Frasers Centrepoint Trust
SGX:J69U
Earnings Call Analysis
Q4-2023 Analysis
Frasers Centrepoint Trust
The company has demonstrated a remarkable resilience in operations, with an occupancy rate soaring at 99.7%, signaling strong demand. Despite facing headwinds such as increased oil prices, interest rate uncertainties, inflation, and rising manpower costs, there are also tailwinds to consider. Singapore's growing population, nearing 6 million, and income growth thanks to the progressive wage model, are bright spots in the consumer landscape. These factors, combined with healthy consumer spending and government support packages, present a positive balance in the face of economic challenges.
Financially, the company has seen gross revenue growth due to higher occupancy and rental rates, as well as additional income from atrium usage and increased car park income. This was slightly offset by elevated property expenses arising from maintenance, utilities, and staff costs, although property tax rebates and lower marketing spend provided some relief. Notably, distributable income faced headwinds from higher financing costs attributable to acquisitions, resulting in a distribution per unit (DPU) for the second half year at SGD 0.0602. Furthermore, the net asset value (NAV) stood at SGD 2.32, with an adjusted NAV at SGD 2.26, reflecting a stable financial position.
The leadership team accentuated the well-diversified nature of the asset portfolio, which has been pivotal during volatile market conditions. Rental reversions have shown healthy growth, with a recent renewal or commitment to approximately 780,000 square feet of retail space, achieving a positive rental reversion at 4.7%. The portfolio’s robust occupancy cost sits at a sustainable 15.6%, believed to provide room for further rental growth.
Simultaneously, the company is cognizant of its environmental goals, remaining dedicated to the journey toward achieving net-zero carbon. In conjunction with sustainability initiatives, the team is also pursuing opportunities to enhance cost savings.
The company is optimistic about sustaining its positive performance trajectory, as stated by the executives during the call. They believe the current level of rental reversions and portfolio performance is maintainable in the long run. While there might be a slight dip in margins in the near future due to rising costs, the various initiatives and strategies in place are expected to counteract these effects and maintain the company’s profitability.
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Good morning. On behalf of the management team of Frasers Centrepoint management, welcome to FCT's Full Year Results Analyst Briefing.
The presentation deck that you see on the screen right now has been released on the SGX net as well as on our website this morning. So if you do not have a copy, please go to our website to download a copy. Today, we are pleased to have the management team here led by CEO, Richard Ng; CFO, Ms. Audrey Ming -- Audrey Tan; and Head of Asset and Investment Management, Pauline Lim; and myself, I am the Head of IR. So without further ado, let me pass this over to Richard to kick off the presentation. Thank you. Richard, please?
Yes. Thanks, Fung Leng. Very good morning to you, ladies and gentlemen. Thanks for joining us again today. First start, maybe let me quickly run through some of the key highlights. Again, I'm happy to share the fact that FCT has again delivered a pretty strong set of results, both financially as well as from our operating metrics. So very quickly just run through some quick numbers. Gross revenue up, 3.6%; NPI, 2.7%; and we are delivering a DPU for the full year at SGD 0.1215. We have done a lot this year. I'm going to share a little bit more about all the activities we have done, but all these actions, what has happened is that we were able to bring our aggregate leverage down from 39.3% to 36.1% upon completion of some of the divestments that we have done recently.
Average cost of borrowing stands at 3.8% and then the ICR and so on is stated there. And the other thing that we're happy to also inform all of you is that we have completed our refinancing for FY 2024. So for this entire FY, we don't have to be worried about refinancing.
Operating metrics, very strong performance. Committed occupancy remained very high at 99.7%. Committed reversion average to average, we are looking at 4.7%. That compares to FY '22 at 4.2%. Shopper traffic has gone up almost 25% year-on-year and tenant's sales continue to show very good healthy growth at 7.3% year-on-year. We have also achieved a pretty stable set of valuation numbers. And at the same time, as I mentioned just now, we talk a little bit about our strategy in terms of portfolio reconstitution.
AI work has started. It's on schedule at Tampines 1. And from the ESG side of things, we, again, happy to announce that we have achieved a 5-star rating for GRESB for the year 2023.
Fung Leng, next. I'm not going to go through all these details Audrey will take us through later on. But maybe we just stop at the DPU, okay. So if you look at from a DPU perspective, but this year, we are distributing SGD 0.1215, okay. Of course, if you compare to last year, we did SGD 0.12227. There's a drop of 0.6%. So I guess if you look at it from a different perspective, I mean, if you compare year-on-year, we are down 0.6%. But if you just take a step back and perhaps look at a little bit further prior to this, maybe if you look at pre-COVID in 2019, we actually delivered a DPU of SGD 0.1207. And at that point in time, the cost of debt, the average cost of debt at the end of the year was 2.6%. But today, our average cost of debt is at 3.8%.
What I'm saying is that despite a very challenging environment, a high interest rate environment, high inflation costs, we are still able to deliver a SGD 0.1215, which is about 0.6%, incidentally higher than 2019. So I guess it's about how you measure the performance. And I'd like to say that what we have been very focused on is to continue to do as well as we can in areas that we have control, right? And definitely, the sets of financial results as well as operating metrics, would show and demonstrate the fact that we have been doing very well in areas that we can control, right?
So from that perspective, I think in terms of both financially and operating metrics, we're happy to announce the set of results that we have delivered today.
Okay. This is where I wanted to also again, as a summary of what we have done this year, it started off with our acquisition of 25.5% in NEX at the start of February. That was also followed very closely with the completion of 10% additional stake in Waterway Point. We announced the commencement of AEI at Tampines 1 sometime also during the same period, the first -- end of second quarter. We divested Changi City Point, and that was announced quite recently as well as the divestment of Hektar REIT. So if you look at in totality for FY 2023, the accumulated amount that we have done in terms of both investment and divestment as well as AEI amounts to almost close to SGD 1.1 billion. I'm not very sure how many other REITs have done -- there's probably 1 or 2 would have done something quite close to this. But definitely in the current market condition, very choppy condition, very volatile, I believe we have demonstrated our ability to execute deals, both in terms of investment and also able to reconstitute our portfolio by improving the quality of our portfolio as a whole by divesting some of the assets that we felt not something that we want to hold for the long term.
Next slide, please. Okay. Then if you look at over the last 5, 6 years when we started FY 2018 until now, our AUM has grown by 2.3x, right? At that point it was, what, SGD 2.8 billion. And today, we have about SGD 6.5 billion. But if you look at the transaction value itself both investment and divestment as part of our reconstitution, the amount would go up probably by about more than SGD 5 billion. So we have done over SGD 5 billion worth of transaction in this period of time. And considering the fact that of which about 2 to 3 years was also down with pandemic, and of course, for FY '23 itself, it's all about interest rate and high inflationary market condition.
So that's just to look at the trajectory that we have done over this period of time. And this is also a result of where as mentioned just now, despite the fact that if you compare to 2019, our DPU actually grew, okay. And then -- and 1 of the result is because of our ability to buy well and also reconstitute our portfolio by switching up less performing assets with better performing assets.
This is also a very interesting slide to put us in perspective. Today, we are the largest owner operators of prime suburban malls in Singapore. If you look at out of the 10 prime suburban malls across Singapore, Jurong Point being the largest in the market. And if you go down that chart itself, Waterway Point being the 10th largest. Understand we actually have 4 in our portfolio. Again, that's a testament of the quality of assets that we have now in our portfolio as compared to 2018, right? It's a very different perspective, a very different set of portfolio or set of assets that we have in our portfolio. Of course, Northpoint City, you see here is a combination of ourselves and also the sponsor making up the total of 520,000 square feet. So we have a significant number of the key prime suburban malls in Singapore.
Okay. In terms of macro economy, I'm not going to touch a lot about this. We all know about the market condition in terms of GDP, but maybe a little bit more focused on retail sales as a whole. If you look at the RSV, retail sales value, that was produced by the SingStat, year-to-date from October to August for FY '23, it was an increase of about 5.7%. At FCT level, we actually managed to achieve a 7.3%, on track slightly, in fact, ahead of the overall general market perspective. So our tenants are actually performing better at our portfolio.
In terms of rentals, retail rentals, again, if you look at CBRE stats, you can see that for suburban prime rental retail rents, it's about 1% quarter-on-quarter and 3.1% year-on-year. For us, we achieved a 4.7% average to average for our full year this time around.
At the same time, you look at the supply that's coming on stream, again, it's pretty muted. We've been sharing this for quite a while now. What we decided to do is also provide a little bit more information as to where all this supply coming from. By and large, we see that most of the supply are actually very smallish retail offering that we are expecting. And the only significant one is probably in Pasir Ris, Pasir Ris Mall, that is due for completion sometime in 2024.
Other than that, as a whole, the new supply is looking at about 1.2 million through to 2025, which is actually a very small proportion of what we have today. So again, we are seeing very strong demand, our occupancy is 99.7%, and at the same time a pretty muted supply that is coming to the market.
So if you look at what's happening around us today, there's a lot of negative noises, geopolitical issues, and this is something that, like what I said, things that is not really our control. So you look at headwinds, there's uptick in oil prices because of all the wars that's happening around the world. Interest rate, the new term is higher for longer. Nobody really knows which direction it is going to; inflationary costs; higher manpower costs; higher water prices, et cetera, that we are expecting, right? So those are the negative headwinds that we are hearing today.
But at the same time, I think we must also not lose sight on some of the positive factors. For retail, it's very important in terms of some of the key steps that we are seeing today, right? There's a growth in population. Finally, we are reaching close to 6 million people. There's also income growth, right? While we talk about high manpower costs, but at the same time, what does that mean? It means that there's actually an income growth because of the progressive wage model, right? So overall, the income perspective for Singaporean is still pretty bright because there's this progressive wage model that will underpin the income prospect for the population at large.
Consumer spending remains healthy, especially for our price of wind malls because, again, coming back to the basic provision that we have is essential products, right? So this is, again, a very strong part of our -- the nature of our malls that we have in our portfolio. 1 percentage point GST increase in 2024. What we have seen last year is towards the end, somewhere in December, you see a little bit of a rush into buying some of the big ticket items. Probably, we may see this again coming through. That will again help to propel the sales for year-end -- for the calendar year-end of 2023.
At the same time, we are also aware that the government has various schemes and also various initiative packages or whatever you might like to call it in terms of helping Singaporeans to overcome the current high cost of living, and 1 of which is the assurance package. And if you recall, last year itself, we also have a similar package where the distribution of CDC vouchers is such that half of it is meant for spending at [indiscernible] shop houses, hawker centers, et cetera. But the other half, you could actually spend in supermarkets like NTUC and so on. And that is where, again, we are likely to be a key beneficiary as a result because those spending would then come back to our malls where we have supermarket operators at NTUC.
So by and large, what I'm saying is that while we have headwinds, we have some stresses, some challenges in the market. We are also seeing some positive factors offshoot that's coming our way. Okay. Maybe I'll hand over to Audrey to take us through the financial highlights, Audrey, please?
Thank you, Richard. Good morning, everyone. Let's get on to the financials. I have 6 points on these financials. The first 3 points, gross revenue is up year-on-year for the second half due to higher occupancy rates for the portfolio, also higher rental rates, aside from Tampines 1 which is undergoing asset enhancement work. We also seen higher atrium income with higher take-up rates by the tenants for the sales -- for the space, higher car park income as we revised the car park rates in last December. Secondly, our property expenses is up year-on-year with higher maintenance, utilities and also higher staff costs. However, this is offset by the property tax rebates that we have received and lower marketing spend. Plus this translates to higher NPI and with higher property expenses cushioned by the higher gross revenue.
For the next 3 points; first, distributions from associates and joint ventures is higher year-on-year with the acquisitions of the 25.5% stake in NEX and also the additional 10% stake in Waterway Point. So the lower distributions to unitholders is mainly due to the higher financing costs with a higher average cost of debt as compared to last year and also the higher loan that was drawn down to fund the acquisitions.
So DPU for the second half is at SGD 0.0602. The DPU is after the release of the SGD 3 million that we have retained in the first half. And we have also retained SGD 1.1 million, which relates to the tax-exempt income from Hektar that was only received in October. So we'll be releasing this in next financial year.
Next slide. So for the financial highlights for the year, personally, the portfolio has registered higher gross revenue with higher occupancy and demand underpinned by the recovery from the pandemic and higher rental reversions in step-up brands. Atrium also resumed on 29 of March last year. And as a result, this year, FY 2023, is registered a full year contribution with return and coupled with the higher pickups of the space. However, this was offset by the lower gross revenue from Tampines 1 with the asset enhancement work.
Secondly, the portfolio registered higher property expenses in maintenance, utilities and staff costs in view of the inflationary cost pressures, other cushions by the property tax refunds that we received. So overall, the portfolio registered a margin -- an NPI margin of close to 72%, which is comparable to last year.
Finally, distributable income is lower year-on-year due to the higher financing costs, DPU for the year is at SGD 0.1215. So based on yesterday's closing price, DPU is about 5.7%.
So let's move on to the next slide, the financial position. Firstly, the increase in net current assets and net current liabilities are mainly due to the acquisitions of NEX and also the additional stake in Waterway Point, and the loans that was drawn down to fund the acquisitions. Secondly, the announced divestments of Changi City Point and the investments in Hektar is currently regarded as asset held for sale. As such it has been reclassed to current assets.
In the case of Hektar, we have written down the value to SGD 0.89 per units for the 143 million units. And on October, we have also entered the SPA to divest the balance in Hektar. As such, we are looking forward to the divestment and is expected to be completed for the quarter ended December 2023 this year.
Finally, the NAV is at SGD 2.32 and also the adjusted NAV at SGD 2.26. if you look at it, the net assets actually increased year-on-year. However, because of the higher number of units, the adjusted NAV has come down slightly.
So let's look at the metrics. There are 6 points on these metrics. Aggregate leverage at 39.3%. After using the divestments, the proceeds from the announced divestment, pro forma gearing will be coming down to 36.1%. The ICR is healthy at 3.47x, slightly lower as compared to last quarter, mainly due to the higher interest expense. Average cost of debt is about 3.8%. 63% of our debt are hedged to fixed rate as of end September.
Our total undrawn facility is about SGD 488 million. And finally, the credit ratings by S&P and Moody's remain unchanged. We are investment grade and rated stable.
Next slide. So let's focus on the debt maturity profile on the right-hand part of the slide. We have refinanced the debt that is due in FY 2024 with a 5-year facility. As such, there is no refinancing risk for FY 2024. The debt maturity profile is well spread out with no concentration risk in any 1 year with less than 1/3 that is due for refinancing. So together, we have the bank facilities. It provides resilience to the portfolio.
So let's move on to the valuations. So I'd like to focus on the comparison of the appraised value and the capitalization rate. The appraised value is stable in Singapore with slight uplift in some of the valuations for our portfolio, driven by the stronger asset performance. For in the case of Tampines 1, the increase is in line with the asset enhancement work that were put in place. The capitalization rates remain unchanged as compared to last year. And valuation has also maintained the view that there is no expansion of discount rates.
Next. So importantly, the distribution to unitholders is at SGD 0.0602. The book closure date is on third of November and payment to unitholders is on 29th of November. So with this, I'm thanking you for your time, and I'll pass it on to Pauline.
Yes. Thank you, Audrey. Good morning, everyone. I'm very happy to share, I think -- what I think is a good set of report card ending the year FY '23. I'll talk about committed occupancy. For overall portfolio, our retail portfolio, we have ended the year with a committed occupancy of 99.7%, a very stellar performance. And it does demonstrate the portfolio actually improving in tandem with the market, and also driven by the various proactive management that has been undertaken by the team, right?
So one observation from the slide is that across the portfolio of retail assets, occupancy are all north of 99%, right? And it's our belief that the robust occupancy will actually underpin stronger asset performance and also drive the growth in the core revenue for our portfolio.
Next slide, please, Fung Leng. And with this, this slide shows the NPI performance of our assets. Some -- couple of observations. We do see revenue and NPI increasing year-on-year across all the assets. Again, that is supported by the strong asset performance and also the healthy retailer demand for quality spaces in well-managed retail properties. And despite the inflationary stresses that we are facing, which I think Richard spoke about earlier, our assets have generally managed to maintain very healthy margins on an individual as well as a portfolio basis.
Next slide, please, Fung Leng. Yes, I think we are all very well versed with this slide. In terms of the shopper traffic, that has improved, but it's still maintaining about 10% below pre-COVID level. But on a year-on-year basis, it has actually improved by 24.7%.
Now when we look at the picture on the sales side, we see a story of good growth, both on a year-on-year basis as well as compared to pre-COVID 2019. Our portfolio tenant sales have surpassed FY '19 by 17% and on a year-on-year basis by 7%. And this is reflective of our focus on driving footfall with the reopening to provide further impetus to sales growth that will provide then the headroom for further revenue strengthening.
Next slide, please. Right, look at the portfolio composition, I think point to highlight is that our focus has actually not shifted away from being essential. This positioning has underpinned our strong asset performance over the pandemic period and also over this current market volatilities that we are facing, right? If I may draw your attention to the chart on the left-hand side, what we see is that across our portfolio, there is no concentration risk in any single asset. And also the scale, the growth that we have actually achieved over the past few years, notwithstanding the market volatility, has actually accorded our portfolio with more resilience in terms of stability, right, and diversification of it.
Next slide, please. Let's speak about reversion. I think an observation is that our rental reversion has actually been improving over time compared to the first half of this year and over the past few years since FY '19. I think our portfolio rental reversion has actually remained generally healthy and mostly in the positive region. And we continue this trajectory, right? Just a few points to highlight in terms of the rental reversion performance for FY '23. So over the year, we have successfully renewed or committed about 780,000 square feet in our portfolio. This represents about 31% of the NLA and achieved at 4.7% average to average positive rental reversion for our retail assets.
Next slide, please, Fung Leng. All right. Occupancy cost has actually improved to a very sustainable level of 15.6%. So for a suburban retail portfolio and compared to, say, the pre-COVID levels or pre-COVID days, pre-FY '19, we're looking at a sustainable portfolio occupancy between -- of around 16% to 18%. So 15.6% is a very healthy level. And it's our belief that this actually accords further headroom or headroom for further rental growth, right?
With the reopening, our key focus is to bring the shoppers back in a bigger way to incentivize spending that will drive sales, ensure that our retailers trade even more sustainably, and basically, the landlord that would be able to partake in some of these upside in sales through better rents.
Next slide, please, Fung Leng. We wanted to make the point that notwithstanding some of the uncertainties in the market and so forth, the Singapore suburban retail market remains generally very vibrant. We do see retailers actually with intention to grow and expand across the different trade offering, not just F&B, but in the various other retail trade mix as well. So as you can see from this compilation or coalition of some of the new brands that we have actually brought to our malls, some of which are new to market and some of which are refreshed concepts by the retailers. So it's generally still a very vibrant retail scene in the suburban space.
Next slide, please. Just an example of some of the initiatives that our respective malls have undertaken to actually bring the footfall back to the malls. And in all these signature events, we are playing to our DNA as a [indiscernible] right? And we are seeking to entrench ourselves within the community that we serve and become the third place to the various communities. Next slide, please. Yes. So I won't go into this. This was a sample of what we have done. Next slide. All right. Talking about the Tampines 1 AEI. The AEI commenced sometime in the late second quarter of this financial year. I'm happy to share that it is progressing well in terms of the progress, the timeliness. We have also managed to secure or rather achieve some increase in the overall NLA. And if you recall the indication when we announced the commencement of the AEI was we were targeting an ROI of sub-8%. I think based on the leasing progress to date, we are cautiously optimistic that we will outperform this ROI target, right? And the first phase under this AEI will actually be unveiled at the end of this calendar year, sometime in November, December before the start of the festive period.
Next slide, please. All right. Thank you. So with this, I end my segment of the presentation. I'll hand over to Fung Leng for the next segment. Thank you very much.
Right. Thank you, Pauline. I'll cover very quickly the sustainability highlights of FCT's initiative during FY 2023. This is a summary of some of the operating initiatives that we are leveraging our innovation and technology to help to do -- to introduce some of the new ways of doing things in order to improve our operating efficiency, as well as to achieve cost reduction and the journey towards our ESG. So some of this you have already been -- we have already mentioned before, the DDC. The others are like food waste valorisation, the SMART lifts and water valve. So all these initiatives, excluding the DDC, is expected to get us an annual savings of about SGD 1 million in operating expense when it's fully implemented. Moving on to some of the initiatives towards green goals. You can see there are various ways that we are doing, some of which you are already familiar with, the Green Mark certifications, green financing, which is expected to grow above 50% has already gone beyond 50%, at 55.6% at the end of the September this year. And Richard has also mentioned that we have continued to achieve the 5-star rating, the highest rating in the GRESB assessment for the third consecutive years and the green mobility as well as the green energy.
And on the ESG front, you can see we have multiple programs at our -- held at our malls. And this is ready to build interactions, inclusiveness with our communities in line with our ESG goals of the Frasers Property Group and FCT. So with this, I'll hand over to Richard to close up the presentation before we move to the Q&A session. Richard, please?
Yes. Thanks, Fung Leng. Just to close up, a quick summary. Cause in terms of what we have done this year as indicated, as shown, this is not as -- very strong results for 2023, both financially and also in terms of operating metrics. Financial position, capital management wise, if you look at post completion of those divestments that we have announced, we will be able to bring our leverage level back down to 36.1%, putting us in a very strong position. As part of doing all this, we are also able to then continue to improve the quality of our portfolio by reconstituting what we already have. And also as a testament to the strong demand, we were able to again bring in about 72 new-to-FCT brands for the full year FY 2023. So going forward, where we are looking at right now is we remain positive on outlook for Singapore suburban prime retail sector. This is where we have been able to strengthen our portfolio. We have been able to also strengthen the trade mix as Pauline has gone through, right? And again, if you look at both in terms of demand continuing to remain very robust, very strong, more than 99%. And that is also on the back of a pretty muted supply that's coming on stream to the market. I've also shared some of the factors that we feel that we must not forget going forward because despite all the headwinds, we are also seeing some positive factors that will help us mitigate some of this. At the same time, again, the very strong focus that we're going to place on to -- in terms of asset management, property management, as I mentioned and I reiterate the fact that we want to focus on what we can control, and we're going to do well in areas that we have been doing very well and continue to do well, right? So the team on the ground are working very hard to make sure that we are achieving the numbers that we are able to share with you today.
In addition, of course, we are not losing site in terms of our journey towards achieving net-zero carbon. That is where we -- as Fung Leng has shared, besides the initiatives that we are putting in place, we are also looking at opportunity for us to continue with our cost savings efficiency initiatives as well. With that, I'll end our presentation and happy to take questions from the floor. Thank you. Back to you, Fung Leng.
Great. Thank you, Richard. So we're going to the Q&A session. We see the queue. So Terence, as usual, you are the first in the line. Please go ahead with the question.
Just a couple of questions from me. I think firstly, on financing costs. Given that you have hit 3.8% financing cost for this year. And I understand that there's still some debt repayment coming up for next year following the proceeds from some of these divestments coming in, what's our expectation of financing cost for next year? Maybe I'll ask one by one.
Audrey, do you want to take that?
Yes, okay. So Terence, for the financing cost for the new year, we're expecting it to be higher than 4%. We're looking at low 4%. And as we refinance the debt that is due in FY 2024, the current borrowings, the previous cost of debt was about 3.6%. And currently, the refinance amount is still currently kept at float. So the cost of debt based on today's [indiscernible] or is about 4.9%. But all-in cost of debt, we still reckon that you will be below -- at the low 4%. Have I answered your question, Terence?
Yes, that's very helpful, Audrey. I wanted to ask also on electricity costs. I understand that we had some of the electricity contracts rolling into the new contracts for the second half of this year. I wanted to check if we should expect electricity costs to have peaked out? Or are we still expecting higher electricity costs going forward?
Yes. Thanks, Terence. I guess this is something that, again, the market is very volatile. It moves up to is to very close back to SGD 100, then it came back down to SGD 80. So it's still very volatile. But what I can share is, as of now, on the average, our cost is about SGD 0.20, right? I think that compares to some of our peers. It's a pretty good way that we have managed to secure. And going forward, okay. And this SGD 0.20 itself actually accounts for -- if you look at the percentage of utilities as an overall percentage of our OpEx, it's about 10% today. Going forward, we saw the renewals or the expiry of hedging coming forward. We're looking at potentially about under 1% or under 1 percentage point increase from the 10% that we are seeing today. So not a significant increase going forward.
That's very helpful. And I guess on the final question, I want to ask like with occupancy costs so low, and I think Pauline had alluded to it, how much harder can we push rents going forward? And Yes. Just let me get a sense.
Yes, I will just share with you my view and then perhaps Pauline can also jump in. I guess there's always this balance that we want to achieve, and we shared this before. While we look at occupancy costs as one where it gives us opportunity, at least when we negotiate with our retailers or tenants, we are able to prove that what we have done for the malls, the various activities that we have done, we are able to increase footfall, increase spending at the mall. And that also accounts for the fact that the overall sales have increased very strongly, 17% compared to pre-COVID. So that is a testament of the ability of our portfolio to generate account sales.
So if you ask me, it's a progressive step. We have achieved this year, 4.7% average to average. Is that really a fantastic figure? I would say not exactly, but is that a bad number? I would also say it's not. So we are approaching it on a balanced basis. Where we see opportunity, we will try to also change out retailers, remix the trade mix. Again, I think it's both the effect that we are trying to achieve is increase in our rental reversion or increase in our overall rental that we can achieve, but at the same time also improving the quality of the tenants that we have at our malls. But what definitely is for sure is having that level of occupancy costs put us in a good position to achieve this both as a balancing act going forward.
Okay, Richard, if I may add on. So Terence, you see Richard drives us very hard, not just rent but all aspects of revenue. But I think jokes aside, with some of these inflationary pressures that we are facing, it's very important that we drive the revenue harder. But we haven't lost sight of the sustainability, right, which is why in some of the slides that I shared, we are looking at driving the footfall back. And it's not just about footfall, it's actually converting to sales, right? Because when tenants do better, the landlord does better as well. It's a very symbiotic relationship for retail. We have also watched the -- actually, the sales of the various tenants very, very closely. This is a key area of focus for us. And it's not just by the individual tenancies, it's also by trades and overall and so forth. We've taken a look at some of the leases that have been renewed or committed over the past year or so. And based on the stats -- and it differs from trade to trade. Our belief is that the current EOC, there's still a catch-up because actually sales have moved forward compared to some of the lease renewals because we have a 3 years average lease tenor.
So it would take a bit of time for some of the reversions to flow through and bring the EOC to a higher level. That is my own adjustment, right, based on some of the renewals and the new commitments, yes? So I hope I have answered your question, Terence.
Thank you. Moving on to the next question from Geraldine, DBS.
Congrats on the very positive set of results, yes. I have 2 questions. So the first question, post the repayment of debt from divestment proceeds. So where do you see the ICR ratio improving to?
Okay. So what happened is that we are using the proceeds from the divestment to pay off the higher interest rate debts that's currently floating. So that is about 5.1%. It really depends on how the market actually moves. So generally, we think that ICR should be around 3x for the new year.
Okay. And this takes into account the higher average cost of debt that you should expect, above 4%?
Yes. So it really depends on how the markets move. As we know in today's market is very volatile and there's really uncertainty. So very [indiscernible] circumstances. That's why our [indiscernible].
Okay. Thanks, Audrey. If I can just ask another question. On the divestment really top to [indiscernible] capital, but is there still any reason to look at EFR? And if so, are the thresholds that you would like to pass before you consider raising?
Yes, Geraldine. So I guess, as indicated in my presentation just now, we have done a lot this year over SGD 1.1 billion worth of transactions, both investment and divestment to bring us a couple of objectives, right, to achieve a couple of objectives. One is to buy a very strong asset in NEX, to accumulate our ownership in Waterway Point, which is also an excellent asset. And at the same time by reconstituting our portfolio, it put us in a position whereby we continue to look at improving the quality of what we have.
As mentioned, we have 4 out of 10 prime suburban malls in Singapore, the top 10 prime suburban mall in Singapore. So we are at this level, 36.1% gearing level post completion of the divestment. If you ask me whether we will raise EFR, I guess it's a question of what do we do with the fund. If we have opportunity, then we have to view the opportunity, assess the opportunity at that point in time to see what makes sense, right? I mean, definitely, we are not going to go out and just raise funds for no reason because we are now at a pretty comfortable gearing level.
Thank you. Moving on quickly to Joel next in the queue. Joel, please go ahead.
And congrats on the positive set of results. I just have 2 questions. The first is regarding your composition of borrowings. I understand that your MTM bonds have declined to a low 3.2%. So I was wondering what are your current thoughts on, say, tapping the bond market.
And my second question is regarding the -- I think there was a new law passed in parliament regarding the lease agreement for retail premises bill, and this will be effective in February 2024. I understand you guys adopted some of these guidelines already. So wondering -- I understand some will also become mandatory going forward. So wondering what are your thoughts on this?
Joel, if I may, I'll take the second question first, and then Audrey perhaps could chip in on the first. In terms of the changes to the lease agreement or what we call a code of conduct structure or framework. This is something that Frasers as a whole, has already adopted since it was first noted. I remember probably back in 2021, if I'm not mistaken. So we have already adopted, implemented. It's a question of progressively as and when the leases expire, then they will then be switched to the new template or the new framework, right? So today, if you ask me, we probably have about -- almost about 60% of our leases already on the COC framework, right? So we adopt it 100%.
So as far as we are concerned, there is no changes for us. It's something that we have already incorporated. So the second question, yes, Audrey?
Yes. So Joel, on your questions of the bonds market. I think it's always the intention from our side to tap all different sources of funding, including MTNs, bonds, the likes of bank loans, facilities. But in today's market, the MTN is actually more expensive than bank loans. So as such, it makes sense for us to tap bank loans. But however, when the market reopens and the rates become more palatable, it's something that definitely were evaluated and we tap -- bonds always talk about longer tenure. So that will also stretch our debt maturity profile.
Thank you, Joel. Moving on to Tan Xuan.
My first question is on 2024. If you look at 2024, we should expect to see organic growth pushing through. But on the flip side, there's a sort of higher financing cost and also loss of income post divestments, right? So just on the -- hear your thoughts on where do you see the offsetting factors on higher cost?
Second question is on acquisitions. What are your current thoughts there?
I think the first bit about going into 2024. I think if you look at how our results have come out, multiple. One is in terms of organic perspective, we continue to drive and work very hard on the ground, both from the asset management team as well as a property management team. We continue to look at the various metrics, continue drive sales, and that helps us with rental reversion.
So organic growth is continuing to be a key element. As we reach towards the end of 2024, progressively, some of the AEI space at Tampines 1 will then come back and will be leased out and start operating. So those will be, again, another flow of revenue coming back.
From CCP divestment perspective, we shared before, the amount of proceeds that we are taking back would give us probably about close to SGD 16 million savings versus the SGD 13 million, SGD 14 million debt cost that's embedded -- that we are able to refi. So again, there is actually a positive gain for us as part of the portfolio constitution.
So the other element we spoke about also looking at the cost management perspective, some of the initiatives that we are rolling out, as Fung Leng mentioned, that will continue to help us to, again, be more efficient, continuing to drive savings. We are looking at the energy side of things that where the team will continue to also push down, right? So all those are things that's going to continue, initiatives and so on, that's going to continue to help us mitigate. And also at the same time, we spoke about some of the potential factors, the positive factors that may help us. Again, as our sales increase, our GTO also increase. there's another element from the top line.
Beyond all the organic growth, you also spoke about potentially, of course, in terms of the higher cost of debt that could actually affect our bottom line as part of our distribution. So we, again, will look at where we are at the end of the year. If really there is a need, we mentioned before, as part of our divestment, we actually has accumulated a capital gain from CCP of about SGD 20 million. So the question is, will we tap on to that? And if you look at the market condition and if there is a certain requirement or there's a need for us to tap into that, we have the ability and funds or rather source available for us to tap into the capital gains that we have achieved as part of the divestment.
So that is the first part of the question, Tan Xuan. So the second question is in terms of acquisition. Again, acquisition, it's opportunistic. We have put ourselves in a good position at this current gearing level. If you look at our headroom, we have about close to probably SGD 416 million, thereabout of headroom from here to 40%. But again, acquisition, it depends on whether there is opportunity for us, whether be it the sponsor or the market, whether there are good opportunity for us to add into our portfolio. So something that we will evaluate when that options become available to us.
So as far as is concerned, we will continue to look out for opportunities that makes sense for the portfolio. I hope I answered your questions.
Thank you. Sorry, I missed Michael just now. So I'll come back to Michael. Michael, apologies.
No problem. I've got 2 questions. So the first 1 is just on this FCT Sigma Holdings, there was a dividend of SGD 4 million from that entity. Can you just give us some color on that?
Audrey?
Okay. So Sigma was actually set up in 2019 to acquire the stake in the ARF portfolio. So during the period before the conversions of the ARF and extracting the assets out into FCT, there was a special dividend that was actually distributed for the First revenue. So progressively, we have distributed the dividend and with the finalization of the capital gains tax in Malaysia. So we're making up the final dividend relates to this First revenue.
Is there any other capital amount in First Sigma that you can distribute in '24?
No. So this is the final amount in relation to the special dividend that we have received in relation to the sale of First revenue.
Okay. Great. And just the other question would be the fees taken in units. So Richard, how high can you guys take this to in terms of managing your distributions?
Okay. What we have done so far, Michael, is we will tap on to the AMC or we'll increase the AMC when we do in AEI. In this instance, the increase is really to plug the gap because Tampines 1 is undergoing AEI and there's a disruption to the income. So that's why you see for this particular quarter, the AMC went up to about 55% or on the average, about 32-plus percent. So this is what we have been using. Of course, we can also use this to tap on to the AMC to be increased to a level whereby we can also plug the gap that is caused by interest rate. But there's a consideration that we can also look at potentially.
Okay. And just a clarification. On your rent reversions, did you say that it can be maintained? Or is next year likely to see a more normalized pace?
I think at this rate, we are pretty -- we remain quite positive in terms of the performance of the portfolio that we have. So we believe that this is a level that is sustainable.
All right. Thank you. Moving on to David. Sorry to keep you waiting.
Yes. Do you have an in-house view on what is the long-term normalized average funding cost you would expect? Is it around like low 4s? Or do you think it should be lower?
Okay. Again, this is crystal balling, but if you look at our own view at this point in time, we are probably looking at about the 3-ish percent over the longer period of time. But again, it's anybody's guess.
Okay. And my follow-up is just a short one. With the shares trading below your NAV, I mean how do you view like raising equity? Are you going to be a lot more cautious even if it's an attractive acquisition, if it's NAV dilutive, would you still consider it?
Okay. David, I think this question will also depend very much on the opportunity that we have, right? For a start, we have built up some headroom from our gearing level. That is something we can tap on to. Meaning that -- even if we -- let's say, there's a good opportunity, we need to go to the market. We are looking at probably a much smaller size, if there's a need for that or we could fully utilize our headroom to fund the acquisition.
But bottom line is it's very much depending on what is the opportunity, right? Do we see that opportunity is something that is going to be the critical part of our portfolio? Is the investment that's going to give us a long-term positive impact? We're going to be able to derive more benefit as a result of this acquisition, how will it look like in terms of our overall perspective. So again, as your first question alluded about going forward, where do we see the interest rate. Of course, at the moment, it's anybody's guess where it's going to land and when is it going to start turning. But I would probably agree that with most of people that we spoke to is very much the fact that at some point in time, I think there should be some stabilization and normalization, right, whether the question is, would it go back to before, probably not to that level. But again, it's definitely not going to be staying at the elevated level for at this point in time.
So what makes sense then is to look at investment that is for the long-term, sustainability of the REIT and for the benefit of the shareholders. So we will look at it at that point in time, what is the investment like, how will it fit in, whether there's any growth potential and where we see going forward? And how do we fund it? It could be a combination, it could be debt plan, it could be EFR if the market is suitable at that point in time.
Thank you. Moving on to the last question in the queue, Vijay from RHB.
A couple of questions from me. My first question is in terms of property tax rebates. Can you give us the quantum? And is this a one-off property tax rebate? And also considering that the increased utility expenses which you're going to face in FY '24, what kind of margins can we expect for '24? Would it be in the low 70 percentage levels?
Okay. Vijay, maybe I'll take the second question, in terms of margin. So you're right. We are seeing increase in cost pressure to increasing costs that puts pressure on our margin. But at the same time, we are also improving the top line, as we spoke about from the various perspectives from increase in our rental reversion in terms of getting more sales done to increase our GTO, increase our atrium revenue, other income and so on.
So at the moment, I think we are probably about -- on the average, 74% thereabout of our margin we may experience a little bit drop in the margin. But I think over time, some of this -- when some of these initiatives kicked in, we hope to then again bring back the margin to a level to where it is today. So there could be a slight dip in the margin going forward.
Vijay, can I just clarify your questions? Is it relating to the public tax refund that we have received?
Yes. What is the sum and is that a one-off?
Yes, this is a one-off, and it's about SGD 4 million.
Okay. Can I just clarify where does these rebates come from? What is the reason for these rebates?
So this is rebates relating to the annual value that was previously assessed and then there was a downward revisions and such, we have received the rental refunds -- property tax refunds.
Got it. Got it.
Sorry, Audrey, maybe I add on. So Vijay, this review of the property tax, right, it's actually an ongoing process, right? So every year when we submit the prop tax and so forth, there will be a process whereby we review the rates, the AV. And if the AV is deemed not to be at market, that's something that we will engage IRS on. So whilst it's one-off, it's a process that's ongoing every year for our prop tax bill.
Understood. Understood. Yes. Understood. My second question is in terms of borrowings. I think you have shifted the FY '24 borrowings to FY '29. I noticed that this loan is secured. Was this also secured before? And is there a change in cost between a secured and unsecured at this point of time? Yes, yes, yes. Maybe I'll follow up next.
Okay, Vijay. The secured borrowings at T1, which is due in FY 2024 is refinanced with unsecured loan borrowings. In terms of the margin wise, what we have done successfully is to negotiate, so a very, very low margin and which is very comparable to a secured loan margin. So with this same margin level, we are still able to unencumber the assets. And we'll be about 80% of the IPs will be unencumbered after holding the T1 refinancing.
Okay. Okay. So this is being replaced by unsecured borrowing.
That's right.
And just to check, the 63% fixed, does that include this refinancing? Or would the refinancing -- the float -- percentage of fixed would drop below 63 percentage when this refinancing is completed?
So the 63% is as at curtail September. So currently, the T1 refinancing is currently on floating. We are looking for opportunities to hedge the floating progressively to increase our hedge percentage. So we look for opportunity moments to enter into a hedge.
Okay. So until then, this percentage would drop, the percentage of fixed position would drop, correct? .
That's right. Until we refinance and further hedge the positions.
Understood, understood. My last question is I just want to clarify if I heard it right, would you be using some of the divestment gains to top up or offset the DPU from -- is that what you mentioned, Richard?
Vijay, what I've shared is probably is more of an angle that we have an option. We have it available to us if the need -- or if it's necessary for us to look at using part of the capital gains as the distribution for going forward right?
Okay. But at this point of time, you are not planning to top up Changi City Point's income loss?
The income loss, I don't see it is something that we need to do today because as I mentioned, it's actually net positive because when we use it to pay off debt is actually a positive. We actually make about SGD 2 million or SGD 3 million more than the contribution we had from the asset.
Yes. So Fung Leng, I just wanted to have a clarifications for Geraldine. Geraldine, earlier only ask about the forward ICR. We reckon that it may come down below 3x. But it really depends on how the mall outperforms and how interest rates will run, yes. I just want to clarify on this note.
Thank you, Audrey. We have one last question inserter for Terrence. Terrence, please keep it short.
Just wanted to ask on NEX. Thank you so much for sharing some of the financial data. I'm just doing some kind of calculation. It seems the NPI margins are close to 80%. And if we sort of annualize the NPI contribution, it's about 4.9% yield on current valuation. Could you share as to whether these numbers are sustainable? What's the outlook on NEX going forward from here?
Yes, okay. I think for a start, that's the reason why we have always said that NEX is an excellent opportunity that we managed to secure, right? Because strong yield, strong performance, very high margin. And that is also on the back of the fact that it's one of the largest mall in Singapore at 630,000 square feet.
So your efficiency tends to go up the larger the mall is. It's just like if you look at Causeway Point and so on, it's also one of the highest margin. So this is where they have done very well. But going forward, like all the other assets that we have, the cost pressure is also going to be there. So we would expect maybe potentially the margin may come down a little bit from where we are today. But at the same time, on the same token, like what we are doing, the team will continue to drive revenue. So we are hoping that some of this will mitigate the increase in cost.
And you're right. I mean, if you look at on a backward basis, that will give you a perspective of the yield that we are getting from such an excellent asset.
All right. Thank you, everyone. We have come to the end of this analyst briefing, and thank you for your presence. You may log off now, and we'll see you in the next analyst briefing.
Thank you.
Thank you.