% lower than we have locked in. So we would have a little bit of savings, hopefully, if you continue to be very vigilant and Make sure we manage the consumption carefully. There should be some savings on the utility side as well. You'll probably also know that we have resigned a new PMA, which took effect from 1st June. So there'll be a little bit of adjustment potentially towards the end of the year. We'll look at some cost realignment based on the new PMA. Hopefully, we can see some savings as well. And lastly, because we also have lock-in our interest costs. We issue a bond, 400 million in June, at 3.938%. That will take away some volatility in the short-term rate, which is very elevated. You know, today you go to the short-term market, on a floating basis, you're probably looking at 4.5% easily. Easily 4.5%, right? Depends on which tenant you're looking at. So hopefully on the second half, we start to see a little bit better cash flow coming in. We have not touched our 40 million, which we take in the back from Australia. When we did acquisition, we have not touched it there. We try not to. If we need to supplement, we will do that. But ideally, we try not to touch it. We start to see some contribution, which I mentioned earlier, from CapSpring. Hopefully, that will improve and accelerate from second half and 2024 onwards. So hopefully we can get all these mitigating factors to buffer the Galio effect. So Galio effect, Galio is about 1.5% of our contribution. So hopefully that would be enough to cut buffer then. And with all the positive reversion that we are seeing, that should translate into better numbers going forward. Okay, this one I won't touch too much. I think you all should know very well, can analyze. Maybe just to give you a little bit of flavor, I think balance sheet side, very healthy. Just now there was asked a question, some of the peers did their evaluation. I think we did an internal exercise, we did assessment in consultation with the valuer. In fact, overall as a portfolio, we've seen very stable number. Singapore very healthy a little bit downside risk from overseas asset but we see how it goes for the rest of the year but overall as a portfolio we think the number is pretty okay I think holding quite well but we have seen a little bit of uplift in our NAV as well and that's It's a result of a grant that we managed to receive from the government to offset the cost of us building the underpass at Funan. So that goes into our balance sheet and it's almost an immediate accretion on NAV by one cent. Okay, so we've been quite active, no doubt in a very volatile interest rate environment. We've been quite active on the capital management side. We did bond issue I mentioned earlier, but also we've been very active in the cash management side. So trying to minimize as much as possible the unnecessary debt carrying on our book. You know, if you look at, I mean, later you can talk to Mei Lian, she'll give you a little bit more colours. But we have different tools in place that we can tap, you know, if you need to raise money. We have a CP program in place, we have MTM program in place. We have more than enough bilateral bank relationship. In fact, we cover entire maturity for, in fact, I can jump a little bit, maturity for even 2024. So this year we are done, right? 2024, technically we are done because we have enough line. But we will look at the opportune time where we perhaps want to start looking at the potential debt issues, hopefully, and maybe potentially we'll look at some kind of early prolongation. So we are in discussion with some financial institutions and see how things can move from there. But I must say, in the environment today and the next six to 12 months where everybody is start guessing how the interest rate will look like, of course there are very diverse views in the marketplace, active capital and interest rate management I think is key. The rest are sensitivity. I mean, these are no rocket science. It's essentially the floating part. We left about 22% of our floating rate. If you measure that against any change in interest rate, that would be the impact you see here. Nothing else, I think this one I mentioned before, I think across the different sub-sector we are seeing increased occupancy and we should potentially see as we work through the remaining of the leases and we start to also go into a 2024 lease expiry, you can potentially see improvement even from the current state. Let me just jump straight. Retail, I gave you a little bit of flavor earlier. I think I don't want to say too much. The reversion number speaks for itself. I think you've seen a little bit of narrowing of gap between the downtown suburb, but nevertheless very healthy. Again, it's a very diverse range of reversion number that I mentioned to you earlier. So this is something I don't think I'll detail too much. Something to note that which also took courage, we've seen a bit of a shift Now, these are important because we track all these performance by trade cap very carefully because it affects the way you look at our asset planning going forward. Compared last quarter, this quarter, we've seen actually largely the same asset, a big jump from improvement from the beauty and health. Because first quarter, we've seen a negative number and beauty and health is our third largest trade cap. So this one do well. you have some implication on the way we look at positioning. So I think we are quite pleased that this sector has been seeing a nice uplift in the second quarter. Okay, this one I mentioned earlier, I think while we work through Singapore, 96.6% slightly below, in fact, it's slightly higher or flattish. But we are working to the remainder of leases, so you should see that coming through in the third and fourth quarter on the occupancy side. Germany, I mentioned before, MAC in fact, and the Galileo, and I mentioned before, we are working on potentially a single tenant taking large majority of space. And Australia has seen a little bit of a nice ramp up. Hopefully we can achieve even higher occupancy by year end. Overall, no, nothing much. I mean, these are our BAU. We constantly try to curate new stuff. It's important. It's also a signal to the market that there's still confidence coming in the retail sector. Some new to market brand, we managed to bring into our property, both in downtown and suburban. I think that's very encouraging. And I must thank our property management team. In fact, Chris is here. I mean, he's helping us on the retail side. His team are working very hard to make sure we differentiate ourselves from our competition. Okay, the rest I won't talk too much. I think outlook-wise, all you analysts, you know pretty much very well what we are seeing on the ground. Hopefully that manifests in a real movement. I mentioned earlier, we've seen probably potentially a little bit of a green shoot. Hopefully that's real. Insignia, for example, has been busy. Our folks are on the ground. People are coming back to the office more regularly now. The subway line and the train station are getting busy. A few assets we need to work on. Hopefully we can translate that into high occupancy. The retail side in the Sydney asset, which is the one in the Greenwood Plaza, I think that's probably going to take a little bit more time. We need some repositioning of that retail space. Location very prime, connected to the subway line. It's no different from the reference place. But I think we need to position it correctly. Currently, we're working alongside with our partner, MoVac, to look at the plan. Yeah. And in fact, there's a bit of a cross exchange and hopefully we can bring them over to Singapore to see some of the things we are doing here. Germany side, I did mention earlier that it's not as grim as what you see on the headline. It's on the ground, it's just pretty busy. We've seen some leasing momentum picking up. MAC, for example, some energy sector, some aviation sectors are starting to look at space again. in the midst of some tenants who are looking at right-sizing. But all this, I think, is a little bit healthy movement we're going forward. And hopefully with a little bit higher, in fact, very much elevated cost of capital, we potentially would see in the past always large development pipeline will slowly taper down. Because I think in the past, both in the Sydney market and in the German market, the low cost of capital has created quite a bit of speculative kind of development activity. We think going forward that activity should taper down. I think value creation, no different. We have been doing that all the time. We continue to be very agile. Look at our portfolio. Earlier, I also have a question about when you acquire, let's say 700 million and 800 million, then it became now 700. I mean, to us, we are long-term player, right? Valuation goes up and down, and sometimes it's triggered by factors that are beyond your control. Interest rate, cap rate, transaction. And different market look at valuation in a different way. But one key thing is if we position the asset right, I mean, that's the key fundamental. Driving value will come later. For us, critically, we need to make sure every of the assets will have the chance to run its full potential. And we keep pace. We keep pace to ensure that we put in the necessary capacity at the right time. not overly burdened on the portfolio in a particular year. So we try to keep pace with that. But overall, we like to keep some dry powder for other works along the way. This will ensure that CICT will be able to deliver a resilient and consistent return. And that should translate over time a higher confidence on CICT as a very stable vehicle with growth. I mean, that's ultimately our objective. Highly liquid, stable vehicle, low risk premium. I think we can achieve that. We have a tremendous advantage over our peers. I think with that, I'll stop here. Happy to take questions. And I invite my team member here who has been very instrumental in getting all this execution right. Thanks.

Thanks Tony. May I invite the management team on stage? Let me quickly introduce our panel today. Sitting in the center, we have Tony. On Tony's right, we have Ms Wong Mei Lian, our CFO. On Tony's left, we have our Head of Investment, Ms Jacqueline Lee. And to the far left, we have Mr Lee Yi Chuan, our Head of Portfolio Management. Some quick housekeeping rules before we start. For our physical audience, please raise your hands if you have any questions. Please state your name and company. And we kindly ask that you limit to two questions per turn. If you have more questions, we will also go back to you. For our online audience, please feel free to join in by dropping your questions in the chat box. Okay, we can start the ball rolling. Can we have the first question?