Frasers Centrepoint Trust (J69U) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Fraser CentrePoint's financial results presentation for the first half 2020 ended 6 months -- ended 31st of March 2022. Today, we have the pleasure of the management team here to give you a run-through of presentations as well as the results that was just announced this morning. So now I invite the CEO, Richard Ng, to give us the opening. Richard, please?

Thanks, Fung Leng, and a very warm welcome to all of you. Thanks for joining us in this presentation, right? It's been more than 2 years since we had our circuit breaker back in April 2020, and a lot has happened throughout this period. And can't be more than happy to see finally we are almost completely lifted all measures with the exception of probably mask wearing. And hopefully, that will also be lifted at some point in time. So if we go and look at our overall high-level summary, Fung Leng, can you move the slide, please? Throughout this period, we progressively reopened and this is also reflected in our results. We have also seen an improvement in terms of our operating performance. And if you look at across this page, in particular, occupancy has improved. Rental reversions, I think this is something that you guys have been asking us every quarter, right? So far, we have shared that it's been pretty flat and so and so. This is one where you can see it's a positive, 1.7%, incoming versus outgoing. And if you compare to how we used to measure our rental reversion on average versus average, it's about 4.12%. So this is -- works very good for our portfolio. And at the same time, our tenants have also seen continuous improvement in their performance. So our tenant sales have improved to effectively pre-COVID level, right? On the other hand, we have also continuously focused on our financial position, our balance sheet, so gearing level at 33.3%. Slight improvement from what we had during the last quarter result announcement. And another thing to note is that the refi for this year for FY 2022 are all in place, right? So these are some of the talking points, and including the fact that 68% of our total borrowings are now on fixed interest rate compared to what you've seen even as we seen this last quarter. But Audrey will give a little bit more details when we go through the financial section later on. So okay, in terms of a bit more granular details on the financials. Gross revenue, up 1.5%. So this is a combination of getting the full impact or the full results from our ARF contribution. But at the same time, if you recall, we did some divestment during the period last year, right? So we divested 3 of our non-core, and at the same time, we bought ARF portfolio. So as a result of that, there's a 1.5% increase in revenue. At the NPI level, there's a 3.8% improvement to our performance. In terms of distribution, if you look at it, distribution to unitholders, there's an increase of 3.3% and a DPU increase of 2.3%. So the question is why is there a discrepancy since the distribution to unitholders is higher than the DPU? But if you look at the footnote, we have stipulated that we are actually retaining SGD 4.8 million of taxable income from this round of distribution. And again, I think a lot of people are wondering why do we keep this SGD 4.8 million. One of the main reason is us being prudent because when we were working out on this result, we felt that maybe we should be a bit more prudent, set aside some money and wasn't very sure at that point in time what do we expect for the second half. Because if you recall, the announcement on the latest lifting of measures only occurred on the 22nd of April and the actual lifting only effective 2 days ago, right. So this is one of the reasons why we actually retained the SGD 4.8 million. Okay. This is a slide -- I'm not going to go into details. Something I think all of us are very happy to see, finally, all the measures are down. If you walk into your office today, you don't need to do trace together. You go into the malls, you can go into any entrances, any level, right? Unlike in the past where you probably park at one level, you have to all jam into the lift and get to a different level to get in. So all those are removed. It makes shopping a lot more easier, a lot more comfortable. At the same time, more confidence being brought back to in terms of our retailers, our shoppers, even our staff, right? So this is all good or positive for FCT, especially because our portfolio of retail assets, while we continue to operate throughout the pandemic, this is something that is very welcoming sight for all of us. Overall market environment, MTI has indicated that the GDP growth for Singapore to come in between 3% and 5% for 2022. Of course, there are some pressure in terms of the inflationary side of things. This is something that we keep a very close eye on what's happening on the market, especially some of those cost pressure that's coming on. In terms of rental, across the broader market, one thing you have seen throughout this pandemic period is that the suburban retail has held up pretty well, pretty -- while it's pretty flat, but it's held up. The City Center or Orchard Road prime belt has seen some weaknesses. But I think with the borders reopening, some of this could -- we could see some improvement down the road. Singapore supply, good for us, meaning for us, remain low at less than 1% per annum. So while we expect some new malls to reopen over the next 2, 3 years, but in terms of the overall quantum, it's still relatively low. Concern in the next section is going to delve more details in terms of financial performance and our balance sheet. So I'll hand you over to Audrey.

So for first half of 2022, we've seen higher revenue and also higher NPI by 1.5%, also 3.8%. And the growth is mainly due to the full 6 months contributions from ARF acquisitions. If you do recall, ARF acquisitions happens on 27th of October in last financial year. And in this year, we -- in 2020, so in this FY, is a full 6 months contributions. So however, this is partially offset by the loss of contributions from the properties divested in the previous year and lower property tax -- property expenses. For first half, DPU of SGD 0.06136 is up 2.3%. It's higher than the same period last year, mainly driven by higher income during the period. Next. So NAV as at 31st of March remains steady at SGD 2.31. Next slide. So in terms of the capital management, I'm pleased to inform that the refinancing facilities are in place to refinance the borrowings due in FY 2022, and this will extend the debt maturity profile to 2.5 years. The green loans accounts for about 22% of our total borrowings, so aggregate leverage is about 33.3%, interest cover at 5.7x. About 68% of debts are hedged to fixed rate interest. And for everybody's info, for every 50 bps of increase in SOR/SORA is estimated to impact DPU by approximately SGD 0.0169. This is for the unhedged portion of approximately 32% as at 31st March. Our average cost of debt for the 6 months is about 2.2%, and undrawn facilities is about SGD 654 million, and we are rated by both S&P and Moody's. Next. So the DPU for the period a share is SGD 0.06136. Book closure date will be 29 of May 2022, and payment will be on 30th of May 2022. So with this, I'll hand this over to Pauline, who will share more on portfolio performance.

Thank you, Audrey. Good morning, everyone. I will just very quickly take all of you through the performance of our portfolio, ending the first half of FY '22. All right. So on this slide, you will see the occupancy. We've actually ended 31st March on a pretty good note, with occupancy at about 98%. And occupancy across, or rather, our portfolio occupancy has actually been improving on a quarter-on-quarter basis and also compared to last year for the retail portfolio, right. On this side also, you will see that this trend is actually across the assets. Across all the assets within the portfolio, occupancy has remain flat compared to last quarter or increase compared to the last quarter. Next slide, please, Fung Leng. Yes. Okay. This slide shows the margins. Yes, thanks, Fung Leng. All right. So we ended 31st March with the retail portfolio NPI margin at 75%, close to 75%. This is a 1.2 percentage point improvement compared to last year. With the recent announcement of DORSCON Yellow, well, the outlook is generally positive for our portfolio. We do see revenue pressures being alleviated. Some of the limits, because of safe distancing, because of capacity controls on brands, right? The demand for space, retailer sentiments, atrium utilization and also other income like copper and all that, that has been alleviated with the recent announcement. And also some of the OpEx that we are actually incurring for safe distancing and so forth will also go away. So all this bodes well for the margin of the portfolio. But having said that, there are also stresses in the horizon in terms of cost inflation, right? But from this slide, you see that at the asset level, the margins generally maintain or improve for the majority of the assets, except for a couple of assets with lower occupancy. Next slide, please. All right. We've seen this slide in the past quarters. I think just a few key takeaways. Traffic, on a year-to-date basis, it's still muted. It's still below pre-COVID levels, and that's largely due to the fact that the -- a lot of the capacity as well as the safe distancing measures were just recently removed. But the key takeaway, also, if I refer you to the slide, on the right-hand slide, is the fact that actually sales have actually recovered beyond pre-COVID and it's also improving on a year-on-year basis, right? And a large part of this resilience can actually be attributed to the composition of our portfolio. We have a high composition of essential and mass positioning traits within our portfolio. And that has actually held up the sales very well over this pandemic situation, over the past 2 years. Next slide, please, Fung Leng. Okay. Also a very, very positive and encouraging note from this slide, we see occupancy cost at 16.2%, which is very, very healthy, at a healthy level for suburban retail malls, right? And the takeaway from that is that tenants on average, in general, are trading at a sustainable level. And there is actually headroom for -- to push rental on -- to achieve stronger rental growth in tandem with the general recovery of the broader market. Next slide, please, Fung Leng. Okay. Reversion, if I may draw your attention to the road that has been boxed up. For the first half of FY '22, we have seen actually positive reversion at 1.73% on an incoming versus outgoing basis. On an average-to-average basis, because the step-ups are taken into consideration, we are looking at positive reversion of 4%. So this is an indication of the inflection for suburban retail market. And if we look at some of the market consensus, it seems that we -- especially with the recent reopening, the expectation is that the strengthening of the recovery to come in subsequent periods. Okay. Next slide, please, Fung Leng. All right. This is just a deep dive of the leasing activity for the remaining half of this year. Now some of the lumpiness that we see across certain assets is largely driven by the timing of anchor expiries within these properties. But we are actually in advanced negotiation for a large proportion of this, 15% that is due for renewal in the second half of this year. Next slide, please. All right. I think over the pandemic period, given the challenging leasing market, one of the key focus or one of the key aspects of our leasing strategy is on tenant retention. But notwithstanding that, we have not lost sight on the need to actually constantly refresh and curate our trade mix to remain relevant to our catchment, right? And I think that is evidenced by, firstly, the healthy sales recovery that we saw in the earlier slides, and also the sustainable OC that has been achieved for our portfolio at 16%, right? And we do see interest from retailers across the board, both F&B and non-F&B retailers, right. Next slide, please, Fung Leng. Okay. With that, I end the segment on the key performance highlights. Just to take everyone through on what we are doing in terms of sustainability. Now our focus, FCT's focus on sustainability is in line with the national call as well as our overall Frasers agenda for net 0 carbon, right? Recently, we are looking at establishing a network of 36 EV charging points across 12 of our Frasers mall. So this is one aspect or one part of what we are doing in response to the sustainability call. Fung Leng, next slide, okay. Also on the 18th of April, we have committed to participate in SP Company's DDC network. We have actually committed Century Square and Tampines 1 to be injection nodes within the DDC network that's being set up by SP. Now this is part of our response to the inflation stresses that we see in the broader environment. Inflation in terms of material, manpower, energy costs as well. So the focus is on rationalizing some of the expenses, the operating expenses, tapping on the scale of the company's commercial community to achieve savings and optimization in terms of some of the energy utilization. All right. Next slide, please, Fung Leng. All right. With this, I will hand over to Richard to round up today's presentation. Thank you.

Right. Thanks, Pauline. The summary slide you see in front of you here is a couple of areas of focus. Some of them we have been sharing with you, especially in terms of our strategy and so on, so I'm not going to go in and drill a lot more on that. But maybe just focus on, firstly, in terms of our performance, up to date, has been very positive with a DPU of SGD 0.06163. We are in a strong position in terms of balance sheet, rental reversion has come in positive. So we expect this to give, us in a way, an uplift because with the market reopening, we expect the leasing market to also improve, the sentiment to improve, the outlook for even our retailers to also improve. So overall, in terms of market environment, we think that suburban retail spaces being also limited in terms of supply and also upcoming supply that will put us in a good state. Finally, just to round up in terms of -- from our perspective, we still focus a lot on asset management, on property management, especially looking at ways to continue to be more effective, to be more efficient and productive. We constantly look at ways to improve in terms of our utilizations of energy, et cetera, to make sure that, firstly, in line with our green plan, but at the same time, to also help ease the cost inflation side of things. With that, we end our presentation, and we are happy to take on questions that you may have. Back to you, Fung Leng.

Thank you, Richard. We are now ready to open the floor for questions, so please give us a few seconds to queue the people asking the questions. [Operator Instructions] Okay. Your first question will be from Terence Khi from JPMorgan.

Richard, Fung Leng and team, just 2 questions from my side. My first question is on impact of higher utility cost. Could you help us to quantify a potential increase when, let's say, the hedges roll off and what the current rates locked in? Second question is on impact of higher interest rates, plus the expectations of the kind of interest rates that you'll be paying by end of FY '22?

Yes. Thanks, Terence. Okay. This seems to be the favorite questions these days. Okay. I would try to explain to you as much as possible, and also maybe Pauline and Audrey could jump in as well. So the first part is in terms of utility. I believe you shared this before during the first quarter, and it's not changed because as of now, our utilities are fully hedged. For FY '22, we only have 1 property that has expiry at the end of August, meaning that there's only 1 property that would have any rate adjustment for FY '22. For FY '23, we have 1 asset at the end of February and the bulk of it is at the end of May. So if you look at overall perspective, the impact would only probably happen, if there is, towards the second half or the last quarter of next year. And that actually is a positive note for us because we have a pretty long runway from now to that time before we recontract, right? And that is where we continue to monitor the market. We will do whatever that we have been doing and even more in terms of how can we be more efficient, how can we look at, again, reducing the usage of energy in all our malls. From the cost perspective, utilities account for about roughly, right, about 7% of our OpEx. So this maybe will give you guys a good gauge in terms of simulating the impact. As far as we are concerned today, because at this point in time, it's very volatile, but we would imagine if it's 6 months, 9 months or even close to 12 months down the road when the bulk of our renewals come up, the market could be very different. But that is the sensing that we have as of now, and that's as much clarity we could give to you at this point in time in terms of utilities. For interest rate, again, we think that this is something that you guys would be asking, and we have also indicated upfront the impact of every 50 bps to our DPU. So that should, again, give you a pretty quick indication as to the impact that we have because we also shared with you that 68% of our loan are fully hedged. So anything else to add, Audrey?

Yes. So as at 31st of March, our hedge percentage was about 68%, but this has further increased to 70% after a recent refinancing of a tranche in April. Just to update everybody, yes.

Next question comes from Simeon from SCCM. He posted this question on the group chat. He said that -- just to relate, refer your attention to the group chat. Is that noted on the higher NPI margin, mainly on the decline in utilities and maintenance and others? Can the management give more color on this? And was the decline mostly of maintenance since utilities have slightly grown substantially? And the second part of it is will this shortfall in maintenance spend be made up in the second half of 2022? And in short, the NPI margin is sustainable at the current levels or where we see more in reversion or cost inflation?

Okay. I think there are many parts to this question. I'll try -- I'll attempt to answer as many as I can, and then, Pauline, you can jump in if I miss out something. Okay. The long and short of it is, if you look at our results, it's positive on both fronts. Revenue has gone up by about 1.5%, and NPI has grown up by 3.8%. Of course, if you look at revenue, because of the size, the base, right, so even at 1.5% increase is actually quite significant as compared to the 3.3% increase in NPI. So we have seen various improvements. We have seen rental reversion came in positive. But of course, rental reversion impact may take time for you to actually benefit from the entire increase because it is done over a period of 6 months, right? And some of them are higher, some of them are lower, some the same, so it cuts across the board. So we will see this impact only realized as we progress towards the second half and even into next year. In terms of other income, for the first half, it's still very limited. If you recall, the opening of atrium was only effective from April. So again, we try to very quickly launch the atrium. Today, if you go to our malls, most of the atrium will be reopened with activities already, but it took us a short while to reopen because the reality is a lot of the operators, retailers, were not prepared that the atrium will be open, so they take time. So -- but now we are back on, so we expect some of this revenue stream to come in only in the second half. And that goes with the other aspect of the overall other income in terms of car park, our other casual leasing, et cetera. So this should improve with the lifting of most of the measures. In terms of OpEx, this is something that we have been consistently working very hard. We shared some of the idea, some of the things that we have done before, but perhaps maybe I can just reiterate things like security contracts. We look at how can we improve with the use of technology by reducing headcount, and that's something that we have done and is still ongoing. Even for cleaning, again, we try to leverage on technology and be less dependent on headcount. So all those things are, in a way, bearing fruits, right, as we go. It doesn't come in at one go or it doesn't come in everything upfront. But progressively, we are seeing some benefits coming through that. And the other aspect is, of course, utilities in the first half, as mentioned, we are fully hedged, right? So we are not exposed to the volatility that you are seeing in the market or you may have experienced it yourself. So that gives us, in combination, an increase in both revenue and also resulting from some improvements in the OpEx side of things. So that's how we ended up with a 3.8% increase in NPI, right? So hopefully, that gives you color as to the fact that the NPI increase is not just driven by OpEx.

Thank you, Richard. The next question comes from Geraldine Wong from DBS.

Richard, Fung Leng and team, so I have 2 questions. So the first one will be a follow-up on NPI margins. So downward pressure will come in from utilities in 2023, so, but cost savings when it comes to social distancing lax will kick in much more strongly. So in the coming quarters, do you see NPI actually improving further from the current levels?

You're referring to the margin, NPI margin continue to improve? Is that your question?

Yes.

Yes, thanks. Okay. We are cautiously optimistic that with this lifting, more things can happen, and I explained just now in quite great detail. Certain areas that we're already seeing improvements, opening of atrium, ability for us to go out and get revenue from casual leasing. And hopefully, in terms of even car parks, right, revenue could also improve. So these are all the top line improvements we expect. And of course, the other part is, as we continue to lease out the balance space, as Pauline mentioned, a significant portion of what you saw, 15% is really in advanced negotiations. So we hope -- looking at from the perspective of the reversion to stay positive for the balance of the 6 months, and that could then lift the top line. Plus we are expecting the sales of our retailers to continue to improve, so the GTO contribution should also play a part in our top line. And with all this in, and the fact that utilities are pretty hedged for FY '22, we continue to drive efficiency, productivity and also some of the cost as a result of the safe management measures would also be -- we don't have to spend those costs anymore, so there will be some cost savings from that perspective as well. So overall, we think that the margin should stay or improve for the second half of this year.

A short one on reversions. Are you able to give a breakdown versus -- between anchor versus non-anchor when it comes to reversions?

Okay. Overall, I think it's a case of looking at it in a broader perspective because not forgetting that for anchor space, they take a much bigger space. So the percentage of reversion may not be as high as a smaller space, a 500 square feet space. So I think it is more important to look at the broader perspective, that the overall average rental reversion, to give you a sense on where the market is moving.

We move on to the next question from Terence Lee from Credit Suisse.

I have a few questions. I'll just take it one at a time. First one, with the reopening and all that should be good. Just wondering what are we safeguarding against with the retained income? And also, should we expect more to be retained in 3 to 4Q? Or will you release first half's number if nothing happens in the second half?

Okay. Terence, as mentioned just now, when we work out the financials for this quarter or this first half, maybe we work out in terms of the distribution. And at that point in time, when we made the decision, the announcement hasn't taken place. So while we are confident that we should expect more lifting measures, but the clarity wasn't there. So lastly, the amount that we set aside was just for prudence. We just want to make sure that -- there's another 6 months to go, we are doing well. But we want to be prudent, so this is where we took the position at that point in time. As far as FCT is concerned, we distribute at least 90% of all our taxable income every year, right? I think there is a follow-up question.

Yes, a follow-up question. Sorry.

Can you share with us for the atrium revenue, on a same-store basis, where are we now versus, say, 2019 levels?

Where are we now, we just started, Terence. So we only started 1 week. As compared to 2019, you look at a 12-month basis. So we are hoping that at least we could get more traction from May to end of the year. So you're looking at about 5 months as compared to in the past 12 months.

Any sense of the magnitude of, like, what quantum of additional revenue that could be?

Okay. Overall, if you look at from -- I'll give you a broader perspective. Overall, if you look at GTO, car park, other income, which includes atrium, it's about roughly 10% of revenue.

Okay. Okay. I'll just...

Based on 2019, yes.

Okay, and then last question from me. Where is management's comfortable gearing level? And then could you share if there are any acquisition plans?

Right. Okay. FCT traditionally has been around this level, the low 30s to 35%. But we've mentioned and we indicated and in fact, we have done it before when there's opportunity, like in the case of ARF acquisition, we went up to as high as really close to 40% before we reduced it back to this level. So again, this is where we are. We always do get -- keeping our gearing at a comfortable level, making provisions so that if there's opportunities available in the market, we could react quickly. Because as a REIT, I mean, we don't keep money. We don't keep a lot of funds with us. And there's always a limitation to how much you can go in terms of your gearing level. So we are always working around this kind of parameter where we have a bit of headroom, and we can react very quickly. So this has been our strategy. So your second part of your question is opportunities in the market. We shared this before, within our -- whatever we could see. Waterway Point there's another shareholder with 20%. Hopefully, at some point in time, they would divest their stake, which will mean that we can get about 10% because it goes to both parties -- both remaining shareholders, right, 10%, 10% each. The sponsor, we are looking at this. We have South Wing, Northpoint City South Wing in this table. So again, this is a question that perhaps you guys proposed to FPL in their results announcement as to when they intend to divest this asset. And we will be more than happy to buy over these assets because we do own enough wing, right? It makes total sense for us to own the whole development.

Got it. So am I right to say that if management does embark on acquisitions, we could possibly see the carrying jumping back towards the 40% level? Like, management is okay with that?

Okay. I think our strategy is always something that we evaluate all the time. And at that point in time, what makes sense. If we were to go up to 40%, it's still actually relatively comfortable because we could go up to 45% or 50% if we meet certain condition. So we will evaluate it at that point in time, and if there's a necessity for us to again bring down the gearing, that's something that we will do, and we have demonstrated that we can execute and do that if we chose to do that. So the question is, really, what makes sense at that point in time when we do the acquisition or post the acquisition? And at some point in time, maybe it takes a while before we can then rebalance again. So this is where strategy will happen and try take into consideration various issues or assumptions that we put in place at that point in time.

Our next question comes from Utkarsh from HSBC.

Richard and team, I had a couple of questions. My first question was on Changi City Point, where we are still seeing negative rental reversions. What are the thoughts for that asset? Also, what is the proportion of people coming back to Changi Business Park? Like, has it seen a rebound as you've seen in the CBT?

Okay. Let me just take on the broader perspective, and then I'll hand over to Pauline to go into more granular details. So overall, Changi City Point, we shared since the start of the pandemic in circuit breaker and the various measures throughout this whole 2 years or so. The key issue with Changi City Point is because it's located within the business part, it's -- most of the traffic actually came from people working around the business park as well as the expo. So those were the 2 main contributor for Changi City Point. So as a result of work from home and the cease of operation at the expo, that kind of cut off a significant portion of the traffic. So today, we are very excited that things are looking right again for Changi City Point because work from home, it's no longer default. Effectively, 100% of the workforce can go back. The question is, have we -- how many people are going back? So again, it doesn't work overnight that 100% will go back. So effectively, we are seeing -- from eyeball perspective, we are seeing more people coming through the mall, and that's a positive sign. And we expect this to, again, gradually increase. The expo, we haven't seen any major event yet, but I think with the latest relaxation, we expect more activities, more programs to start -- to kick start at the expo. Again, that should then give us, again, additional traffic that comes through the mall. Maybe in terms of the more granular part, Pauline, you could also provide some details to Utkarsh.

Utkarsh, yes, so actually for this mall itself, if you look at the rental reversion, yes, it's still negative, but I think it has actually been progressively improving in terms of the rental reversion. I think on a very active note for asset management, what we are doing is to reposition the mall because we wanted to -- or rather our strategy is to position it as the outlet mall in the East. And I'm happy to say that we have actually gained some traction in this aspect in terms of bringing in a significant player into this mall that will help to helm that desired positioning. And we're also working on some of the other existing tenants as well in terms of rightsizing them, looking at whether we bring in a new offering. So in line with the general recovery with the reopening of the expo, with the work from office, we are positive about the improvements for this mall. So I hope we've answered your question.

And my second question was on a more medium to large-term basis for the REIT. Where do you see the growth coming from apart from the 2 assets that you mentioned, Northpoint City South Wing and the 10% stake in Waterway Point? How does the REIT grow beyond that? Would you be willing to go outside Singapore for acquisitions?

Utkarsh, I think, again, this is a question that we've been receiving consistently. And again, what we could share is that in terms of strategy, we review our strategy from time to time. But at the moment in time, it has been very focused on looking at our portfolio. With the reopening, there's a lot of things that we can do and we want to do with our assets. And as also Pauline alluded just now is that while we look at rental reversion filling up our vacancies or improving occupancy, we are also very mindful about looking at our malls. What needs to be done? What are the tenant mix that we want to change? We're going to move out some of the non-performing tenants. And this is the time for us to do all this. So this is a lot of effort and work will be put in place to look at our existing portfolio. We mentioned about what we can see within our sponsor and our JV partner assets that potentially could be available to us. Broader market, we know of owners of malls out there who may be a single owner, own a small portfolio. So these are things that we continue to engage with them all the time. And at some point in time, if they should look into having a partner or divest, we are there, we are ready. So all this broader strategy, that's being reviewed, evaluated all the time. So we always keep our options open. And -- but for now, I think we are focusing all our efforts in terms of trying to bring the performance of our portfolio up again.

But focusing only on Singapore?

At this point in time, because all our portfolios of assets are in Singapore, right, so that we want to make sure that we benefit from the reopening as much as possible.

Next question comes from [ Joel ] from DBS.

I just have 2 questions. The first is regarding the Central Plaza. I understand it's a office asset, so could you share like some strategic thinking and long-term plans of like how does the office asset fit within this predominantly retail portfolio? And the second question I have is I noticed that your green loans have grown from 17% to 22%. So I wonder if you see any substantial savings from green financing? And is there like a percentage of green loans that you want to have in your portfolio?

Right, [ Joel. ] I'll take the first question and probably Audrey can jump in for the second bit. Central Plaza, yes, it's an office building but it's also an integrated development. If you are familiar with this asset, it's actually part of an integrated development together with Tiong Bahru Plaza. So you have Tiong Bahru Plaza connected to Central Plaza, and that sits on top of the Tiong Bahru MRT station. And it came as a portfolio within the ARF acquisition. So if you ask me, did we deliberately buy an office building? The question -- the answer is no, but it came as a portfolio and it came as an integrated development. So at the moment, we are very focused on driving -- again, if you look at the occupancy for Central Plaza, it's not as optimum. That's something that we are working very hard on. We have some traction, I know we are working with some key space users. So hopefully, in the next quarter, we can share the results from all this negotiation that's taking place right now. So as far as Central Plaza, again, is concerned is for us to optimize the performance of the asset. In the longer term, again, we review our portfolio from time-to-time as demonstrated the fact that when we review at that point in time, we recognized that we want to divest the non-core and we did it. So again, this evaluation process is an ongoing process and we will evaluate it at an appropriate time. So for the second question, in terms of green loan, Audrey, you want to take on that question?

Yes. So we -- substantially, most of our assets are actually green. And actually, last year, December, we actually set out a green framework and this will enable us to tap on different sources of fundings for the debts. So not only on the savings side, but also diversify our sources of funding. So in terms of green financing, yes, we do see some savings. And if we hit certain targets and then there will be savings with regards to the interest rates.

Audrey, I guess the part of the question is whether you plan to increase the green loan beyond a certain percentage?

So it's a case-by-case basis. And when opportunity arises, we will see whether it's appropriate to refinance our borrowings with green loans and then tap on the sources of fundings.

Yes. Just to jump in, I think from the overall perspective, our strategy as a group is also to look at in the longer term, having the majority of our loan green, right? So this is something that we work towards that based on various scenarios and the market condition at that point in time.

Next question comes from [ Aaron Kho. Aaron ] has sent his questions through a chat, so let me just repeat his question. Okay. Any specific concerns that led to the SGD 4.8 million distribution retention in first half 2022, even if it could be released later?

I think probably you might miss the response I gave earlier on. The main reason is, at that point in time, when we close the account, when we look at the financial reporting, we wanted to be prudent because there's another 6 months to go. And all the announcements were not out in terms of the almost entire relaxation of the measures. So it's a case of being prudent, right, [ Aaron ]. And we don't see any particular concern actually.

Right. Thank you, Richard. We have a question from Xavier Lee.

My first question is, I think you previously mentioned that you are looking to resell some of the Central Plaza space to other retail trades. So may I ask the progress on that? And is the 6% reversion a reflection of this?

Pauline, do you want to take that?

Yes. Yes, I think in the leasing up to the quasi retail trade is just one aspect of the strategy, right? I mean we are looking at various options, including fitted out space, users on the whole floor basis and so forth. Now in response to your question on whether we are getting any traction, the answer is yes. The occupancy for Central Plaza is largely due to the fact that we had 1 anchor that was occupying 3 floors that exited towards the, I think, a few months ago. And that created the higher vacancy for this asset. But we are actually in advanced negotiation with another potential mini anchor. So hopefully, we can deliver the good news for the next -- in the next quarter.

The next question is what is the incremental CapEx cost for the EV charging point and the brownfield DDC network? Is this within your CapEx budget? Or is there going to be incremental CapEx costs?

Yes. So there is no CapEx involved. It's actually done by the companies themselves. So basically, we will provide the space. They will put in the CapEx, and there's some profit sharing model.

So you can provide the space for free...

No, no. So the space is the car park slots that will be used for the charging of the vehicles, but there is no CapEx outlay. I think your question is whether there's CapEx outlay by the landlord?

Yes. So just a follow-up, are you charging for the car park space? Or is provided there for the car park space?

Yes, there will be charges for usage of the space through a profit-sharing model. So we do get income for using these car park lots as for EV charging.

Actually, it's -- just to chime in, sorry. So actually, it's a case of when you drive into the car park, you actually pay the car park rate already. So regardless of the person actually park an EV or otherwise, there is really a car park charge. That is what we do for every car. But because they specifically place their equipment on those lots and they generate some revenue from that, so we have a small percentage of share of revenue. I think that is more in terms of making sure that the space is used effectively as much as possible because we don't want to have space left baked-in and unutilized. And that's not productive for us. But the whole idea here is that, again, in order to embrace our journey towards net 0 carbon and also to, again, provide services to our community that lives around our place to make sure that we provide this. That is something that is going to increase over time, the usage of EV vehicles.

Will this profit sharing be material to income?

No, actually, it's not.

Not material.

Maybe a day comes when your -- 70% of your car parks are equipped with EV equipment.

And last question is are there any rebates given up for this half of the year as compared with the first half of last year?

For the first half, I honestly don't recall. In fact, that's something that has dropped off quite some time ago. While there is still certain limitation in terms of capacity, but generally, if you have followed our result announcement, you have seen that sales for most of our retailers, I wouldn't say every single one, but a good proportion of that, has seen uptick in their sales. And some has even surpassed pre-COVID.

Yes. And I think with this reopening, if you look at the polarization performance, right, it's basically retailers that have certain capacity limits that are impacted in terms of trading performance. So the likes of, say, the cinema operators, the food court and all that, so with the removal of the capacity limit, with some of these restrictions on safe entry being removed and so forth. And hopefully, our footfall will recover, right, in a stronger way. That will definitely support the trading for some of these retailers that were more impacted during the pandemic period.

We had just one more question in the queue. We will open the floor for just one more question before the end of the session. [Operator Instructions] Our second last question comes from Geraldine Wong from DBS. This is second round.

Fung Leng, Richard, back in the queue. So just one question. So we have a robust pricing for recent several mall transactions. So do you see this translating to a further tightening of cap rate values for Northpoint City or Waterway Point?

Okay. In terms of cap rate movement, we haven't really seen or witnessed any cap rate compression or otherwise. So as far as we know, it's still relatively stable, so we won't know unless something else change over the next period of time. Because we only do our valuation typically for the full year, will be towards the end of our financial year.

Yes. So maybe, Richard, just to add on to that. So Geraldine, we do engage the valuers quite regularly, right, to get sensing of the market, notwithstanding the fact that our valuation is done annually. The answer is no. We don't see any signs of -- we don't hear about any signs of cap rate moving, either compressing or expanding. If you look at some of the recent larger retail transactions as well, it doesn't seem to be the case. Yes. So I hope I have -- yes, that answers your question.

Right. Thank you. We have a question that was asked earlier on, but I guess the -- we didn't answer it fully. So the question was, where do you see your average cost of borrowing heading at the end of this financial year 2022?

Okay. Audrey, you want to take this?

Okay. So we actually expect the average cost of borrowings for portfolio to trend higher in the second half or the coming quarters, so in line with the rising interest rate environment. So as you have known, we have shared that we have actually increased our hedge percentage to 68%. As said, that differs much and further increase to 70% in this quarter. So then based on our estimations, maybe the average cost of borrowings for FY 2022 is maybe around this in the mid-2%. Yes.

Right. Thank you, Audrey. The last question from this Q&A session comes from Simeon again, this is the second round. His question is, speaking of cinemas, was the Century Square cinema space backfilled and indicated in the first half numbers? If not, how are the negotiations going?

Just to give you a broader perspective, again, the cinema for Century Square that firm got, we are looking at various options and also talking to different operators in that space. So there are good traction, meaning good progress, but we haven't concluded anything in terms of what we want to do as a replacement for the outgoing cinema operator. The numbers that you see, are you asking about in terms of vacancy? Because they are still operating right now, so they are not counted as a vacant space. If that is what you are asking for.

Yes, I believe so, because there's no other comments indicated. All right. We have come to the close of this briefing session and the Q&A. On behalf of management, I would like to thank everybody's participation. Richard, any closing remarks?

No. I just hope that you guys are enjoying with the additional freedom that you have and don't forget to shop at Frasers Centrepoint malls. Take care.

Thank you. Thank you very much. Bye-bye.