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

Good morning. Yes. I hope you all are feeling great today. Happy New Year, if you are celebrating. If not, I hope you had a good respite last week. I'm Allison from the Investor Relations team. We have the management here with us today as well. I'll introduce them later during the Q&A. To keep things on this morning, Tony will share his highlights for the full year results. And now I would like to invite Tony to the stage to share his insights. Tony?

Good morning. I wish everyone a Happy New Year. Happy Lunar New Year. [Foreign Language]. This year, obviously, we know entering 2025 is quite uncertain year given what's happened late last year. Certainly, I think as I go through the presentation, I think we are quite well positioned to face any kind of challenges ahead. So I think we continue our efforts to really fine-tune our portfolio, I think, for the last 2 years or so in anticipation of potential changes in climate on the environment. Turn the slide to Slide 5. I think this will be a key anchor going forward for the next couple of years, and we anticipate we will be continue to be quite active in looking at how we can even further strengthen the portfolio. A couple of things we have been doing over the last 2 years, I think, are bearing fruits. I think these are -- our workflow efforts that would always anchor strategy stronger as we go into year after year. Next one. I think just as a recap before I go to the full financial year. Just a quick recap on what activities has happened so that you have something bearing how that number has gone into our results. We started earlier in the year when we announced AEIs for IMM. The work actually started in about second quarter. So Phase 1, Phase 2, a large part of the space, mostly at the supermarket area that we reclaim back and we've done a little bit of rightsizing. And of course, we introduced other retail trade, with the aim of bringing up to, in total, 110 outlook shops in IMM. So that will be one of the strong anchor. So we announced the AEI. The work went on. We finished towards the end of the year, Phase 1, Phase 2 and we kickstart Phase 3. So there were some income impact in 2024. But no, we started to streaming towards the end of the year. And those Phase 1, Phase 2, I think you expect that income will start contributing again. Also forgot to mention that Gallileo took back the building at end January. So income frozen there so we have no income for 2024, Gallileo. So the income going IMM income as well as I think part of it has gone so from second quarter in third quarter. Yes. And then we also completed, as you move along the timeline, AEI that was announced starting last year, we did that. So it was completed later part was officially TOP around the quarter this year. So that also started to see some contribution coming in, kicking in. And we announced more AEI work at Sydney, 101 Building, 101 Miller, really to uplift the overall quality of the building. 101 Miller is 50-50 joint venture with Nuveen. And it's one of the, I would say, the vintage premium grade A office -- I would say, vintage premium building in North Sydney. Last few years, there were a few newer buildings that came out premium level, but this is really the first vintage level. I mean it's like our Capital Tower here back in maybe early 2000s, they were the premium grade. So it's quite timely to bring that order back, and I think Mirvac and us agreed that we should spend a little bit more money to uplift it. And we've got very strong tenant feedback. Even prospective tenant like it very much. I think we are potentially seeing a bit more traction from a leasing front. So AEI over there, completed. Other AEI that we're going to start looking at is more on the retail component, which is called Bukit Plaza. And we've also done a couple of -- just going to our portfolio, probably well known, we acquired ION, completed in 12 September, is it? No, no. Completed in -- sorry, 30 -- after AGM, 31st October, we officially took over. And then we divested 21 Collyer Quay. It was completed somewhere in middle of November as well. So a lot of activity happened over the year and the number is a little bit more difficult to rationalize, but I thought it was quite good to just do little bit of recap, so that you recalibrate the 2024 number and as you start looking at '25, '26 number, there's a little bit of a projection going forward. So we are pleased to end the year in a very strong position as a result. If you look at all the metrics on a sequential quarter-to-quarter has improved, right? Little a touch on portfolio value occupancy has gone up to 96.7% sequentially, about 0.3 percent point. It basically cut across the 3 buckets. Other matrices, which I'll touch on later on, I think I need a bit more elaboration, like tenant retail sales portfolio is 8.8% in office, sorry, reversion. Office reversion is 11.1%. I'll give you a little bit more color later. The PSF is up 3.4%. Again, I'll give a little bit more color, likewise, for traffic and occupancy, so occupancy costs, right? This is just a visual aspect of how what happened. What we've done to IMM, I think already mentioned that the upfront, we can expect more contribution in 2025 for IMM as we work towards completing the Phase 3 somewhere around the quarter. Yes. For Gallileo, the work is working -- with the workbook on the ground is progressing on schedule. So if nothing -- no slippage in time, we expect to hand over the building somewhere around maybe around the quarter. That's where you can start to see a little revenue recognition. The lease is structured such that we can have a more matching in revenue and cash flow. And like the long big leases that we have, typically, when you have no fit-out period, there'll be a rent free, but this way we negotiated a little bit more balance, so we get some payment. So any kind of incentive or flip, I think it's all even towards -- throughout the entire lease tenure. So likely to see revenue income contributing around maybe, hopefully, fourth quarter, if you are on schedule, but more significantly by over 2026. Yes. We also don't anticipate any kind of distribution coming from Gallileo in 2025, given that it's a ramp-up is still expense to pay, but more substantively, I think will come from 2026. Yes. So for the full year, overall numbers are quite decent, I would say, given the background. Revenue increased by 1.7% year-on-year. NPI about 3.4% year-on-year. Other measures are pretty healthy. We managed to bring down the leverage to today 38.5%, give us a lot more headroom financial flexibility to look at potentially even more new AEI, right? So we are constantly doing all this work to make sure that our quality -- our asset quality are maintained, ensuring that we are always planting new flag going forward where we can have new revenue streams. So we have that flexibility why will happen in the market, right? Cost of debt remained fairly stable about 3.6% compared to last quarter. And overall, I think we have to lift up the fixed rate borrowing. In fact, when we did the divestment of the 21 CQ, I would say most of the fund was -- we used to pay down the short-term debt that's a little bit on the high side. So overall, on a hedge level, 81%, I think we're very well protected, whatever outcome with the -- we will face in the financial market. Portfolio valuation has gone up, overall, port-wise $26 billion, up 6.2%. Singapore, obviously, is a strong contributor with ION coming in minus of the 21 CQ that we divested. Germany helped well. Gallileo went up, MAC came down, but over on a net basis, gone up. And Australia side, unfortunately, the cap rate expanded by 100 basis points over the year. So the entire valuation has been affected as well, yes. So net -- on a net basis, about 6.2% that comes into our valuation, yes. Second half, so this number may be going a little bit explained. Second half, we accounted ION as a joint venture. So the revenue NPI doesn't flow in here. So it will be more a share of the joint venture result. So this is only reflecting on the current asset minus 21 CQ, right? Notwithstanding that, I think our overall is still growing, 1.3% NPI without 21 CQ and without Gallileo contribution, yes. Full year, I will not touch too much. Maybe just move on. This is just a step short view. We are solidly Singapore anchor and almost 95%. Having said that, I think these are activities that were done that resulted in this kind of composition. Nevertheless, I think we will continue to be agile and see what else can we do to further fine-tune our portfolio. On the DPU front, sequentially, it's a growth, 5.43% to 5.45% from first half, second half. Second half, obviously, you have a bit of noise again on those things I mentioned. We acquired ION, we raised equity fundraising, completed only in October. There's a time lag difference where we have the large base, but it's not matched by the corresponding contribution, right? So you would add that in, let's say, assuming we did equity fundraising starting from September, we did the EFR, we did a placement followed by a pref offering, then we added in about $0.07, right? So it would be 5.52 versus the 5.45 on a like-for-like basis without dilution. So it's a little bit clearer how on a normalized run rate, how we look at it, yes. Cost only $0 1088 would be potentially about $0.1095 if all CCL matching finished EFR income coming on the day itself, yes. So I'll give just a little bit of context. So I think overall portfolio has done pretty solid. We had some contribution from ION for the 2 months or so. So that also helped. I'm pleased to say that I think the ION performance is better than what we have earlier projected, right? Of course, I can't disclose too much. But generally, it does help the uplift a little bit. So when we -- if you recall, we did the announcement on fundraise, had some discussion with investors in how we should look at the number. We projected the fee units may have to go up. This time around, we did not, right? It's all maintained on a -- on a like-for-like basis, 50%, 50%. So you are comparing completely on a 50%, 50% basis. So I think we are pleased to say that the underlying portfolio strength has been able to push through plus the better performance from ION as well. Yes. This slide is just more -- a little bit more for you to note. I mean for whether you're in existing investors 11th February is the last day, you get your $0.0329. Yes. So NAV per unit has gone up from $2.09 on the back of a -- the valuation has gone up. So I think we are trading at probably about 6%, 7% below, around there, for NAV. Yes. On the debt maturity front which I won't leverage too much, I think we have a little bit of a small tower to deal with. Part of it is actually from the euro loan. So we do expect the rate to creep up. It was locked in years back. But nevertheless, I think the aspiring tower were probably in the low 3s. So there will be potentially a little bit of an uplift in the overall cost, but we try to manage that. We try to manage the drawdown as little as possible. So it's all about very active cash management, right, ensuring that you don't have to carry very expensive cash into account unnecessarily. So I think we've been doing that successfully over the last 12 to 18 months, minimize the drawdown, ensuring that you're able to manage your interest expense. Yes. Okay. I think this representation of the balance sheet, pretty healthy indicator all throughout. Leverage went down to 38.5%, as I mentioned earlier. So total borrowing came down from 9.4 to 8.9. The other metrics, 81% fixed, again, very, I think it's in a good position, given that volatility interest rate is still ongoing. Interest cover ratio inched up a little bit, 3.1x, and average duration also gone up to 3.9. So all these metrics there seems to be lending in a nice position. Average cost of debt is maintained at 3.6%, which I elaborated earlier. So occupancy, you can see throughout the 3 buckets, overall, it's gone up to 96.7% from 96.4%. But across the 3 buckets, all has improved, right? This one, I'll just skip, I'll just skip, skip. Yes. So we'll be quite actively managing our aspiring coming due, a few percentage points already in discussion. We do expect it to be a positive kind of reversion number. We won't disclose too much at this point in time. But broadly, I think later, my colleague will join us, you can ask him a little bit more Q&A. This thing remains healthy. I mean, there are talks where there is quite an -- I think it will be reasonably okay. In the fourth quarter, even in the office, we managed to close 187,000 square feet of space, not too bad. A slight slowdown from third quarter, but maintaining very strong retention. A lot of tenants are deliberating what they want to do, things seems to be changing. More people are back to the office, whether they should expand, contract, look at economic environment with a new administration from the U.S., how to affect the overall outlook in this part of the world. So I think there's a lot of deliberation. Given that context, I think, generally, the leasing activity still looks really healthy, yes. So we closed 1.8 million last year in total for the retail and office space. On the retail space, again, across the further suburban downtown, I think we're inching up as a portfolio retail space, 99.3%, inch up from 99%, fairly, I think, quite reasonable movement. Of course, urban is always almost full, 99.9% and downtown has inched up from 98.2% to 98.8%. Yes. Reversion number earlier I alluded is quite healthy, both urban and downtown, almost 9% about there. So this is a -- I think a trend. As I mentioned a couple of times, there's a bit of catch up with -- during COVID, where we had to do some rent adjustment. And then because of the fair trade agreement, we do have to pay and -- pace out the adjustment over time. So 2024 is a continuation, maybe a little bit in '25. And going forward, it's all really about how the retail trade, the tenant themselves are able to trade well, occupancy cost ratio become even more important as we come to better landing on where the overall cost structure look like for us, also for the tenant. Okay. So tenants here, so this is just a breakdown. So this one need a little bit elaboration, right? So overall, what we have done is we brought in ION into the whole bucket, right, the number, right? So the retail sales include the per square foot ION, right? So that elevated on a per square foot year-on-year. So it's not exactly really like-for-like. But I thought it's important to just paint a snapshot as we end the year because going forward, you will always encounter all this comparison year-on-year, a little bit of noise. But the start, that will be -- give you a good sense how that composition will look like. If we strip out ION, we are looking more like a portfolio retail sales around -- slightly around -- slightly less than minus 1%. And then downtown will be probably about 1%. So it's about there, right? And suburban held very well, 0.4%, right? But the next few quarters, going forward, we will present that in a manner so that you can see the trending as well for us to be able to maintain some kind of useful info for you to do as you look at your projection, how the retail sales will look like. Similarly, for shopper traffic, we just bought in the ION number in. So it looks like a big jump downtown 17%. But you just strip that out, exclude ION, you'll be more like 8% rather than 17%. But it's still a very healthy uplift. Yes. Again, this is just -- we always presented just to give you a little bit of flavor what the things may be doing well, not doing well. But in the ION number, you can see that trade like jewelry and watches will start to spike up, right, because they do have retailers that are in that category, right? But it's more for me and for our rest of the team is to track, right, going forward, how that trend will look like. So you can see a large component now of our trade mix is coming from a pretty higher value kind of retail type trade, yes? Just, I think on withstanding some concern about the general retail environment here, given all the challenges, strong Sing dollar, high cost base, retailer couldn't find the manpower, I think we'll continue to be able to track good news to market. And that's on the very strong key and key reason why is underpinning the portfolio strength, always able to source out and we have a good team here on the ground, on the upstream here. So I think maybe some of them are down in. I mean scoping out the region in the world trying to find new concept bringing idea in, sometimes it's a bit defensive. We also want to energize activity in the CBD. You see C.O.T.U. I mean if you have not been to C.O.T.U. it's the latest place to go to, good concept, but in the CBD environment, received very good reception. So I think that will strongly anchor not -- I'm not just helping our own building, but also may help the person in that locality where CapitaGreen is located. So we help to strengthen overall CBD location as a POS location, but also anchor our building very well. So we are able to bring new concept. The very popular Oriental Kopi we say, why go or they just come to our Bugis Junction, right? So we do a little bit of defensive measure, things like that, make sure that we're able to anchor asset, look at the competition, not just in your next door your neighbor, but also competition from the neighboring country as well. Yes. Just move on. So on the office side, overall portfolio is -- occupancy has gone up 0.2%. If you cut across the 3 bucket, again, Singapore, obviously has gone up. Germany is only one asset. We have not included Gallileo. So MAC got a little bit of challenge there. So we lost some tenants who decided to downsize and hence the occupancy has come down a little bit. But also very pleased to see that we are gaining some traction also in Australia. So overall occupancy Australia has gone down as well. This is what we presented. I think just the long-short story is that, I think, overall, our expiring rent is not out-of-mind kind of numbers, quite close to where the market is. I think we give earlier before, some investors do ask, what kind of guidance 2025 and '26. So look at expiries, probably not far away from market. I think we have decent shot getting a positive reversion, yes. Well, I'll stop here. I think the rest -- maybe the last one more slide, just on some point, just to round it up. Earlier, I mentioned, this year, key thing to look up for completion IMM. We're bringing that inflow more than 2025 -- '24, Completion of Gallileo, 2025 and '26 later part and '25 and '26. And we will continue to be looking for new avenues for us to even strengthen the portfolio further, anchoring ourselves even stronger in Singapore. With that, I think I'll end the presentation. I'd like to invite my colleagues to join me. I think we are open for questions, right? Wait. So wait. Come, Lee Yi Zhuan, Jacqueline, Mei Lian. Lee Yi Zhuan introduce Jacqueline.

Thank you, Tony. Okay. Before we start the Q&A, I'll introduce the management. So on Tony's right, we have Mei Lian, our CFO. On Tony's left, we have Jacqueline, our Head of Investment. And on her left, we have Yi Zhuan, our Head of Portfolio Management. And some housekeeping rules to note before we start. If you have any questions, please raise your hand and wait for the mic to come to you, and please state where you're from and your name. And please try to limit your questions to 2 per round. If you have more questions, we can come back to you. All right. With that, do we have the first question? Okay. Maybe moving on as Lady Swiss.

Thanks for allowing to me to ask the first question, and happy New Year to all. Maybe just one, I think we have heard news that there's F&B closing in the Singapore market, quite a number of retailers are closing. And you have also guided that FY 2025, you'll be looking at the retailers' performance. So I just want to get a sense, are the retailers do -- sentiment wise, are they still positive? And would you still be able to push your occupancy cost from 17% now, yes?

So first part of the question, 3,000, I think there was a 3,000 closure reported in the news, but there's also 3,007 new opening. So I think on a net basis, it's increasing in F&B opening. I think this is -- of course, it's island-wide. So it's, in a way, a reflection that there's still -- I mean, food is still a basic bread butter stuff that most people would turn to. I mean, the challenges of cost environment is real. But nevertheless, there are still good concept that can do well, and there are tenants who are prepared to come in. So I think that may -- the kind of mood, I think, will probably likely move into 2025. Obviously, the environment is a lot, probably more uncertain. But broadly, from the F&B space, I think people are quite curious about new idea. I mean it's a consumer-driven trend that would sort of anchor how F&B operator decide whether they want to be here or not, right? That's more on the broad picture. But there's also quite well accepted, I think, trend you see in the market that there are a lot of F&B operated using Singapore really as a launchpad, right? They wanted to see whether -- or the original country, new concept, new from foreign country and they want to use Singapore as a launchpad. And naturally, I think we put potentially one of the few landlord that they will reach out to -- they reach out to. And we have that good blend of suburban downtown offering that they can present to. So I think even, let's say, there's a bit of a reduction in appetite, but there will still be new ones that prepare to come in. We probably will still be one of the landlords that they enter to. Yes. Maybe Lee Zhuan, you want to add something give some color?

Yes. I think just echoing what Tony said right now, when we look at the F&B, in terms of within our portfolio, we do see a lot of interest coming actually from new cafes. Fine dining generally in the market, we know that it's a little bit more challenged now because of high cost environment. But at the end of the day, we -- if you look at it and I look at it broadly right now, just F&B, if you look at our retention numbers it shows that actually this retention number, 80-plus percent is very strong. And this actually includes the part that you know where we actively curate what the brands we want to achieve churn. If you talk about tenants who want to stay actually there's a lot more. And if we look at the -- every quarter when we share the neutral markets, right, you see a lot of new F&B brands. Actually, a lot of trade select which F&B, too many pictures to put, right? We have to rightsize a little bit. So that shows that actually there is actually a good demand. But what I would say generally would be the F&B entrants coming in now, they actually do come with quite a financial backing for some of those that comes from overseas and they are very selective about the locations that we go through. And definitely, those that are better curated malls, better located malls will always be in demand. And that's why I think it reflects in occupancy number.

So the second part of the question is more on occupancy costs, whether you can still push higher, if you can give the breakdown suburban and downtown occupancy?

If we look at these occupancy costs, suburban now, we are roughly about 15.9%, 16%. And if we look at the downtown, we are probably 18 plus, which is actually quite in line with what our numbers are. I mean, in previous sessions, we have also shared that our cost is just one component. It makes up a lot of functions, right? And whether or not that we can have a room to structure reasonably, we, at the end of day, one need to be sustainable that the tenants that are in our malls will continue to do well.

Just second question, any updates on the tax transparency for ION?

Mei Lian?

Okay. We have written into IRS on the -- on seeking tax transparency and the proposed structure that we have in mind. But we need to -- this is an ongoing process is something that we will update when there is more clarity.

Still target mid this year?

It all depends on when IRAS can come back to us. I think the -- there are ongoing review, given the global tax that is implemented. So this is also a position that IRAS will have to review.

Okay. Next. Mervin, you want to go?

Happy New Year, Tony and team. Congrats on the quality results. Maybe we can start on the fee units, positive surprise, any guidance for the coming year. And ION, you mentioned, is doing much better than your underwriting assumptions. Occupancy last disclosed was 96%. Any details on that? And tenant sales for ION, was it up year-on-year? Or maybe down due to softness in luxury sales?

When we presented the proposition to acquire ION with the fundraising exercise, right, I think we projected a 70% MFU what potentially may go up to. And we have also been very clear, our preferred option is really not to, right? So that is still going to be the position. We are right the year where the portfolio has performed well. We have a reasonably good chance not to move up without the tax transparency. So I think that, again, require a fair bit of monitoring, making sure that the expense is under control, manage interest expense well is ultimately the distribution that will determine how investor will react, yes. But our -- generally, in the pecking order, it is right at the bottom, how you want to deliver the DPU. Yes. In terms of -- what else you want to ask about performance. Yes, it's better than what we have underwritten. Hopefully, momentum can sustain. There were also AEI work that were ongoing at that time in 2024, part of it completed perhaps later part of the year, and hence, you see some uplift from there. But they're also planning AEI going forward in 2025 as well. So we'll see how things perform there. Broadly, I can't be too specific. Occupancy has gone up, closer to 98%. The -- we don't have that year-on-year comparison, right? Because, I mean, we need to over end of October, right? So we can't comment on that. But generally, if you look at overall luxury retail trade -- and ION, obviously, is not just luxury, right? Overall, luxury retail trade has softened around the world to different degrees in different countries. So Singapore is not spared. Overall, it slowed down, yes. But again, I think if you recall, ION is a very unique animal. It's a -- it's a product that cut across all walks of lives, different income stream, serve the desire of different consumer type, right. And on balance, it's quite well curated. So those bottom -- if you go to ION, it's still relatively busy overall. So they are also looking at upgrading AEI work to do. So I think there will be some balancing effect, some trade down, some trade up, may potentially that can help ION ride through a different economic cycle. And what unique feature about ION because if you look at the retail trade, that little pie chart show, ION tend to have a higher component of the turnover sales than our typical mall. By nature, because the ticket size are bigger, it can be lumpy, right? You can -- it will not be may be seasonal. It can be lumpy. It also depends on economic environment. So that's the one that may have some variability. But overall, the base rent is going up, like the rest of the Orchard Road you have seen as reported, so likewise, I think, ION, the base rent is going up as well yes? So that will cushion.

Okay. Perhaps Geraldine?

Tony and team, Happy New Year. Maybe I just want to get your thoughts around the operations of cinema -- cinemas. Given the recent news of Cathay closure, I mean, luckily, they are not in your malls, but you do still have, I think, share and JV. Any opportunity to downsize these tenants?

I'll start. Yes. So Cinema, we do have some. Exposure wise, it's not a lot, less than 1%, total GRI contribution. So a risk exposure perspective is really not significant. Right now, I would say that the good thing is that unlike others, ours are still paying rents, they're current in rents. So that's a good thing. But jokes aside, I would say, we have already identified cinema and how it's actually going to develop this part of things. When people look at Netflix now these people rather go play games or social media or rather than watch movies. So within our asset plans, we do actively look at whether or not there's alternative users for it and actually how we can reposition some of the space. But having said that, we have to be mindful that in cinema, typically, they are located in the top floor of the malls, in certain corners of the malls where it is not naturally the first footfall, kind of heavy footfall area. So it needs a very targeted approach when we look at this and talk to the kind of alternatives that we are currently looking at and see how to fit them meaningfully. So -- but definitely, if we kind of replace cinemas eventually at some point if you look at it, right, one thing is that the sales efficiency of -- that we will get because they do occupy more space and whether -- and in terms of sales generated, it's a little bit on the lower end. In the past, the reason why cinemas were very, very strong propositions for malls is because they're actually bringing the crowd, right? They draw in. It's almost a loss leader, right? You bring in people and then hopefully, they bring up the rest of the mall. But currently, we have to reassess how this fits in the overall strategy.

Can I also ask about interest cost guidance, yes? Just a quick one for full year.

For this year, I think we have close to $1 billion of borrowings to be refinanced. And I would say the average cost of this debt that we're carrying now is in the low 3 range, compared to the current spot levels, which is closer to more than 3.8%. So in terms of average cost, I think the guidance would be would likely inch up. We'll still be below 4%. We are now at 3.6%. So the increase will not be so significant compared to prior years.

Vijay, you had a question, right?

Happy New Year. Just 2 quick questions. Firstly, in terms of capital recycling. I think last year was a good year in terms of both divestment and acquisition, and you have got your gearing lowered at 21 Collyer Quay. So what are your plans for 2025 in terms of divestment as well as acquisition? There was a talks about getting Raffles Place also, right, divestment?

Jacqueline?

With the divestment of 21 Collyer Quay, we have lowered the gearing to around 38.5%. So that gives us more headroom in looking for new investments and other opportunities like the AEI or redevelopment. So in terms of divestments, right, if you're asking us, I think as part of normal business operations, we always actually constantly evaluate the portfolio asset by asset, right, to see whether what is the highest and best use and whether we should divest or whether we should do an AEI or whether we should do redevelopment. So that continues for us.

Okay. I mean, can we expect similar divestment and acquisition this year like 2024 with interest cost now peaked? I mean, are you more optimistic in terms of capital markets for this year?

I think if there's the right opportunity, we will definitely be doing them. So it has to be the right asset.

Correct. Yes. So I think, Vijay, the way I would characterize that is that like Jacq was putting across is a -- is a BAU for us. Portfolio reconstitution, we still have some journey to go. And we have evaluated every single property we own right, what potential we can write through vis-a-vis what's changing in the market. What we really can think about whether it's a redevelopment that would require the engagement with authority and sizing up the market over there, would they make sense. And there will be also some assets we say, okay, is it going to be a run of the mill. Maybe it's going to be very slow organic growth, but because it's upscaling may be tough. There will be one market that we say, okay, let's go into it and see how the how the landscape looks like. Because very difficult to just talk about investment without considering capital market because you need to find source of capital, and if capital market doesn't exist, then what else can you do? Is it a third-party money that you can look at or maybe potentially somebody interested in a property that we divest, yes. So likewise, when we assess divestment, in our mind, we say how we're going to redeploy that, right? So constantly having that continue that we are evaluating, numbers change all the time, sometimes the number because for whatever reason, interest rate have gone up, gone down, it makes it more possible and less possible. Flux of activity, capital market become active again. And there's a lot of investor very hungry investor say, can you present something for us to look at? Yes. Then we'll look at it very actively. But nevertheless, it doesn't mean it's dropped off our radar. It's always in our mind. While our asset team work through the assets, they also bear in mind what would be mid long-term potential of this potential asset. Sometimes we say that, okay, next 5 to 7 years, this is something we want to do. Then you have a plan along that line. So it's a continuous effort. So I cannot pinpoint 2025, 2026. For all you know, end of year can be very active again, never know, right?

So my second question in terms of office, specifically, do you see any impact from Keppel South Central for any other buildings here? And is IOI Central Boulevard impact fully already priced into the market?

Maybe, Lee Zhuan, you will take that?

So for our office market, Central Boulevard, we heard is around 75% pre committed, and they are quite vocal in saying that they are on track for full occupancy by midyear. In a way, I guess that the market has kind of taken that as done thing. From Keppel South, of course, what we hear right now, the take-up is not as strong. But having overall, the new supply is still tight, if you look at it in the 3-year horizon, right? Because after this one, the next one is short tower, which is pushed back to 2026. And then if you look at the shadow stock as well as it's actually not very high. It's actually more around 300,000 plus square feet. If you look at the secondary stock that may come from some of the movements of new competitions, it's actually also quite manageable. We are talking about 600,000 or less, right, if some of these commitments happen. So like Meta space, South Beach is well kind of backfill. So by and large, I would say that the demand-supply dynamics is still relatively healthy. I think so far, we are not seeing any of the landlords also under pressure to really drop rents. So I think it will be a good shape for us.

Perhaps we'll pass the mic to [indiscernible], and then we'll go on to the online questions.

Congratulations on the performance. I'm just wondering, what's your interest rate outlook for this year? And how do you see it impacting your cap rates, especially perhaps in places like Australia, where you have that huge quite substantial takedown in your valuations? And the second question is, what is your preference between redevelopment, AEI, acquisitions and divestments? I have one last -- a third question, but I'll ask that if I have time.

So okay, this is our view, I think, may be probably quite shared by some of the participant in the Australian market, right? I think generally, you've seen this heightened activity happening last year on the transactional front. Predominantly in office space, we've seen quite a few transactions that encapsulate why the expansion happened in 2024. So it's about, on average, looking at 6.5%, 6% to 6.5% kind of the acquisition cap rate, right? So -- but you also signal to me that things seem to have normalized -- stabilized and normalized. Given there's a little bit more matching of buyers and demand investment sentiment and the landlord of what prepared to redeploy the capital elsewhere. My sensing is that we're probably quite based in Australia around that level. RBA interest rate has held very, very firmly on a high. Perhaps the market has a certain view that, first of all, unlikely you'll go higher and the next move is likely going to go lower. It's a question on timing. So that could be that one strong motivation to drive some investment activity back in Australia. So that's more from a capital flow perspective. And that is probably the more defining variables that we look at the valuation of Australian asset. It's a highly transactional market and highly dependent on the transacted cap rate as a determinant of the value, yes. Putting aside, of course, on the ground, day to day operation occupancy demand, that's a different picture. It's a bit more, I think you can say, 2-tier market. Maybe you want to elaborate a little bit on Sydney office market?

Yes. So for Sydney office market right now, it's very clear that the core city, the core CBD and the premium stock is actually starting to see some recovery. But the rest of the fringe CBD locations as well as your alternative CBD locations are the ones that are still a little bit struggling. By and large, I think that progressively, we hope this year we will start to see a stronger cost for return to office and that should help prop up demand. If we look at it right now, the incentives stabilizing for the core premium properties is not extending to the rest of the asset types. But clearly, the B and C grades are the ones that's really struggling, and they would probably end up having structural vacancy issues going the long term. And that's the reason why when we look at some of the assets, right, we have been relatively proactive in upgrading those assets to ensure that they have the specifications that is relevant to the tenants in -- to these market. So like 66 G, it's a very -- it's located in Midtown, close proximity to the core city. And in terms of specs, it's actually reasonably well. It has its own tenant base as far as its occupancy has been holding up quite well. And we are actually extending -- I think Tony earlier mentioned, we have been doing some operating works to 101 Miller. And then, of course, we will try to backfill some of those things. Probably if I may just touch on a little bit on North Sydney. So North Sydney is also undergoing a little bit of a challenge. And with Vic Cross Station coming up, Vic Cross is slowly ramping up the occupancy. We do believe that even though near term, it's a little bit challenged, the development of Vic Cross together with the other new products like one that is sunrise actually uplift the quality of stock in North Sydney. And hence, they will, in the midterm, like the -- make it a more viable and attractive alternative location. So we believe in North Sydney will come to see a bit more positive growth in the coming years.

Interest rate, I will let her answer.

Okay. On interest rate outlook, we are watching market developments really depends on what Trump measures will be in terms of his administration, what -- the tariffs will have an impact on inflation in the longer run. But in the medium term, what we are seeing in the market is there's a softening of rates in recent times. There are concerns over the economic outlook as well. So right now, the yield curve has actually kind of flattened. We have seen floating rates decline over the past 3 months. We're now at 2.6%, 2.7% for floating rate. It used to be above 3%. So in terms of our capital management, we have actually kept a portion of close to 20% in floating rate. So that could benefit if we see a continuous decline or slow decline in floating rates. But on the fixed rate, as I mentioned, the current spot levels are still high 3s. So if we're to look into refinancing long-term debt, fixed rate, we would likely have to pay up more based on what we are carrying on our books.

Can I ask one question on Malaysia? Because by the end of next year, yes, the RTS will be ready. And do you see any impact? I mean, could you look out further than just this year, if you see any impact on any of your malls? I mean, I know you don't have anything in that area, but would you see any impact, whether it's negative or maybe even positive for IMM.

I think on aggregate, it would definitely ease outflow for sure, right, because you're making the in and out more seamless. And you rightfully mentioned it may not just be a single way flow, it could be a 2-way flow. So we are watching. But importantly, I think we've been very proactive in the last 2 years to really look at our portfolio and see what we can do to at least ring fence and be a bit more defensive whether it's in suburban or in downtown. A couple of activities, whether it's IMM, Clarke Quay, we are even planning on now a few other assets in downtown for a different kind of posturing right. So these are all activities that are geared towards in anticipation whether it come on true or not to ensure that we are prepared, right? To what extent you will impact, I think there's too many variables. The cost comparison is one factor, whether our shoppers here prefer to do it in across the border, that's one factor because high delta the difference on the price you have to pay versus efficiency, convenience, I think all those things are not so easy to measure, right? If you say that closer to the border potentially, yes, easy, right, instead of doing a few round of change in MRT line than before it hit the RTS, right? And then that's only arriving at Malaysia border and then you talk about going inward. So the further away you can imagine the intuitively is probably more or less impacted intuitively, but hard to say. Again, we cannot rule out Singapore as a destination also very attractive for the foreign visitors, right? So whether we also can attract good inflow coming in, right? So even if our neighbors in the northern region who are able to curate a very well-presented offering, I would not be surprised we see Johor in Malaysia or even foreign visitors to Malaysia decided a pop in Singapore for a couple of days. So I think those strong dynamics that we are -- I think we are constantly reviewing and you wouldn't really know the full impact until the things really happen, right? But what we can do is now to prepare ourselves for them, yes.

And then the choice between redevelopments, AEI and acquisitions and divestments.

Very hard to put a choice. We do that for different reasons, right? Redevelopment is about relevance, right, about relevance of that assets to the vicinity that you're targeting or the market segment you're targeting. It's already outdated, it doesn't make sense anymore given the landscape has changed completely, then redevelopment may be the best #1 choice. Divestment is different, right? Divestment is about whether -- what is the best use of our capital, right. So if we have other opportunity present to us, yes, it's about improving your quality of portfolio, maybe take this out and then put something else of a higher quality or maybe one that has got a higher runway than the one that you're exiting, so it's a bit driven by different motivation. AEI, I would say, really is in response to the more near midterm trend change, right? So sometimes you do AEI. And it varies on the scale from a small reconfiguration of space or to the entire change on the cluster. So you're all very dependent on how the competition landscape has changed, the consumer taste has changed. And if we apply to office, some minor AEI would may be relevant because certain space becomes potentially an inefficient space, then we may think about this space perhaps. I mean level 9, go example, we are thinking about what we want to do at level 9, so this is an office environment, yes? So we are driven by different motivations. So maybe you want add some?

Yes. So for the credit to the asset management team, they have been actively working in all the permutations, from very small-scale AEI, all the way to redevelopment opportunities. One of the things I would probably just add to Tony is that sometimes you also have to look at timing that when we talk about small AEIs, right, and reconfiguration, the timing is very much within our control. We can look at the lease expiry profile, we can look at when we want to time it. When it comes to more major AEIs or even redevelopment, some of these, we have to factor in timelines or considerations that are not just within us, right, but also in the precinct, master plan, land use change and stuff like that, which will be a bit more protracted. So even we talk about preference, right, and definitely within us, we have a priority which works we want to go first, right? Of course, return is very important. But that's the site is ready to make sure that the timing fits how things pan out.

All right. Can we just take a pause and then we go on to the online questions? Yes. So we have a question from Naveen. Any update to the DPU accretion expected associated with the acquisition of ION Orchard? Perhaps we will take that one first before going to the next.

I'll put it this way. If we can continue the same run rate since we took over from end October, assuming that ION continue to perform on par of what they've done in 2024, I would imagine the contribution would -- forget we actually did not increase the MFU, right, what do we say? It would be less than 1%, in my view, it would be less than 1%, yes. I think we have variables there because embedded -- okay, so back track. Earlier I mentioned we account IO as a share of JV, right? So everything flows on a net basis after tax after interest cost upstream to shareholder ourself. Also depends on what we need to retain over there, let's say, for CapEx requirement, right? Historically, the distribution has been healthy in the high 90s, right? So -- but we won't rule out sometimes maybe you want to retain some over there. So that will affect the dividend upstream coming to both shareholders and to some extent, impact DPU, right? So too many variables to attribute, but we do already on a similar, I think it's less than 1%, my sensing, yes.

Okay. On the next question from Derek, DBS. How is management thinking about management fees in units? Will it be the same as 30% or will it be more? And also capital top-ups for 2025?

Earlier, I did mention, it's right at the bottom of the pecking orders. So if we can do it on a normal run rate, we wouldn't want to touch the MFU, yes.

Okay. We can go to the floor for questions. Can we have Tanshin, please?

First question is on AEI. You're undertaking a few. Can you share what's the achieved AEI on those has been completed? And for the ongoing one, what is the target? Second question is on portfolio reconstitution. I guess capital market aside, how are you thinking about Singapore versus overseas? Does it make more sense to add Orchard Road?

I think we did allude in our previous announcement, I think we're looking at the high single-digit ROI for IMM and Clarke Quay as well. So that's on track now. On Orchard, I don't quite understand what you want to try to figure out. That's not within our sphere of discussion. Singapore versus overseas? We consider all market. Of course, Singapore is going to be our strong base. And it would depends on what's the underlying. Our preference in Singapore. All things equal, yes, Singapore strong base, continue to increase your lead -- because we also know competition is catching our right? So we need to continue to be always leading the pack. And we get competitors changing after us, we make sure that we better run faster, right? So Singapore, I don't think we can ignore it completely, and it would be a high focus. All things equal, highest priority here, right? We've got a lot of things to do. And it can be AEI, it can be redevelopment can be, of course, if there's an opportunity for a third party, we'll assess it. But again, we are but we are careful, right? Any call inorganic, it has to be something that we firmly believe and if at the right price, right? So it has to be the right price. You have many started to align capital source will be there, whether it's the capital market source or private market or maybe our internal churning, right? So we need to consider how you're going to do it, right? So we don't want to be so locked in because we are industry market, and Singapore is going to be busy. So hopefully, you won't go -- we don't go away the idea that Singapore is losing focus. We will continue to be strongly anchored in Singapore. We need to continue, over time, to ensure we have opportunity to increase the coverage also in our overseas. Sometimes it's about a timing issue. When does the opportunity surface? In Germany, 2 assets, no scale problematic. In Australia, 3 asset, no scale, not so easy. So over time, if you are planting your flag in some jurisdiction, not in your home land, then we need good foot on the ground to be able to manage the asset for us. Without scale, not easy to manage them. So that's the context.

Can we pass the mic to Derek, please?

Just one question on the P&L side. On the tax exempt income which spiked up the second half, are you expecting that to normalize back to normal levels going forward? And same goes for the tax credit, I think we saw the second half the $12 million tax exempt income.

I will come back to you on the tax exempt income source. On the tax credit, it is -- I would say, not going to be like every year, we have a tax credit. This is due to the tax provision that we previously provided, and we've written it back after finalization of the tax position with the tax authorities.

So there's no more of that. It should go back to expense going forward?

Yes. That's right. That's right.

Just one question on IMM. Are you looking to perhaps extend the land lease for IMM? I think it's down to 25 years. Is there a chance of renewal over there?

If the opportunity arises, definitely, we will be keen to look at it. But having said that, it is something that is a plus 30, right? So when -- it's too early for us to engage. We have been trying, but I think from a -- from talking perspective, they wouldn't talk to us until it's much closer. But definitely something that we want to extend if we have the chance to. On JTC. Yes.

Okay. Do we have another question from the floor? Okay. Mervin, please.

I think the previous quarter, the guidance for rental reversions for the retail portfolio this year was low single digit. Is it something we are sticking to or you're raising to mid-single digit given the...

Low to mid-singles. And definitely, we will be -- we are on track to -- so far from what we see, we are on track to be around hovering somewhere around the mid-singles, yes. For the retail, yes.

And in terms of electricity costs, can you guide what rate you are being able to sign this year and how does it compare to last year?

For electricity tariffs, actually, we have locked in for 2025. It's actually a good discount of -- from lower than to 2024.

Yes. In the teens now or...

Not teens. Tariff rate alone is probably in the teens, low teens. But if you look at all in, it's probably around just shy of 10.

Do we have another question? All right. If not, then Tony, would you like to share any closing remarks?

Thanks a lot for attending this call. And hopefully, we had no surprise for you, the results. We thought today, you need a little bit of explanation of the numbers, quite noisy numbers. And hence, I thought it'd be better to run through the slides than what we did previously in the fireside style. So which we like, we kind of enjoy it. Before we end, I just want to introduce my new colleague, new to the team, a good assistant to me. We have a lot of things to do, and [indiscernible] is here to help. I do think you're unfamiliar with him, right? He used to -- before you went to Malaysia, you used to handle Clean, right? Your CFO of [indiscernible], yes. You want to say something? By the way, the day on year, the day. Don't ask -- don't pressure him.

Thank you, Tony. Very happy to be back in Singapore, and I did see quite a lot of familiar faces. Just give me some time, I'll get to know everyone probably over the course of the next few months. Looking forward, I think, obviously, we're quite excited. Last year, it's been a great year for CICT. And obviously, we are looking forward to do more things going forward as well. So look forward to catching up with everybody over the next few months. Thank you.

Thanks, [indiscernible]. Thanks, management team. So thank you for your time and attention. Before you go, please help yourself to the refreshments outside the room. If you have further questions, please direct them to us. All right. Have a good day ahead.