CapitaLand Integrated Commercial Trust

SGX:C38U

Earnings Call Transcript 2020-Q2

[Mun Wah Lo, executive]

Good morning, ladies and gentlemen. Thank you for joining us this morning via live webcast for CapitaLand Mall Trust's Second Quarter and First Half 2020 Financial Results Briefing. The results were released this morning before market opened. I'm Mun Wah from Investor Relations of the Manager of CapitaLand Mall Trust or CMT in short.

Joining me this morning is the management of CMT. On my left is Mr. Tony Tan, CEO. On my far left is Ms. Cindy Sze, CFO. And I also have Ms. Jacqueline Lee, Head of Investment and Portfolio Management, who is starting to join us.

A recording of the event will be archived on CMT's corporate website following the briefing. We will commence the briefing with a presentation by the CEO, followed by the Q&A. [Operator Instructions]. We appreciate your patience as the management will endeavor to address as many questions as possible during the session.

Without further ado, let's invite Tony to share the results.

[Tee Hieong Tan, executive]

Okay. Good morning, everyone. Thanks for attending today's session. First time we're doing virtual briefing with the -- all of you. I can't see you. I can't see your expression. It's a pity. But you can see me, so it's a little bit unfair. But nevertheless, this is what it is.

I hope everyone is staying safe as well. And of course, I'm sure you have your own way of dealing with the COVID-19. And obviously, a lot of people are beginning to come back to office. I think that's a nice sign of some normality. And hopefully, I mean, we all obviously [ touch wood ] things will get better from here.

So let me just quickly run through what we announced this morning. This is an overview, which I always give for the first half. Overall, we look at the old summary here, rental reversion, 0.1% positive, but coming from a reduction from first quarter where we clock in about -- I think it was 1.6, right?

Shopper traffic down 40.6%, which is not unexpected, given the lockdown, circuit breaker, people are basically at home. So it's down to 40.6%. And compared to -- in the first quarter, it was a marginal down 7 point -- or 7.2%. So you can see the large part of the decline is really in the second Q.

Tenants' sales declined by -- on a per square foot basis declined by 15.4%, take into context again the -- during the circuit breaker period where a lot of tenants are not trading as well. So it's minus 15.4% for the first half. Compare that with -- during the first quarter, it was down 7.9% because early part, it was only at the beginning of the circuit -- the COVID-19. So the bulk of it actually coming from second quarter, down about 31%.

The portfolio occupancy came down a little bit, 97.7%. Marginally, I think, obviously, there were some challenges. I think I will elaborate a little bit on. But nevertheless, I think it's still reasonable. Considering where the industry vacancy is, I think we still achieved relatively respectable committed occupancy.

This is basically an overview. I think I don't have to elaborate a lot. Second -- Phase 2 reopening started effectively from 19 June. So we are just beginning to see the impact of reopening of the economy. During Phase 1, essentially from 2nd June -- 1st June, nothing much has changed compared to circuit breaker. There were a little bit relaxation on some of the tenants on what they can do, for example, [ hair dresser ], they can do a little bit more client activity than during the circuit breaker period. Otherwise, it's a very minimal impact from an operational point of view between Phase 1 and during the circuit breaker period.

Since then, obviously, we have been seeing a little bit of pickup, shopper traffic coming back. We do a snapshot. As of first week of July, I think we are back to about 53% compared to same time last year. The -- of course, this is a portfolio-wide number and it varies from mall to mall, suburban or downtown. The better ones are achieving close to 80% recovery in terms of shopper traffic. The weaker ones is probably hovering around 40%. Of course, even lower for some of the more challenged, more like Clarke Quay, right?

So I think we've been putting a lot of priority, making sure that our tenants are able to trade in a safe environment. So there are additional measures put in place. So far, second quarter, a lot of emphasis has been put on that. We're also monitoring the tenants' performance closely, actively try to manage the tenancy issues, so -- which I will elaborate later on a little bit as well.

So overall, in the first half, I think we have published a number here, $154.5 million rental relief package in total, comprising both rental waiver from our share, CMT, approximately about $76.5 million, tax rebate and cash grant. And also not so quantifiable, we actually waived the turnover rent during this period until June, in fact. And we also released 1 month of security deposit, essentially to offset the rent in the month of March. I think in the first quarter, I did brief some of the people then. I thought you may have been aware. Since then, of course, there were additional government-mandated measure that was passed in Parliament for the SME. So we will pass on the -- whatever cash grant that we receive from the government.

So the gist of it is that we have to stay very vigilant. We've been actively managing the tenant relationship as well. There have been some media reports about the tenant landlord issues. I think these are the things that have been ongoing discussion until -- I'm sure we'll come to some kind of lending. We're also actively exploring different kind of alternative leasing structure, which I mentioned here. And I think at the end of the day, it's about creating an environment, win-win for both tenant and landlord for a long-term sustainable basis. I mean, this is optimally what we try to achieve. Bear in mind, COVID-19 is unprecedented. It hit the industry hard, fast and hard, but we also have to look on the positive side. At some point in time, this pandemic will come to pass. Yes.

Some financial highlights that was earlier mentioned to you. Second quarter, the -- essentially, the DPU is down 27.7% on the year-on-year. We have actually released $23.2 million or approximately about 1/3 of the $69.6 million of taxable income that was retained in the first quarter. Just to demonstrate that, I think we see things starting to come back to normality. But yet, I think we want to also conserve a little bit for the third and fourth quarter to see how things pan out from here. So overall, we released 1/3 of our retention in first Q. So on a per -- on a DPU basis, it's $0.0211, down 27.7%. For the first half, it's just a summation of the first 2 quarter. DPU is $0.0296, okay? I won't elaborate too much. Yes.

Overall, the gross revenue for second quarter is now close to 40%, right, which I mentioned earlier. The large part of it is because of the rental waiver part of the rental -- $154.5 million of rental release support scheme, of which we are clocking about $76.5 million for the first half. Second quarter on its own, about $74 million, right? So this brought down the revenue.

NPI is about $68.1 million. Correspondingly, it just part -- came down to -- it has been down to NPI level, is down by 48.9%. This first half, I also won't elaborate too much. It's just a summation of 2.

This is a breakdown by mall. The -- you can see, if you look at it on a comparable mall basis, excluding Funan, the revenue is down by 23.5%. So Funan, by adding -- having Funan coming full steam this year actually has partially mitigated the downside impact.

On the OpEx side, we have achieved some savings. It decreased -- declined by 6.4% overall. If we -- again, to compare it on a comparable basis, you take out the Funan impact, then it's about 10.8%. A few areas we try to achieve savings, including -- property management fee, obviously, it's just a formula base. Once the revenue and NPI is down, you will just trickle down the expense as well. We also cut back on the marketing expense. Obviously, we have some cost savings on staff given the GSS and also maintenance and utility expenses.

For the NPI level, on a comparable basis, it's down to 28.3% versus the -- what we are clocking overall at 20.8%.

For our 40% share in Raffles City, revenue is down by 16.7%. And also -- it's also a contribution coming from the rental waiver, rental support that we've given to tenant to the tune of about $4.3 million in first half. Some savings in OpEx overall. 17.1% decline in NPI, right?

And bear in mind, during this period, the hotel will essentially operating in a different [ mall ] form. Our hotel has been one of the location for the center where either returnees from overseas or those who weren't issued, who are still on notice, they will be staying in one of these facilities in Raffles City. So it's [ either of these hotels for everyone ]. So that period of time, of course, the hotel revenue has been drastically affected and correspondingly, our share of the turnover portion as well has gone down. Yes.

This is a debt profile, not very different from what you see in the first quarter. I think we have mentioned many times before, we have the, basically, facility to refinance all this debt that are due in 2020 and including all the way to 2021. As of June end, 96.4% of our total borrowings on a fixed interest basis and we don't have any foreign currency exchange exposure. Everything has been swapped back to Sing dollar. So this is pretty straightforward.

Some key financial indicators listed here. The -- a bit of decline in terms of elevated leverage because of the valuation declines in our property as well as some further drawdown. NPI also affected the net debt-to-EBITDA number, increasing from 6.4x to 7.1x. Otherwise, the rest are very minor movement. Average cost of debt came down slightly from 3.2% to 3.1%.

This is a summary of the valuation. In short, I think there's a slight decline, about 2.5%, at CMT portfolio level. If you include our share in Raffles City, then it's about 2.7% of our property value overall.

Obviously, the valuer -- when we look at this situation, it's unprecedented. I know many people said this before, and it's really unprecedented. They have no -- we have assumed that there were no -- any kind of cap rate changes compared to 31st December. Obviously, post 30th of June, there were -- there was a transaction that was announced. Perhaps on the second half, there may be some reference that the valuer may [ make use ]. But because of the first half of the year, there weren't any -- there weren't any visible market transaction benchmarking, so the cap rate essentially was maintained.

What has changed is the value assumption on the rent expectation, the growth going forward. There are some carrying down as well as taking into consideration some of the leases that we have signed. We have marked down some of the leases as well. So all these accumulated into a decline of about 2.7% overall CMT share.

Balance sheet-wise, I think we remain very healthy. After adjusting for the valuation decline, our adjusted net asset value is about $1.99.

So this is just some numbers. Now some dates to bear in mind, ex-trading date 29th July and then distribution in 28th August this year.

Let me update on the portfolio, which I think I did mention at the beginning. The shopper traffic, I think I mentioned before, the last part of the decline comes in the second quarter. The turnover sales -- sales turnover for our tenant is also largely impacted because of the second quarter during the circuit breaker.

But since the reopening in -- from Phase 1 to Phase 2, I think we have been seeing quite an encouraging return of people coming to the shopping mall. From 1st to 7th June following on, you look at the trajectory, it has been quite encouraging, I must say. Even running up to July, which is the next slide, we are still seeing a week-on-week incline in improvement. With people coming back to the office more and more, you see a little bit of further uplift in downtown mall because downtown mall was more severely impacted during the circuit breaker period. But once the economy start reopening and we went to Phase 2, the corresponding improvement comes from downtown mall. We have also improvement in suburban, but to a lesser extent. But there are also some outlier that I mentioned earlier where some of the malls actually has recovered all the way, almost to -- almost close to 80% on certain days compared to the same time last year. Yes.

Tenant sales, I don't think I want to elaborate too much. I think everyone knows the key winner here in this period of time. Supermarket is no surprise. Book and stationery, there were a little bit of pent-up demand, especially after the opening in Phase 2. We see people are coming back to the shops to replenish their books. Some demands on the IT and telecommunication, especially, so compared to first quarter. And also demand -- some demand from the Electrical & Electronics. I think these are like all pent-up demands. Yes.

How these things will trade from here? I think, of course, you have to watch. Economy is key. The housing sales, I think, is also key. It's usually a [ fore ] indicator of some of the trade that may be impacted. For example, home furnishing, people may start to furnish a home. So with this, the housing sales, I think it will be a leading indicator for some of the trades.

Rental reversion overall, 0.1% decline. It's improvement, positive reversion. It's, of course, lower than the first quarter that we achieved at 1.6%. I think across the board, the -- mostly a lower reversion, which is not unexpected in today's climate, tenants -- the retailers are typically a bit more cautious this time -- period of time.

And when we talk about leasing, I think we have to be more flexible. I've -- I think I've mentioned many times and I want to reemphasize, we need to be very flexible, taking perhaps a little bit of risk on the landlord side at the early part of the year. And hopefully that the tenant can trade well, we participate a little bit more upside on the turnover side. But essentially, we need to be a little bit more flexible. Flexible for tenants who are existing with us, know the existing tenant with us. Flexible also looking at new-to-market concept. And this fits very well into the property or the mall that they are located. The location, the catchment is meaningful for that particular trade, I think we must be very flexible, right?

This is just a breakdown of the remaining leases. I think we have about 320 left, of which includes also warehouses, warehouse space in IMM, for example. I think about 55 units and some offices, I think about 5 to 6 years, I think 6 units or offices. So this is just a breakdown. I won't touch too much.

Occupancy, 97.7%. Overall, some decline -- I think more -- the start of decline you can see is, perhaps if you compare to first quarter, would be the likes of Clarke Quay, which is understandable because Clarke Quay, among the asset that we have, is probably the most impacted. Today, the clubs are still not allowed to operate and Clarke Quay has catered mostly for the night trade. So the F&B are also operating at a much reduced capacity. So I think Clarke Quay, as I said, that we are looking to a rethinking how to reposition it. And perhaps we'll look at some potential synergy once the project next door, which is co-owned by CapitaLand, redevelopment to a new form, right? So we are exploring the different possibility.

Otherwise, the -- some minor movement here and there. Bear in mind that our objective really is to keep our occupancy as high as possible during this period of time, back to my earlier point about being flexible in the leasing side, so that we have a little bit of substance in every property, every shopping mall that we have here. Yes.

Going forward, I hope the worst is over in terms of the darkest moment. Obviously, to me, the darkest moment was during the CB period. Second half of the year, we hope things will normalize a little bit. But normalize back to 2019 pre-crisis year, I think, will take some time. As you know, around the world, I think there are challenges as well. Singapore is not spared, but we hope that with the various measures in place. At least, the risks contained within Singapore is managed. People on a day-to-day basis can go back to their normal living. Then our business catering to the local domestic consumption would have some level of resilience. So that's what we hope for. Barring no further issues on the infection side, which require a further drastic tightening of the safe management measure, then hopefully, second half would be better than what we see in the second quarter. That's our wish, yes?

Of course, this is crystal ball-gazing. We try our best in order to make sure that our tenants are able to trade well. We have already earlier announced the -- CapitaLand announced the 2 new e-omnichannel platform that will help some of our retailer easing into omnichannel client environment, especially the very hardcore brick-and-mortar type of business. And hopefully, over time, this will take a life on its own. And truly, we will operate a shopping center that reflects the omnichannel nature of the retail business going forward. Yes.

So I think we'll stay very vigilant. We'll stay also very engaged with our retailer. We've been engaging them quite actively. We are quite focused on ensuring healthy occupancy in a mall with our true proactive leasing strategy and to ensure financial resilience and flexibility in the way we manage our capital.

So I think that's where I'll end my presentation today, and I'm happy to take questions here.

[Mun Wah Lo, executive]

Thank you, Tony. We have received many questions during the live webcast. I will start the first question -- I will start with the first question to the management. Let's go to the operational questions first.

What is the percentage of SME tenants in the portfolio? And how much of the mandated SME rebates of 2 months by landlords have been booked in the first half of this year?

[Tee Hieong Tan, executive]

So I think the second question, I'll answer this now. I think it's about $76.5 million, our share in the first half. Of the $154.5 million, $76.5 million is the so-called landlord portion that we are booking, yes? There was still a remaining amount that we need to booking subject to confirmation from the government who are the qualifying SME [ lessor ]. So that one is not out yet, the details are not out yet. There could be some amount that may be booked in the third quarter, but the large part actually has been booked in the second quarter.

So back to the first question, SME, I think it's the same question that we have been asking the authority as well. But we did our own estimation for the purpose of the book closure. We assume about 60% of our tenant base are SME.

Today, if you go to the MINLAW website, you go to the IRAS website, they have 2 different definition, different definitions of SME. Something -- they look at SME, a qualified SME from an entity level. That is the, I think, the IRAS definition. Whereas in the MINLAW website, it is defined as entity from a group level perspective. So we are waiting for confirmation.

There are some implication because the way we booked in the second quarter, we assumed 60%. And if you remember, second quarter, essentially, our tenants are operating almost rent-free. That means the balance actually is absorbed by tenant, which is booked [ in SSN ], $76.5 million. If the percentage goes higher, it means our corresponding share in the landlords' share in the mandated waiver will be lesser. So they will have the corresponding impact in July. So it's a little bit of timing difference. But safe to say by third quarter, I think when there's clarity, so the whole thing will be absorbed even now, yes. But the bulk is actually captured in second quarter.

[Mun Wah Lo, executive]

So basically, what is the management expectation of future rental rebates for the second half? I mean, this also follows on it. Another question is like what -- how long will the GTO waiver last?

[Tee Hieong Tan, executive]

Okay. So GTO waiver until end June, this is what we announced. July onwards, we are already operating in Phase 2. In fact, even during Phase 2 period where the tenants are operating the -- we more or less have waived the GTO run as well. So the -- hopefully, there can be a little bit of buffer. But safe to say July onward, we have not implemented anything yet, but we'll monitor and see how it goes.

It also has to look at a holistic way of managing this situation, including the point I mentioned about flexibility on leasing structure. So that's something we work alongside with tenant to make sure that we are able to structure something that is a win-win. So we -- obviously, for good tenant, we want to keep them. And we will be looking at how we can co-share a little bit on the rates, yes. And now we will be then very focused on making sure we drive the sales. Two different options we have, whether it's through our card program, our voucher program or our loyalty point program, yes. So we have a bit of levers to work on.

[Mun Wah Lo, executive]

Okay. This is a question on income retention. Why did we return -- retain distributions at cap -- at least at the CMT level, but not at the RCS level? Why return at CMT level and not RCS level. Should we expect the remaining distributions retained in 1Q to be returned in second half of this year?

[Tee Hieong Tan, executive]

So we did have some retention. I think it's about $1 million, RCS retention.

[Cindy Sze Yung, executive]

About 40% shares, $5 million.

[Tee Hieong Tan, executive]

$5 million. $5 million, yes, so we did retain. Whether we would distribute at the end of the year, we'll watch the situation. If we feel that the risk is low, there's no reason why we should hold the income that's due to unitholder. So we will watch the situation, which is why I think we're comfortable enough to release 1/3 in the second quarter. If things works out okay, maybe we'll release another 1/3 in third quarter. Yes.

[Mun Wah Lo, executive]

What percentage of tenants were operational in the first half or rather when we reopened the economy?

[Tee Hieong Tan, executive]

So as of today, I will say more than 95% of our tenant already in operation, yes.

[Mun Wah Lo, executive]

Okay. What the portion of tenants have sought protection under rental deferrals and under the Temporary Measures Act?

[Tee Hieong Tan, executive]

Very small. I think in terms of NLA, we're looking at less than 1% still. We have actually officially submitted the -- what they call the notice of relief to us. Very, very small, manageable. But of course, there are other tenants that we are also looking at, at the same time.

Overall, I think it will -- so far, of course, this is -- it could be dynamic. As of now, we see the -- it's still going to be a maybe low single-digit, yes.

But bear in mind, again, we also help ourselves by managing the risks, whether through the lease restructuring, flexibility of risk restructuring as an overall solution for the tenant. So I think we have been working alongside the -- this as well, looking at situation on the tenant side.

[Mun Wah Lo, executive]

Yes. That actually answers the question as to what are the alternative leasing arrangements that we have worked out with our tenants.

[Tee Hieong Tan, executive]

So case by case, it can be a short-term extension, crossing over, hopefully, into next year. It can be a restructuring of leases, looking at a -- maybe a higher share of the risk at the front end and catching up at a later end. So it depends on the situation. Some new to market. Of course, they are a bit more concerned whether they are not sure we can have an even extreme maybe first year, it's just 1 GTO. And then second year, we have the fixed rent back to a certain level of sales. So I mean, there are some flexibility along that line.

[Mun Wah Lo, executive]

Even though leases can't be terminated based on nonpayment, is there a proportion of tenants who will not be continuing with CMT?

[Tee Hieong Tan, executive]

So pretermination are very low as well. So far, we're looking at less than 2% preterm, yes.

And again, you must bear in mind, we have been actively talking to tenant and look at solution. Generally, tenants are affected globally like we have shared some of the news out there. Those can be helped. But then also, there are some tenants that even pre-COVID, they essentially about -- also not trading that well as well. So those are the kind of retailer, perhaps we felt need to change and we may not be proactively managing the leases there. So there will be a combination of different factors, but those that we hope, they want to stay with us, we can be very flexible.

[Mun Wah Lo, executive]

How is the leasing demand in the downtown and suburban malls?

[Tee Hieong Tan, executive]

I will say the -- I would say there's a big disparity in terms of desirability. It all depends on what retailer -- what tenant type and what trade type you're looking at. There are some tenants who want to have a downtown presence, so we still have demand as well and -- because during this period, downtown generally a bit more stretched and stressed than suburban. It doesn't mean that suburban is having a fine time. It's just that, relatively, downtown has been more stressed. Some units lot that became available, became appealing to some retailer who wants to have presence downtown. So we're still able to capture some of the leases like that. Corresponding in suburban, even suburban environment, not all tenants are trading fantastically well as well. So we do have also fallouts in suburban mall as well.

So the demand for space is relatively a marginal difference, I would say. But some of the very popular malls that we have, actually, the demand is reasonable, I would say, given today's context.

[Mun Wah Lo, executive]

Can you give some color on why tenant sales decline was much lower compared to shopper traffic? Does tenant sales also include online or delivery sales by tenants?

[Tee Hieong Tan, executive]

So it includes those who have embarked onboard the online. So we capture some of the sales in the online side to weather our -- to the channels. The shopper traffic, we've seen very steep decline in downtown. I think earlier I mentioned downtown second quarter, we're looking at 72% second quarter. Not downtown -- sorry, the overall [ tenant ] portfolio, 72%. But the sales has been buffeted by exceptionally strong performance for certain trade. For instance, the supermarket is doing extremely well. So they actually been able to buffer some of the numbers you see here. But overall, the second quarter is down about 30%, 31% sales-wise, yes? It's not small as well, but it's been buffeted by some very strong performance like the supermarket, even books, yes? And some pent-up demand coming, especially on the later part of June, in home electronics and IT product as well. Yes.

[Mun Wah Lo, executive]

What's your percentage of variable rent? I think in this case is the GTO, compared to total. And how do you expect this to change over next 2 to 3 years?

[Tee Hieong Tan, executive]

Do you have the breakdown for first?

[Cindy Sze Yung, executive]

5...

[Tee Hieong Tan, executive]

How would that pan out? I think overall, I will say the GTO rent component will go up as we slowly implement some of the lease restructuring that I earlier mentioned, where the early part may have a higher share of the turnover component versus the later part. And also new-to-market coming in where it could be upper GTO.

[Cindy Sze Yung, executive]

Still about 5% [indiscernible].

[Tee Hieong Tan, executive]

So far, it's still about 5%. Maybe it's too early because also there are a bit of a distortion. A lot rent has been waived during the second quarter. And then overall the sales, of course, have been very impacted. So the sales number also has been declining. So there's a bit of noise in the number. So somehow it still end up about 5% as of first half.

[Mun Wah Lo, executive]

How far -- I'm not sure whether I can answer this question. How far are we from pre-COVID? I think this is in terms of the -- I mean, shopper traffic we've already given the position there. So the -- in terms of tenant sales...

[Tee Hieong Tan, executive]

It's still early days. So far, we only recorded the -- effectively from Phase 2, right, that you see some sanity back into the mall, but still not there yet in terms of the traffic, given the safety control is still in place.

How long do you think? I have no answer. Hopefully, sooner than later. Also, depending on the situation, whether when international travel can resume, that will obviously have some impact to our few properties downtown where we have some reliance on the foreign investor ship, whether it's leisure travel or business travels. Yes. So unfortunately, I can't have a date in mind. Hopefully, no later than second half of next year, hopefully.

[Mun Wah Lo, executive]

Okay. Some questions on capital management. How much undrawn credit -- committed credit facilities does CMT have? And what is the likelihood of a rating downgrade?

[Tee Hieong Tan, executive]

Maybe Cindy, you want to answer?

[Cindy Sze Yung, executive]

Okay. I think in terms of the undrawn committed facilities, we typically do not provide this info. But what I can safely say is that our committed facilities are more than enough to cover this year's and next year's refinancing, plus they can also cover the working capital. So that's the first question.

Your second question is on the likelihood of a rating downgrade. I don't think we are able to comment on that. I mean, we do know that Moody's has put CMT on review for downgrade back in the beginning of the year. So we have to let the rating agencies run their numbers. And I believe they will make the necessary opinion when appropriate.

[Tee Hieong Tan, executive]

Yes. But of course, there are dialogue with them as well. They also look at the business environment. They look at your strategy on the capital management side. They will factor that all into consideration, yes.

[Mun Wah Lo, executive]

Okay. There's some questions relating to the proposed merger with CapitaLand Commercial Trust. One is the merger terms. Are there any update on the -- is there any update on the merger terms?

[Tee Hieong Tan, executive]

We can't comment on the merger terms. I think it is what it is that has been announced. If you look at this morning's announcement, we are working towards organizing an AGM by the 30th of September. I think this is still on track that we are working on. Yes.

[Mun Wah Lo, executive]

Okay. NTA has declined by 4.4% from December 2019. Any risk of MAE?

[Tee Hieong Tan, executive]

No, it doesn't trigger the MAE. MAE cash flow is higher than that, yes.

[Mun Wah Lo, executive]

I think we have addressed the valuation questions. Maybe, Tony, if you could just maybe give a little bit more background to the $154.5 million rental waivers. There are some questions surrounding as to what is it that the -- it comprises of? How much of it is actually landlord?

[Tee Hieong Tan, executive]

I think I addressed that. Maybe if you would -- Cindy, you want to add a bit more color on...

[Cindy Sze Yung, executive]

Okay. So maybe I just give the breakdown. $155.4 million that you see...

[Tee Hieong Tan, executive]

$154.5 million.

[Cindy Sze Yung, executive]

$154.5 million, okay, comprises landlord's rebates of $76.5 million. And the remainder, $78 million is actually the property tax rebate and the estimated cash grant that were booked in, yes. So -- and that the cash burn is also based on the estimated percentage of SMEs of about 60% that Tony mentioned, so this number is really still an estimate. It will be finalized closer to 3Q where we get greater clarity on who's an SME. Yes.

[Tee Hieong Tan, executive]

Maybe, Cindy, you can also explain why this is booked this way accounting-wise, recognition of landlord's portion and government portion, maybe because there will be some so-called balancing figure that will be booked in the quarter.

[Cindy Sze Yung, executive]

Okay. I mean, let me try it. Okay. So basically, we've given waivers of 3 months, right? So April, May, June. So technically, landlords -- tenants did not pay rent for April, May, June. Of this portion, the amendment bill has actually stated that the April-May portion has to be properly taxed in cash burns and then June-July is the landlord portion. That's the reason why we had to book in all the property tax rebate that were passed down. And for the cash grant, we had to arrive at an estimate to book in into the second quarter even though we have no clarity on who's an SME and how much is the cash grant that will be given to us in the first place. So for accounting reasons, we had to follow what the deal actually said. April-May book in -- okay. So in the second quarter, we have to put in all the estimated cash burn and property tax rebate. And the remainder, the balancing will be the landlord portion for now for the second quarter, yes. Hope it helps.

[Tee Hieong Tan, executive]

Safe to say, we'll fulfill the requirement that is -- in fact, we have overall been doing more than what the bill has required us to do here. Yes.

[Mun Wah Lo, executive]

The third question on occupancy cost. Where are occupancy costs trending at this moment?

[Tee Hieong Tan, executive]

As of now is -- because of the rental waiver, so not exactly a good reflection. We don't even want to put this into context at the moment because it's just too distorted right [ now ]. Because the sales is down and then obviously, you are not paying rent even for the period where they are trading. So I don't think it's a number that you should be focusing now. It's more forward-looking.

Forward-looking, I think we still stand by a range between 18%, 20% kind of occupancy cost ratio, which, I think, overall, as a portfolio, is something that we are looking at. It may trend down a little bit. It depends on how well -- it's all about taking a bit of position. I talk about leasing strategy. You take a little bit of position on certain tenants or trades. And your overall gross rental income would comprise higher than normal time proportion of the GTO component. Hopefully, we are right, but we may not be right all the time, right? So that obviously translates into your rent that you can charge the tenant. So that's an equation not easy to define today. But we've always been working on the assumption is probably between 18% to 20%. But there's a risk that I think it will come down lower if the tenant doesn't trade as well.

[Mun Wah Lo, executive]

So moving forward, what is the kind of rental reversion trend that we can expect, whether it's this year, for the rest of this year or even moving forward to 2021?

[Tee Hieong Tan, executive]

So if you follow what I've been saying earlier, shifting flexibility in rent structuring means that potentially the fixed rent will come down. And the way we measure the rental reversal, we may have to rethink how to signal to the market. We have always been looking at outgoing fixed rent versus incoming fixed rent. So those structured leases that has got a low base fixed rent with a higher share component, obviously, would see a market decline the moment you will do the contract. So we may have to really think through how you want to capture that, but I'm not saying that there's a perfect way to do it.

Historically, in a normal environment, less volatile environment like today, that would have been perhaps a better reflection, even though not perfect. But given that the environment today has changed, the way we reported in the past may not truly reflect our intent and ultimate outcome that we want to achieve. So we rethink how we want to do it.

Safe to say, the pressure on the fixed rent is there, given that the general environment has been very soft. The economy is soft. And the tenants are very cautious about how they want to look at their footprint. Once all this settle down, you will obviously see some casualty. I think there will be and -- but there will be some weakness as well. So we will have to see from here.

Between now, I think in the next 1 year or so, I would imagine it is still a period of transitioning out of COVID pandemic. And during this period of time, there will be probably some noises along the way here.

[Mun Wah Lo, executive]

Can we get some color on Clarke Quay? Performance is weak, but rental reversion is strong at 2.5%.

[Tee Hieong Tan, executive]

Correspondingly, you've seen there's a vacancy increase. So we have not -- so there are some tenant that has left during the second quarter and we have not signed up new ones.

Clarke Quay, I mentioned earlier, is a bit more difficult, given that the high component can be chunky of tenants who are in the restricted trade. So they have to reinvent themselves. Some of them did -- not all them did that. And we are also studying how best to interface into the project next door store that CapitaLand is one other partner. Eventually, during our [ rollout ] -- the form may be slightly different. So we are still studying that at the moment. So it's actually also an asset that is going through a bit of transitioning.

[Mun Wah Lo, executive]

Yes. So there's a follow-up question on whether we'll be giving special relief to tenants at Clarke Quay or whether we'll be giving further rental relief to Clarke Quay tenants?

[Tee Hieong Tan, executive]

As and when on a net basis, I think we will, yes. The -- there are a few tenants, a small minority actually, I mean, coming back -- no, tracking back nicely. But overall, there are some weak ones. I think we will watch closely. On any basis, we may render some support. But safe to say, I mean, Clarke Quay is still a big part of the portfolio. Fortunately, we have some levers.

[Mun Wah Lo, executive]

So maybe CFO can take the question. How is the company accounting for the rental rebates? Why is there a big difference in the operating cash flows in -- for second quarter and the declared results?

[Cindy Sze Yung, executive]

Actually, rental rebates are taken at period costs. So basically, they are flushed out to the P&L immediately and they are not amortized.

I'm sorry. Your next question is, how is the...

[Mun Wah Lo, executive]

Why is there a big difference in the operating cash flows for second quarter and declared results? That was the question.

[Cindy Sze Yung, executive]

Okay. I mean operating cash flows, as you're aware, there are no receipts received in the second quarter, but yet, we continue to have to pay expenses. Interest expense are fees, operating expenses. So naturally, your operating cash flows will be more negative.

[Tee Hieong Tan, executive]

Yes. Second quarter, like Cindy was just telling you, I mentioned earlier, essentially, the whole -- almost the whole second quarter -- last part, actually, tenants are operating more or less rent-free, right? So there's no income receipt. So some come in the form of a prop tax rebate, no rent. The cost is so-called subsidized from the government coffer, but the subsidy is spread over the rest of the year while the relief going to tenant is spot-on on that month. So there will be a timing difference, but it will level out during the year.

[Mun Wah Lo, executive]

Your rental reversion for Bugis Junction was very weak in the second quarter. Any leases that was causing this drop? Will the pace continue?

[Tee Hieong Tan, executive]

So there was 1 or 2 larger space that we locked in a new operator. So that's sort of contributed to the decline. Overall, Bugis Junction is an average performer, I must say, from a recovery perspective. Not all people has gone back to the office, but you can see the trickle effect coming back. Footfall-wise, they are below 50% from the pre-COVID day, year-on-year as well. So it's not the worst, but then it's still an average performer, yes. So I think -- but over time, Bugis Junction, I think will come back. Being in the location is with a well -- it's actually a very vibrant location with the office crowd and the student crowd and some tourist crowd. But over time, it will come back. Yes.

[Mun Wah Lo, executive]

Okay. This is something we have answered previously. Is there a sense of how much tourism receipts form a percentage of our tenant sales and the implications on rent if we see prolonged lockdown in tourism travel, as per what Lawrence Wong is guiding?

[Tee Hieong Tan, executive]

So we have -- we don't really go and track tenant by tenant or that how many proportion -- how much proportion of your sales is coming from tourism. We don't track that. But anecdotally, we can rank. The higher dependency one is Clarke Quay, then followed by Raffles City, mostly downtown, and then followed by the Bugis Junction and trickle down maybe Funan to early days. And then probably the, I would say, least among those affected is producing a product where you have a bit of catchment of residence -- residential over there. Yes.

[Mun Wah Lo, executive]

Can you please provide some color on how the F&B and restaurants are trading? Are sales recovering in line with the overall portfolio performance? Or are they lagging, given social distancing measures for in-dining?

[Tee Hieong Tan, executive]

Very mixed. We have some that are trading well. I'm sure you all visit the mall. You can see for yourself. 4Qs are forming ready. But there are those that not trading, not as well, that means they may have not recovered more than 50% from where they were before. Those are trading well. So they are trending quite nicely, reaching maybe 70% kind of level before the lockdown. Bear in mind also, there are still safe distancing measure in place where they are seated 5 tracks per person, 1 meter apart. They're still constrained from an operating capacity perspective, so that will inherently limit. Online portion, hopefully, will take off. We can eat -- with [ Capita Streats ] is one -- another channel for them to at least capture part of the online sales.

So overall mix, I think, mixed results. At least, we hear lesser tenants, F&B tenants than before coming back to us for -- in terms of rent support. I think the noise has come down a little bit, but very mixed result.

[Mun Wah Lo, executive]

Will CMT do another appraisal before September 30 with respect to the proposed [ measures ]?

[Tee Hieong Tan, executive]

We can't comment at the moment. We -- I think we'll see how things progress from here. But at the moment, it is what it is. We've done the first half valuation already, yes.

[Mun Wah Lo, executive]

Okay. Questions are so long. Can we elaborate? Okay. We've talked about this. Is divestment or redevelopment of some of the existing properties in the portfolio an option?

[Tee Hieong Tan, executive]

It's always part and parcel of our job to look at the portfolio and whether it makes sense. So we are always assessing our options, whether we should hold on or whether we should recycle. Even during this period of time, we're meeting even harder what we need to do. So there's always this possibility.

[Mun Wah Lo, executive]

Okay. This is something on the GTO portion -- proportion. What type of tenants would we likely consider charging higher GTO or high GTO? And what type of tenants are likely to pay higher base rent?

[Tee Hieong Tan, executive]

So typically, the charging higher of GTO, I think, I earlier mentioned, some new to market where they are not very certain. So there could be a so-called trial period where the GTO component is higher. Also, other tenants that embark on the omnichannel or online channel strategy alongside with us, and we are able to capture their turnover sales effectively. So those -- the clarity and the certainty of the number is there. I think we are quite prepared to take a little bit higher risk. Yes.

[Mun Wah Lo, executive]

Just one question on the financial statements. This one, Cindy may have to take it. What drove the approximately $45 million spike in trade and other receivables? Is that all outstanding rents that is not paid? Or when does it get [ impaired ] as doubtful debt?

[Cindy Sze Yung, executive]

Okay. The increase in trade and other receivables is due to the government grant receivables that we have booked in. Yes. So the increase is not due to your doubtful debts or your trade receivables coming from the tenants.

So with grant accounting, the property tax rebates for the remaining half of the year where IRAS will actually give it back to us slowly through the rest of the years -- through the rest of the year is booked in as a receivable as of 30th of June, yes. So that forms the bulk of it actually.

[Mun Wah Lo, executive]

Okay. One of the analysts actually wanted to clarify again that in the call, in our first Q results, I think it was mentioned that we will be amortizing rental rebates over the course of 2020, but it appears that we have now changed that position. Maybe you want to clarify again?

[Cindy Sze Yung, executive]

Yes, that's right. In the first Q, the auditors said that we have to amortize it. We continue to work together with the auditors in the second quarter. And I think across the industry, the accounting bodies have actually taken a view that if we are able to justify for period cost, we can actually take it as period cost. And we eventually managed to do that. So the impact of the amortization, which was only about $2 million in the first Q, was reversed and refreshed of all the inventory rebates in the second Q. And the rental rebates will be treated as period costs.

[Mun Wah Lo, executive]

I just like to clarify on the shopper traffic recovery that we mentioned in our slides, it was 53%, whether it's year-on-year or between the first week of July and first week of January. And the breakdown for downtown malls is about 49%. Suburban malls are higher at about 57%, 58%. Just wanted to clarify on that.

[Tee Hieong Tan, executive]

We've been in that range, I thought, in the upper bound and lower bound. The strong of suburban one can go up, it's close to almost 18%, but down to about 60% -- or no, 50-plus percent. Then the downtown one, lower bound about probably about 40%, upper bound is about 55% and above thereabout. Yes.

[Mun Wah Lo, executive]

Okay, I think that's a lot more -- there's a lot of repetition. I think we probably may want to end it here. If there are any other questions that have not been dealt with, you can feel free to drop me an e-mail or you can also call me any time. I'm trying to answer most of the questions for you.

I think with that, we'll probably end the session today. Thank you for joining us.

[Tee Hieong Tan, executive]

Thank you. Thank you for listening in today. Thank you.

[Mun Wah Lo, executive]

Yes. Thank you. Stay vigilant.