CapitaLand Integrated Commercial Trust (C38U) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining CapitaLand Integrated Commercial Trust briefing at short notice today. We are pleased to share that CICT has announced the proposed acquisition of 66 Goulburn Street and 100 Arthur Street in Sydney, Australia this morning. Before we start the presentation and Q&A, we would like to play a short video of the 2 properties. Please enjoy. [Presentation]

Now we hope the virtual trip to Sydney has given you a better idea of the 2 buildings' locations and features. Without further ado, I would like to invite Tony to share with us more about the acquisition. Tony, please?

Thank you, Mei Peng. Good morning, everyone. Thanks for attending the briefing today. We hope you all have a little bit of time to read through the material that we have posted this morning and hope that you enjoyed a little bit of a glimpse on the 2 assets that was flipped in the video just now. Before I talk about the transaction, I thought it's important to put the larger things in perspective. We articulated a couple of times post merger of CMT and CCT, I think one of the immediate tasks is to look at the portfolio construct both in the mid and longer-term perspective, how we want to ride along the journey. So maybe there's a need to relook at the construct. Bear in mind that CMT and CCT was put together with a very strong focus of investors' interest, why the investment in CCT and CMT in the first place, which is largely to get the very concentrated exposure in Singapore. So we are doing that merger together, put it together with, in fact, 2 assets in Germany. But we also know that in the long, long run, the portfolio construct need a little bit of recalibration so that we have the maximum optionality in order to be able to produce a portfolio delivery that will be consistent in our financial numbers. So that at any point in time, we need to do any kind of action in any of the assets, you will not materially disrupt the income stream of CICT post-merger. So that's the larger picture. So when I engage all of you in multiple occasions, I did articulate that it is going to be a journey. So whatever action we take along the next 1 to 2 years, you cannot take it in isolation. So for this example, this transaction, you should not look at it as just in isolation. We are going through a journey to slowly recalibrate our portfolio, and we will not put any particular order inflation. But bear in mind, at the end of the day, what we put out to investors and the investment community is that we want to have a portfolio that eventually will have heavy concentration in Singapore and not more than 20% outside of Singapore. So that's the big picture. So coming to this transaction, I think it was one of the -- what we see as a good opportunity from a timing perspective as well as the assets specific to get into Sydney at this point in time. And I'll, of course, elaborate later on the specific. Let me just put you in, again, a vital context in Australia for these 2 specific assets. We're actually entering into Sydney CBD at 2 very important submarket. I said within the CBD, they are -- it's issues. Obviously, if you look at the maps, it's a long elongated journey. We're actually entering a true point within the CBD, which are going to see a significant growth in the next 5 to 10 years. The North Sydney, which is where 100 Arthur is located, and 66 Goulburn, which is at the midtown CBD, at the southern end, but near the tech center location that's going to be redeveloped in the next couple of years. So these 2 are important core growth area going forward in the next 3 to 5 -- in fact, 5 to 10 years, in fact. So let's put that into context. It's very strategic entry into a new market that gives CICT in the long run a V shaped, the optionality that I always talk about. And 2 specific asset that's strategic in location that are able to capture the growth prospects in years to come, right? So let me just run through the -- very quickly on some specifics on the transaction. First, I think you have time to read through these slides, which was posted this morning. So this is how we look at 66 Goulburn. So we're entering this transaction with a combined implied yield of about 5.2%. That would give us an expected DPU accretion of about 3.1%. So later on, I'll elaborate as well. This is in context of the assumption that we are redeploying part of the capital that's been divested through the OGS capital that we were taking back and reinvest in these assets, give us 3.1%. Obviously, we'll be also debt funded as well. So overall, a great property value of about $672 million, which is in line with the valuation that is posted here in the screen. The transaction is expected to be completed sometime in first quarter, is subject to largely the approval from FIRB, which is the -- for investment review board in Australia. A little bit about the 66 Goulburn. Earlier I mentioned it's actually located at the midtown CBD, by the southern tip, close to where the tax center is. The agreed property value is $300 million. If we work it up on per capital value basis, it's about 13,100, which, in my view, is a fairly good deal from a CBD capital value perspective. If you look at other past transactions, it's probably in the region of quite north of 13,100. This is coming in at a yield of about 5.4%. Current committed occupancy about 95.3%, right? So it's quite stable, 95.3%, 5.4% entry yield. So give us a little bit of a running [ yield ]. The second asset is 100 Arthur, North Sydney. I think you may be familiar because our fellow peers has also gone in just this week in North Sydney. It's not far away from where the Blue Street is located. It's about 5 minutes walk. Again, at the property value, a great property value of about $372 million, which is also in line with the valuation. Currently, the occupancy is about 62.3%. And I'll elaborate later on, on the historical background to date, at an implied yield of about 5.1% with regard to fee income support coming in. And again, I'll elaborate a little on this. From a capital value at $372 million, it's about 13,700. And again, from an absolute capital value perspective, I think is quite a good deal. So this is what I mentioned earlier, the 2 locations important to note. The transaction structure involved buying over to 2 existing trusts that own these 2 assets. So actually taking over the trust and the underlying bank loan as well as substantially the liability, which is the bank loan. So we're actually buying over the RNAV of the trust, of the 2 respective trusts. Total estimated acquisition outlay is about $381 million, including other expenses. This is just illustrative purpose on the DPU and NAV accretion. I talked about earlier 3.1% that bring us to about 10.54% once adjusted post divestment of One George Street, right? And NAV is expected to creep up to about $0.0207, and that's about 2.6% accretion. On a pro forma basis, our debt will remain stable around 40%, 41%, thereabout. This is a typical investment structure in Australia. I don't think I will dive into it. I think investment merit, I briefly touched about it. Our overall long-term strategy is really to look at the portfolio construct. And we already started the journey with first the divestment of One George Street, which we felt that gave us a good exit yield, about 3.17, and redeployed the capital into higher-yielding assets. And in this case, the 2 combined Sydney asset, 85.2% yield. So I think it's a very attractive uplift. Sydney, I don't tell -- I won't delve into it. I think it's well known there are many, many people already in Australia and Sydney, particularly. The 2 area I talked about, one strategic, again, because I did mention the -- both through end of the market actually are going through a little bit of rejuvenation. I think they are entering a phase where potentially you could crystallize another layer of growth. So I think we are going in probably the most appropriate time now at a very attractive yield and also a very attractive capital value perspective. So I think you can read all these advantages. I talked a little bit about it before. I think Sydney dynamics, you probably know very well. There have been recent new build, I think, which have been very well taken up. If you look at it forward -- on a forward basis, the supply is going to be quite low, 2021 -- in fact, 2022, 2023. And Sydney continue to be a very strong attraction for many companies to be located, right? In North Sydney, actually, there's a little bit of story, right? North Sydney had gone through a little bit of, okay, renaissance, I would say, with a recent new development that came in, very high quality, premium grade, very well picking up. At the same time, a lot of the older stocks are projected to be taken up for the market, which is why you look at the supply and vacancy going forward is going to come down quite significantly in the next 2 to 3 years. So from a supply dynamic perspective, I think it's fairly favorable for North Sydney. From a demand perspective, we're beginning to see more company that are looking at CBD as an option. Between North Sydney CBD and the core coast Sydney CBD, this offers a very, very attractive proposition. Because the rent delta, the difference between the core CBD and North Sydney CBD can be as high as 40% to 50%, right? So I think it's quite an attractive proposition, especially when we have quality space that will be available in the market. So I think all this we leverage much in detail and I talked about it before. It's our overall strategy. Look at our construct, 80-20 is still in the big issue in our mind, but no, in particular, any sequence. Maybe investing in Singapore, maybe investing in overseas, all depends on opportunity, timing and market condition. So this is what I also mentioned earlier in the tax center. This is going to be a major, major transformation from that part of the Sydney CBD. I think all these are quite straightforward. I won't delve too much into it. The quality of our assets are there. This is a little bit of history I thought is useful to remind. So this particular asset, 100 Arthur, gone through a little bit of a transformation. Back in early 2020, in fact, it was 100% full. But 2 major anchor decided to actually leave the building. And naturally, with the onset of COVID and the multiple lockdown in Sydney, it was quite a tough period during the time. So the occupancy actually went down from 100% to close to about 30-odd percent. But since the gradual improvement and reopening of economy, we have also seen the ramping of the occupancy quite rapidly from 30-odd percent to almost 62% as of September. As we speak today, we understand from the vendor that they are also interested looking at the remaining space at different stages of discussion, up to about 1/4. I know 25% of space that are under discussion. So I think we are relatively, I think, well protected. And we're also protected in the transaction that we managed to negotiate income support of up to $7 million. And the key difference between this is that this $7 million is absolute. It's regardless of the occupancy level. But we negotiated on the basis that when we look at the deal, you have 62% occupancy. We need to -- sometime in about a 12-month period, they are about to slowly work through the occupancy to up to maybe close to 100%. And we work out the vacancy space and the real -- actually, the approximate market rent, so it was negotiated based on a market rent basis, how much we need -- require to fill up space. So that's how the $7 million came about. But the $7 million is actually absolute. If we managed to ramp up the occupancy shorter than $12 million, then we technically do not need to dip into the $7 million part. So that gives us a little additional sort of piggy bank that we can ride through the other years as well. So that's a little bit different about this transaction. So I think we negotiated quite a good deal in that sense. This one, I won't to talk about. I think we don't have major vacancy coming out in 2023 -- 2022, only in 2023. These are the things that I think you're probably quite familiar, some prolongation of our WALES, from 3.1 years. I don't think I want to talk too much about it. And this one, I talked about it before. Yes. So I think I'll probably pause here, and we'll open up more time for Q&A. I'm sure you have a lot, many questions.

Thank you, Tony. Before we start the Q&A, I would like to introduce the panel. So we have Tony, our CEO, seated in the center of our panel. And we have Ms. Wong Mei Lian, our CFO, on Tony's right; and Ms. Jacqueline Lee, our Head of Investment and Portfolio Management, on Tony's left. [Operator Instructions] So anyone on the MS Team that have raised hand? Okay, I see Rachel, Rachel from DBS with a raised hand. Rachel, would you like to ask your question?

Two questions from me. I think this is your first time moving into the Australia market. Just wondering whether -- appreciate your thoughts, whether this is actually the right time to enter the Australian market as some of your peers have already got in quite some time ago. And secondly, how do you see the Australian market? Are you looking to expand more to this market?

Yes. I think the timing is right. Notwithstanding the omicron, which, in fact, that's not the Australia matters, right? But in the long run, we believe Sydney will still benefit well. I think if you look at the Australia and New South Wales especially, the way they approach the entire pandemic give us a lot of confidence. They actually started ramping on the vaccination very quickly. They reopened up quite quickly. We've seen the rebound in Sydney CBD very quickly and very sharply. Now of course, the omnicron is something nobody can predict, projected this to happen. And we'll see. But what we took comfort is that at the absolute value and at the yield that we have managed to negotiate with our vendor, the seller, it gives us quite fabulous buffer to ride out through in the event there's indeed a little bit of sort of setback in term of timing of the recovery. But overall, I think the timing is okay. It's not -- of course, ideally, omnicron doesn't happen. If it didn't happen, I think none of this will be even questions. But in the long run, we believe Sydney is a good story. In the longer run, of course, it's more Australia specific. I think we talked about our ability to build scale. In Sydney, have 2 assets. We continue to look for opportunity, if there are. I think it's important to be in the market. Once you are in the market, you actually open up yourself to more possibility than otherwise. So this is just an entry point. Surely, I think from now onward, we probably can see more market opportunity that will service to us.

Okay. You talked about more opportunities. I'm just wondering whether did you see the recent acquisition by [indiscernible]. And how does that compare to your Sydney assets and other streams?

Well, maybe it's a new build. So I think -- I wouldn't want to comment too much. It's not fair for me because I wouldn't have the intimate detail of their property. But as far as I'm aware, it is a new build, right, to be completed sometime '23, '24. Not far away from 100 Arthur. It's a short walk. It's about 5 minutes. I think I mentioned earlier it's about 5 minutes walk. Ours is a ramping up of assets. Theirs is a this going through -- their investment is going through debt investment phase. So it's quite different. Capital value is a little bit different as well. Our assets is more than 10 years old, but recently refurbished. 2019, 2021, I think you were in a period where the 2 major anchors that I spoke about decided to leave. The vendor actually put in $17 million of major uplift in term of the facility, the amenities as well as the space that we covered from the anchor tenants. So it would be a very good quality post completion. In fact, its completed by now, the 100 Arthur Street. So I think it's a different proposition. Ours are probably potentially a more stabilized assets. They will go through a ramp-up phase here. And we have a...

Okay. Got it. Just one last question. Any -- I see there are a few pre-anchor tenants in both your assets. Any break causes or any of the expiries coming up in the next 1 to 2 years?

Not that we're aware of, no.

Coming -- they are seen from the WALE, right?

Yes. The WALE is quite shortlist. So I -- if it's -- if you look at the WALE, the assets in -- if you look at Slide...

24 for 66 Goulburn or 27. If we go to Slide 24, for 66 Goulburn, there are some coming up in 2022. But the bulk of it is in the second half of 2022 and then you can see into 2023. But if we go to the other slide on 100 Arthur, which is Slide 27, then yes, as Tony said, it's a ramp-up. So there aren't really any expiries next year.

Yes.

Just wanted to confirm the expiries in 2022 for Goulburn Street, any of the anchor tenants, the top 3 tenants has expiries there?

Two of the larger tenants have. One of them is, yes, in negotiation. The other one is towards the end of the year plan of expiry, like December 2022 sort of expire.

Okay. Okay. Got it. And good to hear that your occupancy at Asia Square Tower and also CapitaGreen has [ returned ] back. Congratulations again.

Next, we have Mervin from JPM. Mervin?

Congrats on the acquisition. Yes. Just a few questions. Just wondering whether you can disclose what is the passing rent for the 2 buildings and what's the market rents or asking rents you're seeming to achieve? Second question would be what's your assumed foreign costs? Third question is just curious what accretion would be if you exclude the [ income support ]. And then finally, why buy this rather than 79 Robinson at this point in time?

We didn't hear the first question. Second question, can't really hear.

Second question is about borrowing cost. And the third question is the accretion, excluding the rental guarantee. And then I think the last question, if I hear you correctly, Mervin, is about some plan for 79 Robinson.

Why buy in Australia rather than buy in 79 Robinson Road at this point in time? And then, yes, my first question is, what's the passing rents for the 2 buildings and what is the market rent for the 2 buildings at this point in time?

The question on the passing rent, we don't -- normally don't disclose the passing rents, but they are in line with the market rent. And then as for the accretion, I think you're asking what the 3.1% is without the rental guarantee, right? That's the question.

Yes.

Yes. It will be 2.2%, from 3.1% to 2.2%.

5.1%. 5.1%.

The accretion. That's not accretion.

Then the borrowing cost? Sorry.

We are looking at the -- to be in line with the -- about 2.3%, which is in line with the average cost of CICT.

And then why Australia rather than 79 Robinson Road.

It doesn't mean that we're not looking at 79 Robinson Road. Like I say, the timing, you cannot just look at the -- if you kind of look at this in that particular sequence, I think just look at it in the order of things. There will be a series potentially in going forward constitution, which may not come in particular order. It all depends on the timing, the vendors' readiness. There are many, many factors. And this one is coming quite timely because the vendor's also keen to divest. So that's something that went straightaway. We thought the time was quite right.

Thank you, Mervin. Okay. Maybe I just have a question from the webcast. That's from Donald, Bank of America. It's regarding the...

I just want to correct something. It's about the major tenants at 66 Goulburn. So there are 2 major tenants whose leases are expiring, but one is in December 2022 and the other one is in November 2023. So it's one in 2022 and one in 2023. Just to correct it.

So the questions received from the webcast is about the WALE of 66 Goulburn. I think why the WALE is short given the government tenant? And then the second question is about how long will the vendor absorb the incentives for? And then would this apply for the new leases and renewals going forward as well?, And would you still straight line the incentives at CICT level? There are a couple more questions, but I think...

Can you repeat the question again?

Question about WALE, right?

Yes. The WALE, yes. What's the...

66 Goulburn.

Why the WALE at 66 Goulburn is so short given government tenant?

But I think WALE is a stabilized asset, right? We will come to a point where the leases will be like every 3 to 5 years. So actually, we see this as an opportunity because as things pick up, then we can actually ride on the increase in the market rents as the leases fall due. So we do see this as an opportunity, actually.

It's a passing of time. I think it's not a new build.

It's not a new building. So generally, with the new buildings, that's when you will see like a longer WALE.

So the second question is about the incentives. How long would the vendor absolve the incentives for? And then would this apply for new leases and renewals going forward as well? And would we straight line the incentives at CICT level?

The vendor will absolve the incentives till the end of the lease for all leases that we are taking over. Generally, yes, that will be the case.

On the accounting side, at the property trust level, the rental incentives will continue to be straight line. Yes. At the group level, it will be sort of eliminated. So on a DI basis, there's no impact.

So the subsequent follow-up question is, how much does the rental guarantee translate to rent per square foot? And then what is the progress in backfilling the vacancy at 100 Arthur? In fact, really on the vacancy there's also another question that was asked by the webcast audience.

What's the question again?

How much was the -- does the rental guarantee translate to rent per square foot?

$7 million that is divided...

$7 million for the -- the remaining $38,000 -- 38% of the NRE for 12 months.

Yes. So there's some potential upside when you -- if you have the vacancy is where I think capital value will catch up.

I think on the progress in backfilling, I think Tony has shared earlier that we are seeing leasing interest.

Yes. We're seeing -- we're saying based on what we hear from vendor, we are seeing interest. Of course, once the transaction is completed, then we will take over from there.

Okay. So now we are moving...

I think at a different stage of discussion, I think I don't know whether you heard it, it's about 24%, 25% of the remaining space that are under discussion.

Thank you, Tony. So back to MS Team. Joy from HSBC.

Sure. Two questions from me. One is just to clarify on the incentive side. So if you're signing up new leases and given the incentives are quite substantial in Australia, would that be impacting your DI straightaway?

The impact of DI.

Sorry, can you repeat the question, please?

Yes. So in terms of your renewals, let's say, if you are offering between 20% to 30% incentives, that would be impacting your DI, right?

Yes. Yes.

That will be correct.

Correct. You're right. Yes. That's the typical, yes.

Okay. And maybe just more -- just on more strategic trend. Could you sort of help us understand your overseas investment strategy? So you're now in Germany, you're in Australia. How do you look at these markets? Are these core markets? Or do you see these more as a sort of a value-add opportunistic investment? Because if I look at your Australian investment, this is more what a typical value-add fund would look at. Would that be a correct understanding?

I think we would not rule out value-add opportunity. But as an entry point, obviously, we look at a more stabilized one. And that's where the 2 assets in some way. And we're protected because of the 12 months of income that is coming, so we had a 12-month of buffer time. Otherwise, typically, I think for any new entry, we probably want to look at the A offers. But going forward, obviously, it depends on what kind of opportunity to surface, whether what kind of value add we're talking about or is it more a core plus, right? So I think it's going to be down to the specific opportunity that surface, yes.

And just on the broader sort of overseas strategy, how should we think about it?

Taking to the 80/20, that's the guiding principle, each market, perhaps we -- in the long run, we -- in the long run, assuming maybe 5 to 10 years down the road, right? We could be in 3 or 4 established market, then each market will have about maybe a 5% to 7% kind of representation of each portfolio, meaningful enough, substantive enough, enough scale to be a player in the market. Yes. And of course, our base will grow, right? Singapore is not neglected. I think Kelvin just now earlier asked a question -- Mervin asked a question about why not 79? I mean these are all internal pipeline that, obviously, we will try to pursue. And timing wise, I think you cannot only announce so precise. This is going to come in this sequence, right? So there's so many factors involved, especially in a specific deal that may involve perhaps a joint venture partner. So a little bit more complicated in that sense, yes.

I see. And just in the near term, would you focus on the 2 markets you're currently in -- overseas markets you're currently in? Or can we still expect new markets to be added?

So like I say, once you're in the market, we probably expect to see deal flow. And when you look at the each [ Q ] merits. If you can today build up, scale up Australia and Germany immediately, obviously, when the opportunity is there, I think we'll seize it. Yes. But then in the long run, I think we still want to engage, able to cast our radar a little bit open and see what the things are coming up, whether it's in Australia or outside Australia, outside of Germany. Bear in mind, the long run, that's how directionally where we're going, hoping that we can establish a few key markets to give CICT the full optionality of various opportunity in some developmed market that we have confidence in. Yes.

Thank you, Joy. Next, I think we have Derek from DBS.

Derek here. Yes, just got a few questions on leasing, if you do not mind. Firstly, 100 Arthur, you mentioned that there's some demand from what the vendor has mentioned. Just curious whether are these small spaces? And do you reckon that the rental that you potentially may achieve will be higher than what the anchor tenants are paying?

You want to take that?

We are expecting market rent for the spaces, it's various inquiries. So some could be for 1 floor, half a floor. Some inquiries are for several floors.

Okay. So meaning that -- so the $7 million, let's say, no matter what happens in terms of occupancy, you'll still be able to clip the $7 million? Is that a right assumption? I don't know whether that is correct.

Yes.

Okay. Okay. Then my next question, if I can go to 66 Goulburn Street, right? I mean you've -- I just looked at your acquisition, one is in CBD and one in Northern Sydney. I'm just wondering whether do you see like different kind of fortune? I mean there's talk that people are getting out of CBD and going into the suburban space and Northern Sydney was potentially a beneficiary of that. So I'm just curious that this 2.7 years, I understand you're speaking to anchors, but are the anchors cutting back space? Is that something that you can give us a sense?

No, I think broadly the question is about what are the occupied thinking, right?

Yes, yes.

I think what we are seeing actually is a little bit not too different from what we are seeing in Singapore. It's a bit of flight to quality. But still in the end recognize it's important for office space, right, notwithstanding the work-from-home phenomenon. So coming back to the office is still important. The quality of space become even more important, which is why you look at -- I think we showed it on the video, right? I think the layout -- especially 100 Arthur, I think if you look at it on an open space basis, it's actually quite suitable to put that kind of arrangement, work space arrangement for a company who think that they need a wider space, more efficient use of space, but at the same time, fulfilling the health [indiscernible] guidance to keep that safety sensing. So I think it's not very different from what we are looking at in Singapore. There'll be a flight to quality. Flight to quality can also mean companies traditionally outside the CBD are looking at CBD as an important location. In fact, I think this is still about talent acquisition, that it's important that they are in the thick of the action. I think at the end of the day, CBD will still be where the key important actions are. And now that North Sydney is trying to establish itself as a very important player in the entire CBD scheme, it's going to be capitalized by some major infrastructure development, particularly the main Sydney Metro line that will cut across the -- in fact, from all the ways south bring commuter from Central CBD to the northwest. So it's going to be a very convenient journey now, wider reach. In fact, that will further strengthen the entire CBD, whether it's North Sydney CBD or main island CBD. I think I'm fairly bullish in that sense.

Okay. Sorry, just last one for me, Tony. I understand during....

Derek, I think Jacqueline will just comment on a question of your...

Yes. Maybe just to elaborate for on your question on the major tenants that are expiring for 66G. So 2 of the major tenants expiring in the next 1 to 2 years, that's one that's expiring in December 2022. For that one, we are in discussion -- the vendor is already in discussions for renewal. Then the other one is expiring in November of 2023. So because it's going to end of 2023, they have not started discussions on it yet. So it's one in December 2022 and another one in November 2023. To correct myself because I previously said both were in -- towards the end of 2022. It's actually one at the end of 2022 and the other one at the end of 2023.

Okay. Got it. Just a last one. I'm just curious, your properties are rated NABERS star, I mean, fairly high in terms of the green rating. I'm just curious, is there opportunity for you to make this into a green MIT where you get a lower withholding tax?

Frankly speaking, we have not looked into that. It's something that we will consider. Thank you.

If we qualify, obviously, that is something we'll pursue. Yes.

Thank you, Derek. So on the MS Team, next, we have [ Gu La ] from [indiscernible].

Yes. I've got a couple of questions. I didn't really notice this was an interested party transaction, but you've not mentioned any EGM. So do you need an EGM for that? That's one. Okay. The second one is on the portfolio reconstitution because with this asset, you now have 33% in the malls. So is there any interest -- I mean you've expressed -- you've sort of expressed an interest in 79 Robinson Road. But if there have any interest in any of some suburban malls in Singapore such as -- I mean you could -- your ultimate shareholder is interested in acquiring Seletar, [ Wood B ] and a couple of more malls, several malls in Australia. I don't know whether that -- whether you would look at those. And the other question is, yes, the cost of debt. You said it's at 2.3%, but I noticed that capital REIT was only 1.97%. So I just wondered what's the maturity of your debt? I mean it's a little bit harder than that, but what is the maturity of this debt? And there's some talk that RBA may raise interest rates next year. So will your debt maturity sort of go over that bump? I think that's for the time -- yes, that's a budget for time being. Yes. And any updates on Galileo? Because I thought you said Commerzbank was exiting. Yes, that's it.

Yes. Quite a lot of question. EGM, no, it doesn't cross the threshold. Before, it's below the 3%. In fact, technically, even if -- we don't even need to announce. But I think for a good practice, we announced the deal, given that is -- yes, it's just good practice to announce the deal. So it's below. They're actually below the 3% threshold. The institution were interested in suburban malls? Yes, sure. I mean if there's an opportunity to look at it, I think we'll look at it. Singapore is our home turf, right? So we can look at whether it's office or retail. 79, yes, I did mention early. Then you talked about which one?

Interested in you said retail mall or would you -- I meant to ask also, so what sort of yields would you be prepared to look at those malls?

We can't comment on this. It's actually very deal specific. In term of how we analyze this transaction, of course, you can analyze the detail. Would that be area you can optimize? That will determine how you want to value add in eventuality that you will buy over, right? So I think we have to look at the transaction, specifically the underlying fundamental and what the opportunity that may be embedded in the transaction, not just the number perspective. So very hard to generalize what is the right new level to look at. Of course, cost of capital is important, so that's also one consideration. And then one other question, cost of debt. You talk of [indiscernible]. I pass to my CFO.

Okay. I think the other question that you had was why no EGM, right? We're acquiring the units in the trust. So -- and with that, it comes with the property project loans that is actually currently at the trust level. So on that basis, the amount of the purchase consideration is below the threshold for the EGM. And leading on to the question on borrowings costs, the project loans that we are acquiring over with the trust, in terms of the current -- the prevailing interest rate is actually closer to slightly below 2. But also in view of the fact that we are looking at, to be conservative, looking at the rising interest rate environment, we are considering the option of extending the interest rate swap on the loans. So that's where we had that, the [ extreme ] borrowing cost.

So we are conservative, I think, to answer your question, [ Gu La ]. The last question, you asked about Galileo. I think it's still in the works. Commerzbank is well known in the space. We are in different options. At the same time, looking at practically how to do it. We are not ready to share any details yet. When we are ready, certainly, we'll share the details here.

Yes. Thank you, Gu La. I would just ask a question from the webcast from [ Chin Gie ]. He's asking about how did the acquisition came about? Were we approached by the vendor or vice versa? And then do we typically engage the sponsor on the assets that we are interested in?

If I say it's by short funds, nobody will believe that. But certainly, we know that essentially capital lag. CRE actually is the shareholder of CRI [indiscernible]. So it's actually an early update. We know that in the past, they had a merger with Ascendas. That's where I think we recognize there's 2 Australian assets there. They were considering selling and we were also interested. So it was pure happen -- it just happened, right? There's a coincidence of interests, and hence, we talk on that. Yes.

Thank you. So on the call next, we have Nicholas from Credit Suisse.

Yes. Just one quick question from me. When I look at the accretion number that you have, does that assume that because the vendor bears the incentives that you're pretty much getting 100% of the face rents?

Yes, for -- until the end of the lease term, the vendor will be bearing the incentives. So that's built into the numbers. Yes.

Correct. So the existing -- takeover, yes, the vendor is bearing the incentive. So we take over from that.

Yes. Okay. And the incentive levels at this point in time, how high would they be?

Generally, based on what you read in the market, I think it's quite in line in the market in the range of 30s and thereabout, yes. And the incentive will move with time, I think over time depends on -- it got a little bit elevated last year because of the pandemic. I think somewhat stabilized as we understood, yes. And based on some of the new leases signed, it's going below the market incentive level, so-called market trend range.

Yes. So as new leases get signed -- of course, as new leases get signed, if we have the bad incentives, but of course, the market rents will also move up.

Correct.

Yes.

Thank you, Nicholas. I think on the call, we also have Xavier from Morningstar.

Just a question on the upcoming tech center in Sydney. Any concerns that you will add competition for tenants like drawing away from like, say, the last call North Sydney submarket? Especially for 100 Arthur, I kind of notice that the tenant mix is about 43% in IT, media and telco. And will you also be able to shed some light on where the anchor tenants move up to from 100 Arthur?

I think broadly, the tech center should bring -- uplift the entire precinct. I see not as a competition. I see as a uplifting of the entire precinct around the area. Similarly for the North Sydney, with a new addition of premium grade now, these are the ones that -- of course, the #1 tenant, these are premium grade. They are built completed and very well filled. Of course, they command premium kind of level of rent. You will actually give the entire -- you just lift up the time for the entire sub-precinct, I would say. So we do not think that as a key issue. Generally, I think what would be more important is whether where we see the -- might eventually of office space are going to come from -- or whether [indiscernible]. I think, again, our position is that I think most company, like what you're seeing in Singapore, will still deem office as very important. And the quality and location of office going forward is going to be even more important.

Okay. Then on the pricing front, it seems like the 100 Arthur is a bit expensive at 5.1% when compared to the 66 Goulburn at 5.4%. From [indiscernible] aside from the location where [indiscernible] CBD, CBD also has a higher occupancy. So if you'd be able to share some indication that they have to justify this pricing and valuation.

Actually, the market rent for both is probably about 5 point. If you take a market yield, both probably in the region of mid-5s. It's 5.1% because we just do a simple annualization, right, putting in the 6 months of first half of the income, plus there are a few other leases that were signed on subsequent until 30th of September. You just do the annualization, you sort of get 5.1%, yes, plus the office income support that comes in. But if you -- based on the market yield, it's actually -- it's about 5.4%, thereabout, right?

It's because we are using the first half annualized figure and then adjusting for it.

Okay. So this means the recessionary yield for the 100 Arthur might be a lot higher than the current 5.1% initially?

Yes, yes. Potentially, yes.

Okay. Then a quick question on the [indiscernible]. From the profit perspective, this is like the purchase price deduction. So does this mean that it will not really show through as distributable income for the first 12 months?

It will be. I mean there's no restriction. It's a net adjustment. But it's actually distributable from an income distribution perspective, yes. It's not capital in nature.

And also I want to ask a question on [indiscernible]. When was the last refurbishment and any plans to refurbish it in the upcoming 2 years?

I think progressively, like all our properties in Singapore, right, we will be refurbishing as and when like tenants move out and there's an opportunity. So for 100 A, of course, because of the 2 major tenants that move out, there was that opportunity. And so the vendor took the opportunity to spend that $17 million. For 66 G, I think it's been very stable. So only as and when tenants move out and there's an opportunity, we will look at it at appropriate time.

Yes. At the same modeling, we have assumed certain CapEx going forward in the next 10 years, yes.

So there are certain things which we will do, like we do for all our Singapore office buildings as well. Like if there's need for lift upgrading and things like that, those will always be done, yes, progressively.

Thanks, Xavier. I think related to that from [indiscernible] then in the chat, what is the expected CapEx, I think which -- I think you have mentioned briefly, especially for 100 Arthur Street to achieve 5-star NABERS energy rating. And his second question is, what is your rent escalation for the 2 assets?

On the 5-star NABERS, I think we are still working out the figures.

Yes. There's something -- I think one of the -- based on what the deal is, we understood why is 4.5% and not 5%, right, it's partly because also the vacancy, the high vacancy at that point in time resulted in the computation of energy efficiency is elevated. But once you fill up, I think that numerically, it will correct itself. But there are some other CapEx area that we are looking into to try to bump it up to 5%. I think it's quite achievable 5 star, yes.

And new rent escalation in the offices is about 3% to 4% per annum.

Thank you. And then we also have [ Bu Liong ] from the media.

[indiscernible]. Sorry, can you hear me? Sorry, can you hear me?

Yes.

Okay. Cool. Yes. I just want to ask the question is I understand that CapitaLand has invested in -- I mean presence in Australia through Australand back then and then they show the state in, I think, about 2014. So now you are going into entering this Australia or Sydney market. And so what is the difference in terms of approach now compared to back then? And then what has changes in this Sydney office market? And one last question is, going forward, how you -- why is the main growth -- where's the main growth sectors who will be supporting the Sydney office market? Like, for example, is it financial sectors? Or is it the technology sectors that you mentioned?

So I wouldn't want to comment also. I mean that's the market ship side, right, what they are doing. But bear in mind, it was a different sector. Australand, obviously, has mix, I think industrial logistics and I think housing as well. So it's a bit more like a CapitaLand equivalent in Australia. It's quite a different animal. So I wouldn't say what has changed. I think, of course, over time, maybe the market has changed. We think that Sydney office -- in fact, office sector, we think, continue to be important, notwithstanding the pandemic, whether this is in Australia, of course. Some city may be a bit more impacted than others. By January, we think that Sydney is good city to be in because it's really the financial hub of the entire Australia, the core driver. I think they account for, I think, more than, if I remember correctly, more 20% of the GDP, right? I do correct -- I may have to correct myself. I think it's a very significant contribution to the entire Australian CBD. So it's an important driver of economy. It will continue to be important. And hence, I think that's where we think the action will be among the different offices. It doesn't mean that other cities are less important. But in term of the significance, I think Sydney is going to be very key, yes. In term of where the growth will come, and tech is probably one of them, one area that I think there's a lot of emphasis. Some infrastructure has been built. I did mention about the largest infrastructure that was announced by Australian government, the transportation infrastructure, right, connecting across state the Sydney Metro is going to be the largest one. They need [ $1 billion ], which will link up the north section -- northwest section of Australia all the way to southwest. So that will -- that connectivity will greatly enhance, even -- potentially even capitalize the next level of growth from the central focal point in CBD as well. Because I think when the travel distance -- travel time reduce, the commute time reduce, I think that's where you get a lot of efficiency gain. So I think Australia will be an interesting market. Sydney, particularly, would be one of the beneficiary, yes. If you look at the history of Australia, in fact, they have always been the very blessed country. Never really had suffered a major, major kind of recession, I mean, notwithstanding the short one last year as a result of COVID-19. But otherwise, resource rich, very dynamic economy. Sydney, it's not a very big economy, but it is a good place to be.

I think just a few questions from the webcast. I think that's one question from Chuanyao from Schroders. He's asking that if we were to renew all leases today at spot rent and CICT has the internal incentives, what would be the net implied NPI yield on the acquisitions? Is it hypothetical?

Yes. We did not work on the number. I think, Chuanyao, we will have to come back with you. We will work up the number. We have to make a lot assumption where the tenant incentive is, assuming it stays constant. I mean, these are too many assumptions that we have to give it to you.

Okay. We'll get back to Chuanyao. And then the other question is, going forward, how do you see the portfolio breakdown level between integrated development, retail and office assets? This is from [ Chin Sie ].

We don't want to nail down numbers. I think the numbers will be more as a consequence. We'll see where it makes sense in different market cycle, and we will invest appropriately. And the outcome will be the split you will see thereafter. So you can't really put a number to it, yes. Today, by construct, it so happened that it's close to 1/3 each integrated development. If we have opportunity to redevelop something in Singapore, then, of course, the number will bump up a little bit. But it doesn't mean that we are not investing in other sector.

Okay. Then there's one question about aggregate leverage from Roland. Are there plans to lower CICT's leverage so as to have more headroom for future acquisitions?

Okay. In terms of capital structure, capital funding structure, I think, again, we -- obviously, we'll review our capital structure. It all depends on the market condition and where the opportunities are, whether we're investing in something. So I think this is a very, very -- I can only give you a general answer. Too many variables involved. Markets like there's investment opportunity, right? At this level, I don't think we are uncomfortable. It's a manageable level. Bear in mind that the leverage is also a function of your denominator, your asset value base, right? If you work your asset hard, you create value. Your denominator goes up naturally. Yourself solve some of the issues that you're looking at from a number perspective, yes. So we just have to do our job, make sure that we would set hard optimize as much as possible, create the value, you solve it yourself. When the market -- there's a good market of window opportunity, we review our capital structure. If it makes sense for us to take a little bit, we do that, yes.

Yes. I think like what CICT have done so far, I think we have divested 50% interest in One George Street. So these are also other options that we do explore to fund acquisition opportunities. So I think one more question from Simon of SCCM. When do we expect to see the completion date for this deal? And any update on the completion of the One George Street divestment?

I mentioned earlier, the -- this acquisition, it depends on the approval. We need to get the approval from FIRB. We expect some time in probably late Jan or maybe into February, essentially. Very much -- today is already first week of December. So I think it's sometime in the first quarter. Probably won't go beyond first quarter. Second one is?

One George Street divestment. I think we've announced...

Completion is around, yes, within this month. Pretty soon. Yes.

Okay. I think that's all I have.

We'll get a cash in. So funding this completion is not an issue.

Yes. So no other questions from the webcast. Are there any other questions from analysts on the MS Team and the media on the MS Team? Okay. If not, we thank everyone for taking the time to join us this morning, and have a good day.

Thank you.

Thank very much.

Thank you.