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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Sorry, continuing. Mei Lian, our CFO; Jacqueline, Chief of Investment; [indiscernible] Acting Chief, Portfolio Management; Mei Peng, Chief Investor Relations, and I am Allison of the IR team, joined by my teammate, Clarisse. I'd now like to invite Tony to share his key highlights for the quarter.
Good morning. Good morning, everyone. I hope you all had a good rest, long weekend, as what we had. We enjoyed a little bit of nice walk around the [indiscernible] Singapore, was just checking out our property and quite pleased to see some [indiscernible] normalcy returning back, especially in our shopping malls. So I think last Friday, as you probably know, we have announced the first quarter business update. I don't think I want to dive too much to it. Perhaps just give you a little bit of flavor of what we're seeing on the ground and at the same time, what we think going forward. Certainly, I think things are still moving in the right direction from the various aspects operationally-wise and also the confidence level seems to be returning, notwithstanding, I think a lot of global issues that have been there. And of course, one of the major concern in the market naturally will be the impact from higher interest rate as well as higher oil price on the wider economy and how that will affect us. Naturally, I think we are one of the [indiscernible] here, and of course, we have done some activity this year. So this year, we are more or less quite okay, but we are also carefully in the next 2 years as well. From a business standpoint, I think, Richard, I'll just give you a little bit of a flavor. I know I mentioned to you over the weekends, I've shown many of you who were in Singapore, who have probably have a bit of sensing as well. Good traction. We see people back, dining, shopping, and we hope that, that will translate, obviously, into a good retail sales number that we report in the next quarter or so, or 3 quarters. In terms of office environment, more and more people are back in the office actually, as we end, around last week or so. I think we're seeing close to 50% of people are already back in the office as a portfolio. Of course, there are variation between the different buildings, but January has seen an increasing trend of people come back to office. We're also seeing a little bit more traction in terms of leasing momentum now that things are a bit clearer. As you probably see, some of the occupancy has been [ redone ] nicely. Although there will be a lagging effect from those leases that we signed and the cost commencement of [indiscernible] office. But directionally, I think we are quite pleased. For instance, CapitaSpring, [indiscernible] we are already [indiscernible], and even for [indiscernible], we have [indiscernible] like -- sorry, in Six, actually, I think we have also managed to move up the occupancy a notch higher [indiscernible].
Slide 7.
Slide 7. [indiscernible] overall by property. Yes. So I think as I alluded before, in various briefings, we certainly are already working on some of the backfilling of space, particularly Asia Square Tower 2, Capital Tower, Six Battery Road, and of course, the remaining space in CapitaSpring, [indiscernible] has caught up nicely. In fact, I think the leasing momentum continues, and we look to be able to sign more leases beyond 85%. Just to give a little sensing of where we are in terms of the individual property. For the office building, Asia Square Tower, we are about 97.5%. And CapitaGreen came down a little bit, 92.6%. They have a bit of an adjustment to do, some tenants are downsizing, but then we also have to lease out the space. There are some tenants upsizing, and we are giving way for them to upsize. Capital Tower remained quite flattish. We -- as I think I alluded before, I think we are in [indiscernible] market. We are in advanced stage of the documentation. Hopefully, you can see that. Six Battery Road had [indiscernible] close to 90%, 88.4% now, and CapitaSpring, 98.5%, as mentioned earlier. Capital Tower's [indiscernible] 96.1%, [indiscernible] 93%. Overall, I think it's okay. The thing to take note is in your projection, because looking at [indiscernible] forecast, there is still a tiny difference between [indiscernible] record and NPI as well as the translating to DPU for a variety of reasons. One is, I think some of the activity went down, the portfolio reconstitution. It's not a perfect timing back to back with divested OGS was completed in December. We redeployed the capital. The 3 Australia assets [indiscernible] closed too, and we have 1 more that looking through the system, getting ready for the [indiscernible]. There's the remaining one, there's 101 Miller, the 50% stake together with [indiscernible], and we're waiting for the North Sydney [indiscernible] and the relevant data transport authority getting approval in place. So unfortunately, there's a bit of delay in timing than what we have put for. We also divested JCube, completed in March, early March, and we were able to redeploy other capital to 79 Robinson, which is now CapitaSky. And fortunately, we're able to close that [ equity ] so the gap is not as, in terms of timing difference, is not as big. So that will be 1 contribution to take note. The other contributing factor to take note will be [indiscernible] some of the big space backfilling I think will take time because of the translation. I think I mentioned before, the translation from revenue recognition and the commencement of the cash flow payment is a bit of timing difference because of the amortization effect. So we do have to take that in your projection as well. But nevertheless, I think put it all together, it looks to be okay. I think the effort is okay once all these numbers [indiscernible]. In terms of the [ some ] AEI work, very quickly, I think Raffles City is ramping up quite nicely in terms of both the leasing as well as the actual -- internal [ data ] work. Roughly, I think we are about close to 50% of space that under AEI more or less committed in a way, different stage of documentation. We are looking at this stage. Concurrently, Raffles City is [indiscernible] repositioning, and you'll probably see some of the names already on the holding board. We will make the necessary adjustments. So there will be a combination of space within AEI that are looking at leasing up as well as the movement of tenants within startup, within the AEI space. And of course, so moving some of the tenants, moving outside space as far as overall repositioning. We're so quite pleased that the hotel operations seems to be up quite nicely. Now that the borders gradually opening, business seems to be coming back. We were seeing some traction as well based on the [indiscernible] hotel side, it's moving in the right direction. Yes. Definitely. For the other AEI space that we are planning, [indiscernible], we are still waiting for that final clearance from the authority. [indiscernible] is a bit more complicated. It's a lot of conservation bidding selected. So the 1 that we need to fulfill. We have also need to ship the [indiscernible] to say, I think the directional position is also still on track of what we have articulated. We want to derisk [indiscernible] in the long term. That means that we want to carry down our overreliance on that activity and bringing more possibility of having a longer day trade and night trade so that I think there are higher profitability of the tenants that being able to do well [indiscernible]. So that repositioning exercise on. And hopefully, we can -- we are in a position to share more in the weeks or months to come. Also as a result, you see the occupancy impact is slowly getting down. Nevertheless, the remaining tenants that are in [indiscernible], I think they are trading quite encouragingly, very encouraging trading in the last 1 or 2 weeks, given the further relaxation on the club as well as the trading hours, [indiscernible] for the clubs, that we will operate beyond the 10:30. We go all the way to 3:00. So we are seeing good traction coming back, people are back into enjoy themselves and [indiscernible]. So that's another plan. Beyond that, we are naturally looking at, hopefully, I think our potential redevelop exercise. I think it's time to redevelop now, given the lag time required from planning to execution, so there will be some certain projects that you expect some time to be doing. Nonetheless, I think the portfolio position journey is still ongoing. That's when there are a right opportunity of making some changes in our portfolio, which is not unexpected given what we've done in the last 6 months as well. So it's a journey, I mentioned before, and a lot of objectives for this to ensure the [indiscernible] will we be a credible, solid portfolio that will be able to withstand different market cycle at the same time able to tap on to opportunity in Southern market we identify. With that, I will stop here. I'll be happy to take questions together with my colleagues here, Mei Lian, Jacqueline and also [indiscernible].
Thank you, Tony. [Operator Instructions]. Do we have the first question? I see Mervin. [Operator Instructions].
I just want to touch on office side of things. I think historically, you showed the signing rents and expiring rents, and you did the first time showed very strong rental reversions. Maybe can you disclose what was the upcoming expiring rents for the remainder of the year and your expectations for rental reversions ahead? Second question relates to CapitaSpring. Well done in terms of the close of occupancy. Just wondering where you could maybe now share with us the average passing rents for the building?
So we are quite encouraged by the reversion. Obviously come from [indiscernible] very low base [indiscernible]. So we have, in a way, a good start for the year from a portfolio point of view. I can just give you a sensing, the one that has got a positive reversion rate. From left to right. I think Asia Square Tower 2, actually is still a slight negative reversion, very small. We're looking at a potentially less than a low single digit. For Capital Tower, it's been pretty strong. We have major [indiscernible] that has been signed, and that actually was possibly contribute the largest increase in reversion number. Then the next one is CapitaGreen. CapitaGreen was going through a little bit of changes, negative reversion currently, but we are looking through the various options that I mentioned earlier, alluded to. There are some tenants that are downsizing. There are also some tenants that are beginning to look at expansion. So it's try to catch that window for the one, what extent we would expect the existing space that we have existing [indiscernible] give up the space. Asia Square Tower 2 is still negative overall, which we have actually signed up -- we have actually renewed a few tenants who are also looking to downsize. We have actually downsized a little bit. Asia Square -- I think we want to stabilize the assets. At the moment, I think we have been able to manage to get occupancy back up to over [ 90% ]. So at [ 97% ] plus stable, the remaining space will be a little bit more, I think -- I will say a little bit more circumspect on what to expect. [indiscernible] I will say Six Battery Road is actually positive reversion. Not a big contributor, given the number of space there. And actually also we renew a tenant, which is positive as well. So overall, I would say we have a head start. But the remaining of the period, I will be quite happy if we retain for some of the higher tenancy -- some of the vacancy that are coming up, sorry, [indiscernible] coming up for the second half of the year. We are already in advanced discussion with some for them. So something to say that second half of the year, I think it's for the expiring rates quite close to the first half. We're looking at, for example, Asia Square Tower 2, slightly lower than the [indiscernible], but we signed for service basis Asia Square, which I mentioned is a negative reversion actually is quite not far from where the expiring average. So hopefully, we're able to maintain flat expiry. Cap rates, a little bit high, 11 plus. We mentioned there could be a bit of a negative reversion over there. But overall, I think as a portfolio, I still expect to see a positive reversion. Similarly, for Six Battery Road, I think expiry rates a little on the high side. We're quite happy to get a fair reversion over there. So for industrial, you want to maybe give some guidance. Hopefully, we'll be plus, minus around 1 year in the first quarter. It's a small [indiscernible].
And are you able to disclose the average passing rent capital [indiscernible]?
Clearly [indiscernible]. Of course, the first few batch of tenants, the [indiscernible], I think the degree on the signing rent is lower than what we are able to achieve now. In fact, for the remaining space, we're going up to [indiscernible] kind of range. So we'll be assessing where we probably will end. It will be hopefully in the [indiscernible] range overall.
Okay. I just want to confirm. For Capital Tower, do you say the occupancy is now 96.1%? Correct?
No. Yes, yes, no. If we seal the contract, then we are close to about 94%, 95%.
Okay. So it's still around that. Last quarter was 76.8%, is around that at the moment.
Yes. Correct.
Can we have the next question from Rachel?
Just a couple of questions from me. Maybe if you could give us any update on Galileo?
Okay. We are actually working through a couple of RFP that's surfaced. I think the last time I updated, we were contemplating whether to buy one [indiscernible], which is actually [indiscernible] interest, but also whether in the long run it makes more sense to have space divided so that it can have a lesser concentration base. So I think that exercise ongoing. We have not come to a [indiscernible] yet, because the CapEx required will be quite different. So we are still doing the assessment. And also operationally, how to execute in the different scenarios. For instance, the timing for an interested party, quite different. Some, an immediate [indiscernible] space, for example, to cater for the expiring rents in other units. The question is whether we are able to cater to that, that they require [indiscernible] with the existing tenant who are still operating half somewhat in the building. So I think we are not ready to give any more detail. So we [indiscernible].
Okay. Got it. Then on retail side, I see that reversions are still a bit -- is still on a negative trend. But given with the reopening, how do you see reversions moving forward?
Yes. Actually, you saw -- the downfall has gone up, so we have been about -- overall, the sales downfall has actually gone up. Reversion is narrowing in -- so all depends on expiring rents. I think we just won't have to be able to balance that occupancy and the brand, notwithstanding the trading environments improved, certainly, that will be, from a discussion point, the tenant will be a lot more collectible. But generally, I think we are still guided by the same principle, make sure that tenant will trade meaningfully. [indiscernible] meaningfully, I think the rental nature will come in. So it's about for specific tenants and whether you are taking more risk or less risk, so it will be case to case. Suffice to say, I think given the general mall or posting trading environment, we will be more careful about how we will [indiscernible] rental support.
Okay. So you will still expect some rental support in the rest of the quarter?
This should be very minimal. I think on a case-by-case. Some tenants are behind for the 6 months or 9 months, right? And while we think, why don't you just get a shorter extension, for example, that could be also 1 potential scenario.
Okay. But given how cost is rising, [indiscernible] are also improving. How do you think -- can you -- do you think that you can push rents to pre-COVID levels by end of this year?
I think quoting from an objective perspective, that should not be the way we want to look at this early. I think for us, we know that we [indiscernible] well, the number will flow through. And just like what you said, the cost is escalating. In fact, for a retail tenant, they are facing cost inflation at all front, from a material, manpower, utility, everything. Naturally, there's a bit of a mechanism for that to be transmitted. Eventually, what you see is the CTI and that's how the consumer will pay for everything. So the transition mechanism, I think the first one can [indiscernible] better pricing power than others. So we have to be able to recognize the difference. But naturally, I think if we are able to move the rent, fixed rent, at least we derisk ourself, move the fixed rent at the tenant level, we'll do that. We move up the fixed rent then, of course, naturally the turnover right on come off you. So I think that's still going to be the same approach. Ultimately, the overall occupancy cost is important for the specific trip, and we'll be very mindful. Suffice to say, and you probably already experienced it, that the transmission of that inflationary pressure on the China [indiscernible] passing over the consumer in the form of a higher price, we probably exceeded. And that actually will [indiscernible] for the turnover, turnover number, the sales turnover and we see that the number of subsidy [indiscernible].
Okay. Just one last question from me. I think you spoke about redevelopment. Does that push back some of your asset recycling trends in terms of acquisition of divestments? And how do we -- how should we think about your redevelopment versus the acquisition market?
I think we consider all this. You just remember the redevelopment is a longer-term plan because the actual work is long. The planning process is long, and then your decommissioned building will be long as well. It all depends on the scale, right, eventually. Is it a full scale redevelopment? Is it a partial? And that will take some time. And what I'm saying that planning and looking forward is now we that look at some of the excess, maybe it's time to revisit some of the board plans that we [indiscernible]. And that doesn't mean that 6 months down the road, we'd announce something, right? Because that reiteration of engagement involved us stakeholders, including the relevant authorities. And of course, finally, our [indiscernible] make financial sense. So that process started.
Can we have the next question from Joy?
Just a couple of questions from me. First of all, on Capital Tower. Can I just confirm the lease renewal was due to the anchor tenant, current anchor tenant? And are they still subject to cap?
There are a couple of renewals that [indiscernible].
Okay. But their leases are coming towards end of lease term from the call, right? And going forward, will they still be subject to rental cap?
I don't think we can comment on the commercial terms. You can see a nice uplift, the fact is that we actually got most of the [indiscernible] from the previous cap.
Okay. Okay. Cool. And then second question, still on office. Can I confirm that Asia Square has taken into account the set sort of space, quoted space, in newspaper? And your overall occupancy hasn't yet factoring the ongoing discussion at Capital Tower.
Sorry?
So there are 2 leases, right, on the paper, KPMG and Tencent. That was mentioned in a paper. Can I confirm that your AST2 occupancy have already included that leases. And your CT hasn't included, right?
Yes. CT hasn't. Yes.
And can you just share a little bit about just -- you talked quite a bit about space reduction from certain tenants. Can we get a sense as to what industry, what sort of tenants that are going through space reduction? What type of tenants you see in terms of space expansion?
Broadly, [ FI ], still. Generally the FI, the one that reducing space, although we have seen a bit of reversal for FI, anything FI that are now coming back for more space after the reduction. So a bit of reversal. But those that are, currently, that I mentioned, for example, CapitaGreen [indiscernible] FI, and also Asia Square Tower 2. These are FI tenants. Other industry, patchy, not very -- there's nothing very specific. I think we can become different industry, yes.
Okay. Cool. And just moving on to retail. Could you share a little bit about sort of impact from Atrium activities, what you're seeing and what potentially can we expect from Atrium sales this year? And related to that, do you think that's enough to cushion some of the cost escalation you're seeing?
As much as possible, yes, you try to push on that. Atrium sales are actually -- the demand for [indiscernible] is good, very strong. Demand for downtown to is dependent. I think we're also looking at curating the space carefully. So downtown space like Raffles City, as we are going through that [indiscernible] so we want to [indiscernible] and careful about what we want to bring in. Similarly for actually, [indiscernible] exercise in position processing slightly differently. And there are certain specific trade category that we want to narrow in. So we will be strategizing how we approach the Atrium space in Plaza Sing. So It's different objective. But overall, yes, we get a good demand for different kind of Atrium space activity. The sales-driven type, yes, they are still very good because tenants that typically wants to have a sales-driven kind of Atrium usage. But we are also trying to [indiscernible] marketing, but [indiscernible]. So there'll be a little bit of variance. Holistically, Atrium space is not a big revenue contributor. It's really the ripple effect that we're able to activate the space in an that will benefit a wider talent base, in the specific property. That's what we want. But they're more, yes, very, very local, very basic, and it's very sales-driven. And if you go around, you probably see quite a fair bit of activity already happening in the different malls, yes.
And just last question on utility cost itself. Could you just share a little bit about where we are? And does your first quarter number already include a bump up in utility costs?
So first quarter included a bit. In fact, large part of the bump was in the first quarter. There'll be a bit more bump up from the second to the fourth quarter. I think I've given some flavor overall in terms of the entire year utility tariff rate compared to the previous year. I think we are almost 91% high compared to, overall, for the whole 12 months based on the contracted rate now. And that will have factored in the first quarter, slightly lower, and the remaining quarter, which is slightly [indiscernible].
And your contract is fixed until -- when's the next one? End of the year?
So the [indiscernible] sort of looking at contractual is 91% higher than the year before.
And your contracted rate versus current spot rate? Can we get a sense?
Actually, it is -- I would say, it is probably, based on what we see, of course there are a lot of variables that's ongoing, right, including the brand movement and the FX, but there are also some formulation and [indiscernible] we are monitoring that will also be [indiscernible]. So it is not a like-for-like comparison. [indiscernible] probably, we're looking at maybe about now 10% higher from where we are. But again, this is just a very rough ballpark.
Next up can we have [indiscernible], please?
Tony, just want to check on the Raffles City and [indiscernible] AEI. How much rental uplift do you expect to achieve on combination of this AEI and NPI growth? Would you be able to give us a flavor?
So Raffles City AI is very unique because it's evolving. In fact, both property will involve an entire -- although the AI space in Raffles City only are looking at [indiscernible]. But if you look at our [indiscernible] Raffles City, you will see the transformation really happening in terms of the positioning. So it is actually the repositioning of the entire mall in Raffles City similarly for Clarke Quay.
So we cannot measure. The way the traditional ROI on the AEI is not really a straightforward kind of comparison. We hopefully can -- because once you get the positioning right then, a lot of things will fall in places, including your tenant sales, all these places. And for integrated product like Raffles City, where you have also the hotel component that will complete, they're all coming will actually help to give you the additional power in terms of driving the tenant sales.
So we are hoping that holistically, that will bring the property into a higher level. Whether we should be able to achieve in 2019 level in terms of revenue, hopefully in the next 2, 3 years. But it is a transition because you sign a tenant sometimes in, you usually take 1 cycle before you can see the update. Because you may bring them in, you may have a certain package of lease structure. But if they trade well, then that will be able to catch up in the next renewal, or that's why you see an uplift that we mentioned [indiscernible]. So retail unfortunately is not a straightforward answer to your question. But safe to say, these 2 more positioning for -- in a different form. And in the long run, it will be a lot more easier here.
Okay. So were there any rental EBITs given in the quarter?
Very, very marginal, if anything. It's more transitional. Sometimes, we need a little bit of a difference for them to -- as we plan out the AI work, right? And given that delay, your strength actually last year is quite many are delayed. For a variety of reasons, manpower from the [ bacterial ] supply and their [indiscernible] authority show, you can do some delays. And as a result of delays, you have to also talk to the tenant, hey, your timing also changed, right? So we do have a bit of an adjustment. Actually very, very quite marginal.
Okay. And sorry, has the lease with anchor tenant, H&M, being renewed for the office component?
H&M, yes, renewed.
So I guess the high tenant retention rate is likely because of the anchor tenant renewals for Capital Tower and H&M.
Correct.
Okay. And lastly, will you be able to -- did you share the breakdown of the Australia occupancy rates?
We have not. But it's largely -- slight came down a little bit, but that's due to one of the space that's been given up by [indiscernible], but there, we have already a prospect under discussion and under documentation. So that's not captured yet. We'll capture that in, I think we are not far from when we announce it. Bear in mind the 2 property completion only happened in 24th of March. So I think our team only managed to get over the space for [indiscernible]. Kind of in the meantime, I have to try to ramp up again the strategy on the listing, right? So give us some time on Australia.
Was it 100 Arthur Street or 66 Goulburn?
66 Goulburn. So 100 Arthur, there is also a prospect that I think we mentioned at documentation stage. And then once its target, we will update the portfolio overall to close to about 79%, yes.
And specifically Arthur, let me just give a little bit of flavor, I don't know why you are familiar, is a building that's a good quality, grade A, but not every floor are equal. So I think we have seen some of the floors be nicely upgraded, and we are in a good position to -- even the floors, some tenants there are looking to either downsize or looking to exit of the existing place as this condition is good enough.
So this is a little bit more detail that we have to go to floor by floor. so we technically can go out and lease it out for tenants who are prepared to move in, in an as-is condition. But there are other floors that are not upgraded, so we want to take opportunity, once the lease is due, to upgrade the floor as well to higher spec.
So I think overall, 100 Arthur is very good. It's more or less 100% -- not 100%, but more or less 100% upgraded during downtime as a result of the exit, occupancy rate all the way down to below 30%, then now we're back up to 60%. So opportunity to really upgrade everything, including the lift, lobby. It's very nicely done now. So it's a good quality product.
And then we are testing a certainly with a fill up kind of condition so that we also can minimize any kind of [indiscernible] tenants. So they can move in quite quickly. So it's a bit of an adjustment we're doing. So give us some time. I think, in our acquisition and also immediate venture that we actually secure income support for pure [indiscernible] precisely for this reason. We need that 12 to 18 months kind of a transitional period to get the property leasing up in [ ocean ].
Next up, can we have Brandon?
I'm sorry, Tony, just a few questions, right? Can you let us know what's the pre-COVID comparison for traffic and tenant sales against first Q '19.
Pre-COVID tested, I don't know whether it is more meaningful now because current -- pre-COVID, as you probably know, we don't have restrictions or entrances. Now we have during the COVID period where we are in [ DEFCON ] orange, right, all the way we have been having a lot of restriction on -- let me a number.
No, no, as in comparing first Q '22 to first Q '19.
Yes. I just want to say, let me get the number. I think sales-wise, suburban is very up. Overall portfolio is still negative. Downtown, I think we are probably tracking about 86% of 2019. Suburban is single-digit higher compared to '19. Yes.
Okay. And how do you expect these numbers to change as the outbound travel picks up over the next few quarters?
Very good question. We think -- I think my earlier position is that downtown will probably see a bit more beneficiary from the whole opening up, precisely because of the low base. And I think we are -- although we are seeing a very outward travel. The inbound travel tend to be downtown-specific. You see the hotel rooms are all moving up quite nicely. So downtown traffic, and plus, of course, more and more people will be back in office, right? So downtown generally, I think, should benefit.
It may be at expense of [indiscernible], but we watch [indiscernible] quite easily. And not also [indiscernible] are equal. Our [indiscernible] like IMM has been trending, I mean, quite a while well. And even the sales, although it's still below pre-COVID, but it's not far away, 90% of the -- actually [indiscernible], right? And when we opened up [indiscernible], actually, traffic environment has been quite resilient.
The versus the light of perhaps you see maybe a very, very local business trading kind of setting, whether it's PPP, these are the top performer PPP, even [indiscernible]. For example, these are very local precinct catchment. Potentially this year, a little bit of outflow from a -- I would say more dilution of sales may be factored.
But to what extent? I think very hard to estimate. At the end of the year, we are still -- in the next 1, 2 years, I think we are still operating in a hybrid model. Most companies have adopted flexible arrangement. So even though they are back in office, at some point in time, they're still working from home. So we will be still resilient, I would say. And earlier, a question about agent space, this is where I think the seat-to-agent space demand is still pretty strong over the course of the last 2 weeks. We have seen very strong demand for agent space. So I would say net-net effect is probably a little bit of dilution of sales from a very local precinct-specific.
For IMM, I think we'll benefit because there, we're going to see traffic grow, and inflows start coming in. IMM is 1 destination. For Tampines Mall, which is a regional center. The catchment local there is also quite a fair bit of office cloud. So they have a bit of an offset effect over there. And being a commercial center, just like Westgate [indiscernible] and [indiscernible] will see the effect. [indiscernible] see a nice [indiscernible]. So it's not one sector that fit all [indiscernible].
Okay. Just a second one on the -- on your statement on redevelopment, right? Can you give us a bit more details? Is it -- do you think it makes more sense to do that with office, retail or integrated project?
Overall, I don't think you realistically will be able to do a project that's for model use purpose. You're not going to get your clearance or authority given the large scale. So I think intensification of land use is still objective. And that really will mean that you can have it put based on component -- in terms of a single component.
No, no. What I'm asking is whether you're exploring an office, retail or mixed use.
Yes, I'm coming to that. So it depends on location. If it's a suburban location, right, you will be a discussion point. And it depends on the current mock up plan for that location that we need to explore, potentially even adding some advantages that may be required. Because there are certain other objectives that the local authorities have over there.
In the downtown location, naturally, yes, you have more component. Whether it will be office or not, need to negotiate with authority because they do have, in our master plan, how they look at the commercial space to be mapped out, right? Broadly speaking, I think the general -- at least the sentiment we get from the authority is really to put more commercial space outside of the CBD. I mean that's the general [indiscernible]. But specific location use, I think you can argue, and again, we can discuss with them. So that's the exercises specifically that I mentioned, we need to start [indiscernible]. So we have projects that are moving downtown when you will explore.
Next up, can we have [ Shen ], please?
My first question is on NPI margin. Can you help us think about how should we think about margins given that utility cost is almost doubling and specifically for retail versus office? Because I think some of your retail peers are saying that Atrium revenue were offset and NPI margins should remain unchanged. Yes. So what about [indiscernible]?
We don't want to give [indiscernible] comment. Firstly, I think it's not so straightforward. Atrium space over the [indiscernible], I think over the course of, let's just say, 2019, when these things are operating normally, we're looking at $15 million to $20 million of revenue only. So -- versus the overall revenue of probably about $600 million over, I think, in the retail space.
So I think it's a really smart action. We are, of course, trying to look at the different revenue source from an advertising point of view, not just clearly Atrium, right? And at the same time, looking at the way -- whether we are correctly pricing our car park charges in an appropriate time. So it's a little bit of a study involved as well, and also exploring whether there is a need -- room for us to look at service charge. So there will be different components that we are looking to.
The doubling up will add some pressure from operating margin perspective, purely on as-is basis. But there are also some mechanism. They have some offsetting effect. So it will effect that we have 2 component that we are -- the retail one, we have the office one. Retail one is governed by the COC. So it's a full pass-through one. Wherever we contract, we actually have to pass through the tenant. And remember, they're actually benefiting out of it. So the escalating price, no doubt we have locked in, is still much, much cheaper than what they can be able to get it out there. So there's already a price reduction on the SG rate versus what we are contracted and for something that actually there's still quite a big gap. So I think overall, retailers are also benefiting from our [indiscernible] procurement. So that's on how it depends.
Second probably is because of the way we have structured is not all with property, technically can go to third-party retail service provider. The infrastructure is all embedded in our property. If we were to unwind, that would mean it's quite costly. But nevertheless, we make arrangement for the full pass-through to happen. So we are also doing a little bit of a mix. So technically, there's a little bit of offset effect when as a result of the pass-through and the administrative handling that we have to do on behalf of the tenant. So there will be some buffer effect that will not be so apparent to you, but actually is a factor into -- on a net basis on the cost of the building.
For the office side, yes, we are passing through -- we are not passing through demand. So there's a bit of a downtime that we still enjoy. But the landlord portion, of course, that's where I think we talk about the 5% overall taxes where the landlord portion we are going to keep. So that one, I think we also, at the same time, we potentially -- is there any -- a different property will have different condition, whether there are room for us to relook at our currency recharge. So we are looking at the different components. It's not an answer, I just want to say whether it's convenient, we're going to offset the margin dilution as a result of, it's not such a [indiscernible].
Okay. Got it. And second question is on capital recycling. So after the very active last 2 quarters, do you think that you'll be taking a break and focusing on the existing portfolio? Or do you think there's more room for acquisitions given what you're seeing in the market?
When opportunity arises, everything will run [indiscernible]. So it's really what are opportunities out there. I mentioned earlier, the journey is not over. At the same time, while we are absorbing these new assets, how many -- trying to integrate it. But when there's opportunity that surface, we will explore. If it makes sense to be part of the CIC portfolio, naturally, we will look at it.
Next question is once we think that the opportunity is worth pursuing, how we're going to fund it? So that can potentially come from our existing portfolio that we can recycle potentially. So it's all about looking holistically for an opportunity out there. What can we do in our current line of portfolio. We have listed down some of the things that we potentially want to do, but it doesn't mean we have to do day 1, right? We don't have to sell the property on day 1. We have -- we can't target such [indiscernible]. It makes sense for us to better deploy our balance sheet in a meaningful way. Yes, and we also may involve a little bit of tag team [indiscernible] markets.
Derrick, can we have your question?
Tony, can you hear me?
I can hear, but I can't see you.
Two questions for me. First is just to spend a little bit more time on this for service charge and utilities question again. So I understand, I mean, I know the fact tenancy framework. You probably can't change your service charge during the term of the existing lease tenants. But for new leases that you have signed today, are you actually raising your service charge already? Or is there the intention to do that?
So I think, as I mentioned earlier, let me answer this one first before I forget. So like I mentioned earlier, I think we are reviewing it. Of course, everything under the context of the requirement of COC, which we can't make any changes. But for the new ones, how that can be factored in. So we are looking at it at the same time. But different property will be the different position. So idea is about whether we are able to look at the cost of running the property, right, versus what we are collecting for tenant, whether that's a -- there's a matching number.
Okay. Just to be very clear, when you say you're reviewing it, is it the intention to pass it on, whatever utility cost increase, through the service charge? So I mean, after all the leases in order to get signed, effectively, we should see this so called cost hike being passed through to the tenant in this way? Is it an intention? Just to understand it.
So tactically, there are a few ways we can do it because by reflecting -- the cost isn't really to -- as a retailer, they don't care, right? I'm only paying $10, that's all I'm paying. How it's split out, whether it's $8.50 and $1.50, that's a landlord issue. Historically, that's the way most of the retailers looked at it. So when you talk to them on the asset for renewal, question is whether are we able to lift for $10 to, let's say, $10.50, for example, just to cover some of the higher operating expense.
So that's a discussion point commercially, how we do it. It doesn't mean that it's $8.50 and $2 that is up to $10.50, or is it a $9 and $1.50? So that makes the difference because that will impact the way you can have property tax. And that's really your prop tax computation will involve looking at your actual expenses as well, how you offset against your collection. So there will be -- I mean, of course, offset against the assessed annual value that the quality we have in the mine for specific needs.
So this is honest answer. Question is whether do we have the pricing power, so that comes into the equation, right? Do we have the pricing power? Given the earlier discussion on inflation pressures, partly on the retailer and of fund, right? And retailers already [indiscernible]. You see the prices have already gone up, they actually pass on some of the cost to end consumer. So that transmission mechanism actually, to some extent, would flow into your [indiscernible] rent. So if we look at it holistically, what's the mechanism to do it, yes? But we are reviewing the rate.
Got it. So the second question is on a little bit about your guidance at the start of this whole call, it seems to be guiding that FY '22 seems to be a little bit of a transition year, whereby you will see a little bit of a lag when it comes to the new acquisitions, some of the occupancy will see some transitory downtime or the cash flow will take a bit more time to come in. So let us focus on FY '23, assuming that all these COVID restrictions that we are seeing, I mean, in the market today is kind of more or less being lifted already, and assuming the borders are fully reopened, are you confident looking at FY '23 to see underlying market conditions to improve to pre-COVID levels?
Okay. So let me clarify. What I mentioned at the onset is that, actually, the underlying trading condition is improving a lot. What I see as a transitioning period is because of the timing difference from the capital recycling exercise we did, right? We divested 2 assets and then redeploy. So the income contribution doesn't match with data. It's not like last interest on day 1, right?. So there will be a timing difference that you need bear in mind. That's one. And because it's all happened during the last 6 months or so, and we only completed 2 transactions. One is the Australian office acquisition, and then the other one is 79. But we also sold our OGS and we also sold JQ. And in between, there are months of integral difference on the income existing and income on incoming. So that will have some transmission transition time in FY '22.
The other one is all the backfilling space of major anchor that existed in 2021, which we are backfilling now. because we secure them, it doesn't mean that they -- that cash flow come in day 1, the cash flow will come in over a period of time. So CapitaString is one example. CapString is a developed project with secured quite a fair bit, but we see tenants are all gradually moving in more substantively from second half of the year onwards. So the cash flow -- so we have recognized revenue because it's straight line, right? Straight line your revenue recognition, where actual rental cash flow contribution is back-end loaded. You know what I mean? So it's actually back-end loaded.
Front end, you actually overstate your IPI. But back end, you probably understand your DPU. That's what I'm trying to say. There's a bit of transmission mechanism that we need to bear in mind in the way you look at your own forecast for next '22, '23.
Then back to your question, yes, raising food of a hotel. I think we are in a very good shape because our tenancy are all moving on a high occupancy. The trading environment is improving. We are doing some work on the more difficult assets like Clarke Quay and Raffles City. Raffles City is scheduled to be completed by fourth quarter. In fact, the order hopefully in fourth quarter, an outbreak normally. And for Clarke Quay, it takes a little bit longer time, but Clarke Quay is not a big component of our overall property. So there will be an effect.
2023 should be all right. 2024, got to bear in mind Galileo effect. So we are looking through the Galileo scheme, right, potential scheme. Whether there will be some downtime, we do not know. So Galileo could be potential one effect that may be visible in 2024. But we are looking at the work now.
But -- okay. So apart from Clarke Quay in FY '23, you are confident that the rest of your portfolio will be more or less performing to pre-COVID levels kind of...
Downtown Mall, we are hopeful that Downtown Mall will benefit once you get the full back to normal situation and back to pre-COVID days. You probably recall, Downtown is -- I mean Raffles City was doing very well until COVID hit. Sembawang is, which is on its own, paying us good rent, but [indiscernible] are not trading as well as we hoped for, which is why when the exit is actually an opportunity for us to reconfiguring our space altogether and derisk the property from such a heavy reliance on a major anchor pickup stream, 24% of the NLA in Raffles City retail. So we do want to do deliver derisking as well. But , we are hopeful, yes.
I think [indiscernible] I mean we hope that things will get out of hand. I know the situation. We are all very hopeful, right? I think in China, we are all watching very carefully what's happening in China. China, which I know, I think the whole region will get in trouble as well. But we are still very hopeful that China will get out of it by the end of the year. And the global situation evolving, the war, I mean, those are already -- the transmission of that effect already happening to a higher oil price. And as a result, potentially a bit of a heightened need to increase the rate, interest rate even faster.
So I think all these are already in the market, and this is something that will affect not just us, but the rest of the [indiscernible] as well. So I just want to make sure how we think about it. We do our best as much as we can, we try to lock in maybe full year, right? So for example, a lot of people ask, is your will to short? In an inflationary environment, you don't want to go too long. So that is actually from a mutual offering asset point of view, it's good to have a wheel that is decent enough for you to be able to capture some of the uplift from inflationary transmission.
Therefore, the office side, of course, we want to secure as many as possible mini anchor, but not overly rely on big anchor. We have done 1 big trade with KPMG, so they're probably in market. So it's nothing to -- but we want to stabilize the asset in Asia Square Tower 2. With that in, I think we are able to secure, hopefully, the rest of the ancillary amenities, including the retail trade over in Asia Square Tower 2, hopefully, converting it up as well. And then for the remaining space, I think we'll be more [indiscernible] how we look at the rent going forward. But we really stabilized Asia Square Tower 2.
We would like to take 1 last question. Rachel, I see you have a question.
Yes, just a few follow-up questions. I think for the utility guidance that you say about 4% to 5% on FY '21 DPU, has that taken into account some of the offsetting things that you are going take note?
No.
Okay. Okay. You got it. Yes. And secondly, yes, I think for Clarke Quay AEI, do you expect to bid now occupancy more to conduct the AEI, or is this level of occupancy okay for you to go ahead with the AEI?
There will be some friction of vacancy that may happen because they involve moving some of the tenants to a different location. We -- the trend is to do in phases. I mean I won't give more detail, but banks do in phases. So there will potentially be some transitional vacancy or frictional vacancy, what we see.
So of the area involve a little bit more. In fact, we have already gone out to the market. I think with the relaxation on the trading environment, see more traction. So the question is whether you want to speed up the work in that location. Because I shouldn't give you too much, I can't give full details out. So there are certain key things that we are targeting in that asset that will anchor the team. So we want to secure the right tenant in that location.
Okay. Got it. And 1 last question. Just what are your thoughts about rising interest rates versus how quickly you want to lock in some of the acquisitions? Would you speed up the acquisition because of rising interest rate? Or would you take a slower stance?
Opportunity, we can't control what opportunity flow from the timing point of view. When it surfaces, we will review. If it's meaningful, we can -- what is accretive, there's of course 1 factor, will they be accretive. We will not run away from looking at new deals, let's put it this way. Then the questions about the funding, which I mentioned early, how I'm going to fund it, then there's different scenario. All depends on the size, the scale, what kind of assets will they be.
Thanks, Rachel, and thank you, everybody. This is all the time that we have. If you have further questions, please feel free to reach out to the Investor Relations team. Otherwise, have a good week.
Yes, thanks a lot. Hope to see you all soon. Bye-bye.
Thank you.