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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Okay. Good morning, everyone. Welcome to Fraser CentrePoint's Trust Business Update for the Third Quarter ended 30th of June 2022. Today, we have the management team here with us starting with CFO, Ms. Audrey Tan; the Head of Investment and Asset Management, Ms. Pauline Lim; and myself, VP for Investor Relations. Our apologies that the CEO, Mr. Richard Ng, is not able to attend this operating due to COVID situation. He's feeling unwell. So he sends his sincere apologies.
So we trust that you have a quick glance on the data we have published last evening. So without further ado, let me just jump straight into the deck beginning with Slide 4. The highlights in third quarter 2022 are as follows: we have achieved stable occupancy, healthy leasing demand. Our occupancy for the retail portfolio has maintained at a healthy 97.1%. This is [ broadly a ] 70 bps decline from the quarter before due to a pretermination by an anchor tenant at one of our malls.
But I think that is more than make up by the improvement in occupancy in other properties. We continue to focus on refreshing and strengthening of the retail offering which we have quite a number of slides to show some of the new tenants that we brought in during the quarter. And Pauline will give you a good deep dive into those new tenants that got on board this quarter.
One of the highlights that we have for this quarter is the uptick in terms of the shopper traffic and tenants' sales. Portfolio of tenants' sales is up 23% year-on-year, and this has maintained average about 10% above the pre-COVID level. This is quite encouraging after the relaxation of the COVID restriction in late April. So the strong tick up of occupancy in some of the streets -- in the trades like F&Bs and supermarket, grocers and so and so forth. Pauline will give you a deep dive of that -- into that during her section.
Likewise, our shopper traffic is up 32% year-on-year and have reached about 79% of pre-COVID level for the third quarter in June. So the month of June, we have actually reached 80% of pre-COVID level. So this is very encouraging with the resumption of work from home -- sorry, work from office and COVID relaxation -- further relaxation of the restriction in late April. We are seeing the [ health care ] beginning to come back. And I think you can see the malls are usual -- back to their usual level, especially during weekends.
Now on the right-hand side, we have highlighted some of the hedging strategies that we put in place to mitigate the risk coming from the increase in interest rates as well as the rising energy costs. We have reported in last quarter that our total borrowings, we have a portion of about 69% right now, up from 68% the previous quarter, which are on fixed rates -- fixed interest rates. So this effectively helps to mitigate the volatilities in the rise in interest rates.
In the portfolio electricity costs, this is also mitigated by in-place hedging, which will progressively expire over the next 3 quarters. That is not until the first half of financial year 2023. So effectively, we are shielded from the volatilities of the electricity costs. I think this is a big concern among investors in the market on how much impact that we will get because of this recent rise in energy cost. So whatever hedges that we have in place is good for -- to see us through the next 3 quarters.
Now last but not least, we have made improvement in ESG. We're happy to report that MSCI ESG has upgraded FCT's ESG rating to A from BBB just late last -- late May.
Moving on to the next slide here. Let me cover a little bit about the market environment. We have seen suburban retail rents remaining firm throughout the pandemic. And I think with the resumptions of the economy and the reopening, we expect some of the prime old rents to strengthen. This is quite evident by the strong inquiries that we received, the leasing demand that we have received as the economy resumes and the retailers begin to get more positive about the expansion.
Although there are still some cautious or caution about the -- in relation to inflation as well as some of the economic downturn. Market environment. Suburban malls rent -- retail rents have remained firm during the pandemic. As we can see from the chart here, yes, remains very, very resilient with respect to the city malls brand. And I think this is good for us in a sense that the rental has maintained quite strongly. And we have also seen the leasing demand getting very healthy. So Pauline will give you more color in terms of the outlook and what are the basic demands that we are seeing in our profile.
On the macro side, the government has maintained our GDP growth between 3% to 5% and inflation is expected to rise as what everybody has seen in the news. But I think this has also been kind of a factor into the market's expectations. Retail sales has been quite strong for the month of May. As you guys can also see from what the government has published, up 22% year-on-year. And with the sales of F&B services up 40% for the month of May. From what CBRE has published, Islandwide retail malls has -- retail rents has stabilized for the third consecutive quarters with the subprime -- suburban prime rents up marginally by 0.2% quarter-on-quarter and 1.3% up year-on-year. There are still some headwinds, manpower shortages and rising costs are some of the concerns of our retailers. And this is what we -- this is also what we have heard from our retailers ourselves. Nonetheless, I think the retail supply continued to be very tight. And CBRE does expect to see a more meaningful retail rent recovery either this second half or after the second half of this year.
The next session, I'll hand this over to Audrey who will cover the financial position. Audrey, please?
Yes. Thanks, Fung Leng. A brief update on the financial position as at 30th of June. Total borrowings is about SGD 1,858 million. This is slightly up as compared to the last quarter mainly due to loans that's been drawn down for working capital purposes. So about 69% of our borrowings are hedged to interest rates to mitigate the risk from the interest rate fluctuations. And there's a healthy aggregate leverage at 33.9%. Our green loans account for about 32% of total borrowings, up from the 22% that was reported last quarter.
So in terms of the average cost of debt, it’s currently at average about 2.4%, slightly up from 2.2%. We have undrawn facilities about SGD 574 million as at 30th of June. Credit ratings by the rating agencies remain unchanged, BBB/stable by S&P and Baa2/stable by Moody's. Okay.
With this, I will hand it over to Pauline, who will give you portfolio updates. Pauline, over to you.
Thank you, Audrey. Good morning, everyone. I will just bring everyone through the asset performance for the quarter. I think the third quarter of our financial year is a very exciting quarter for retail in general. We saw the reopening starting from April and also the elevation of the this DORSCON orange to DORSCON yellow. So this bodes very well for retail in general. And we do see the result of the Singapore government in moving towards the next stage. And also the progressive normalization of lives for everyone.
Okay. This slide, we do see a story of resilience despite 2 years of pandemic impact. Occupancy remains healthy at 97%, a slight drop compared to last quarter, but that is largely due to the untimely pretermination by an anchor tenant at Century Square, right? The other key takeaway from here is that if I may draw your attention to the occupancy of our dominant malls. The likes of Causeway, Water Point -- Waterway Point and also Northpoint City, you see that in terms of occupancy, these malls are actually delivering close to 100% occupancy, which is very -- which is a good result given the pandemic impact, right, the past 2 years of pandemic impact.
The other malls are generally hovering close to 98%. Changi City Point, which is more impacted because of the catchment. The fact that it's actually more destinational in nature and also the adjacent of business park was also impacted by the work-from-home trends over the pandemic period. But we do see a good recovery in terms of the occupancy for this month. Now retailer sentiment, I think, like what Fung Leng mentioned earlier. Generally, sentiments have been supported by reopening, but they are also facing various headwinds like inflation, manpower shortage. And these are some of the considerations in the retailers' minds when they are looking at, say, opening new locations, right? But we see a cautious optimism. And we also do see good leasing traction and are very actively [ in leasing ]. And I will bring everyone through that in my subsequent slides.
Next slide, please. I think this slide is generally should be quite familiar to everyone. A couple of key takeaways with the re-opening in the months of April and May, we do see good recovery in terms of the footfall. Where we are now, footfall is hovering at about 80% compared to pre-COVID levels. So despite the lag, I think one of the key takeaways is -- despite the lag in the recovery in the footfall, we see a very different trend in terms of retail sales. So if I may draw your attention to the blue line on the chart -- to the chart on the right-hand side, you see that the blue line, which shows FY '22 performance or K-22 performance. That has consistently outperformed last year and also pre-COVID. So very, very strong sales despite the -- some of the safe distancing measures that are in place.
And with some of these falling away progressively, we are optimistic about the performance of our malls, right? In terms of trades that have benefited from the re-opening, we do see strong recovery. The key beneficiaries would be the likes of entertainment and some of the F&B retails -- retailers that were impacted by the safe distancing measures. There are also beneficiaries like beauty and fashion which have actually benefited from the work from office -- the move towards work from office or hybrid working mode.
Next slide, please. Right. This slide demonstrates the good traction. If I may remind you about where we started this financial year, we are looking at expiries in FY '22, 3 quarters ago at close to 40%. So since then, a large -- the bulk of the expiries have been either committed or renewed. And we are looking at just 5.3% for the last quarter.
And my next slide will show the -- and with this 5.3%, we are still reporting healthy occupancy of 97%. Now this slide shows the leases that's coming up in the near term. So you see that there is no concentration risk in the near-term cash flow for the portfolio. And the WALE at 1.8 years is actually healthy given the fact that our average lease tenure across the portfolio is 3 years.
Next slide, please. All right. Just wanted to also highlight that despite the challenges that we faced over the past 2 years with the pandemic, our team has actually not lost focus on remaining relevant and delighting our shoppers, right? Because that will actually build or form the foundation for sustainable performance of portfolio in -- going forward. We have actually worked with our retailers, both our existing as well as our new retailers to refresh the concepts and offering and also to create the USPs to cater to evolving shopper needs, right? And we do see this across the various retail trades. So what we see here is the supermarket and grocery stores.
Case in point, at cost midpoint, we worked with FairPrice, one of the leading supermarket operators in Singapore to refresh the offering to introduce new concepts that are targeted to the catchment living in the Woodlands area. We've also brought in various smaller grocers, specialty grocers, the likes of Scoop and also Kun Hai to some of our malls and also Don Don Donki to expand the supermarket offering to our happy heartland catchment. I think it's no surprise some retails in the holdings up in Northpoint City. So we are also bringing Donki to Northpoint City as well.
All right. Next slide, please. Now moving on to F&B. F&B remains a critical part of the experiential offering in our malls. I would say that the Singapore F&B scene has remained vibrant and retailers are very, very focused on developing the offering, concepts, creating new and unique experiences to their customers. We have actually seen several new-to-portfolio offering in the F&B segment over the past 3 quarters or so. And I believe with this, we are well positioned -- our portfolio is well positioned to move towards the normalization. In terms of also supporting our retailers, we have built a strong omnichannel platform with Makan Master with our online marketplace, that has helped the retailers in terms of increasing their sales productivity. We've also provided figures on logistics and marketing support to drive the sales on an omnichannel basis.
Next slide, please. Now beauty and fashion part of our everyday lifestyle, and this trade is also poised to benefit from the resumption of work from office or at least the hybrid working arrangements that we see going forward. That's also focused on new trends, active lifestyle and so forth. So these are some of the trends that we see or opportunities that we see in the Singapore retail scene that we are actively leveraging on and bring to our focus.
Next slide, please. Now with the re-opening, I think it's been a while. There has been various restrictions, entry limitations to the malls and other. And with the re-opening, we have actually launched a slew of activities across our portfolio to welcome our shoppers back, especially over the recent June school holidays. And this is with the aim to drive the footfall to our malls, right? So in Causeway Point, you see that we have actually brought in a new dino-themed wet play. I think the reception and the response to this has been good since it was launched. And also various activities including glamping, including scavenger hunt in order to bring shoppers back to the malls.
Next slide, please. Also focused on place-making activities. We believe that our malls remain a community landmark. And we want to be part of the everyday lifestyle of our catchment. And this is also in line with the government's theme on decentralization, whereby we play, work and also live within the [ habit ].
Next slide, please. All right. With this, Fung Leng, shall I hand over to you to just give a round up.
Yes. Thank you, Pauline, right. This is the summary slide. So riding on the positive momentum, I think the third quarter performance has delivered the assurance that the FCT is indeed riding on a positive momentum of the re-opening. I think we have highlighted the stability of our occupancy. The healthy financial position with a lot of flexibility as well -- financial flexibility and we are well positioned in the improving leasing markets. We have also mitigated the lease renewal.
We have only 5.3% of which probably more than half of them has already been in advanced negotiation. And on the outlook, I think rising cost pressures and interest rates continue -- will continue to pose challenges and the management is actively managing this through mitigating measures through, as you can see, from our hedging strategies and also we'll be very active in cost management in our operations.
Now talking about recovery in upside. I think with the recovery still in place, there are still certain avenues of where we can recover revenue growth. Part of which is, of course, on the rental growth, recovering some of the income from atrium rental. I think since the re-opening of the atrium, our malls has been slowly re-registering improving atrium incomes. So there's a further upside to recover from there. And also the likewise for other ancillary income for car park, advertisement and also for GTO income coming from improved tenant sales and also improvement in other operating factors as such improving our occupancy and also the efficiencies in our operations to minimize costs.
Strategy going forward remains unchanged. We will be very proactive in our property and asset management, continue to drive omnichannel and focus on the stability, while leveraging technology to drive efficiencies. On the acquisition and AEI, I think this continue to be one of our key engines for growth, but of course, acquisition is by opportunities. For AEI, it's always in our plans, and we will identify opportunities for AEI malls as we evaluate them as opportunity arise.
Market environment is, I think, we can all see that is in a very strong positive recovery mode. So I think we'll continue to leverage the momentum of this and to position FCT is very well positioned to take [ this much ]. All right.
With that, let me -- we are ready to go into the FAQ questions.
[Operator Instructions] So I can see that we have a first question coming from Terence.
Just 2 quick questions from me. I just wanted to find out the impact of interest rates and like what number -- what's the expectation of interest cost by end of FY '22 and tenure of the hedge. And also on acquisitions, I wanted to get a sense of is there a preference in acquisitions from a sponsor pipeline or potentially what's out there in the [ party ]. And for Century Square, is this coming from Filmgarde and what you're looking to do in this space Yes. Those 3 quick questions.
Thank you, Terence. Maybe on the interest impact and the tenure of the hedge, Audrey, would you like to take the question?
Sure, Fung Leng. We actually expected the average cost of debt to trend higher in view of the current rising interest rate environment. I also shared that the proportion of the hedge is about 69% as at 30th of June. So we are expecting that at the end of year, the average cost of debt will be in the mid-2s percent for FY 2022. So as to the tenure of the hedge, generally, when we hedge, we enter a hedge this year, we actually hedge the full maturity timed with the debt maturity profile. Terence, I hope I answered your questions.
All right. There's the question on the -- whether the exiting tenant or exit of tenant at Century Square is Filmgarde, Pauline?
Yes. So I think, Terence, it's no secret, right? I think that the holdings are up. So we can confirm that it's due to the exit of Filmgarde at Century Square. It’s unfortunate, but I think the cinema trade has actually been very much impacted by the safe distancing measures over the past 2 years or so. And also for this operator, we do see consolidation -- their consolidation within Singapore as well. But not all is lost. We have been actually actively engaging other operators.
And I'm happy to also update that we are in actually final negotiations. It's either documentation, but it needs to be signed before we can reflect that lease on a committed basis now, right. So I think, Terence, the other question that you have is with regards to acquisition opportunities. So definitely, in terms of both pipeline from our sponsor in terms of opportunities in the market is something that we are always actively working on. And in reviewing some of these opportunities, we will work on what is in the best interest of our unit focus.
The next question comes from Yew Kiang.
I have a long quick question. I look at your portfolio, the cap rate was about 4.75%. What is management's view of this level, this kind of valuation range when it comes to looking at assessing potential acquisitions in the market?
Fung Leng, you want me to take that question?
Yes, please. Go ahead.
Okay. Yes. So Yew Kiang, you are absolutely right. I think in terms of asset valuations, one of the key drivers would be the cap rates -- and this is something that we are also monitoring very closely. Internally, we have a quarterly review of the value issues and so forth. And we have also been engaging the valuers to get a sensing of the market, their outlook and so forth. So what we hear is that despite the 2 years of pandemic, there's no re-rating of Singapore suburban retail assets. What we hear is that cap rates have -- there is no evidence of cap rate changes, and it's likely to remain stable for the immediate term.
So my question is, would you be -- so if there's something on the market at this level, would you think it's fair? Or would you consider something -- paying something lower than 4.75%? Because below 4.75% is richer than your existing portfolio. That's basically what I'm trying to gauge here.
Yes, I think it has to be on a case-by-case basis. Definitely, the [ entry view ] is one consideration, right? But there are other aspects like whether there's potential for growth potential to actually drive the yield higher as well. So on a case-by-case basis, we will review.
The third question is -- comes from Geraldine Wong, DBS.
Are you able to hear me?
Yes, loud and clear.
Okay. I think my questions will be directed to Pauline with regards to the portfolio. So for Filmgarde vacated space, any leasing interest from any tenants as of now?
Yes. So yes. So basically, like what I mentioned earlier, we have actually been actively working on this space. We have engaged a few operators to re-lease this space for use as a cinema. And we are glad to mention that or rather to have like share that we are in final discussions with 1 or 2 of the operators is currently in documentation phase, which is why it's not reflected as a commitment. So -- but once the lease is signed, hopefully by next quarter, you see Century Square occupancy recovering back to above 90%.
Okay. Sounds good. What about GTO income? How has it been trending quarter-on-quarter?
Yes. So I think that would also be reflected in the sales performance. In one of my slides, I did mention that in terms of the sales recovery. That has actually surpassed pre-COVID levels. So that bodes well for our GTO revenue.
Geraldine, as you might know, GTO is just a small portion of our growth. I think traditionally it has been -- pre-COVID level has been around 4%.
4% to 5%. Yes.
Yes. So it is not a major source of our revenue. Our main revenue still come from today's rents, all the leases and occupancies. So GTO is just a small part of it. But of course, together with more ancillary incomes such as [indiscernible]. All this ancillary income comprises roughly of close to 10%. So I think we still have some upside to drive because we are still in the midst of recovery. So that will provide some room for growth in terms of our revenue for this year.
Just to add on to what Fung Leng mentioned, I think with the recovery, we do -- we hope to see pickup in terms of interim revenue, car park revenue, turnover revenue as well. So these are the aspects or elements of other revenue that Fung Leng mentioned earlier.
So just to add on to -- for Geraldine is, we do see a year-on-year increase in terms of the GTO rents. This is very aligned with what we see in terms of the tenant sales improvements.
Next question comes from Derek Tan from also DBS.
I thought I was behind Brandon. But okay, just one quick question, if you don't mind. Yes. I was just wondering, if you look at the green loans, right, for Audrey, I'm just curious whether is there a step-down feature if you hit certain benchmarks for your ESG rating or -- I mean I'm just wondering whether is there any chance that your overall cost of debt has opportunity to come down once the price settle down on that.
Yes. So in the recent refinancing that we did, we do have a step-down component. So as long as we maintain GRESB 4-star and above, we do that get some interest savings. So I think it's in the interest of FCT that the team continues to strive and achieve the Green Star, the GRESB 4-star ratings, at least.
You may wish to know that for 2022, the GRESB assessment results should be up some time -- the public announcement should be up sometime early November.
Our next question comes from Brandon, Citi.
Just 2 questions on my end, right. As we gradually move out of the recovery phase, right, sorry, move out of COVID, right, what's your optimal occupancy costs over the next 6 to 18 months, I think -- if I'm not wrong, I think last quarter, you mentioned about 16.2%. Are you still aiming to hit that 19% as we go into this so-called like recessionary environment? That's my first one. The second question is more on gearing. What was the optimal level on your current strategy?
Okay. First question, maybe Pauline can take it. That's on occupancy cost. Last quarter, we reported 16.2%. So Brandon is asking whether worst case whether you go back to 19%. And maybe Audrey can take the gearing question.
Okay. Yes. So Brandon for suburban retail portfolio, I would say anything in the up to the high teens would be a sustainable level. And the OC is a very, very important indicator of retailer performance and sustainability for us, right. So the fact that the portfolio OC is at the 16%. It shows that it's at a healthy level notwithstanding the impact to the top line because of the pandemic.
And the takeaway from that is that there is opportunity to actually -- or rather there is headroom for rental increase, right. So because retailers are actually performing at that level, that's actually that room for us to actually optimize spreads further and still keep them at a sustainable trading level. So it's actually a balancing act because you want your retailers to be sustainable as well. It's a symbiotic kind of relationship between the landlord and the retail tenants. Did I address your question, Brandon?
So whether it will go up to 19% or so. I think this is an area of calibration. The focus is on driving the sales and ensuring that they are performing at a healthy level, right. But where the OC sits now there is opportunity to actually organically drive the rents.
Yes. Actually, my -- I'm coming more from the fact, I think in FY '20, we didn't have the kind of inflation, the kind of interest rate, the kind of labor cost constraints that we're seeing in today's market. So even if you are driving sales, do you still think that we should expect that kind of high teens level as before.
Yes. So what I can say is that the fact that it is at that 16%, 17% mark, there is some buffer in that because it is an indicator that we are still trading at pretty healthy levels and sustainable levels.
The next question from Brandon was a gearing question.
Yes, that's right. So our current gearing level is about 33.9% which is a good level. So historically, we have been around 33% to 35%. But we have demonstrated in the past that when there is a good acquisitions, we -- our gearing may go up above the current levels. So that is in the case of the ARF acquisitions. So yes, so in our debt headroom, maybe I could share is that, it’s actually 40% we can go up to about 600 million. And maybe about 45% is about 1.2 million -- 1.2 billion of that headroom that we have. Brandon, I hope I answered your question.
Yes, that's very good.
Okay. Nobody wants to ask what's the debt headroom for 50%? Okay. Next question comes from Hong Wei, OCBC, I believe.
Okay. Just 3 questions for me. The first is that how much is electricity costs increased by? And how much more should it be increasing? Or how much more do you think you'll be increasing by? The second will be the driver for ESG rating to be upgraded so many notches to a A from BBB. And I mean what was driving it? And do you see a further uplift from here? Are you looking further to drive it up? And then the third would be on advertisement revenue. Is it a big driver for revenue going forward also?
Okay. Thank you, Hong Wei. I think we have -- maybe the first question on electricity and -- as well as the advertisement, Pauline can take it. I can take the ESG question. So Pauline, maybe you can go ahead, please.
Yes. Okay. I'll try and address your question on electricity. So I think definitely from what we see in the market, energy prices has actually gone up due to both demand as well as supply pressures, right. And that has actually impacted everyone, first of all, both on the commercial as well as the domestic front. I guess for our portfolio, we are quite lucky in the sense that we -- actually, we have actually fully catched out to lift these prices. And the strategy that has been deployed in terms of managing between these costs, I think there are 2 areas. First is we have actually tranche out, right.
So across the portfolio, we have ensured that the contracts do not expire at a single point in time. So we have kind of mitigated the risk in that sense. And also with the hedging that has also helped us moderate the, I would say, the increase in reaction to what is the market pricing. So we continue to actually deploy the strategy going forward, both in terms of tranche-ing out the contract expiries and also hedging.
And with hedging as well, there is opportunity to leverage what we see in terms of the market trends, right. We need not hedge for the entire contract. We have the ability to actually hedge different tenants as well. How much has electricity cost increased, I think, for this year, the impact is very, very marginal because the bulk of this is actually hedged. There's only one asset where the contract has come up, and that's towards the end of this financial year.
For the next financial year, the contracts will actually come up in 2 separate tranches in the months of March and the months of June, right. So to a certain extent that has given us some, I would say, some mitigating to the -- increased mitigant to the increase in the electricity prices in the market. So with that Hong Wei, did I answer your question on that?
Yes, somewhat.
Okay.
Okay. Yes.
And then there's the second part of the question is about how much advertisement revenue is part of the total revenue.
Yes. Okay. So advertisement revenue -- okay, sorry, maybe Hong Wei, I just address your question on utilities. If we look at the proportion of utilities expense, to our total OpEx, it's actually in the single digit percentage. So proportion of utilities cost of the landlord to our overall operating expense is actually in the single digits. And now with the hikes in the utilities prices and so forth, we probably would see increase maybe in the magnitude depending on the price that we are hedging, right, the new contracts at, probably at maybe 50% to 60% kind of increase.
Going to the question on advertisement revenue. I think definitely this is a smaller component of our revenue. But this is not -- is an area that we remain focused on and also by driving some of this use of space, right, either on the various parts of the malls. It also helps us to activate the mall. So this is definitely an area that we are focused on, driving some of these other aspects of revenue to show up our top line.
Right. Thank you, Pauline. Maybe I have something to add just -- to add on what Pauline has mentioned. Our electricity exposure is mainly for the landlord portion. As you know, we mentioned before in the last quarter about -- of the total electricity consumption about 40% or so is for the landlord. The other 60% is the pass-through to our tenants. So that basically reduces our exposure, the total volatility electricity rates. So for the 40% on the landlord portion, those we have the hedges in place that will see us through over the next 3 quarters because the progressively matures during this period.
So you can kind of look at it as a smoothening out of the volatilities coming from energy rates. So rest assured that this is well mitigated in terms of risk. The last question that we have from Hong Wei was the driver for ESG. Well, of course, we are very happy that we got upgraded from BBB to A. That's only one notch, not many notches.
But I think that business is among the good performance in the region because MSCI ESG rating is not only for Singapore S-REIT but also for the region. So we are competing against the points within the region. So not really like MSCI Singapore index, but I think it covers more than just S-REIT store. What we have done to achieve this, I think it is not just a one-off thing that MSCI ESG has looked at us. But progressively over the period, I think some of the key things that involve besides the improvement in emission disclosures as well as the performance. But I think we have also improved in other aspects such as the corporate governance, for example, just in terms of the gender diversity.
Previously, we had only one female director among of 6 so that's about 70%. So recently in April, we had a new director. So now the ratio has gone up to 1/3. Other aspects of disclosures are based on the 2021 annual report. So we have made several improvement in our disclosures, quality of disclosures and so on and so forth. So it's more of a comprehensive overview of how we have made progress in ESG rather than just any singular attributes. So Hong Wei, any other questions that we have left out?
Yes. That’s all.
Thank you. Our next question we'll move to Tan Xuan from Goldman.
Just one question for me. Since the lease expiry for this year has been brought down significantly. Can you just give a sense on reversion? How was it versus first half number and versus your internal expectation?
Xuan, maybe I will take this question. So if you recall, we entered the last financial year with a slight negative rental reversion of 0.6%. I think for the -- as at the first half, we were reporting a positive rental reversion of [ 100% ]. We do see that maintaining for this financial year, yes, and especially with some of the optimism with the reopening of the economy.
All right. Next question comes from Xavier.
I just want to ask a question on your tenant retention rate. I'm not sure if that was mentioned. And my second question is on the Central Plaza. What is the biggest challenge at this moment trying to lease out an office space somewhat outside the CBD area?
Okay. I guess both questions are for Pauline. You have to do most of the work today.
Sorry. So Xavier, you are saying...
The question was tenant retention rate.
About tenant retention with regards to Central Plaza?
No, just portfolio tenant retention rate. Can you explain?
Okay. So that's the easier question. So for tenant retention, we do still see healthy retention of 70% to 80% for our portfolio. Yes. On Central Plaza, I think you're right. The leasing environments do remain challenging. We do see the improvements in the rents in the prime CBD office space. That was driven by both demand as well as supply.
And so with that, in terms of the -- but the rents have actually been improving in that space. It hasn't really cascaded, I would say, to the CBD fringe locations as yet. But I think your question is directed to the 2 to 3 floors that was vacated by the anchor tenant at Central Plaza. So the strategy that we have actually employed for these 3 floors is twofold. One of the floors, we're looking at subdivision of the space. We have gained some good traction in terms of the leasing up for that space.
For the other 2 floors, we are actually engaging a couple of health prospects. There has been interest, but we are working on closing the negotiation for the 2 floors. Did I answer your questions, Xavier?
Just a clarification question on the 70% to 80% tenant retention rate. Is this for the year-to-date? Or is it just for this quarter? Does it include the Century Square tenant that gave up the space?
It would not have included the Century Square tenant. But I think that space by itself would not distort the numbers significantly across the portfolio.
Okay. So this is for the 70% to 80% for this quarter.
I would say on a year-to-date basis, we are trending around that kind of 70% to 80% mark.
Yes. Next question comes from Simon Jong, I believe he is DBS. Simon?
Just want to ask a few organic questions. One is, have you done modeling on the opening of One Punggol hub and its impact on Waterway Point. And can you share whether that mall in specific -- I stay in the area and I've seen the changes in the dynamics over time. I'm just wondering whether there's room for further optimization for that mall.
The second question I had is maybe at a broader level, are you all engaging with perhaps new -- other new retailers that you're bringing to Singapore? And one last question I had is with regards to Slide 10. It's interesting that when you plot out the data on tenant sales and compare it to 2019, we see that the levels are above 100%. I'm just wondering how much of that is due to price increases that your tenants have done if you have the data?
Well, okay, quite a number of parts of questions, and it's how I guess is the Pauline's area. Maybe let me just repeat the question for the benefit of those who missed it.
So first question is, have we done a modeling of the Punggol hub, okay, of the Punggol hub and whether there's any room for tenant remixing, given that the Simon is quite familiar with the place. And also, whether we're engaging any new and retailers that we plan to bring in? And the last question is regarding about the chart on tenant sales and shopper traffic, right, whether has the chart taken into account inflation factors.
Okay. Simon, maybe I'll address your questions in turn. In terms of the competition in the Punggol area, yes, I think you're right. We do see the intensification of the competition in the catchment, right, in the recent years and also going forward. There are new commercial as well as retail developments that's come up. But I guess for Waterway Point, we have not [ restart ] in our models, right. You see that over the past year or so, we have actually been very, very actively recalibrating the trade mix also to raising the offering and also improving the overall sales by changing out some of the less performing tenants.
So case in point, right, you see that at Levels 1 and 2, what we did was the previous anchor space, we have subdivided it. We have expanded the retail offering. We have created a kid's cluster on Level 2, right. And that is actually something that we have done taking into consideration what is the need of that particular catchment, right? There's a lot of younger families like yourself, right, living in the Punggol area. And so it's a very targeted mix. This is something that we have not lost sight of.
You'll see that going forward over the next few months or so, there will be more interesting concepts that's coming in to show the performance of Waterway Point. And I guess for Waterway Point at the end of the day for retail, it's all about location. And where it's located, it's definitely at the ground zero of Punggol area, connected to the key transport hubs and so forth. And they are in license within it. So this is something -- an advantage -- a competitive advantage that we will continue to give on stronger competition. Yes.
Pauline, I was just asking -- I was seeing more I suppose at least because the One Punggol town hub, you would get actually a library and the community expansion is just ancillary to the mall. And a couple of your malls actually have an integrated library inside. So I'm just wondering whether you can share from past experience when you have a library or you have hawker center extended. What's the impact on traffic and whether you can share, based on your models in the past, if you have, what do you think the impact will be on Waterway Point and whether you would rejig the tenant mix as a result.
I think that there are new malls appearing in Punggol, but they are not exactly in the same location. It's also not walking distance, it's like a few LRT stations, so it's not exactly within your -- I don't think it will compete away much like Northshore, those are actually catering to the newer estates. They are just open. So are you able...
Yes. So we haven't really done very technical modeling -- quantitative modeling on what is the impact and so forth. But definitely, having the likes of, say, a library, a hawker center, it does help, right, in terms of drawing people to the mall because it's, to a certain extent, destinational, right. The library is also part of the catchment population's everyday lifestyle. So definitely not disputing it.
But what I'm trying to say is, at the end of the day for retail, I think there are a couple of things in my view that is very, very important. One is actually the connectivity, right. So where Waterway Point sits and. Of course, a lot of malls as well, there's that direct connectivity to the transport hub. So that actually feeds people into the mall. And I think secondly, for retail as well, the scale is important. The ability to offer that diversity in enough space to offer diversified range of retail offering, a complete range of retail offering is very, very important because that that inculcates the stickiness of the shoppers.
Yes. So that is on your first question. I think your second question is bring new retailers to Singapore, new-to-market retailers. Yes, definitely, that's something that we are actively working on. I think, unfortunately, over the past 2 years or so with the pandemic situation, some of these overseas retailers are probably fighting their own battles at home, right.
So it has been challenging on that front. But given the DNA of Frasers, we do have presence in other markets. We are also, I would say, have like -- we do have like, say, assessed retailers in Thailand and so forth. So there are opportunities to actually bring in some of these unique brands to our portfolio of malls.
All right. Just one last question about the chart on tenant sales, has it incorporated inflationary factors?
Yes. Sales driven by inflation, I think.
No, no, no. The percentage that we say is 10% of pre-COVID level, how much of it is due to inflation?
Maybe, Pauline, I take this question. Pauline, please feel free to jump in. So if you look at the core inflation that has been recently reported is about 4.4%. So I think in terms of this tenant sales increase, I would think there will be some elements of inflation inside because it's a measure of sales. But you can see the core inflation is 4.4%, and the increase here is 111%. So you can see that the increase in sales is out -- is more than the inflation increase. I don't know, Simon, does that answer your questions?
Yes. Kind of -- but…
It's quite difficult to dissect how much of it is still inflationary. And how much of it is still due to pent-up demand after the re-opening. So it's kind of a mixed bag of both. What we're seeing here is the aggregate effect of the sales after the lifting of the restriction.
So I guess it takes some time to settle in. But with 3 months of data, I think we can be quite sure that there is indeed uplift in terms of spending. And there are so many things that's happening at the same time you have inflationary pressure, you have shortage, you have fees and net debt. And I mean people still can't travel as much as they would like to because of certain restrictions in other countries. So all this confluence of factors does lead to [indiscernible] but it's quite difficult to kind of advice it out.
So before the war, the Ukraine and Russia’s war sets in, where we do see a steep increase in terms of inflation and the fears of inflations. Prior to that, we have already seen tenant sales -- like in January, it was an increase of 113%. And in February, it's 104%. So it's an upward trend as what's shared by Fung Leng in terms of the tenant sales performances.
And also, if I may add on to that. I mean if we look beyond our portfolio, we look at the Singapore retail sales index, I think for the month of May, on a year-on-year basis sales has actually increased by about 23%. So there is some element of inflation in there, but I don't think it's 100% inflation-driven.
There's almost a good correlation between the 2.
Yes.
Because actually extending this forward, looking into next year there's going to be GST hike. So then therefore, I'm just wondering whether can I just be confident and then expect that tenant sales are going to do pretty well because fish bone noodles, they don't increase by 1%. They will increase by $0.50 or something like that. And $0.50 or $1. So it's actually a 10% increase. I'm just giving a micro example.
Yes. So Simon, if I may respond to that, right. I guess one of the mitigating factors for our portfolio is the fact that we have a large proportion of essentials. So you still need to eat our fish bone noodles and so forth. So that has actually been tested over the pandemic as well. And we believe that that will continue to support our low performance going forward, notwithstanding the inflation. Yes. So very, very essential kind of [ must ] kind of positioning for our malls.
Right. Thank you. We are mindful of time. So we have only about a couple of minutes left. So we'll take the last 2 questions. [ Marvin ]?
My question relates to electricity costs. Obviously, the hedges haven't fully rolled off, but I think other REITs have -- they informed us that they started to lift service charges. Are you doing that at the end of -- upon resuming renewals? Or are you just waiting till next year before you do that?
Pauline?
Yes. So well this is something that we will not preclude. We will have the -- we do have the ability to do that. It's not something that we will preclude, but we will monitor as required.
Have you started increasing the service charges upon these renewals? Or are you at all?
I guess the focus for Singapore retail rents has always been on the gross rent, the overall rent rather than one particular component within the rents itself.
The service charge is part of the gross rent. So when we negotiated which are a couple of business, not just individual parts of it.
So retailers will look at it on a total gross rate basis, not just how much is your base rent and how much is your service charge.
Yes. If your question is about whether are we considering to increase the service charge, then the answer is that we are looking at it. It's part of our option, but we have -- we are looking at it as an option.
We may consider, but it's not conclusive. Yes, [ Marvin ]?
Sure. No problem. I don't know if you can comment on the LTC portfolio funding options at all.
We were waiting for this question to come.
As the dealers do in the market, we are not at liberty to comment on this, yes. [ Marvin ], I hope you understand.
Yes. I expect that answer for anyway but I’m asking since everyone was asking, need to ask. Yes. Okay.
So the last question comes from Simon.
Yes. Can you hear me?
Yes.
Just very quickly because in the U.S., we saw Walmart saying how U.S. consumers are actually shifting to -- how they are digesting inflation through consumer staples and they are actually reducing their discretionary spend. Do you see that feeding over in Singapore? And if so, your variable rent, what is the component between the staples and the discretionary percentage-wise, if you could? Back to you.
Pauline, do you want to take the question or you would like me to take the question?
Maybe I just jump in here then Pauline will pick up. So if you look at Slide 25, about 54% of our portfolios, actually essential services. So as we said, the resilience of the portfolio during good times or bad times, people does continue to shop. So the mix -- the portfolio, yes, under P&C essential -- the resilience of the portfolio. So as to consumer spending, as you can see as shared earlier on, we don't see tenant sales improving across the portfolio, like the likes of -- let me bring up to Slide #10.
Like the sundry and services, supermarkets, beauty and health care, leisure, entertainment, F&B. And essentially like shared by Pauline earlier, the beauty and health care with the work from office, people going back to office, we do see this pick up as people has to prepare for work, right. So this is now in session, but we do see a pickup in sales. So it's a bit slightly different from the states. Pauline, maybe you want to fill up.
Yes. I think what Audrey mentioned earlier is absolutely correct, right. So if we actually deep dive into the offerings that we have the trade mix and so forth. There's a very large component of what we deem to be nondiscretionary. So it's part of your lifestyle. You still need to do your grocery shopping and so forth. So that actually gives us that support in terms of the performance, right.
And with regards to the question of GTO rent, if you look at our rental structure, a large part of our revenue or our rents comes from the basement, right. And this has not changed over the past 2 years. We are still driving a lot of our revenue from the fixed rent component right. The GTO rent is the plus percent or the 4% structure. That remains still a relatively small percentage of our rental revenue.
In terms of the composition of the GTO rent, is it coming from discretionary trade or nondiscretionary trade, I will say that a large component of it is still supported by the nondiscretionary trade and that is again a function of the our trade composition as well as our overall trade composition.
Yes, would you be able to give a percentage of the GTO rent that you get from staple?
I don't have it on hand. But I would say the likes of, say, some of the groceries, the supermarkets and all, they are a good contributor to the GTO rent. At the end of the day, if you look at the GTO rent as a percentage of our total revenue, it's in the -- I think Fung Leng mentioned earlier it was in the 4% to 5% kind of mark. So it's not going to move the needle in that sense.
Simon just to give you a bit of color. We've referenced our annual report about more than 96% of our leases contains the clauses on GTO and step-ups. So this particularly, we make the compensation of essential trades and discretionary trades within the GTO paying business itself. So you can kind of -- although each of the leases may pay different in absolute terms, different percentage of GTO, but roughly, it should correlate to about the same proportion, majority of it will be essential. That's what Pauline has mentioned.
GTO is about 5% of our...
Yes.
So it's just a small portion of it.
With that, I don't see any further queues or questions or nobody has raised hand. If there's no questions in the queue, we thank you very much for your presence today in our briefing. We hope -- wish you a pleasant day ahead, and thank you very much.
Yes. Thank you, everyone. Have a good day.
Thank you.