Mapletree Commercial Trust

OTC:MPCMF

Earnings Call Transcript 2019-Q2

[Li Yeng Teng, executive]

Hi. Good morning, everyone. Yes, a big thanks for coming over to Mapletree Commercial Trust's Second Quarter and First Half Results Presentation. We already have about 20 live viewers online now, so I think we shan't wait anymore. So without further ado, I would like to start the financial results briefing. So a quick introduction. Right in front of us here, we have Ms. Sharon Lim, Chief Executive Officer of Mapletree Commercial Trust; Janica Tan, Chief Financial Officer; as well as Mr. Koh Leong, Head of Investment and Asset Management.

So the session will start with Janica presenting the financials, followed by Wee Leong, who will be discussing the operations metrics and performance. And we will then follow up with Q&A from the floor as well as webcast participants. Thank you. Janica, please.

[Bee Lian Tan, executive]

Good morning. This might make me very nervous. Okay. Let me start off with key highlights followed by financials and capital management. Okay. Key highlight for MCT for second quarter's result, gross revenue and NPI was up 2.5% and 2.2% year-on-year, driven by higher contribution from VivoCity, MBC I and MLHF. DPU grew 1.3% to $0.0227 for the quarter.

In term of operational performance, VivoCity continue to achieve outstanding performance. During quarter 2, shopper traffic and tenant sales, respectively, grew up about 5.8% and 2.8% year-on-year growth. So as you can see from the video, the VivoCity and Tsum Tsum video, our mid-autumn event was overwhelmingly received by shoppers and widely covered by local, international and social media. And to further enhance VivoCity's retail offering, FairPrice will replace VivoMart with a new integrated concept by first half of our next financial year. So financial upside from this is positive rental uplift and also conversion of some recovered space into higher yielding specialty shops.

In term of capital management, in July and August 2018, MCT put in place 3 term loan facility aggregating $345 million, thus, completing all the refinancing of all term loan for the current financial year and next financial year.

Next is on the financials. Second quarter versus last year, gross revenue was 2.5% higher at $109.9 million. This was due to higher contribution from VivoCity from the positive rental reversion AEI and a step-up in the existing leases and also from MBC I step-up leases and MLHF full occupancy. Mapletree Anson and PSA's revenue was lower as compared to last year, mainly due to lower occupancy offset by step-up rents in existing leases.

OpEx wise, 3.8% higher at $23.7 million compared to second quarter last year, mainly due to higher maintenance expenses and marketing and promotional expenses, money spent on Disney Tsum Tsum. Okay. Accordingly, NPI increased by 2.2% to $86.3 million for second quarter. Net finance costs is up 9.3% year-on-year due to refinancing of bank borrowing with MTN and also higher loan outstanding and higher SOR. Distributable income for the quarter, $65.6 million and DPU $0.0227, both up 1.3% year-on-year.

Okay. Next, we move on to first half. First half versus last year, gross revenue was up 1.6% at $218.5 million. All property achieved higher revenue except for Mapletree Anson. Operating expenses wise, marginally lower at $46.3 million due to lower utility offset by higher marketing and promotional expenses. So NPI increased by 2.1% to $172.2 million for the first half FY '18/'19. Net finance costs was 9.3% higher at $34.3 million for first half versus last -- first half last year, mainly due to full year effect on the refinancing of MTN, higher loan quantum and higher SOR. As a result, first half distributable income was 0.9% higher at $130.2 million; DPU, $0.045, up 0.7% year-on-year.

In term of financial position, balance sheet remained robust with NAV per unit at $1.49.

Now we move onto key financial indicators. Comparing to last quarter, total debt increased by $3.4 million to $2.35 billion. During the quarter, we completed the refinancing of $341.6 million term loan with 3.5 to 5.75 years of new facility. This extended our average terms to maturity to 4.1 year from the 3.6 year last quarter.

So aggregate leverage is at 34.8% as at 30th September and fixed rate debt ratio at 75.2%. So at 34.8% leverage, we have ample debt headroom of about approximately $1.2 billion and at 75% fixed, every 25 basis point change in SOR is estimated to have an impact on DPU by $0.0005 per annum. Average cost of debt, 2.93% per annum and the interest coverage was kept within approximately 4.5x.

This chart shows the debt maturity profile post refinancing. The debt profile remain well distributed with no more than 20% of debt due in any financial year.

Okay, last slide. This is on our distribution detail. DPU for second quarter, $0.0227. Unitholder can expect payout on November 29 and BCD's 1st November.

I will hand over now to Wee Leong.

[Wee Leong Koh, executive]

Okay. Good morning. Since Janica's driven through most of the financial numbers, I'll skip straight to the portfolio occupancy. So if you look at VivoCity, currently, occupancy is 94.7%. That's partly contributed by the fact that the library, even though the space is already available, that they could not rent it out. Operations hasn't started yet. That's about half of it. The remaining half is actually, during the quarter, we had quite a lot of bid outs for spaces that we achieved over. I think, traditionally, the -- from about August onwards -- August and onwards is the time that a large renewal happens, happens more here. MBC occupancy now 97.8%, and for PSA Building, occupancy is now committed 99.2%. Anson is 1 where we have a little bit of slightly lower occupancy, now currently at 90.4%. But the new tenant should be starting operations fairly soon, and that will bring the occupancy up 97% -- well, close to 98%.

For rental uplift, for the leases that we have done to date on a portfolio basis, we are about 2.2%. That includes some of the -- one of the rent reviews that was done in this current financial year. Splitting into the various sectors, for retail, we're up 4.1% and for office, including rent review, just a little bit negative, negative 1.1%.

So on lease expiry profile, the lease expiry still remains fairly spread out. In any 1 year, I think the maximum we have is about 26%, and that's in FY '20/'21.

Okay. So this quarter, shopper traffic and tenant sales have actually improved from the results that we released in Q1. So if you look at where the second quarter alone was, shopper traffic and tenant sales grew 5.8% and 2.8%, respectively, so that was contributed partly by the fact that we have the Disney Tsum Tsum event throughout most of August and September. That contributed quite a bit to shoppers -- shopper traffic as well as tenant sales.

Okay. So these are just some pictures of the event.

Ongoing AEIs, like I mentioned, libraries [ are easy to ] turn over the space currently rented out, expected to open towards the second half of our financial year. B1 extension is already fully open and already contributing revenue. Okay, so that's all we have.

[Li Yeng Teng, executive]

Thank you, Janica and Wee Leong. We shall now open the floor up to -- for questions from participants. But just a reminder, before you ask your questions, may I have you to state your name and where you're from? Thank you.

[Unknown Analyst]

I'm [ Nicholas ] from [ Time Securities ]. I'd just like to refer to Slide 16. Could you give a little more clarity on your office/business park? There's a negative 5.1% change in fixed rent. Yes. And given the outlook of the office rents in Singapore, would this show better improvement in the next coming quarters?

[Wee Leong Koh, executive]

I think the rental uplift number is [ essential in time ] and it reflects 2 things: what the current market is as well as what the market was when the tenant themself has signed the lease, which however many years ago that was. So if you look at -- for a lot of -- for a chunk of the leases, some of them were 5 years ago, 6 years ago. There were leases 3 years ago. So this set of numbers reflect there's quite a few leases that were actually signed 3 years ago, which is actually quite close to the peak of office market. So there was a little bit of that impact, right? So office market is slowly retiring. The rental uplift numbers have actually improved gradually over the last few quarters already.

[Unknown Analyst]

So in the next 2 quarters, as you see improvement in these numbers because 3 years ago's figures were...

[Wee Leong Koh, executive]

No, no. What I said was that it's very dependent about the lease that is expiring and what is the current market condition. And so these were expiring at very high rentals, and this number will continue to grow, continue in the leases that were expiring at very low rentals and this number will improve -- will definitely improve.

[Hwee Li Lim, executive]

If I may just add a little bit color to it, yes? I think you're right to point out there is some negative that we experienced for certain leases. I think we can't deny that. But when you look at MBC as a whole, there's a portion, which is a huge portion, which is called a rent review. Rent review also affects the cash flow. It's just that it doesn't end at the lease term. But tenants actually can agree or disagree with the rent. So with that put in place, it actually gives us a positive reversion. So I think to be fair, to have a holistic view of where the cash flow is heading for MBC, you need to look at also the rent review because it's a very huge 200,000 -- close to 200,000 square feet lease. It's just that when we count rent reversion, you always say like end of lease term. So technically, It is not an end of lease term, but it was a 9-year review. He can actually tell you, if $0.20 right now, want to pay you or market rent. So I think for cash flow perspective, looking forward, we should end in the rent review numbers because of the size of the lease and the impact on the numbers. Like I always said that for MBC, there are some leases that end on a high, some leases that end on low there we can revert higher. But overall, when we manage a property, we always look at NPI. So together with the step-ups and all, I'm still confident that the NPI will be better than the previous year. We first started with $100 million. We promised the market $100 million. We did $103 million, and I think we are all still on track. We got less of the 1 or 2 leases that is negative. So -- but you have to think in the whole entire spectrum of reversions, including rent reviews, is positive MBC. Then, put in perspective into the office. The MBC and Vivo together adds up about 80% -- close to 80%, 77%, 78% of the total NPI. So the [ record adds ] at MLHF, PSA and then 21%, 22%. Okay? So where are we heading with this whole 22%? If you look at Merrill, Merrill, we're in good steady state. That suffered the pain, went through the trauma, changed the tenants. They gave up 1 floor, got positive reversion for the 2 tenants coming in. So that 1, we don't talk for it -- about it for at least a good 4, 5 years, yes? When it comes to PSA and Anson, Anson is a bit transitional, but there are 1 or 2 tenancies that may have to be reverted down a bit, okay, similarly for PSA. So I don't deny that there may be some negative coming for PSA and a bit of -- majority will be coming from PSA, more than Anson. Okay? Not that we are reverting below market rent. It's just that the ending rent was slightly higher. But if you look at how we constitute the whole entire NPI, it's a very, very small component to all the -- all 3 assets add together, 20% -- 22%. If you minus off Merrill, it's a 10 over percent. So it doesn't shake the numbers. Even if you look at our first half results, the property that is down in terms of NPI is Anson, 300,000. But because of the way we are reporting, we still have to explain property by property. So I think that's putting it in perspective. My 2 core assets, which is 78% of my entire income, is the Vivo and MBC. Yes?

[Terence Lee, analyst]

This is Terence from Crédit Suisse. On that same slide...

[Hwee Li Lim, executive]

Sometimes I -- we expect I can see your face. We don't expect that I see your face, so sometimes I'll be looking up and down.

[Terence Lee, analyst]

Okay. For the same slide, for the retail side, the figure of 4.1%, just trying to understand, is it mainly driven more so by the change in trade mix or the amalgamation/subdivision?

[Hwee Li Lim, executive]

Okay, the -- it's a hardcore number calculated A minus B, average of new rent versus last year rent. Okay? It's the effect of -- I can't surely say, it's a change of trade mix. It's a combination of things, okay? So it is change of tenancy. It is also just normal renewal that we step up. So it's a combination of factors. Yes. But if you look at how we have been running Vivo for a good last -- let's take the immediate last year. We embarked on a couple of things, which include making certain fashion tenants bigger but reducing the total number of casual fashion tenants. Why? We found that there were too many competing in the certain bandwidth, and what we wanted to do was to take a bet on certain retailers that we think that has better sustainability and marketability of the brands like Zara. So we want Zara bigger. But actually, if you count the total number of fashion retailers, I did remove a few to accommodate the expansion, okay? So we expanded Zara. We expanded Pull&Bear. We expanded also Gap -- no, Gap was removed. We expanded Superdry. So all these came in as concept stores. This was in line with what the retailers wanted, which was to have fewer stores as a strategy, but to make 1 or 2 stores their key stores or flagship stores. So I think Vivo was in a well place. We're not in this list of the stores that they want to knock out. They are, well, within the list that they want to go bigger, but I cannot accommodate everybody. We only have a limited 1 million square feet. And if you talk about Level 1, we also have limitation, yes? Most of these brands only want to be on Level 1. So that was one strategy that we were heading. We also wanted to up the entertainment component. All this is not easily replaced by e-commerce, yes? So on that sense, together, when we vacated -- we accommodated the library, we had to remove certain tenancies. What we did was we remove certain tenancies. We brought down like people like Timezone. We upped the total area, and he is doing much better than before. He's now situated very close to the cinema and he's doing fantastic sales effortlessly. So those were the 2 good strategies. The other thing that we were looking at was our biggest tenant, like I said, was up for renewal. A while ago, we couldn't come to a lending as to what we were doing, what we wanted to do, so we checked them out another -- or 2 years before, we decided what we wanted to do. And we didn't want so many tenancies coming -- expiring at the same time, especially the core anchor tenants because the mall was opened 2006. So a lot of the key anchors were signed 10 years ago, so they ended at 2016. So it's quite a stressful year. 2016, I have all my big anchors coming up, yes? So that we couldn't -- we didn't come to a lending. They wanted to stay. We couldn't come to a lending on the contract and so on, so forth. So then, we decided let's do a department store first. Then, don't rush. Spend more time because it's [ 100 over thousand ] of space in Vivo for the gross -- gross or the whole entire Vivo, that space is 105,000. Finally, we decided. We got a lending, and we're going to change. So come next year after Chinese New Year, we are changing for the good, I hope.

[Qianqiao Wang, analyst]

Joy from DB. Just on the FairPrice, the change of supermarket operator, could you give us a bit more detail as to how much space you can take back?

[Hwee Li Lim, executive]

Okay. The [ center ] -- Okay, I -- there's some -- I will try to give you as much as I can. I'm a little bit constrained with confidentiality of the individual rent, yes? But I will -- I'll try to give you some color. The entire space is 105,000. We are going to be retrieving about 20 of 1,000 of space, okay, be it on Level 1, on B2, a combination of Level 1 and B2. The integrated or hypermarket, as you see, we'll be doing, the detailing is something that we are still working on, but conceptually, we know what we will be getting. That will -- they will be taking about 90,000 of space. So we are taking 20,000 over. 90,000 will go to the hypermarket, and I think 90,000 is significant enough to work it. So that's generally that. For his space itself, it's a positive, very positive and the reversion. We have not talked about the ROI for the -- with respect in any of the result slides. Why? Because I still got time, okay? I didn't want to rush a number. Usually, when we finish all the deals, I will share with you guys the ROI and all. Quite clearly, from a supermarket rent to [ my front ] and [ my frontal ] Basement 2, no need to think. It should be positive. Yes.

[Derek Tan, analyst]

Sharon, Derek from DBS. Just curious about your tenant sales this quarter and also the reversions, 4%. Can I have some color on the tenant sales?

[Hwee Li Lim, executive]

Last quarter, I thought with Q1 -- Q1 result is different. Result is different because we had so much construction work or renovation work by the tenants. So we count sales as a whole. We don't take out -- we don't look on a per-square-foot basis, okay, in a sense that if a new renovation is there, I carve it up. No. My mall is as a whole. Whatever sales that come in, that is the number. So if I'm doing a lot of renovation, my number goes down, okay, because the tenant is not trading. So in quarter 1, we had a lot of -- because we were -- Zara and all, the entire Level 1, there were quite a bit of [ sitdown ], so 0 sales. That's where you saw Q1 that does drop. So when we talk about the -- in Q1 was -- if we were to put back the sales, are we better off? We were actually better off. Okay? we were not negative. When it comes to Q2, Q2 was a nice surge be it traffic or be it sales. I would say that I can actually thank the marcom team and Disney for tying up with our Tsum Tsum -- for the Tsum Tsum event. That was one of the most effective marcom events I've ever seen. Okay? The amount of people that came and spent shot the numbers up in Q2. And this first Q that you see minus is because of first quarter was, I think, minus 4 point something, yes? So actually, the second quarter lifted it up. Okay.

[Derek Tan, analyst]

And for FairPrice space, right, how long a disruption do you think you would expect over time?

[Hwee Li Lim, executive]

Okay. We -- downtime, if you talk about actual trading, yes, actual trading itself -- because the existing tenant will need to do reinstatement, okay. So I -- we will not have a grocer for about maybe 1 month or so, depending on how long and how fast they run. Number two, then the new tenant is to come in and set up, right. That would take about 3 months. So I would have 4 months of minimum lease, 4 months of no trading of the grocers. So that's why I would say that when it comes to the quarter itself, you're going to see a drop in sales because I don't extract that area that is not set up, okay. So that's expected. In terms of numbers, we have negotiated to a point where when the incoming tenant start the renovation, he pay me rent, okay. So that was something that was -- we negotiated for. So like a lot of times when you all look at reversion [ solo ] but nobody actually asks me how much is your downtime here, downtime there. Actually, the downtime is the one that actually queues -- picks away a lot of NPI, which nobody shows to the analysts. Nobody talks about it, okay. Every -- if you think about it, if I had 3-year lease, with 3 months for 3 are 36. That is the impact to my cash flow, okay. So this is the best outcome or lease structuring that I think I can do, which is one just on the face rent, I'm better off in the teens. Second, I don't get a downtime impact, he pay from day 1, okay. That is the best, and that is something that I don't tell you. There's not enough of the indicators here, but I would say that my cash flow is quite protected, although I would definitely see a drop in the sales because of reinstatement and setup period, no trading of the grocers, okay. So I try to protect my cash flow as much as possible.

[Xuan Tan, analyst]

This is Tan Xuan from CLSA. Back on the NTUCs again, how long is the lease? And will there be any rental step-up?

[Hwee Li Lim, executive]

Okay. If there will be a step-up along the way, it's a -- okay, can I say? Can I?

[Wee Leong Koh, executive]

Long run.

[Hwee Li Lim, executive]

6-plus. It's long, okay, 6-plus, 6. I am also very careful. The environment of the grocer is -- the market in Singapore, very small. There's only A, B, C. Anything else that is befitting of a mall, A, B, C. So it's very different from other countries where you have more operators that you can select, okay. So that's where I talk about tenancies going longer where possible but not too long until the point where I am trying to forecast into the future. So I think 6-plus, 6 is a good timing. So after 6 years, same thing, options, we sit down, we talk the rent. Maybe I have more plans, okay. So at the end of the day, I think what we wanted to do was to give ourself certain period of certainty but also not long -- or sell too long so that in case I want to do more work, I still can because it's entire 90-over thousand on back, although it's back, but it's still Level 1. There's still some potential, but we -- till -- today, it doesn't make sense for us to do anything so hence, we go with this best option of to date. But you never know, things may change. Tomorrow -- in 6 years' time, grocers, for example, they may not want to take so much space. They may say, oh, let's do 30,000 and a lot do on my, you don't know. So let's give ourselves some flexibility. And based on our asset itself, I think we still can do things, but not immediately, okay. But if I'm pressed, I think I still have options to deal with my space.

[Xuan Tan, analyst]

And is this NTUC lease included in this quarter's rental reversion number?

[Hwee Li Lim, executive]

For the 90,000, yes, okay, because he is single-digit, okay. Then he gets flagged it in, okay. But the ROI -- the balance, 20-over thousand, no, no, no, not in yet. Not in yet, okay. And the payment from day 1, of course, is never counted, is never in any of the numbers.

[Li Yeng Teng, executive]

We have a few questions from Donald Chua of Merrill Lynch online.

[Hwee Li Lim, executive]

Donald Trump?

[Li Yeng Teng, executive]

Donald Chua.

[Hwee Li Lim, executive]

Oh, I -- that's right, Chua. I literally heard that. I was like, yes, I'm going to pick that up right now. I can't take it anymore. Yes, Donald?

[Li Yeng Teng, executive]

The first question is...

[Hwee Li Lim, executive]

Is this -- all this are recorded, right? Every time -- I always go like, yes, let's control it.

[Li Yeng Teng, executive]

The first question on VivoCity. Is the stronger operating metrics this quarter a reflection of overall retail pickup? Or are they more event or AI driven? Second, what is the current occupancy costs of VivoCity? And the third question is related to capital management. Are we planning to lengthen that maturity further? And how much has borrowing cost risen as a like-for-like comparison?

[Hwee Li Lim, executive]

Okay. I think the -- I'll do the first half, first. The VivoCity is super steady, okay. I think year-on-year, it has never disappointed. We -- how the numbers have grown is a combination of asset: one, trade mix changes; and two -- and also changing of tenancies and some cost control along the way. So it's a combination of asset. I wouldn't say that VivoCity is because of one item is performing better. Is the sentiment better? I would say that if we put ourselves 1, 2 years ago, there would be a lot of fear that this whole Singapore retail is going to be in trouble. Yes, we do hear all the retailers nagging, but I think that has tapered off quite a bit. And I don't think we -- for me, we never truly experienced the brunt of the severity of the retail industry dipping. Yes, there's some strength, no doubt. But it wasn't to the point where that is true, okay. So if you look at the results of the most retail REITs, I think outperformed most of the other REITs for the last 1, 2 years, and this was so fearful for us, this entire retail is going to be going into downturn. It then happened, okay. And I think because we are still very into the core, suburban day to day, not so much in the luxury and which is a little bit more fluctuating. So I think we're in a good steady state. Vivo, like I always say, has the right ingredients in place. It's got the right size. It's got office community to support. It's got the theme parks around, so the surrounding and the transport network, they are all in place. And actually this quarter, it's even nicer. The government is talking about making Sentosa nicer, making the neighboring nicer. It will benefit me, okay. But what if he decide to put a mall in the -- he decided to put a mall in Sentosa, then of course, it's a different story. That's a good thing, but what's the likelihood? I don't think -- I don't need, like, to be afraid, no. So if you look at the long-term view, entire stretch that you see from here to here, they're all going to be going for redevelopment. That's what the government is planning, okay. So it's a positive, I would say, for Vivo and especially the immediate, which is the Sentosa and the Pulau what? Pulau Brani, right? He's going to do something to that bay, is a positive for us, for the shopping mall.

[Li Yeng Teng, executive]

Okay, the question is, whether there's any plan to lengthen our debt maturity further? Okay. This current year, we have this $264 million loan due for refinancing, and we refinanced part using MTN, a 6.5-year MTN, and the rest we refinanced in August using a 5-year term loan. When we do our -- this loan is actually relating to acquisition of MBC I. When we do MBC I, okay, this is a big asset. We think there's opportunity to spread out our debt maturity profile. So this is a 2-year debt. The purpose is to make sure that I have a well-spread maturity profile. So now of course, when I refi, I will never refi with another 2-year because interest rate is going up. There's no reason for me to do short, unless I want to save on interest costs. But in back, interest rate on the lease, I would rather go longer if the cost is affordable. So for this new 5-year loan, if I compare -- or even the 5.75-year loan, if I compare the pricing we are then paying versus the 2 loans that I repaid is actually tighter.

So is there any plan to further lengthen when there's opportunity? When we need any refinancing, if there's any refinancing or financing needs, we will definitely look at all options, including MTN, okay. In the past, we do 10-year MTN. I don't think in today's market, I will do 10-year MTN.

Then the other thing is on the like-to-like maturity. I think I've answered. We -- the question, 5 to 5 and -- 5.75-year term loan versus my 5-year term loan in my portfolio, this is cheaper.

[Vijay Natarajan, analyst]

Vijay from RHB. Maybe can you comment a bit on where are we in terms of acquisitions, potential acquisitions of MBC and MBC II?

[Hwee Li Lim, executive]

Okay. More the answer, I cannot say anything until the deal is on the table and it's open to the public, okay. But in any case, if you look at the global list of assets, I think we are close to like 3 -- it's still there, and that has been conceptualized to be offered to the REIT when the sponsor is ready. So when would they -- when are they ready? That is not an answer for me to -- I can't answer on their behalf.

For us, I can only say that the -- when the deal is on the table, I'll definitely have a good look at it, and I will try my level best as per norm as for previous transaction of looking at a few metrics, which is let's look at the profile and let's look at hopefully NPI, DPU, NAV accretion. If all the ticks are there, then it all depends on where the capital market is sitting. Certain things are not 100% within my control. I can only do analysis to ensure that the deal is at a -- priced at the right level, and there's some stability and it adds value to the REIT itself. But capital markets today can be a bit jumpy. Tomorrow, somebody says something, drop 200 points. Tomorrow, say something, drop 600 points. It's quite worrying. So for us, as a REIT, I mean, I don't sit on any cash. Anything that we buy is chunky. It's not $50 million I get to draw down on debt and back buy. I cannot. Everything is by hundreds of million, and if you look at the biggest asset on the [ Lofa ] is over $1 billion. Definitely, over $1 billion. Definitely need to do fundraising. So timing must be right. I can have the best deal, but if the markets are not there, I may not do the deal. There's no point forcing it when the capital markets are not there to support it. We don't sit on cash. So all these things have to be aligned in place before we present the case.

[Si Xian Goh, analyst]

Si Goh from Citi. I have a question on Anson and the...

[Hwee Li Lim, executive]

Anson is still there.

[Si Xian Goh, analyst]

Yes, correct. And the [indiscernible]. I think that if we compare the actual occupancy and the committed occupancy, there's been a difference for quite a few quarters. Just wanted to understand, is this the case that the tenant that has signed is taking a long time to commit or...

[Hwee Li Lim, executive]

He's doing setup. Okay, so Anson I, she started 1st of October, right, operations paying rent in October. So that's where -- before that, you will see the committer, but he's doing construction, got no rent, okay. Then when he starts, then it will roll into the actual. But we calculate occupancy on a cash flow basis, okay. So if it's not on a full quarter and he comes in mid of the quarter, you receive -- they say only got one lease. Say, for example, I only have one lease and we -- he starts in the middle of the quarter, collecting rent, you receive 50%. That's how we count. We don't go on the 30th of September, are they there? If the whole thing is occupied, it's 100%? No. If he has only operated for half a quarter, you receive 50% for that lease. So that is the difference. So Anson is because there was some setting up period, and he started operations in October. So yes, so that's where you see the gap.

[Wee Leong Koh, executive]

[ We tend to pick ] the deal as well. [indiscernible]

[Hwee Li Lim, executive]

Yes. So I think the -- there's a -- I would say that the -- in terms of all assets, our 2 core adding up close to 80% is in good steady state. Steady is good, okay. Super steady, okay. Then you come to the next 3. If I -- if we just knock out Merrill, Merrill is also super steady. Now I don't even have to do anything. I just have to make sure my operating cost is contained. Even if my operating cost goes up for Merrill, it's not going to hurt me, anyway, okay, because the contribution is -- it's a smaller contributor to the entire asset. So the 2 assets I would say that there could be some ups and downs along the way, but if you look at the magnitude, it's not going to be like in the order of tens of millions, like this quarter, [ we earned some ] $300,000. So I'm still explaining why $300,000. So it's a negative, but it's not like a huge negative.

[Teck Ching Wong, analyst]

Andy from OCBC. Can I just get your thoughts on habitat by owners B, right, in terms of Vivo, would you be looking to -- I know it's just nearby where 2B -- that's [ assured ]. That part having a hypermart, would you be thinking of such a concept going forward for the next year, the technology [ future proving ] more?

[Hwee Li Lim, executive]

Okay. He is operating in a B1 space, B2 or B1 space, industrial space. Location 1 is only the thing we're already better off. They are tuck their tails away. If -- for me to be shaken, Vivo, 1 million square feet, shaken by a 60,000 owner, okay. The cash [ rent ] is very different. They are like one tenancy out of my multiple tenancies, okay. Will I be doing it? I will never say, no, because if you talk about 60,000 out of my entire 100,000, I'll never say, no, but we don't have any active plans because one, I'm going for the core shopper, which is going for buying things in NTUC in full basket loads. 60,000 is not just their supermarket. It's a combination of supermarket cum F&B. So I would say that I'm not shaken. It's only -- it is 1 year. I have 1 million square feet. I'm a full-on shopping mall. And this is operating from a B1 space. It's more like one retail -- one lease that I will potentially have. And I say I don't think I will do the F&B part. I can do it myself. I can do it myself. I don't need to go to somebody to sublet. So no, unlike the F&B portion. There is a dissected -- the supermarket portion, I'm going to have a MBC 90-over -- 90,000. No fight in terms of size. You can only enter with app here. So it cuts away a certain portion, but of course, it's very forward looking. You can re-enter via net app, you got to pay with the app. So either got no spot forward and the auntie, uncles will not be their target market. So if you're asking, am I shaken because of that? No. If I'm getting affected by ARC-NTUC, maybe a little bit, but not like I'm going to -- but Vivo? No. I am very certain.

[Kar Eing, analyst]

Kar Mei from CIMB. If I remember correctly, your committed occupancy for your office in the first half is lower than your first quarter, committed occupancy. Is it because tenants -- committed tenants are pulling out?

[Hwee Li Lim, executive]

No, actually, we didn't have been any pullouts. Did we have any pullouts?

[Li Yeng Teng, executive]

No.

[Wee Leong Koh, executive]

There's just that one lease expired that there was lower [indiscernible] because then we [indiscernible] to sign yet. [indiscernible]

[Hwee Li Lim, executive]

Yes. There wasn't any pullout of a committed tenancy in a way that I sign it, I assigned a new guy and that guy moved out and decided to tear up the agreement, no. It's just by lapse, we have not replaced at the point when we cut off at the end, although we are in discussion.

Any further questions?

[Li Yeng Teng, executive]

We have one more question from an online participant, Kevin from [ U.K. ]. Is the footfall at VivoCity are more driven by tourists or locals?

[Hwee Li Lim, executive]

Okay. I can only refer back to our survey-cum-big data study. We have a portion of tourists, but about -- if I'm not mistaken, was about 15% thereabout. We are still predominantly serving the locals, but to say, this quarter, is it majority tourists or Singaporeans? I can't tell. I can't tell because we didn't conduct the survey at this period of time -- this Q2. But if you look at where the retail sales and tourism numbers, I think, they are all positive for quite a -- I mean x motor vehicle definitely is positive for quite a -- for the past months and months. Similarly, for the tourism numbers, they are also positive all the way. So I think those are good indicators that we will benefit from that. Vivo has a good mix. Vivo, we -- our core customers are still Singaporeans or should I say locals, but there's still a nice component, which is the tourist because we got Sentosa nearby, we got a Cruise Center nearby and so on and so forth. But they don't make up my core, okay, but they are a significant piece, but not the core. They are still below the 25% mark.

[Li Yeng Teng, executive]

Do we have more questions or participants here? If not, maybe we can just wrap this up. Thank you very much for your time for attending this.

[Hwee Li Lim, executive]

Thank you.