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

Good morning, everyone. Welcome to Mapletree Commercial Trust briefing for our first half results for the period 1st April to 30th September 2021. Today, we are very pleased to have with us our CEO, Ms. Sharon Lim; our CFO, Ms. Janica Tan; and Head of Investment and Asset Management, Mr. Koh Wee Leong with us. So without further ado, I'll pass the mic over to Ms. Janica Tan to go through the first section of the results presentation, please.

Thank you, Li Yeng. A very good morning to all. MCT's first half result was sustained despite the projected COVID-19 restrictions as the government steer Singapore towards a new endemic normal. First half gross revenue and NPI were higher, mainly due to lower rental rebates and compensation received from pretermination of leases. DPU for the period was $0.0439, up 5.3% year-on-year, and the portfolio was revalued by about $8.8 billion as at September 2021. On the portfolio performance, the recovery momentum at VivoCity continued to be hindered by projected COVID restrictions, including close to 8 weeks cessation of dining in at all FMP establishments as well as tight caps on social gatherings and dining in sizes. Notwithstanding first half FY '21's tenant sales remain resilient at approximately 75% of pre-COVID level. Good progress was made at our office and business passed, where a substantial amount of leases due in FY '21 will renew or/and relet. This led portfolio occupancy to 96% and extended our lease expiry profile considerably. Okay. On capital management, our strategy continues to prioritize financial flexibility and liquidity. Debt maturity profile remain well distributed. Going into more details, gross revenue and NPI rose 11.5% and 10.7%, respectively, on a year-on-year basis. Higher contribution was achieved across all properties, mainly due to lower rental rebates compared to a year ago as well as compensation received at mTower, offset by office income -- offset by lower rental income. The higher property operating expenses was mainly due to higher A&P expenses, staff costs and property tax. Including -- included in the property tax in first half last year was a 15% property tax rebate received where the cross-bonding rebates were granted to tenants in the previous year in 4Q FY '19. So first half amount available for distribution was $146.5 million, 5.8% higher as compared to same period last year despite no retained cash was released versus the $15 million released last year. So DPU up 5.3% year-on-year to $0.0439. Okay. In view of the uncertainty caused by COVID-19 and as a group practice, we have conducted an interim valuation. For the properties on that line, a valuer is allowed to value an asset of up to 2 consecutive financial years. As CBRE and Savills, the previous valuer, have valued the same property for 2 consecutive financial years and to comply with the Property Fund Guidelines, we have appointed different valuers for this interim valuation. So mostly due to the different valuer's view on capitalization rates and market assumptions, there was a slight increase in portfolio valuation as compared to 31st March 2021. So the portfolio now is valued at $8.8 billion. Balance sheet-wise, remained stable with NAV per unit unchanged at $1.72. Okay. On the key financial indicators, as at 30th September, total debt outstanding, $3 billion, of which approximately $72.6 million were fixed by way of fixed rate debt or interest rate swap. The average -- the aggregate leverage was 33.7%, and the average term to maturity on debt was 3.8 years, with the average borrowing cost of debt, 2.42% per annum and ICR was approximately 4.8x on a 12-month trailing basis. Debt, however, remained well spread with no more than 24% of debt due for refinancing in any financial year. And on top of that, MCT has close to $500 million cash and undrawn committed facilities to meet financial obligation and working capital. Last but not least, on the distribution detail. DPU for first half, $0.0439, unitholders can expect to receive the distribution on 30th November 2021, and the BCD is on 5th November 2021. Okay. With that, I end my presentation. I will now hand over to Wee Leong.

Okay. Good morning, everyone. I'll just speak through a little bit more details on the performance of the properties. So starting with the revenue and net property income performance. So overall, gross revenue was up about 11.5%, so close to about $25 million. On the gross revenue level, all the assets outperformed the previous year, but for very different reasons. So first of all, for the retail assets, the more rental rebates we gave to tenants in the first half of this year was about $17.7 million, close to $18 million. We have a bit more details in a later slide. This is significantly less than the $40.5 million we had given out to tenants last year. So the first key point is, of course, the much lower rental rebate amount in the first half of the year. Of course, this is led by retail performance improving year-on-year. If you all recall, last year, it was Circuit Breaker, so most of the mall was closed from April, May -- for 2 months, April to June, and there was a lot of restrictions on dining in as well as shopping even after that period. So for the details on the traffic and shopper traffic -- traffic and tenant sales are in later slides. But overall, VivoCity's performance, tenant sales, shopper traffic were all up year-on-year, which consequently saw improved turnover rents, car park charges as well as A&P revenues. So looking at the next asset MBC, while you will see that occupancy was actually lower across the board for the first half due to a number of nonrenewals and month termination, step-up rentals, lower rebates for MBC's retail tenants, a higher car park income as well as some holding over rent and compensation allowed MBC to record higher revenues on a year-on-year basis. So mTower. mTower, we had quite significant compensation from a tenant that had preterminated their lease. Together with lower rebates from ARC's retail tenants, this has more than offset the lower occupancy. Okay. So on the operating expenses front, we were -- this is up about 14% year-on-year. Again, one reason, of course, was the Circuit Breaker last year where we had cut back expenses quite significantly. In addition, we also had a much less job support team payout this year as opposed to last year. And as Janica mentioned earlier, there was some higher -- there were higher property tax -- sorry, lower property tax in the last year due to some timing differences in the recognition of property tax rebates. So of course, with higher revenue, we also have higher property management fees. So overall, we saw an increase of net profit income of 10.7% or 18.4% with both for properties contributing. Okay. So going to a bit more detail on the occupancy. So on the portfolio level, occupancy improved quarter-on-quarter. VivoCity continued its recovery and has now -- and committed occupancy has now crossed 99%. MBC will be back to the high 90s occupancy once the committed leases start towards the end of the financial year. mTower, where in the previous quarters, we had quite low occupancy due to the pretermination of a major tenant -- a major office tenant we lost. We are slowly filling up the space, and we have already crossed 80% in terms of committed occupancy. So we said in the last few months, I mean a little bit slow in terms of leasing. The restrictions also apply to new restrictions on social gathering and also apply to viewings. So generally, you have -- you only have very, very strong groups of tenants coming, and it usually means that the decision may take some time. At the same time, that has led to a delay in decision-making by a lot of tenants. We hope to see a bit more improvement in leasing once the restrictions end and we'll be able to move around a little more freely. Okay. So moving on to the leasing update. So, so far, retail, you see fairly positive leasing, rental reversions about 3.5%. Office and business park was sitting at about 1.5% at the current moment. We're actually quite happy with this. Okay. So if you look at the lease expiry profile, you'll see that we have improved the lease expiry profile quite dramatically over the last quarter. First and foremost, with average lease expiry used to be 2.4 years. So with the renewal of a number of office tenants at this place with a 5-year reserve, that has brought our lease -- average lease expiry down to 2.8 years. So this year, most of the office leases are -- office and business park leases are already done. We just have a little bit more to be done on the retail side, both at ARC and VivoCity. Okay. So moving on to the operating metrics for VivoCity. So on a half-on-half basis, you will see that shopper traffic and tenant sales have improved. That, again, you see that's largely due to the improvement in the first quarter numbers where we had Circuit Breaker last year. So drilling down into a bit more detail. The next slide gives you the month-on-month performance compared to last year and then, again, compared to FY 2019 as well. So you'll see that we saw quite a dramatic improvement in shopper traffic and tenant sales against the Circuit Breaker period last year. However, they are still off in terms of shopper traffic and tenant sales against FY '19. If you'll also move back, I think it's impacting [ 6% ] off for grocery. Okay. So the next slide gives you more detail on the last 6 months period. You will see that there's a lot of changes in the restrictions as well as who is allowed to do dine -- who is allowed to dine in, who isn't allowed to dine in over the last 6 months. And of course, that's had an impact on our shopper traffic and tenant sales. It's not -- definitely not back to where it was before COVID, but I think once restrictions are lifted a little bit, we should see improvement. Okay. Just to give you more detail on the rebate that we have given. The -- in the last financial year, we have given quite a lot more rental rebate total -- and that total about 4-plus months. Over the first half of the current financial year, we have done about 1.1 months of rental rebate at the current moment. And hopefully, and the -- the outlook is a little bit mixed. We don't know -- we still don't know how the restrictions will end or when the restrictions will end. Clearly, all you saw yesterday's number about 5,000 of cases. So definitely not happening this week. If this situation continues or protective period, it's very likely that we will definitely need to continue giving our rebates over the cost of at least this quarter, maybe into next quarter. Okay. So despite all of the difficulties that we've been facing on the opening, closing, restrictions, no restrictions. VivoCity still saw interest. We still have brands coming in. And that's some very popular brands that we have been pursuing for quite a while. So Lululemon finally opened a shop at VivoCity. Mr. Coconut was a very popular coconut drink shop. Makes my cafe and steak business quite a bit worse, blocked entrances. The other tenants that had expansions of events over the last quarter. People are not in the center. Timezone, which actually expanded their business. The second space they've taken at VivoCity. Paradise Dynasty is back again. And Gram is the Instagrammable pancake with -- nearly doubled the size of their shop. So there are still brands that are doing well in this climate and have continued to expand. Just a little bit on the A&P things we are doing at VivoCity. We are revamping the VivoRewards. So for those of you who shop at VivoCity, we can -- you will see that there's now a little bit of difference. We also -- we have also done a bit of -- we have also tried to work with brands. Now you can mix and match your shopping, your deliveries at VivoCity. Okay. And with that, I've come to the end of the presentation. We will move to the outlook. So over to you, Li.

Thank you, Janica and Wee Leong. So we will now open the floor up to questions. So may I request that before you ask your question, can you state your name and the organization you represent, please.

This is Terence from JPMorgan. Can I ask a question?

Yes. Please go ahead.

Just wanted to ask on how you're seeing occupancy costs right now? You are recording positive rental reversions, but you're also extending this 1.1 month rental rebate. So I know you mentioned that you expect more rental rebates into third and fourth quarter, but could you give us a sense of the quantum and magnitude, and how that would affect occupancy costs?

Okay. Sharon, here, thanks for your question. I think the -- when you look at rental reversion, it's an average number and the different situations that sums up the total to bring us a positive reversion. Okay. So what I'm saying is, like, for example, on average, let's say, we are still giving rental rebate. But it doesn't mean that all leases are down. For example, this round, one major one, for example, will be like we are changing, like, Michael Kors into a Dyson. And that gives us a high single-digit reversion on a very sizable dollar per square foot kind of unit. So it's not everybody is done. Just I think you had an example. So where we put Michael Kors into Dyson, Dyson is going to have a flagship -- a little flagship for us right at the front on the level 1. And that gives us a positive. But no doubt, the overall general sentiment in terms of likely the trading is still down. But individual leases, we still do -- we are still able to capture some of the upside, depending on who comes up really well. So for this batch, we are able to capture an upside. The other thing that we have been doing operationally is -- and especially during the lockdown, negotiation was very, very tough because all tenancies, no people, right, limited or discount. So for a couple of tenants, we actually put a lot more creative approach in terms of restructuring of their rent. How do we do it? When your deal, you kindly negotiate me, you will race to the bottom, right? Whatever reason that you can see, they will tell me everything is negative, doesn't look positive because of lockdown, lesser people, lesser sales. And you will try to press down the rent. That is their common behavior. So what we did was we did want to get locked down in terms of being trapped in a longer-term lease and not capturing upside when the opening happens. Because we really do not know how long this COVID is going to last, when borders are going open, when people are going to start coming back to the good old days. So rather than lock in a lease, which are lock down to 3, 4 years, what we tell them is don't shift very much from your current rent. If need to, I will give you a rebate. So no difference to the tenant. Rather than, for example, he comes and he shave me off the 30% or 40%, I'm locked in for at least the entire lease and no site of upside. So there are a couple of leases that's what we have done, because I think it's a little bit fairer than to accept a lower rent when the leases are negotiated at a difficult -- most difficult time. So those are the things that we have done on the ground operationally to handle those who try to deep dive and to enjoy a better rent when negotiating during hard times. So back to your question in terms of rental reversion, no doubt, there are still leases that we can get on upside on a relet basis. Yes.

Okay. And just a final -- a second question from me. Can I ask about the remaining $15 million to $16 million of capital that's yet to be seen.

Still in our pocket. Still in our pocket. Will come up by end of the year. Can we have Derrick from Macquarie to post your questions, please, Derrick?

So just to be very sure, can I confirm that the 1.1 months of rebate is just a then lot share and you have to beat any kind of mandate through -- it has already been satisfied?

Yes, we come to the point where I don't care what the government gives, I think we are already -- have already done our duty and we will -- it's taken care of, okay? Most of the time, the government is not giving direct to the tenant rather than passing through the hands of the landlord like last year, okay? So that is a slight difference of how rental rebates are dispersed compared to the last round. So -- but this round, there's certain mandatory, I would say that we are definitely in good hands already. No need to dish out more. Yes. We technically don't tell the tenant. We don't tell the tenant as to which month the rebates are tactful, although we mentally know there's a system behind. And we do a look back. Say, for example, we have a table of rebate. We look at the past sales. We look at the sales, then we will look at the relevant amount to dish out. So there's a little bit of a back look. And we don't tell the tenant which month this is for. So the tenant don't know. Whether is it back to June, back to July to August, back to September, they really don't know. They only get a stream of letters, for example, but we have a mental check. We have a list behind. Yes.

Maybe just to add on. Just now we don't mention that in the last financial year, there's about $40.5 million of rebates that we have given to our tenants. But actually, in the second half of the financial year, we received more cash run or property tax rebate from the government. So that will offset this $40.7 million. It's just the timing difference.

So I'll give you a sense of how we look at rental rebates. If we've got one tenant in severe -- okay, based on our rental rebate structure is tiered. So if your sales dropped by X to Y, Y to Z, just say for example, sales dropped by, let's say, terribly like 50% to 60%. So what our rental rebate will be in order of about, let's say, in between 55%, okay? And out of that 55%, we will deduct of what the government will have given so that they will not be better off taking both landlord and government. On top of that, we will also compare to the pre-COVID occupancy cost to make sure that they are not better off after the -- based on the scheduled rental rebate structure. So those are the structure approach to rental rebates that we have come up. So there must be some sharing, okay? And if there's a government coming in, there will be a 3-way share. The formula actually takes care of that. And we have to make sure -- we also make sure that equity amongst tenants, and also the part where they are not, during the tough times, with our rental rebate that they are doing better than before, okay? So that's the spirit of our rental rebate. Coming to help, some sharing, they match your equity and cannot be better off than before.

That's very clear. Just one more clarification. So even that you are holding your so-called base rents and still giving them rebates accordingly. So if, let's say, tenant sales in the second half of this financial year, effectively stays maybe 5%, 8% of pre-COVID levels. Borders are not opened. Should we expect you to give another month probably?

Okay. Generally, on the rebate front, yes, the restructured rent is for -- sorry, the way we structure it is for good reason, not every tenant is like that. Only the difficult ones would like to deep dive and try to gain an advantage during a difficult negotiation period is what we try to do. But not everybody is on that, okay? So if we take the scenario of the first half. In the first half with x number of -- x number of lockdowns, x number days on 2 dine in and is replicated to the second half. I think we can run very far from the rebates that we have given. They are given about 1.1 months or 6 months, and that is 1 divided by 6, 10 of a percent. Our sales drop is in order of about 20% on average basis, yes. So that's where you see the sharing coming. And I would say that moving forward, if things don't improve, rental rebate has to go -- has to continue. Can we have Rachel from DBS to post her questions, please?

Two questions for me. I think maybe just I hear that there's an improvement in sales and car park income. Just wondering how is that as a percentage of pre-COVID levels? And what was the amount roughly during pre-COVID levels?

Atrium. I'm surprised you can do atrium sales. I will report to ESG, who says atrium sales can? A&P income yes, but atrium sales, I think a bit trickier. It's a little bit of a tow in line with the ESG, if we want to do atrium sales, which they are actually quite -- they will allow things like kiosks, but they also know that landlords, I think, will try to put a bit more and more and more kiosks and theme that is kiosks, right? So they came out with a set of guidelines as to what is deemed as a fixed structure, okay? So I think atrium, I'm not so optimistic that they will allow the bandwagons like the old days, the bandwagons all coming out, Christmas sale, that kind of thing. I don't think they're going to allow, okay? Even if they allow, they're going to come with so much restriction until it doesn't feel like an atrium sale, it becomes like a display more than anything. So just to be very careful that I don't think I'm going to factor in a lot on atrium. Of course, if they really allow activities for all staff, okay? But if you see our income for [ MACOM ] has always been in order of about $6 million, $7 million kind of thing on the good old days. Right now, it's -- it's to the point where it's, I think, maybe $1 million or so. So quite a big drop. So the COVID not only affected like the whole business, even my [ MACOM ] revenue from like $6 million, $7 million down to like $1 million. Anytime when the government is opening, which I'm not going to push it because least, I don't want to get a summon or get on their bad books here. I think there will be some room, and my team will be able -- my team has actually been canceling a lot of events. We try to book, book, book, then after which every time 3 months before, we keep canceling, canceling, canceling because we couldn't get any improvement in terms of the decision with the ESG to allow, okay? So I'm not optimistic that we will be able to get our full revenue from the atrium all coming back.

Rachel, maybe I'll just a bit more color on that as well. So last year, during the same period, we actually have very, very little atrium, and we also had very little, I will call it advertising income, the legacy advertising spaces within VivoCity that we sell. So this year, we actually had a little bit of atrium income. That actually for more static display type. So if you were at the mall over the last few months, you will have seen on some weeks, we actually have car displays, right? So do they pay our full atrium rates in the good old days type of numbers? No, they don't, right? But at least we get a little bit of income from the atrium as opposed to none in the past. And this year, on the advertising spaces front, we saw a little bit of interest, a lot more than -- well, buses this year, at least we got a bit of interest. So we have an improvement in -- overall in A&P income over the same period last year. Like Sharon mentioned, we -- on a full year basis, we are probably still going to be about 70%, 80% off the pre-COVID period. But again, that's improvement over the last year where I think we were about 90% off on a full year basis. On car park, actually car park income has been a bit of a surprise to us. Our car park occupancy is actually up fairly good. I think if you remember, we were talking about this last year as well. Most people -- during the COVID period, most people don't want to travel on other transport. So most of them will choose to come to the mall, and they will choose to drive. So while traffic as a whole for the mall is down, our car park traffic is actually fairly stable. We are not -- we are definitely not back to pre-COVID levels, but we are probably running at about 80%, 90% of where we were in the past. Most of that drop is actually due to weak days traffic. Or weak traffic -- car park occupancy is actually quite healthy.

The car park income, is it included in the $6 million, $7 million?

No, no, it's a separate line item. Separate line. We -- I mean, back to the atrium one. We have been trying to push a boundary bit by bit there. First, they actually said nothing on the atrium, then we try to push with a few cars there and say that is a decoration. So we're trying to push the boundaries to them, but just have to be very, very careful. Because when they turn, they go a turn and set you more regulations. Because I was just saying that how do they know how many cars I have? They just put another 20 on the ground, right, with our atrium. So what's different? They got smarter. So that's why they came out with a set of rules. But then again, I think the authorities are trying to do -- are trying to keep their duty to make sure people don't gather as much. And for us, they were quite clear. Adviser team, where possible, push it, but don't toe the line to close, yes, because otherwise, you'll get flagged out, and you don't want like a lot of ambassadors coming down and getting a lot of letters. Unnecessary pain, yes. Okay. Sorry, your car park issue?

Yes. Car park income pre-COVID level is exactly a couple of millions?

I know why you want to know some detail. Testing my memory. Okay. I need to come back, okay? I can't remember the number off my head now. Now too many lines, yes, for me to remember.

No problem. Yes, maybe moving on to office and business parks. Are you seeing already like all this flexible arrangement downsizing really bottoming out already should stabilize from here onwards?

The work from home arrangement is not stable yet. I mean at the end of the day, I mean, we're stable at the lowest point -- I think we're very stable at the lowest point. So anything that the government lifts will be an upside. What can be worse than today in terms of work from home arrangement? I can't see anything. Okay? So it depends on when the government lifts it. And I think that is when the traffic should come back and will also help the surrounding properties like the ARC, for example, that supports -- that is supporting the office crowd. Yes. But generally, from the leasing front on an office perspective, definitely a little bit more traction and positivity in the sentiment in the market. I think Singapore is stacking up quite well. I mean I hear from other leading other reports and stuff. I think the severity of -- the severity of work from home trend having an impact on the office asset, definitely, is -- Singapore is holding up quite reasonably well, maybe because of Asian culture. I'm not sure. But generally, you don't see so many people fully adopting -- wanting to fully adopt on a long-haul basis. But anyway, that's to be seen. After when we fully open, we'll see where the sentiments are. But generally, based on leasing front, the processing is still quite okay. Quite okay. We see our -- the -- mTower that is wiped badly, right. Although I earn money out of it, still earning money out of it, that unit that was vacated. We stay positive 1.5 years, 2 years. Then after that, we got a 17-month compensation. We're still in the money for the unit. And we are progressively re-leasing. Last quarter, about 60-odd percent. Today, 60% over to 70% over. Committed already, over 80%. So nice progress, but we still got room to go to. So I think the sentiments on the office front marketing is definitely more positive, getting more and more positive. Yes.

I think to answer the car park question. If you are talking about, MCT, pre-COVID is about $11 million to $12 million per year. And if you are talking about to VivoCity is about $51 million per year, pre-COVID.

Okay. Can we have Joy from Deutsche to ask her questions. Please, Joy.

Just on rental reversion -- retail rental reversion, we see some positives. You mentioned about sort of trend mix. If we look forward, can we extrapolate what you're achieving today for the next 12 months?

In extrapolating which part?

The positive part.

The positive part, I'm pricing negative now. So if we talk from a trade mix one, right, I would say that I was very pleasantly surprised with the people like entertainment wanting to expand. That is like my time zone wanting to expand into 1 concept of premium. So I was really actually personally pleasantly surprised that, hey, really, they want -- they dare to take a move now than later. But I think we are quite clear that they want more -- 1 part is more premium, the other is typical momentum like what they have today. So that's 1 positive for us. And people like more sensitive are quite clear. The grocery is definitely doing better. So that swing a little bit on their entire shopper which is quite 1 of our mini anchors a little bit more to the grocery side. So in terms of trade mix, quite clear, we are not deferring very much, okay? But definitely, little switches here and there is ongoing. Athleisure is definitely 1 area that you can see that we have executed over the years, which is the 1 staying power, okay, now look good and will continue for, I would say, in the near future to be off relevant, which is athleisure, okay. So Lululemon is our latest addition to as a while to entice them. And they are already opening up during COVID. But Theme park to them during COVID, where then pursuing this kind of for a while, they were quite difficult on a ramp conditions on the rent, they were difficult. They were very difficult on the conditions. I remember a few years ago when we were talking to them like many meters cannot do this, your neighbor, must the X, your this must be Y. They can't a long list or get I shouldn't say I think that they have a lot of long list of this, a long list of conditions. But I think this around the team -- maybe the -- I would say maybe the comma between the pool seems to start more line can get the deal done rather than -- so I think that this was a positive move for us, athleisure is definitely, sneakers, athleisure that kind is a sale in our view. Of course, traditional F&B is also a sale. And now we have to evaluate further on things like -- my point directly is also as sale as a kind, now is whether we think about our department store. Is it a sale? Or is it a corner? So those are the things that we will review constantly when the lease comes up.

Okay.

Yes. So the department store is something that we are being very hard.

Got it. And just 1 observation. You all seem to be giving a bit more on the rebate versus some of your peers. Is that just out of good gesture. And did that help you when you have a rental reversion sort of conversation with the tenant?

Sorry, the line was a little bit broken for our side. Can you repeat that, Joy?

Yes, sure. So your rental rebate is slightly higher than some of your peers. And I'm just wondering, is that out of good gesture and that good gesture help when it comes to rental reversion discussion?

Okay. I think we never run our business on good gesture. Good gesture is left for good samaritans, I mean we run a business, not on charity, but based on what we see is required, Okay? So when you compare -- I think you're comparing with a pool of suburban assets, no doubt, I would say, suburban assets, pure suburban assets are definitely trading better during this COVID period as compared to Vivo that is a little bit tourist, there is a tourist content for us. Definitely, I will honor and say that definitely, I'm not performing as well as suburban, okay? But then again, I shouldn't be very far off from where the orchard routes are, and I think I should be slightly better than what the orchard route mount are, okay? That's my view. So I'm not -- you can go test whether my thesis is correct. But I think that I own up that I will not be able to outperform people like the suburban mounts, okay, which are actually quite resilient during this COVID period. My theory is typically about that is 20%, that is 0. You look at RWS, you don't see any crowd there. And those are typically who will come to Vivo on a normal day before COVID. And I don't get that anymore. So I'm suffering from the front of border closure, I'm getting a little bit of good support from the domestic. I am not getting support from the work from home, which is the office crowd coming into the property, okay? So the gems, the positive of Vivo that we always call that we always pride ourselves to have which at the stores and office stories, it's actually working negatively for me right now during this COVID period. But I think we will come back. When a border is open peers are coming back to the office, I will definitely get back to the good old days that's my view. It's just that now it's locked down, there's nobody there. So I think just be patient on that part. I think I'm suffering from my cherries but I will definitely come back in good form when all my positives back to normal, okay? Is it helping me in my rented discussion? Like I said, tenants are businessmen. There's nobody going to tell you. Everybody will tell you only if you are doing the right thing, okay? If I give them slightly more, nobody is going to be so thankful. So as long as we have an equitable structure and they understand how we look at it, I think everybody will be very reasonable. But in negotiations, no need to think everybody will push the boundaries. So that's where we try to take a different view. We help you where we can. We help you when we need it, but there must be a sharing cannot be all loaded to the landlord alone. So yes, I think our rental rebates consistent when based on our formula and not when the government forced us, I think there's a little bit of -- we don't get net debt as much because you don't have to ask -- you don't have to bang our door. When we see the numbers coming up, we will do the right thing according to what we think is right. Yes. So you may say it's a help, but we don't purposely do it as good gesture, yes.

Got it. That's very helpful. And just 1 last question on the office front. In terms of the demand that you're seeing, could you just elaborate a bit on the trade sectors?

The demand. Okay.

Joy, I'll take that question. So we are seeing a bit more demand across the entire mobile market from the technology sector. So we do have inquiry for fairly large spaces. The most recent 1 I heard was about 200,000, 300,000 square feet of space over the next 2 years or so. So there is demand. There is -- there are still people looking for spaces. And sometimes our issue can tend to be that a mismatch between the size of spaces we have available and the size that our tenants are looking for. We are seeing -- like I mentioned earlier, we are seeing some fairly large demand for spaces, but well, MBC is already 90% committed, right? So I don't have demonstrate available. So that is currently this level is match between the large demand and the pace that I had. We tend to see a little bit more interest in -- for Alexandra leasing we see a little bit more interest in the business upside a little bit less in the office. On entrance site, we are also seeing demand from technology companies as well, but I don't have much space available on these test also, again, that's -- there's a little bit of people looking for 1 full floor space and urban side only got a quarter or half floor available.

Sure. And if I just follow up on the large demand that you -- the inquiries you got, is that a relocation or an expansion?

Well, I think it's a mixed bag.

It's a mixed bag. Yes, it's a mix bag. Yes.

Thank you, Joy. Can we have Donald from BOA, please? Donald?

Can you hear me?

Yes.

Sharon, I have a few from me. One -- first is, I missed, I go back to the rebate, just to clarify. For the 1.1 months is our pocket, right, which means can I assume that, that will mean the tenants have gotten around 2 months, 1 from you and 1 from government?

No, no, no. The government did not match everything that we gave.

But they gave some.

Yes, they give some, but not all tenants would enjoy. The criteria is SME $100 million and that does drop, so on and so forth. So actually, it's not a very big subset, is a subset, okay, of the tenant base. So not everybody enjoys it. So for those who are entitled within the SME criteria, we are very close. What you said is very true, yes. But basically, the tenant will receive our 1.1 plus the government, the eligible. But we do not go on that basis because you see when we go on the criteria, right, we did the total sales drop first we lock that sum. After we lock at sum, I see whether that you qualify, if you qualify in gaining a direct fund, say for example, yes, the amount of rebate that you're getting let's say, $50,000. And I see total amount, and I see that, okay, government is coming in for $10,000, I would deduct that $10,000 because what we deem as the amount that you should be getting to sustain your business, you shouldn't be better off with mine plus the government, okay? Because last year, all the money came through our hand, so we could control it. But now money goes direct to the landlord. So I need to do that deduction. If not -- our portion, if I still sit with my phone or with the government, they will be actually not sharing the burden as much, okay? So let's say $50,000 we deem it as a total amount. Then if government, we think that they qualify and the government will give $10,000, we will minus that $10,000, and that's where we will get the balance. And we also compare and see whether the occupancy level versus the pre-COVID are they better off based on this schedule. If there are better off, we adjust someone there, okay? So the main aim is to make sure equity. That's all.

Got it. Got it. That's clear. Second is on MBC. Could you remind us again what's the status for Google and whether they have renewed current member?

Google has a big deal, there are full 2 chunks. So the big chunk is around, I would say that it's at. Yes. The chunk is done.

Okay. So the big -- and the remaining material is it?

Okay. The balance is another what 2 years later. The biggest chunk is this 1 that is coming up.

And it's done at positive reversion?

Slightly positive. So I would say that as you see, in this market, you can squeeze me, right? But it is very vulnerable. And I think it's at market, yes.

Any incentives? I see there's some straight lining on the...

Sorry. What?

Incentives. No. So that's the beauty of this renewal, I don't have to give further incentive to entice the renewal.

Okay. Got it. Got it. My final question is more on, is it this time given that the last couple of years have been COVID and it's been very -- quite some time already that you haven't done any acquisitions. This is a time now to start looking maybe not in retail but business parks, third-party I know the sponsor may not have any stabilized assets as readily to be injected. But would this be the time now? Or would you see the time that you are looking to just maintain your tenants?

No, I think the ongoing analysis of any deals that come drive by our table is a continuous exercise. You only get to hear when we announced successful deals. So the days that go behind the scene on evaluating is a continuous effort. Yes. So we are not cutting ourselves off any third-party deals and just relying on our sponsored route, it's just that we couldn't make sense of certain numbers. That's why we never progressed or you never got to hear it. Yes. So we are open, okay? We're open. We're not saying that we're not going to do anything beyond the sponsor to offer, okay? So we will continue -- it's not that we are not going to do anything. It makes sense, we will propose it, if it doesn't make sense, you will not hear either way. Yes.

Sorry. So maybe to add on that, what's the key hurdle for you to -- for the deal to make sense in more on numbers or could you take a view on the strategic value of the asset, even if the entrances are...

Regardless of what asset -- the first hurdle we have to cross is that it fit into the portfolio as a strategy. That's one. Okay? That will look at the asset quality, the assets fit the future of the asset and so on and so forth, okay. So the fit must be there first. Beyond the fit that it goes into the second grind, which is all of the financial metrics. Whether it's DPU positive, NAV positive, NPI positive, okay? So that goes into the second grind. But we cannot say that -- just look at financials without looking at the fit because if that is so, then I can easily maybe go to places like India or go to the world developing or and get a very, very high yield and definitely it will be accretive right, because different capacitor. So the asset fit must be there beyond asset fit that we go through really the growing on the financials. It shows we try, okay, which we always try to make sure that we justify a case of a 3 things, NPI, DPU, NAV on as on these 3 metrics, if they pass these 3 metrics beyond parking the asset, definitely out on the table. It's a definite the output a table asset fit, strategic fit and financial positives. Okay? So that's the general quarter.

And the split is your sector agnostic when it comes to the fit or do you see it at this point?

I will say that our sector is commercial, okay? Our sector is not industrial, logistics, nor more business plan, okay? There's very clearly cost open for us. We are commercial, which is predominantly, which is office and retail.

Thank you, Donald. Derek from DBS, please. Derek?

Yes. I'm just curious about -- a few questions around cost. I'm looking at your new -- this VivoCity app, I'm just wondering whether it would hit into your A&P. And are you going to plan with a big marketing campaign given that orders are going to open?

Okay. You mean now our app?

Yes. Is that code share with tenants, like, for example, whatever...

No, no, no. There is no code share on. All these things are things that we do. If you talk about the Vivo rewards, okay, don't talk about the delivery part, yes, the delivery part is just tying up to, bundle up so that the customers don't pay 2x, 3x delivery fee if they order from different panels. So this program is -- this program, I think the one-off we spent -- we have already spend most of the best on car park in this year is in order of about $300,000 is in the numbers, okay? Then if you talk about ongoing process, we already had car park redemption in green loyalty program. So -- we are just transferring the backbone cost into the new app costs. So a marginal increase from that -- from all that we already have to spend, that is what in order of about $100,000 earnings. Something like that less than that. Yes. So is this the variable will be how much do we throw out in those sort of the vouchers in terms of supporting this program. This program is set -- originally, our car park is very, very lucrative, right. Like you don't spend -- you're very, very lucrative for the shopper. I think that's why you realize that now your car park, it's very lucrative. Every X dollar, you'll get already free. So with that, we are actually transferring it a bit into funding the vouchers. So that is spread beyond drivers. But generally, it's -- if I would say, it's a little bit of coming off from the car park that we originally gave then centering into the vouchers. So a bit of self-funding then if we compare it to the previous.

Okay. Then we look at your utilities and expenses, I think with this new fair tenancy framework, just wondering could you just give us some guidance on margins going forward?

Okay. Okay, this year impact will be very nominal because -- the adoption, Taliban has not passed it yet. And it's based on lease time over a certain day. So if you technically want to follow down the line, the impact was very nominal because we are coming to the year-end, right? And it only leases you were always lock down from leases starting from a percentage. So I think the amount is very nominal. If we talk about this year impact, okay? Now if we talk about long haul impact, we have a lock-in contracts in terms of our rate, yes. So the only thing is the arbitrage, the arbitrage that we will have to go a bit, okay? Because last time when we bought by, there is a little bit -- and we use the group strength to get a lower rate. So based on the DOC, we are supposed to pass on that rate even though the power came from about buying beyond the rebut it doesn't matter we will definitely -- we have to honor that and pass on the savings to the tenant. So how much impact is in order of maybe about 1, 2 minutes? Yes. 1, 2 minutes, thereabout. So if you take that 1 and our operating cost is in order of $100 million-ish a year I mean there's an impact, but it's not like significant to that extent, yes.

Okay. Just last 1 from me. I'm just wondering about your anchors, right? So I noticed that Zara has been rationalizing space also to give us space at Taka. I'm just wondering you've got a big footprint Vivo and I think to the space especially the Zara I thought were quite.

They have not expressed but I think it comes to -- if this continues, I'm not surprised that conversation will have to start not the whole store definitely, they will have to rationalize whether maybe a portion. And the way the shop is laid out, it's quite logical. It's very split into 2 sides, right? They want to operate each other. Any management that was a, what do you think -- if your sales are not going to think why don't you take a smaller footprint, I'm not surprised if that conversation will come. But then, again, that's my level 1, I think there should be enough interest.

Okay. But would the conversation comes through? I'm just curious means where does that leads us now?

I don't know. I don't know. Yes. If anything like what you're saying, like if anything you will consider leaving -- will bring up the topic on the smaller area, which is the Zara men.

Thank you, Derek. Brandon, you're up next. Brandon, please.

Can you just let us know how do you see the impact from this Vivo, is it actually positive or negative for you, especially going into fourth quarter where historical historically, you've been quite strong in terms of sales and traffic.

Okay. No need, I think the last year on, I did express my personal view on is my personal view, we know data nothing to bet me up. Now wherever I go, I love to travel. Okay? So for any time that gets open, I think a lot of people will move up, okay? We will try to go up. Now instead of -- like, for example, one, the Hong Kong one, right, everybody want to go Hong Kong. But Hong Kong is not everybody want casino board. So it's not rested poker. My personal view, this personal is -- Singapore has never -- it's not like a destination that you fly all the way and just comes in a point now, very different, yes. So I think there will be a net negative effect in my view, when it's open for a short period, okay? Because we're not going to get the reciprocal love of motor is coming in versus Singapore is running out for holiday. That's my personal view. So short term, I think it's negative in my view.

Okay. Okay. And just the second question is, I think just looking into next year. I mean, what are your thoughts on where retail rents could trend? And if you go back to 75% work-from-home and dining in at 8.

This is -- okay, 75% work-from-home, my up will be very positive, okay? The Vivo will not be -- I won't be able to name you a number, but I will tell you that the expansion of the improvement will be felt more at a heart compared to Vivo. Because Vivo might we get is still relatively steady. Okay? But up is 100% supporting the office. So it's 75%, you're going to see more acute improvement, more set improvement at a hard level. But you ask me, name a number I won't be able to name you a number, maybe extrapolate to this by 75% of my previous achievement. Yes.

Yes. I mean I just want to get a thought will you be like immediately going to raise rents or you're going to wait out for another 3 to 6 months of the year.

Okay. No need to think. Up is a very small component for us. I have to make sure that up is that the support my office. So I'm not going to push my up rentals to the point where it is great. I have to make sure that they are there to support my bigger chunk of my business, which is the MBC I, MBC II and the mTower. So without the up is a silent contributor to the success of the MBCs, which is my total management fees. So I would take care of that. Today, I remove up my value of my MBC and attractiveness of MBC will be affected. So I'm not going to, at a first instance, push them all the way to that level, especially for us. I think, a very, very different view. They are a supporting energy. And they are the reason -- a contributory reason to why my MBC is attractive to tenants. So a little bit more gentle, so definitely a bit more gentle to my tenants.

But you'll be less gentle for VivoCity?

Sorry.

But you'll be less gentle for VivoCity?

No, no, let's not say that. We are fair. We are fair, okay? I think we have always been -- I mean we are always -- we like to be deemed to be fair and not at the end of the day. As long as we are fair, I think everybody can -- you can be tough, but you must be fair. I think we have stood up to be considered a fair owner.

Mobin from JPMorgan. Please, Mobin.

Maybe you can start off with occupancy cost for VivoCity. I think FCC mentioned it was 17.5%. I'm just curious what's the number.

That is very good ours is 20-over percent. And I think yes, it's 20-over percent. Yes.

Second question is in terms of the rental reversions for retail, 3.5%. But if you strip out, let's say, the dice in this, what would be the normalized same-store rental reversions?

Well, I'm not cut into that level because it's a bag of leases during that quarter. So it's really a big bag of leases. So I'm not down to the level of minus 1, minus 2, minus 3. It's not 1 lead that showing the entire. So I was just naming you 1 with the highest rental reversion but it's not the 1 lease that hold back.

So slowing on your strategy of helping your tenants, can I make it that going for your rental reversions may be flat to slightly positive because you're maintaining headline face rents, but managing the occupancy caused by giving rental rebates as we go along. This means the rental reversion going forward is some other irrelevant number. We probably need to know what is a net effective rents?

I think it's not irrelevant. I think it's a very smart way of managing it than to have a tie to the bottom or that raise to the bottom and not having an upside on a long-term basis when you lock in on these. So I think it very positively and not so negative because I'm already giving rental rebate rather than I give it straight up. Why don't I wait and see until then I give it. Yes? Then to lock down on a rent that is lower. So I actually have a reverse view from you because I think that is a smarter way of running in a tough times. We are not in a traditional time of everything is hunky-dory. There's time of pressure, and this is the time where tenants are also facing a little bit of pain. And I think that is a very smart way of handling things. And yes, the tenants do not suffer on our hands, but we are still response, we still help them, okay? So I don't think it's a negative. It shouldn't be viewed as a negative. It should be viewed positively from my view as an operator.

So I would agree with maybe the tone of question was not right, but I probably agree if you don't want to lock, you don't want to cut rent to them at the end of the lease, then the tenant goes or I want to say the former lease is that much harder to lift rents by 10% higher in 3 years' time. So I must remind you, yes.

Not all. I don't -- many I don't mean to rather you it's not meant to be that way. It's never -- it's not all my leases at that way. More of our leases are just normal. I'm just trying to use some of the more difficult leases that they really push and that's how we handle them, which I think is fair, yes.

Yes. No. I think we all like MCT because of the way you manage things or more proactive so that we don't get, hopefully, the pretty closely. So I must commend you on that. Just in terms of the final question, in terms of the demand from the tech that you guys were mentioning, do you see these techs maybe going to CBD if there's not enough space in business parks, like, for example, MBC or the demand spread in both business parks and CBD offices.

I think -- okay. So the office and the business park market is actually a very interesting situation currently. If you look at that there is more space that's available in the business up for sure, there's actually very little free space available now. That's one. If you look at the good grade A offices, right, after I think capital spring is about 80-odd, 90% really, right? And that's actually not a lot of contiguous spaces available at the current moment. So I think that's where I feel a lot of technology tenants are having a bit of an issue. If you want to expand and you want to take, call it, 100,000 square feet of space in the you can count the number of options on 1 hand. Actually, the number of this might actually be 0. So that's actually the bigger issue. That if you want a large float and you want to contiguous us or you want to be in the same building, there are not a lot of choices. I can tell you for sure, MCT in the near future, let's say, the next 6 months or so, I got nothing for you, right? And if you look at CBD, let's say, the tech tenants normally take grade A spaces, right? So where is there a contiguous autography on space actually don't have right? So that's actually the bigger issue. There is demand. They are looking for a certain type of space, a certain profile of space. And I think that's where the technologies are having a difficulty now. If they moved earlier in the year, they could have -- they maybe have been able to pick out the business that we do some of the banks or like. But in this current moment, a bit harder, right? If you want a 15,000 square feet last was 20,000, 30,000, 40,000 square feet of space not so difficult to the larger contiguous not easy at the moment.

Thank you. We just have 1 final question from a webcast participant, is Evian. Evian's question is, can I please check how much of the rental waiver was recognized in the first half? And accounting-wise, how much of this was taken into the financial statement? And how much more do we expect for the second half? Her part 2 of the question is how much of VivoCity's gross revenue comes from F&B. And how much revenue has been earn in areas of more than 1 month.

Okay. In terms of rental rebate, whatever you will see in our results and the book, Q1, we get in order of about $9 million. First half in total about $17 million. So you can see a reduction from Q1 to Q2 versus Q2. Q2 is better than Q1 in terms of the total revenue rebate totaling, $17-odd million, yes. So I hope that answers the first question. The second 1 was on -- how much do you -- second half, like I mentioned before, it's very hard for us to predict. But assuming the same data of operation, the number of dining, the limitation on dining, the number are log down similar in the first half is replicated into the second half, that will be a general guidance, which is about $17 million, $18 million, which is about 1 year over month of rental rebate if the situation is similar. Are they qualified a lot because at the end of the day, not sure when the borders are going to open, I'm not sure whether the restrictions are going to be listed and how it is with 2, 5 or whatever. So I'm just saying that if situation is similar in the first half whether rebate may continue a relatively similar fashion in the second half, yes.

So part 2 of her question is how much of VivoCity's revenue comes from F&B and how much arrears have been in more than 1 month?

Okay. About 1/3, roughly about, say, about 1/3 of the revenue is from F&B. In terms of arrears, our arrears is actually in a very, very 0 point something. It's not significant. I would say that it's relatively stable and declining in trend over the last 2 months, not significant, last thing that I should be very alarmed about and is on the down trend.

Yes. Arrears, just bear in mind, we do have 3 months currency deposit with us. I was saying it is on a down trend. And for your accounting question on how do we treat the rebate because we are giving a rebate based on the performance of -- the sales performance of the tenant, so it's the onetime charge to P&L.

Thank you. Do we have any final questions from any participants, please, before we close this. Yes. If not, thank you very much for your time speak to you. And if you have any questions, feel free to jump up the line. Thank you.