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Hi. Good morning, ladies and gentlemen, and those who are tuning in through the webcast. Welcome to CapitaLand Mall Trust Results Briefing for First Half of 2018. First, we will commence with a short presentation by Mr. Tony Tan, the CEO of CapitaLand Mall Trust Management Limited, followed by Q&A sessions.
So may we now invite Tony for his presentations.
Good morning. Good morning, folks. It's Friday, so hopefully we'll end on a good note. Thanks for coming today, this morning. We were pleased to announce our results for second Q, as well as the first half. I think overall it's a reasonable result given the general market sentiment. As you know, the industry is not easy, it's challenging. I think we are trying to navigate through. Obviously there are short-term issues and long-term issues that we have to deal with, but nevertheless, I think we try our best to do our best in the current environment.
It's not moving. Can I use -- okay. So that's the basic disclaimer, just to take note. This is a snapshot of what we had achieved in the first half, as an overview. Rental reversion came in at about 0.8% higher, which is quite also in line with the first Q, so more or less you see a kind of flattish situation in the second Q. For the occupancy, a slight dip from 98.9% to 98%. I'll elaborate later on a little bit more. Shopper traffic came in at minus 2.4%, also slightly lower than the first Q, which we clocked at minus 2.1%. Tenants sales, well, remains the same, 0.2% against what we had, minus 0.2%, on a per square foot basis against what we have recorded in the first Q as well. So pretty much quite flat. We also did a couple of things this quarter. We have divested the Sembawang Shopping Mall, as we have announced. That was completed in June, middle of June. We also commenced some work in Westgate. I think I've tracked up many times some of the issues in Westgate we can do and we are putting some plans, and I think we started the work. And again, I will elaborate a little bit on later on. I think on the capital management front, we've done a couple of things. We have, in fact, issued at our level CMT, we've done a 5.5-year bond issuance at about 3.21%, which is probably our -- I think it was to refinance a part of the maturing debt in the first quarter, which is probably about the same as what the maturing debt. So I think it's, on a net basis, it's quite neutral. At RCS, finally also we have done a bond issue which, again, I'll elaborate a little later on. Let's move on to the next slides. The distributable income for the second quarter has increased by 2.9% on a year-on-year basis to $100 million. So unitholders will get a distribution of $0.0281 for this quarter, which is higher than the first quarter. $0.0281 is also 2.2% higher than last year on a year-on-year basis. Okay. Just to note. So this quarter we actually -- we have a little bit of -- we retained some sum of money. Just being prudent, I know we -- we're always being very prudent. I think we held -- again, we take the prudent stance on -- we never know the global environment, how it will impact the situation in Singapore. So we decided to hold about $4.6 million this quarter. So combined with first Q, we have in total about $13.7 million. Actually, it's quite a lot of money. But eventually at the end of the year, I think our plan is to distribute everything back to our unitholders, right. By the way, this is a precaution. We're taking a precautious stance, so. For the first half, distribution income is up by 2.5% on a year-on-year basis, to $199 million. So from the DPU point of view, it's about $0.0559. It's 2% increase over last year, same period, in the first half. So that would give us an annualized DPU of about $0.1127, which is for the year about 5.32% based on closing price as of [ 13 ] $ 2.12. I think this is -- I don't elaborate too much. We know that you know all these numbers or you can look at it for yourself. Generally, I think it's still attractive from a [ use plat ] point of view against the risk-free government bond, trending about 290 basis points spread. Moving on next slide, so second Q. Gross revenue came in at $171.4 million, which is 1.6% higher than the year before, and NPI came in about 2.8% higher than the year before, ended up with $120.8 million. That's how we add up to $100 million of distributable income after deducting the $4.6 million. Okay. For first half, again, it's just a summation number. Gross revenue came in at $346.5 million, which is 1.7% higher than last year. Our NPI came in at 3.7% higher than last year, at $246.4 million. And the total DI is close to $200 million. It's 2.5% higher than last year. This is for the first half. This is just a breakdown. Generally across the board, we see overall a higher total revenue. Combination of gross revenue is also in other income as well, across the board more or less. If you look at on a comparable basis, which is taking out the Sembawang that we sold, actually we clocked in about 1.9% higher versus 1.7% on the [ proval ]. Right? We -- in an environment where top line is a bit more challenging, I think we have been working very hard to ensure we manage the cost. I think we've done, I might say, quite a remarkable job in an environment like that. Overall, interest expense is down by 2.9%. Again, if you strip out the -- those long comparables, like Funan and SSC, then OpEx is down about 0.3%. Overall, the -- this is how we achieved first half. I think, again, I don't elaborate. We managed to maintain a margin about 71%, which is quite similar to first quarter. Although there will be probably some expenses that are more timing difference I think, it's probably safe to work on a basis of around 70% current margin. Yes. At the joint venture front, gross revenue came in at 0.2% higher and NPI is about 0.5% higher. If you look now, actually, the Raffles City [ as is ] is gone a little bit higher. I mean, despite some of the things I will elaborate a little on. Raffles City, I think we're talking about 0.6% higher from a revenue fund. NPI ended about 0.6% as well. Westgate revenue came in slightly lower, about 1% lower marginal and NPI [ front ] is about flat. So overall, we achieved about NPI 0.5% increase. On the debt side, I think more or less we have done for the year. In fact, you can see we are sort of done for the next year because we had all the facilities in place if you need to draw down to finance all the debt. And this is a combination of our debt, debt at our JV level, including Westgate and Raffles City.
We had a pretty high fixed rate. If you look at on our CMT book alone, today on the fixed rate front we are more than 93%. So I think from an interest rate point of view, this vehicle is very, very well protected. Okay?
Also [ lookout for ] just to emphasize that we don't have foreign exchange exposure. So we have various funding currencies, but all these currencies are [ all swap back in sing ], including the coupon payment. So on a 100% hedged basis. So this vehicle, again, is fully hedged and it's not exposed to foreign exchange fluctuations, which is probably going to be an emerging theme going forward, looking at where the market is trading now. Right? CMT -- at CMT level, the order [ they're ] still unencumbered, still 100% unencumbered. Okay? And across IMT, which is the Westgate level, the property is actually financed on a secured basis. This is a summary of all the key financial indicators. Last year, an improvement across the board. We ended the year -- no sorry, the quarter, with a leverage about 31.5%. That's taking into consideration the proceeds we received from Sembawang divestment and it was used to pay down the debt. Across the board, I think net debt-to-EBITDA, interest cover, all this has improved. Average debt to maturity averaged about 5.2% -- no, 5.2 years and average cost of debt is about 3.1%. We also done the valuation for this quarter for the first half. Generally across the board, we saw a 10 to 15 basis point compression on the cap rate, resulting in the overall total basis of $73.1 million of gain, net gain, to CMT, including the gain that we registered at the JV level. So it's a combination of $55.4 million increase in valuation at the CMT side and $17.7 million at the joint venture side. So in total, [ 7 3 1 ] [Audio Gap]
The NAV has crept up. On an ex dividend basis, $1.99, okay? And as [indiscernible] of our overall [indiscernible] in the valuation as well as the divestment of Sembawang. Right. Okay. Just -- these are just for you to point [indiscernible] book closure payment date. Shopper traffic is now minus 2.4%. That why I said in the beginning. I think there a variety of factors affecting the traffic numbers. I think as a start of date, the year -- beginning of the year, if you'll recall, there's been a lot of rain. In fact for the first weeks of January, almost every day it has been raining. Actually, it has dampened the visitorship tremendously. So we start off carrying that negative burden for the rest of the year. We saw a little bit of, also, rain in April, which is a little bit unusual. Quite lengthy rain, also affected the shopper traffic. For more specific -- we also saw Tampines Mall continues to be affected by the closure of Century Square. In fact, this is one of the, probably, the largest decline in the portfolio. And when Century Square were opened we were quite pleased to see that the crowd has come back. So I think we have recovered the -- very substantially the traffic that has been lost as a result of closure of Century Square. So with the completion of Century Square now, we look at the whole place is actually very, very, very vibrant, very dynamic. As a catchment, I think it will be a very attractive catchment. Obviously, with our competitor, Century Square and Tampines Mall together, I think that cluster is [Audio Gap]
[ AI ] obviously will have some impact at the hotel site. Today, if you look at the hotel, they're still doing quite major work, especially at the lobby site. And they have also closed -- in fact, they're going into Phase 2 of the upgrading of the hotel rooms. So today, I think there are about 4 to 500 rooms closed. So any one time they are closing 4 to 500 rooms for the upgrading. And that's only for the Swissôtel site. So -- and I think the plan is to complete the Swissôtel site probably by the end of this year. And next year, they'll probably look at commencing at the Fairmont site. But on an ongoing basis, I think we'll see this [ not ] a disruption to the overall property, even though retail is residing at a different kind of entrance. I think they have some impact on the traffic flow, right. The other one -- the other 2 properties impacted really more from a base effect. I think, last year, with the Hillion opened in February, immediately we saw quite a huge impact on the footfall at BPP, Bukit Panjang Plaza, and to a lesser extent, Lot One. So we are carrying the base effect. Second quarter, we're still feeling it because it was opened in the first quarter of February last year. So we are carrying the effect. I think the effect will taper off -- the missed -- the down on the year-on-year number will taper off towards the end of the year when things normalize a little bit. So that will also affect overall the traffic number. Clarke Quay also is impacted. You saw it was in the news recently, Shanghai Dolly closed in April; initially, has impacted the footfall. So those patrons in Shanghai Dolly disappeared. And I mean, of course, we are replacing them with something else, but there will be some impact on the footfall as well. Okay? So on the overall basis, minus 2.4%. Yes. I think, more importantly, because sales conversion is important. For the first half, it's rather flattish, I would say, minus 0.2% down, although by second quarter actually it's, I would say, quite flattish, marginal plus. But on the -- that's on the per square foot basis. But on the absolute amount basis, actually, it's gone up. In fact for the first half, on an absolute dollar basis, the sales has gone up by 1.6%. Okay. And then, actually, it's also impacted by different reasons. Some malls are doing very well, some malls are doing less well. But overall, on a net basis, I think I will say the situation is stabilizing. Right? This will give you a sense of how the various trades performed, in a way, give you a little bit indicator of the sentiment on the ground. If you look at this half of the year, first half, of course, we see it more on the positive side. We had, if you can recall, I think in the first quarter, -- today, we really saw 17 -- how we classify the trade category into the 17 different definitions. In the first quarter, we had about 9 out of 17 that were in the positive side. So this first half, I think, has gone up to about 12. So I think January is a reflection, again, as a sentiment, overall improvement. We are also pleased to see some improvement on some of the trade [ category ] versus the last quarter. I think we had also another 9 out of 17 that we saw generally better sales on the per square foot basis compared to first quarter, right. And that is all taken into consideration. Those that were recorded negative in the first quarter in this coming first half actually is less negative. So actually, it's an improvement as well. Rental reversion plan, 0.8% overall as a portfolio. No change from first quarter. I think it's a mixed bag. Some have seen higher reversion, some have seen lower reversion. Having said that, I think we will continue to be very tactical. I think I've also elaborated many times. If we need to be in a very competitive market, we are prepared to be very tactical in bringing the right, solid operator into our mall, right? So this is just an indication. So by -- I mean the positive things from -- I know all the analysts and investors always focusing on this. Despite the fact that I've been trying to tell them there are many, many tactical decisions involved. Right now, there are at least some indicators to look out for. Okay. If we exclude Westgate Mall, actually the overall is plus 1.2%. You will notice also Westgate has seen an improvement compared to the first quarter. First quarter, it was minus 3.3%, first half is minus 2.1%. So its's an improvement from -- I highlight this too because this is always the one that I get question. Where is -- have we seen the bottom? Are we at the bottom? Are we turning around? So Westgate, as you see is an improvement. Bedok Mall. We -- it is actually lower -- in fact the reversion is more negative than the first quarter, but that was because of, again, a very tactical decision. We changed -- we managed out a tenant and decided to change the trade mix. So change of the trade category from high sales -- I would say, on the high sales -- I will put the high sales of a high margin business to a relatively lower margin, but higher volume business, right, like from a jewelry to a cosmetic, right. Over for the rest of the year, these are the leases that will expire for the [ 3 ] leases, of which 327 are retail; 68 are warehouses; and offices, about 2 offices to deal with for the rest of the year. And this as of right now. Okay. I won't elaborate too much. So occupancy came off a little bit, substantially affected by Shanghai Dolly -- and actually, Shanghai Dolly and one office tenant in Clarke Quay. So they decided not to continue in Clarke Quay and we're in the process of looking for a replacement. Shanghai Dolly's space, actually, we are very, very close to finalizing the replacement. So -- but I think Clarke Quay is a very unique kind of trade property in our portfolio. [indiscernible] as you know, it comes and go. So you do need to expect volatility in your occupancy number. For example, if you sign up Shanghai Dolly, and I think the number can creep out 3%, 4% quite easily. There is somebody else we'll replace because this could be a big format operator. It could go down 1%, 2%. So the count swing, just be prepared for it.
Westgate came up slightly lower, but again, I think, as of today, it's actually gone up again. We have signed up a couple of leases post June. Yes. So we are looking at a couple of things. Westgate, I think, we're going to a fair bit of remixing, including amalgamation of some spaces, which has resulted in a decline, because we are marketing spaces to bring in a different kind of operator. The [indiscernible] very interesting. Similarly for IMM, we saw a light dip. IMM is doing extremely well. It was 100% fully funded. It was almost 99% -- 99.5% last -- as of last, I think, we reported. Now it's 98%. But IMM is one of the best performing property in our portfolio. And again, we're also doing some amalgamation work there. So that's a space that we want to cluster it more distinctly. So we are doing that work now in the process of signing on the new tenant, right. So we are furthering strengthening the IMM positioning as an outlet mall. So Westgate. I think I talked a little bit earlier. We've done some work. One of the things that we did, or we started doing is to really close off some of the area that's really exposed. If you can see, I think if you are familiar with Westgate -- if you are going down to Westgate, the work started, especially Level 2. We've done some enclosure to some F&B outlet -- F&B outdoor area. And it's really, really tough for, I think, for this operator there especially in the day. And we wanted to -- I mean, given the choice I will prefer to enclose the entire mall. But that's probably not the option we had. And we managed to convince the authority to allow us to do some enclosure at the outdoor dining area. So we are embarking on [ AI ] work, kind of the F&B restaurants' span of the area and the other side would be enclosed with air-con. It's polished. You can see it's glass. Still you will not lose the effect, but obviously will increase the comfort level for a lot of diners there, right. So hopefully, I think our tenant can treat better with more trends. This is another area that I mentioned. I think before this, I see it as an issue. I think we are addressing it now, which is really to address the circulation on some part of the mall, the air-con area. This is where the [ trebotling ], 24 hours [ trebotling ]. Currently, there's no -- not possibly -- no possibility for us to access Level 2 from here. So we have to go all the way down before we can find the escalator. So I think it's creating a little bit of circulation issue for -- because first of all, it became very cold. This environment here is very cold. [ trading environment ] is very, very cold. Secondly -- immediately on top of Level 2 here it can be very weak. So I think we decided to put up an escalator. This is an artist's impression here, to improve the circulation at the Level 2, as well as attracting more people to come here because then there's, from a visual point of view, quicker access to Level 2, right? So this is a work in progress.
What we have also done is to create a new entrance at the drop-off point here. This is a major drop-off point and pick-up point. We also felt the -- it's very -- not very natural for commuter to be dropping here and having to make a loop before coming to the mall. It's not very natural, so we decided to open this up. So we recovered this space. It, again, accounts for the drop in the occupancy. We opened up a space here to allow immediate access from the drop-off point. So it creates a lot more possibility for higher, better circulation. So that has been done. I think, today, if you go to the Westgate, it's been completed and we are in the process of filling up this space. The rest are very marketing stuff that we do. We continue to try to market ourselves as much as possible. We have been quite successful in bringing quite a few new concept, like Tsui Wah, the very first one in Singapore. Still very long queue. You've now terrible place to wait for a while, I think wait for the heat to subside. But it's very popular. I can see it's very popular. Even lunchtime, there's a queue there. So we'll continue to look out for interesting concept, whether it's F&B or non-F&B, and more to come. I think watch out for the space in the next 2 quarters. I think we'll be introducing some new things as well. On the engagement -- shopper engagement side, we've done a lot of things as well. You can see some of the very, very interesting concept. Like this is an outdoor area. It's actually built from container box. I don't know whether anyone -- anyone visit it? It's quite nice. It was there for, I think, close to a month, attracted about 80,000 people. So that was quite interesting. People like the ambience. Although it's very hot [Audio Gap] we're looking at the possibility of bringing it to other parts -- [ and one is ] in Bugis Junction.
A different model also. We conducted different kind of interesting event, some very targeted at the family, like the [ Kokono ] event. So we'll continue to introduce interesting activities. We always want our customer to know us as a place where you can spend a good time with your family and your loved ones and your friends. So I think we will continue to do that. We'll look at more interesting ideas. We get -- of course, we sometimes don't work alone. We work with third-party, people who help us to come up with new ideas as well. Some achievements, I don't want to say too much. Okay. Self-explanatory. So I think, looking forward, although if you recall I mentioned the -- 2017 was very tough, but we got back towards the end of the year, a combination of better economic front, better employment, stock market was up, property market was very buoyant. I think fourth quarter last year was like everyone was partying.
So first quarter this year was reasonably okay. We went into first quarter. I think the momentum was sustained. Second quarter, not as strong as first quarter. Perhaps we've got to grow in an environment that has a little bit of undertone current now. So we'll continue to watch, which is why I think from the beginning we mentioned why we want to retain despite our strong number. I think we want to retain, just a bit of caution in case we are faced with things that we can't control, right? So in these days, every day you see shocking news that may come out. China has started the process of devaluing their currency. I mean, these are the issues that may somehow affect Singapore as a destination. So Sing dollar has weakened.
From a pure retail point of view, actually it's positive because then it becomes a bit more value for foreign shopper. I think we have seen a pretty good correlation on the strength of Sing dollar against the foreign visitorship. So from my point of view, I think it's net positive. We also reduced our arbitrage from people who want to shop overseas. A weaker Sing dollar actually does help to shore up a little bit of the current outflow. So we hope that second half of the year will be equally okay, so long as we maintain -- I think so long as there's no shock in the system, I think, then '18 will end up in a very good shape, right? And of course, 2019, I think we are making a lot of preparation to welcome Funan second half of the year. The project is developing very well. We are ahead of schedule. I think we may have a good chance we open up earlier. So we are trying to ramp up the leasing activity.
Funan, I think, is still the top point. A lot of different interested parties. We are fine-tuning some of the trade mix along the way, but the gist of it is largely sustainable what we communicated before and more or less the same. I think -- we ended up the first half of the year in a very strong balance sheet. Obviously, we are in a good position with the opportunity out there. We definitely would try to take a look at it. We had a debt headroom, $1.6 billion. It's quite sizable headroom. We can do a good-sized transaction, if we want to. Right. So we have to look out for opportunity. Also within the portfolio, we are also relooking every single assets how we should redefine it. I think one of the decisions SSC was taking, and then we'll continue to look at the rest of the portfolio, whether we could better strengthen the portfolio overall for this year, CMT portfolio.
So that is still a work in progress. Obviously if something come out, I think we will announce it. Yes.
So I'm pleased to end here. We're happy to take some questions. I think my colleagues are here as well and please show as much question as possible. Right. We'll allow more time for you guys.
Thank you, Tony.
Thanks.
Thank you, Tony. May I invite Lei Keng and Jack? So for the benefit of those in the webcast that's not familiar, let me introduce the management team. On Tony's right is actually Ms. Tan Lei Keng, the Head of Finance; and on Tony's left is Jacqueline Lee, the Head of Investment and Asset Management.
So before you ask the question, may we request that you state your name and your organizations that you're representing. For webcast participants, please press "Post the Question" tab. So can we have the first question, please? Pratik, yes?
I have a few questions [indiscernible]. Tony, I have a few questions. Pratik from HSBC. The first one is on your valuation, right. So when I look at the valuation numbers, the valuer has firmed up the cap rates by 10, 15 basis points, but the quantum of the valuation increase is not to that extent, right. So I presume there are some other changes that the valuer has made. Could you share some color on that? My second question is on the occupancy for the various assets, specifically on Clarke Quay, you mentioned Shanghai Dolly moving out. And if you backfill that space, the occupancy could go up 3%, 4%. But the decline seems to be quite a bit more sharper, like close to 8%. Could you give us some color on who the others were? Where we are with the backfilling that space? And you also alluded on Westgate. You're going through some remixing and some amalgamation of space. If you can give some color on that backfilling? And lastly, on Funan, if you can give us an update on where the preleasing is for both the office as well as the retail component.
Jack, do you want take the valuation? I'll take the investment dollar value. I can address the rest. Valuation?
Yes. I think for valuation, we generally saw about 10 to 15 basis points compression. I think that was -- the value was taken based on deals that they are seeing in the market, and they felt that there were still strong demand for retail properties. So it was based on that, that they compressed the cap rates by 10 to 15 basis points. So if you're asking about other assumptions, I think in terms of the other assumptions, the market ren there were small investments, plus/minus, depending on the properties, small adjustments. And I think in the growth rates, there was a slight adjustment downwards in terms of the growth rate for some of the properties. So on balance, I think that's where we had $63 million change in valuation, if you look at the results slides. And last year, when we had a 50 basis point compression, that number was about $215 million, if you just look at the $63 million number in the results slides. So last year, it was about 50 basis points. And this is 10 to 15, so that's why this is about, like, 1/3, slightly under 1/3 of that.
On the second question on Clarke Quay, so besides Shanghai Dolly, there was -- I think I mentioned, maybe you didn't catch it. There was another office tenant that decided to leave at the end of the lease expiry. So we are in the process of trying to fill it up, so that makes up about now 2% -- 2% to 3%. Third question, Westgate. We are marketing some space, specifically I think Level 1, I mentioned, the creation of the opening entrance, and also Level 3. This is a huge space. I think if -- Level 3, especially if it -- if the deal goes through, I think it would be with a mini-anchor, a sizeable one. Yes. Funan, I think is progressing really well. We are -- we have -- we're over 58% for retail. Office is about close to 20%. But we are -- actually assessing a couple offers. So it also can actually spike up quite quickly, so we have not really nailed it down yet. Especially office side, I think they are talking about more -- a few are taking a big space, yes, a couple of them. In the retail side also, we are trying to nail down a -- final 3 candidates I've been trying to nail down, so the number can jump up quite a fair bit, yes, 51%. I think our target is to have, by the end of the year, at least 80%. Yes.
Is that total office and retail, 80%?
Retail side, yes, obviously. Office side, probably slightly lesser, probably slightly lesser. Because usually, in office, tenants are -- it's a bit more complex, the decision-making. The -- some of them are relocating from existing -- so they have existing contract so they have to manage that. So may or may not be that high. Depends. Yes.
And just to understand, Tony. So for the 3 assets where you saw declines in the occupancy, right, would you reckon that by end of this year we can recoup that?
Most likely yes, yes.
Okay. We have the next question. Michael?
It's Michael from UBS. I've got a question on your rental reversion. So it's found some stability in this quarter. Would you say the worst is over? Or are there any upcoming leases which have potential big upside or downside?
Okay. Generally, I would say it has bottomed, but I don't think it will be a major -- my sense is the competition is still very, very keen in the retail environment. But obviously, I think the -- this -- the base is there, the base is there. So there are some specific projects that we have anchor tenant that are up for renewal. I think we are still assessing it and it depends on the outcome. It can be -- it can swing both ways. Yes. It can swing both ways. Yes.
Can I just follow up with Westgate? Can you share the CapEx amount that you intend to commit to the [indiscernible]
Probably around -- less than $10 million. Less than $10 million for the -- for this entire enclosure. Yes.
David Lum from Daiwa. I recall about 6 months ago when you gave the presentation you were highlighting that there were signs that like nondiscretionary spending was returning in your portfolio. Is that trend continuing into the second quarter? Or how do you assess that?
Okay. I think, generally, if you -- the way we define that, this currently maybe not the conventional way. From our own statistics, yes, it's gone down a little bit. But it was also affected by a few tenants that were closed for renovation. These are high-ticket transactions, the [ Watch Shopper ], the luxury watch shop. They will close for renovation, so the sales are not coming in. So I think that swing is quite bigger. They were one of the top-performing in our property. Other, we're really talking about discretionary spending. People spending on household, people spending on home furnishing, really booming. I think it's really led by the recovery on the property side. If you go to the furniture shop they are crowded. When you go to other home electronic, they are very crowded, and the sales are doing very well, yes. So if you define discretionary, yes, those are spending well. F&B, I've seen some stabilization, right? Overall F&B, I think the market is still very competitive. I think there's no denying in Singapore, we have a little bit of a high side on the supply for F&B offerings. So very competitive, come and go, come and go. New concept come, very popular, actually can die off quite quickly as well. So we just have to always [ regit ] the offerings. But generally, yes, we see that people out there spending. Yes.
Okay. And my second question. Because you lump JCube and Bukit Panjang Plaza together, can you give us some color on their, like, rental reversions or their revenue or NPI for the...
Both reversions are down. JCube and BPP, they are down, reversion. BPP, we have challenges. I know we are facing competition for Hillion. So we had to relook at what makes sense also. And I think I also mentioned many times there were quite a few repeated offerings in both locations. So we have to make adjustments and we're doing want to change it. So we are doing the adjustment and -- but overall, BPP is trading at a very healthy occupancy cost because BPP used to be a very, very -- when you look at it on a per square foot basis, it's one of the top -- probably top 3 in our portfolio. Small, compact but very high in velocity. But now we have somebody eating part of the lunch, obviously, you have to make some adjustments, yes. JCube is challenging because it's a little bit away from the main thoroughfare activity in the MRT area. It's the other side of the MRT. So we are -- of course, we are trying to carve out a very different positioning in JCube. The visitors there are very young. A lot of young students, young adults and some young families. Transaction per ticket is low, generally low. I think that's where the challenge is, yes. But I think we'll find a niche for them now. Yes.
Thank you, David. Next question. Yes?
This is Tan Xuan from CLSA. Can you share a bit more about your capital redeployment plans? Where are you seeing more opportunities? Is it Singapore or overseas? And in the event where you can't find any opportunities within the next 12 months, are there plans to distribute out some of the proceeds?
Okay. We are -- I mean, obviously, we can't say anything. But of course, we are looking at different options of how to deploy that. If something comes up, we will let you know. There are deals flow from local, overseas as well. So I think there are still opportunity in that sense. We're also looking at, I think if you'll recall, I mentioned about the portfolio. So we're not just looking outward, we're also looking inward within the portfolio. What else can we do? So there are assessment ongoing now to see whether the current state of affairs in some specific property makes sense. So we're looking at that at the same time. Yes.
Brandon from JPMorgan. Just a few questions on Westgate. Outside of those things that you're going to do for Westgate, are there anything else that you see that could rejuvenate the mall? That's my first question. The second question is, I think you're hitting close to the second -- the end of the second leasing cycle for Westgate. Do you think it's -- do you think it's stabilized enough for you to look at the other 70% stake? And the last question would be the amalgamation of the space. I am not sure, but does it mean that because you're combining smaller spaces into one big space that could involve a slight reduction in rents?
Okay. We are close to tail end. I think we are tail end in terms of number of shop lots we need to deal with. I think the amalgamation is part of the work we are doing. A few remaining leases are more the anchor. That is not a deal that we'll be doing next year. So I think we are still assessing the different options. So these are the 2 key ones: amalgamation and debt. If that's translated into a final -- an annual mini-anchor that come in at probably Level 3. That will be a different, interesting mix. I think it's closer to the, we feel a need at Westgate and differentiate ourself from JEM. It will be something that -- may not be high energy trade, but something that's relevant over there. I can't say too much. Hopefully, we'll deliver more positive than negative. Yes, yes. I think the Westgate, there are some upside [indiscernible] obviously the -- we have already seen a ton now. In fact, Westgate sales this quarter actually went up compared to on a year-on-year basis. So I see that as a clear sign of stabilization. Even [ Stratford ] traffic is down. But I know that Westgate is a [ very porous ] area. You can come here now. It depends on -- even that we have some -- last year, we had major activity at the greenfield area, the open space with [ SCF ]. [indiscernible] So number is strong, but it's the conversion that's more important. So this year, they don't have that kind of mega activity at the opening of greenfield. So of course, the traffic is lower. But the conversion is okay. Yes.
Yew Kiang from CLSA. I have 3 questions. The first one is following up on Pratik's question on valuations. And eventually, the valuers have lowered the rental assumptions. I think CCT did give a rental assumption of 4% over 10-year period. Are you able to disclose this number? And how much have they lowered? Second question is on...
Sorry. You said they're lower by 4%?
No, no. The assumption for CCT was 4% growth per annum over 10 years. So I would like to know the number that valuers are using for your portfolio. The second question is on Funan and what's the passing rents? And are you able to hit the 6.5% ROI? And then the last one is on World Cup. Do you see any significant increase in tenant sales? I see some of the malls having some very exciting promotions and events.
Can you address that?
We generally don't publish the growth rates, but it's only a slight moderation. So it's not like from like 5% to 2% and that kind of thing. So the moderation could be like something like from 2.5% to 2% to 3% growth. That kind of a range. So it's a very slight moderation.
Second question on the 6.5% written on Funan, is it?
So passing rent enhanced, whether you're comfortable to hit the 6.5%.
I think we are moving in that direction. Overall looks okay. I mean, of course, we have to free up the -- it depends. But overall, it looks like we are on track to hit that number. The ROI, I think, $6.5 million will be based on the 6.5% of the CapEx we're going to spend, right, that's why we mentioned. I think the CapEx I have to -- I already told you because we divested the service residence. It will come down to about around $380 million to $390 million overall, development cost, right? So we're looking at 6.5% over that quarter. That is combined office and retail. And that's the incremental income, by the way, just to clarify. So incremental income over what we have lost before we close Funan. I mean, for your [ end ] calculation purpose. If you can achieve what we set out to do, then Funan will be about 9% to 10% kind of contribution to your bottom line.
World Cup.
Oh, World Cup. Sorry, I forgot. Actually, I don't think it's a net plus. My sense I think people are watching more in their home or more in the community center. I think we do organize -- if you Google Clarke Quay and some of our malls, we do. But these people come here, they don't spend money. They don't spend -- it's only the -- perhaps some drinks, but otherwise, they are not there to shop. And all these game are at what, 10:00 onward? The shops are closed.
Derek, DBS. I was just looking at your portfolio lease expiry for the second half of this year. I noticed that quite a number of leases are coming from IMM Plaza. I was wondering whether you mentioned that IMM was doing well. Any thoughts on enhancing the space there? And I also want to touch on your tenant mixing at Plaza Sing in the second half. And at the Atrium, are you sort of seeing some mini-anchors leaving at this point?
Okay. Actually, a big part of the -- 68 of the leases are actually warehouses. So the remaining are the retail. I think I also mentioned we are amalgamating a few space, which results in a drop in occupancy. So that space is undergoing some work. And I think the plan is to -- enriching that cluster within the space. I think we -- I don't think we will -- I won't mention a name, but it's a good international brand that would be coming, yes. Yes, Plaza Sing and [indiscernible], I think we're looking to combine too. Yes, you're right. The [indiscernible] has left. Watch out for the space. I think we are working something on it, something unique, and I think in due course, we will announce it. Yes.
It's Tan Xuan again from CLSA. Can I follow up on your acquisition? I think you mentioned you were also looking overseas. If I recall end of 2017, the strategy was more to focus on Singapore assets and to increase efficiency. Has that changed? And what has caused you to start to look at overseas properties?
We never stop looking anywhere. Of course, I think if you recall, I think given everything else being equal, my preference is Singapore. So strength of the portfolio is Singapore, everything else being equal, right? But it doesn't prevent us from looking. [ I'd say, we'd not use that floor to you ]. I think, obviously, we want to make a sense if we look at it and decide whether we want to venture. Because at some point, there's a finite opportunity in Singapore, at some point. So you -- I think the top process could start. Because this venture obviously -- I think retail as an asset class is very different from whether it's logistics or office. It's highly management-intensive and very, very local business. So there are many variables to consider, whether you're buying a bond property or buying a portfolio, or whether you have a sponsor or prepare to spend the money. Do we have a platform already there? Is the platform for sale? So a variety of considerations. There's probably -- not a conversation with CMT alone. It's probably a conversation also with the sponsor. So it's not as straightforward an answer. But obviously, that I think Singapore still has some room. My sense is I think there are still some opportunities. We still have our sponsor deal. I mean, obviously, we have a pipeline and that's something that we can talk to them and [ we got prepared ]. So I think we may be prepared to do a transaction, yes.
And for overseas assets, can you share which country looks more interesting to you? And whether you would be like, a portfolio or single asset?
Actually, if you ask me today, none of it is interesting today. Maybe they have their pluses and minuses, okay? Everyone asked me Australia, Japan, Europe, U.S. Japan, as you know, is a tough market right? I think it's a very tough market, right. They have a declining demography. I think you are working against the current, which is not easy. I mean, they have strong incumbents there. Australia is so big a landmass. What role can we play? There are Westfield. There's a few strong players in the vicinity. Is CapitaLand prepared? Also the funding, the money. All these are questions that we need to answer as well. Europe, why do you want to go against like [indiscernible] Who are we? I mean, we have to be realistic. Southeast Asia, of course, is an emerging space. Maybe more -- surprisingly some investor has very mixed view. On the one hand, they want priority of the vehicle. And then yet, they want to grow the offering. So if they want growth, they don't want you to venture in a market that they're familiar with. But they're probably okay for you to venture in a market where they are unfamiliar with and they have no access. So it's a little bit kind of a mixed view, a big kind of contradiction in a sense. But I think we keep our options open. We -- I don't think we want to close our self up, but obviously focusing on making sure that we strengthen our portfolio. It's critically important we remain the dominant player. There are a lot of new supply coming in the market. Our share would be diluted, right, so I think we need to mention that we maintain the dominance here.
Maybe a final question, yes, [ Ming Chow ].
I just want to come back to the questions on acquisitions, right. So you mentioned before that maintaining a credit rating of A2 is actually something that is very important to you guys. So the first question is whether it is actually even more important in the market environment nowadays for you to maintain that credit rating. And therefore, how does that actually balance off your decision in terms of deploying capital? So that's the first question. Second question is, would you be able to comment a little bit on how much -- how has the tick-up on, say, the CapitaLand StarPay program has been coming up since its launch earlier this year?
So A2 is important, especially in today's environment. The -- I sense there's a little bit still some kind of flight-quality thinking around there. I think we -- demand for our current debt is still good, even though expectation from the investor in our debt instrument has shifted because they also expect that [ rate ] will come in. But generally, I think demand for our paper is strong because they offered A2 rating status now. So I think it's -- as far as we can, we want to defend it. And we -- we'll put that in mind when we look at how we want to, let's say, if we do a kind of transaction, how we wanted to fund it. Obviously, we'll bear that in mind. It's part of the consideration. I think it's important, but if business warrant it, we will not try to calibrate such that we minimize the impact as much as possible. Yes. StarPay, I think we just launched it quite early -- it's early day. So far, the link is still with Amex. They are working now with the other payment channel. It could be NETS, it could be Master -- I know it's really -- I mean, it's not hooked up yet. So I think it's a work in progress. I'd say it's encouraging, the number. The sales number is encouraging, yes. Roughly about, ballpark, probably about 7%, 8% of the transaction, yes. Still low because Amex is not as widely accepted, I think generally speaking. Yes.
Maybe [ Gula ] you have questions?
Yes. I just wanted -- so you didn't quite answer Brandon's question on the Westgate, whether you would be interested to acquire the other 70% because you have obviously enough...
Okay, very interested. Yes. Quite interested, yes, actually.
Oh, so you're very interested.
Especially it's stabilizing. Of course, yes, yes.
Yes, it is stabilizing.
[indiscernible] sound like interested.
Sorry?
To get a good price, you have to sound uninterested.
You have to sound not interested.
Of course, at the end of the day, CRCT is prepared to sell. And then, we -- to me, among the possibilities probably another low-hanging fruit, yes, right?
And then the other one that you mentioned, which would make some sense for you would be Hillion, no, because you're just across the road and you could link the underground and so on and so forth.
The link is not possible, no. Technically, not possible.
When you looked at it, oh, I see, okay then...
Tony, maybe just one final question. [ Gula ], sorry, you still have a question? Oh, okay. No, it's from the webcast. The question is, is the lower level of operating expenditure that is partly driving the improved NOI margin in comparison to the first half '17? Are we expecting the margins to continue, moving forward? And in particular, how have you reduced your marketing and utilities costs?
Okay. So most of the savings really come from utility and marketing. I think maybe -- so you maybe -- may have catched it. But I mentioned also that we actually hedged our energy consumption last year. I mean -- and it's actually effective from second half last year and will -- also ends in 2019. So we have about 2.5 years of hedged rate, pretty low rate. That helps a lot in the expense side. Yes, of course, marketing we have cut down a little bit but more targeted marketing. So these 2 are the bulk of the savings. We're also looking at investing -- so when I mentioned about hedging, it's hedging about -- hedging on the rate you pay the service provider. We're also looking at possibility of deploying certain initiative potentially that could even improve the efficiency of the usage. So there are possibilities with technology, as you know, has advanced to help you to monitor the use rate, and whether you are maximizing the low and the high period more efficiently. So there are technologies available that will help us to further improve on the efficiency of your [ MAE ] equipment, for example. So we are looking at that as well. Yes.
Okay. So any final, final questions? Okay. [ Si Xian ]
I just want to ask a follow-up on Westgate. How would you expect the enclosure to impact the company's OpEx for Westgate?
Okay. This one enclosure obviously is air-con, so I think there will be -- it's in the tenants' environment now. So obviously, overall, I think the energy consumption will go up, base tenant cost, yes. But our idea is to help them to improve diners' comfort so that they can have better fill-up rate and better tenant, yes.
So thank you everybody for today's -- we come to the end of today's presentation.
Thank you. Thank you very much.
Have a great day ahead.
Have a good weekend.