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

Good morning, ladies and gentlemen. Welcome to CapitaLand Integrated Commercial Trust or CICT's FY 2023 Results Briefing. We are hosting this event live from our office at Capital Tower. Since this is a new year, we have also decided to try something new. So instead of a formal presentation, we will be having sort of a question and answer with the management team of CICT. Please feel free to give us feedback how you find the session, and we will be glad to improve. So the sequence of the -- so the discussion we also may not follow the flow of the presentation that's uploaded on SGXNet, but largely, the contents are there. So before we kick off the session, I'm pleased to introduce the panel starting from our CEO, Mr. Tony Tan, and on Tony's left is Ms. Jacqueline Lee, our Head of Investment. And on Jacqueline's left is Mr. Lee Yi Zhuan, our Head of Portfolio Management. And on Tony's right is Ms. Wong Mei Lian, our Chief Financial Officer; and I'm Mei Peng, the Head of Investor Relations. So to start off, we are also pleased to invite Tony to give us some of the context and performance of CICT's financial results. Tony, please?

Thank you, Mei Peng, and good morning, everyone, and good morning, those online. I think most of you agree 2023 has not been an easy year. It's also not the year that we had expected, again, in 2022 with the China reopening and hence, there's a lot of heightened expectation of a full recovery in 2023. But obviously, what we witnessed is a series of things that went the other direction. We have a series of very aggressive central bank rate hike started from the first quarter. And hence, to a large extent, I think, has affected a lot of market volatility and economic uncertainty. So that's a little bit of backdrop. But to put in context, FY '23, we were actually positioned quite well with some of the portfolio reconstitution that we have done in 2021. And hence, you see the full effect coming in, in 2023. So the financial result is, to a large extent, reflection of the completion of the acquisition that we did in 2022 and hence, 2023, you see that delta in numbers. But having said that, I think, operationally, we're also very laser-focused on given things were moving quite rapidly during the year, focus on a few things. First is revenue. We need to protect our revenue. And one way to do that is to really, really go all out quite early in our lease expiry to ensure we lock in our rental as quickly as possible. That's exactly what we did. Secure the rent the tenant we want. And hence, you see across the portfolio, we have a very high level of retention and a good nice reversion as well. Secondly is cost management. Extremely important to ensure we manage the costs carefully. And we're fortunate that in 2023 versus 2022, one of the highest cost was naturally the utility cost, and we managed to get a lower rate in the second half. So you see a second half improvement in basically the margin for the reduced OpEx. At the same time, we also restructured our property management agreement to get stronger alignment between the REIT as asset owner and the property manager. So what that entails is the typical arrangement with the property manager is that the REIT actually carry some cost. So in the revised property management agreement, we are structured such that a certain element of the cost is specifically the manpower cost relating to leasing is taken away, and we compensate the property manager on a transaction basis. So they close the deal, they get paid commission. So in a way, there's a bit of more closer alignment in terms of where the revenue generation and cost incurrence. So in the long run, I think we should see the benefit even clearer. So we have been cautiously trying to focus this, too. And hence, you see the 12th-year. Naturally, obviously, we had a benefit in the first half of 2023, a lower base in 2022, we've seen a big ramp-up and gradually taper down in second half. And as a result, all these active work, you see our operating metrics has been very stable. Portfolio occupancy has gone up 97.3%. versus last year, beginning of the year. Valuation has gone up as a result of very strong operational improvement. The rental rate has achieved higher than what we expected. We also started to look at costs. Cost minimization in the REIT perspective by looking at where relevant certain building, the costs required restructure and hence, certain costs will be passed on to the, basically, occupier. So we adjusted service charge during the year as well. So all this cumulated into a very healthy kind of operational number. So this will really be a backdrop of the financial number. In the short term, this is what I've been doing in 2023. But in the mid- to longer term, in fact, during the year, we have started to think about where the new revenue stream is going to come through. With the completion of Clarke Quay in November this year and should be fully ramped up by -- hopefully, by second quarter, then we have started thinking about where is the new source of income stream. And hence, we announced that we are going to do an upgrade on IMM to reposition IMM stronger as a key regional outlet mall, not just in Singapore, hopefully, around the region as well. So that story hopefully could carry through as we start to do the work along the way. And as of now, we are very pleased that even we have -- even started the work at IMM, we have already secured 70% of the precommitment in the AEI space. So that's a series of work that we are planning ahead. In the slightly longer term, we also -- and this is also in the back of everyone's mind -- including some of you that we were talking earlier about what we're going to do with Gallileo. We started to embark on a, I would say, fairly defenses to ring-fence the asset so that we can protect the value for a longer period of time. If you recall, Gallileo was built for own use. Historically, it's owned by a bank built for themselves. Subsequently, it was divested to a different owner and eventually CICT bought over. So that building is construct not for a general multi-office letting kind of environment. So we want to do that correction so that in eventuality, whichever prospective tenant that we prospect out, we can survive the next 5 to 10 years. We don't have to worry about a single tenant exposure because the building is built for own use. So that is something that we are working on. And naturally, a few things that will come along the way as we completed the Australian acquisition, we knew that there are certain gaps we need to fill, and we started the planning, the necessary upgrade in the field of our assets, and hopefully, you get some traction. Again, that will bring the additional revenue source. So if you look at the long runway, we have crossed 2023 quite successfully. We entered into '24, few work to be done. And hopefully, once that clarity along the way in 2024, you probably can see even '25, '26, where will be the potential new revenue stream will start coming in, right? So those are critically important for us to manage. So that's a little bit of backdrop. The other thing that is -- so this is all at the asset level. At the financing level, we are also very laser focus on making sure we manage the interest expense. I think later on, Mei Lian will elaborate a little bit more. So one of key priorities: very active cash management. Active cash management active -- so I tell a lot of our folks, it's not like 2 years ago. Today, money is very expensive. It's no longer cheap to hold money. So we need to make sure that we get the cash in as quickly as possible and minimize any unnecessary kind of loan on the balance sheet. That, effectively, will bring down your average cost of debt. So you can see our average cost of debt has creeped up a little bit 10 basis points despite the heavy load that we are carrying. So I think that's, in a way, a manifestation of very active cash management, active deployment of cash efficiently. At the same time, looking at different instruments that we are able to tap to get the different source of financing. So hopefully, we will definitely continue to do that in 2024, and hopefully, we can deliver surprises for you guys. Yes.

Okay. We just have a couple of slides that we -- definitely for unitholders out there who will be interested to learn, which is that our distribution for the second half 2023, it's $0.0545. So this will actually be paid out in March. So please look out for the details. So now maybe we move on to the next section on the valuation. So I think, Tony, would you like to share a bit about some of the thoughts about what we have actually achieved for valuation.

Yes. So probably you can see from the slides, right? So Singapore has been naturally the champion, has been the strong performer in our portfolio. Today, contribute more than 93% of our portfolio proposition. And the natural strong underpinning on this valuation uplift -- strong underpinning reasons is, obviously, the operational improvement that we have seen with the strong rental reversion and high occupancy. So that, in fact, cut across the -- all the asset segment within our portfolio. We've seen a little bit downdraft in the overseas asset, largely driven by expansion of cap rate, particularly for example, Australia, it's been a very transactional market where the cap rates we transacted at a lower -- in fact, a more expanded cap rate. And for Germany, it's factored by essentially a terminal cap. Terminal cap has gone up. and hence, overall valuation has came down, yes. So I mean, in short, of course, there are a variety of reasons from geopolitics, political tension in Europe as well as the economic winners in Australia are seeing, and these are fundamental reasons that are affecting and a highly interest rate environment as well.

Thanks, Tony. So maybe now moving on to our debt maturity profile. Okay. Yes. So probably a question for Mei Lian. So given that CICT, we have about $1.5 billion of debt that's coming due in '24. So what are we thinking in terms of managing this debt financing?

$1.5 billion, about $540 million is debt that is book at CapitaSpring JV level. So there are plans to refinance the loan for another 2 to 3 years. And of the $1 billion -- of the $1.5 billion, $1 billion is on CICT's books. So we'll be looking to refinance, but of course, in terms of our available committed facilities that we have on hand, actually, we have sufficient lines to actually repay these loans, but we'll be looking to refinance it possibly with tapping the bond market to lengthen the debt maturity profile.

And are there any foreign currency debt within this 2024 financing?

They are mainly in Sing dollars. Yes.

Okay. And also, since we are seeing on the capital management, will there -- should we expect any changes to CICT's capital management strategy in 2024?

Overall, I think our capital management strategy has helped us well. Notwithstanding the market uncertainty, we continue to have good access to loans and debt capital markets with our strong financial position. And so this enabled us to achieve the optimal funding costs and our desire debt maturity profile. And also on interest rate, we've kept more than 70% of our debt on fixed rates to mitigate interest rate volatility. And on funding the overseas investment, we have adopted natural hedge that allowed us to mitigate the FX volatility on the balance sheet.

Okay. I think that's good to hear. And then, I guess, a question that most want to know would be what is our outlook of our average cost of debt by the end of 2024?

We don't have a crystal ball. So I can make the assumption that under this current market condition, we're not expecting further rate hikes. But as to the question of when rate cuts will come, it's quite uncertain now, possibly in the second half. So if we assume the current interest rate levels, we'll be looking at overall debt costs in the -- around the mid-3% range. Yes.

Thank you. So now we move on to our portfolio. I think this slide we have here shows the high occupancy of our portfolio. So there's a question for Yi Zhuan. So given our -- are you satisfied with the current portfolio metrics? Are there things that you wish to do more?

Credit to the team, delivered a good set of operating metrics this year. And I say that, generally, as a portfolio, we have very good quality and resilient assets. That's located in a new transportation hub in [ very bustling bikes ]. So the intention and objective for us is really to continue on this resilience to have that diversification in our asset types across the retail and office as well as to achieve high committed rates and then to keep our lease -- average lease expiry at above 3 years. I think there's a level that we are very comfortable at. Yes.

And then also whether -- are there any major risks that we should expect in 2024?

I think the first thing will then be, definitely the question is leasing risk, right? I think we are proactively managing this leasing risk. In fact, actually, in the last quarter, we have actually assigned more than 400,000 square feet of new leases across both your retail and office, which is actually quite a good performance for year-end. Considering a lot of people actually go overseas, right? And so we are already in talks a lot of the tenants that are due in the first half of 2024. So on top of mind, I think there's now Tony kind of mentioned is that Gallileo, right, with the [ Cobar exit ] even though we have shared that the work will take at least about 18 months, we are already in advanced negotiation with a prospective tenant.

So we have a nice uplift in terms of rental reversion for our retail portfolio. So are we expecting a similar trend for this 2024 lease expiries?

Yes. So if we look at our numbers, for the total, which we actually got a positive reversion of 8.5%. And I said that with limited availability of prime spaces in Singapore, right, then if you look at it also, we also see very good demand from retailers. In fact, actually, when we got a lot of interest coming from F&B or beauty and health as well as your fashion, both from local and overseas brands, I think this will help to achieve sustained momentum of positive reversion, not too far, hopefully.

And on the operating metrics, which you have shared a bit on the tenant sales per square foot and the shopper traffic.

Well, tenant sales on a full year basis, we show positive numbers, as you can see. Of course, there's a little bit of pressure come in the fourth quarter. I think tenant sales was not as clearly year-on-year sharp increase, but the uplift and driven by the such a tourism arrival over the full year plus the heightened local consumption actually help to give a Y-o-Y number. Looking ahead, I think that there might be some challenges when it comes from downward pressure in terms of retail sales from the economic uncertainty and GST hike potentially. So it's really for us to really work very closely with our retailers to drive more programs to create more programs to actually help to drive sales and traffic into our malls. And just to add on this, I think -- so trade categories across [indiscernible] probably [indiscernible]. I think if you look at the side across the [ 3 ] categories, they showed quite a good improvement. And -- but we also have to take note that potentially in 2024, we might still challenges such as manpower shortages and your higher operating cost for retailers will continue to persist. So I think it's a little more like ours so probably will create better retail offerings and then to really try and build on that more experiences for our shoppers and our retailers.

Okay. So also moving now to the office side. But are there any opportunities that we can see in the office portfolio?

For office portfolio, I would say the year-on-year occupancy we -- it shows a good improvement, and across all the different geographies as well. And for Singapore, I think the strong rental reversion was very good to see. In fact, the last quarter was a little bit better than I kind of expected. We continue to see good interest levels coming through from the wealth and asset management, your financial services, legal and even your flex-space operators. On a full year basis, actually, there was more net expansion rather than downsizing. So I will say that for 2024 looking forward, potentially, when I see a volatility in your CBD kind of vacancy as well as your secondary stock with the completion of [ IOI ]. But if we look at it in the mid-term, we are quite comfortable in the sense that we have limited supply and then the flight to quality and flight to [indiscernible] that will actually play in and benefit our portfolio a little bit.

I think how about the overseas office?

Overseas, I think, for Sydney, the challenge for leasing side as well as to elevate that kind of incentives will continue the persist for 2024. Well, the CBD side -- Sydney core CBD is actually having a bit of a bright spot last year. And going forward, the submarkets will probably still be a bit challenge for 2024, especially North Sydney is one of those. So definitely, we are going to continue on that occupancy that we see and how to -- how do we do that, it's really trying to inject some of the new product offerings as well as services that we do. Later, we will probably spare a little bit more. One of the expiries that we have [ 100 after ] a major exit was actually [ we are actually back to ] a big part of it with Gallagher which was signed up this year.

Yes. I think I saw the news. Yes, so I think the -- since we talk through the portfolio and all, I think now we are at the value creation things that we have shared. But I think Tony touched on this earlier that about our AEI plans for this year. So is there any of the 3 AEIs that we would want to highlight to share a bit more details?

Probably, yes. Probably, I'll share more. So I think last year, a lot of questions about what are we going to do when CQ is completed, and we say we are actually doing a few studies across different spectrum of projects. So we are happy to share 3 of those for a total 4. So we are quite fair. We do one in each geography, so they're -- everybody busy. So for Singapore, we start building this $48 million upgrading. A big part of the focus is really to refresh and rejuvenate that ground floor, where we will try to introduce even more outlet stores to really kind of strengthen its position as outlet mall. On top of that, we will also try to rightsize the supermarket, improve their circulation and also the facilities and amenities to actually elevate the whole shopping experience. So there's actually [ opportunities ]. This whole project will take probably all the way until next year, but it will carry out in 4 phases. So the first phase of it will start this quarter and then it will probably end by the end of this quarter. So even then, the mall is still operating, so please still continue to visit the mall. Yes. So for Germany, I think we have mentioned quite a fair bit of it. So this is something that, along the way when we have more details, we will be happy to share more, but this is a project that we really probably have to do. And the last one will be -- or North Sydney. As I mentioned just earlier, right, I think this whole return to office is an encouraging trend that we see actually in Sydney. There's actually an increasing return to office. I think a lot of companies realize that the past 2 years was a little bit sub optimal in the productivity. So they've been trying to get people back. Of course, the core city is the one that is seeing a little bit more of that. I think that is actually quite good, but eventually we hope that it will actually go to the rest of the submarkets. But we have to be proactive about this. And what we want to differentiate our properties in North Sydney is that on top of just the traditional office. Last year, we actually introduced flex in all our offices in Sydney. And then this year what we are going to do is that we're going to upgrade the 101 Miller, there's this upgrading that we are going to the main lobby, where we actually activate a communal space. We'll actually provide a better arrival experience and also to actually create a more seamless access between the [ Vivo Plaza Mall ] together with the office itself. So this will achieve improved the kind of connectivity at a wider precinct level. And the meeting rooms, all these will also help to provide tenants with a little bit more offering in their attempts. We want to support their attempts to actually bring their employees back to office. And similarly, we are doing something similar at [indiscernible] with TWP. So the lobby that we do that's meeting rooms and the ground lobby, there's also this activation and community that we are doing in the project.

Yes. Thanks, Yi Zhuan, for sharing about the portfolio. So I think now it's timely that we will invite Jacqueline, our Head of Investments. Yes, Jacqueline, maybe you can share about the investment market that we are seeing.

So with inflation is beginning to ease, we see interest rates looking like they may have peaked has been in an increase in interest in the investment market in the second half of the year. You may recall that in the first half, it was really very quiet. But the interest has been returning more to like the Singapore and Australian markets. Germany remains very, very quiet. The flight-to-quality team remains. So for the SG market, I think you will recall that in the first half, most of the transactions were like shop houses and strata offices. But in the second half of '23, we began to see larger deals being announced in both the office and the retail markets. The pricing was stable and also reflected, therefore, in valuations. Cap rates remain relatively unchanged. In the Australia market on the other hand, also in the first half, the deals were small and activity was low, but in the second half there was more activity and larger deals being announced both in the office and retail markets. But in Australia, I think we saw more discounting. And so as a result of that, cap rates also expanded and then it affected valuations. Germany remained very, very quiet throughout the year. There were hardly any transactions. And even when there were, they were like mostly below $50 million in size. So I think in the German market because they have come from a period of very low interest rates, the market is still trying to find the right level. So there is a very huge gap between the expectations of buyers and sellers. And therefore, we see it kind of like a [ deep blocked ] and hardly any transactions happening. But I think the good thing is that rentals are still holding up in Frankfurt.

Yes, I think the next natural question is, so looking across all these geographies, what would be CICT's focus?

So I think CICT's focus will still be on Singapore predominantly.

Thank you. So after hearing from the panelists, we will now open the session to Q&A. [Operator Instructions]. So we have the first question from Mervin.

Mervin from JPMorgan. Thanks for the format. This saves us asking a lot of questions given that you already addressed a lot of them. The first question I have is in terms of top process, around the DRP. You've addressed investor concerns with gearing below 40. Why go ahead with the DRP? And then obviously, there's press reports of CICT potentially selling 3 properties as well. So maybe some thoughts around that. On the retail side, you have very strong rental reversion, congrats on that. Fourth quarter seems to be a bit slow. Maybe you can help us quantify the year-on-year growth and your thoughts about occupancy costs for full year FY '23. How does that compare? Remind us how much -- how does that compare against FY, pre-COVID levels? How much harder it get pushed?

Yes. Thanks, Mervin. Yes, the question I can answer, maybe will drop a little bit on the DRP. I think we always have this tool available for us to -- it's quite impossible to capital management tool. And given where we are trading this, I think it's quite fair to allow investors the choice where they want to redeploy the capital back to our stocks, right? And hence, at the same time, we can conserve a little bit of cash. Yes, the valuations came down last year to a lot of effort from our team on the ground to manage the operation. 39.9% is something which is manageable, ideally. I think I've addressed before. Ideally, over time, we'd like to bring down the gearing to reflect a different interest rate scenario. In interest rate era, 39.9% is good, but a little bit lower would be better. Yes. Second question, the one that you read on the news. Generally, we don't comment [ on those ]. Yes. But it's actually not unusual for us to engage the market. And from time to time, we get people who speak to us and see why we can open up the dialogue. Sometimes you lead to some kind of commercial deals, sometimes investment. So the question you asked is part and parcel getting the dialogue in. And in a way, it's a manifestation of the interest coming back in the investment market which is very important with liquidity to come back so that the real estate market overall can drive growth.

The third question is on the retail performance.

Do you want to talk about it?

For the rent reversion is a very low double-digit for the portfolio. And it's across all 3 -- across both suburban as well as downtown.

Questions on tenant sales.

Tenant sales is marginally down. It actually reflects...

November was weak. December was better, but still down on a year-on-year but very much overall. I think occupancy costs remain healthy. Today, we end the year about 16.3%, which is really healthy. And then that is the portfolio, right? With suburban and downtown naturally will be different. Suburban you can say, easily in the mid-teens, slightly higher on the downtown, but still below 20%. So I think we're in a healthy range.

Yes, Joy?

Joy from HSBC. So 2 questions from me. First, just following up on the investment divestment. I think you mentioned there's a narrowing gap [indiscernible] in Singapore and Australia. What sort of return do you want to achieve when it comes to divestment? How do you think about divestments in terms of pricing? And what are the sort of bids or comfort level are you sort of expecting?

I can give us a little bit of color, maybe Jacqueline can help chip in. We don't look at divestment in isolation. For us, it's part and parcel of our portfolio reconstitution. So it's about -- if we do have to monetize some assets, naturally next in our mind is how you're going to deploy. So that's an entire equation. And then depending on deployment and depending on time of deployment, that may, to some extent, also affect our decision-making. So in isolation, very hard to tell you, sorry. But naturally, we want it to -- I think most of you have seen in the transaction market that happened is above valuation, so it's not unexpected for us to expect any kind of monetization about our valuation. Yes.

And that includes Australia as well after the write-down now? So you are comfortable to achieve...

At this point in time, I think we have some work to do in Australia. I think Yi Zhuan has mentioned some enhancements. I think I talked about it at the beginning, some gaps between what our assets are offering and what is in the market there. So we are trying to fill the gaps. To a large extent, we're buying ourselves time because the return to office is coming back. Stronger in the core CBD. But even within the CBD itself, the core CBD is not a uniform phenomenon. Certain pockets are very vibrant. I think we know that there's certain element that's important in the CBD environment. Just take lessons from Singapore. CBD environment is just purely on offering a workspace solution without surrounding amenities upgrading. That's going to be more difficult to happen. So one of the challenges for North Sydney is that regeneration of activity hasn't really crystallized yet in a fast pace. It started with the infrastructure work with [ the Victoria Station ] which is coming on June. I think they are operational soon. That would, as a first step, narrowed the travel distance between suburb and CBD, so that's an important step. Second is what makes North Sydney more interesting? So there is a few elements to play. I think naturally, we have worked very closely on the Sydney house -- North Sydney house to look at placemaking. And to do that, we need to get our asset available in a position where we can take advantage. So the upgrade that Yi Zhuan mentioned, the lobby interfacing with the outdoor space. There's a perfect location for placemaking, and we're doing that now. Yes.

My second question on Gallileo. Can you update on the tenant potential leasing that you're looking at? And also as you go through this CapEx process, if market opens up, will you still be able to sell during your CapEx period, light construction?

Okay. So we are seeing discussion, very advanced discussion actually with a single or -- largely a single tenant for large majority of the building. I mean you've seen the deliberate drop on occupancy because we do have some retail, which you need to clearing up for the [ upgrade work ]. So we -- hopefully, we can update a little bit more when we cross the line, but it's quite advanced. In terms of the CapEx work, I think we elaborated a little bit, it's really ring-fencing. Whether can sell, I think we will have to assess at a point in time. If you cross the line with a single, then you get a certainty of good long-term cash flow. It may be in -- time maybe in our hand better to look at the divestment if we ever happen to think about divestment, the timing.

Thank you. I think Rachel has a question.

Thanks for this new format. Congrats on a strong result. So a few questions from me. Just following up on the potential asset divestments, right? I mean, Jacqueline, you mentioned there's more interest. In an article, there was one asset each from each asset class. So I'm just wondering what kind of interest are you seeing that's coming through who are the buyers? What sort of buyers are there? And which asset class sort of get a bit more interest.

So we cannot comment on rumors, but if you're asking about the general market, then in the second half of the year, there has been interest returning. And from the transactions that we have -- that have been announced, it has been in retail as well as office. Obviously, retail because it trades at a higher yield will be easier for numbers to work. But I think whether people buy retail office really is quite asset specific because it depends on the location, the asset attributes and what value they think they can add when they do the purchase.

Maybe I can just add the set of fare in the market [ intentionally ] is better compared to, let's say, 6 months ago. It is in a way reflection of better risk appetite. Seen a couple of transactions in the different segment from strata shop lots to strata floor to retail, sizable retail transaction. And the more reason why it's a big office transaction, the -- one of the challenges in the general global environment from a real estate perspective is where the private equity are deploying. And a lot of them are doing through internal rationalization, right? So over the last [ 6 months ] nothing happened at all. Beginning to see some interest on private equity as well. So I think it'll start coming back over time. We just need to see transaction happening.

Sounds good. Next question is, I think you talk about, ideally, you want to pay down gearing. What kind of level of gearing levels would be ideal for you?

I will say the 37%, 38% account level will give us sufficient enough flexibility to do a lot of things even to any kind of opportunistic transaction if there's any in the market. Yes.

Sounds good. Just one last question. Just on the reversions for office, I think you have already done quite a bit on the FY '24 lease expiry. So what kind of reversions are you expecting for office?

Full year basis, probably we hope that we can get somewhere in the mid-singles, hopefully.

Thank you. Thank you, Rachel. I think in front. [ Shane ]?

First question is on Gallileo, right? The AEI, it's actually quite sizable. What kind of rental uplift should we be expecting? And is the AEI actually accretive to DPU?

I answered the first part of it, and I have to be careful [ what I share ]. Also, if you look at the -- we will definitely expect rental uplift for certain. How much of this is really subject to finalizing some negotiations if we do secure. The work is really quite extensive because a lot of the MEP and the HVAC systems, for instance, is really a little bit old. This an understatement, in fact. So actually, a lot of work has to be done in that respect.

I can give a little bit more color. It's definitely a strong reversion from the outgoing. And the question is, of course, we need to fund the debt. The value at the moment is going to be funded, how we're going to fund it that will mean whether there will be a net positive carry. So that's something that we're actively managing.

Second question is on deployment. Can you talk a bit more about within both CLI and CLD portfolio, what do you think is more attractive at this moment?

I think Jack mentioned -- alluded before, right, depends on the trading yield of that segment on a [ real estate ] segment. Currently, retail is still higher than office, and you have seen on the transaction. So from a pure number perspective, it looks like more retail is in a way more accretive from that angle. But having said that, I think we will look at it closely when the time comes.

Thank you. Can I go to Yew Kiang, please.

Yew Kiang from CLSA. Two questions. The first one is would you consider initial DPU dilution for a short period of time? And then post that, you do asset sales to bring down gearing. Is that something you would consider? Or you will prefer to bring down gearing first than before you do investments -- acquisitions?

DPU dilution, sorry. What do you mean?

If the acquisition comes to your plate, but you might see an initial dilution in the first year but it's a strategic asset, but then your gearing is a little bit stretched at the moment, would you consider doing that first?

It's a very good question. I cannot give you a straight answer. It really depends on circumstances or the [ deal. ] So without having any specific in mind, naturally, we prefer the other flow in this case...

To bring down gearing first.

Yes, monetization first.

Like what your peers are doing?

Well, we can say we are doing that for the purpose of redeployment perhaps. I think that's an ideal situation. But like I said, it's something very strategic. I think we were to think through what sort of capital is required. We -- you probably heard me say before, we look at different sources of capital, not just from the capital market, right? We can look at the potential partnership equity. So we don't have necessary all the time going to a transaction as a single owner. I mean that's throughout the possibility, right? It all depends on the asset, the size and our reconstitution plan, the timing of what's going to happen. So all this has to put in place. But ideally, we prefer to -- ideally, a little bit of [ money back ] is easier from an execution point of view.

Second question is on WeWork and exposure, how should we think about any major expiries or renewals coming up this year?

They're still our tenants. They're still paying rent at this moment. So we treat them as a tenant. So long as they are a tenant, we're okay. But Yi Zhuan Lee alluded this now in one of the comments you made about the fourth quarter is particularly the robustness of the market is still relatively healthy, including [indiscernible] space operator, the likes of the WeWork [indiscernible] actually in the market. So I think we are not overly concerned. It's a question whether there will be downtime if they happened, right? If anything happened to WeWork, because it's a single tenant exposure to Gallileo, whether it be -- will there be a downtime and what kind of downtime we're talking about. So that's more the frictional kind of occupancy [indiscernible].

Yes. Okay. Derek?

Derek from DBS. Just one question from me. Looking at your portfolio going to 2024, if we split between suburban and Orchard, which one do you think has better prospects for the coming year?

I have to be careful. The -- both have challenges and both have their key drivers. If you look at things that are planning out from a policy direction perspective, general government policy, mid- to long term, we know certain things will happen. They will affect demographic, right? It's certainly going to see more people coming to downtown to live and just live, not just work, it's live and work and play. So that's going to happen, and we've seen things happening already. You're probably also going to see more push to increase the commercial activity outside of core CBD. How far can it go? Hard to say. So definition of suburban is, we put it -- because we live here we know. In layman's term [ near residential or ] the kind of suburban location. But even within downtown in CBD, you see the [ scale ] is expanding. It used to be the cost -- with core CBD, Raffles Place, a little bit of [indiscernible] this expanding to [ file first space ], the bistro, the City Hall region and new regeneration coming up, and they're not paying low rent. Some of the rents are higher than what you pay in the core CBD. It depends on the building attributes. So I think there's a bit of a moving part there. But that will affect in a way the attractiveness of living downtown. And hence, I think we're going to get more crowded downtown. So from that angle, there's quite a lot of work for us to do in our downtown mall, which we started with Raffles City, the big upgrade. And now we put in the Clarke Quay. Hopefully, we are able to attract these people are living around you. At [indiscernible] Bugis [ Shangcheng, ] Bugis+, [indiscernible], every single asset we have planned. It's just a question of laying out the priorities. Suburban will continue to be resilient. I think we will be continuing to be resilient. The execution of moving people to basically jobs to where people are living, they essentially are saying that the -- that location will create a life on its own. So I think that will stay fairly resilient. All depends on ultimately the population group in Singapore. What we're also trying to at least in the short, medium term, to take advantage of the southern search in interest of having concert in Singapore becomes a very strong attraction. I'm sure you all know about it. And question in downtown mall or even our IMM outlet can we take advantage of that, which is why you see what we are doing at IMM. We're also laying ground ready for the RTS opening up. You know the impact. How that traffic will flow, you probably would know. But we also think potentially there will be opportunity to see some flow in, but who are these people you're going to attract, likely downtown, potentially IMM, hopefully, Clarke Quay. So we need to reimagine our downtown process.

Okay. Terence, just -- we just got an online question and I'll come back to you. Okay. I think the question we have received online is from [ Wai-Fai ]. The first question is, is there any particular drivers behind the 59% year-on-year spikes in utilities and marketing expenses each in FY 2023 or were they one-off in nature?

Can you talk about it, utility?

I think overall utility is a function of reopening. So last year, you can see -- the reopening only happened latter part in 2023 -- sorry, '22. In 2023, you get a full year. So I think it's a little bit of a return to office higher volume coming in even though we have lower contracted rate and the natural consumption has gone out a little bit more, right? Marketing expense, there's a little bit of a reclassification to some extent. If you recall, we put in the PMA and I mentioned to you just now, where we take away some part of the manpower costs in the leasing side, but we compensate the leasing activity on a transactor basis. This commission paid is actually in the marketing line. So you can see a bump of marketing, but essentially, it's a reclassification. You should see a corresponding reduction in manpower costs.

Okay. Thank you. The second question, we have, I think from [ Wai-Fai ] again and also from Michael would be more about the CICT's plans for 2024, whether we will focus on enhancing existing assets or you will be expanding, whether be it overseas or in Singapore? Then second question is about valuation that -- because Singapore valuation held steady, while the overseas assets fell. So when we do the, in terms of acquisition where we buy more in Singapore and divest overseas.

So I think I did touch a little bit on our priority. It will be all that she mentioned. Essentially, we need to lay ground for future revenue stream, which already announced. AEI is going to be one. Gallileo, we know we're going to have downtime but hopefully by mid- or third quarter of 2025, we have completed the AEI work. And hopefully, by then, we can secure tenant. And hence, you can see the revenue streams start coming in again. So it's all about planting the flag along the runway to allow a more sustainable kind of income growth in that entire portfolio. So that naturally will also include -- if there's any opportunistic transaction out there, certainly, we part and parcel the whole equation as well.

Okay. Maybe right now, we go to Terence's questions first before we come back to online.

I already address the valuation. So second question on valuation.

No, the one is more still your focus on acquisition. So you've actually addressed it.

Global valuation.

Yes. It's addressed already because it's more using the valuation to -- yes, Terence.

It's Terence Lee from UBS. Can I go to Slide 26 to ask a question?

26.

Yes. So if you look at the slower tenant sales growth relative to shopper traffic and you strip away inflation, GST high, is it fair to say then that the tenant sales per person actually declined quite a fair bit in 2023? And is this then a worrying trend?

Not -- well on a -- certainly, on the second half, you compare on the base effect, yes, 2022 on the second half, particularly in the fourth quarter, where you have seen a very strong ramp-up in 2022, relatively weaker fourth quarter. That's true. That's the truth. And whether that translates into a reduction of the per ticket. I don't think you can generalize that way. Our footfall has not gone back to pre-COVID. That's for sure. We're still probably about 15% around thereabout below pre-COVID. So if on the per ticket, if you use that may not be a true reflection because sometimes the [ attractive flow ] can be very transient, especially in the transportation hub. So again, I don't think there's a single metric to really define whether per ticker has dropped. But if you look at anecdotally with the inflation, most of you are spending more. Question is maybe a fewer people are spending, but the ticket size may be higher.

Okay. And moving on to -- does this saying that real estate market valuations tend to lag? And assuming this year turns out be higher for longer and growth slows, I have a question on valuations, is there a time limit or the tipping point where valuers finally have to then restrict rate assuming valuations?

Do you want to talk about this, Lee?

So we say that the -- if you talk about valuation in general, I look at what the value assumptions are going to be, right? And I think so far, the evaluations assumptions, I think, generally are still quite not very tight. I think if you compare across peers, and what we have been doing, I think our cap rate assumptions have been generally quite okay. And I think a part of it -- so that what is a question mark potentially is then -- it was the kind of transactions that we see in the market, and then we whether or not you actually shift some of these assumptions. But even if you look at the other matrix that goes into our valuation, I think in terms of the market rent assumptions and growth rate assumptions, we are very comfortable of what we have [ inside of it ].

So look at the transacted so far this year, it's well within the cap rate now or the -- whether it's office or retail. So I think from that angle, if values start to look at a market comparable transaction, I think it's still comfortable. In fact, if you look at some particularly office transaction, it's very, very on a very tight cap rate, potentially even low 3% or even below 3%. But then obviously, there are different reasons behind that. It could be a -- it could be funds that are coming in with a certain value-add play. They are building -- there are certain upside in terms of value what they can achieve post activity that could command a higher rent. So there's -- if you use that purely from a benchmarking perspective, value and to look at across -- scan across for a reference point, then there's not a transaction that's transacted below current valuation can. Sorry about the valuation -- current valuation.

In other words, higher for longer has no bearing on asset valuations until we see...

At the moment, yes. But operationally, you need to run it well. So this year, we've done [ decent ] 8.5% thereabout. I think in office, [ 39% ] so that would translate growth -- rental growth coming down the road. If you continue to do that, hopefully, well, Yi Zhuan mentioned hopefully a single -- mid-single digit, then there's a demonstration of a rent growth, by sure -- I think the value in general do not move that, whether it's terminal cap or the discount rate very easily. Similarly, in the earlier era, 2010 onwards, when it's only 1 direction, we hardly see value really move a lot on the [ terminal ] and the discount rate. So from a mathematical point -- purely mathematical point of view, it is quite supportable. And logically, I think it makes a lot of sense because on the declining interest rate environment, you get liquidity in the market system, you get funds chasing after assets, right. Asset valuation goes up, risk factor should go higher, theoretically. Similarly -- I mean, I would say our classified today, Singapore market is sort of beginning to revive. It's going to a stalemate. It didn't really go through a downdraft. It's going to a stalemate and started to revive and see ticket size coming back, the investment activity seems to be coming back and investment risk on gradually seems to be coming back. So if all that pans out well, and if you pay out in a situation where higher for longer, question is how that longer yield curve would look like? Because ultimately is the long-term rate that's more important than the short-term rate when it comes to valuation metrics.

Thank you. Okay. Sorry. I know I have the 3 of you, but let's -- I need to answer a couple of online questions first. Can we have the online -- mixed online question? Okay. This is from [ Fraser ]. Are you paying out all cash flow from JVs and overseas entities?

By and large, yes. The net cash flow after servicing interest and our operating expense, we will pay out to unitholders. With the exception of Gallileo, as you know, we are embarking on the AEI. So for the second half, we've actually retained cash at the entity level in Germany. As we anticipate, there are more expenses coming onstream.

Thanks, Mei Lian. So the other question we have is that I think this is more on the overseas asset. I think generally, it's asking about what are we -- when do we expect? I think because of the various trends that we're seeing overseas like work from home status, so what are we expected to see in the -- across the 3 geographies, the kind of portfolio performance?

I understand, so far, I think for the work from home status, I think the good thing is that as we get further away from the end of the pandemic, I think this talk about work from home and remote working starts to come down a little bit more, let's talk about it more about hybrid working at the moment. A lot of companies you hear one thing they start to come back. And this narrative is actually also getting stronger also in Sydney. So by and large, I would say that directionally, I think in terms of office demand, then it's not a bad thing to see. Of course, from an employee standpoint, it's a debatable. Then, so I think in terms of Singapore, I would say that the office side of things, with the exception of a bit of the new completion supply that is coming through, by and large, I would say, in the medium term, in the office should do, still hold up pretty well, partly because there's limited supply. And I think some of the competitions that was initially due for this year was actually kind of delayed to next year. So I think even now, everything is good. Probably, we'll see a little bit more bigger delta between your premium grade officers and your grade B properties. And what they will then do is that when the grade B properties starting to be a bit more under pressure and they are being taken up for redevelopment, then you will probably see it going -- moving around some of these. So this is for flight to quality, I think, will still kind of persists as a general trend, in the coming years. So for Sydney, in particular, as we just talked a little bit about it, so the flight to call is one of the themes that we start to see, core CBD. That's also the broader flight to CBD. Eventually, I think this will only come into play when the core CBD starts to get filled out a bit more and the premium space get filled out a bit more. It can't press the rents up. And then that's where you flight to value will start to come in where tenants who want to go into good quality assets and good quality centralized locations but they cannot afford the premium properties, then they will start to look at the submarkets or good quality assets to go into. But for North Sydney, in particular, probably in the supply situation next year, you will see a little bit more supply coming through that will probably kind of -- and then, of course, it will take a bit of time for us. I do think that for North Sydney will take a bit more time. But in the long run, I will say that things should shape up okay.

I think it's a little bit of a phenomena that's [ probably okay ] also in the 2 overseas markets we're seeing as a result of change in the interest rate environment, I think we're probably see less and less money going to speculative redevelopment or speculated development. Unlike you, we witness in the past where capital is very cheap or almost free, you've seen a lot of capital driven towards -- now potentially taking a bit of higher risk from a development perspective. I think that kind of behavior will probably come down because financing is also no longer easy -- not talk about the actual cost of financing, but getting the financing is also not so easy. So that can move some equation away. The overseas market does have a history of demonstrating supply that really come onstream sometimes a little bit unfettered. And to a large extent, that created a very unhealthy kind of occupied market because then mainly will be chasing after the same -- unless it's an overall economy growth, and you can see a net increase in demand from a space. If it is in a very flattish kind of economic environment, where you see wholesale streams of development spike that keep coming to the market, then naturally, there could be a downward force from a rent perspective and hence will affect valuation. But in a cheap capital environment, we still get a transaction happen. But in an elevated interest rate environment, I think it's going to be a little bit more challenging. So we hope that will change a little bit of behavior in the market landscape to overseas market. That's one we're observing. The other thing we're observing also quite clear is being played out, what we have played out here and starting to get a lot more talking is to bring people living into CBD. Sydney is the same thing. They're talking about conversion. Not easy. New residential development also not easy, but they start to think about it. Eventually, whether the building is repurposed or something else. I mean that's something to watch. But certainly, there's a lot of dialogue, going on there. Is there a real possibility of creating that ecosystem where living, playing environment is a little bit more integrated.

I think just two more online question. The first one is about average cost of debt. So the first part is what is our average cost of debt for those maturing in 2024. And what is the expected average cost of debt for 2024? Probably missed the first part just now. Yes, Mei Lian.

The first part is the average cost of debt for the debt maturing in 2024 is in the range of the low 3% range, low 3% range. And the expected average cost of debt for 2024 I mentioned earlier, it will be in the -- it will creep up to the [ range of 3% ].

Okay. Then the last question we have online is more general. From Michael, what is the impact of AI in particular, Generative AI on our company and the industry?

That's a hot talking point, AI. Everyone talking about it. I mean, honestly, we are also look at what would be the use case for this new technology, Generative AI. There could be a different application. It could be from a processing perspective, whether we get more efficient. Potentially, there are some use case. It could be customer funding perspective, which we experimented before. So it's nothing new. Whether it's a more enhanced version or chatbot, working with operator looking at some possibility, okay, be more predictive in nature. So that's something that we at the moment still a little bit studying. So there could be different potential use case. At this point in time, we experimented a little bit here and there, but nothing very, very significant at the moment.

Thanks, Tony. I think we will have Derek to ask the question first, then we'll go on to Donald.

Congrats on the better operations. But just looking at the full year DPU. It's $0.1075 versus the [ old ] CMTs FY '19 DPU of $0.1197. It's 9% gap still after 3.5 years post merger. We have seen another small retail REITs are passing the pre-COVID DPU and NAV. So just how do we tell [indiscernible] investors that the combined CICT entity is financially stronger than the OCMT in terms of DPU and NAV, especially since some are thinking about [indiscernible].

I mean that's a fair question. But I can also give you a fair answer. The interest rate environment is just different. If you try to extrapolate at a point in time, where our funding cost is 2.2%, 2.3% to the average 3.4%, I think naturally, that delta translate back. I don't think we are very [ well off ]. So the landscape has changed. But certainly, as a combined vehicle, I think we are a lot more resilient. Putting aside today, everybody is very positive about retail in Singapore, but you're also going through a period was challenging, especially during the period of a complete lockdown, unknown future, no income stream, commercial building helps steady. So I think about this combination, we have seen a lot of volatile and potential outcome that is unpredictable. Today, we have demonstrated that resilience is strong. We continue to deliver growth. Hopefully, the $0.12 that we're looking at is within sight and working. We're working hard on it, yes. But to be fair, 2.2%, 2.3% average cost to date, 3.4%, 3.5% is just different. Something like that.

I guess is the internal time line on where you can get to that $0.12. I mean I've got a point on the high interest rates, but if I talk to investors, they will point out that another Singapore retail REIT is subject to the same set of operating cost challenges, but their own DPU has gone past pre-COVID levels already.

We don't want to give a forecast. If we continue to do what we are doing now, actively reconstitute our portfolio, drive growth, I think we will be there. I don't think it's a 10-year, I don't think it's 5-year, hopefully, within the 5 years.

Thank you, Derek. We go to Donald.

Donald from Bank of America. A few quick questions for me. First is on 21 Collyer Quay. Just wanted to check whether the valuers give a co-working discount in terms of the valuations? Like what -- how is being applied elsewhere as well?

It doesn't seem like it.

Actually, people is actually currently on the lease model. So it's treated as a normal lease tenants.

So it's treated as a normal lease, okay.

Yes.

Okay. That's fine. The second question is, Tony, you wanted -- you said that you want to lower gearing assuming, but your CapEx is quite meaningful in the next 1.5 years. So assuming you don't do any divestments with all the AEI CapEx, what sort of gearing will you end up with?

It's probably still within the 40%, 41% range.

41%?

40% to 41% range.

But you're saying you preferred it...

Assuming no change in valuation.

Assuming no change in valuation. So you prefer it to be mid-30s or somewhere under, right?

Yes, ideally, it bring down a little bit at the right opportunity.

Does that mean the divestments is imminent because you need to fund the CapEx and by extension would acquisitions be imminent?

Yes, CapEx is not day 1. CapEx is progressive. So I don't think we need to draw down $200 million today. It will be a progressive exercise. Along the way, active capital management and cash management is still key, driving our asset performance still key. So I think we have enough tools to manage around that. But in an ideal situation, we like the gearing to come down.

And one last question on also on Gallileo. How are you going to manage the loss rent from Gallileo? Which assets is going to offset in terms of DPU loss from this in the next 18 months?

There's no specific asset. We do a series activity, including organically, we are growing our rental. Hopefully, that's enough to offset. Gallileo contribution from a DI perspective is not huge. We're looking at a low or maybe mid-single-digit kind of contribution, not huge, right? Yes.

Mid-single digit.

Yes, it's not huge. Yes.

Not low as well.

Yes. So If you look at the reversion number, we can cover that. Naturally, we've got to actively manage our interest costs. That will translate a bigger delta. I mean interest cost is really the key, right? Interest expense is the single largest subtraction from your distribution. Yes.

But CapitaSpring and CQ and RCS will only contribute more.

Starting to contribute, yes.

Thanks, Donald. [ Golar ]?

Yes. So thanks, Tony, better-than-expected results or better than I expected anyway. But I have a divestment and acquisition question. So the -- one is on -- can you remind what the conditions are for you to acquire CapitaSpring still, right? Is...

We have a call option.

But what is the price work out to be if you did it today? And how would you do it.

The price...

We're doing everything....

But I think based on what was announced, we do have a call option, which can be exercised within 5 years from TOP. The TOP was, I think, in November of 2021 so that call option can be exercised within 5 years. And it would be at market price subject to a minimum, which is based on the development -- total development costs, less NPIs and quarterly compounded at a predetermined agreed rate. So I think that was in the announcement but we haven't worked out in the number.

There's a formula there.

That's a fixed formula.

It's higher Yes.

So would you be interested in that? Or would you just let it lapse?

When it comes to it, we'll take a look, we still have some time to look at it.

And also on that, so, in Germany, you've got that airport office, what is it called?

Main Airport Center.

Main Airport Center.

So was there a decline in its valuation? And would you -- I mean, between divesting that property and something in Singapore, what would you choose? What would you prefer to do if you were...

Well, I think earlier, Jack did allude, right, there's nothing happening in Germany at all, yes. So first thing for us, we need to see activity coming back, then we assess. But in the meantime, I think we can't run away from the fact that we have to get the asset in good shape, and operationally run efficiently and try to get the best leasing outcome.

And then a question on your development, you've got a development percentage, which you're not using now, what would that be? And would you be interested in tying up with maybe CLD or CLA. Can you tie with CLA if they decide to do some redevelopment in Singapore? There's talk that they might be interested....

So we do have 10% development limit, which today is untapped. We -- I think we would -- it all depends on the circumstance or situation, whether it's a redevelopment of our existing asset potentially, right? I mean I think Yi Zhuan did mention that there are different things we are looking at. And the question is, what does end product -- does end product fit? And end product has to be designed for the best use case in that locality. And whether the end product fits in, if so, can we take it? If not, how much can we take it? Then there's the iteration that go around. If it's not, the only question is can we get a capital partner? You see our deal what is an immediate partner that's okay. If not then, is there going to be a third-party equity partner. We've done that before, like Funan, right? Funan, we divested the service residence even during the development stage, where the product quite fit into the integrated development, but that's not something we need to own in.

Thank you, [ Golar ]. I think we have Vijay, who would like to...

Just a couple of follow-up question to an earlier question. Firstly, on CapitaSpring, do you think this asset has stabilized at this point of time? And if your sponsor made this asset available, would you be open to raising funds from the market in terms of equity fundraising options at these price levels?

Yes. I think we. Certainly stabilized is 100%, right? It's not gone through 1 cycle, that's the only thing. I haven't gone through a only 1 lease cycle. And it's important we witnessed that because for new development, the expense and post-stabilization expense will be different. So we need to make sure the number works. That's one. Second is it's a very chunky asset, right? We don't necessarily have to own 100%. We own 45% today. Question is, should we own more? So that's something we are taking back anything about it. Yes.

So you mean creep up by 5, 10 percentage if that option continues into sort of...

We'll take that back and think about it once we have a clarity in terms of how that number will work out.

Got it. And second follow-up question in terms of Gallileo is that I look at your AEI cost, it's about 75% to 95% of the exact asset value itself. Overall, asset valuation, latest asset valuation, considering the downtime and the market conditions at this point of time, does this really justify putting so much CapEx in an asset where the market conditions are? Maybe if you can put it in Singapore or buy some other assets, which can give you better ROIs, is that a fair thing to say? Or how do you see this asset?

Regardless, we think -- if you put the asset out today on an as-is basis, you're not going to interest, right? So regardless, we need to fix some fundamental structural problem with the asset, which is not built for today's use. So we need to do that. Second is valuation. The way they derive valuation is on a pure discount with assumption of terminal cap rate with the passage of time because you have a gap, right. The next 18 months, no income, but you are going to have CapEx, naturally, the valuation will come down. Or with the passage of time, I think the [ passage of time ] will creep up. Assuming the interest rate environment stays stable, just with the passage of time, the valuation should creep up again.

Okay. So just lastly on operational costs. Do you expect this to stabilize and come down a bit this year? How do you look at margins for 2024 compared to '23.

Our OCI?

Operational cost. Operational costs, do you expect it to come down this year? Should margins stabilize?

Where some levels they are working on. So next, this 2024, you'll probably see the full year effect from the new property management agreement that we have signed with the property manager, right? And we try to work on the efficiency. That's one. Second, the -- you also enjoyed the full year of a lower tariff rate utility vis-a-vis 2023, which had a half year, which is pretty high, right? So naturally, that's true, we could take advantage on that and try to be more efficient as possible. Then the ongoing thing that we are doing is looking at high efficiency in terms of operation, and that's together with our property manager looking at potential clustering of manpower so that we do not need more people even though we are expanding our business potentially, right? So that's something we have to discuss and work quite closely with our property manager. And lastly, I think there are certain interesting possibly out there where we look -- we may go into it. We're still studying it. What it makes sense for us to look at an outsourcing certain part of the maintenance work. That's something we are working on, yes. And hopefully, with that, we can achieve perhaps better efficiency. And may be even better read on how we can manage the green building requirement, which is increasingly very important.

Okay. Thank you. So I think we will keep the last 3 questions for the online. Okay, there's one more from -- yes.

Dexter from Bloomberg. I wanted to ask a few questions. One is on you -- I do point just now on the fact that your environment is recovering. I'm just wondering to ask do you sense a shift points in terms of -- obviously, last year, there was still a big related to high net worth individuals as well, family offices. Do you see a shift in the sense that to fund shifting away from the commercial retail space in favor of these company like deeper pocket investors? And on the retail side, can you give us a sense of who like in terms of the interest you guys broking from foreign tenants, what is the makeup like? And last thing is, obviously, there's a lot of greenhouse now and tech, for example, and finance, do you see that affecting commercial demand?

Just to clarify, your second question is about tenant retail, kind of tenants?

Yes, from overseas.

The first one is on the [ mall acquisition ]...

So I think there's been some prominent high net worth that's basically setup of family offices. In Singapore, I think it's probably well [ with telecoms ], right. That Singapore is an important center for family offices. I think they will continue to be interested in looking at some kind of investment activity in Singapore, and the ticket size varies different kind of family offices who have different requirements. And you're seeing that happening, they can buy -- shop houses. They can buy strata floor building or they can buy a few strata floor building, potentially maybe even a single entire building, if possible. But they are motivated by different things. Most of them are looking for protection of the capital, make sure that there's stability in the political environment. So they are a little bit of flight to safety kind of capital that potentially may come here increasingly. And interestingly, beyond that, I think we have also started to hear at least some of those investors, institutional investors in the past that stay very quiet in the market are starting to come back to inquire. So I think all of them are looking at how they could underwrite the -- eventually how to underwrite investment and big component is obviously the cost of capital, right? So that's something that I think perhaps versus 6, 12 months ago, I think there's a little bit more clarity now. Then the oversea retailer, you want to touch?

So overseas retailer right now, as we mentioned, we get interest both local and overseas brands. And I think for the overseas brands, we do actually see more Chinese brands come relative to some of the other markets. Largely F&B for start, but we are increasingly seeing more and more retail concepts coming in this also. So I think a lot of motivation is to diversify their business outside of China.

I think the question was about tech demand.

Tech demand.

Sorry, Dexter, do you mind repeating the last question.

There's a growing number of layoffs in finance and techs. So do you see that affecting commercial demand?

Yes. So I think for tech demand commercial, last year, I think there's a good amount of shadow space in the market. I think all of those come up from the tech demand side, right? But some of this is backfield but also increasing some of them are being taken off market. So if you look at the shadow space stock, right, actually, it came down a lot in the fourth quarter. We do still see some of these tech demands coming through, but a lot of them are also using their current space and building up from there.

Can we just go through a couple of the online questions. First one is about the -- that we've seen more inquiries from co-working operators locally and overseas, given that it seems that some of them have improving performance. And then the second leading on question was whether do we see positive valuation impact of having co-working operators in our portfolio?

I'll try to answer, okay. Generally, the performance of our co-working operators, we don't always have all the detailed performance metrics on the individual assets where they are located. But broadly speaking, if we look across some of the co-working operators like lower project in our properties, the take-up rate is generally quite good, we all say that actually, usually, the ramp-up is also actually quite fast. So this one, we do also see like, for example, IWG coming through inquiries, on and off, we'll be talking about opportunities. So there are inquiries both locally and overseas. Even our overseas I think yesterday, although it's not really our portfolio. You see that the whole project in Texas, they have also some kind of partnership going on. So there is the demand to actually grow the co-working bit. The model will probably change a long the way, right? I think in the past, the traditional lease model may start to see a little bit more hybrid models management kind of contract staff. Now whether or not we have seen positive valuation impact on co-working operators in the portfolio comes, it's very hard to quantify because if it's like, for example, we talk about 21 CQ is a lease, right, then it's valued as a lease. And typically, a lot of value, we'll still look at the co-working in a way that the income is almost like a lease income. But having said that, what we are seeing co-working operators like for our portfolio, we want the co-working operators in because they add on to their flex offering, which means that tenants can actually pay a little -- take out a little bit less fixed base, arguably, they will give you a little bit higher rent, and then they do on anything else on the part that they typically will tie on discount off because they are not using actively, we pull it together in a co-working setup and then that generates income at that level, right? So by and large, if the income level starts to be sustainable at a higher level, it should have a direct impact on your valuation.

Okay. Thanks, Yi Zhuan. I think the second that we have so is that do we foresee further valuation decline, especially for overseas assets? Actually, this one we did talk about it quite extensively just now. So I think, Michael, if you can -- we can actually do a playback on this response. So the last one is what is the guidance on retail rent reversion? I think we also spoke about this earlier.

We spoke about this earlier.

So Yi Zhuan, do you have a quick one?

Yes. Just a quick one, it's just that we do expect retail rents both suburban and downtown to moderately go up still a little bit, hopefully. And with that, then in coming back to the portfolio, we are looking to what hopefully we can get account like mid-single kind of reversion.

Thank you. So I think we will -- before we end today's session, I think we will also like to invite Tony, if you have any things to share with investors, what we can look forward to in 2024, the outlook.

I think I said a lot, right? Short term, medium term, long term, I think I plan out the whole road map. And this is a constant job, right? While we are into 2024, we are starting to think about '25, '26 what do we want to do. It's an ongoing journey. What we want to achieve is ultimately a sustainable kind of DPU growth for our investors. How we come about? Again, I talked about it before. It could be different kind of levers we can do. And we are glad that because we have a large base that allow us that flexibility to look at different time to execute a different strategy. Yes.

Okay. Thanks, Tony. So for those of you who still have questions, please feel free to reach out to Investor Relations team. We are here to help to address your queries. And also, thank you for all joining us today, listening to CICT. So remember, we had a proxy for Singapore commercial real estate. And definitely, we've been fortifying our resilience and positioning for growth. Of course, we have to wait for the right opportunities to come.

Thank you.

So in the end, we all together want to wish you all happy Lunar New Year.

Happy Lunar. Those online as well, happy Lunar New Year.

Yes, thank you.

Bye-bye.