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CapitaLand Integrated Commercial Trust
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Hi. Good morning, ladies and gentlemen, a very warm welcome to CICT's First Half 2023 Financial Results briefing. My name is [Karis] [ph], 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. So it'd be formal, I don't know why, knowing this is not my difficult stuff.
Thanks for coming, first thing in the morning, I think we released our result this morning, you probably have seen it a little bit glimpse. I would not want to dwell too much on the details, I think they probably have a lot of burning questions you have, given the diverse kind of probably why you see our release in a market against not our peers. And hopefully 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 held quite steadily first half. I think on the back of, probably know the reopening started last year more intensively from April onwards. So second quarter to second quarter comparison, naturally you're comparing against a high base. So the first half, you look at the first half result, the first quarter result, you have seen a little bit of tapering off in sound and numbers. But nevertheless, you will quite a pleasant surprise or rather what 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 a operational level and also from a macro level 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 signs of a little bit of green shoot, now inflation seems to be picking in many places. That's probably the key factor underpinning the performance of the recent for us obviously, on the ground in Singapore and some of the market in overseas we are also seeing a little bit of impact coming through.
So some high level numbers, MPI 10.1% increase year-on-year against some moderation from first quarter. DI went up by 1.7%. So a lot of the distribution has been eaten away by interest cost largely. And DPU increased by 1.5%. Overall we have seen the portfolio really resilient from occupancy point of view across the board, both the retail and office asset we're seeing the occupancy creeping up, in a way a manifestation of liberal confidence level holding hopefully coming back into the marketplace against the backdrop of maybe three months ago where there seems to be a little bit more uncertainty.
Tenants is also trending well, very pleased that we've seen both downtown and suburban more are picking up. Downtown more 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 crowd nowadays downtown location. Suburban holding up pretty well against my earlier projection that when the border start reopening, we've seen a lot of probably outbound travel, which we have seen a little bit but seems like the sales have been tracking quite nicely.
So overall, I will 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 would pan out true in the second half onward.
So the NPI I mentioned earlier, and also 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 be a little bit better numbers. We also since started to receive distribution coming from cap spring, if you recall cap spring, we will list up quite well. But there always been a little bit of different timing gap, we begin to see no distribution coming back from cap spring. Obviously, assets are starting to contribute. That will be at a lower level than we hoped for, but I think they're starting to contribute. And obviously the [CapSky] [ph] that we completed last year, going full steam and is trading very well.
Overall, like I alluded to earlier, the portfolio numbers been very encouraging, from an occupancy perspective creep up overall, about from 96.2 first quarter to 96.7, now above 0.5% on a quarter movement. The total, in fact, the rental revision, we were quite pleased that we're able to extract a little bit more revision 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. We're into revision. And we win the office and retail, quite diverse range, the retail side -- office side, we've seen a little over three plus percent kind of reversion depends on your expiring ran right to a high of 21%. So that blended up into a above six point, this office is about six point something percent. And 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 we should expect the 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 through the more, I'd always say, it's already in fact higher than what we're seeing in probably slightly across almost 2019 level not far away from 2019 level. Tenants, we have continue to maintain in fact higher than pre-COVID, on overall portfolio while it is about 8.3% higher than pre-COVID.
Total borrowing, fixed 70%, we've done some issuance which I will elaborate later on. And now we have a very healthy maturity profile, 4.3 years left in the debt side.
There are some colors, [indiscernible] you hope to complete by later part of fourth quarter as in DOP progressively know as you visit if you do go down 3Q, periodically you're seeing some movement of tenants, some movement in terms of the holding. Progressively we'll remove some holdings, 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 border handover will happen.
Raffles City, I've seen also quite a nice refreshment. Now we have done through quite a significant reposition of Raffles City. I will say we are only at phase one of the repositioning roughly 40% or plus-ish of our brand and target positioning we achieved. And we're looking to look at remaining about 25%, 30% of the tentants that we need to do a little bit of adjustments.
Nevertheless, I think the Raffles City, we are quite happy with it. And we've seen -- we brought a lot of our investors from overseas and when it's local as well, to explain to them what we are doing why, we position Raffles City, I think most of them has been quite pleased with what do you see the outcome.
Overseas assets, sorry. Yes, I think overseas asset, I alluded earlier, seen a little bit of green shoot. We have ramped a little bit on the occupancy for Sydney, it has gone up from first quarter 83.4%, now today we're looking at 88.6% pretty healthy take up rate, for example 66 Coleman. Today we're close to 96% committed and we're working through some of our other asset plans. And we've seen some interesting phenomena which we tested the market over there. And there seems to have a bit of preference for at least in this environment where there's some level of uncertainty. [Indiscernible] units seems to have a little bit of traction there, and when you get a place well deck up very conducive environment for their staff. And if they want to make a decision quick, they can come in quite quickly. So, we thought that decision to do some fit up space was right. And but we are trying out the other building as well.
In Frankfurt, a little bit of creep up in occupancy last year from MAC, I think last quarter we were looking at 94-ish percent today we are 95.3%. So largely put out by MAC, the airport office asset we have.
All you know that Galileo will undergo AI from January next year 24, that will be the last day we get rent. February onward, there will be no rent. But we also were pleased to say that we are actually in quite advanced discussion with a major tenant that will take up a 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 they add some plus and minuses first half, second half we're looking at. Not generally from a trading perspective, at least for retail, the second half typically performed 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 locked in about 0.30 come for second half and for 2024 is quite significant reduction in about 16% lower, then we are locking. 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 received a new PMA, which took effect from 1 June so there'll be a little bit of adjustment potentially towards the end of the year. We look at some costs realignment based on the new PMA, hopefully we can see some savings as well.
And lastly, we also have locked in our interest costs we issue a bonds 400 million in June at 3.93% that will take away some volatility in the short-term rate which is very elevated. Today you go to a shop to market on a floating basis you're probably looking at 4.5% -- easily 4.5% depends on which tenant you are 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 a bank from Australia, when we did acquisition we are not touching, we try not to. If we need to supplement we do that but ideally we try not to touch it. We start to see some contribution which I mentioned earlier from CapitalSpring hopefully that will improve and accelerate from the second half in 2024, we are through. Hopefully we can get all these mitigating factors to buffer the Galileo effect. So Galileo is about 1.5% to half 2% of our contribution so there above. So hopefully that will be enough to cover half of them. And with all the positive reversion that we are seeing that should translate into a better numbers going forward.
Okay. This one I wouldn't touch too much, I think you all should know very well can analyze. Maybe just to give you a bit of flavor, I think balance sheets site, very healthy. Just now I was asked a question some of the peers did their valuation. I think we did international exercise, we did assessment in consultation value. In fact, overall as a portfolio, we've seen very stable number. Singapore, very healthy, little bit of downside risks from overseas asset but we'll 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 are seeing a little bit uplift in our NAV as well. And this business is soft of a grant that we managed to receive from the government to sort of offset the costs of us building the underpass at Funan. So that goes into our balance sheet and is our most immediate cushion on NAV by 0.01.
Okay. So I've been quite active no doubt in a very volatile interest rate environment, I mean we're 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 that carry on our book. If you look at I mean later, you can talk to Mei Lian, she should get a little bit more colors. But we have a different tools in place that we can tap, if you need to raise money, we have a CP program in place, you have MTM program in place, we have more than enough bilateral bank relationship. In fact, we cover entire maturity for, in fact, I jumped a little bit maturity for even 2024. So this year, we are done. 2024, technically, we're done because we have enough line. But we'll look at the opportune time where we perhaps want to start looking at the potential tariff issues hopefully, and maybe potentially we'll look at some kind of early prolongation.
So, we are in discussion with some financial institution and see how things can move from there. But now, am I safe to say, in environment to done, and in the next six to 12 months where everybody is -- don't 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 it's key.
There is a sensitivity I mean these are no rocket science is essentially the floating part will have about 22% of floating rate, if you measure against any change in interest rate, there will 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 worked through the remaining of the leases, and we start to also go into 2024 lease expiry, you can potentially see improvement even from current state.
Okay. Let me just jump straight. I gave you a little bit of flavor earlier, I think I don't want say too much, the revision numbers speaks for itself, I think you've seen a little bit narrowing of gap between the downside of south but nevertheless very healthy against 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 shift. Now these are important because we track all these performance by ticket very carefully because it affect the way you look at our asset planning going forward, right? Comparing last quarter this quarter we're seeing actually largely the same asset a big jump from improvement from the beauty and health because last quarter we seen the negative number and beauty and health is our largest ticket. So this one do well. You have some implication on the way we look at positioning. So I think we were quite pleased that this sector has been seeing a nice uplift in the second quarter.
Okay. This one as I mentioned earlier, I think we worked through Singapore 96.6% slightly below. In fact, it's slightly higher or flattish. But we are looking to -- remain our leases so you should see that coming through in the third and fourth quarter on occupancy side.
Germany, I mentioned before MAC effect. And the Galileo as I'd mentioned before we are working on potentially a single tenant taking large majority of space. And Australia has seen a little bit of nice ramp up. Hopefully we can achieve even higher occupancy by a year end. Overall, I mean, these are our BAU, we constantly try to create new stuff is important. It's also a signal to the market that they're still confidence coming in retail sector, some new to market brand, we managed to bring into our property both in downtown and suburban. I mean that's kind of encouraging and must thank our property management team. In fact, Chris is here. I mean he's helping us on the retail side. His team, working very hard to make sure we differentiate ourselves from our competition.
The rest I wouldn't touch too much. I think outlook wise, all our analysts, you know, pretty much very well, what we are seeing on the ground, hopefully that manifest in a real movement. I mentioned earlier we've seen probably potential a little bit of green shoot, hopefully that's real. In Sydney, for example, has been busy, our folks on our ground. People are coming back to the office more regularly, the subway line, the train station are getting busy. A few asset we need to work on. Hopefully we can translate into high occupancy. The retail side, Sydney asset, which is the one in the Greenwood Plaza, I think that's probably going to take a bit more time we need some repositioning of that retail space, location very prime connected to the subway line is no different from the Raffles place. But I think we need to position correctly. Currently, we're working alongside of our partner [indiscernible] to look at the plan.
And in fact, this bill will be across exchange and hopefully we can bring them over to Singapore, these are the things we are doing here. Germany side, I did mention earlier that is not as grim as what you see, it's on headline is, on [indiscernible] is pretty busy. We've seen some leasing momentum, no picking up no MAC, for example, some energy sector, some aviation sectors are starting to look at space again.
In the midst of some dynamic, we're looking at right-sizing. But all these, I think it's a little bit healthy movement, we're going forward. And hopefully with a little bit higher, in fact more -- very much elevated costs 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 within 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 in our portfolio. Earlier I had a question about, when you're quiet sad, since 700 million and 800 million they became now [700] [ph]. I mean as we are long-term player, variation 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 and different way. But one key thing is, if we position this, right, and that's the key fundamental driving value will come later. For us, critically, we need to make sure every other assets will have the chance to run this full potential. And we could keep pace, we keep pace to ensure that we win necessary CapEx at the right time, not overly burden on the portfolio in any particular year. So we try to keep pace 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 rate. 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 stop here. Happy to take questions. And I'll 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. 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 Zhuan, our Head of Portfolio Management.
Some quick housekeeping rules before we start. For our physical audience, please raise your hand. 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 also come back to you.
For our online audience, please feel free to join in by dropping your questions in the chat box. You can start the ball rolling. Here we have the first question.
Hi, Tony. Mervin from JPMorgan. Yes, congrats on the very strong rental view version. So it's accelerating. The rental repurchase is based on fixed rents. Can we get a sense in terms of total rent, including variable rents? Is it as strong or slightly lower and guidance for the second half? The second question is regards to electricity costs. You may comment about 16% decline is that half and half or drop towards 2024? Thanks.
Lee Yi Zhuan, you want to address the rental -- GTO rent?
Hi. Okay. I wasn't expecting to start first. But yes, I think I don't have that number offhand actual percentage of side. But I would say actually the GTO has been improving, I think first half has been pretty strong also. So I think the revision in the total run, including of sales would be also pretty strong.
From a rent structure perspective, in the course of the last 12 to 18 months, we have gradually shifted more to normalized level. That means those that in the past, we have granted the more concession or a bit of restructuring other leases, most of them, we have gone back to the normal way. So the usual closer to where the market rent is, then with a little bit of adjustment, depending on how we look at the trade, whether we want to participate a little bit outside or participate less than outside here. So those are more technical.
But overall, if you look at, I think there's a slight -- look at the range of the turnover rent in across our portfolio is from five -- it is like 24, five to 17. So with still wide range is a reflection of different modes are quite differentiated.
And I think Mervin has a second question on the electrical…
Second half against first half. 2024 is still higher, is still higher than 22. 2022 was 20 -- I think was 20, if I recall it correctly, it's 0.24. Now we are more like high 0.28, 0.29. Probably around 0.27, around it. Every day different, the effects they bring.
Hi. Good morning. This is Tan Xuan from Goldman. First question is [indiscernible]. Is there any CapEx and also the 18 months, the sector into carbon fee. Can you also comment on rent of the new tenant versus account tenant?
It is still under discussion. So there are some confidentiality is an uplift in rent, obviously. 18 months that's the period where the landlord will undertake that upgrade. So that period is not a lease commencement. So anticipate lease commencement by middle of 2025.
What about CapEx?
We are still working through the details. There will be quite a bit of CapEx required because there will be the base building that we need to upgrade, because the building was built more than -- almost 20 years ago. So standard equipment, although is functioning well, but is not at the level where the new occupier demand. These days, I think they are looking at a very high-grade green building. So we're putting a fair bit of attention to that upgrading. And that to us is very defensive because you want to protect the value of property on a forward basis. You have to do the work today. Yes. And that will value come in, I think market will potentially recognize that because this already a clear differentiation on occupier one. So we are bringing the building up to the best standard over there.
Thanks. My second question is on second half focus right now that operating metrics are moving across most assets. Are you still focusing on existing operations or more on acquisition divestment in the second half?
We look at everything. That's why we have a full team here, we're investment and portfolio focus, don't sit still, constantly we are definitely need to ensure that our assets perform well. And there's no sitting back and relax. I mean, it's very dynamic. Especially, if you look at, I'm sure at office that we have a lot of things to do, office asset, sound assets, when we look at the range of legacy old assets. It's quite wide, as new as one year, two-year-old and as OS, probably 20 plus years. So I think we do have to pan out work and make that plan in a logical way. And we don't want to drag the earning excessively in any particular year. So we have to pan out the plan.
So there are a lot of work for portfolio focus. And I mean, it's not doing nothing, every plan depend on the scale or the work we require. Full Monty complete and then the account planning, probably take years, even in my initial agree on what the ultimate product you want to reproduce. Along the way, there are long negotiation, and they got to look at the timing of how you want to call tender as well. So a lot of work is needed to simple repositioning a site that will be ongoing. I mean, we have both downtown and suburban asset that we need to respond because consumer, I mean their behavior changed. Obviously, after COVID, I think a lot of things has changed. But the consumer business definitely has changed. And we need to take that into consideration. So Asset Management actively. And then, of course, the look at the full development side.
Now investment in pipeline is really certain, right? I know, at a certain year, we may have to see whether the robustness of face and how you're going to fit into our whole portfolio, what comes in is that something you need to let go. So it's part and parcel of portfolio reconstitution exercise that we do on an ongoing basis. So we don't keep our radar now, although we may keep our radar but that doesn't mean that we are going to go into something. But definitely we need to keep track what's happening in the market.
David, from Daiwa. Can you remind us again, how you recognize government grant income for the Funan walkway? It seems like you're saying it improves your NAV, but it also seems like it's negative for your DPU. So can you just go through the accounting for this?
I will pass to Mei Lain to explain, there's no type of DPU.
[Audio Gap] and the other income in the income statement, and this is actually clear with the auditors, KPMG. And that's a requirement given that the grant is in relation to Funan, which is actually a fair value. In terms of DPU impact, there's no DPU impact, because this is actually cash that is not generated from operations. And you will not be distributed to unit holders, but you'll use the deflated cost that we've spent in the building of the underground pass.
Just to clarify, so you recognize like 34 million of other income, but you have to remove that from the distribution, because it's not going to be distributed.
Yes.
Yes, because the money is spent on the construction and at the time you look at Funan redevelopment is the whole totality, the plan including building the under underground, passageway, the link, and then we can seek reimbursement from the authority, but the cost will not be known until it's fully completed.
My follow up question is with regard to Raffles City. Now that you have more visibility as to the committed passing rent, post AI on what is the magnitude of the uplift, compared with when it was -- when Robinson was still attending? I mean, how much uplift are you going to do?
Earlier I did mention, but later I can pass to, Lee Yi Zhuan, who will give you a little bit more color. Earlier mentioned, I think -- we did a little bit about close to 40% of the repositioning exercise. A last part is in the Old Robinson space where we did some movement, right. So there are moving parts that contribute in income growth different way. But there are still areas you have not completely done yet. No, I can't name because it's sensitive. But generally, I think we are looking at another potential 25% to 30% change in the tenant type. Yes. So I think the full impact will probably know, in the next probably another 12 to 18 months. But it's higher.
And don't forget the hotels are also have been doing very well, overall, hotel benefited from the entire reposition exercise as well. Hospitality is of course is in on fire now. So that I think that's also been quite a nice contributor.
Good morning, Tony. Brandon from Citi. Just to follow up on the portfolio reconstitution question, right? When you mentioned all these legacy assets, are you talking more about just [indiscernible] mixing or redevelopment? And when you can talk about redevelopment, is there a certain size that you're looking at? I mean, if you look at next year, right, the expiry of the two government incentive schemes. Are you looking to take advantage of that before it expires?
Lee Yi Zhuan, you want to take that.
Yes. Okay. Maybe when we talk about the development schemes, right, those would take probably longer than something that we can do next year or something. Definitely we are starting a couple of options. But if we thought a timeline rise, right, there'll be a few years away. We are aware that some of the schemes that the government has been looking at, right? As [GISO] [ph] as well as the CBD incentive schemes, right? Some of them are expiring soon. But I think some of the-- I think our view is that, when you take a look at what the government is trying to achieve? Have they reached our objectives, right? We don't think so. So some of these things, we do expect, some of these schemes, probably we look at how they probably extend or actually relook at some of the schemes.
But at the end of the day, is really looking at this scheme itself, right? Whether the incentives that we get, does it actually fit into the kinds of things that we want to do for assets, right? And maybe on the basis of your study, yes, so it's not something that in 2024, we at least see the redevelopment coming through.
Yes. Next question is about tenant. I think if we look at first half, it seems to have slowed -- from comparing second quarter to first quarter. So going into second half, if we see Chinese tourists remaining, where they are, do you think this could be a concern for you?
Okay. Maybe I'll start first. So for tenants seems, right? For the second half of the year, of course, hopefully, we think that actually the Chinese tourists coming through with the reopening, of the slow start. But I think if you look at STBs view, as well as our own internal, we've increased by capacity, in one or in the second half of the year, hopefully, we see more of these Chinese tourists coming. They are still actually quite a fraction of pre-COVID. So I think there's actually a fair bit of room to grow.
We also see F1 and also a whole series of kind of things that you own the concerts, every week talking about concerts nowadays, right? Those should help to drive a lot more tourism to Singapore. So I think in retail wise, retail sales wise in the second half year should have some kind of momentum that was to carry through.
Just last one, I believe, again, during the 18 months you will be expecting some form of income, support on capital gains.
Too early to say. Too early to say. I mean, we have some liberals, but I think at this point, we are not going to commit anything yet.
Derek, Morgan Stanley. Just a question on acquisitions. Looking at the yield spread environment super elevated, will you be more keen on growing list of platform like a REIT or private?
We keep options open. I mean, the spread is one consideration. Once the spread depending on the underlying passing right and where are the potential. And if you look at the interest of environment cost of capital. I mean, it's moving right, obviously is hopefully trending in the right direction. So that's one factor. We look at it purely from a financial point of view. Platform, not easy -- platform, typically not easy. But if they are something interesting, I don't think we will rule out. Like I say, we don't keep our eyes shut. We may look at it, but we may or may not go in. So we just have to see the merits of the transaction.
Although you mentioned, talk to your valuers internally, overseas portfolio seems to be some dashes, can you just elaborate a bit more how much down?
Lee Yi Zhuan?
Yes. Well, I think if we kind of take a look across the expansion and cap rates in some of the like Australia, right, especially when some of our peers valuation that's also in Australia itself. We think that from, we can expect kind of like maybe like, single, mid-single kind of downside in terms of evaluation. But I think that at -- go back to how the whole portfolio is right overseas is only 7% of the overall portfolio, right? So actually is -- and our portfolio level, it's not going to be very material. Yes, I think it's something is manageable. But of course, it's very hard to say, that on a full year basis, how this number will pan out, because at the end of the day, it's also dependent on in Australia, what kind of transactions we see in the market, right? Currently, there's not a lot of it, but when some of these come through how it actually, the buyer and seller kind of price meets right. We probably have -- we then have an impact on the valuation. So I think we wouldn't want to kind of read too much into it, and how they are going to end. But definitely, we do expect some of the hit to come off a little bit for the overseas. But again, I go back to the overall portfolio, I don't think it will materially change its overall portfolio.
How much coverage expansion in Australia?
I think right now, if we see some of -- if I'm not wrong, we see around like point five plus minus percent. Yes, but I will say that, even when I looked at our December '22 kind of assumptions, right, our cap rate usually is a little bit on the more conservative side of things. So there's a little bit of uphold. So I would say that even without the expansion, hopefully it will not be as extreme as, once we seen our competitors.
I think it's both Australia and Germany.
Yes, it's probably for Australia and Germany.
Hi, good morning. I'm Rachel from DBS. Thanks for the call. Few questions from me. I think firstly, I think you're a bit cautious in terms of your outlook for office in the second half of the year. And just wondering whether is there any cause of concern and even if it's coming up, shadow space for being up and expect the difference in the second half of the year?
Yeah. Okay. So I think for the reason why we are kind of cautious about the second half of office, right, I think, fundamentally, two parts. One is the shadow space. Broadly speaking, and also in the second half of the year, we expect a major competition in the market. So that will kind of put a little bit of -- we think that that may tamper kind of a bit of the rent that we will see. Because right now, if I'm not mistaken, I is currently around for the plus minus kind of percentage commitment. But I will say that in the midterm, in terms of the limited supply. At the end of the day, we do think that there are still some leaks in terms of how rental tends to grow. But touching on the shadow space perspective, I think that if you look at some of the consultancies report, the shadow space actually has come down a little bit. And even though we are seeing numbers ranging from like mid 300, to about five hundreds. The only about half of its is counting as CVD. So I will say that, is it something that we are overly concerned, we will say no, it's just something that we thought that it may kind of limit the rental growth we might see in a second half. Because on top of that, there's also a little bit of uncertainty in terms of the broader economies. And I think some of the tenants have also instead of looking at relocation at this point, because of high CapEx, a lot of them are looking at renewables.
Maybe follow up, shadow space on your portfolio is a little bit busy?
Actually shadow space in our portfolio is really quite immaterial. Right now, I think, we do have one that is kind of backfill or ready. We are ready for a replacement tenant and in fact, some of our shadow space when we find replacement tenants, right we probably can get a rental upside. So it's not too bad.
I think he based on current mood, the sweet spot demand for space is smaller. So depends on the building's configuration. And then you may or may not be able to cater to current needs. So in our portfolio the couple of sets may be time to tackle the covered space 5000, 10,000 kind of square feet area that we can tap into. But large space occupied, I think at the moment, I think you probably would face a bit more challenge from those shadow space where -- when you release the space in the market, you released by floor three, four for us in the market. So those large space occupy looking to backfill would probably take a longer time.
Thanks. My next question is on tenant sales. Happy to see that the gap between your downtown and suburban is closing. But just maybe a more forward looking. Do you expect that the gap between the downtown and suburban to really close to be similar to [indiscernible] or do you feel that the increase in tenant sales moving forward will be largely driven by the suburban?
If you look at trending wise, trending wise last year, second half downtown fly rate, suburban is flat, I mean, trading along. So you can see the kind of yo-yo effect come into play this year. While we think that downtown would start to see more traction from the inbound traffic coming in. That high base on last year will probably be a so called softener vis-à-vis suburban where is a little bit more moderated. Yes. So I mean, purely from a year-on-year comparison that's the way. But my momentum perspective, I think downtown is picking up okay. Because all these events coming up the inbound traveler coming in. So I think on a consequential basis should be okay.
Sorry. Just one more question. In terms of acquisition and divestment, do you think the market is ready for you to look at acquisition divestments, huge market?
If you look at the news out there, there are a lot of news out there, is whether the expectation is met. Still a bit not easy. I think the price expectation between what we observe in the market the asking and the one-year market what the buyer prepared to pay. I think it's deliberate given that last year is function of broader economy, outlook, normal setting which is a really a factor of how the entire interest rate environment should shape up. So all this has got to do with the cost of capital, whether available your cost of capital are there, and it's all intertwined. To me that capitulation can come very quickly. When that signal in the market is very strong now foresee the capitulation very fast. That's where the buyer and seller will meet. I think this alleviates the way to the market.
Thanks, Rachel. And into the online audience. I'd like to pass on to Mei Peng, who is also our Head of Investor Relations to share the questions. Mei Peng?
Thanks. So I'm combining a couple of questions. So Denver and [indiscernible] asking about Galileo. During the 18 months when property is undergoing AEI, probably be the impact on DPU is the first question. And the other question we receive from Denver again, office rents is expected to ease in the two half in 2023. What about the future of the office market, any impacts from work from home? Thanks.
Mei Lian, you want to take the Galileo DI impact?
DI impact from Galileo on the stabilized spaces is about 10 million a year.
10 million against our -- I think DI is about 700 plus million. So it's quite small. Any interest rate saving will be more than enough to cover then. I knew really like a 1% move is 22 million. Second question is more the office market, you want to take?
Particularly on work from home, I think it kind of plus the stabilize, this year right around like a lot of companies are actually saying that is going to be hybrid rather than a full remote, usually around three to four days in office. So I think that will kind of support. If actually, I will say that more and more companies are actually hoping that actually their staff come back to office more than ever.
So, in terms of how this actually pans out, I think it's a good support for office demand going forward. We don't expect [indiscernible], maybe I'll share like, look in the first half of the year, on a portfolio, Singapore portfolio basis, we actually see more expansion requirements than downsize requirements, both in terms of the number of tenants as well as the amount of space. So I think that's a good sign of how things will come in the second half. And even going beyond the second half. Utilization rate, I think right now, it's around about 70%, I think office return rate is kind of stabilized. Hopefully, this will kind of pick up but we don't think we will ever go back to the pre-pandemic times.
The interesting thing also is then that because of how people are like now working a little bit on the home some of these things, when people work from home, helps to support our suburban kind of retail. So in a way, what kind of environment we lose in the office, we can't help benefit or suffer the most. So I will say that, by and large, I think from home, it's quite unpin here.
Thanks. Can you have the next question?
Maybe Jac can give a little bit more color, how the investment market looking at this space or office space.
Maybe in terms of work from home and also like flight to quality, right, that we are seeing these days. So from an investment point of view, we believe that if the asset is well located and have quality asset, those assets will still be able to hold in terms of valuation and will still be sought after. So I think as Lee Zhuan mentioned, work from home, it's also beginning to kind of stabilize.
Thanks, Jac. I think I have the next question for Donald.
Hi. This is Donald from Bank of America. Couple of questions, first is on your Singapore office occupancy, on a q-on-q basis there's some movements, notably from Asia Square, Capital Green and Capital Tower, could you comment on occupancy movements [indiscernible]?
Lee Zhuan you want to?
Yes. So for ASD 2, we saw some movement in the sense that one of our tenants temp space account was released back to us. So that kind of ASD 2 numbers came off. Similarly, I think one of the tenants in Capital Tower was also the least time lapse. So it kind of the current comeback, we see a temporary drop in terms of the occupancy numbers. I think that was the kind of concern that we may have. But I will say that we are actually kind of renewed across the portfolio, we have seen some pretty strong renewals, we renew some of our key tenants in both CG, RCT for instance. And I will say that there's actually a couple of deals right that we are working on that will help to bring back the CT numbers and the ASD numbers.
And earlier you mentioned that you're seeing more expansion requirements than downsizing which industries are expanding?
Okay. Roughly we will still see like a lot of those are like asset management, banking financial services.
Okay. That is on Sing office four, for your Australia 66 [indiscernible] says they are doing what's the leasing CapEx that you're incurring? And what's the impact on your cash?
Sorry. At this moment I don't have the CapEx number off hand probably I will come back to you on that.
Sure. Thanks. My last question is acquisitions. Tony, do you think your cost of capital now is conducive for acquisition? And if you were to buy anything today, is it more likely in Singapore, U.K., or Australia -- Europe or Australia?
The cost of capital I think earlier alluded like this is a little bit of buyer, seller still there. I think that's still a reflection of why I feel like in the marketplace. I certainly both on a debt end and equity side, it has improved compared to six months ago. Which market we keep option open? Ideally we still want to build our base in Singapore as much as possible and I know this is our home market. It doesn't mean that it has to be -- our acquisition, it can be outright portfolio expansion, no development that those are also building your presence here by entrenching your positioning stronger and growing the exercise that would give you the competitive advantage. So I think we continue to do that.
For my [indiscernible] getting from third party. I think we have options or we find the right moment. We do have pipeline from our own sponsor, we have the call option for the CapSpring, which we can look to see when we should exercise, if you want to exercise it, then we'll see what's available in the market, which I say there's a plenty food out there. Just the expectation that things still be okay.
I think we have a couple more questions from the online audience, Mei Peng.
This is a question from Derek, DBS. Can management provide some insights into the occupancy costs for the retail malls? Are we still able to have positive and revision given ongoing business costs pressures? And also whether retailers are generally profitable, is the first question. The other question also a retail related is from [indiscernible]. It's about CQ @ Clarke Quay. CQ @ Clarke Quays, what is the CapEx costs and projected rate of return? Also, what is CQ's -- current occupancy for CQ? There are two questions?
Lee Yi Zhuan, do you want to take?
Well, for Clarke Quay right now, the kind of commitment rate that we are getting is around 85% plus minus around there. We expect the commitment numbers to come up a little bit closer towards the competition of the AEI where retailers they can see better what we are trying to achieve.
I think, the first question the rent, occupancy costs, I think we are -- my view is, we are still in a pretty healthy range with 16.8% OC. In the normal time pre-COVID, I would say we are in a very, very comfortable position. That means we see quite favorable upside in terms of attachment based on purely from an occupancy costs perspective, threshold for different subsector in the retail space, there should be some room. But the second question posed that is correct, because third question is whether the profitability of retail will be tracked? And we are still assessing at the moment, the honest truth is that the retailer themselves are making some adjustment and we've seen some price elevated, which is transmitted CPIM, all these number are historical number and stay elevated, right. So to my view is that I think a lot of retailer has been passing on the cost to the consumer and consumer has been able to stop because there you see the tendencies are rebounding quite strongly. But where is that sweet spot? Whether we will be able to continue to pass on that cost? I think we're probably nearer the end, then at the beginning, we probably can see a little bit of potential upside from range, depends on trade to trade, tenant tot tenant. But importantly, I think we need to posture correct because for the right tenant, we are prepared to take a little bit position, which we did continuously throughout the whole entire COVID period.
For the right tenant, for the right positioning to bring in then we may want to participate a little bit more on the upside. That's why I think to ask the more importance of total rent and that's where we want to drive the GTO component. So it's a bit of tactical strategy that is required going forward. But I have to say we are still trying to see what is the post content pandemic acceptable occupancy costs for the different subsector, it varies from, I think sector to sector, the subsector, the sector. Anecdotally we find there is a lot of profiteering along this entire supply chain. So which part of the supply chain is creaming off the most, it will begin to see evidence in the market when all the big corporate companies started to announce their results, who are making the big bucks, you probably will know who are the one that's creaming off the most.
But at the end of the entire supply chain is the retailer and retailer meaning the consumer just an end point. Their piloting will take some time to figure it out. But I don't think we are in the pain point, we probably see still some upside in the mode of stability of rent passing on. But of course we want to be very connected and how we want to do it, has to be very tactical. Answered the question, online.
Thank you. Can you have the next question from Joy?
Joy from HSBC. I have two questions. First, if I go back to Galileo, so post CapEx, can we expect a green sort of certificate for that building? And was that driven from management or was that driven from a demand perspective?
It is definitely going to be pretty green. I think it's quite green out there. I think l already allude to you to a large extent us occupy demand. But also, we need to ensure beyond this AEI and be even beyond, assuming ways, we mentioned high on this tenant, right? Beyond their tender, we need to be able to sustain the value. And the only way to do is to get your specs to the point where the market is. So for me it is a little bit of difference as well, if you get that building up to a stage where even after five to 10 years down the road, we know that this building will always be on the top of the mind.
We just record -- give rating for the asset for Galileo will really be up. And I think it's in line with what cost tenants generally in the Frankfurt market is looking at, with the type of quality, and also when they are looking for their spaces.
If you look at your portfolio, what percentage of the portfolio -- office portfolio still needs a green sort of CapEx or defensive CapEx?
Well, I will say that generally, it's not specific to say any building in particular, of course, there's a few buildings. Now currently, if you look at the green mark ratings, right, green mark goal or something based on the new standards, and this standard will keep increasing, right? We say we'll just keep increasing the standard of green mark. So we always have to keep investing in green CapEx. I will say the green CapEx will kind of set out roughly average over the next three years about 40% of the overall CapEx that we spent in the portfolio.
And then, second question is on hotel. So I guess, you mentioned that hotel contributes to part of the growth in RC? Are the rates above pre-COVID? And I remember, you've restructured the lease. So post restructuring, do you still get sort of above pre-COVID rental from there?
Hey, we are higher now.
Can we get some sort of detail?
It's higher than pre-COVID. I can't give you detail, these are confidential. Restructure is actually quite in line with what we did for some of the retail trades where we participate on the rent. And then there'll be step up along the way. So I know that trash point where to bring down and what detail of percentage of charge is a function of the projection as we mutually agreed and where do you think the growth -- how the growth trajectory will look like in 2022, that was 2020. And then where the recovery coming from? So when we did the restructuring in 2020, we have came to a position virtually that this is a group that were acceptable. And I think they have reached that goal. So I can say overall, that's been more than be beneficial than it was the last lending point of where the fixed rent is floating rent, the floating rent, especially the floating rate is higher than it used to be. So the better the tray we get even more. Yes, so we're seeing that trajectory coming through now, because the RevPAR is way above what we have projected.
Thank you, Joy. Do we have the next question? Marvin?
I got a question just on portfolio, pick out occupancy, are you able to suppose what are the signing rents and incentives you have had to provide for Australia?
For Australia, the rents are pretty much in line with market and incentives is around 35%. Averaging roughly around that. And probably just to touch on a little bit, I think just now we talked also about your federal space. I think the federal space that we did say Galileo right, is 66G, too many buildings are starting in G. For 66G, the federal space, the CapEx we spent actually is part of TI the 35% plus minus current TI that we are giving.
In terms of portfolio mix, given offices and negative carry based on spot borrowing costs, a lot looks a bit more challenged or at least more cautious. Is it time to pivot more towards retail for next few years? Would you, I mean, there is no demand for online properties, which you do have, despite the negative carry. So what's your thoughts on this right time to pivot towards retail, given the tourist numbers are not really covered yet?
Actually, today, retail is a larger component in our portfolio, if you look at the split is already larger 53%. So in terms of composition, retail is marginally ahead of the office in totality and office is split by CVD, non-CVD and of course overseas stuff. So I mean, let’s give you a little bit of sense in number. Negative carry, if you are assuming you're referring to Singapore. Singapore is about 33% is not an unhealthy level, I think we'll see how things will shape up from there. But at the moment, I think we are quite happy with the composition. It's not negative carry, because [indiscernible] on a passing basis, probably close to 4% for some of the assets.
Do you have any other questions?
Hey, this is Terence from UBS. So your guidance for Singapore office is for moderating rent growth. Just want to ask how this will translate to your outlook for Singapore office rental reversions because they see that you're expiring rents are $11.12 per square foot. But if I'm not wrong, the new buildings are calling for still a much higher asking price.
So for the office rent, I think right now this first half, the positive rent we version on 9.6%. Probably will come off a little bit come year end. But we still expected it from the positive territory. Yes, I think the expiry kind of range showed that with the gap to CBREs market rent off around 11.80 for the second quarter. It does give us a little bit of comfort and buffer in terms of renegotiation, and we get a positive front reversion of those? I think is because I think we do have some cases in the second quarter, some of the deals we are seeing very strong reversion that kind of push this up, whether or not we can still get that kind of 20%, 40% of reversion for some of these that comes from a low base, in terms of 12 percentage wise may not come through in the second half. That's why I think the rate reversion will moderate a little bit.
So a couple of ideas you work on, I think that -- hopefully we can get it on the signing page, right? When those space are vacant for a long time. So compared to the longtime vacant space in current day is a nice uplift. I mean, we're looking at easily double -- strong double digit kind of uplift. But that would not be reported in the revision. Because you typically for too long vacant period, we don't report in the revision. So that may not come true. But what he was alluding is that, yes, we clock in quite a nice -- quite pretty strong version, what we are negotiating now. Overall, maybe resist trend down a little bit, but still probably a pretty healthy kind of range.
And for Singapore downtown retail, I think you spoke about the momentum continuing in the second half, two weeks of the reopening. But I think you also alluded to how there could be a high base effect, maybe some of these rents that we're seeing in the first half is coming off from a low base sign in COVID. So between the two, how do we then form our expectations of your downtown retail reversions in the second half.
So I just want to correct you is, not the base effect rising for the rent last year, it is more the trading, the sales momentum last year, strong right. But for the same tenant there could be training for a couple of years. So 2023 Some tenants that were signed 2020 or at least we renegotiated for 2020 basis maybe up for renewal somewhere 2024, those you probably can see a little bit of uplift from there, whether you'll be on a blended basis still on like a 7% plus kind of what you are looking, hard to say because it depends on case-to-case.
As I ,mentioned the range of reversion is very wide, no retail and as strong as 30% specifically to that unit. Or it can be 3.5%. So on -- if you look at it on a weighted average, that's what we measure on a weighted average basis, the number can become your prediction. But January momentum wise, you can take away the fact that they drink 23, 24, it's not expiring site during the 2020-21 period, a couple of them. And then some of them are even longer pre-COVID may or may not be restructured, depending on how well they sustain through that entire COVID period. So it's going to be quite a noisy number. But what we report is, as always a blender basis, but within that, you can see a wide range.
Can you have the next question, Krishna?
Yes, just wanted to squeeze something on your liability side. So you have over $1.5 billion update on maturity, and you give some color on where are the interest cost and if you assume same thing that is the currency mix, maturity and you're hedging, then how much it will go up? That's the first question. And second question is on your F&B operation, I think you did mention that there is a strong demand from that, you can give some color on what's the typical lease period for the F&B operators. And also, I mean, these F&B are just pure F&B operators, they just have ensured because I think I do see that some of commingling right, I mean, shoe bags that can also serve coffee. So I just wanted to ensure that this is just pure F&B. And not even the owning space also is not included in the F&B side of things. So if you can give us some comment on. That’s it.
Okay. The first question, if we assume the current interest rate environment, current interest rate level stays at prevailing of the 2024, the tower. We'll be looking at the increase of about 0.4 to 0.5%, overall, so that will contribute to sale overall portfolio costs of closer to the three levels are currently at 3.2.
So your question on F&B specifically, is there something that you really want to know so that I can –
Let me just -- in my own observation that when I walk around the malls, there's quite a bit of joined F&B, if one goes, one comes in, one goes out, maybe the same operator having coming up with a different sort of concept. So what so then the cost is not on your side the cost is on their side, it have to come up with a different concept. So, just wanted to know that is it the same operator coming or is it a different operator coming then, [indiscernible] quite short?
This is a mix of both. We do have multi-label operator who can have a portfolio of different brands and different product type cater for different market segments. And if the market changed, no, it could be the same operator will change at the end of the expiry, right, because, I mean, there will be some shelf life by the end. So then, more evergreen one may take a longer time person. So the F&B concept will come a point in time where they need to refresh. Refresh also from the look and feel perspective, they need to do that refreshment. The question is whether you will fit into the entire positioning of the mall. I mean, there's a discussion point we need to have with them. For example, we discussed with them renewal, perhaps your portfolio would prefer this brand to come in. So we have to them. So it's a combination.
Certainly, we always want to try to bring also exciting new ones to the market, no I mentioned a few names so that we try it out. It's a hit and miss, sometimes we get it right. They have a leg to run for a while and then we populate right in our portfolio. Unless there is a lead over a place, then you see the sales are coming up.
I mean, this kind of pattern. We've seen him many times in different cycles. It is personal life cycle of any kind of retailer whether it's F&B or non-F&B which we have to manage actively. I mean, that's part of the asset management we talk about. Constantly adjusting to the consumer preference, and they will change over time. But today you go to Raffles City, there's a bit new donut to the marketplace. I mean, it's always long queue. I don't know how long it lasts. You asked me maybe another two years to say
Just wondering if you feel that you are being too overexposed with F&B?
No, I think as a percentage of the NLA, they had the largest contributor now, around 35% of the revenue come from F&B. Occupying about less than 30% of the space. So they are over producing from an income point of view perspective. So I think that's a good thing. But from a space allocation is not excessive, less than 30%, there is one more, two more. And within F&B is wide spectrum, you got a fast food restaurant, got a takeaway, we got the casual dining, we got the main Western cuisine, Chinese cuisine. So it's a whole list of brand, potential, a mix that you can see in different assets. Some are more relevant than others downtown will be maybe slightly different from suburban. In suburban, even then certain trade may be even more important than the sit down one. You saw it as a bit of a curated kind of not just F&B alone. F&B, obviously, you had to curate quite well. But other asset, subsector, retail subsector, I think we need to record carefully as well. Yes. So to put to your point, I don't think it's excessive at this point in time. Then for, for example, Clarke Quay always be quite heavy on F&B, because it's as unique. But most of the more I think you were okay.
I just want to squeeze in [indiscernible] looking in the medium term, your MDN is I think 50% of your liability base. If the interest rate environment stays there, do you think that that comes down and you may want to establish more bilateral facilities?
Yes, I think we will continue to diversify our funding sources, not just rely on the banking sector. Cap markets is actually a very important source of capital for us. And I think we will anticipate a good mix of MTN and bank loans going forward.
This will be a flight to call, the flight to safety from a lender perspective, whether it's a financial institution or the debt capital market side. So you can see quite clearly right. So we think that's quite encouraging. Normally, we also get information from Moody's that [indiscernible] raise it up to stable. But we also know that is not a job done today, we have to stay static. We constantly make ensure, because when you look at the overall confidence level on why the lenders are prepared to lend to us is your cash flow, right? Your ability to reposition yourself quickly, your market leadership position, your access to capital, sometimes the irony is that you have access to capital, even though you're not elevated leverage, right? Because your ability to access the capital gives the agency that confidence, then ultimately, we need to have always this ready credit facility in place, and it costs money to get the ready credit in place. That's, to us is also a bit of credit enhancement. So we pay a little bit of commitment fee. But as you carry a little bit of credit enhancement. So it's important to look at it in totality.
So while we try to be agile, no try to get different capital source and diversify over time. But there are a few key fundamental things we work on cash flow, make sure your insurance is there, right. You got your base insurance, assess the market at the right time, create that desire to invest in us. That will be okay.
Thank you, Krishna. I think in the interest of time, we shall take one last question probably from online.
I think this is a question from two online viewers, [indiscernible], they're asking about whether we have any plans to reduce our aggregate leverage, and then whether CICT has any target that give leverage ratio? Thank you.
Yes, overtime. Yes. I think we are in retrospect, when look at, is all about the state of the way that the cost of capital is pre-COVID, pre-changing the interest rate era where we are this level, we are very, very comfortable. In fact, we were more than comfortable to walk away set very high, at a level certain leverage level. When your cost of debt goes up this level, then this could be very circumspect. So it's quite dynamic. Today, we are looking at 3.5% to 4% kind of range in the managing cost versus in the past, it’s way to 2.5% to 3.5%. So is actually a step up ready. So you just got to adjust the appropriate level of gearing, when the interest rate environment change we do have to adjust. Because ultimately, we are stewardship, we are undertaking that stewardship function of capital, make sure that our balance sheet work hard for all stakeholders, whether it's an equity investor and the investors. So we have to make sure that we don't want to have a lazy balance sheet. I mean, ultimately, investors want to see us ensuring that whatever money that is on their side capital side, we work hard to ensure the asset, perform and deliver to all the stakeholders. So we have to maneuver with time.
Given opportunity, a right opportunity, we may want to do it the way of deleveraging maybe. But the way to do it, I think we have to be very smart about really tactical, the best way to do it. Sometimes making sure your portfolio perform itself, create the valuation uplift, solve the problem. There could be as easy as that, right? Now, of course, it's not easy. Now we got to work them hard to ensure that I still perform on a portfolio basis, then you get sufficient valuation uplift and then soft evaluation and the cash flows that come in.
The other form is in organically, there's opportunity, we'll look at it, yes, it could be monetization, we have done that. Portfolio constitution, we do that, we know we divest some, we reinvest some, at the same time, do a little bit equity fundraising, or we look at joint venture partner if we can afford to do any transaction on our own. So we just have to deploy the various tools or avenues available for us to look into it to reach a stage in stature, where the market is confident enough that the test is confident enough to ensure the CICT can function as a smooth missionary. And as importantly, optimally read this about managing your portfolio or asset and also managing your capital, you just have to plan this too efficiently.
Have one last question from?
I'm so sorry. Thanks for the presentation and Q&A. So for Galileo, will there be any more a decline in valuation, or both the value was look ahead at your higher rentals, if you manage to sign your new tenant and give you a stable valuation while you're doing the AEI, before lifting it once the and new tenants comes in, cap rates notwithstanding.
Well, I will say for Galileo compared to December '22, definitely having the -- if assuming some of these rental stuff come through what you sign in and everything, it should help the valuation but and I will say that we do expect the valuation still to come off a little bit because of the broader market.
We can't predict how the valuation number, of course, the function of discount they use, the discount rate you use is a function of where the interest in market is. It is also as a function of where the market transaction happened. It's also a function of the underlying passing rent. It is also a function of the underlying credit risks, right. So, if we are able to get it all right there, I think at least confidently we say that we should be able to protect the value, but against all these different variables perhaps to predict how the future number look like. You can go up and down in the course of the next one to year, it can go down, it can go up. It all depends on how long the market view, the underlying credit risk, what the commercial term we sign-on. And then the underlying credit risk would have potential implication on your terminal level your cap rate, the so called cap rate at a terminal level. And the discount rate also be affected. So they all intertwine.
So at this point in time, we cannot really comment anything beyond that. What we can say is that when we undertake the CapEx, of course, they will be increase, it will be a progressive kind of drawdown or payment purely from a cash flow this year is basis that is, if the value to look at a pure this year, you will be a negative outflow in early stage before the income coming in purely on debt. But with the passage of time when most of the CapEx has been incurred and paid, there was left coming in is your income -- net income. So, you can imagine the trajectory of the potential valuation movement you can make good and then gradually as you are close to hand over potentially you could go up again.
So, I can’t give a number to it, but certainly we think we can confirm and secure that the tenant that we are talking then it's definitely a good confidence booster from a value protection point of view. Solid Credit.
Thank you for the questions. Okay. I think, just to quickly wrap up, CICT has reported results and [indiscernible] Capital Management. Thank you for joining us at this briefing today. Feel free to reach out to us if you have any further questions. Thank you and have a nice day.
Thanks a lot. Thanks for coming.
Thank you.