Frasers Centrepoint Trust
SGX:J69U
Earnings Call Analysis
Q1-2024 Analysis
Frasers Centrepoint Trust
Frasers Centrepoint Trust (FCT) has sustained their robust performance into the first quarter of FY 2023. The company boasts a nearly perfect occupancy rate of 99.9%, with shopper traffic increasing by 3.1% year-on-year. Although there was a slight 0.7% dip in sales year-on-year, this was primarily due to renovations of anchor tenants. When these renovations are excluded, sales actually grew by 1.1%. Moreover, these anchor tenants have reopened with stronger sales than before. With capital management efforts, FCT has reduced their leverage to 37.2% from 39.3% and continues to remain in a strong financial position.
The market conditions for retail appear favorable, evidenced by a steady rise in retail sales and a significant 3.1% year-on-year increase in suburban prime retail rents. FCT finds itself in an advantageous position with high demand for its properties and limited supply in the market. Looking ahead, a muted supply increase is expected, with an estimated addition of 1.2 million square feet of retail space between 2024 and 2026, which points to sustained demand for FCT's retail spaces given their strong demand and strategic occupancy decisions.
FCT is managing its aggregate leverage prudently, bringing it down to 37.2%. The average cost of debt has increased to 4.3% due to higher floating rates; however, FCT has taken steps to mitigate this by increasing their debt hedge percentage to 72%. Although the interest coverage ratio slightly decreased to 3.35%, it still remains at a healthy level, indicating a strong ability to cover interest expenses with earnings. FCT's credit ratings have remained stable, and these financial measures have set the platform for the trust's continued steady performance.
The Portfolio's retail sector is showing vitality with an impressive committed occupancy and positive year-on-year sales trends. Anchors undergoing renovations have posed a temporary impact on sales, but the long-term outlook is beneficial as these renovations are anticipated to drive stronger future sales. Foot traffic remains below pre-COVID levels, presenting opportunities to improve through targeted marketing efforts and leveraging loyalty programs to drive sales conversions. The portfolio's effective occupancy costs reveal potential to further elevate the performance, illustrating the dynamism of Singapore's Prime suburban retail segment.
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Good morning. Welcome to Frasers Centrepoint Trust First business update analyst briefing. Today, we have the management team here. We have Richard, the CEO; Audrey, the CFO; Pauline, the Head of Investment and Asset Management; and myself, I'm the VP of Investor Relations. So we are very happy today to be able to present the business update. The slides has been uploaded on the SGX net yesterday evening. So if you have a chance to look at it, please do. So without further ado, let me hand this over to Richard to kick off the presentation. Richard, please?
Yes. Thanks, Fung Leng, and very good morning to you, all of you. Thanks for joining us again and a very happy new year to all of you. Can we have the first slide, please? Thank you. Happy to continue to be able to share that the strong performance that we have seen for the FY 2023 has continued to our first quarter. So this is kind of a snapshot that you can see right in front. Okay. Thank you. Yes. So you can see right in front of you here, just a very quick overview, quick highlights, and we'll go into a little bit details and probably a discussion as well.
So to begin with, we can see that in terms of occupancy, it's a 99.9% from close to 100% in some instances, actually frictional vacancies. Shopper traffic has gone up by 3.1% year-on-year. So continuous recovery from the front of the shopper traffic. For sales, perhaps I can explain a little bit here. You might see a 0.7% year-on-year drop, but -- it is actually mainly due to renovation of some key tenants. So we have looked at it. We were also initially wondering why was there a drop. But after some further drilling to the numbers we realized that because there were several key anchor tenants that were under renovation. Those are big, big tenants across some of the malls. And [ ECB ] were to remove those from comparison from the previous year, the sales actually grew by 1.1%.
And at the same time, also happy to share that some of those anchor tenants have since reopened and the sales, in fact, are doing better than last year. Tampines 1 on progressing very well. This is something that Pauline mention in a little while. So in terms of construction, timing is on track in terms of cost is on track as well, yes. Capital management. We have, since the divestment of CCP and Hektar been able to bring down our gearing. So as of 31st December, the leverage level is at 37.2% compared to 39.3% as of 30th September 2023. So it's also putting us in a very healthy position. All-in costs compared this quarter to last quarter. So last quarter was 4.1%, and this quarter, it's gone up slightly to 4.3%, but we have also be able to share later on. Audrey will share with you some of our more recent hedging. Happy to also share that the rate has come down from this 4.3%. Okay, what we have also focused a lot during this quarter is the various initiatives we spoke about from the ESG front that will help us in our roadmap towards achieving our target. But at the same time, -- we shared before, some of this actually would give us decent savings in OPEC, and there was a launch in terms of the food waste valorisation. So again, we'll share a little bit more details later on.
We have also planned to roll out our solar panel. This is not a situation whereby we spend CapEx to install the panels, but rather we are going into what we call the purchase agreement, right? So this is where we don't spend CapEx, but it is in a way somebody has installed where we get to enjoy a very good [ REIT ] as a result of this installation. Very quick overview of the market. I'm not going to go into GDP, et cetera. You guys probably know as much as I do. For retail sales, it's been, again, continuous momentum from the last 9 months or so that we have seen. So even at the end of the quarter -- calendar quarter where RSI is concerned, we continue to see improvements for -- on the various sales and also from F&B sales. For the rental wise, suburban prime retail rents gone up quarter-on-quarter by about 1% and year-on-year about 3.1%. So we are pretty much ahead in terms of rental reversion compared to the wider market.
And partly one of the main reason you could see we shared about occupancy. So the demand is very strong. We share with you guys a little bit more about some of the new leases, the new tenants that we've been able to bring in. So we still see very strong demand. And at the same time, supply side is, again, very muted. We have the table in front of you. So if you add this up, probably, you're looking at 1.2 million square feet coming up from 2024 to 2026. And if you even scrutinize it further, some of them are just ancillary retail. So you don't really have significant more with the exception of the completion of the possibly small that is in probably May, June 2024. But other than that, it is pretty fragmented, pretty spread out. So high-demand, limited supply, and then that is in a very good position for us. The next segment, I will hand over to Audrey to take you through our financial position. Audrey, please.
Thank you, Richard. Okay. Good morning, everybody. I'll run through the financial metrics. Aggregate leverage is down to 37.2%. This is mainly due to the repayment of the loans using the divestment proceeds. And also, we have also drawn down new loans for working capital and distributions and also to fund on the CapEx at T1 AEI. ICR is slightly lower at 3.35%. This is mainly due to the higher interest expense, but we feel that is still a healthy ICR. The average debt maturity has lengthened to 2.8 years with the T1 refinancing needs. Our average cost of debt is at 4.3%. This is higher as compared to last quarter of 4.1%, mainly due to the higher floating rates and interest rates.
And the -- about 63% of our debt are hedged to fixed rate borrowings or hedging. So as shared by Richard previously, we have actually entered new hedges from post the December FOMC meeting, taking advantage of the recent decline in the interest rates. So with this, we actually increased our hedge percentage to 72%. And the all-in vendor cost of debt we are seeing is below 4%. And this will help us to bring down our cost of debt in [indiscernible]. So our credit ratings remain stable at BBB stable by S&P and BAA2 stable by Moody's. So there is no refinancing risk in FY 2024 as shared in the last quarter -- last quarter results, and we are well distributed on debt maturity profile. With this, I'll hand over to Pauline, who will share more on the portfolio performance.
Thank you, Audrey. Good morning, everyone. I'm very delighted this morning to share with all of you what I would say a very good set of results. But I wanted to also emphasize that we don't stop here. We do see that, building on the strong performance of our portfolio, there are opportunities for further growth, right? So very quickly run through some of the key retail metrics. For retail portfolio, the committed occupancy, we are close to 100%, at 99.9%. We see this across all the assets within our portfolio, all coming in at above 99%, sparing Tampines 1, which is undergoing asset enhancement works.
On a year-on-year basis, quarter-on-quarter basis, the committed occupancy has actually also improved, right? And this is attributed to, I think, some of the points that Richard touched on earlier. The fact that, in terms of Prime suburban retail, Singapore's Prime suburban retail is limited, right? We're looking at a very healthy retail space per capita kudos to the government in terms of their very valid planning, space planning in land scarce Singapore, right? And also, as mentioned by Richard earlier, in terms of the growth of organized retail in the suburban space, we do anticipate that growth is very limited in the near-term.
The other takeaway from this very healthy occupancy picture is the fact that the retail seems to remain very vibrant. So amidst cost, labor pressure concern, retailers are generally prioritizing the prime locations, the well-managed malls, malls that are well located and that are well connected, right? And sitting in very good locations within dense and growing catchment.
Next slide, please, Fung Leng. Okay. For this slide, we look at the sales trends. Sales continue to remain strong and on a growth trajectory over the course of 2023, right? I think Richard mentioned earlier that there's some dilution from a few of our key anchors that are renovating mostly in the months of October and November, ahead of the festive season. But these are reaping returns and positioning our portfolio for even stronger growth, right? So some of these retailers are, in terms of their sales performance post renovation, they have actually come in higher than expectations. So that bodes well for the future performance in terms of sales for our portfolio, right?
On a year-on-year basis, we have seen sales growing by 7% between over 2022 in 2023, right? And versus pre-COVID sales have come up by 18%, right? On the traffic front, footfall has not come back to pre-COVID levels. So I think, in general, we are still hovering at around 10% to 15% below pre-COVID. But therein lies the opportunity to actually improve this retail metrics, right? And we're very, very focused on marketing, driving footfall back to our malls with the reopening -- with the currently open state, right, activating the malls, and also more importantly, driving the sales conversion, right, through signature events, signature programming, targeted conversion and also leveraging our loyalty program, our Frasers Experience loyalty program.
Next slide, please, Fung Leng. Okay. Takeaway from this slide, we see [ growth ] very strong at 2 years. That has actually been improving over the quarters as we progressively get out from the drag of the COVID years, we do see good traction in terms of leasing. If I may draw your attention to the first column FY 2024, if you recall, we actually ended FY 2023 with a leasing stock of about close to 30% for FY '24. And I'm happy to report that -- and you can see it from the occupancy permit -- occupancy indicators as well that leasing has gone well. In fact, to date, we have derisked more than 30% of the stock that is coming up in FY 2024, right?
The other observation is the robustness of our cash flow. So if we look forward to the near-term over the next 2 to 3 years, we do not see any lumpiness, significant lumpiness in terms of the lease expiries. And this indicates that in terms of concentration risk for our portfolio, that has been largely well managed right? So where does this take us going forward? I would say that if we look back at the past 2 years or so and especially over the COVID period, the suburban, Singapore suburban retail has actually proven its resilience, right? We see it in the performance of the portfolio today. And this is attributed to its very everyday lifestyle convenience transitioning.
The limited supply of Singapore suburban stock and the fact that a lot of these assets are irreplaceable, right?
And our conviction is that FCT is well positioned for further growth. We are leveraging on the -- on our quality portfolio. We have 4 dominant malls, with the latest addition of NEX in our portfolio. And NEX has actually done very well. We are very happy with this recent acquisition, right?
The strong operating performance as well is actually the foundation for further growth. When we look at occupancy, where we look at the sales performance, the effective occupancy cost and so forth, there is room to actually drive the performance of the portfolio further, and also in line with the fact that the active management to actually drive the growth further.
So for the next segment, I'll talk a little bit more about the active management that we have undertaken across our portfolio to drive the performance and also to position it for further growth.
Next slide, please, Fung Leng. So for this slide, we wanted to say that notwithstanding the challenges of the market over the past few years, we have not lost sight of the fact that we need to constantly refresh our offering to delight our shoppers, right? And with this strong set of operating fundamentals currently, it actually supports our focus -- a more deliberate focus on tenancy refresh, right? And we are seeking to infuse differentiation and also to update the offering within our portfolio to drive stronger growth.
And how are we doing this? I think there are various ways, bring in new to portfolio brands, brands that are currently not in our portfolio, we bring them to our malls, and we explore them within our portfolio, right? New retail concepts as well. So if I may draw your attention to the pictures of Cathay and also some of the banks, these are existing brands, brands that we are familiar with in the Singapore retail space, right? But we are working with these retailers to bring in new concepts, to bringing in new offering, right? And as we mentioned earlier, the refresh of our -- some of the existing stores, these are brands that are doing well, that meet the needs of our shoppers, right? But we work with the retailers to refresh themselves, to update the concept so that they can actually hire stronger sales productivity.
Okay. Next slide, please, Fung Leng. So with the subsequent section, I wanted to do a little bit of deep dive across the -- to illustrate with a few more, what we mean by active or proactive asset management, and how that has actually positioned the portfolio for further growth? So what you see here is Tiong Bahru Plaza, right? So Tiong Bahru Plaza sits within the city fringe is actually in an area of [indiscernible] with people going back to office, there is the catchment or rather there is actually stability in catchment, right?
So how are we positioning it for these trends? We've actually brought in interesting, more interesting F&B concepts. We've also looked at driving the sales productivity of our anchors and bring in more variety to the retail offering. So recently, Kopitiam, which is food court operator on Level 3, they have rightsized. And with the rightsizing, they have significantly improved the sales productivity. With the space that has been released, we have brought in another strong operator, Don Don Donki, to meet the -- a gap in this catchment, right?
Northpoint City North Wing, another case example. It's a very strong mall in terms of sales, in terms of occupancy and so forth. But notwithstanding that, we still continue to drive the performance higher by bringing in better operators, more contemporary brands to cater to the catchment needs, right? And if we look at some of the results year-on-year basis, the occupancy has actually maintained at 100% for this very dominant asset and strongly performing assets.
Next slide, Fung Leng. Can we move to the White Sands. For White Sands, the focus is to position the asset for the change in the retail landscape and also the catchment growth in the service area. So like Richard mentioned earlier, Pasir Ris Mall will be coming up in May or June this year. Do we see that as a risk? We look at it as an opportunity, right? So if you look at the combined NLA of the 2 malls, we are looking at combined retail offering of about 400,000 square feet or so. And that is quite similar with Waterway Point in the Punggol area, right?
And we feel that with the focus of rejuvenating Pasir Ris area by the government, there is a lot of growth potential. With the scale, it actually positions -- the combined still, it positions the 2 malls to actually capture the catchment in the area. Because currently, White Sands by itself, it's just about 150,000 square feet. So by itself is not able to cater to the full range of the retail needs of the immediate catchment.
So what have we done at White Sands? We have done a digital upgrade, to repainting, relamping. We have updated the facade of the mall. Some of the key shopper take points like the toilets, the nursing rooms, the car parks that has been refreshed, right? On the software side, we've worked with our tenants, some of our key anchors, the food court as well as the supermarket to actually do a refresh in anticipation of the upcoming competition as well as the growth catchment. And we're focused on building certain trade clusters as well, the F&B tenants, the fashion.
So the key thing is not to compete directly, but to complement with the incoming mall and also to, on a combined basis, leverage on the growth of the catchment.
Next slide, please, Fung Leng. So for Century Square, Century Square is another case example. I think during the COVID years, it was very much impacted by some of the measures and the fact that the access to the malls were limited compared to some of the sister mall. It was more impacted due to the fact that the timing of its -- about the lease expiries actually coincided with the worst of the COVID period, right? And the mall lost all its anchors, the cinema, and also the supermarket, right? But we've actually leverage on this as an opportunity to improve the performance. So we brought in Cathay, which is a familiar brand. They brought in new concepts as well in terms of the technology for cinema spaces, in terms of differentiation in the seating, right? And I'm also happy to share with everyone that NTUC will be coming back to the basement, and there would be a differentiation in terms of their offering at Century Square, right?
The focus is also on activating some of the floors. So for example, if you look at Level 2 and 3, today, that has been very much activated by the fact that we brought in popular brands like Sushi Express and also the bank on Level 2 and 3 has actually drawn a significant footfall to the upper floor.
Next slide, please, Fung Leng. Okay, community engagement, I think I mentioned earlier that there's still opportunity to grow the footfall to our portfolio. And we do this with a signature event. But the key focus is that the programming, the marketing has to be very targeted. So at the end of the day, we are looking at, not just bringing people to our mall, by giving them the opportunity to spend, right, and creating that -- or driving that sales productivity for our retail.
Next slide, Fung Leng. All right. So with this, I think I've touched quite extensively on organic growth. I'll talk about another pillar of growth, which is enhancement growth Tampines 1 AEI. So I'm happy to share that the AEI has progressed well. We have, to date, precommitted more than 97% of the spaces that were affected by the AEI. About 1/3 of the space is actually affected by the AEI. So 97% of that space has been precommitted to date. And we brought in an interesting slew of both F&B as well as our retail brands of which more than half are actually new to mall.
So this is very important for the repositioning objective that we have set ourselves for this mall, right? And the first batch of completed AEI units on Level 4 and 5, they have actually [indiscernible], and they have commenced operations from December.
In terms of the overall construction programs, we are tracking to expectations. Works are expected to complete by September 2024, and this actually positions the asset to actually come back in a bigger way to -- for FY 2025. The full improved income stream will be enjoyed by the investors in FY '25 upon the completion of the AEI, right?
In terms of enhancement growth, we do continue to see opportunities within our portfolio, but AEI entails careful planning and engagement with the authorities, right? And we also want to stage some of these works in order to actually preserve the stability of the revenue for our investors.
Next slide, please, Fung Leng. All right. So with this, I will hand over to Fung Leng. I think I've spoken a lot about how we want to drive the top line. Fung Leng will touch a little bit about sustainability and also the savings for OpEx.
Great. Thank you, Pauline. Right. This slide shows the update on the operating cost reduction initiative that we have shared in the last quarter. So we have added in the solar PPA in this quarter's update. So this quarter, we have launched food waste valorisation. This is a process where we recycle all the food waste into something useful, and I'll share a little bit more in the next slides.
The other initiative that we have launched is the solar PPA as Richard has mentioned on about in the start of the presentation. We have rolled out the installation of the solar PV cells across 6 FCT malls from this year onwards.
Now this -- coming to this slide, this is not the food waste valorisation. This is the -- the picture shows the ceremony on 15th of January. So this is very recent. So essentially, this is rolled out, first started as a proof of concept at Causeway Point and it has proved to be very successful, and we are rolling this up to 6 other malls as you can see. This basically is a process to convert food waste into higher-value products, for example, like [indiscernible] and some of the feed for animal purposes.
So besides the reduction of food waste, it also saved us a lot of money, or a lot of OpEx in terms of avoiding the tonnage of the foot waste haulage fees. So you can see that more than -- we expect more than 4,745 tons of food waste to be diverted annually. So this is basically converted into savings in terms of the haulage fees. And the equipment itself will give a payback of around 5 years. So if you kind of do a -- in terms of ROI perspective, that will give us 20% a year. And it also gives us the reduction in terms of CO2 emissions annually as well as the CO2 from the garbage truck movement. So this is in line with our push towards the zero waste and the animal sustainability food-resilient future.
The next slide is the solar PPA. As we have mentioned, we have a rollout across 6 FCT malls. And this is unique in a sense that in the space constraints rooftop of all the commercial buildings, we are able to do quite a bit of innovation to find space to install all these solar panels. So we are rolling out this across 6 malls from this year. And so we have partnered with the SP Group for this on the solar PPA model. So there's no upfront CapEx, no maintenance expense required from us, and there will be a fixed tariff rate and solar energy generation over the contract period. So projected savings is about $2.3 million over the contract period.
And the process not only gives us in terms of the source of renewable energy, but it also help us to support the reduced, reduction of Scope 1 and Scope 2 greenhouse gases by 2/3 from the baseline of 2019, right? So this itself is quite an exciting project for us. And it will not replace our current energy supply. It will only supplement. So it will be enough to cover the lights, the car park lights, the elevators and things like that and also with total replacement, right?
With this, let me hand this over to Richard for the concluding remarks. Richard?
Yes. Thank you. Just a very quick summary there. We can move on to Q&A. So as you can see what we have shared so far is a continuation from the strong performance that we achieved in 2023 going into 2024. So it's important that we continue this momentum. So very strong demand. We share about the limited supply. And also this helps us in terms of moving on the right direction for rental reversion and retention going forward. Our enhancement work for Tampines 1 is on schedule. And as what Pauline mentioned, this will then provide a full contribution coming into the year FY 2025. And at the same time, she's also gone through at length the various work that has been put in place at the various malls. So these are, in some ways, also asset enhancement, maybe on a smaller scale, but it does create value for the mall. It does help in terms of improving the revenue as well.
In terms of financing, we are in a strong position at the average -- at a leverage of 37.2%, and Audrey also shared some of the recent hedges that we have made. So generally, we are positive as mentioned in terms of performance. And also in terms of the outlook for this particular sector, the Singapore Prime Suburban retail sector, and this is partly on the back of the fact that we, being a provision of essential goods and services, nondiscretionary. We see continuous demand. The sales is holding up.
And also, most of you listening here today would have received between [ $800 ] that was given out in December, the CDC vouchers that was given up in January. Just for your information. If you just take the CDC voucher, for example, out of [ $500 ] that was given to each household, 50% of those can be used at supermarket and there's $250 multiplied by the number of households in Singapore that works out to approximately $318 million, and that can be spent at the supermarkets, and we can expect a substantial part of that will then come back to suburban retail space, suburban malls. And we have, in most of our malls or rather in every one of our malls, we do have a supermarket space. So we do expect, again, to get a big share of that coming back in terms of our sales for the year FY 2024.
We spoke about demand, we spoke about supply. So this is where it put us in a very good position because retailers are still looking at expanding, but not expanding just across the board. They are looking at good spaces. They are looking at spaces that they believe and continue to drive and continue to do good business. They may consolidate some of the other activities in fringe location or locations that do not really give them good return, good revenue. So they will probably redeploy their staff and make better use and full use of whatever capacity that they can at this point in time.
Proactive capital management, again, top of mind. Audrey and the team are very focused in looking and monitoring the market to make sure that we take advantage that what she did when the rates came down, we moved them very quickly. We tried to lock in rates that are very attractive and before it went back up. So this is where proactive capital management comes into play, and this is an important part that the team is playing today.
Full year contribution from our acquisition in FY 2023, we made a very significant acquisition in NEX, the 25.5% stake and also Waterway Point. So these assets have -- or these additional stakes in Waterway Point and the acquisition of NEX has started to contribute to the bottom line, and we expect this contribution to also help us uplift the performance for the entire year.
There's no running away from the fact that the asset management team, the property management team have to continue to work very hard on the ground. Pauline has shared many examples of what we are doing. So we are not just looking at it and say, "Oh, wow, we are close to 100% occupancy, so there's not much to do." But in reality is we are looking at changing our tenants, we are looking at bringing in new tenants we're looking at, say, for example, Tiong Bahru Plaza, how do we cut out space, how do we improve the productivity or space, enhance the area. And, at the same time, bringing tenants that the shoppers are looking for. We rightsized the food court, we brought in Don Don Donki and that will again help to bring in more traffic to the mall.
So it is very crucial. Similarly, at White Sands, the team on the ground are very focused on enhancing the physical aspect of the mall in view of a new mall that's coming on stream. And also, we look at it as an opportunity because with the size that it's about 400,000 square feet. We believe it's sizable enough for people in Pasir Ris to shop around this area. All right. So with that, I will end our presentation, and then we can move on to Q&A funding. Fung Leng back to you.
Thank you, Richard. We are happy to open the floor up for Q&A now. So we invite the first question. [Operator Instructions] Right. Okay. So can we have the first question from Terence [ JP ].
Congrats on the strong operational update. I just wanted maybe 3 questions from me. Firstly, on rent reversions, Richard alluded that the rent reversions are ahead of rental growth in the wider market. Could you give us a little bit more color on that? Second question mark to Audrey in terms of the financing costs. Given that you are seeing better refinancing opportunities and opportunities to hedge out, could you share on what's your updated financing cost guidance for this year? And would you actually look to increase the proportion of debt which is hedged?
And finally, a question to Pauline. You shared some -- many examples of what you're doing across the many malls in SEP's portfolio. But maybe could you share a little bit more on what you could look at for your newest mall, which is NEX?
Yes. Terence, so you have allocated the question pretty well spread out. So I'll take the first question on rent reversion. Okay. We shared that in 2022, if you recall, we did about 4.2% average rent reversion, then we had a 50 bps adjustment up to 4.7% from FY 2023. Well, this is only the first quarter, so we still have another 3 quarters to go. But what we are seeing is this is definitely in excess of that 4.7%, right, quite significantly. But then again, we also recognize that it's only first quarter. So some of the leases could be smaller leases, could be -- may not be the anchor space -- mini anchor space. So by and large, it's the momentum. I think that's very important. We see good traction in demand. When we want to reposition, we want to subdivide a space, we do get demand, very healthy, strong demand.
In terms of sales for the tenant, continue to move in the right direction, a good momentum. So that helps in the occ cost. So when the occupancy cost is maintained or at least is reducing or maintained, it helps us at our rental reversion. So I don't really have a number because we didn't share for this quarter, but I would like to share that we are very happy with what we're seeing so far. We continue to work very hard. So it is definitely in excess of what we have achieved in 2023. And at this point in time, it's actually been quite a significant REIT.
Maybe Karen, I hand over to Audrey for the next question.
Terence on the question of financing costs. There is a known post December FOMC meeting, the benchmark is actually paying down, and we took advantage of the declining interest rate environment. And we actually increased our cash percentage from the 63% to 72%. And the [indiscernible] was less than 4%. So you can see that the cost of debt is actually coming down. And what we are seeing in terms of the floating rates is also coming down vis-Ã -vis what we are saying in first Q last year, first Q of FY 2024.
So we are continuing to monitor the market and see any opportunities to enter into further hedge to take advantage of the declining interest rates.
Sure. Do you see -- I mean you had all-in financing costs of about 3.8% last year. Do you see financing costs this year being higher or lower than FY '23?
On the average, if you look at last year's benchmark rate here, it's been for the first half of the year has been very low. So what we recognize is that depending really on how the markets actually moving to some interest rates. And based on today's environment, we think that low 4s will be more predictable number vis-Ã -vis but if, let's say, interest rate would trend down further, it has the opportunity to come down below 4.
Terence, your third question with regards to NEX. So personally, I'm very, very excited about the acquisition of NEX. I think, to date, the performance has actually exceeded our expectations. So we're very happy to have a stake in this very well-performing mall. In terms of opportunities, when we actually do internal benchmarking across our portfolio comparable malls, we do see opportunities for significant organic growth, right? That comes in through the fact that the mall is actually operating at 100% in terms of committed occupancy.
There is actually a lot of opportunity for rightsizing as well. When we look at the larger spaces within NEX compared to some of our dominant malls, there is a bigger component of anchors and mini anchors, and therein lies the opportunity to drive the rental productivity, right?
The other area that we are also actively exploring it's also asset enhancement. There is potential to actually unlock significant commercial GFA for this asset. But of course, this, as I mentioned earlier, for all AEIs, it requires careful planning. It requires engagement with the authorities. And we are also looking at the overall catchment as well, what are some of the missing gaps, right?
We recognize that it's a growing catchment. It's a very dense catchment to start with. But there are actually growth, a lot of growth that's happening in the immediate vicinity of the mall. So I think you would have read recently that there's this polyclinic, the largest polyclinic in Singapore, that is just next to NEX, directly connected to the NEX.
So these are some of the opportunities that we are cognizant of and that we will actually take into consideration in the positioning of the mall as well. We are very actively involved in the management. We sit in the ExCo that convenes on a monthly basis. And at the Board level, there is actually a quarterly meeting with the other investors as well, right? So there's a lot of hard work that is all going for NEX, but I must say it has been very classified so far. I hope I've answered your question.
We have a question from Vijay.
A couple of questions from me. Maybe I'll take it one by one for easier. My first question is in terms of the trend for shoppers traffic and sales -- tenant sales in the malls. We noticed that from second half of 2023, we can see that shoppers traffic is slightly starting to trend up and tenant sales has started to ease or come down a bit compared to earlier half in 2022 and 2023, where the trend was on the other side. How do we explain this? Is it because of post-COVID spend, revenge spending declining or some belt tightening by customers or people going out and spending it? And how do you see this trending up in the 2024? Do you see -- how do you see shoppers traffic and tenant sales moving up? And how does this impact occupancy cost as such?
Yes, okay. Maybe I will try to explain from my perspective and Pauline can jump in as well. So in terms of shopper traffic, I think it's a gradual increase that we have seen. There is still a gap, as Pauline mentioned. And again, because of the flexible arrangement, right, that is something that we believe is a structural change, something that it's rather permanent. It's a question of between 3 days, 4 days, 4 days or 2 days, et cetera. So some companies are a little more flexible than others. So that's where you see some differentiation and also some minor movement in terms of traffic.
But by and large, we are still seeing, as what she mentioned, 10%, 15% across the board. We do see perhaps some more visits during the launch time and so on, different periods that's where you see a slight increase in the traffic.
For sales, the trend is still pretty much on track. The only difference is now if you compare year-on-year, you're comparing now with a very high level, not forgetting for the full year of 2023, our sales were 17% higher than 2019. And that is a very impressive number, right? And that 2019 was pre-COVID, if you take that into consideration. So I would imagine that the sales may -- compared year-on-year may taper a little bit because you're working on a very, very high base. But that is fine because with that kind of level, we can still get a very good healthy occupancy costs.
As of end of last year, we reported an occupancy cost of 15.6%. And that, again, is at a very healthy level given that cost has gone up, but at the same time, the product price has also gone up, right? So effectively, if you look at the margin of some of our retailers, yes, they have been eroded but it's also invested by some of the pricing.
So with this in mind that the sales continue, I think it's important that the sales continue to grow, even though it may be weaker, but is still way above pre-COVID and that would underpin the healthy occupancy cost of retailers. So to me, and also to the team as what Pauline mentioned, is for us to continue to drive, to bring in more people to the mall, to bring in new people to the mall and also to help to improve the conversion rate and help to meet the sales. So if the sales can continue and we can continue to have this healthy op cost than the rental reversion will follow through. So this is where we are always very focused on asset management, on property management, we have to continue to drive that bit.
Okay. Okay. My second question is you mentioned that demand is very strong. I mean, can you just give some work around which sectors are driving the demand? We have heard of some tenant exits in F&B sectors, the coffee shops closing. Has this impacted your demand? And maybe who are the -- which are the sectors you are seeing demand from at this point of time?
Definitely, F&B is still continuing to be one of the strongest. It is a phenomenon as what you've mentioned, you do see coffee shop closing, restaurants closing, but it's a rather strange phenomenon where demand continues to pour in, right? If you look at the spaces that we have mall, if any restaurant comes up, we do have the opportunity to replace it rather quickly. So the question really sometimes is the case of matching location. So is it -- are they opening in a wrong location? Are they also having a wrong product, for example, that's why they are not doing well? So I'm not saying that every F&B guys are doing exceptionally well.
So they are the stronger ones, they're are weaker ones. The weaker ones may fall up. But the good thing is there is no lack of demand from F&B. So F&B definitely is still one of the biggest demand for space.
We also see other retail tenants that's coming on. Retailers say, for example, we used this before, but again, they are still growing the [indiscernible]. And online retailers now they want to go off-line. So we do see retailers as such, a couple of more other brands that is also looking at having a presence in some of our malls. And again, the question is really about quality, right? Where do they want to go?
So we do see demand coming in, but demands are largely on prime suburban mall. If not for the fact that we have reconstituted our portfolio, perhaps our occupancy may not be at 100%. You'll probably be maybe 97%, 96% thereabout because we do -- we used to own some of the malls that mean this is much smaller, not well connected, not well supported, maybe we will not be getting this number. So there is definitely a flight to quality. They want to expand. They want to grow, but only in prime location that they can really -- and they believe that they can perform well.
So I'll talk about F&B, I talk a bit about fashion retailers and also some new brands that's coming in, and those are the ones that's shared by Pauline. So generally, we still see tenant expanding into our mall. They may have consolidated somewhere else, as I alluded to just now, they may have closed some of the shops, some of the spaces that is not delivering the kind of numbers that they want because do remember that there is a constraining manpower. So if I do have only 100 people working for me, I'll place that 100 into the best-performing outlets and close those outlets that are marginal or even nonperforming. So it's really about quality of space. Well, I hope I answer your questions?
Yes. Yes, yes. And just my last question in terms of -- you touched upon the manpower constraints. Can you touch a bit on the operational cost? Are you still seeing operational cost pressures? And how are your margins like? And maybe also can give some guidance on utility costs for this year?
Yes. Okay. Utility costs may be, Pauline can help up in a short while. But overall, I think cost in Singapore is still rising. So this is where we had to put in a lot of initiatives, a lot of effort to mitigate this cost increase, right? We can't really completely remove or reduce it to 0 or 0 rise. But what we can do is mitigate the cost. So for example, there are couple of initiatives Pauline shared with you. So these are initiatives that we expect cost savings. So we are trying to push out to roll out as soon as we can. So it's not about just on planning, so we shared 2 examples, food valorization is work undergoing, the solar power purchase agreement is in the works, we're going to be able to roll out this year. So these are all the initiatives that [ we win in ]. And these are only those that we have picked up.
We spoke about some of the initiatives that we have done before, and we will continue to work on it, things like in the security services, cleaning services that, again, are very heavy reliant on manpower, and we continue to work on the service provider to see how can we again utilize technology, right, to replace some of this manpower cost that we are looking at -- the cost escalation that we're looking at as a result of manpower. So these things that we are currently working on to mitigate as much as possible, and, at the same time, driving the top line.
So you can drive the top line then, we can try to maintain the margin. So it's a case of how much we can drive top line, and how much we can mitigate the cost on the bottom line so that we try to work towards at least getting close to what we are getting in terms of margin? Maybe for utility cost, Pauline, you'd like to share a little bit more light on that?
Yes, sure, Richard. So Vijay, I must say that we have actually done very well in terms of maintaining the cost of utilities. So I think the latest in terms of -- if I look at the blended cost for our portfolio, we are looking at all in, including some of the early chargers that is put on top of the rates, we're looking at a low $0.20 per kilowatt hour. So if you look at what some of the other -- so industry players are actually achieving in terms of utilities costs, that's on a higher level. And that's largely attributed to the fact that for utilities procurement, we have adopted trenching and end staging of the procurement. So we are able to actually hedge -- or rather to monitor the market and hedge at a more optimal rate. So that's on utilities costs.
I think as a percentage of OpEx, last year, we were looking at about 10% of our overall OpEx. It hasn't shifted. We are still looking at 10% over of OpEx currently and also going forward, right? So we're significantly hedged a large part of our portfolio in terms of electricity cost for this financial year, okay?
[Operator Instructions] Next up Brandon from Citi.
Just a couple of questions right on the gearing side. Are there any excess cash that you are keeping on balance sheet? I mean, given that gearing this quarter, of the 7.2% seems to be below the estimated 36.1% last quarter? Yes. That's my first question. And the second question relates to NEX. What is the latest update on the tax transparency application and also the GFA expansion that Pauline was saying. Is it more the civic space? Or is it more a plot ratio maximization?
Brandon, I'll take the gearing question. So the increase -- the last time when we give the performance numbers is based on 30 September of 2023. So it's based on September's balance sheet. So in terms of the cash level, we are always keeping at the optimum level whatever the operational needs and looking [ EBITDA ]. So with regards to your question, why is that increase in terms of gearing? It's because of the new launch that was actually brought down for working capital and also distributions, we record distributions in November last year. And also coupled with the fact that we actually fund the T1 AEI of CapEx requirement, about $5 million. I hope this clarifies.
So is it correct to say that this at 7.2%, it's kind of going to stick around, I mean, for the next 2 quarters?
At least from quarter to quarter then when it comes to first half distribution, the cash flow and the working capital requirements will actually fluctuates.
Okay. Got it. Yes, the next question on NEX.
Yes. Okay. NEX. Firstly, in terms of the tax transparency, I think this will be something that is going to take a while because we need to talk to the other JV partners because it involves them agreeing to change the nature of the company, the joint venture company that we are in today. So I would imagine that it requires them to be agreeable, not only in terms of the team that we are working on, but also their management team. So it's work in progress. There is no update to that.
We continue to engage them. And I think they will need time. And they also want to understand how are we in terms of coming in as a partner. So we just barely a year being a partner. So it takes time to build that relationship as opposed and hopefully, at some point in time, they will be prepared to consider this. So nothing to update on that front, except that it's an ongoing work in progress.
For the NEX, in terms of some of the enhancement work that Pauline mentioned just now, probably she can also jump in after this. It is largely on GFA that we can call back from some of the car park spaces that we have -- that the building used before. This is because the site that NEX is sitting on essentially a white site. And in the days when it was first built, in order to get to that level of car park that they wanted -- the number of car park that they wanted, they actually use some commercial GFA to build that.
But in today's computation and calculation, so some of those can then be recycled back or be free up back to -- for conversion into commercial and retail spaces, right? Pauline, do you want to add on that?
So maybe if I can clarify on that, that doesn't entail or rather that shouldn't entail the reduction of the car parking lots at Nex, right? It's just a matter of we can think the GFA that sitting the car park area and converting that to commercial. But the overall car park lots will remain, right? So I think there has been some feedback that parking at NEX is quite challenging, right? It's always a very, very full, right?
I think the other thing that I wanted to address also Brandon you mentioned the GFA for CSFS as well. So there is -- if you are -- I'm sure you're aware that the CSFS is the NLP. Currently, in terms of area, it's about 17,000 square feet. For NLB, there is some concessionary GFA. There's potential to increase it to 3,000 square meter -- or 30,000 square feet. So there's opportunity on that as well. But I think our first priority was to be to actually convert the noncommercial GFA, and that's quite a good proportion of that into a commercial GFA, right?
So have I...
Can you share that space. Are you able to share the space?
What do you mean by...
There's a mall that you can convert.
Okay. So it's still very preliminarily, right? If we look at the GFA stock itself, we are looking at something like close to 6,000 square meters, right? But that's on the basis that we can actually redeploy the space in areas where it makes sense from a retail perspective as well. So that's as much as I can share now.
We are actually working very closely with the JV partners, and we also need to engage the authorities as well.
All right. We're going to extend the session by a little while to take all the questions. Geraldine, please proceed with your question.
I just have 2 questions. So the first one, the recent sponsor announcement of the strategic review, does it change any timing you had in mind for your Northpoint City South Wing injection into the portfolio? That's my first question. And the second question will be on NEX. It seems that there are many anchors within NEX, I think 2 supermarket and 1 department store. Generally, what kind of percentage are we looking at in terms of anchor space? And how does it differ from the rest of your portfolio in terms of anchor space exposure?
Okay. I'm going to take the first question, and then Pauline, you can chip in on next. Okay. So for the recent news that came out to the market, I think FPL has also put out a statement to concerned that they have not heard, or they are not aware of anything deferent that they are doing. So it's business as usual as far as we are aware of, they will decide as and when it's timely for them to redeploy, recycle capital. We have not been told that next rather south wing is available today otherwise, right? So if that happens, we will come back to you guys to the market. So this is as much as the information that we are aware of even FPL is has really put up and say they are not aware of anything that is different.
So maybe in terms of NEX, Pauline, do you want to take that?
Yes. So Geraldine, just correction, we have 2 supermarkets at NEX and not 3. But you're right in terms of the quantum of anchors and mini anchors, when we benchmark it across our portfolio and especially with the other dominant malls, we do see a higher percentage at NEX. So for Nex, we are looking at about 60% in terms of anchors that we anchors compared to the comparable loans, we only hear about sub 40%.
Okay. Next question, Jonathan. Please go ahead.
My 2 questions. Firstly, earlier, you mentioned you locked in new hedges at below 4%. You mentioned certain timing or quarter, sorry, I missed it when you mentioned earlier. And then secondly, on medium-term notes as a source of fund. Medium-term notes is only 3.6% of your total funding. Do you intend to increase that to lengthen your duration of debt? Is the interest rate for MTN attractive relative to bank loans? And whether this MTN for this market -- for this product, whether they have sustainability feature? So I'd like to understand your view on MTN as a source of financing.
Okay. So Jonathan, maybe on the first question on the new hedges. So I've shared now for the new and for this financial year, we have actually increased our hedge percentage from 62% to 72%, taking advantage of the low interest rate environment that it was post the [indiscernible]. So for these hedges that we are entering into, we look at it, the all-in blended cost was less than 4%. And we reckon that this would help us to bring down our average cost of debt.
And on your second question with regard to MTN, definitely, MTN is a source of funding that we evaluate. And we'll look at what makes sense, whether it is bank loan or bonds. So for the past 2 years, when looked at the bond markets. The rates are higher as compared to the bond -- the bank notes -- the MTN notes are higher than the bank notes. So this is a market that we will continue to look at to tap in for sources of funding. And we do have a program that was updated 2 years ago that enabled us to quickly be able to tap.
With regards to sustainability linked, yes, there's a vision [indiscernible]. We can make the board screen by, for example, being at least [indiscernible] or some benchmarks. So there are features for bonds to be sustainability linked.
So the below 4% only refers to the new hedges, it's not referring to the overall?
Yes, that's right.
All right. We have the final showing [ attend ] from Derek. Please go ahead, Derek.
I just have 1 quick question. I was just wondering whether you mentioned that you have a very strong rental reversionary performance this quarter, but you now have a very sizable portfolio, right? So if you rank your malls, from best performing to good performing, can you just share with us in terms of reversionary performance and potential, right, which are your top 3 that gives you most excited about in the next 1 or 2 years?
Okay. I would say that not just for this period of time, we have seen this effect before and also during the pandemic. So typically, the more dominant, the stronger mall would be performing better, so the likes of your Causeway Point, the likes of your Northpoint City, Waterway Point or NEX, right? So just now, I think we alluded to the fact that today, if you look at across Singapore, if you look at the top 10 largest suburban -- prime suburban mall in Singapore we have either fully own partially 4 out of 10, and these are the 4 out of 10. And this is where usually the dominant malls are able to attract demand, supply and also shopper base. So as a result, the tendency is that you do get a better performance around this group of assets.
But then again, sometimes because there are certain smaller spaces that comes up for a renewal in the other assets, and then -- and those could also be key drivers to your overall reversion. But when you look in totality, these are the -- the bigger malls has a tendency to actually deliver stronger numbers.
Yes. So Richard, if I may supplement that, right? I think if we look across our portfolio, I mentioned earlier in my presentation that there are certain malls, whereby we are looking at repositioning. And I must say, for some these malls are the likes of Century Square, Tiong Bahru Plaza, we do see strong reversion coming in. And that is very encouraging because it's also an affirmation that we are actually moving the asset in the right direction, right? So not just the dominant malls, some of these malls where we are actively working on repositioning, improving the performance, we do see the good results as well.
As there are no further questions, we thank you for your participation. And this brings us to the end of today's analyst briefing for the first quarter business update. Thank you very much. You may log off now.
Thank you. Bye.