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

Good morning, dear analysts and everyone. Apologies for the slight delay. Thank you very much for making time today for the Results Briefing for Mapletree Commercial Trust Second Half and Financial Year ended 31st March 2022. I'm Li Yeng from Investor Relations. Joining the call today are Ms. Sharon Lim, Chief Executive Officer of MCT; Ms. Janica Tan, Chief Financial Officer of MCT; Mr. Koh Wee Leong, our Head of Investment and Asset Management. So Janica will first present our financial results and Wee Leong will then take us through the portfolio performance. This will be followed by a Q&A session. Just a general reminder that for the bad quality and experience, we like to gently request that all participants mute their phones and to avoid taking incoming calls during this briefing. With this, I will let Janica take the stage. Thank you.

A very good morning to all. Okay, let's start with the key highlights for MCT. Okay. MCT posted a full year distributable income of SGD 300 million, up 5% as compared to FY '2021. So this was driven by higher revenue from all property asset from Mapletree Anson due to transitional efficiency. As uncertainties associated with COVID-19 have moderated further, the remaining SGD 15.7 million of cash retained from fourth quarter FY '19-'20 will be released as distribution to unitholders. And including the release of this remaining retention, the DPU for the financial year was SGD 0.0953. Rental valuation on MCT's portfolio was conducted at financial year-end and the valuation of MCT's investment properties were up slightly to SGD 8.8 billion. Moving on to portfolio performance. On March of FY '21-'22, Singapore continued to face the prolonged impact from COVID-19. So notwithstanding, we delivered a steady set of performance, closing the financial year with positive portfolio rental reversion and all properties attained higher committed and actual occupancy reach to 97% and 94.3%, respectively. We expect this positivity momentum of office and business part to continue into the new financial year. And on the tenant sales for VivoCity, for fourth quarter FY '21-'22, this has also put up further recovering to Jan to July level. On the capital management, MCT's capital management continues to be disciplined and forward-looking. As at 31st March 2022, the debt maturity profile remained well distributed with no more than 24% of debt deal for refinancing in any financial year. Moving on to the proposed merger. Further to the announcement made on 31st December '21 on the proposed merger with MNACT, on 21st March 2022, we made further announcement and introduced the alternative cash-only consideration option. And this is in addition to the cash and straight consideration option and a script-only option. So the scheme consideration remained at 1.1949 per MNACT Unit for all the three options, which is in line with MNACT's NAV per unit as at October 2021 and implies a 1 times price to NAV ratio. To find the additional cash required for up to SGD 2.2 billion arising from the alternative cash only option, MCT also announced a preferential offering of up to 1.094 billion units at an issue price of SGD 2.0039 per unit. And this is the same as the issue part of MCT's unit and these preferential offering is with full backing from our sponsor to subscribe for the maximum preferential offering of up to SGD 2.2 billion. So there's no change to the rationale and a pro forma financial effect of the proposed merger arising from the introduction of the cash only option. And on top of that, we have also set out a solid tailored for strategy to drive growth post merger. Moving on to our full year results. Gross revenue and NPI grew 4.3% and 3.1%, respectively, led by higher revenue from all properties except for Mapletree Anson due to transitional vacancy. So the higher gross revenue was mainly due to lower rental rebates and higher compensation received. This is offset by lower rental income from lower occupancy. The higher property operating expenses were due to higher operation and maintenance expenses incurred and higher one-offs relating to property tax rebate and JSS received from the government in the last financial year. The lower finance costs were mainly due to lower outstanding borrowing, lower SOI and SOR on our 14-week debt as compared to last year and the refinancing of fixed rate MTN with term loans. So consequently, the income available for distribution for the year rose by 5% to SGD 300 million with a DPU of SGD 0.0906. So taking into account the release of retained cash, distributable income for the year amounted to SGD 317 million with a DPU of SGD 0.095, up marginally by 0.4% year-on-year basis despite the higher retained cash released in FY 2021. Just a recap, in FY '21 last year, we released about SGD 28 million of retained cash. And this year, we released balance SGD 15.7 million. So excluding this release of retained cash, the DPU for the financial year was actually up 4.7% as compared to FY 2021. Moving on to portfolio valuation. MCT's investment property were valued at SGD 8.8 billion as at 31st March 2022, marginally higher as compared to the 30th September 2021 valuation, mostly due to changes in passive rent and market rent assumptions. Comparing to the March 2021, this is 1% higher. On balance sheet, NAV increased by close to SGD 85 million to SGD 5.8 billion, mainly due to increase in property valuation and consequently, NAV per unit increased from SGD 1.72 as at 31st March 2021 to SGD 1.74 as at 31st March 2022. Moving on to the key financial indicators as at 31st March 2022. Total debt outstanding remained unchanged from December at SGD 3.014 billion. Percentage of fixed rate debt increased from 75% as at December 2021 to 80% as at March 2022 as more interest rate swap were executed during the quarter. At 50% hedge, every 50 bps changed in SOR or SORA is estimated to impact the DPU by SGD 0.09 per annum. On the aggregate leverage ratio, 33.5% lower as compared to the 34% as of December 2021, mainly due to higher property valuation, offset by lower cash and cash equivalents. There is a sizable debt headroom of SGD 2.5 billion based on regulatory limit of 50%. The interest coverage ratio remained healthy at approximately 4.8 times for the financial year ended 31st March 2022 and a weighted average all-in cost of debt at 2.4% per annum for the financial year. Average term to maturity 3.3 years as at 31st March, and the rating is at BAA1 and has continued to play MCT's briefing on review for possible downgrade of up to one-off, and this will remain in AGM on the proposed merger, which is scheduled to be held next month. This is the debt maturity profile of MCT, remained well staggered. So we are working on the refinancing for the SGD 264 million term loan due in August 2022 and should be on track to refinance before maturity. The balance SGD 200 million of MTN are maturing in February 2023 and March 2023. As of 31st March, we had closed SGD 500 million of cash and undrawn committed facility to ensure ample financial liquidity to meet working capital and financial obligations for at least the next 12 months. On the performance for FY 2021, so year-on-year performance were positive in general with the exception of market capitalization rate, which saw a 10.7% drop to SGD 6.3 billion. On unit price performance and total return to unitholders, unit price growth at SGD 1.89 as at 31st March 2022, an increase of close to 115% since IPO with a total return of 216%. So FY 2021 post a negative return of 6.4% due to lower unit price. Last but not least, on the distribution deal, the distribution for the period 1st October to 31st March 2022, DPU 5.1%. This is including the release of the balance SGD 15.7 million and the record date is 28 April, expected to be June 2022. So with that, I shall hand over to Wee Leong.

Okay. Good morning, everyone. I'll try to give you a better sense of how the portfolio performed, especially on a year-on-year basis. So looking at the combined numbers, gross revenue was up 4.3% million or SGD 20.5 million from SGD 479 million to SGD 499.5 million; property expenses up 8.6% from SGD 102 million to SGD 110.8 million. As a result, net property income was up 3.1% or SGD 11.7 million from SGD 377 million to SGD 388.7 million. So much of our performance was due to the COVID gradually improving over the current financial year as compared to the previous financial year. In terms of our contribution to NPI growth, the largest contributor was from VivoCity, which was up SGD 10.2 million year-on-year. This is due in part to lower rental rebates, which has given out in the current financial year against the previous year by about SGD 16.3 million. Operating performance was generally better. We had three positive rent revisions, step up in rents as well higher capital and A&P income. These were partially offset by the cash grant, property tax rebates as well as higher compensation received in the previous year. So these are the one-off items that Janica had mentioned earlier. MTower also contributed to higher net operating income which increased over SGD 4.3 million year-on-year. This was largely due to compensation some which we received from pre-terminated tenants. Without this compensation income, NPI would have been slightly lower. Mapletree NPI was marginally down, about SGD 700,000, largely due to slightly lower occupancy this year. Before there was a little bit more occupancy of the office and [ energy parks ] ahead in the later slide. MCT had higher occupancy in FY '20 in the previous financial year, mostly behind IP, but this is dropped down to about 90% in the fourth quarter, where most of this financial year we were running about low to mid-90s. This is partly offset by compensation from pre- termination of leases and MBC to enter - MBC as a whole has seen slight drop in the net income. So just a quick note on operating expenses. There's a fair amount of plus in these numbers from one of items that we received payout last year, some reclassification or property tax rebate as well as increased maintenance expenses as we have slowly moved out of the COVID restrictions. So we look at the portfolio occupancy. As a portfolio, 4.3% occupancy with about 97% committed, in particular, mTower has moved its occupancy up for about 5.5% at the start of the year to close at 90% currently. MBC as a whole is now sitting on about 97.3% occupancy. MBC2 remains very close to 100% occupancy with only a few very small retail vacancies. Majority of the vacancies for the property are at the MBC1 side. So just to know better, MBC1 was completed at 2002. So the majority of the tenants at property are now more than 10 years in their lease. Some of them have completed second term. And because of that [indiscernible] and positive business requirements are going to be very different from the April move that we see. Of course, COVID and flexible booking has not helped. So as a result, we have seen and will continue to see non-renewals by some MBC tenants. The key will be to look at increasingly improving leasing momentum, just we have to wait the speed. So on that note, we are definitely seeing positive leasing in office and business park portfolio. Renewal of major tenants expiring this year is on track, and we can see the improvement in occupancies that we have gradually through some of the vacant spaces. Some of these places have permitted and you will see that translate into physical occupancy over the next few months. Demand has been quite mixed actually in terms of sector. So we do see some newly set up technology companies looking for space. We also see some office tenants moving out from the CBD due to the escalating rentals there. Just a bit more color on the meeting update. You see rental reversions are pending to 4% for retail and 1.7% for office business parts. This has been quite a good improvement over the previous year where we have recorded minus 9.6% for retail and close to about 0.4% for the business. Again, lease expiry profile. The weighted average lease as far is now 2.6 years, which is slightly up above from 2.4 years in the previous financial year. This is largely due to the office and business portfolio where we have improved from 2.7 to 2.9 years due to the expansion largely due to the renewal users of MBT2. So top 10 tenants and trade mix are largely unchanged from a year ago. So we'll move to VivoCity shopper traffic and tenant sales. Year-on-year, shopper traffic is up about 4.5% and tenant sales up 15.6%. Much of this is actually due to the [indiscernible] in the previous financial year from 7 April to 8 June when the majority of retailers will close and there was a real example for most of it in Singapore. I think what we can do is look at the next slide, which gives a bit more color on the month-on-month performance and especially pre-COVID period. So if you look further back to the January, March, November corresponding period without any COVID impact, tenant sales for this four quarter is actually very slightly higher, although shopper traffic is still up by about 25%. We hope that the continued loosening of our COVID measures will have lot more positive effect on the retail going forward. So with increasing retail segment over the course of the last year, we have been giving our financial base in FY '21-'22 against the previous financial year based on the numbers we have closed the year at 4.4 months of rental rebate for this year, which is about 4.4 months, which we have given on the previous financial year. We continue to refresh the pandemic -- the CBD, so these are just out of tenants that opened up in the last quarter or so. The largest one is for Dyson, which is going to be the largest demo store in Southeast Asia at VivoCity in a very prime location. So moving on. We'll just talk a little bit about the proposed merger. So as you're aware, on 30th of December, MCT had announced a proposed merger with Mapletree North Asia Commercial Trust. Earlier part of the March, we announced that we added cash only consideration to unitholders on top of the scrip-only contribution as well as the cash consideration. So just to give just to recap, the scrip-only consideration will have provided unitholder SGD 0.5963 MCT units per MNACT unit. The cash and scrip component will have 85% consideration units that was 0.05 MCT unit per MNACT unit and 15% cash, so that is SGD 0.1912 in cash per MNACT. The new scheme cash only consideration is SGD 1.1949 in cash per MNACT unit. So the cash-only consideration is also the default consideration. MCT is proposing to fund cash only consideration through a preferential offering of up to SGD 2.2 billion. Regulatory Investment Private Limited is the sponsor of MCT and subscribed for the maximum preferential operating units. In addition, Mapletree Investments has also agreed to a voluntary six-month mockup of the renewed policy in MCT and post completion of the merger. So the addition of the complement to the preferential offering adds to Mapletree's commitment to the merger and the trust. So as mentioned, has undertaken to subscribe for the maximum preferential operating units. They are undertaking to receive 100% of the scrip-only consideration unchanged. The six month lockup following the completion is new. They also continue to support the management by agreeing to waive the acquisition fee. The sponsor has also supported the adoption of fee management fee structure which is packed to distributable income and DPU growth, which promotes alignment. So the rationale for the merger remains unchanged. The financial effects of the merger even with the cash only consideration and the preferential unit that we need to see as the cash creation and the combination of Mapletree Commercial Trust is mainly between commercial trust will create the proxy for key gateways to lease of Asia and ended by high quality and diversified portfolio. The reason we are top 10 in Asia and we'll continue to be well positioned to pursue growth opportunities through platform. It also provides attractive function benefits to MCT unitholders. Page two particularly for asset and capital management strategy post merger. So we'll continue to talk on the resilience of the portfolio largely coming from the stable asset. We will look to recovery in Hong Kong as we move out of the COVID restrictions. Korea will provide the opportunity to step-up and grow the portfolio and we will have opportunities to recycle capital in Japan. China, the key will be to harvest and grow the portfolio there. So just to give a quick note on the unit approvals that need to be obtained at AGM. So there will be four resolutions in table, extraordinary resolutions. The first of which is the proposed merger of MCT and MNACT trust scheme, that's also resolution. There will also be the approval for the issuance of new MCT units as part of the consideration. There will be a wide launch rigor as well relating to the potential increase in units by Mapletree Investments as the sponsor. There was the corporate resolution through the change in structure to the distribution base fee structure. So Resolutions one, two and three are interconditional. Resolution four is not. So the merger will be approved if resolution one, two, and three are approved. So as we come to the end of the presentation, we can open the floor for questions.

Thank you, Janica and Wee Leong. So if you would like to have raise any questions, please raise your hand on the WebEx platform and wait for our queue. I kindly request that you state your firm and your name before posting any questions. So as a start, we have Brandon from Citi. Brandon, please.

Yeah. Hi. Good morning. Just a quick one. Can you share about the impact on MCT numbers from the rising utilities costs and when are your existing block purchase contracts expiring? That's my first one. Thanks.

Good morning to you. Thanks for your question. Our utilities, if you look at, it's in order of about, what, 7% of the OpEx cost -- let's say you take 7 million -- sorry, less than 7%, say 7 million or 110 of the OpEx. Our contract is -- fixed rate is till end October, 31st of October. So it's five months impact when we unwind or enter into the new contract. Yeah. Does that answer your question?

Yeah. Is it convenient to share like what kind of increase in terms of…

Okay. I mean just to give you a sense, we're talking about current contract about the low 10s or within. So it depends on the fixed rates that we go into, is that interest rate goes up, it goes down. But definitely, it's on upward trend, okay. If we talk about doubling, we are talking about a 7 out of 8 of our NPI, that will be the impact, 1%-ish okay? If you talk about it going to 30, then there will be more than that. So if you take a sense that our utilities is about SGD 7 million a year, our current contract is about low 10, depending on what we lock in time, five months impact, that will be our FY '22 impact.

Okay. And I assume that is on a portfolio of what.

Yeah, portfolio. The SGD 7 million is facility portfolio, 7-ish is the higher portfolio.

Okay. All right. Great. My second question would be on the tenants and traffic, right? How should we look at FY '23, given that Singapore is now starting to travel aggressively?

Okay. For office property or retail that is taxed to office or close to the office community. Very clearly, any listing or work from home is a very positive move. I think what you see us, which is more like the amenity center, anytime when they have 100% no work from home, we do actually see a very, very direct impact. Now if we talk about people, right now, we have recovered for 4Q to pre-COVID. So that's a very positive sign for us. It's a natural move that we have for the country to move -- to start opening its border, some incoming tourist or outgoing towards, but it's a step that I think is a positive move for any form of retail.

Okay. And just going back to the rent rebates, right? It seems that you gave a bit of that in the fourth quarter of FY '22. Can you share which trade sector was there? And for FY '22, should we be expecting any of that.

Okay. When we say we gave about SGD 5-ish million for, let's say, for rebate for 4Q, there's a little bit of a timing difference. Technically, if you look at our sales, our sales in 4Q is above at pre-COVID already. Technically, there shouldn't be any rebates. But just to give you some color and timing difference. That's why what we did and what our sales is a little bit of a mismatch, okay? So it's not a reflection of the sales that was registered for 4Q. Now, going forward, if the numbers remain the same, there shouldn't be any reason for me to continue with the rebate, okay? That is my own take depending on how the COVID situation actually pans out. If things are like 4Q, there's no reason for me to continue leaving, yes? I think that's the fund that we are taking. We have been helping our tenants for good two years and we are tapering off and it will be highly dependent on the sales that's been done in a month.

Okay. So just one last one from me, right? I know you've targeted like Japan as a key area of divestment post the merger. But given where the office market is trending, right, what you also looking at Maple Tree and as a prospective divestment target?

Okay. I think just for your first part, I mean, to me, I have no assessment of assets, but there are certain core assets for the merged entity. Things like Vivo, things like MBC. And as of now, festival is not on the table to be considered in terms of divestment for various reasons, okay. One, it could be core to our business. Two, it is a big -- we have sat on recovery, no point touching the assets and divest, okay. So a professional manager, very clearly, we're not attached to any assets as long as it fits the purpose or it doesn't fit the purpose we will definitely look at it to look at recycling and redeploying. So I just want to clear out that it's not like we said they have to do Japan. I'm just saying that in general, okay, when we deal with assets, we have no attachment, okay? So it has to fit about it, it doesn't, it goes into the bucket for full review, okay. So that's our start with regards to deliver properties. Now if you look at Anson, Anson I think is like I've always been sharing, and that is a very nice chip that I have in my pocket. Valuations are in order, 2,200-plus per square foot. My neighbor has [indiscernible] think the loss was done at about then 55 Market Street done at 34-ish per square foot. There's no great impetus for me today in cashing out for that asset. The asset is not getting metered. The asset has got a very, very good occupancy is very decent. Like I said before, only when we want to do a very, very big deal for example, and we find that raising capital could be a little bit of stress in the market because of the limitations in terms of the amount of money that can be raised to the market. Do I want to consider sorting capital, okay? But as of now, I would say I have no intention of the divested answer level.

Okay, thanks so much.

Very, very good offer. Yeah.

Okay. That is all from me.

Yeah. But we are sitting on very nice margin. [indiscernible]

Okay. All right. Fantastic.

Thank you, Brandon. Next, we have Terence from JPMorgan, please. Terence?

Thanks so much for taking my question. I just wanted to ask on the return of interim sales. Can you help to quantify what's the expectation on return on interim sales and would this be sufficient to offset some of the higher electricity costs?

Okay. [indiscernible] score is an order of plus finance, but about SGD 7 million a year. Our interim cost is in order of about SGD 5-ish million a year. So to totally offset is if you say that is doubling, assuming there's a doubling of the utility cost and 100% offset because one is 507. But it's a positive thing that the government is reducing in terms of the interim. So at least, we do have site of things going back to normality.

Thanks so much. Next question I want to ask on leasing. I didn't quite catch it just now, but what's the breakdown of the rent reversion between office and business parks. And can you also share on any indication on the BEMO and Google lease coming up? Have they after loss base as to return space?

Okay. The Google unit is done. Google lease is actually two parts. One part is November last year. Another part is the small part with June next year, all done already, okay? So that's out of the way. As a matter of total average, okay? Average is not a negative, for Google. But because it's two budgets, and we try we even-out the ramp per square foot because if they say, for example, one lot is SGD 6, another lot is SGD 5.80, then we take the average to talk to them, for example, yeah? But if you talk about the whole entirely, it's not worth of, okay? BEMO, we are already kind of sort out all the lease details. It's just subject to signing, okay? So nothing surprising from these two tenants. If Google looking at more space, they use soon as of now, no indication, but the positive is they are not giving up space. I think there are some talks about maybe Google giving up on space. The answer is no. They have already renewed that leaves us with us.

Okay. But the reversion between office and business parts.

You can see office and business breakdown there.

Not much difference.

Okay. And also mentioned about the MBC 1 leasing coming up. Could you share what are the trade mixes, which could potentially leave? And do you expect positive reversions coming out of MBC1.

Here, the one area that we've been seeing quite a lot of clubs actually in the FMCG side, not just at our own portfolio. We've also seen a lot of movements of FMCG companies throughout the office this asset in Singapore. So that's one major area that we are seeing. Fortunately for us, our financials started to fairly stable in terms of spaces. The one that we have moved out entrees Bank and across the point cutting space. If you look at the rental reversion number, the issue of rental reversion as always is what is the ending rent of some of these tenants. Now the effect for the business side, some of these meters were actually sum part a long time ago. And at the time, we had very -- they have very aggressive rental step-ups. So some of these we are actually going to end at very high rentals. One of the leases in one of the last leases expiring this year actually were ended across SGD 7 in terms of rental. And that's not an achievable number for the business portfolio. Most of the reasons we are signing at the current moment averaging the mid-6000, which is really a big improvement over the previous few years. So where the rental belief ends up will actually depend on some of these leases, what the ending rents are and where we eventually end up signing that. But in terms of movement of rentals in terms of signing rentals, we are slowly being able -- we are slowly being able to ratchet up our rentals at the business parks. I think about a year ago, we were looking at towards the lower end of SGD 6 for most of the leases we are signing, right? In this current financial year, we have rated that upward towards the 650, and we are moving slightly upwards now. So the direction of our rental growth is on correct track.

Okay. Thanks. And a final question from me. On the proposed combination, the assumption that you had used for debt funding costs and the funding cost is 2.7% and 3.7%. Do you believe that these numbers are achievable at this juncture given where interest rates have moved.

Yeah, obviously not. When we go out with that set of numbers, this is the prevailing market rates, okay? So as at today, I would say the cost of that may still hold at that particular level or maybe slightly above a little bit because we have locked in the margin but whereas I think, is really beyond reach. But we do have a stability. We don't need to go out with the perks. We do have facility in place to take off the whole funding using loans.

Yeah. So maybe 3% over, the day market is about 4%. Doesn't seem that was with, okay? But we do have other sources of funding in place that doesn't cause us 4%.

And just indicatively what would be the debt funding cost today?

Today, do you mean MCT?

Let's say to draw down for the proposed merger.

It will be based on today. I tell you the market rate is like today, up by 10 bps model down 4, 5 bps, sometimes it's very difficult to gauge. But we will -- it will be slightly above what we had projected, but it will never be finalized until we draw down [indiscernible]. If I go -- if I go out today, draw down the loan that I have, okay for the merger, then profit is definitely lower than what -- the assumptions that I used.

Thank you, Terence. Next, can we have Joy from HSBC.

Just a quick question for me. I think you mentioned about non-renewals at MBC, and you talked about sort of DB moving out. What are the other risks you see in that asset, and is there a CapEx requirement for the asset?

Joy, like I mentioned in my answer earlier to Terence, the main flux we are seeing coming up in the coming year actually is in the FMCG side. So that's the major risk to -- in terms of tenant mix for MBC I. I think everybody is trying to already -- it's already in the market for quite a while. Unilever will be moving out. I think previously had 6 floors with MBC. We have already leased out 2 of those floors to a replacement tenant. That tenant moves in early, towards the later part of last year. So the remaining 4 floors, whether these will expire in the second half of the financial year. Those will be vacant once Unilever moves out. We are still marketing the spaces. There is interest. So we hope we will be able to tie up something over the next 6 months or so. But the reality, is that there will be -- there will definitely be a wait and see period. So that -- hopefully, that addresses your first question on the leasing part of MBC. For the second part, in terms of capital requirements for MBC, as a whole, MBC I and MBC II are fairly new, right? When MBC II was completed, we had actually upgraded a lot of the mechanical and electrical systems, including the chiller plants and the like. MBC remains one of the more efficient -- energy-efficient buildings on a standalone basis. What we are trying to do, is to actually improve the sustainability, the Green Mark ratings of the building. That's currently being studied -- that's currently being studied. How -- whether that will require significant capital expenditure, I think that still remains to be seen. There will definitely be some CapEx which will be required. For example, on the sustainability front, we are exploring, does it make sense to increase the amount of solar panels at MBC? Currently, we only have about a very small amount of solar panels, about 80 kilowatt peak. We think that we can significantly increase that number. So obviously, there will be CapEx involved. If we go on further, and we need to improve chiller efficiencies or we need to do other work to improve the energy rating of the building then, we will take the necessary call at that point in time. MBC I and II are already Green Mark Platinum, so already at the highest level of [indiscernible], based on the current -- on the previous standards. And we don't think it will be -- we're not going to be talking about SGD 70 million, SGD 80 million of CapEx to improve the sustainability ratings of the building, right? But certainly, there will be some money that will be required.

Okay. That's very helpful. And I guess just a follow-up on that. You don't really need to do any like major touch-up or sort of improvement just for re-leasing to other tenants, right?

No, no. Specifically for re-leasing to other tenants, no, we don't need to -- I mean there will be things that we will need to do to touch up the whole building -- as a whole, right, but not for specific tenants.

I would say that amongst properties, MBC is one of the youngest and one of the most well maintained. So if you're talking about CapEx control levels, CapEx on renewal, we do not spend CapEx for the tenant space, okay? So the existing tenant has to bring it back to original state, then we hand that original state to the new tenant. So that's one part. The CapEx that Wee Leong was talking about, is more on the long term, where we talked about sustainability, we're talking about green assets and all. Obviously, all the properties in Singapore will have to spend a little bit to get into that zone, okay, of a certain level, of new rated platinum standard, okay. But MBC will still be one of the lowest amongst all the properties that we have.

And my second question is on retail. So just talk about VivoCity. Have you seen an improvement in terms of variable rents or GTO rents? And also in terms of trade mix, could you give a bit of -- sort of just color on any sort of changing the trends?

Okay. If you talk about trending, definitely, the port is still a very stable component. Supermarket is still okay, but not as good as the year before, if I do remember -- margin, we're still doing okay. But we are doing okay. So the typical trades that we think, will do better or continue to do good. I think the whitegoods would be fine, people like [indiscernible], the basics are still okay. The athleisure is one interesting component, which I think is a structural shift in terms of people -- what is it called, people, the shopper's inclination. The athleisure is definitely a big plus in terms of going forward as a trade that will continue to do better. So that's one. The trade that I think that will go down, will be your banking homes, okay? I think I mentioned a few times already, the banking homes, where banks will not need face-to-face interaction as opposed to previously, they all have a -- not a lot in the shopping mall. So that's one sector or lots that we have to be mindful. ATM, definitely, we see ATM going bye-bye, out of the mall. First one meeting away is our biggest bank, starting with D in Singapore, not very keen on ATM. So I think all the rest of the bank will follow suit, everybody is going cashless, okay? So those are the -- this year or last year that we have been seeing. The banks are very clear, that physical presence and going online transactions will be the way to go, moving forward. Okay? So we are still focusing on the domestic. We are focusing on the family, and I think our fitness is doing us good, because we have a decent amount of F&B, that is the core reason for people coming out to spend the day at Vivo. So Vivo has recovered 4Q, quite nicely to pre-COVID, okay, I hope that [indiscernible]. So Vivo is on a very nice track on recovery, and we do it -- and there's also another component that we have not fully extracted, which is full work-from-home. What you see in 4Q, is work-from-home is still 50%. As you know, Vivo and the rest of our retail, actually supports a bit of component of the office community that we're supporting. So that's not coming back on a full scale yet, okay? So 4Q, we were still all in 50%. So when we -- the office sector returns to 100% or right now 75% and it improves to 100%, definitely, in my view, there will be more positive coming, everything, okay? So that has not been fully attracted, okay? Yes.

And just GTO rents, is there any change in percentage of...

Okay. The GTO rent is quite natural to think that -- because we have attractive sales. But I think there's some timing difference in the recognition. So this quarter, the -- compared to different quarters or whatever, there may not be -- you may not see significant changes. But when sales improve, typically our GTO rent will move in tandem, okay? So, our GTO rent component is not a very huge component. We're talking about 4%-ish there about, plus minus. It's not a very big component in the overall revenues. Yes. But it's a volume in tandem, because we have not changed our lease structure pre-COVID or during COVID. In terms of like going very, very high all GTO rent structure or zero GTO rent structure. So our leasing assets in terms of the filing terms are still the same. So a logical conclusion is, when the sales move, our GTO component will move in tandem, except that our GTO component has never been a very big component, yes -- it's a...

Yes.

Yeah.

Can we next have Rachel from DBS. Rachel?

Just a few quick questions from me. For retail reversion, just wondering what's your outlook, I think things are looking more positive. Just wondering whether rents have recovered back to pre-COVID or are you still looking to give any more concessions in the earlier part of the lease period versus the later period? Or are things going back to normal again?

Okay. Our rental rebate structure or assistance structure has been very tied to sales. And we pocket to certain categories and we [indiscernible] with the philosophy of sharing of the pain between landlord and tenant. So that's the principle behind our assistance program. Now you think that it will continue like Q4, that is pre-COVID, I see very little reason for us to give the same level of rental rebates, okay? So -- and if you see quarter-by-quarter or half-by-half, definitely our rental rebates are lesser. Like the first year [indiscernible], I think quite high amount spending of SGD 20 million, then last year about SGD 23 million, okay. So definitely, there is a tailing off in terms of the rental EBIT. Okay. So if sales improve or continue as it is in Q4, I see very significant reasons for me -- for us to give further rebates.

Rental reversion?

Oh, reversion, of course, we try to keep it positive. We try, okay, we try.

But rents are still not quite back at pre-COVID. Do you think that you will reach?

No, actually rental reversion, this is our average per square foot is not varied from pre-COVID. We didn't do like negative SG20 million, or within you know. So it just has. We have been talking very reasonable or even positive rental reversion, okay, which I shared with the market that I took the strategy of -- if you need help then come in, but you don't touch my rent, just because it is for short-term pain, and I get lockdown, and I don't see upside. Because any lockdown, you get lockdown for a few years, and if they're getting -- opening up or else a positive move, you are not able to capitalize on it and you are very locked down on lower rent. So that's where we took a different strategy in terms of dealing with the corporate situation for the retail business.

Okay. Got it. And my second question is on business park. I mean given some large non-renewals at MBC I. Just wondering, in terms of demand wise, are you seeing interest for large spaces or you know potentially could -- I know you say Google is not looking to expand you -- would you explore with Google to take up the space in MBC I?

Okay, so in terms of in terms of demand, we are seeing spaces -- we are seeing demand for large spaces, right? We are currently negotiating the leases on the 40,000 square foot as well as the 20,000 something, 30,000 square foot range, and there are tenants still looking for this type of large floor sizes. So we think that there is certainly demand. We are talking to -- we continue to talk to tenants. And over the last few months, we have had inquiries for 80,000, 90,000, 100,000 square feet of space. So it's more a matter of matching exactly what the requirements are, as well as matching in terms of timing. At the current moment, there's not a lot of options in terms of business park spaces in the city fringe area, right? So there is the -- if you are looking for very large floor places and very large sizes of space, there is not -- really not a lot of options. But if you are looking for smaller spaces, that's where the options we need to open up. So we do see the demand. We are more -- it's more a matter of matching where the timing is. And some of the requirements are not so soon. They are looking at the requirements towards the end of the year, early part of next year. So it's more that as a matter. Just to give you some color, some of these pieces, that for example, the 30,000, 40,000 leases that we are looking to conclude. Leasing is -- it has taken the leasing team quite a long time to tie down the leases and to get tenants -- to get all of their own internal approvals and to decide on spaces. So while there is demand, the more time the tenants are taking to make decisions, has been longer than what we have seen in the past. While there are spaces, while we have some vacancies that are being dealt with, there is demand. The timing and the matching may take a little while, and tenants are really -- really are taking a little bit longer to make their decisions.

Okay. Got it. Just curious, this large demand, are there expansionary new tenants from overseas, or what trade sectors are we looking?

So it's been mixed. I've had tenants who are moving out of CBD. So again FMCG, right. So we are -- this sector is being flux, but some of it benefits, some of it doesn't. So we do have tenants who are moving out of the CBD. We do have inquiries from new setups in Singapore large -- mostly from the technology side.

Okay. Got it. All right.

Can we have Tan Xuan please, from Goldman Sachs.

Hi. Just a question on rent reversion outlook for the upcoming year. I think although, you mentioned that for retail, you're expecting positive. Can you also share expectation for office and business park as well?

Okay. I think one part, of course, retail, we try to keep positive. Like I mentioned a little bit on the Google one, because it's on averaging, right? There's 2 reasons, one up, one down, but on average, it's still slightly positive. So when it comes to mix, because when we report, we report, we report when the expiry date, that batch, we will take it out. So we will report it. So the second batch, don't be surprised to see negative okay? But on an overall, Google is not worse off, from the [indiscernible].

Got it. And what about the overall office as well?

So I think let's talk overall office and business park. In general, overall office and business park rentals are going up, right? But the reality is that we are still sitting a little bit below where the peaks were 2 years ago. That's one part. The second thing is that we are seeing -- we do have some leases within the portfolio where the structure was a long time ago, they had very steep step-ups. So we do have research at the business park side, where the leases expire at the SGD 7 or high -- very high SGD 6 marks, which is a little bit above where the current market is. So if you recall, we calculate rental reversion based on average on new leases against the last year of the expiring lease, right? So on that basis, you would see some tenants, where the leases that we assign them are market, right, on an average basis, they are market, right? And like I mentioned earlier, if you compare the market rates, that we are assigning now, against what we had signed a year ago, there's actually been improvements already. But for some of these tenants, because of the popularity of the lease structure and some of these are a lot smaller, right? There will be a slight negative impact on the rental reversion number. However, if you look at the rental rates that we are signing, it's definitely positive of what we were performing the previous year. It's also -- and if you see that, -- it's the market for the spaces that we are marketing out.

Thank you, Tan Xuan. I will now move on to some other questions that have been posted by online participants. First, from Joel Siew, how does existing rentals compare with the growing market rents currently? And can we provide some guidance as to the percentage of revenue, that utilities and maintenance costs go up. How do we intend to mitigate rising costs?

I'll take your first question on the market rate. So in general, on the office and business park, we are signing leases at what we believe is market. And based on the leases that we are billing currently, we are seeing improvements in terms of rental rates, right? So this is across all of the office and business park portfolio. Like Sharon mentioned on the retail side, we'll be looking to have positive rental reversions as well, as far as we can manage. You're asking also about utilities and components of this chart. Maybe I'll talk about retail first, because that's fairly straightforward. So as you're aware, that it is a fair tenancy framework and part of that is the code of conduct. Under the call of conduct, one of the things to stipulate is that, we can increase service charge, but the total rent doesn't change, right? So which, of course means that for retail tenants, we have very limited ability to increase service charge type of revenue to offset increasing costs. But to just take a step back and reiterate what Sharon had mentioned, out of our total operating expenses of SGD 110 million for the current financial -- for the financial that just passed, utilities takes up about -- SGD 7 million thereabouts. Against our total revenue, debt will be about 1.7%, 1.5%-ish. So that gives you an idea of what sort of operating margins you have vis-a-vis the utility cost that we have to manage, right? So there is some flux in those numbers. We will see increases in the operating expenses, that those numbers against our total revenue, is not going to be significant. Sure, it will definitely impact our distributable income, but the impact is not expected. It's not going to be -- it's not going to be a SGD 30 million, SGD 40 million type of impact, where if you drop by SGD 0.01 or SGD 0.02 odd number. Hopefully, I gave good color?

Thank you. Nick, I will just pose this question next from Alicia Chang. Given the strong demand for CBD office space, why have we observed a spillover effect into two different business parks?

So you're asking whether the increasing rents in the CBD, we are seeing still, but actually we have -- we do see some tenants move out from the CBD, whether it's move in part or move entirely, we do see that demand come true. One thing to note is that unlike offices in the CBD, offices have very little restriction in terms of what you can use it for. You can't use it for political purposes, you can't run experiments there, right, or you can't relax in the office. But the use of it is generally much less restricted than for business park spaces, right? Business park spaces tend to be -- generally for back office type of operations, or H2 type operations, they have been not front office type operations. So not all CBD tenants can qualify for business park space. We have had inquiries by companies, and some of these companies just plain do not qualify. So the spillover effect is moderated by the fact that, not all tenants qualify for business park spaces. So on the other hand, we do see demand for office spaces. So we do have some tenants look at moving out of the CBD to office spaces outside of the CBD. On that front, we effectively only have mTower available to lease. MLHF is fully leased out already. MBC I's office component is also fully leased out already. So there's only a little bit of flux. -- only little bit -- there's only one building that we can take some of this demand, and we are seeing a little bit of interest there. Generally, from smaller tenants, because that's what mTower generally is able to cater for.

Yes. Thank you. I just want to repeat this one question from Alex. I think he might not have gotten answer before. So how -- what are driving the tenant sales improvement as compared to pre-COVID? Can you give a sense of which other sectors are doing well compared to before and now?

Okay. Well, quite clearly, the athleisure is positive. This COVID period is the supermarket, the luxury watches and the whitegoods. Those are the positive during the COVID period. But long haul, I would see the athleisure component being a bright star.

Thank you, Sharon. I believe we have finished the session. And if there is no other last questions from participants, we could call this briefing to an end. But feel free to reach out to us after this, if you have any other -- sorry, I just saw Derek from Morgan Stanley raising his hand, Derek?

Sharon, Can you hear me?

Yes, loud and clear.

Okay. So I just want to ask about Sharon's comment on the electricity contract. You mentioned it's somewhere around SGD 0.10 fixed. What is this back to, is this wholesale rate, or is it somewhere in between wholesale and retail rates? Or are you getting above this...

[indiscernible]. Yes.

Sorry, Derek. So in the past, in the past last time, now this I have to get ready. But in the past, we were able to get rates which were fixed rate. So it's like I think your interest rate -- interest rate swap and getting a fixed rate swap or getting a fixed rate debt, is not taxed against anything, it's taxed against what the market is willing to give you at that point in time. So we were able to lock in about SGD 0.10 rate, this would have been about -- close to a year ago and we locked it in until this year in -- until this year in November. Following on from that, then, yes, the contract structures will likely have to change, whether it will be packed against rent, packed against the wholesale reduction in rebate. I think that one is something that we're exploring at the current moment.

Right. Just to confirm, right now, you're on the high tension rate that was fixed year ago, but once that rolls off in November, you could follow to the wholesale tariff rent?

For increased too...

Yes, I think now I think what you're trying to do is, you are try to have a very good stand in terms of where the OpEx increases will be like, okay? So I'm trying to guide you guys, my utility costs is about SGD 7 million out of SGD 110 million. SGD 7 million, MBI-388 okay? So if we talk about 100% increase, okay, we are talking about additional SGD 7 million, that's about 1.4%, okay, to the NPI. And ours right now, we still get to enjoy the low rate until early November -- until end October, okay? So I feel we -- I can't give you any more further guidance. It's a matter of -- we have -- because we have not even looked at for the next period. So this is as much a gift that I can give you. It's not a matter of like 10% of the NPI flying off, 20% of NPI flying off, no. SGD 7 million out of SGD 388 million. So if you talk about double one-off, then you talk about tripling, then we talk about 3%, okay? So that gives you a good sense.

Yes. I mean I'm just asking this is the wholesale rate, I think it's like probably it's 4x what you are currently paying right now. So...

Based on reports -- no, no...

Based on our reports, it's lesser than that. But the wholesale rate, also indicative of the wholesale rate.

Right. Okay, because...

We have seen a range over tariff from 20 over 10 to 30 over 10, okay? So that gives you a sense of the ranging. So I kind of want to nail that, because going to go on [indiscernible].

Okay. I understand. That's really helpful color. That's all the questions I have.

So 20 over 10, you add SGD 7 million more, then you get minus 1.4% [indiscernible].

Thank you. Yes. So if we have no further questions, we shall end this call now. But as I mentioned earlier, feel free to reach out to us, our business for any time you have any other clarification. Again, thank you very much for the time.