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

Good morning, ladies and gentlemen. A very warm welcome to CICT's First Half 2023 Financial Results Briefing. My name is Clarisse, and I'm from the CICT Investor Relations team. It's my pleasure to be our MC for today. CICT released our first half 2023 financial results this morning, and we are pleased to have our management team here to share the highlights with you. We will be starting off with a presentation by our CEO, Mr. Tony Tan, followed by a Question-and-Answer Session with our management team. I will be introducing them later. Before we start, please take note that this briefing is live, recorded and will be uploaded on our website later. Without further ado, let's welcome Tony on stage for his presentation.

Good morning. So it's a little bit formal, I don't know why, knowing this is not my difficult stuff. Thanks for coming. First thing in the morning, I think we released our results this morning. You probably have seen it a little bit of glimpse. I will not want to tell dwelt too much on the details. I think they probably have a lot of burning questions you have, given the diverse kind of probably what you see our radio released in the market against our peers, and hopefully, I will give you a little bit more insight into how we look at the business, which is more important from a forward-looking perspective. So I'll just give you some very quick high-level update. So overall, I think we held quite steadily first half. I think on the back of -- you probably know the reopenings after last year more intensively from April onward. So second quarter to second quarter comparison, naturally, you're comparing against a high base. So the first half, if you look at the first half result and the first quarter result, you've seen a little bit of tapering off in some of the numbers. But nevertheless, we were quite pleasantly surprised rather we were quite pleased that the momentum in second quarter seems to be holding quite okay against our earlier expectation to have a deeper decline given the macro outlook. So second quarter looks pretty decent, both from an operational level and also from a macro level, it looks like things are panning out not as bad as what some of the analysts or [ economists ] are painting the picture out there. But nevertheless, we know the headwind in the second half potentially can build up, but there also seems to be some sign of a little bit of green shoot, inflation seem to be peaking in many places. That's probably the key factor underpinning the performance of the REITs, and then for us, obviously, on the ground in Singapore and some of the market in overseas, we are also seeing a little bit of that impact coming through. So some high-level numbers. NPI 10.1% increase year-on-year against the moderation from first quarter. DI went up by 1.7%. So a lot of the distribution has been eaten away by interest costs largely and the DPU increased by 1.5%. Overall, we've seen the portfolio pretty resilient from an occupancy point of view across the board, both the retail and office assets we're seeing the occupancy creeping up. It's in a way, a manifestation of letting our confidence level hopefully coming back into the marketplace, against a backdrop of maybe 3 months to -- 3 months ago, where there seems to be a little bit more uncertainty. Tenant sales are also trending well. Very pleased that we have seen both downtown and suburban mall are picking up. Downtown [ mall ] -- naturally helped a little bit by the increase incrementally. We see more tourists coming back. Going back to office seems to have normalized, right, to a large extent. We've seen a little bit busy crowd nowadays downtown location. Suburban holding up pretty well against my earlier projection that I thought when the borders start reopening, we've seen a lot of probably outbound traveler, which we have seen a little bit, but it seems like the sales have been tracking quite nicely. So overall, I would say the outlook for retail office is well. We are a little bit cautious, but we think that there is a little bit of green shot coming up, hopefully, that will pan out through in the second half onwards. Yes. So the NPI, I mentioned earlier, so DI, I mentioned earlier, up by 1.7%. DPU is up by 1.5% against the last year, first half, lower base. Hopefully, second half will deliver a bit better numbers. We also since started to receive distribution coming from CapitaSpring. If you recall CapitaSpring, we leased up quite well, but there always been a little bit of a different timing gap. We begin to see no distribution coming back from CapitaSpring. Our overseas assets are starting to contribute albeit at a lower level than we hoped for, but I think they are starting to contribute. And obviously, the CapitaSky that we completed last year are going full stream, and it's trading very well. Overall, like I alluded to earlier, the portfolio number has been very encouraging. From an occupancy perspective, we creep up overall about -- from 96.2%, first quarter to 96.7%, about 0.5 point on the quarter-to-quarter movement. The total -- in fact, the rental reversion, we were quite pleased that we are able to extract a little bit more reversion out from both the retail and office, and as a result, you can see quite a nice uplift between the first quarter and the first half, rental reversion. And within the office and retail, quite diverse range. The retail side -- office side, we have seen a low of a 3-plus percent kind of reversion, depends on the expiring rent, right, to a high of [ 20% ], so that blended up into a -- about 6 point -- this office about 6-point-something percent. And retail, we're looking at a range of around 2% to up to about 31%. So it's quite a wide diverse range. But nevertheless, pretty healthy across the board. Shopper traffic momentum, I think we should expect the next second half probably will slow down a little bit given the higher base last year, but still a very decent shopper traffic we are seeing to the mall. Although it's already, in fact, higher than what we're seeing in probably slight close to almost 2019 level, not far away from 2019 level. And tenant sales, we'll continue to maintain, in fact, higher than pre-COVID. On overall portfolio-wise, it's about 8.3% higher than pre-COVID. Total borrowing were [ fixed of 78% ]. We have done some issuance, which I elaborated earlier later on. And now we have a very healthy maturity profile, 4.3 years left in the debt side. Yes. Just some colors, Clarke Quay, you hope to complete by latter part of fourth quarter, as in [ TOP ], progressively, as you visit -- if you do go down CQ periodically, you've seen some movement of tenants, some movement in terms of the hoarding, progressively, we will remove some hoardings. Hopefully, we can start to bring in some of the channels that we have pre-committed and start trading earlier. But gradually, we see a little bit more ramp up probably towards the later part of this year, where the about handover will happen. Yes. Raffles City has seen also quite a nice refreshment. We have done through quite a significant reposition of Raffles City. I would say, we are only at Phase 1 of the repositioning. Roughly 40% or plus-ish of our brand and target positioning has been achieved, and we're looking to look at the remaining about maintaining 25%, 30% of the tenancy that we need to do little bit adjustments. Nonetheless, I think the refresh in Raffles City, we are quite happy with it, and we've seen -- we brought a lot of our investors from overseas and as local as well, to explain to them what we are doing, what we were positioning Raffles City is where I think all most of them has been quite pleased with what they -- they see the outcome. Overseas assets, sorry. Yes. I think overseas, as I alluded to earlier seen a little bit of green shoot. We have ramped up a little bit on the occupancy for Sydney. It's gone up from first quarter 83.4%. Today, we are looking at 88.6%. The healthy take-up rate, for example, 66 Goulburn. Today, we're close to 96% committed. And we are working through some of the other asset plans. And we're seeing some interesting phenomena, which we tested in the market over there, and they seems to have a bit of preference for -- at least in this environment, where there's some level of uncertainty, pre-fitted up units seems to have a little bit of traction there. When you get a place well deck up, very conducive environment for their staff. And if they want to make their decision quick, I think they can come in quite quickly. So we thought that decision to do some fit up space was right, but we are trying out the other building as well. In Frankfurt, little bit of creep up in occupancy, largely from MAC. Last -- I think last quarter, we were looking at 94-ish percent. Today, we are 95.3%. So largely pulled up by the MAC, the airport office asset we have. All here will know that Gallileo will undergo AEI from January next year [ '24 ]. That will be the last day we get rent. February onward, there will be no rent. But we're also very pleased to say that we are actually in quite advanced discussion with a major tenant that would take up a large majority of the building. So hopefully, we can give a little bit more news, as we progress along. Financial wise, I don't -- I think I will dwell too much, maybe just a few points to note. So there are some plus and minuses, first half, second half, when looking at -- not generally from a trading perspective, at least for retail, the second half will typically perform a little bit better than the first half because of the seasonal factor. From an operational level, first half, we have seen the peak of our tariff rate, which is very high. We' [ locked in about 30 ] -- mid $0.30 come for second half and for 2024. It is quite a significant reduction of about 16% lower than we are locking. So we would have a little bit of savings, hopefully, if we continue to be very vigilant and make sure we manage the consumption carefully, there should be some savings on the utility side as well. You'll probably also know that we have -- we signed a new PMA, which took effect from 1st June. So there will be a little bit of adjustment potentially towards the end of the year. We look at some cost realignment based on the new PMA. Hopefully, we can see some savings as well. And lastly, because we also have locked in our interest costs, we issued a bond $400 million in June at 3.938%. That would take away some volatility in the short-term, which is very elevated. Today, you go to short-term market on a floating basis, you're probably looking at 4%, 4.5% easily -- easily 4.5%, but it depends on which tenant we're looking at. So hopefully, on the second half, we start to see a little bit better cash flow coming in. We have not touched our $40 million, which we take in the back from Australia, when we did the acquisition, we have not touching that. We try not to. If we need to supplement, we will do that. But ideally, we'll try not to touch it. We start to see some contribution, which I mentioned earlier from CapitaSpring hopefully that will improve and you can accelerate from second half and 2024 forward. So hopefully, we can get all this mitigating factor to buffer the Gallileo effect, right? So Gallileo effect, Gallileo is about 1.5%, 2% of our contribution. So thereabout right. So hopefully, that would be enough to cut buffer then. And with all the positive reversion that we are seeing, that should translate into better numbers going forward. Okay. This one I won't touch so much. I think you should know very well can analyze. Maybe just to give you a little bit of flavor, I think balance sheet side very healthy. Just now there was asked a question, some of the peers did the valuation. I think we did an internal exercise. We did assessment in consultation with valuer. In fact, overall, as a portfolio, we're seeing a very stable number. Singapore is very healthy. Little bit of downside risk from overseas asset, but we see how it goes for the rest of the year. But overall, as a portfolio, we think the number is pretty okay, I think holding quite well. But we are seeing a little bit of uplift in our NAV as well, and that's business result of a grant that we managed to receive from the government to sort of offset the cost of us building the underpass at Funan. So that goes into our balance sheet, and it's almost immediate accretion on NAV by [ $0.01 ] right. Okay. I have been quite active. No doubt in a very volatile interest rate environment, I remain, quite active on the capital management side. We did bond issue, I mentioned earlier. But also we've been very active in the cash management side. So trying to minimize as much as possible the unnecessary debt carried on our book. If you look at -- I mean, later, you can talk to Mei Lian, she should give a little bit more colors. But we have different tools in place that we can tap if you need to raise money. We have a [ CIP ] program in place. We have MTN program in place. We have more than enough bilateral bank relationship. In fact, we cover entire maturity for, in fact, I can jump little bit there, maturity for even 2024. So this year, we are done, right? 2024, technically, we are done because we have enough line. But we'll look at the opportune time, where we players want to start looking at a potential debt issues, hopefully, and maybe potentially we look at some kind of early prolongation. So we are in discussion with some financial institutions and see how things can move from there. But now, I must safely say, in an environment [indiscernible] and the next 6 months to 12 months, where everybody start guessing how the interest rate will look like. Of course, there are very diverse views in the marketplace. Active capital and interest rate management, I think, is key. The rest of sensitivity, I mean, these are no rocket sciences. It is actually the floating part. We will have about 22% of our floating rate. You measure that against any change in interest rate. That will be the impact you see here. Nothing else, I think this one, I mentioned before, I think, across the different subsectors, we are seeing increased occupancy, and we should potentially see as we walk through the remaining of the leases, and we started -- we start to also go into a 2024 lease expiry, you can potentially see improvement even from the current state, right? Okay. Let me just jump straight. Retail, I'll give you a little bit of flavor earlier. I think I don't want to say too much. The reversion numbers speak for itself. I think you've seen a little bit of narrowing of gap between the downtown sub, but nevertheless, very healthy. Again, it's a very diverse range of reversion number that I mentioned to you earlier. Yes. So this is something I don't think, I will detail too much. Something to note that, which we also took coverage, we've seen a bit of a shift. These are important because we track all this performance by trade cat very carefully because it affect the way you look at our asset planning going forward. Compared last quarter, this quarter, we've seen okay, actually largely the same asset, a big jump from improvement from the beauty and health. In the first quarter, we've seen a negative number. And beauty and health is our largest trade cat. So this one do well, you have some implication on the way we look at positioning that. So I think we are quite pleased that this sector has been seeing a nice uplift in the second quarter. Yes. Okay. This one I mentioned earlier. I think while we walked through Singapore, 96.6%, slightly below. In fact, it's slightly higher or flattish, but we are working through the remainder of leases. So you should see that coming through in the third quarter and fourth quarter on the occupancy side. Yes. Germany, I mentioned before, MAC effect and the Gallileo, as I mentioned before, we are working on potentially a single tenant taking a large majority of space. Yes. And Australia seen a little bit of a nice ramp up. Hopefully, we can achieve even higher occupancy by year-end. Overall, nothing much. I mean these are the -- our BAU. We constantly try to create new stuff. It's important. It's also a signal to the market that there's still confidence coming in the retail sector, some new -- new-to-market brand, we managed to bring into our property, both in downtown and suburban. I think that's very encouraging, and I must thank the -- our property management team. In fact, Chris, Chris is here, I mean, he's helping us on the retail side. His team are working very hard to make sure we differentiate ourselves from our competition. Okay. The rest, I won't touch so much. I think outlook-wise, all you analysts you know pretty much very well what we are seeing on the ground. Hopefully, that manifest in a real movement. I mentioned earlier, we've seen probably potentially a little bit of green shoot, hopefully, that -- that's real. In Sydney, for example, it's been busy. Our focus on our ground. People are coming back to the office more regularly now. The subway line, the train station are getting busy. A few assets we need to work on. Hopefully, we can transfer that into a high occupancy. The retail side in the Sydney asset, which is the one -- in the Greenwood Plaza that, I think that's probably going to take a little bit more time. We need some repositioning of that retail space. Location very prime connected to the subway line is no different from the Raffles Place. But I think we need to position it correctly. Currently, we're working alongside with our partner Mirvac to look at the plan. Yes. And in fact, there's going to be cross exchange, and hopefully, we can bring them over to Singapore. This is some of the things we are doing here. Germany side, I did mentioned earlier that is not as green, as what you see in some of the headlines. On the ground, it is very busy. We've seen some leasing momentum picking up, MAC, for example, some energy sector, some aviation sectors are starting to look at space again. In the midst of some tenants, who are looking at rightsizing, but all these are, I think it's a little bit of healthy movement going forward. And hopefully, with a little bit higher -- in fact, more very much elevated cost of capital, which we potentially would see in the past, always large development pipeline will slowly taper down because I think in the past, both in the Sydney market and in the German market, the low cost of capital has created quite a bit of a speculative kind of dividend activity. We think going forward that activity should taper down. Yes. I think value creation, no different. We have been doing that all the time. We continue to be very agile, looking at our portfolio. Earlier, I also had a question about when you acquire asset, let's say, $700 million and $800 million, then it became $700 million, I mean, to us, we are a long-term player, right? Valuation goes up and down and sometimes it's triggered by factors that are beyond your control. Interest rate, cap rate transaction and different markets look at valuation in a different way. But one key thing is if we position the asset right, I mean, that's the key fundamental driving value will come later. For us, critically, we need to make sure every of the assets will have the chance to run its full potential. And we keep pace to ensure that we're putting the necessary CapEx at the right time, not overly burdened on the portfolio in any particular year. So we try to keep pace at. But overall, we'd like to keep some dry powder for other works along the way. This will ensure that CICT will be able to deliver a resilient and consistent return, and that should translate over time a higher confidence on CICT as a very stable vehicle with growth, right? I mean that's ultimately our objective, highly liquid, stable vehicle, low risk premium. I think we can achieve that. We have a tremendous advantage over our peers. Yes. I think with that I'll stop here. Happy to take questions. And I'll invite my team members here, who has been very instrumental in getting all this execution, right?

Thanks, Tony. Now, I invite our management team on stage. Let me quickly introduce our panel today. Seated in the center, we have Tony. On Tony's right, we have Ms. Wong Mei Lian, our CFO. On Tony's left, we have our Head of Investment, Ms. Jacqueline Lee. And to the far left, we have Mr. Lee Yi Zhuan, our Head of Portfolio Management. Some quick housekeeping rules before we start. For our physical audience, please raise your hands if you have any questions. Please state your name and company. And we kindly ask that you limit to 2 questions per turn. If you have more questions, we also go back to you. For online audience, please feel free to join in by dropping your questions in the chat box. Okay, we can start the ball rolling. Can we have the first question?

Hi Tony, Mervin from JPMorgan. Yes. Congrats on the very strong rental reversions, it's accelerating. The rental reversions is based on fixed rents. Can we get a sense in terms of total rent increase, variable rents? Is it as strong or slightly lower and guidance for the second half? The second question is in regards to electricity costs. You made a comment about 16% decline. Is that half-on-half or dropped towards 2024?

Yes. Lee Zhuan, you want to address the rental -- GTO rent.

Hi. Okay. I wasn't expecting it to start. But -- but yes, I think I don't have the number off hand on actual percentage of site. But I'll say that actually the GTO has been improving. I think first half has been pretty strong also. So I think the revision in the total rent, including of sales would be also pretty strong. Yes.

From the rent structure perspective, in the course of the last 12 months to 18 months, we have gradually shifted more to a normalized level. It means those that in the past, we have granted a bit more concession or a bit of restructuring of the leases, most of them were gone back to the normal way. So the usual closer to where the market rent is, and then with a little bit of adjustment depending on how we look at the trade, whether we want to participate a little bit upside or participate less than upside. Yes. So those are more tactical. But overall, if you look at -- I think there's a slight look at the range of the turnover rent across our portfolio-wise from -- it is Slide 24, [ 5% to 17%. ]. So it's still a wide range. It's a reflection of different malls are quite differentiated.

And I think, Mervin has a second question on the electrical tariffs.

It's second half against first half. 2024 is still higher -- is still higher than 2022. 2022 was $0.20 -- I think it was $0.20, if I recall correct, it was $0.24. Now we are more like the high $0.28, $0.29, yes. The same rate. Probably around [Technical Difficulty] 32:12 sense around that. Yes. Every day, different. The FX and the brand, yes.

Yes.

This is Tan, Xuan here from Goldman. First question is on Gallileo. Is there any CapEx and also the 18 months, does that take into account rent free? Can you also comment on rent of the new tenant versus outgoing tenant?

It's still under discussion. So there are some confidentiality. It's an uplift in the rent, obviously. 18 months, no, that's a period, where the landlord will undertake that upgrade. So that period is not a lease commencement. So we anticipate lease commencement by middle of 2025. Yes.

What about the CapEx?

We are still working through the details. There will be quite a bit of CapEx required because there will be the base building that we need to upgrade because that building was built more than, I think, almost 20 years ago. So some of the equipment, although it's functioning well, but it's not at that level, where the new occupier demand. These days, I think they're looking at a very high-grade green building. So we are putting quite a fair bit of attention to that upgrading. And that to us is very defensive because you want to protect the value of the property on a forward basis, you have to do the work today and that will value will come in. I think the market will potentially recognize that because there's already a clear differentiation on what occupier want. So we are bringing the building up to the best standard over there, yes.

My second question is on second half focus, right? Now that operating metrics are moving across most assets, are you still focusing on existing operations or more acquisition divest in the second half?

I think we look at everything, right? That's why we have a full team here. We have investment and portfolio focus. It's not -- it's not -- we don't sit still. I mean, constantly, we are -- definitely need to ensure that our assets perform well. And there's no sitting back and relax. I mean it's very dynamic especially you look at -- in term of office we have a lot of things to do, office assets, some of the assets. When you look at the range of legacy of the assets, right? It's quite wide, as new as one year, 2-year old, and as old as probably 20-plus years. So I think we do have to pan out our work and make that plan in a logical way. We don't want to drag the earning excessively in any particular year. So we have to pan out the plan. So there are a lot of work for the portfolio folks. And I mean, it's not doing nothing. Every plan depend on the scale or the work we require, right? Full monty, complete [indiscernible] of the current planning, it probably take years. [indiscernible] lock in [indiscernible] agree on what the ultimate product you want to reproduce. Along the way, there are a lot of negotiation and you've got to look at the timing of how do you want to call tender as well. So a lot of work is needed to a simple repositioning aside that will be ongoing. I mean, we have both downtown and suburban asset that we need to respond because consumer are -- I mean, their behavior has changed. Obviously, after COVID, I think a lot of things have changed, but the consumer behavior definitely has changed, and we need to take that into consideration. Yes. So asset management actively and then of course the -- look at the full development side. That investment is part and parcel really just [indiscernible] at a certain year, we may have to see whether there are rare opportunities surface, and how it can fit into our whole portfolio, what comes in, is there something you need to let go. So it's part and parcel of portfolio reconstitution exercise that we do on an ongoing basis. So we don't keep our radar down. Although we may keep our radar, but it doesn't mean that we are going to go do something, but definitely we need to keep track what's happening in the market.

Can we have Brandon?

David.

Okay. David.

This is David from Daiwa. Can you remind us again, how you recognize government grant income for the Funan walkway? It seems like you're saying it improves your NAV, but it also seems like it's negative for your DPU. So can you just go through the accounting for this?

I'll pass to Mei Lian to explain. There's no impact to GPU. Yes.

The -- this grant is recognized under other income in the income statement, and this is actually cleared with the auditor's KPMG, and that's a requirement given that the grant is in relation to Funan, which is actually a fair value. In terms of DPU impact, there is no DPU impact because this is actually cash that is not generated from operations, and it will not be distributed to unitholders, but we used to defer the cost that we've spent in the building of the underground pass.

Just to clarify, so you've recognized like $34 million of other income, but you have to remove that from the distribution because it's not going to be distributed yes, is that.

Yes.

Because the money is spent on the construction. And at the time, you look at Funan redevelopment, it's the old totality, the plan, including building the underground passageway, the link, and then we can seek reimbursement from the authority. But the cost will not be -- no, actually it's fully completed. Yes.

My follow-up question is with regard to Raffles City Mall. Now that you have more visibility as to the committed passing rent post AEI, what is the magnitude of the uplift compared with when it was -- when Robinson was still a tenant, I mean, how much uplift are you going to enjoy?

Earlier, I did mention, but later, I can pass to Lee Zhuan, who'll give you a little bit more color. Earlier I mentioned, I think we did a little bit about close to 40% of the repositioning exercise. A large part is in the old Robinson space, where we did some movement, right? So there are moving parts that contribute in income growth a different way. But there are still areas, we are not completely done yet. I can't name because it's sensitive. But generally, I think we are looking at another potential 25% to 30% change in the tenant type, yes. So I think the full impact will probably know in the next -- probably another 12 months to 18 months, hope. Yes. But it is higher. Yes. That and don't forget the hotel also has been doing very well overall. Hotel benefited from the entire repositioning exercise as well. Hospitality, I mean, is opposite -- on the trail now, right. So that -- I think that's also been quite a nice contributor.

Can I have the next question?

Good morning, Tony. Brandon from Citi. Just to follow up on the portfolio reconsideration question, right? But you mentioned about these legacy assets, are you talking more about just tenant remixing or redevelopment. And when you talk about redevelopment, is there a certain size that you're looking at? I mean, if you look at next year, right, we have the expiry of the 2 government incentive schemes. Are you looking to take advantage of that before the exercise?

Lee Zhuan, do you want to take that?

Yes. Okay. Maybe when we talk about the redevelopment schemes, right, those will take probably longer than something that we can do next year or something. Definitely, we are starting a couple of options. But if you talk a time line rise, right, it will be a few years away. We are aware that some of the schemes that the government has been looking at like the SDI as well as the CBD incentive schemes, right? Some of them are expiring soon. But I think some of the -- at the end of the day our view is that when you take a look at what the government is trying to achieve have they actually reached our objectives right? We don't think so. So some of these things, we do expect some of these schemes probably -- we look at how they probably extend or actually relook at some of the schemes. But at the end of the day, it's really looking at the scheme itself, right, whether the incentives that we get, does it actually fit into the kind of things that we want to do for assets, right? And maybe on the basis, we will study, yes. So it's not something that in 2024, we certainly see that there is no redevelopment coming through. Yes.

Yes. And then second question is about tenant sales. I think if you look at first half, it seems to have slowed maybe comparing second quarter to first quarter. So going to second half, if we see Chinese tourism remaining where they are, do you think this could be a -- this could be any concern for you?

Yes. Okay. Maybe I'll start with. So for tenant sales, right, for the second half of the year, of course, hopefully, we think that actually the Chinese tourists coming through with the reopening, if you're off to a slow start. But I think if you look at STB's view as far as our own internal, we've increased flight capacity and what not in the second half of the year, hopefully, we see more of these Chinese tourists coming. They are still actually quite a fraction of our pre-COVID [indiscernible]. So I think that's a -- plenty of room to grow. We also see F1 and also a whole series of kind of things like you own the concerts, right, everybody talking about concerts, none of these, right? Those should help to drive a lot more tourism to Singapore. So I think retail wise, the retail sales price in the second half year should have some kind of momentum that would still carry through. Yes.

Just one last one on Gallileo again, right? During the 18 months, should we be expecting some more of income support on capital gain sale?

Too early to say. Yes. Too early to say. I mean, we have some levers. But I think at this point, we are not going to comment anything yet. Yes.

Thanks, Brandon. Can we have the next question? Derek?

Hi there. Morgan Stanley. Just a question on, yes, acquisitions. Looking at the yield spread environment, still very elevated, will you be more keen on growing the listed platform like a REIT or kind of private real estate?

We keep option open. I mean, the spread is one consideration. Of course, it's a spread depending on the underlying passing rate, and where are the potential. And then we look at the interest rate and environment, the cost of capital, I mean, it's moving right or obviously, is hopefully trending in the right direction. So that's one factor we look at it from a -- purely from a financial point of view. Platform, not easy, block platform typically is not easy. But if they are something interesting, we -- I don't think we will rule out. Like I say, we don't keep our eyes shut. We may look at it, but we may go in. So we just have to see the merits of the transaction. Yes.

I know you mentioned, you talk to your valuers internally that the overseas portfolio seems to be some -- there could be some launches and rental revisions. Could you just elaborate a bit more on how much movement there could be?

Lee Zhuan, you do that.

Yes. Well, I think if we kind of take a look across the expansion in cap rates in some of the -- like Australia, right, especially when some of our peers valuation is also in Australia itself, we think that probably you -- we can expect kind of like maybe like single, mid-single kind of downside in terms of valuation. But I think that at any go back to how the whole portfolio is right, overseas is only 7% of the overall portfolio, right? So actually, it's -- and on proper level is not going to be very material. Yes. I think it's something it's manageable. Of course, it's very hard to say that on a full year basis, how this number will pan out because at the end of the day, it's also dependent on in Australia slightly what kind of transactions we see in the market, right? Currently, there's not a lot of it. But when some of these come through, how we actually the buyer and seller kind of price needs, right? We probably have -- they would then have an impact on the valuation. So I think we don't want to kind of read too much into it and how it will go into year-end, but definitely, we do expect some of the -- it to come off a little bit for the overseas. But again, I go back to the overall portfolio. I don't think it will materially change, as the overall portfolio.

Just a follow-up. How much capital expansion in Australia [indiscernible]?

I think right now, if we see some of -- if I'm not wrong, we see around like [ 0.5 ] plus minus percent. Yes. But I would say that even if -- even when I looked at our December '22 kind of assumptions, right, our cap rate usually is a little bit on the more conservative side, I think. So there's a lot of -- so I would say that even we saw the expansion, hopefully, it will not be as extreme as ones we see in our competitors.

I think that it's for both Australia and Germany.

Yes. This is for both Australia and Germany.

Thanks, Tony. Sorry, Chua, go ahead just now.

Good morning, Tony. I'm Rachel from DBS. A few questions from me. I think firstly, I think you're a bit cautious in terms of your outlook for office in the second half of the year. I'm just wondering whether is there any cause of concern, anything just coming up, shadow space building up and expected rent in the second half of the year?

Yes. Okay. So I think for the reason why we are kind of cautiously optimistic -- cautious the second half for office, right? I think fundamentally 2 parts, right? One is the shadow space, broadly speaking. And also in the second half of the year, we expect a major competition in the market. So that will kind of put a little bit of -- do you think that, that may temper kind of a bit of the rent that we will see. Because right now, if I'm not mistaken, IOI is currently around 40-plus minus kind of percentage commitment. But I would say that in the midterm, right, in terms of the limited supply, right? At the end of the day, we do think that there's still some legs in terms of how rental can still grow. But I -- going touching on the shadow space perspective, I think that if you look on the consultancy, we bought the shadow space actually has come down a little bit. And even though we are seeing numbers ranging from like [ mid-300s to about 500s ], right, be only about half of it is confident CV deal. So I would say that is it something that we are overly concerned, I would say no. It's just something that we thought that it may kind of limit the kind of rental growth we might see in the second half? Because on top that, there's also a little bit of uncertainty in terms of the broader economies, right? And I think some of the tenants have also instead of looking at relocation at this point because of high CapEx, a lot of them are looking at renewals.

Just maybe follow up, shadow space on your portfolio? Is it easing?

Actually, shadow space in our portfolio is really quite immaterial. Right now, I think we do have one that is kind of backfilled already. We already find a replacement tenant. And in fact, some of our shadow space when we find replacement tenants, right, we probably can get a full rental upside there. So it's not too bad, yes.

I think the -- based on current mood, the sweet spot demand for space is smaller. So it depends on the buildings configuration. And then, you may or may not be able to cater the current needs. So in our portfolio, a couple of assets may be time to tackle the kind of space, 5,000, 10,000 kind of square feet area that we can tap into. But large space occupier, I think at the moment, I think it probably would face a bit more challenge from those shadow space, where then when we release the space in the market, you release by floor right, 3, 4 floors in the market. So those large space occupiers looking to backfill would probably take a longer time. Yes.

My next question is on tenant sales. Happy to see that the gap between your downturn, your suburban is closing. But just maybe on more forward looking, do you expect that the gap between the downtown is suburban to really close to be similar to drive up? Or do you feel that the increase in tenant sales moving forward will be largely driven by the suburban?

If you look at trending-wise right, trending-wise, last year, second half downtown flat, right, suburban itself flat, I mean trading along, so you can see the kind of year-on-year effect come into play this year. While we think that downtown would start to see more traction from the inbound traffic coming in that high base on last year will probably be a so-called softener vis-a-vis suburban, where it's a little bit more moderated. So I mean, purely from a year-on-year comparison, that's the way. But from a momentum perspective, I think downtown is picking up okay because all these events coming up, the inbound travel are coming in. So I think on a sequential basis, it should be okay.

Sorry, just take one more question. In terms of acquisition and divestment. Do you think the market is ready for you to look at acquisition and divestments in each market?

If you look at deals out there, there are a lot of deals out there right, is whether the expectation has met. Still a bit not easy. I think the price expectation between what we observe in the market, the asking and the -- what the market want, the buyer prepared to pay, I think it's still a little bit of gap. And that last year is a function of broader economy outlook not very certain, which is already a factor of how the entire interest rate environment should shape up, right? So all this has got to do with the cost of capital, whether availability cost of capital out there and it's all intertwined. So we -- that capitulation can come very quickly, right? When that signal in the market is very strong, now foresee the capitulation very fast, yes, is where I think the buy side of the world will meet. Yes. I think there's a little bit of still gap in the market.

Thanks, Rachel. Turning to the online audience. I'd like to pass on to Mei Peng, who is also our Head of Investor Relations, to share the questions, Mei Peng.

Thanks. So I'm combining a couple of questions. So Denver and [indiscernible] are asking about Gallileo. During the 18 months when property is undergoing AEI, what will be the impact on DPU is the first question. And the other question we received from Denver again. Office rents eased in -- expected to ease in the 2 half 2023. What about the future of the office market, any impacts from work from home?

Mei Lian, you want to take the Gallileo, the DI impact.

Yes. The DI impact from Gallileo on a stabilized basis is about $10 million a year.

$10 million against our -- I think, DI is about $700-plus million.

Yes.

Yes. So it's quite small.

Very small, yes.

Yes. Any interest rate savings will be more than enough to cover that 1% move, it's $22 million right. Yes. Second question is more the office market, you want to take it.

Particularly on work from home, I think it kind of largely stabilized this year, right around like a lot of companies are actually saying that it's going to be hybrid rather than a full remote, usually around 3 days to 4 days in office. So I think that will kind of support -- if actually, I would say that more and more companies are actually hoping that actually the staff come back to office more than ever. So in terms of how this actually pans out, I think it's a good support for office demand going forward. We don't expect slightly -- in fact [indiscernible] maybe able to share like looking at the first half of the year, right, on a portfolio -- Singapore portfolio basis, we actually see more expansion requirement and downsize requirement both in terms of the number of tenants as well as the amount of space. So I think there's a good sign of how things will come in the second half and even going beyond the second half. Utilization rate, I think right now, it's sort of around about 70%. I think office return rate is kind of stabilized. Hopefully, this will kind of picked up, but we don't think it will ever go back to the pre-pandemic times. The interesting thing also is then that because of how people are like now working a little bit on the home, some of these things, when people work from home actually helps to support our suburban kind of retail. So in a way, kind of what we lose in the office side, it kind of help benefit our suburban malls. So I would say that by and large, I think work from home is quite convenient.

Can I have the next question from the floor?

Maybe Jack can give a little bit of color how the investment market looking at this space or office space. Yes.

Maybe in terms of work from home and also like flight to quality, right, that we are seeing these days. So from an investment point of view, we believe that if the asset is well located and of a quality asset, those assets will still be able to hold in terms of valuation and will still be sought after. So I think -- and as Tan mentioned work from home is also beginning to kind of stabilize.

Thanks, Jack. We have the next question from Donald.

Hi. This is Donald from Bank of America. A couple of questions. First is on your Singapore office occupancy. On a Q-o-Q basis, there are some movements, notably from Asia Square, CapitaGreen and Capital Tower, would you comment on occupancy movements piece and which tenants?

Lee Zhuan, you want to.

Okay. Yes. So for AST 2, we saw some movement in the sense that one of our tenants [indiscernible] space kind of like released back to us so. So the kind of AST 2 number came off. Similarly, I think one of the tenants in Capital Tower was also the lease kind of lapsed. So it kind of -- they kind of come back -- sorry, we see a temporary drop in terms of the occupancy numbers. I think that was the kind of concern that we may have. But for -- I would say that we are actually quite kind of renewed. Across the portfolio, we have seen some pretty strong renewals. We renewed some of our key tenants in both CG, RCT, for instance. And I would say that there's actually a couple of deals, right, that we are working on that will help to bring back the CG numbers and the AST 2 numbers.

And earlier, you mentioned that you're seeing more expansion requirements than downsizing, which industries are expanding?

Okay. Roughly, we will still see like a lot of those are like asset management, banking, financial services.

Okay. So [indiscernible] office. For your Australia 66 Goulburn, on your spec sheets they are doing, what's the leasing CapEx that you're incurring? And what's the impact on your cash rents?

Sorry. I -- at this moment, I don't have the CapEx number of hands, probably, I'll come back to you on that. Yes.

Sure. My last question is acquisitions. Tony, do you think your cost of capital now is conducive for acquisitions? And if you were to buy anything today, is it more like in Singapore, U.K., or Australia -- Europe or Australia?

So the cost of capital, I think, I earlier alluded that this is a bit of a buyer-seller days, I think that's still a reflection of what I feel in the marketplace. But certainly, the -- from both on the debt and equity side, it has improved compared to 6 months ago. Yes. Which market we keep options open. I think ideally, we still want to build our base in Singapore, as much as possible, this is our home market. It doesn't mean that it has to be an outright acquisition, it can be an outright portfolio expansion, development that those are also building your presence here by entrenching your positioning stronger and growing the asset size that would give you that competitive advantage. So I think we continue to do that. From an inorganic, there is outright or getting from third party, I think we have options. We'll find the right moment. We do have pipeline from our own sponsor. We have the call option for the CapitaSpring, which we can look to see when we should exercise if you want to exercise it. Then we see what's available in the market, which I say there's plentiful there, out there, just the expectation, I think is still a bit okay.

Okay. I think we have a couple more questions from the online audience, Mei Peng.

This question from Derek, DBS. Can management provide some insights into the occupancy cost for the retail malls. Are we still able to have positive rent reversion given ongoing business cost pressures and also whether retailers are generally profitable is the first question. The other question also retail related is from [indiscernible] unitholder. It's about CQ@Clarke Quay. CQ@Clarke Quay, what is the CapEx cost and projected rate of return. Also, what is CQ's current occupancy -- committed occupancy for CQ? 2 questions.

Yi Zhuan, do you want to take that?

Well, for Clarke Quay right now, the kind of commitment rates that we are getting is around 85% plus minus around that. We expect the commitment numbers to come up a little bit closer towards the completion of the AEI, where retailers they can see better what we are trying to achieve. Yes.

I think pertain to the first question, the rent occupancy costs, I think we are -- my view is, we are still in a pretty healthy range with about 16.8% OCE. In a normal time period, I would say, we are in a very, very comfortable position. That means we see quite a fair bit of upside in terms of adjustment based on purely from an occupancy cost perspective. They meet the threshold for different subsectors in the retail space. There will should be some room. But the second question posed, I think, is correct because second question is whether the profitability of the retailer will be threatened? We are still assessing. I think at the moment, the honest truth is that the retailer themselves are making some adjustment and we've seen some price elevated, which is transmitted to CPI. I mean, all these numbers are historical numbers and stay elevated, right? So to -- my view is that I think a lot of retailer has been passing on the cost to the consumer, and consumer has been able to absorb because there you see the tenancies are all rebounding quite strongly. But where is that sweet spot? Would they be able to continue to pass on that cost. I think we are probably near the end than at the beginning. We probably could see a little bit of potential upside from rents. It depends on trade to trade, right, tenant to tenant. But importantly, I think we need to posture correct because for the right tenant, we are prepared to take a little bit of position, which we did continue to see throughout the whole entire COVID period. For the right tenant, for the right positioning to bring in, then we may want to participate a little bit more on the upside. That's where I think to us, the more important is the total rent and that's where we want to drive the GTO component. So it's a bit of a tactical strategy that is required going forward. But safe to say, we are still trying to see what is the post-pandemic acceptable occupancy costs for the different subject. It varies from, I think sector to sector, the subject, sector to sector. And totally, we find there's a lot of profit gearing, along the entire supply chain, right? So which part of the supply chain is creaming up the most. If we begin to see evidence in the market when all the big corporate companies start to announce their results, right, who are making the big bucks, you probably will know, who are the one that's creaming off the most now. But at the end of the entire supply chain is the retailer and the retailer meeting the consumer, I mean that's the endpoint. That part I think will some time to figure out. But I don't think we are in the pain point. We probably see still some upside in terms of possibility of rent passing on. But of course, we want to be very cognizant of how we want to do it. It has to be very tactical, yes. We answered that question online, right.

Can we have the next question from Joy. Joy From HSBC. 2 questions. First, if we go back to Gallileo, so post CapEx, can we expect a green sort of certificate for that building? And was that driven from management? Or was that driven from the demand perspective?

It's definitely going to be pretty green. I think it's not quite green out there. I think I did allude to you to a large extent is occupier demand. But also, we need to ensure beyond this AEI and be even beyond, assuming we mentioned signing on this tenant, right? Beyond that tenure, we need to be able to sustain the value. And the only way to do it is to get your specs to where the market is. So for me, it's a little bit defensive as well to get that building up to a stage, where even after 5 years to 10 years down the road, we will know that this building will always be on the top of the mind. Yes. I think, you want to add to.

Yes. We just let go -- the green -- yes, green rating for the asset for Gallileo would really be up. And I think it's in line with what tenants generally in the Frankfurt market is looking at in the flight to quality and also when they are looking for their spaces.

And if you look at your portfolio, what percentage of the portfolio -- office portfolio still needs a green sort of CapEx or defensive CapEx?

Well, I would say that generally -- it's not specific to say any building in particular. Of course, there's a few buildings. Now currently, if you look at the green market ratings like this -- like green market goal or something, based on the new standard and this standard will keep increasing, right? This year, would just keep improving increasing standard of [ FEMA ] we always have to keep investing in green CapEx. I will say that in CapEx will kind of set out roughly an average over the next 3 years, about 40% of the overall CapEx that we spend in the portfolio.

And then second question is on hotel. So I guess you mentioned that hotel contributes to part of the growth in RC. Are the rates above pre-COVID? And I remember you restructured the lease. So post restructuring, do you still get sort of above pre-quarter rental from your properties?

It's higher than pre-COVID. We can't give you detail, it is confidential. We structured essentially quite in line what we did for some of the retail trades where we participate on the turnover rent, and then there will be step up along the way. So the touchpoint where to bring down and what percentage we would charge is a function of the projection. Is agreed upon and where do you think the growth -- how the growth trajectory will look like in 2022 -- that was 2020 and where the recovery is coming from, right? So when we did the restructuring in 2020, we came to a position virtually that this is the growth that was acceptable, and I think we have reached that goal. So I can say, overall, that's been more beneficial than first -- the last lending point of where the fixed rent is -- and the floating rent -- the floating rent, especially the floating rent higher than it used to be. So the better they trade, we get even more. So we are seeing that trajectory coming through now. Because the RevPAR is way above what we have projected, yes.

Do you have the next question? Nothing.

I got a question just on street portfolio, you've seen pickup occupancy. Are you able to disclose what the [indiscernible] rents at? The incentives that you have had to provide...

For Australia, the rents are pretty much in line with market. And from this end, this is around 35%, averaging roughly around there. And probably just to touch on it a little bit, I think just now we talked also about fitted out space, right? I think the fitted out space that we did at, [indiscernible] 66G, you have too many buildings for stability. For 66G, the fitted out space, the CapEx we spend actually is part of TI that, the 35% plus minus currency item we are giving out.

In terms of portfolio mix, given office is a negative carry based on spot borrowing costs, looks a bit more challenged or at least more cautious. Is it time to give it more towards retail for the next few years? When you -- I mean, there is still demand for [ 29 ] properties, which you do have [ carried ]. So just some thoughts on whether it's right time to pivot towards retail, given the [indiscernible].

On Slide 13. Actually, today, retail is a larger component in our portfolio. If you look at that, it's already larger 53%. So in terms of composition, retail is marginally ahead of the office in totality, and office is split by CBD, non-CBD and then of course, overseas. So I mean, that will give you a little bit of sensing number. Negative carry, I assume you're referring to Singapore, right? Singapore is about 33%. It's not at county level. I think we'll see -- we'll see how things will shape up from there. But at the moment, I think we are quite happy with the composition. It's not negative carry, because the yield on a passing basis is probably close to 4% for some of the assets.

Do we have any other questions?

This is Terence from UBS. So your guidance for Singapore office is for moderating rent growth. Just want to ask how this would translate to your outlook for Singapore office rental reversions? Because I see that your expiring rents are about $11.12 per square foot. But if I'm not wrong, the new buildings are calling for still a much higher asking price?

So for the office right, I think right now this first half year, the positive reversion of 9.6%. Probably will come off a little bit come year-end, but we still expect to be funding the positive territory. Yes, I think the expiry of rents show that with the gap to CBRE's market right now for [indiscernible] for the second quarter, it does give us a little bit of comfort and buffer in terms of the renegotiation and to get a positive rent reversion all of those. Yes. I think the -- it's because I think we do have some cases in the second quarter, some of the deals we are seeing very strong reversion that kind of push this up. I don't know we can still get that kind of 20%, 40% of reversion for some of these rent on a low base, right. In terms of 12%, these rents may not come true in the second half. That's why I think the rent reversion will moderate a little bit.

Yes. So a couple of deals we work on. I think hopefully, we can get it on the signing page. When those spaces are vacant for a long time. So compared to the long-time vacant space in the current -- I think it's a nice uplift. I mean, you're looking at a strong double-digit kind of uplift. But that would not be reported in the relation, because typically for too long vacant period, we don't report rent reversion. So that may not come true. But what he tried alluding is that, we're clocking quite nice -- quite pretty strong reversion. What we are negotiating now. Overall, maybe it was just trend down a little bit, but still probably in a pretty healthy kind of range.

And for Singapore Downtown Retail, I think you spoke about the momentum continuing in the second half tailwinds of the reopening. But I think you also alluded to how there could be a high base effect, maybe some of these rents that we are seeing in the first half, it's coming off from a low base, [ signing ] COVID. So between the 2, how do we then form our expectations of your downtown retail reversions in the second half?

So I just want to correct you, it's not the base effect arising from the rent last year, it's more the trading, the sales momentum last year strong, right? But for the same tenant, they could be trading for a couple of years, right? So 2023, some tenants that were signed in 2020 or at least renegotiated on a 2020 basis, maybe up for renewal, some were for through 2024. And those, you probably can see a little bit of lift from there. Whether you'll be on a blended basis -- still on like a 7% plus kind of we're looking at, hard to say because it depends on case to case. I mentioned the range of reversion is very wide. No retail as strong as 30% specific to that unit or it can be 3.5%. And then if you look at it on a weighted average, that's what we mentioned is, on a weighted average basis, the number -- kind of a prediction. But January, momentum-wise, you can take away the fact that 2023, '24, some of that [indiscernible] are signed during the 2020-2021 period, a couple of them. And then some of them are even longer pre-COVID, may or may not be restructured, right, depending on how well they sustain through the entire COVID period. So it's going to be quite a noisy number. But what we report is as always, a blended basis. But within that, you can see a wide range.

Can we have the next question? Krishna?

Yes. Just wanted to squeeze something on the -- on your liability side. So you have about $1.5 billion of debt for maturity. Can you give some color on where are the interest costs? And if you assume same thing, that is the currency mix, the maturity and your hedging, then how much it will go up? That's the first question. And second question is on your F&B operation. I think you did mention that there is a strong demand from that. If you can give some color on what's the typical lease period for the operators? And also I mean this F&B -- just pure F&B operators, just to ensure because I think they do see there some of commingling right, issues et cetera, and also some [ copy ]. So I just wanted to ensure that this is just pure F&B and not even the commingling space also has not improved, side of things. So can you give just some comment on that side?

Okay. The first question, if we assume the current interest rate environment, current interest rate level stays [indiscernible]. Of the 2024 debt, we'll be looking at an increase of about 0.4% to 0.5% overall. So that will contribute to, say, overall portfolio costs of closer to the mid-3 levels, we're currently at 3.2.

So your question on F&B specific, is there something that you really want to know, so that I can...

Just -- in my own observation that when I walk around the mall, so there is quite a bit of churn there can be -- one comes in, one goes out. May be the same operator, having coming up with a different sort of cost. So when the cost is not on our side, the cost is on the other side, [ yet to come off traditional costs ]. So just wanted to know that is it the same operator coming, or is there a different operator coming then -- is quite short?

It's a mix of both. We do have multi-label operator who kind of have a portfolio of different brands and different product type catered for a different market segment. And if the market changed, it could be the same operator who will change [indiscernible] at the end of expiry. Because I mean, there will be some shelf life at the end. So then more evergreen one may take a longer time, but certainly -- so the F&B concept will come a point in time where they need to refresh. Refresh, also from a look and feel perspective, they need to do that refresh -- higher positioning of the mall. I mean there's a discussion point we need to have with them. Like, for example, we discussed it in our renewal with [indiscernible], perhaps the portfolio would prefer this brand coming. So we will have to talk with them. So it's a combination. But certainly, we always want to try to bring also exciting new ones in the market, which is -- I know I mentioned a few names that we try it out. It's a hit and miss. Sometimes you hit it, you get it right. They have a leg to run for a while, and then we populate right, the portfolio. And [indiscernible] all over the place, and you see the sales are coming down. I mean this kind of pattern we've seen many, many times in different cycles, right? It is a quite part of a life cycle of any kind of retailer, whether it's F&B or non-F&B, which we have to manage actively. I mean that's part of the asset management we talk about. Constant, adjusting to the consumer preference, and they will change over time. But today, you go to Raffles City, there's a new donut in the marketplace, I mean there always long queue. I don't know how long you last. If you ask me, will it be another 2 years?

Just wondering if you feel that you are being overexposed to F&B?

No. I think as the percentage of the NLA, they are the largest contributor now, around 35% of the revenue comes from F&B. Occupying about less than 30% of the space. So they are overproducing from an income point of view perspective, right? So I think that's a good thing. But from a space allocation, it is not excessive, less than 30%. It varies from mall to mall. And within the F&B, it's wide spectrum, right? You've got the fast food restaurant, you've got the take away, you've got the casual dining, you have got the main Western Cuisine, Chinese cuisine. So it's a whole lease of brand potential mix that you can see in different assets. Some are more relevant than others. Downtown you would be maybe slightly different from [ South Bend ]. In [ South Bend ] even then certain trade may be even more important than [indiscernible]. So it is a bit of a curated kind of -- not just F&B alone. F&B, obviously, you have to curate quite well, but the other asset subsector, retail subsector, I think we need to curate quite carefully as well, yes. So to your point, I don't think it's excessive at this point in time. Then for example, Clarke Quay, we'll always be quite heavy on F&B, because it's especially unique, right? But most of the mall, I think we are okay.

I just want to see -- wanted to know a bit more looking in the medium term. Your MTN is I think 50% of your equity base. If the interest rate environment stays there, do you think that, that comes down and you may want to establish more bilateral facilities?

Yes. I think we will continue to diversify our funding sources, not just around on the banking sector. Cap markets is actually a very important source of capital for us. And I think we would anticipate a good mix of MTN and bank loans going forward.

Yes. This will be a flight to quality, flight to safety from a lender perspective, whether it's a financial institution or the debt capital market side. So you can see quite clear, right. So we think that's quite encouraging. We also got information from Moody's, that they actually raise it up to stable. But we also know that it is not a job done today. We have to stay static. We constantly ensure -- because when you look at the overall confidence level on why the lenders are prepared to lend to us, this cash flow, right? Your ability to reposition yourself quickly, your market leadership position, your access of capital. Sometimes, the irony is that you have assessed the capital, even though you're on an elevated leverage, right, because your ability to assess the capital, gives the agency that confidence. Then ultimately, we need to have always this ready credit facility in place, and it costs money to get the ready credit in place. That to us is also a bit of credit enhancement. So we pay a little bit of commitment fee, but actually carry a little bit of credit enhancement. So it's important to look at it [indiscernible]. So while we try to be agile, try to get different capital source and that is fine over time. But there are a few of the key fundamental things we work on; cash flow, make sure your insurance is there, right? You've got your base insurance, assess the market at the right time, create that desire to invest in us, where we'll be okay.

Thank you, Krishna. I think in the interest of time, we shall take one last question, probably from -- online?

Yes. Okay. I think this is a question from 2 online viewers [indiscernible]. They're asking about whether we have any plans to reduce our aggregate leverage? And then whether CICT has any target [indiscernible]?

Yes, over time, yes. I think we are -- in retrospect, when you look at -- it's all about the state of the -- where the cost of capital is right. Pre-COVID, we changed in the interest rate era where we are at this level, we are very, very comfortable. In fact, we were more comfortable to work our assets very hard at a certain leverage level, when your costs are -- the cost of debt goes at this level, then you got just with the rest of our spec. So it's quite dynamic. Today, we are looking at maybe 3.5% to 4% kind of range in terms of managing costs versus in the past, it 2.5% to 3%. So it is actually a step-up ready. So we just got to adjust the appropriate level of gearing. When the interest rate environment changed, we didn't have to adjust; because ultimately, we are -- we are undertaking that stewardship function of capital, make sure that our balance sheet work hard for all stakeholders, whether it's equity investment and the investors. So we have to make sure that we don't want to have a lazy balance sheet, right? I mean, ultimately, investors want to see us ensuring that whatever money, whether it's on the debt side or capital side, we work hard to ensure that assets perform and deliver to all the stakeholders. So we have to makeover that with time. Given opportunity -- the right opportunity, we may want to do a way of deleveraging maybe. But the way to do it, I think we have to be very smart about it and very tactical, what is the world best way to do it. Sometimes making sure your portfolio performed itself creates the valuation uplift, solve the problem. They could be as easy as that, right? But of course, it's not so easy, we've got to work them, to ensure that our asset performed on a portfolio-wide basis. Then you get a sufficient value share uplift, then you self-solve the valuation and the cash flow start coming in. The other form is, inorganically, there's an opportunity, you look at it. It could be monetization. We have done that. Portfolio reconstitution, we do that. You know we divest some, we invest some, at the same time. We do a little bit equity fundraising. Or we look at joint venture partners, if you can afford to do any kind of organic transaction on our own. So we just have to deploy the various tools or avenues available for us to look into it, to reach a stage, where the market is confident enough, the debt side is confident enough to ensure that CRCT can function as a smooth visionary. And that's important, right? Ultimately, REIT is about managing our portfolio of assets and also managing our capital. We just have to blend these 2 in an efficient way.

Okay. One last question from [ Gula ].

Thanks for presentation and Q&A. So for Galileo, will there be any more decline in valuation? Or both of that, let's look ahead at your higher rentals if you manage to sign your new tenant? And give you a stable valuation while you're doing the AEI before -- in 8 months and tenant comes in, cap rates, not incentive?

Well, I would say that, first, if you compare to December too, definitely having the -- assuming some of these rental does come through, right, it strengthen everything, it should help the valuation. But I will say that, we do expect the valuation still to come off a little bit because of the broader market.

So I can just add on the valuation. We can't predict how the valuation number -- because it's a function of discount rate they use. The discount rate you use is a function of where the interest in market is. It also is a function of where the market transaction happened. It's also a function of the underlying passing rent. It's also a function of the underlying credit risk, right? So if we are able to get it all right, then I think at least confidently, we say that we should be able to protect the value, right? But against all these different variables, very hard to predict how the future number will look like. It can go up and down in the course of the next 1, 2 years. It can go down, it can go up. It all depends on how the market views the underlying credit risk, what the commercial term we sign on? And then the underlying credit risk would have potential implication on your terminal yield, right, your cap rate, the so-called cap rate at the terminal yield level, and the discount rate also will be affected. So they're all intertwined. So at this point in time, we cannot really comment anything beyond that. What we can say is that, when we undertake that CapEx, of course, there will be a progressive kind of drawdown of payment. Purely from a cash flow this year basis, if the value you have to look at this year, it will be a negative outflow in early stage before the income come in purely on that. But with the passage of time when most of the CapEx has been incurred and paid, the ones left coming in is your income -- net income. So you can imagine the trajectory of the potential valuation movement. It can may go down then gradually, as you are close to handover, potentially it could go up again. So I can't give a number to it, but certainly, everything -- if you can confirm and secure that the tenant that we are talking, then it's definitely a good confidence booster from a value protection point of view, yes. Solid credit. Higher than last year.

Thank you for the questions. Okay. I think just to quickly wrap up, CICT has [indiscernible] results, think about proactive portfolio management and our prudent capital management. Thank you for joining us at this briefing today. Feel free to reach out to us if you have any further questions. Thank you, and have a nice day.

Thanks a lot.