Mapletree Pan Asia Commercial Trust (N2IU) Earnings Call Transcript & Summary

Good morning, everyone. This is Li Yeng, and thank you very much for making time today for MCT's First Half Financial Period from 1st April to 30th September Results Briefing. So given the ongoing COVID-19 measures, this is a fully virtual call. So for the best quality and experience, may we request all callers to mute their phones and to avoid taking any incoming calls during this briefing. Thank you. So on the line today, we have Ms. Sharon Lim, Chief Executive Officer of MCT; Ms. Janica Tan, Chief Financial Officer; Mr. Koh Wee Leong, our Head of Investments and Asset Management as well as Jane. So without further ado, I will pass the line over to Ms. Janica Tan to bring us through the results presentation. Mr. Koh will then bring us through the portfolio performance. We will then take questions thereafter. Thank you.

Good morning, everyone. Thank you for taking time to attend this briefing. Okay, as you may recall, in fourth quarter FY '19, we retained $43.7 million of distribution by way of capital allowance claim and capital distribution retention. So we are pleased to announce that $15 million of these retained fund shall be released to unitholders and was included in the distribution for first half FY '20. We will continue to assess the situation before we decide on the timing to release on the balanced distribution. Okay, now we go back to first half results on key highlights. Financial performance. First half FY '20 gross revenue and NPI were down 2.5% and 2.6%, respectively, from first half FY '19/'20. This was due to COVID-19 rental rebates disbursed during the period but offset by contribution from MBC II, which was acquired in November 2019. So including the release of the $15 million retention fund, first half FY '20 DPU totaled $0.0417. Due to the impact of COVID-19 pandemic, there has been some pressure on the revenue and also future prospects for retail and office business park assets. So we conducted an independent valuation in September on MCT portfolio to determine the fair value of our portfolio. Our MCT's investment property were valued at $8.7 billion as of 30 September 2020 due to the COVID-19 impact. On the portfolio performance. VivoCity's first half shopper traffic and tenant sales were impacted by the 10 weeks of mandatory business closures and prolonged COVID-19 restrictions. Since the Phase 2 reopening from 19 June, we have seen progressive recovery at VivoCity, whereby rebound in tenant sales has outpaced shopper traffic. Portfolio achieved 97.7% committed occupancy. And MBC continued to provide stability and support in such uncertain times. Okay. Amid the COVID-19 interruptions, we continue to direct efforts into creating value at VivoCity to position ourselves for eventual upturn. We successfully reconfigured BEST Denki's space at Level 2 to accommodate homegrown online-to-offline fashion retailer, Love, Bonito. And again, work to revitalize the promenade-facing F&B cluster on Level 1, targeting to complete by third Q FY '20/'21. So both initiatives will deliver positive financial benefits and further enhance VivoCity's feel as a destination mall. On capital management, we continue our proactive and prudent capital management approach with focus on financial flexibility and liquidity. As of to date, we have completed the refinancing for this financial year and all the term loan view in next financial year. The debt majority profile remain well spread, with no more than 21% of debt due for refinancing in any financial year. Okay, moving on to first half financial forecast. Gross revenue was $218.7 million. Gross revenue was $218.7 million for first half FY '20/'21, 2.5% lower compared to first half FY '19. This was due to rental rebate granted to eligible tenants affected by COVID-19 and lifting of the circuit breaker partially offset by the contribution from MBC II from the acquisition completion date 1st November 2019. As at for Mapletree Anson, the results of all properties were impacted by COVID-19. So other than lower rental income, ancillary income, such as capital income, A&P income were all down due to the various restrictions imposed by the regulators to cut the spread of COVID-19. Property operating expenses were lower despite the inclusion of MBC II's property operating expenses. Savings mainly come from the the JSS received from government, the Jobs Support Scheme, lower marketing and promotional expenses as events were canceled or deferred due to the implementation of various safe distancing measures. Net profit for the period, $171.5 million, 2.6% lower year-on-year. So net finance costs were also higher compared to last year same period due to loan interest incurred by MBC LLP for the acquisition of MBC II, interest on $168 million of half year that we've drawn down in April this year to improve liquidity, offset by lower base rate. So amount available for distribution for first half FY '20 was $123.4 million, and this was 9.7% lower compared to the $134.1 million for first half FY '19. Including the release of $15 million retained in fourth quarter last financial year, the distributable income for first half was $138.4 million. DPU, $0.0417, 9.9% down from the $0.0463, despite a higher distributable income. The lower DPU was mainly due to lower income from operations and a large number of units been issued. Okay. Next, we move on to portfolio valuation. As I've mentioned earlier, MCT valued its property and the value is now at $8.7 billion. There were changes in passing rents as well as lower market rents and reduced rental growth profile assumed by the valuers. There was no change to capitalization and discount rates used. So balance sheet. With the revised fair value of investment properties, MCT's net asset attributable to unitholders decreased from $5.8 billion as at 31st March to $5.7 billion as at 30th September. NAV per unit is now $1.71. On key financial indicators. MCT completed the redemption of 160 million MTM in August, refinanced close to $370 million of term loans ahead of their expiry in April 2021 and repaid some RCF with temporarily surplus cash. So this brings the total debt outstanding to slightly below $3 billion as at 30 September 2020. With the revised revaluation of the portfolio, gearing increased marginally to 33.8%, up from the 33.7% at 30 of June. And during the quarter, $310 million of fixed rate debt matured and we enter into new IRS, so bringing the percentage of fixed rate debt to 71.5% based on the borrowing of close to $3 billion. ICR, based on trailing 12 months is at 4x. Term to maturities extended to 4.5 years, and the average all-in cost decreased from 2.61% per annum in June to 2.57% per annum in September, really due to lower SOR on the existing rate loans. Now we move on to debt maturity profile. We continue to keep it well staggered, no more than 21% of debt due in any financial year. And subsequent to the reporting period, we have refinanced the $98 million of RCF outstanding on this FY '19/'20. So this RCF was strong in April at the height of COVID-19 to improve liquidity due to the uncertainty of it. $70 million of MTN due in FY '21. Facility has been put in place to redeem on its maturity in April 2021. And thereafter, there is no refinancing until August 2022. Okay. Last but not least, some information on first half distribution. DPU, $0.0417, be released 30th October and payout is on 27 November 2020. So with that, I've ended my presentation, and I will pass the time to Wee Leong. Thank you.

Hello, good morning, everybody. I'll try to give a bit more color on the performance of MCT's portfolio assets. So for the first half of this financial year compared against the same period last year, portfolio revenue was down about 2.5%. The inclusion of MBC II has helped buffer a little bit of the impact that the portfolio has seen from COVID. So if we exclude MBC II and compare only the same-store assets, our gross revenue would have been down about 21% or so, about $47.6 million to about $176.5 million. All the same-store assets saw lower revenue, except for Mapletree Anson where there was a minimal COVID-19 impact and occupancies have actually improved from about 75% in September last year to 100% this year. So as a result, Anson's revenue were up about 15% year-on-year. The main drop in revenue was contributed by VivoCity where revenues are down about 40% year-on-year. This was largely contributed by rental rebates provided to tenants, where rent -- eligible tenants will have received close to about 3.7 months of rental rebates in the first half. [indiscernible] will give a bit more color on the rebates provided. There was also restructuring of the retail lease -- of non-retail leases and lower renewal and re-let rental rates, which we have undertaken to maintain occupancy at the mall. The other major impact was largely due to COVID, the closure of atriums. The movement restrictions have resulted in lower DPU rents due to lower first half sales, lower advertising and promotional revenues due to the prohibition on the atrium events, which contributed the largest proportion to our A&P revenues as well as lower capital revenue due to lower traffic. PSAB -- PSA Building saw about $4.1 million or 16% drop in revenue for the period. This was due in part to the lower occupancy in the office towers together with the rebate that we accorded to retail tenants. As with VivoCity, there is also impact on GTO rents, A&P revenue and car park income. So lastly, MBC I was down about $1.5 million, largely due to rebates given to tenants as well as lower occupancy due to nonrenewals and pretermination, which has already been filled. So on the operating expenses front, like Janica mentioned, given with the inclusion of MBC II, we are down year-on-year. That's largely due to some support that we received from the government, $1.5 million -- about $1-plus million of Jobs Support Scheme payments. We also received a property tax rebate, and that's taken out of the -- taken as a reduction in property tax expenses. Those generally lower maintenance and A&P expenses, which contributed to lower OpEx across the board. So operating expenses, even with the additional MBC II, was down 1.8%. But if you exclude MBC II and look just at the same-store assets, the operating expenses have been down about 19.3%. So NPI for the portfolio is down about 2.6%. If you exclude MBC II and look at only the same-store, then NPI would have been down about 20 -- close to 22%. As with revenue, only Mapletree Anson performed better year-on-year on an NPI basis. So the portfolio occupancy, will give a bit of color why the first half results ended up the way they are. You can see that for PSA Building, occupancies are down, now running about 69%. That's largely due to the expiry of the major tenant in the building, PSA Corporation, which had expired whose lease had expired in the second quarter. Overall, for the rest of the portfolio, committed occupancies remain healthy. So as tenants -- so we come aboard -- occupancies will come back up to where they were in the June -- in the June period. So we see update for rental reversion. As you can see, due to the difficulties we are seeing in the COVID period, retail rental reversions are negative 8.9%. Office and Business Park are still fairly healthy at 1.6%. On a portfolio basis, this is about 3.7%. Just to note that for PSA Building, PSA Corp lease was actually on a short-term extension with that -- and the short-term extension is at a significant premium over market rentals. So the reversion of that lease down to market contributed quite a bit to the negative rental reversion for the Office/Business Park, okay? So lease expiry profile still fairly healthy. We're about 2.5 years for the portfolio. Then looking at shopper traffic for VivoCity. So obviously with moving restrictions, circuit breaker for phase -- in Phase 1, Phase 2 and the closure of borders, traffic and tenant sales at VivoCity have been impacted. Maybe let's move to the next slide, which gives a slightly better view. So during the circuit breaker period, obviously, sales and traffic dropped in the rate about 70% to 80%. Once Phase 2 has started and the malls are allowed -- more tenants and the malls are allowed to take in more people, occupancies have improved. So we are looking at about, say, about 20-ish percent drop in sales and about around 50% drop in shopper traffic over the last few months -- over the last few months, okay? Now because of all of the drop in sales and now the inability for us to allow tenants to open, we had to assist a large number of tenants to weather -- to assist a large number of our tenants. Over the course of the last 7 months or so from March to September, we had given out to eligible tenants close to about 4 months of rental rebate. And this probably has helped them weather through quite a bit of the difficulty they face internally. Okay. So on the asset enhancement and value-creation front, we haven't been sitting idle. Some of these things have actually been a little bit delayed. But now we're getting them back on track again. We have -- the reconfigured BEST Denki space actually just before COVID started and we're in the progress of leasing -- or reconfiguring the other portion of space to be leased out to Love, Bonito. But because of COVID, that's taken a little bit of time to complete. We are glad now that the shop has opened sometime in the last month and looks like it's trading fairly well. So on a return on investment basis, this is about 30% on a stabilized basis. You also have seen that we had done a little bit of reconfiguration work at Level 1 towards the promenade, closer to the HarbourFront center side, and that's where we have taken out the old cluster of F&B units, which used to be reduced to be entered by Jamie's Italian. So now we have a number of new -- well, used to be 3 tenants, now at 4, and we will have an addition of another Shake Shack in Singapore, and that will be right at the corner of the unit that you can see. Okay. So more work -- the leases are done, works are still currently ongoing for some of the tenants and likely to complete during this quarter. So over the quarter, we have also refreshed some of the tenants within the mall. We are glad to welcome back Ben & Jerry's to the mall, but they still have new tenants, they have to boost the occupancy of the mall. Okay. So that's all I've got for the portfolio.

Thank you, Janica and Wee Leong. So without further ado, I will open the floor up for question and answer. So maybe as a start, we have Brandon. He has a few questions. Brandon, please?

I think basically, I want to find out from you, Sharon, also is the tenant sales performance. Can you give us some color on which are the trade sectors that's doing a bit better or doing a bit worse? And if we were to strip out the better-doing trade sectors, what would tenant sales decline be in the second quarter?

Okay. Generally, I think maybe we take a little bit back into the history. During the April month, the peak, we were minus 18%. Then we actually hovered around the last 3 months, when the full opening was started. So, let's say, we're talking about July, August, September. Vivo -- I'm talking about Vivo, I'm not mixing Vivo and ARC together because it's a very different scenario. It was in order of minus 18% then minus 20% thereabout. That is stabilized last month to about minus in the early 20s. In terms of across the sector, the better performance are definitely the hypermarket. Then the worst performer, if I didn't remember wrongly, it's definitely like the GVs. So the cinema is very, very hit. The hypermarket is doing okay. Luxury watches, in my mind, is actually ahead of last year's sales. So that's generally the trend. So what we are seeing is about a minus 20% on a stabilized basis for sales, okay? So this work from home and the borders being closed, this, too, is definitely having an impact because our tourist content in Vivo is -- it's roughly around the 25% mark based on historical. So it -- as 2 quarters ago, I did say that anything close to around a 20% drop, if these 2 conditions are still around that we have to live off. Unfortunately, anything around 20% is considered good news for me because of my situation of being part -- near part of office and also tourist, yes. So that is the trend of the sales.

And I just want to follow-up as well. I just want to follow-up on the EBIT, right? So can you share about what kind of sales performance will allow the tenants to clean this additional 0.4 months? And do you expect more to be given for the next couple of quarters?

Okay. We -- in terms of rental rebate, after the mandatory period, which is the July 1, yes, we tuck aside those that the government deem as SME that we have to give -- with choice or no choice we have to give, yes. Now beyond that period, yes, the -- beyond the group that the government decides who is SME and who is deserving, for the month of August, September, what we looked at was their July sales, okay? Their July sales, let's say, for example, if they drop, let's say, 28%, then they will be entitled to 20% in terms of rental rebate. And what we also try to impute inside is to say that, yes, 20%, but you get upfront 10%. I help you with the cash flow with the 20%, but you pay me back 10% at the end of the lease term. So that is what we have been going out to the tenant here. Why we are doing so is one, we don't want the habit of just like asking us for money but without even trying themselves, so that's where we cross it, where we help you in terms of cash flow, but half of it you got to pay me back in terms of the end of the lease term. So that's how we have been structuring it for the last batch of rental rebate. But there are tenants who tell us that accounting-wise, they don't have to deal with it, yes, so they rather take the half rather than to take the -- let's say, if it is 0.2, they'd rather take the 0.1 than to still owe us the 0.1 -- balance of the 0.1 at the end of the lease term. So that's where we are, and that's the thinking behind how we structure it. So it varies between tenants. So they exclude the tenants that is not within the rental rebate scheme, so your hypermarket, then your banks, your -- the banks, hypermarket and what's the other one, tenants with positive sales. All those are out of the bucket. So this we are talking about people within the -- still suffering, yes, so that's why we come up with this structure. So back to the thing. If you are 32%, I give you 30%, you pay me. I give you 30% today, you give me back 15% at the end of the lease term. So that's how we -- our structure is.

Okay. And just for...

That's for Vivo, yes? But for ARC, it's a different story, okay? Because ARC is 100% supporting the office and work from home is really a big impact on them to a certain extent. Them plus -- like Google is now work from home until January. So in terms of lifestyle itself, it is affected. So for ARC, we take a different stance. ARC is we want them to extend the lease term, okay? Vivo, we are not so, okay? But for ARC, if I give you a rental rebate, okay, you extend the lease term for me. So we craft our things differently for different properties, yes.

[Operator Instructions] Yes, so meanwhile, we have a few questions from online. So I will list them down here and the management can answer. First, do we expect more rental rebates to be given to tenants going forward? And what is the outlook on office-based demand in view of more people being open to working from home? Companies like Google, for example, are going to be working from home until next year. What would be the impact?

Okay. If you talk about rental rebate, we talk about retail first. In our sales, it's still a minus 20%, okay, which is, to me, not a bad thing, because of my work from home and because of the borders being closed and we have tourist about 1/3 -- about 1/4. I don't think we can run away from giving rental rebates. I'll be very upfront with you, okay? To say that at this stage, I can just hunky dory, do nothing, no wait, okay? Rental rebates are likely to continue depending on where the sales performance is. So if it is assuming the minus 20%, I'm likely to continue with the structure that we're talking about. If you are minus 20%, let's say, if I give you a 20%, I'll give you upfront 20%, you give me back 10% at the end of the lease term over a period of the 4, 5 months that you can invest, okay? So to answer your question, it is. Okay. Now if you talk about the office sector. The office sector, I think, work from home arrangement, like I said, previously, it's not immediate. Previously, I said that it's not so immediate as for the impact to the retail. But office is definitely, there are people who are thinking of -- thinking of [ online ] I think. We have experienced 1, 2 tenants, but they were -- already prior to COVID already cutting space, like the HSBC, like the Unilever, which we subsequently sublet to -- not sublet, we subsequently got another tenant to build it up. Okay. So the work-from-home arrangement is an issue that I cannot put a number to it as to how many companies are willing to adopt this. I'll be very upfront with you. There's question on my head, I said that, okay, how do I assess whether the company is for or against work from home? And how does it translate to the total impact in terms of the numbers? I can tell you, our traditional way of looking at -- let's go for grade A tenant, credit tenants so that our payments are safe, yes. In this old way of doing assessment, you can really parallel it or to -- how should I say it, you can't really handle this risk mitigation methodology in view of how companies look at work-from-home arrangement. What I'm saying so is the more the company is grade A tenants, the more in my view that they are more willing to accept a bit of work from home, okay? China Main company is very difficult, okay? But bigger corporates tend to be a bit more accepting on this idea. But how far are they willing to go down this route, okay? I don't think we have a feel, okay? It's very, very -- I have not heard of anybody totally [ eradicating ] just to 100% work from home. But to say that they are considering a portion, I would say, yes. I think last 3 weeks when the minister said no traveling for the next 2 years, to me, I take it as no travel next 2 years, your work from home arrangement is likely to continue in parallel to a certain extent, okay? So that one has a little bit of negative impact in terms of when we come to renewals, how people look at it. Do they want to just give up like a little bit of 20% of the space or so. So back to the -- I can't quantify. I will be very upfront with you. It's not that -- I can't go behind every company's brain to decide how much they are willing to adopt as a strategy for work from home. But it is it, okay? It is it, people are producing. So that's a scenario that we are seeing. Okay. Then now we talk about Google, okay? Google was actually on the warpath of expansion prior to COVID, yes? Warpath, big amount of spaces that they want. So Google is still okay with us, okay? And -- but what they have done is they have slowed down or to say, hey, all the expansion plans, yes, we stop for a while. So they are taking a step back, but it's in terms of the expansion rather than in terms of the current space that they're using. So I think that gives you a little bit of comfort in terms of our biggest anchor. Okay?

Next on the line, we have Joy.

My name is Joy Wang. Just a few questions from me. First of all, on the retail side. In terms of leases that you're finding, are you giving a like a variety of lease expiries or variety of terms? Or it is still very standard traditional leases that you're signing?

Okay. The lease structure is no different. The only thing is called reduction. So let's say, for example, there's still a fixed component. There is still a plus percentage component. So some tenants, we ask for a little bit higher plus percentage of performance because they are a little bit worried about this COVID period, that's where we take a lower, okay, a lower base with a slightly higher GTO percentage rent. So that's where we sit. But generally, we are not deviating that, for example, for everything on GTO, no, okay? I'm fundamentally against 100% GTO because there's no way I can account for all the sales, yes? All the sales of people buy handphones or not, I don't get anything, I don't have visibility. I don't have the number. And that means I get 0, right, if I go for GTO. So back to your question, not much difference, except a reduction in terms of the base rent.

Okay. Got it. And in terms of tenant demand and inquiry, which segment are you seeing the most sort of take ups in demand?

Okay. Fashion is tricky, but we still managed to get 1 or 2 to backfill. With F&B, I think you have seen that we have opened up at least 1 whole new chunk for outlets there. [indiscernible] were level 2, also another 2 outlets there. It's still -- we are still okay in terms of the F&B sector, yes? But fashion, because we have like a 3 unit. So that one, I think we are very close and ready to get it done. It's already -- I think it's about done already. If you talk about -- like I have like 10 people to choose from, from fashion, I'll tell you, no one, okay? Today, very tricky. Okay, it's very tricky when it comes to fashion. And when it comes to my core center atrium, there's no way I can just put F&B there or I can put a lifestyle there or non fashion there. You just [ push ] the trade mix away. So in short, fashion, very tricky. But we are very -- I think we are about done already in terms of the 3 unit. So F&B, we are still okay. We are -- we have opened up the floor. Last quarter, we said that 1 actually walked away. We managed to that period. And it's all done, all will be opened by end of this month, early November.

Okay. Next on the line we have Derek from DBS Bank. Derek go ahead. Sorry, Joy?

Sorry, can I just ask one -- sorry, I just have 1 last question. You mentioned about pretermination in MBC and nonrenewal. Can we get some details on that?

Okay. No, those are just reduction in space, Derek, (sic) [ Joy ] at the point of renewal.

No there are -- Joy, I think, we mentioned it before earlier, it's a...

They were reducing space, okay? Okay. And there was -- yes.

But those are effective already.

So it's not talking about -- usually all the MBC leases, they don't halfway through tell you that, hey, I just want to go back to you, 1 floor. They always talk to you at point of expiry, you deal with it. Okay. So the [ FIFO ] has been handled.

Yes, next on the line, we have Derek from DBS.

Can you hear me?

Yes. Go ahead.

Okay. Firstly, thank you for bringing success to Vivo. So my key question on -- is on Slide 22 I'm just curious that would you say that, that part of the mall is a little bit of a cold corner. And for the new restaurant that's coming in, what are the expectations? Or are the leasing largely short term in nature or more of a permanent lease?

Yes. The leasing is not short term in nature. If you talk about which side of our corner is stronger, they're about the same. The strongest is always the center customer. NTUC is [ hard ]. And that's because of being at the end, it's always slightly not as prime as in the center. So they are not like short-term leases, like nobody will sign you like 1 year, okay, because they got to do a fit-out. And all these are normal leases. So like amongst all the 3 -- the Jamie's went barely up, right? So what we did was reconfigured, we draw exhaust. We brought in 4 of them, okay? Technically, actually, there was one that walked away from COVID. That's where -- if you look at our previous slide, it was empty. We still cannot announce. So anyway, it's done already. So they'll all be opening now. So not short term, not short-term leases.

Okay. Sounds good. I'm just curious whether would overall rents for the 4 tenants coming in be higher than the previous?

It's higher. It's higher that's why the ROI is positive. I even use the lower of the whatever number, yes, all the lowest number that you can find to count the ROI. If not, it's actually in order of like 40%, 50% manner. I just used a lowest count just in case anything go wrong, I count wrongly or whatnot. [indiscernible] is positive.

I'm sure that's going to be...

It's positive.

We're going to have a queue anyway, I'm sure. I'm just curious...

I hope so. Okay. We wish what are you curious upon. Okay, Green Common, a lot of people are asking what is Green Common, in short, it's ready food. In short, it's vegan. In short, it's anti-pollution, sustainability, anything that you can't buy on a [ greenie ], okay, is food that they serve. So you have -- they are a -- they were actually introduced by one of our tenant group. It's a little bit of whatnot new Asia, yes. Everything is green. Okay. So this food is around vegetables, plant-based. I don't sound so passionate about it because I'm not -- I'm a carnivore. Okay. Anyway, okay. So go try end of this month, something different. Vegan, yes?

Okay. Sharon, just curious, could you share what's your office physical occupancy currently? Do you guys track it?

Okay. The physical there, can you -- you see the slides?

Yes.

The pain is usually showing, which is not unexpected. It's a PSA Corp -- The PSA building, which is PSA Corp ending in August. So if you look at it, it's not -- the portfolio is 95%. And committed is 97.7% on a portfolio basis. The pain point of PSA, but it's not unexpected, yes, that a big chunk that he had -- he moved to his old building.

Got it. Okay. A last question. I think, Sharon, you obviously talked about going overseas, right, potentially. What are your plans for that?

No. Did I say I would go overseas? I said that our mandate now is looking at Singapore. But with COVID, maybe we may have to review -- I didn't say that I am going. Because the time when I say I'm going, I will put on the table and said, this is why we are going. So I have not done that. So I cannot comment to you, Derek.

We would like now to invite Tan Xuan.

My first question is on office. Can you share where is the backfilling and new demand coming from in terms of trade sectors?

So I think it's not so much of trade sector. It's actually in terms of how the dynamics of the market has been growing. One area that we have seen the delivery of demand is actually in the form of the buildings that were -- that are about to undergo redevelopment. So Fuji Xerox Tower is obviously the biggest -- the best example that Fuji Xerox has signed a lease with us. Then of course, we have a few small tenants here and there that we have actually met up from this building, people like others like AXA Tower. So it's actually more from that angle than a specific sector.

Okay. Got it. And can you also share about -- a bit on preterm and deferment for both retail and office?

Preterms and deferments are...

Okay. The preterms for retail is not that many. Of course, we do -- last quarter, we have a few runaways, very small ones. I think one was a supplement, less than 500 square feet, then one was restaurant that ran away during COVID. Yes, if you talk about whole list of people running away on preterm loan, okay, if you talk about office itself, preterm -- usually office people sit you down and tell you at expiry, this is what I want or the new floor plan that we want. So I hope that answers your question.

Okay. And what about -- is there any deferment?

Okay. You're talking about the deferment in terms of rental payments?

Yes, that's right.

Okay. Notice of release, people have signed up about less than 20 of them, about 1.0% of total revenue. That is a total portfolio-wise, how many people have signed up for rental relief, the -- under the act, yes. So it's not a very big number. But like I said, there will always be some delinquents who let those sign -- don't file, but yet will delay a bit. Our arrears is in good -- is in decent order. Of course, it's higher than pre-COVID, but it's still within manageable range now, yes.

And then that 20 tenants, can I classify as mostly retail tenants?

Mostly retail. Mostly retail. It's only like -- I think office is only, what, 2? The rest are retail. Yes, 17, to be exact, it's 17.

Okay. Got it. And just one last question, based on current discussion with tenants, right, what's the sense on reversion trend for FY '20 -- for the rest of FY '21 and FY '20?

Okay. I think retail, we have to be very realistic. We have to be very realistic. There is no sign of when we're going to get the vaccine and when the borders are going to open and when the work from home arrangement is going to end. This is -- the conversation that we are having is not easy. Because to them, it's -- I don't see a lot of light. So where do I go? I [ slash ] airport, okay, [ then coming back ] So what we try to do is try to maintain occupancy. Of course, when they come out unreasonable, we will try to let go, okay? It's -- this short term, I think we definitely have to swallow a little bit, okay, to fight the bullet in terms of reversion. So reversion being negative is not unforeseeable. And if you talk about first year being very negative, it's definitely there. Because no new shops are there to open, okay, there's only a few cowboys out there that's open in today's market. And even if they were to open, they would push for a very hard bargain. So but unfortunately, fight is against us during this period. We just have to pull through it. And I think I will maintain the occupancy even if it's minus single digit. I think I'm talking about maybe, say, if you talk about minus, it's 1/3 the portfolio roughly, assuming that 3 years lease, 1/3 is up for expiry. I think it's better to have some rent than no rent, realistically. If you keep vacant, especially you may actually come to a point where you have to accept anything that is lower either way, okay? So give you an example, when we're talking about wanting to extend some of the leases. The tenants are also very smart, right? People like, hey, I'd rather pay you money to extend the lease, let's say, if I extend the lease, maybe I can get a lower rent later on. So I said, okay, if now you give me the argument, I buy it. In 2, 3 years' time, if there is a vaccine and we're back to normal, I don't buy that argument, my life would be back to normal, okay? So you may be happier with the existing lease term than the new lease term which is smart to market, okay? So in short, negative for retail is that -- is that -- I'll be bluffing you if I tell you that no, it's not there. Because all -- there's a little bit of a market shift in terms of the rent, yes, for this period. And so whatever lease renewal at this period is very lucky, very, very lucky.

Got it. And what about office?

Okay. Office?

So I think office can run away from the entire issue as well. We are not expecting the same rentals that we are signing this year, likely to be lower. How those numbers step up depends on tenant by tenant, but we are not expecting it to be significantly lower. So reversions will be around the same range that you saw in the first quarter results -- sorry, first half results.

[indiscernible]

Hello?

Hello, Terence.

Sorry, yes. I just wanted to check again on the reversions. For the 9% decline in retail rent reversions, can I check, has it been supported by high GTO component? And if we were to offset that, what would be the full rental decline?

Okay. I think that number is quite real. Because the GTO, we kind of retail how much you're going to do. Although under normal circumstances, we roughly can tell, okay? So for that -- because now it's a little bit of a rough patch. Then sometimes, they -- we [ cancel ] okay. So I think that will be a good gauge of the current numbers that you see is for this current batch of tenants that are renewed. So for example, a majority of -- I see the big drops, my big question -- my question here. So those, I had no choice. It was smacked in between like June. It's literally take it or leave it, okay? So June, I cannot expect my big -- my fashion right in the middle of atrium walk away. I will never get anybody. So that's why we really did do some deep cuts for it that swung the numbers quite a bit, okay?

Yes, also in terms of your new openings, in terms of all these new tenants that you signed, were these tenants signed prior to COVID-19? And have you actually seen inquiries pick up as tenant sales and footfalls have come back?

Okay. The footfalls are still minus 50. Although our sales is minus 20. Quite clearly, the sales have improved better than the footfall. Reason being, I think it's quite clear that certain portions of the footfall are transient, MRT, next way, go to the office and so on and so forth, okay? Now the tenants, the 4 -- the 6 of them that we sign up, okay, now stands for on top level 2. 3 were done -- actually the bottom level 1, all were done before COVID. Then I told you that during COVID, 1 ran away, right? One ran away, then we managed to backfill during COVID, which is about 2 months ago, okay. So there were some done during COVID. Then the upstairs one, upstairs one was purely done during COVID, the 2 F&B was purely done during COVID. So you please go try, it's The Straits. That's quite nice. I think the food is quite nice. So they have a choice in terms of their local offering. So they have -- they have been there, the laksa pasta is quite nice. And -- try the coconut, it's very good. That is $13 there. It's $13 but it's good food. It's good food. Okay. All those were done COVID, done during COVID. I was actually very, very surprised, and they were fighting with our team over fitting out period because the contractor got delayed and all. But my team was saying, "During COVID, you agreed to the deck. So don't come and tell me during -- it's COVID that could delay your opening and renovation." So in short, they are done during COVID. Two of them were done during COVID. The level 2, yes?

Do you have to give up just longer fit-out periods or longer rent freeze?

No, no, no. Same. Because if you come to them during COVID, we just talk through -- because they will have contractors telling them how long they need, yes? So like for that chat, he actually -- he was quite nice. He was upfront about signing it. Then subsequently, he shipped the fence in terms of the 1, 2 weeks delay. So the team said, "Okay, cannot be. I put everything right. There's a delay in the opening date because of COVID, the construction and all." So we'll just go have that. Usually -- usually, when it's unknown territory, we take the nicer approach. We go hard, but we will never take everything, yes, because it's not our floor.

And in terms of WeWork space at PSA, have they still committed to what they have previously committed or has any other take up changed?

They have signed a lease about 1, 2 years ago. The lease is still valid, okay? They're supposed to take over in a month or 2, okay? So let's see, as of now, it's supposed to be status quo. We hope he doesn't go very up during this period. But COVID is supposed to be positive for, I say, some of the coworking space because some companies were not sure how much space they want. They may actually take it as a backstop, yes, for a portion of the head count.

Right. Okay. And final question for me. Would you consider looking at acquiring St James Power Station?

St James Power Station. It is short-term lease here. Oh, St James, sorry, I keep thinking of the power station opposite PSA Building, sorry. Okay. Any deal we will look at it, regardless which area. We have no visibility on the price or whether the intention to sell is there or whatever it is. But it's part of the [indiscernible] So when it's available, we'll have a look at it.

Do you have another final question before I shift it to the online questions?

I guess wouldn't it be imperative to pursue acquisitions? Given like the rental headwinds and the office headwinds right now, would you consider prioritizing acquisitions or still more stabilizing portfolio?

Okay. My -- it's not a matter of me prioritizing. We still have to assess all deals that comes across the table and we [ don't jump ], okay? And if you think about it, all the deals that's done during office, I don't know how to swallow. 3,008 first record, 2% new, thereabout. I don't know how to do this. I don't know how to do this part, okay? And it's not like super grade A, no proper drop-off point. So it's very tricky where the valuations are definitely across the board coming down, yes, definitely. If everything holds concern with the valuers' basic assumptions that they impute in all the properties, it will come down. So even though your operating numbers are stable, we are talking about all being equal, just the valuers' number, it's coming down. So valuations are coming down. Even before the valuations are done, it's already on a relatively high side. I find it hard to swallow in terms of making it -- don't ever talk about accretion, but yes, as per property on a per square foot level. So I think the market is still quite flushed with cash. Really, there's still people looking out for bite-size or still like real estate, which is very deferring from the operating environment that most of the landlords are feeling. All these deals are like in the high $3,000 per square foot. I don't know how to buy properties like these. Let's say, it's a 2% new. I find it very difficult. I've done less than, right, use gearing, use this, move, shift here, shift there, also very difficult.

Okay. Thank you. We have a few questions from the online participants, mostly related on capital management. So first, what's our thought process on the $30 million of standard is still retained, do we still see it materially being extended in the coming quarters and how that affects the distribution going forward? Also, we have done a bit of refinancing for FY '21 and '22. So can we please comment on the reduction in financing costs? And the next question is on property valuation, which has gone down across the board for the 6-month period. Can we share more on what the valuers are assuming, given that capital value seems to be holding up in the market?

Okay. I will handle the retention, and I will handle the valuation. Janica can handle the refinancing, yes. Okay. We have released about 1/3. Okay, the balance, to be decided. As and when we find stability, we will release it, we would definitely release it along the way. So as to when, I'm not committing a date today. If you talk about valuation, although the big items, that cap rate and discount rates are held concerned, the behind the scene things that the valuers -- market rents, they shifted a little bit. Growth rates behind the scene, they shifted a little bit. And things like vacancy period downtime, they also shifted a bit. And leasehold properties by nature, even by nature, by lots of time, there will be a bit of impact. So if I'm saying that all things being equal, all these few things that the valuers do behind will definitely drop the WALE, okay? So if you see a WALE up, it is only because the operating means that they have signed leases above what the valuers have imputed in their model. I hope that clarified that. So growth rate assumption has shifted across the board. They also shifted downtime assumptions, i.e. dragging it, lengthening it. And also the market rent after the expiry of the site leases, those are the things that they have shifted. Okay, then for us, because we are leasehold, there's also a little bit of less of time impact on the numbers. So all in all, 2%, 3% is not out of WACC, yes. And why do we do a VALE? We always do a VALE once a year. There's some SES requirement. We can actually don't do it. But when we look at it, we said the better they do it and we explain, right? We start explaining, so that's why for corporate governance, we decided to do a valuation by a third party, independent third party.

Okay. On the refinancing, when I look at my debt maturity profile sometime in April this year when the pandemic just started, we have about $600 million of refinancing to do. And I am about to start, but actually not preferred. So that's where we thought we might saw just get it over that and done with, and we can focus on operations because we don't know how this pandemic will pan out. Is it going to be long? Is it going to be short? How would it affect the market liquidity, et cetera. So we thought we will just go out and do refinancing for any loans due in the next 12 months. So that's where we are. And obviously, the margin is higher than what we normally will get. But because of the lower market interest rate, the SOR is much, much lower. So overall, we still have quite a significant saving after the refinancing. And especially this $160 million MTN due in August, that is the fixed rate note of about 3 over percent, and we are refinancing with -- even with today, all-in is like, less than 1.5%, yes.

Next, we would like to have Derrick from Macquarie.

A few questions for me. First is more on digital response. So we've seen some of your peers established like online -- in-house food delivery platform and digital ones. So just thinking your thoughts around that. The second question is on, again, the retained capital, right? What constitutes stability to you? Because if you look at the refinancing part and all that, it's more or less committed. If tenant sales stay at the current level, do you think it is considered stable or not? The last question I have is on Page 5 of your SGX release footnote 7, right, there is this thing about your rental income from the fit-out period from MBC II. Can you just elaborate on that a little bit?

Okay. I will take the food delivery one, yes. Okay. I think food delivery, we definitely have explored. It is -- okay, the delivery comp -- if you are thinking of doing it, tying up with a food delivery company, it's a very big amount of money that you're going to come up, yes. Tenants pay 30%. They want the landlord to pay about another 10%, okay? And I'm not forgetting that I'm supposed to collect all the food for them like a delivery boy in the one location so his motorbike can come and collect. So it actually doesn't make sense at all. If I had $900 million of sales, okay, on a normal day, and want that come from F&B, we are talking about $300 million, $400 million of sales. I'm paying $40 million, doesn't make sense, okay? Doesn't make sense. And they are not really -- they are definitely not really moving away from their model, i.e. if you want consolidation of orders to make it better for your shoppers, it's gone very expensive. So now tying up is out of the question. I'm not actually reducing the cost for the tenants. Tenants are already doing so during COVID, although it is not something that they really like because they're talking about 30% of the bill, yes. 30% of the bill go to the delivery company is never a long-term solution for F&B outlet, it's way too costly. It's only short term. [Foreign Language] need to go through, they will do it. But if you say, are they really into the 30%? No, they are not. So we have also thought about it, okay? And as I look at the math, it doesn't make sense, okay. Now the other end, do I hire a group of -- do I have a fleet of people to send deliveries? I only got one more. So let's say, I can't be doing into the delivery company -- as a delivery company as a soft business. So that's when we count the mechanics doesn't work. And most of the delivery companies are in the risk. So there's no way I'm going to do that, okay? I don't have the economies of scale, plus I don't see it as a business. It cannot work. It can't even breakeven, yes, in terms of the delivery. So then back to the second question, I think that you're talking about the footnote and also the financing, the capital structure. So, Janica?

It's on the fit-out granted to tenant at MBC II, right? Okay. When MBC II was completed, of course, the sponsor -- that time owned by the sponsor, they got to fill up the space. So they will have to give rent-free for those incoming tenants. So in our book, we amortize these rent-free straight lines across their lease term. So when we buy -- so initial part of their rent -- in initial part of the lease, there's no rent. So when we buy over, they are at a stage where they start to pay rent. But in our books, we don't recognize the revenue because it's straight line. But cash flow, we have. So that's why we are distributing the cash flow in a form of capital distribution. Got it?

Yes. Yes. So the [indiscernible] is on stability again.

Thank you. I would like to have Nicholas who will ask the next few questions, please.

Just a couple of questions from me. Firstly, just wanted to check for the first half of 2021, just wanted to check how much of the rent rebates is recognized and how much property tax rebates was recognized in the expenses? And the other question was just on the -- getting clarity on the rent rebates program that you have with -- if sales are 20% down, then you give -- I think it's 10% rebate and a 10% deferment that gets paid by at the end of the lease. Is it safe to say, I guess, then if sales for the rest of the year stays down about 20%, essentially, tenants would get about 10% rebates for the rest of the year? Or are sales basically not skewed that way?

If sales is down, say 20%, okay, cash flow, I will fund 20%, our take -- they will have an obligation to pay me back in -- the 10% -- the half of it at the end of the lease term. That's how we are structuring it, okay, on a broad basis.

You asked about the quantum of the rebate or what -- how much is being recognized in the books, right?

Yes.

Okay. In total, we have given out more than $70 million of rebates, and we also received grants from the government in terms of property tax and cash grant. So net-net, it's about more than $40 over million, yes.

Okay. The government, let's say, gave us 1 part, we gave out 2 parts. Because government only give who they deem as SME, and we gave beyond SME for retail, okay? So there is a little contesting that we are doing with the government to ask for more SME status for some of the tenants. So that's about another 100 over of the cases that we still work in progress. So in short, that one gave us $20 million over, we gave out another $40 million over. So that's the -- our money, yes, our money. So government may $20 million over, our money, $40 million over, in terms of rental rebate.

Do we have Rachel on the line? Rachel, your hand is raised. Your turn now.

A few questions from me. I think for the rental reversions, I understand that you have signed a few leases during the peak of the COVID period, hence, that's why there's a huge negative. Any -- do you foresee any downside risk to this moving forward? Or is this okay for now or rent revisions should improve from this level?

I think because we do on a cumulative basis, yes, for me to wipe out the entire minus 8%, let's say, for retailer, very difficult. Let's be very real. So it's minus for the whole year, okay? So now minus to what extent? I think it's about there, okay? For me to -- because it's cumulative basis a quarter, quarter, quarter, for me to wipe out everything with the balance of the lease that is minus, no way. No way. So reality is we will continue, okay? I'm trying to manage it within the 10% range for those that's up for renewal this year.

Okay. Got it. Yes. And for the Office and Business Parks, actually how many percent of the employees have actually returned to your offices and business park, I'm just curious?

No. Actually, we can tell. Definitely, Google is saying that until January, they already announced -- first one to announce, I think, in April or something, they're not coming back to the office until January. Okay. So if you look at the sales of ARC, ARC is down about 30-over percent. But ARC interestingly, has decent weekend apparently. The tenants have said that their weekends sales during COVID period like now is better than pre COVID. So I think there are people who prefer to go to quieter place, so-called quieter place, than the typical shopping center on weekend. So if we -- if you talk about rental reversion, I think Wee Leong has already alluded around the same mark about what we are seeing. Because -- yes, so that's where we are.

Okay. Okay. Any new demand? I know there's this big hoo-ha on the Chinese-type files. Any inquiries coming from that front?

Yes, Tencent went to -- he went Tencent, [ Twentycent ], whatever cent all went to where the [indiscernible] right? Actually, 200 men, they went to co-working at the start. But it's 200 men, 200 men is lesser than my 1 floor here, about my 1 floor on my own office. So it's -- of course, it's growing, but it's not like a big, big takers at the start as educated by Koh Wee Leong to me. Don't worry, I was counting them. Yes. I said, "Hey, where's my Tencent, [ Twentycent ], men? How come?" They said, "They went co-working." And the next thing is they are not 100% certain yet, but they want to start-up in Singapore. And no agents have been appointed yet. Agents are also trying to hunt them. But if you look at the total space use, they are talking about 200 men. And 200 men is like my 20 -- my -- less than my 16,000 square feet office space. And so now -- but it's a good name. I don't deny it's a good name, okay? So that's what he regurgitated to me, so I'm regurgitating to the [ editors ].

Okay. All right. And I think...

Don't worry they hunt the [ Milan Rent Center. ] Where's the Tencent? Where -- how come, no come? How come, where are they? Who spoke to them?

Google and Tencent met each other.

All the way to China [indiscernible] go and drill down, okay?

Don't worry. All these model are still coming out. This is real-life experience I've seen them [ taking answer ].

Okay. I think you have also mentioned the chunk [indiscernible] portfolio in -- of the corporates that will not look for work from home tenant arrangements like your China main companies. Roughly, what do you think your portfolio would have this kind of China main companies?

This one, right now I'll tell you, I'm a little bit in a bind. I will be very upfront with you. We always thought that grade A tenant solely, right, calculate everything. But actually, grade A tenants are the ones that are a little bit more open-minded when it comes to all these things. But I can't really feel the numbers yet, okay? Of course, I have -- I mean, I won't call hoolah, of my biggest tenants, non office. He told me that every day, he's going to log-on to the -- he got a log-on to the computer, whether he's not here, even he works from home. I said, "Do what?" He said, "[ My off ]. This is a free day." And I say, "For what?" He said, "We just have to log-on." Okay, to show that they are there. So this kind of mentality means what, you don't try -- you are not ready into this work from home and you trust yourself to be able to do so. So this company, really, I think is still residing in some companies. Okay? But I think that definitely the true great -- the true international companies, they're a little bit more open, but they haven't neared the number as to how much can they assess? Is it a 5 or 10 or 20, okay? But I think everybody is thinking the full brand of the decision will come out next year. And I -- when I heard the Minister talk about 2, 3 weeks ago, he get me a bit more nervous. Because if I'm a company I go like, what don't I find a little bit more short term, like 2 years then come and see, right? What happen if work from home is going to continue? So I would say the full brand of the work from home, we will see it a little bit more next year, okay? We are feeling a little bit here and there. People are thinking about it. They have not neared the full number yet. Okay. So we will just have to keep our pulse on the ground, talk to them. Because most of the decisions are held at the HQ level and not even at the local team level, at the local team level. So it is a trend or most of the -- it's a trend in Singapore, I would say that most of them would definitely consider. How much they will adopt? We still don't know. Because even if you ask my own company, how much we're going to adopt work from home, nobody knows. But if it's a regulation, we all follow. But if it is a self-imposed, we can't tell, okay? So that's where we are.

Okay. We shall move on to the next few questions from online, right? So with regards to portfolio occupancy, when will the committed lease turn into actual i.e. start payment, particularly for PSA Building? And also given what are the risk of a non collectivity of receivables as well as provision for doubtful debt?

Okay. I think right now, the -- if you talk about any normal leases, fit-out period, if you're a bigger lot, say, 4 months. Okay, 4 months fit-out period, no cash. Any lease regardless PSA Building or whatever building, that's normal. So anytime vacancy, if you signed up 4 months thereabout, that is the downtime and that's when downtime or crossover during the tenancy. So I always say that I prefer not to chase tenant, if I can. Because of the downtime, it costs us money. It costs us money. It doesn't -- because we don't collect rent at all during the fit-out period. So okay, if you look at profitability, I think the office side is no issue. The -- most of the -- any arrears or arrears is mostly for the retail. And now retail because there's a rental relief act, they can actually don't pay you. And now it's been extended for 1 more month. Government happily just extended 1 more month. So until November 19, I think, they can actually don't pay you. And after November 19, they have another 9 months to pay you, okay? So arrears is likely to build -- will be there for a portion. But when I look at the numbers, I think there is -- after all the rental rebates, original first 2, 3 months can tell because if everybody give rental rebate, you can't tell whether they're in arrears or what because we're already knocking off rent. So -- but what I'm saying is arrears is likely to continue because of the installment plan that is legislated, that we have to give the tenant 9 months to pay, okay, after November. But based on what we are seeing, the arrears I think, it's still manageable to -- as of now. But I can't tell the full brand until whoever that owes me now, November comes, we see whether it is called installment plan or they're not going to pay me, but it's not a very huge percentage.

Let me add on. Currently, whatever in our books, we make a provision about 600,000. This 600,000 is on top of whatever SD they have with us. So when we assess this 600,000 of exposure above the SD, we look at tenant by tenant. And we feel all the credit impact has. So this 600,000 got no impact to your DPU.

Thank you. Just to round out the session, we have a few questions on the outlook of VivoCity. So in our opinion, when will retail sales at Vivo return to pre COVID level? For instance, if next month, the social distancing measures allows the number of gathering from 5 to 7 or even 10. How will our retail sales recover? Would it be back to 90% or 100% count?

5 to 7, 5 to 8, 5 to 6, about there. Look at all the shops. When the F&B, if you look at the way -- I think we don't have a lot of Chinese restaurants, which is table for 10, yes? But now because of 5 people, they get cut half, okay? It's about that. At best, maybe plus another 1, 2 percentage. That's about it. It's not going to be radical. By nature, all our F&B are really smallish in nature. The table size are around maybe 4 or 6, okay? So it's not going to be a radical shift in terms of the sales with the listing, in my view, of the number of people -- patrons at one time, okay? If we're all Chinese restaurants, table of 10, yes, but if you look at it, walk around the Singapore, not the many with all table of 10 anymore. Okay? So I think minimal, minimal impact. So the big one is definitely the tourism part because the 20 over percent actually come from tourists. And tourists typically do spend. So that part. And the work from home for my lunch crowd is important. So this too is literally pulling me down, okay? So if tomorrow all this are listed, okay, because of the -- whoever that's lucky this year that got signed at a minus, it's going to carry through, okay? So you've got to give me 2 years to recover. Let's be very realistic. Whatever I signed today, it's going to carry forward for another 1, 2 years. To say that I will go back to my own numbers straight away in terms of rental, yes -- rental dollars to be received. It will be impacted. Whatever I sign today will have an impact on next year and the following year. So I always say that whatever, in these 2 conditions, you got to give me some breathing space, okay. You may see indicators coming back, but the numbers will slowly have to catch back. We'll take one more further step before it goes back to the original numbers. It will not magically happen because leases are signed forward.

Okay. I think we have come to the end of our briefing. So it was a real pleasure having all of you with us virtually. So if you have further questions later, feel free to drop us a note, and we will definitely get back to you. Thank you, everyone.

Thank you.

Thank you. Stay safe.