Frasers Centrepoint Trust

SGX:J69U

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Fung Leng Chen, executive]

Good morning, everyone. Welcome to Frasers Centrepoint Business Update for the Third Quarter ended [ 25th ] of July 2024 -- 30 of June 2024.

Today, we are very happy to have the management team here to give you an update of the progress that we have made in the last quarter. And with us, we have the CEO Richard Ng; we have the CFO, Audrey Tan and our Head of Investment and Asset Management, Ms. Pauline Lim.

I will be your host today. And happy to hand this over to Richard to kick off the presentation, Richard please.

[Richard Ng, executive]

Thanks, Fung Leng, and good morning, everyone. Thanks for joining us early today. Hopefully, you had the opportunity to look through our deck. So as you know, this quarter is more a business update, looking at the operations and how have we set so far this quarter.

But before I will see further, I just wanted to note that Audrey, our CFO, will be joining us for the last analyst update session before she stepped down on the end of August, all right?

Okay. So coming back to our deck. As you can see, we have done some changes. Funding has also created a little bit more of a dashboard look and that is fundamentally to help in terms of visual aspects so that you guys could really see not just a number, but the trend in terms of where we are, how we have been performing so far.

Okay. So in terms of the overall operational update, you can see that occupancy remains very healthy, 99.7% overall. And what's also more important is we have a couple of 100 pointers and all our malls achieved at least 99% in the [indiscernible]. Shopper traffic tenant sales, we will go into more detail later on where only with share. But just a very quick snapshot. We are still ahead if you compare year-on-year in terms of sales. It fluctuates a little bit quarter-to-quarter. But nonetheless, I think it is still on a positive trend.

Similarly, for Shopper Traffic, we probably about 5% of pre-COVID, some malls, the more dominant ones that [ Costain ] has actually achieved a pre-COVID level. So something we continue to focus, something we continue to work on.

Financial position, our gearing is at 39.1%. Again, this is partly due to some drawdown as we pay out the CapEx for our [indiscernible]. Average cost of debt as of this quarter, it came in at 4.1%. But you can see from year-to-date, actually at 4.2%. So it has been moving down marginally from 4.3% to [indiscernible] in 4.3%in first [ Q4 ] came down 4.1% for the last 2 quarters. We're going to be giving you an update of the Tampines 1 AEI. We are very excited about this completion because going to be something new for our company's area. We are able to bring in 68 new to mall and 46 new to [ SEP ] retail concepts.

For those of you who have the opportunity, I would like to invite you to take a look at the new -- some of the new brands that we have brought in for this mall. It's still very much on track to complete fully by September. Most of the work has already been completed actually. Is now some of the tenants are doing a [indiscernible] so on, right?

And happy to also share that the ROI, as already mentioned before, it's about 8% on the cost of the work on the AEI work, but we are likely to outperform that.

In terms of our ESG front, we continue to do our best, where we can, focusing on the environment and also not forgetting the other element as well. Specifically in this particular update, we'll focus a little bit more on our social aspect of the ESG. Macroeconomy, I'm not going to touch in greater details for you guys have all the same details as therefore, you are seeing here but there's some key points. I wanted to highlight that the GDP actually grew [ 0.9% ] in the second quarter. And also, this is very much in line with what NTI has earlier maintained the forecast of 1% to 3%. More importantly, also looking at core inflation has moderated to 2.9%. So I think we are seeing signs of this coming down, which bodes well for both our consumers and also our retailer. So there's another space that we continue to watch and continue to focus on.

For retailer sales, on the RSI for May, there is actually a flat number, no change year-on-year, but actually for SCD, our portfolio has seen an increase. Similarly, for F&B sales for May 2024 for the broader market perspective, we saw a 2.9% increase year-on-year, but our [indiscernible] numbers actually surpass that figure.

Brands, suburban prime retail, 0.3% Q-on-Q and [ 2.6% ] year-on-year. So in the last quarter, we actually shared that our reversion came in at 7.5%. Again, happy to say that we are very much on track with that level.

New supply, not much has changed since our last discussion. So very much again, very limited supply, we are expecting to come on stream for the next 3 to 4 years, right? So that again helps underpin the demand, which is why we are seeing all almost at least 99% occupied.

Audrey, I'll hand that to you now for the financial highlights.

[Loo Ming Tan, executive]

Thank you, Richard. Good morning, everybody. I'll run through the financial metrics. I [ get ] leverage up to 39.1%. This is because of the loan that has been drawn down to finance the CapEx requirement and for the ongoing AEI at Tampines 1 and also for working capital purposes. The ICR is stable at 3.26x and our cost of debt is about 4.2% average for the 9 months ended 30th of June.

So for the quarter itself, we registered 4.1%. This has come down as compared to the 1Q, where we registered 4.3%. About [ 57.2% ] of debt is hedged to fixed rate interest and 68% of our loans are actually in loans. We have undrawn facilities of about 546 million and rated by S&P and Moody's.

So this shows you our debt maturity profile well spread that maturity profile. And there's no refinancing in FY 2024. Now we are looking at the refinancing on FY 2025, and we are already in talks with the banks for the ref refinancing requirements.

With this, I'll hand over to Pauline, who will share more on the portfolio updates.

[Pauline Lim, executive]

Yes. Thanks, Audrey. Good morning, everyone. I think Richard had given a little bit of preview on the good set of results that I'll be sharing and going to a little bit of details in the subsequent slide.

I believe that this is a fruition of the hard work that collectively the team had undertaken and also together with the tenants as well, right? And it is a testament to the proactive asset management and portfolio management for the portfolio of assets.

Right. Going into committed occupancy, a very strong set of occupancy which underscores the quality of our malls. We're looking at 99.7% as at the end of the third quarter, it's a 1% point increase on a year-on-year basis. And across all our malls, occupancy has actually maintained at a very good level of more than [ 99% ]. And in fact, there are a few malls, the likes of cost report [indiscernible] point [indiscernible] [ Tomar Plaza ]. These malls have actually hit 100% as at the end of this quarter.

And what is worth mentioning is also Tampines 1. So Tampines 1 has been undergoing AEI for the past year or so. And it has at the conclusion of the AEI it is actually coming back with 100% committed occupancy, not just on the spaces that are affected by the AEI but across the mall, okay.

Now I will talk a little bit about the portfolio footfall and sales. So we do see a continuing its recovery trend. It has actually reached a level that is very close to pre-COVID overall across the portfolio. And in fact, a few of the malls have exceeded the FY 2019 football numbers, right? So very close to full recovery to pre-pandemic numbers.

On the source front, we do see that sales continue to increase, and that's despite coming off a higher base. So if we look at sales levels now for our portfolio compared to pre-COVID, it is higher than pre-COVID levels. And notwithstanding that, we do see that the upward trajectory is maintained over the course of this year?

On this note, I would also -- we would also like to acknowledge the support of the Singapore government with regards to various payouts from the assurance package cost of leaving supporting package. And on top of this, we are looking -- they have also dispensed a fair bit of CDC vouchers and also climate vouchers. And that is with the intent to support the general popular that is facing higher inflation, higher cost of living.

But what is worthwhile to note is that the beneficiary of this government support, the bulk of these beneficiaries are actually the mass market consumers who spend at our superbugs. So this has actually also helped to support or sustain the sales [indiscernible]. And there has been several routes of top-ups. And what has been announced to date actually expands into 2025. Okay. Next slide, please. Our belief is that retail is about remaining relevant to catchment and it's also about delighting shoppers, right? So our focus remains on continuing to bring in new offerings concepts and brands to excite our shoppers. We do see new tenants or new brands and new concepts coming in across various trades. I think F&B has been doing very well, but the new entrants to our malls has not just been limited to this particular trip. So the various aspects of retail, as you can see from this compilation of samples or examples of new to portfolios.

So the takeaway is that the Singapore retail scene still remains very vibrant. Retailers have come out stronger from the pandemic, and they are constantly reinventing improving their offering and their concepts.

Okay, funding mix side. Yes. Now we have always mentioned that we position our most [indiscernible] to be relevant to the community Heartland, right? We want to be the heart of the heartland. So there's a lot of focus on place-making and programming to engage our shopper community, tenants as well as various stakeholders. And over the course of this quarter, we have actually carried out various dramatic programs as well as events in our malls, and this is with the objective to bring [ footfall ] from a wider catchment and also to continue to [ institute ] the shopper loyalty such that they continue to come back. So on the focus on returning or recurring footfall.

Next slide, please. All right. I'm very happy to share the outcome of Tampines 1 AEI. I think it has been a lot, 1 year plus or so of remaking the more repositioning the mall. And it has ended well. We are on track to complete by September this year. And I mentioned earlier that not extending the disruption of the AEI, we are looking at 100% committed occupancy across the entire mall.

In terms of value that has been crystallized through this AEI, there's additional 9,000 square feet of NLA, which we have realized through the [ CSFs ] scheme, and this additional GFA has been largely deployed to the prime retail floors to bring in the ROI that I mentioned earlier. When we announced the AEI, the target ROI was at 8%, and we have exceeded that target.

In terms of the retail positioning, I think one of the key objectives and focus on this AEI is to strengthen company's one's positioning and also competitive strength within a very competitive Tampines hub market, right? So with the AEI, we have brought in 68 new to more concepts, of which 46 are new to [ SCT ] portfolio. Now the initial response from both retailers as well as shoppers has been very positive. So we are very, very much [ heartened ] and encouraged. And this is also a demonstration of our commitment to unlock value from the existing portfolio to our investors.

Next slide, please. Yes. So some pictures to show what are some of the key areas of enhancement and changes. So one of the focus is the rejuvenation of the common areas, the [indiscernible], the toilets, the entrance to the mall, enhancing the overall lighting, to improve the shopping and bonds within the mall itself. And refreshing some of the key shopper touch points. We brought in my rate of new F&B options. So [ hackers free ] some FMB and also retail options. And through the AEI, we have actually rightsized some of the spaces and this has resulted in an increase in the retail offering and also to strengthen the ability of the retailers to trade more productively.

Next slide, please. And yes, all right. With this, I will hand over to Fung Leng to take us through the ESG segment. Thank you.

[Fung Leng Chen, executive]

Thank you, Pauline. I'm happy to share this section on the ESG, in particular, emphasis on the social part of the ESG. We have been constantly and continuously strengthening our voting with the community and stakeholders and a lot of the activities that we do actually at the low level, reaching up to the shoppers as well as through the partnership with our tenants.

So on the picture on the left, you can see that we have had a retail parts of what that's basically to recognize the efforts and the support from [indiscernible] and in supporting our base mineralization as well as the in crucial [ China business ] program. And on the picture on the right, this is a part of our program to train more retailers as an inclusion champions. And part of the reason is also to and reach to our shoppers who are disadvantaged, for example, those [indiscernible] and also with disabilities. So this has also been a very strong [indiscernible] in attracting these [indiscernible] participation from our retailers.

We have just concluded our Painted Forward, an annual program that attracted a lot of participants, both from the stakeholders as well as the tenants alike across the 9 business property malls and [indiscernible]. So this examples also helped raise our funds to support the community [indiscernible] and also the support [indiscernible] person with disabilities. Right. With please, I hand this over to Richard to wrap up the presentation this morning. Richard?

[Richard Ng, executive]

Also a very quick wrap-up before we can move on to Q&A. So again, just reinforcing the fact that -- the performance in [ Amon ] continue to remain very healthy. We see improvement across the various metrics that we focus on. Asset Management, [indiscernible] management, again, are a very key focus on driving some of these performances. As for also what Audrey mentioned, a part of that includes the AEI that we undertook. And what we intend to do to target to announce another upcoming year project in due course as we go through some of the processes that is being put in place.

So the idea is for us to complete on 1 AEI and the ability to roll out another AIE. So this is where we always talk about 3 key pillars of growth; one is organic, the other one is the AEI and the other one is of course, inorganic growth. So we have the ability to continue to [indiscernible] our AEI that will again add value to both in terms of the valuation, also the overall performance for our portfolio of assets.

The other two aspects is, of course, in terms of the contribution to our other line this year is how we wouldn't see the full year of contribution, but it's going to come from, for example, for the next [ 24.5% ] acquisition is going to come in for the full second half of '24 and then full year next year. Similarly, for the [indiscernible] AUEI, the full uplift of benefits will then be sell in 2025.

With that I end my presentation and happy to take any questions.

[Fung Leng Chen, executive]

Thank you, Richard. We are now ready to move into the Q&A session. So we have the first question coming from Terence from JPMorgan.

[Unknown Analyst]

Congrats on the results. I just wanted to ask on two aspects. Firstly, on [ Passeri ] mall. There's been a lot of a dispense on [ Passman ] mall. And I understand just open. Could you give us a sense of how the impact is, especially on why it stands?

Second question, I just wanted to ask a bit more on the interest costs, whether Audrey can give some guidance on our expectation for this year. I guess this year is almost up. So how are you seeing interest costs for next year?

[Richard Ng, executive]

Terence. Let me take the first part of your questions, and then Audrey can jump in for the second part. [ PRM ] opened in June, and they just had their official opening not too long ago.

So far, what we are seeing is that our period initiative, which we shared with all of you is that we always felt that [indiscernible] being the more 150,000 square feet size is not able to provide a very holistic treatments to people living in [indiscernible], which is why you get people going to downtown [indiscernible], people going to other parts of Singapore to shop. And with the opening of ERM today, the total space available, retail space available has the excess of 400,000 square feet. So that's about the size of cost rate point.

And with that, we feel that collectively, both [ white sands ] and [ bursaries ] mall can then be providing enough options for [indiscernible] residents to really shop at [indiscernible]. I'm happy to note that the traffic has gone up, in fact, and that's what we have anticipated. The sales is pretty flat. And I think for the month of June, generally, the market has seen a pretty flat sales.

So, so far, from what we are seeing is our effort to kind of be fresh or more a little bit of effort to put in or revisit our trade mix and can improve our trade mix. And at the same time, the focus of being complementary to PRM is bearing fruit. So but this is something that we continue to watch, continuing to work on any areas of improvement. And then in due course, you'll have a better sensing on what's the overall impact, but the initial impact has been positive as far as we are concerned as of now.

Audrey, do you want to take on the second part?

[Loo Ming Tan, executive]

Okay. So Terence, for this FY, we maintain that the interest rates should be at a low cost. As for next FY, I think we have a very good chance that we will maintain at the below [ par ] level.

[Fung Leng Chen, executive]

Our next question is from [ Jared WBS ].

[Unknown Analyst]

Good morning Richard and management team. So my first question will be on reversions. I think last quarter, the reversions was a positive surprise. Just wondering how this quarter stacks if you are able to share some color. My third question will be on lease negotiations. So has the upcoming RTS to JV actually [indiscernible] in your conversations potentially still early. And if I'm able to share some feedback from tenants to give us some guidance on what to expect.

[Richard Ng, executive]

Okay. On reversion, very straightforward response to that. First, in the first half result announcement, we shared that we achieved 7.5% average reversion. I'm happy to say that we are still hitting that kind of number as of now for this quarter. So we have another quarter to go. So in the full year, we'll be able to share the full results, but we are on the same trajectory.

Coming back to RTS negotiation of our retailer, so far as what you already pointed out. Has a feature in our discussion with our retailers thus far. But maybe -- and we know that this is a topic that is much talk about because there's a lot of opacity around the construction of RTS, whether it's going to be ready. We have ministers visiting the site, et cetera. And I think this will continue. The focus will be there as we near the completion of RTS. So if you ask me what's our perspective, definitely something we are watching very closely when we try to also get one of the things that we can do before the RTS is completed. So from my own perspective, I think a couple of things that comes close to mind. Firstly, we also recognize that the travel between Singapore to Malaysia is nothing new, right? I mean today, we have various mode of transport. You have the, you can go by car, you can go by bus, you can go by train, it's really there. And we have also recognized that there's a lot of cross-border people, people [indiscernible] to Malaysia, in particular JV. And this has been ongoing. I mean since the day they started the 3 quarter time, if you recall. So what's new and what's coming out is this additional link, the RTS link that may be perhaps we actually make it slightly easier for people who want to go there and also vice-versa coming to Singapore.

So from my perspective, I look at it on two angle. One is the overall economy. I see that as a big plus for Singapore because what it means is that probably we can expect to be able to benefit by having more people from Malaysia coming over the Singapore to work. And as we know that the productivity of the Malaysian market is higher than what we typically get elsewhere, that's one.

Secondly is if we can get more people working on a transient basis rather than having to stay -- working on Singapore -- in stay Singapore. That also overall in an overall perspective help to reduce costs, right, because then you don't have to factor in lodging costs as well and also to help the overall market perspective in terms of the pressure on rental properties. So from that perspective, we see if there's a benefit for the overall market and retailers may also benefit as a result of that because [indiscernible] here to stay. And if they can get a better quality and even more potentially more people coming through from Malaysian side that's going to help overall. So that is from the overall market perspective.

The other deal that we are focusing on is the potential or likelihood what will be the impact to the retail market per se. And that's where we look at various aspects. Firstly trade mixing where we understand that people are going there for certain services, going there for certain purposes. So we have to review our own assets. We have to way from now to the time [indiscernible] completed to make adjustments to some of the trade mix, focusing more on areas where we believe we'll continue to generate good sales generate or attract traffic to come to the mall. So this is an ongoing basis for all our assets.

Retailers action. We have also spoken to retailers who, especially those who have both businesses in Singapore and Malaysia. So we understand what's their thinking? How do they differentiate? So by and large, we are comforted by the fact that a lot of these retailers again to them is this is nothing new. They have been doing this for a long time. I said now the publicity becomes more prominent. But otherwise, this is an ongoing thing. And they do internally have their different ways of differentiation. I mean for example, we spoke to one fashion retailers. They told us that generally in Singapore, the latest trend, the latest product will be launched in Singapore first deploying close to Malaysia, for example. So that's how they differentiate.

And in terms of pricing, typically, they see very little differentiation. So so we know that so it's is comfortable by the fact that when we talk to these retailers, they know what they're doing and they are able to differentiate. And this is something that we'll continue to work with them. And so the other thing is we have also look at it and analyze the impact and we recognize that it's not going to be a zero sum game. So while we expect some linkages to happen a little bit more linkages to happen with RTS. We also see this as an opportunity, right? Because what's going to happen is the whole area around Woodlands, being a regional center is also going to be regional [indiscernible].

So there's a lot of plans, a lot of development that's going to happen around there. And we see ourselves as potentially connecting hub, right, because this is where we serve as an interchange note where there are 2 lines -- [ MRT ] lines that comes to this space. So one is where potentially, if you take the rate line, if you need to change the RTS, you will stop here and make that switch. And also the passing the change is also gets a stable away from cost rate point. So we see cost rate point being a connecting hub and likely to see more traffic actually coming through the mall. At the same time, we bought the development that's coming around with the [indiscernible], as I mentioned, business part and so on.

So again, we expect to see a growth the overall catchment market for cost rate point and not forgetting that there's going to be about another 10,000 units of partners, both [ PTO ] and [indiscernible] private [indiscernible] going to be coming on stream in the next 5 years. And he's be seeing as I mentioned, about 10,000 units. So if you work out a stream expecting 3,000 people to come and leave very close by to [indiscernible].

And so the other aspect that we are working on is also trying to expand our cash in market, this is what Audrey mentioned just now in terms of place making, creating activity. So we hope to also expand our current catchment market beyond immediate cash in market that we are expecting to date. So we hope that can also make up some of the potential [indiscernible] traffic over the next couple of years month RTS is completed.

The other positive signs that we are also seeing is that relation retailers are also taking interest in Singapore. So that's the higher need, right? We're talking about people going to Malaysia and why are they coming to Singapore. So you're really seeing breads and power, for example, the one that sells for the [indiscernible] coming to Singapore. You have your -- the bakery brand, the vendor is really open in [indiscernible] and we understand people like even [indiscernible] is making [indiscernible] in Singapore. I mean those of you who have gone there, you probably would have tried any [indiscernible] bread. So that is where we see opportunity, not only are we looking at it as the negative, but we are seeing even retailers in Malaysia recognize the fact that once they become [indiscernible] to Singapore and you also want a presence in Singapore because you don't have to wait for a week and just have [indiscernible] or you can have it every day, if you're here in Singapore. So as we see those as positive signs as well.

And finally, what I would also add is that it always has this equilibrium, right? I mean today, we see that it's a lot more affordable in the JV because of rental, because of cost of labor. But if everything goes up, the demand goes up, the land [indiscernible] in Malaysia are not going to state as it is today, the staff being able to come to Singapore to work, they're not going to demand the same level of salary. So there will be [indiscernible] equilibrium. But by and large, what we are focusing on is what we think should do. We continue to work on our asset, continue to work on retailers, right? I hope [indiscernible], give you a broader perspective than what you have asked.

[Unknown Analyst]

Yes. Thanks, Richard. I hope to see [ Oriental copy ] at [indiscernible].

[Fung Leng Chen, executive]

Thank you for those who are just busy trying to catch up [indiscernible]. Happy to say that there will be an archive playback right now [indiscernible]. So you can listen to response again.

All right, we have next the queue. Derek from DBS as well. Derek please go ahead.

[Derek Tan, analyst]

Can you hear me?

[Richard Ng, executive]

Yes, yes Derek. Hi, good morning.

[Derek Tan, analyst]

Congrats on strong results. Just two questions. My first one is on tenant sales, right? I noticed that is about 120% and it's sticky. I think this is probably the new normal, but I'm just wondering whether given where we are now going forward, RTS et cetera, competition from other malls. Are you on a more defensive stance to keep this 120% tenant sales versus pre-COVID? Or do you think there's an avenue for your months to, let's say, hit [ 130, 140 ] [indiscernible] . I'm just curious your thoughts on that. That's my first question.

Second question is on [ Ulmo ]. It's available for sale. The pricing may be expensive, but just curious whether does [ Bidadari ] estate [indiscernible]. Yes, just to get sure.

[Richard Ng, executive]

Derek. So to answer your first question, simple answer is, we will always look at improving our sales beyond what we have today. So the team is passed to again look at how can we in continuing to drive sales, and that is our aim, right? Because the higher the sales level we can drive the higher sales productivity our dealers can do. We would translate to a better reversion for us down the road.

So our focus is, no, we are not going to stick to the level we are today. The focus is, again, to continue to see how can we drive traffic, how can we do sales. So as I mentioned, there's now some of those activities place making very targeted focus on driving sales events. Will continue to take this. And as I also mentioned, we are also looking at not just keeping to our immediate catchment. We are focusing on how can we also attract [ catch-on ] market beyond our immediate [indiscernible]. So by and large, a focus is driving sales, right? So that's the first question.

The second question is really more [ SKS ] is in the market. And it's all of more than 200,000 square feet. It's got connectivity to key transportation modes, and transport definitely something that we will look at. We have to review and see whether it makes sense, right? It is [indiscernible] as stated, the growing asset. Today, it may not be that its full capacity still potential for growth. And at the same time, we also look at it and say that it's a one station away from next, right next is 625,000 square feet. It's 3x larger than [ Uli ]. So all this, we will bear in mind as we look at sales opportunity.

[Fung Leng Chen, executive]

Thank you. Moving on to the next question from Yew Kiang, CLSA.

[Yew Kiang Wong, analyst]

Congrats, Richard, on a good set of results, but sad to see [indiscernible]. Just a few questions. On the tenant sales were the [ 20% ] higher than pre-COVID. Does this include online sales as well?

Then the second question is on -- I see that some of your bonds in the [ parcels ] Japanese area slightly dipping in terms of occupancy. Would you attribute this to PRM? And then lastly, the question on company [indiscernible]. Average rent [ stateside ] for the [indiscernible].

[Richard Ng, executive]

Yes. Okay. First question then sales, yes, it does include online sales. And this is something that we also talk about as part of our strategy, right, is to create environment where we see omnichannel going forward, that means our retailers also participate in online sales as well, right? So their online sales, if it happened at the mall if the transaction is recorded or the pickup is done and in the mall it will be registered to sales. So that's also one of the reasons why we have seen an increase in overall sales.

[Yew Kiang Wong, analyst]

So that goes into a GPO? It is done at...

[Richard Ng, executive]

That's right. So it's a question of now it is not just brick-and-mortar. So it's a completion of both online and offline right? So and this is something that we continue to try to get out as many of our tenants to come on board or to also look at other channels because at the end of the day, we recognize that the fact that our mall is so close to its catchment market, it makes sense to also be used as a procurement hub or some of these retailers, whether it be F&B, especially F&B, I think there's no [indiscernible]. It's easier for delivery. It's easier for click and Connect to pick up and so on, right?

And you've also seen that as part of our rejuvenation in Tampines 1, we brought in quite a few retailers who used to be online dealers. But to date, they're also taking on board brick and mortar. So it's really about omnichannel marketing, right. So that's the first question.

The second one is dipping in occupancy in Tampines [indiscernible] you need to see a deep occupancy [indiscernible].

[Yew Kiang Wong, analyst]

Century Square [indiscernible]. Is this a start of something that we should expect.

[Richard Ng, executive]

Centuries [indiscernible] we are also quite happy with some of the things that we have worked on. For example, we have changed out the anchor tenant. We brought in [ MPC ] [indiscernible] a lot more stable today. We have changed the cinema [indiscernible]. With those changes, we actually have been getting more inquiries, more demand for spaces, as if you recall maybe even 12 months, [ 24 ] months before the occupancy rate was much lower. So we have progressively been able to increase the occupancy for Century Square. So that's [indiscernible] in Century Square. But Tampines [indiscernible] , which is 100% committed.

So we don't really see that as an impact. But being retail malls, we always have to look at improving our trade mix creating interesting ambience and activities around it. So it's an ongoing basis, whether it be PRM opening or any other malls opening and so on. So that's something that's ongoing. But the long and short of it is we don't see [indiscernible] having an impact on the occupancy so far.

Okay. So the third question was -- sorry, can you repeat that question?

[Yew Kiang Wong, analyst]

The average signing rent edited for the new AEI at Tampines?

[Richard Ng, executive]

It varies, right? Because it's depending on the size of the tenant, so some of that could be as low -- I mean as more as a kiosk and as large as some of the F&B spaces. So by and large, I would only add that it's an improvement to our overall average, meaning that whatever we signed has come in higher than what we were previously able to achieve.

[Pauline Lim, executive]

Richard if I may add on to that, right? So you can recall when we announced the AEI, we had a target 8% ROI. And today, we are saying that we are looking on track to exceed that target. Some of that has actually come through from the higher rent. So when we set that 8% ROI. There was a certain set of rents that will pack to the new spaces that comes back from the AEI as far as the factor basis, those rents have actually come in higher than target, and that's slowing down to the higher than targeted 8%.

[Yew Kiang Wong, analyst]

Okay. I just want to slip in one last one. Any guidance for rent reversions in FY '25.

[Richard Ng, executive]

FY '25 -- what we are seeing so far on the back of the first half is we still see very strong demand for spaces and now more, which is why we are doing 99.7, 100% and you are seeing on the slide essentially a lot of -- a couple of hundred pointers in there. So what boils down to is that means that the ability for us to [indiscernible] rent is there, is positive on our side. And at the same time, our focus on driving sales continue to bear fruit. I think it gives us a good opportunity to continue on track or in line with what we've been achieving so far. But there's very any unforesee circumstances what's happening potentially in the market in next [indiscernible].

[Fung Leng Chen, executive]

Thank you, Yew Kiang. Next question from Terence. Terence please go ahead.

[Terence Lee, analyst]

Just to follow up. So is it a problem that the tenant sales growth is lagging your reversions currently? I remember your reversion is saying it's close to 7-plus percent now. Yet if I look at your tenant sales trend, it's somewhere in the low single digits.

[Richard Ng, executive]

Okay. Not so much as a problem. This is where we also were responding to various questions from you guys even 1 or 2 years ago and say why is that sales increasing, but the rental is below, right? And usually, there is a lag time, right? Sales will move first for the rental comes in. And this is where we are picking up some of the lag before the sales were going up double digit, but the rent reversion was low single digit. So I think this is where we are catching up for [indiscernible] Sates lag, and this is where we hope that we can continue to drive the sales, right, so that we can then look at the reversion to also improve at the same time. So there's always this lag time.

[Terence Lee, analyst]

Sorry, when does this like -- when does this thing catch up? Is it a cycle of 1 year or 2 years?

[Richard Ng, executive]

Not really, it depends on the occupancy cost at the end of the day. So like what we say, we have to work on the sales in order for us to continue the positive trajectory of our rental reversion. So it's not really about -- there's a big cycle yet, right? It depends very much on how can we continue our rental reversion. What's important is also to look at what's occupancy cost to date, where we reported 15.6% occupancy costs at the end of last year. As of now, occupancy cost is still below 16%. So that kind of give us a bit of runway before occupancy costs could go up, right? So this is where we feel that there's still opportunity for us to continue and assumed projection.

[Terence Lee, analyst]

Got it. And just looking at potential acquisitions, what's your take on the asking prices of some of these retail assets on the market? Does it suggest that it's harder for you to acquire from sponsor/elsewhere?

[Richard Ng, executive]

I think what -- the first reaction I have is, firstly, this category of asset is very highly regarded and very much sought after by investors. And one of the main reason is also because you have always this issue of limited supply of good quality [indiscernible]. And we are fortunate today that we have [indiscernible] partially or 9 of which for one of the largest, more sensing board.

So for me, it is a testament that this sector, the investors expect this sector to continue to do well. This sector is [indiscernible] and also the sector has got the opportunity for group, right? So that's how I will view it.

In terms of our own trajectory of growing our portfolio. We have our own strategy to look at. We believe that we still are able to grow, and we have identified -- we shared before when we have our sponsor assets, [ Napanee ] [indiscernible] its partner. We have other partners in [ Waterway Point ] and also now we have a role for next. So it's a case of over time, working through these numbers and then be able to grow our portfolio.

[Fung Leng Chen, executive]

Thank you, Terence. Moving on to the next question from [indiscernible], Citi.

[Unknown Analyst]

Just three questions, right? I think just on [indiscernible], right, it's been about 1.5 years since you own this asset. Can you sort of give us an update on what's the latest for the corporate tax transparency, that 80 million AEI, which you sort of pointed out, I think when you acquired it? That's my first question.

The second would be, do you think that in this current environment, where we are seeing a bit of a tenant sales slowdown. Should we still expect [ SCT ] to [indiscernible] occupancy costs normalize to that 17% to 19%level that we saw in the past few years. That's my second one.

The third one would be, are you able to share any rough estimate of whether there's been any leakage from this whole [indiscernible].

[Richard Ng, executive]

Okay. Next update, tax transparency. We don't have any update from there. We did share that this is a process whereby both partners in this investment company has to agree on any changes. So there's no update on that. AEI, we are currently going through the process of getting authorities approval. So we are engaging them. And it's progressing in terms of we need to get through this field that was to know that -- at the end of the day, how much really can be built and to what extent can we do before we can then specifically come out were to share the [indiscernible], but it's ongoing.

It's -- in a way, as far as we are concerned, time line-wise is on track. And as we've mentioned before, the gestation period for this AEI would take a while. So at the same time, what is happening, which is why we're also focusing on doing AEI for our existing portfolio, right? So that is going to continue. So that's for next update.

But I'm happy to say that, as you really pointed out that we have owned at least the part of the next longer than the [indiscernible]. We are very positive on that because we are seeing better performance than what we have underwritten. So effectively, the underwriting has [indiscernible] passed on underwriting in terms of [indiscernible] reversions, in terms of performance, overall performance of the [indiscernible],right? So that's an update on next. Finance sales, yes, you already pointed out that we see that the current occupancy cost of under 16 which is an opportunity for us. And at some point in time, it should then normalize back to your 17% to 19%, we always say 16% to 18% kind of range. And what that means is actually it gives us opportunity to further, as we progress in the rental reversion cycle to, again, capitalize on that to help us with rental reversion, of positive rental reversion, which is why I alluded to the fact that we hope in terms of the -- the trajectory that we are expecting will continue. So that is to respond to your questions on sales.

The third one is drop estimates on leakage. And the moment, honestly, we don't really feel the leakage because I got as said, this thing about people shopping in JV is nothing new. It's been there for a very, very, very long and it's just that because of publicity, because of what's happening around RTS is kind of being elevated way because start talking a lot more. But what we are seeing, the sales performance of cost save point continue to remain very resilient. [ Covera ] is back to pre-COVID. So the short answer is we haven't really seen significant difference in terms of this leakage.

[Fung Leng Chen, executive]

Thank you, Brandon. Next question from [ RHB ] [ Beijing ]. We have about approximately 7 minutes left. So we'll probably take just one more question after the last one.

Thank you. Vijay please go ahead.

[Vijay Natarajan, analyst]

Just two quick questions. I think the first one is, again, a bit on the tenant sales perspective. If I look at the last few quarters, there has been some slight reversal in the trend. I think earlier tenancies used to go up much higher than the Shopper Traffic. These last 2 quarters, it seems like Shopper Traffic is going up a bit more and tenant sales is growing slightly lower. Is this a broader trend of well tightening by buyers post this GST increase, et cetera, or your curation of mall mix towards slightly different brands. How do you see this? And what would be the trend we can expect?

And my second question is on Central Plaza office. Maybe can you give a bit more color in terms of the occupancy dip. Has there been tenant downsizing or tenants moving towards CBD. And earlier, you mentioned that this is -- aside which you'd like to stabilize and take a long-term call on this. What should we expect as a long-term stabilized occupancy rates? And what is the long-term plans for this asset to keep it or to sell it?

[Richard Ng, executive]

Vijay, I'll take the first question and then maybe a little bit on the second question before I pass to Pauline in terms of the trends and the occupancy for Central Plaza. So then sales trend, you are right in the sense that we used to see very strong double-digit growth year-on-year sales. But I think -- the reality is we are now coming up on a very high means, right? So the sales cannot possibly continue on [ 15%, 18% ] [indiscernible] what we are seeing now is a little bit more stabilized per se, but still, if you compare to 19, is 20% growth for the last couple of years. Every year, we've been achieving that. So if you compare that, it's still very, very strong.

But of course, you compare year-on-year, where we have been progressively increasing 15%, 18% and so on. That definitely will see a [indiscernible] rate because you are on a high base, right? So it's a question of just a question of when you do an exam you keep 90% every percentage increase is going to be harder than if you're doing 60% before that. But by and large, what we are seeing is that we want to make sure that this growth continues for our retailers because that's important that kind of supports the underlying occupancy cost. And that's where we'll be refocusing our assets in getting -- also at the same time, you're right.

Looking at trade means getting rid of the nonperforming tenants who was a drag to our sales. We want to bring in tenants that can generate sales because if they can generate sales meaning that they are actually attracting people. if they are losing sales that means we are also losing customers. So all this has to come into play. And we are doing both fronts in terms of leasing, in terms of trend mixing. And at the same time, in terms of again, emphasis on place-making marketing drives for traffic and for sales. So that's the first part of your question.

The second part, on Central Plaza, what I'd like to share with you is the view of plans for this, as mentioned before, [indiscernible] assets is integral part of [indiscernible] Plaza. It also kind of provide customers going into [ Balsa ] for lunch, dinner and et cetera, right? It is an integral part of it. And at the moment, we feel that it's important for us to keep it as a whole. This is doing well. I mean Pauline will share with you in terms of occupancy and where we see this asset going forward. Until such time that we really see that there's a better option for us to review that then we will review it at that point in time. But as of now, we sell that keeping it as it as an integral part to Plaza made sense for us.

Pauline, maybe you can chip in, in terms of occupancy.

[Pauline Lim, executive]

Yes, sure, Vijay. So actually, in terms of the occupancy for Central Plaza, it's still trading well. I mean it's still doing well at 90 -- above 90%. And in fact, when we look at the commitments to date, we are seeing the overall occupancy increasing come next quarter, right, when we update next quarter.

I would like to say that in terms of its positioning or rather that the segment of the office market that it takes to. It is quite unique. It's different from some of the retail stop or the retail space in the city area. It's in the city range. It's very well connected to some of the amenities like just the mall is just next door. And also the fact that it's within a very strong residential catchment as well. And I would say that one of the differentiating factor is, although it's not grade A, the rents are palatable and it does cater to a segment of the operation uses yes.

So -- so I hope I address.

[Vijay Natarajan, analyst]

Just if I may slip in. What is the rent reversion on this? Is this still positive, much positive?

[Pauline Lim, executive]

Yes. It's still holding up. Yes, right.

[Fung Leng Chen, executive]

Thank you. Moving on to the second last question. [indiscernible]

[Unknown Analyst]

Yes. Just quick in terms of valuation coming to year-end, should we be expecting higher valuations and the changes in REIT regulations? Will you [indiscernible] will be pushing gearing [indiscernible] by [ 40% ]?

[Richard Ng, executive]

Okay. Valuation, by and much, we don't expect any adjustment to cap rate from what we're seeing in the market. Conversations we have with [indiscernible]. So that will [indiscernible] likely remain. So we will probably see some positive valuation because our NPI, our numbers have grown, right? So that's what we are seeing, and that's what we hope to achieve.

In terms of gearing, I think the fact that whether it be 45%, 50%, at the end of the day, I think as we manage, we will remain disciplined to kind of keep to the number that we are more comfortable with. That's the [ 36 ] maybe hard to be, right, the kind of level. We are not looking at pushing our hearing necessarily high to 50% unless with this investment opportunity where we think it's a temporary thing that we can do and then before we readjust the balance sheet it. But otherwise, I don't see that as a change because even in the past, right, you could go up to 50% so long as you have [indiscernible] support [indiscernible] the changes.

[Unknown Analyst]

Sorry, just one more question. Just question you in terms of the mix between floating and fixed rate debt. So why not does take more fixed rate debt today to achieve your interest cost savings? Because even if the fed cuts, let's say, 100, 150 bps, there are things or may not necessarily fall by the same amount, maybe 100 bps. So actually you really achieve the same outcome by waiting for the floating rate to come down.

[Richard Ng, executive]

Yes, you are right. I think there is something that [indiscernible] team is [indiscernible] very closely, which is why the last couple of weeks when there's opportunity for us to go into the market [indiscernible] market. We bring a [indiscernible]. So the question is not that we don't want to do it. We are just looking at opportunity because we still feel that we potentially could limit of savings before we kind of put in or increase on the hedging, right? We will be moving or increasing out. That's something that we are looking at it's a question of whether we want to do it today, believe it on to week to see opportunity because it's been a little bit volatile. It came down from 3 to almost 2.7 plus, right? So also there's like 20 bps, if you can catch it, [ 20 ] bps over 5 years, is quite signature for us, right? So this is where we are watching the market very closely. I wouldn't say that we are not doing anything, but we are really focusing on that.

[Unknown Analyst]

Okay. Look forward to Audrey gave us farewell present. 20 bps [indiscernible] how to be soon. And then [indiscernible] can be the 4.2.

[Loo Ming Tan, executive]

[indiscernible] the market. Yes.

[Fung Leng Chen, executive]

Thank you, [ Maurice ], for the very heart warming comments ind. Okay, last question from [ Derek ] Morgan Stanley.

[Unknown Analyst]

Just wanted to follow up on RTS. Sorry to hop on it, but I guess investors such as concerned join parallels between Shenzhen and [ Doha ]. So just now, Richard, you mentioned that you're looking to reject some of the tenant mix. Could you share more details around that? I mean, are you looking to lower exposure to, say, F&B beauty I mean, given that these are -- that's half of your current rental income that could be significant down the road.

[Richard Ng, executive]

Yes. I mean we are still working through the plans. But by and large, meeting a couple of areas that it's a bit of anybody expect this to happen. I mean, but for F&B perspective, we don't really see it necessary to reduce. In fact, I think as F&B will continue to do well. It's a case of, say, for example, right, I mean we give an example [indiscernible] Malaysia looking at coming to Singapore because you can [indiscernible] every day in Singapore, right? You don't have to wait until you go the JV to consume that even for food, again, the casual dining that usually you see in our [ Salamone ] [indiscernible] on repay basis, you don't have to wait for weekend to go.

So I think F&B will continue to thrive. It's a question of we find interesting F&B concepts to bring in so that we reach in it, giving something new to our case market, but definitely best to see. But services, yes, we were to be a little bit more selective, maybe instead of having 5 [indiscernible] today, we may reduce it. When we look at different type of offering, services, message and [indiscernible] again, having [ 34 ] we will reduce that and give the space to something else. So those are the things that we will work on. We will look at it.

But even as we look at this, as I mentioned just now, so when we approach our tenants and say, look, maybe you guys don't need so many, right? But the reality is we actually told us that for some of these -- even some of the services -- the services that they provide there is different but we can get in Singapore. So they are differentiating their [indiscernible] and they know what they are doing. So this is where we have to work through the process with them. And understand how the differentiation will continue to allow us to bring in more sales. But this is an ongoing basis.

And again, coming back to the same point that it's nothing new for people shopping in JV. It's just that your 3 hours [indiscernible], it's going to be a little bit easier, we potentially see more people going on weekend on midday really. I don't see a significant impact. Even in Hong Kong, the experience, the general experience that we have been touching base and understand from [indiscernible] really the weekend, right? Saturday is the one that a lot of people go there, but generally on big day, there are some [indiscernible] but not significant, right? So that's where we are right now.

[Unknown Analyst]

Great. Thanks, Richard.

[Fung Leng Chen, executive]

Thank you very much. We have come to the end of this quarter's briefing. And we'd like to thank everyone for your time and your patience [indiscernible]. So any of the part of this conference of this call, basically [indiscernible] that we'll put up the webcast.

With this, we'd like to thank everyone. Have a good day ahead.

[Richard Ng, executive]

Thank you. Bye.