Frasers Centrepoint Trust

SGX:J69U

Q3-2025 Earnings Call

[Operator]

Good morning, everyone. I hope everyone is well today. Thank you for attending FCTs third quarter FY 2025 business update. We have the full team here with us today, Mr. Richard Ng, Chief Executive Officer; Ms. Annie Khung, Chief Financial Officer; Ms. Pauline Lim, Head of Investment and Asset Management.

Without further ado, I will now hand over the session to Richard to kick off today's briefing. Richard, please.

[Richard Ng, executive]

Thanks, Judy. Good morning, everybody. I understand that you guys are having a very busy day today, right? Hopefully, you had some time to go through our deck. But anyway, we're going to run through quickly, and we'll move on to Q&A after that.

Okay. Judy, let's move on to the first slide, please. Thanks. Yes, just a very quick summary of what has happened during the third quarter. A lot of has happened actually. If you look at the third quarter, a very busy quarter for FCT. Of course, on the organic front, the team continue to work very hard to ensure that the malls are trading well. We'll share a little bit afterwards in terms of the traffic flow, the sales performance and so on.

But the key highlight of this quarter, of course, is the acquisition of Northpoint City South Wing, which has been successfully completed. And as part of this transaction, we also raised -- did an equity fundraising of about $421 million and issued a perpetual securities amounting to about $200 million at a competitive pricing of 3.98%.

So we are very happy with what has happened. And as we go through the deck, you'll see that with this acquisition, you start to see the flow of income from South Wing coming into the portfolio as well. And the other point that I wanted to highlight is also as expected from the market that the cost of debt continues to come down and it has reduced to 3.7% in the third quarter of 2025.

Next slide, please. Okay. This is about Northpoint City South Wing. I'm not going to go into detail. I'm sure all of you are very familiar. Of course, it helps to consolidate our position as the leading prime suburban retail space owner. And we are very happy that now we fully own both the North Wing as well as South Wing, and we have shared it as part of the acquisition there are various opportunities for us to unlock value, and we will start to do some of this work and progressively, some of the lower-hanging fruits can be -- will be producing its result along the next couple of quarters.

Okay. So these are just a very high-level focus on the KPIs or the key metrics that we have achieved for this quarter. Occupancy is at 99.9%. I think it moves between 99.5%, 99.7%, 99.9%. Sometimes it's a function of the void period and so on. So it's frictional vacancy really because the mall is running almost 100% and some of them are actually at 100% as we speak, right?

So again, a very high committed occupancy rate, a testament to the portfolio that we have, a testament to the strong demand we continue to see from the retail market, especially for prime suburban malls. The shopper numbers came in about 2.1% increase, while we did see some softening in the month of June, et cetera, as a result of the school holidays. But overall, the quarter, again, was a positive quarter for us. Sales came in at 4.4%, a number that we think it's very strong given the headwinds and given some of the headline numbers coming from the overall retail sector as a whole for Singapore.

Aggregate leverage, you see 2 numbers there. As at 30th of June, our leverage number was about 42.8%, but that's because our per securities financing or the completion and the money came in only after the 30th of June. So if you take that into consideration, our gearing is now at 40.4%. I mentioned about cost of debt for this quarter has come down to -- trend down to 3.7%. Again, that will be very helpful for our bottom line as well.

And another further update for Hougang Mall. We shared this earlier on, but this is, again, as part of our continuous update, very happy to see that over 74% of the AEI spaces has already been pre-committed, right before the completion of works.

Next slide. A bit on the big picture, the market, GDP grew by 4.3% year-on-year in second quarter 2025. Of course, I am aware that overall, in terms of the estimate, it has come down to between 0% to 2%, but we still see very strong growth for the quarter. And for the first half itself, the average was 4.2%. So unless something really, really significant happened in the second half or the next 5 months, I think we still probably -- will probably at least achieve the higher end of the 0% to 2%, if not more.

But what's also interesting to see is that inflation numbers continue to ease down to 0.8%. And that's also something that we watch out for because that affects our retailers. It also affects our consumer sentiments.

Retail sales index, and this is a number that I was referring to. Of course, we are just showing here for the month of May on the broader sales index-wise, it actually was a flat figure. And then for F&B sales for May and also it's a 1.4% year-on-year increase.

If you look at our sales number, right, it came in about 6.2% just for the month of May. And for F&B sales, it came in about 5.6% year-on-year. Rental continued its positive trajectory. If you look at the prime suburban prime retail rents, it's kind of gone up to about 1.7% year-on-year and a slight increase of 0.5% quarter-on-quarter.

So again, all this points to the fact that the prime suburban retail malls continue to be very resilient, continue to be on a positive trajectory.

And partly, as we speak, and this is something that we have shared before as well, one of the main contributor is strong demand. But at the same time, there continues to be very limited stock that comes to the market. So this is an updated numbers that we just recently gotten from CBRE that shows all the way to 2028.

So from now to 2028, you're looking at in total, right, prime and suburban and downtown core and also rest of Central area, et cetera. It amounts to about 1 million square feet for the entire period, and this is barely 2% increase from existing total stock. But if you look at just suburban itself, it's about [ 340 plus ] thousand square feet. And these are spread out across various malls. Some of them, it's actually very smallish scale, 40,000, 56,000, nothing significant or sizable is coming on stream for the next 3 years or so.

Okay. This is when you put together the story where you see limited supply, strong demand, and that is the end result of seeing actually a positive trajectory in terms of the rental for the sector itself. The red line denotes the rental for prime suburban mall. It's on a positive trajectory. I shared about the supply and of course, in terms of demand on the occupancy rate, the suburban for the industry-wide is coming in about 95.6%, but that is the total right across Singapore. But if you look at FCT's portfolio alone, we registered 99.9%.

Next slide. Yes, I'm going to move on to the financial highlights. I'm just going to hand over to Annie to share some details with you. Over to you, Annie.

[Shyang Lee Khung, executive]

Thank you, Richard. Good morning, everyone. I will take you through the financial metrics for this quarter. We continue to deliver a healthy financial position for this quarter with the improved average cost of debt.

As mentioned by Richard earlier, gearing has increased to 42.8% as at 30th of June versus 38.6%. This is mainly because of the acquisition of Northpoint City South Wing. If we take into account the repayment of borrowings, which happened where the proceeds came in just after our quarter, the gearing is about 40.4%. Cost of debt on a 9-month basis is 3.8%. On a quarter basis, it is 3.7%, about 10 bps lower than the previous quarter.

Average debt to maturity has also lengthened to 3.38 years as a result of the new facility that was taken for the acquisition of Northpoint City South Wing as well as the loan from the newly acquired subsidiary, North Gem Trust, which matures in FY 2029. 76.2% of our debt has been hedged to fixed rate, and our total undrawn facilities is at $780 million. Credit rating remained unchanged at Baa2.

Next slide, please. Okay. Total borrowings stood at $2.8 billion, of which $58.2 billion is unsecured, $39.1 billion is secured with the remaining balance in MTN. The increase in secured borrowings was from the newly acquired loan from Northpoint City South Wing. Approximately $459 million of our debt is maturing in FY 2026 and our refinancing discussion with the banks have commenced.

The higher debt maturity that you can see in FY 2029 is attributable to the loan that was consolidated following the acquisition of Northpoint City South Wing.

Yes. I will now hand over to Pauline, who will go through the portfolio highlights.

[Pauline Lim, executive]

Thank you, Annie. Good morning, everyone. I'm very delighted to provide some details on the good -- on the very good set of results that Richard touched on briefly earlier, right? So for this slide, you see that our portfolio is almost at full occupancy. In fact, that's the case for several of our malls across the 10 retail assets that we own. This is actually, I would say, a reflection of the fact that we have a very good quality portfolio that is well located, that is trading very well and also highly sought after by the retailers.

Next slide, please, Judy. Okay. In terms of the fundamentals of retail performance, when we look at shopper traffic, we look at tenant sales, you will see that over the third quarter of this financial year, the strong performance has actually maintained. And also with the May numbers in terms of sales, it has actually been improving, right?

The other point to note is that in terms of the FCT performance, and if we were to compare it to the general Singapore suburban or Singapore retail performance, it does tell a story of outperformance based on the kind of year-on-year improvements in the sales that we have achieved. And this can be attributed to various factors. I think Richard touched on some of the strong macro factors, the government support, right, to defray the higher cost of living.

And I would say also most importantly, to the proactive strategies that we have actually undertaken to drive the growth beyond just organic growth, right? So we recently completed -- or rather we completed the asset enhancement of Tampines 1 last year. And admittedly, this has helped to continue to drive the strong performance of our portfolio.

We continue our strategy of value enhancement with the announcement of the Hougang AEI at the start of this financial year. So this is very much part of our focus to continue to sustain the strong performance going forward.

Next slide, please. Government support for Singaporeans expenditure on essentials. I think everyone is generally very excited and delighted with the various support that the government has dispensed over the course of this year. I think the policies are largely targeted to ensure that the cost of living of the average Singaporean is at a sustainable level. And admittedly, this has also helped us -- helped our portfolio in terms of a good performance because of our offering and our positioning, which is very much targeted towards the convenience and also the nondiscretionary spending of Singaporeans.

And it's also heartening to note that the retailers are also self-help, right? So like, for example, supermarkets, aside from the reliance on the CDC, the various supermarket operators have actually also spec some of the incentives and all that. So all that builds into the overall ecosystem for retail sales.

Next slide, please. Yes. So I spoke about the Hougang Mall AEI. So this is one aspect of our focus on sustainable performance within organic tickers, right? So for the Hougang Mall AEI, I'm very happy to also share that in terms of the various targets that we are looking at in terms of the construction progress, in terms of the leasing results, and also the cost of the CapEx is all generally tracking to target. And we are on track to deliver on the 7% ROI that we have promised the investors when we announced the start of this AEI.

On the software aspect or on the software side, there's a lot of focus on ensuring that we continue to offer a good mix and a refreshed mix to our shoppers with living within the Hougang Precinct. So you see that on this slide, we have actually showcased some of the brands and the concepts that we will be bringing to Hougang post AEI. Some of these are actually returning concepts, which have actually shown to be very popular and in high demand by the Hougang population. Others are popular and trending concepts to infuse that freshness and that variety into Hougang Mall post AEI. And that will help to us [indiscernible] the performance.

Okay. Next slide. So this focus on ensuring the sustainability of the performance extends beyond just the asset enhancement asset, right? So one of the key focus would be also bring new concepts, popular concepts, trending concepts to all our malls on an ongoing basis. And you see on this slide that we have showcased some of the new concepts that we have been -- we have brought to our malls across the portfolio.

On a year-to-date basis, we have 59 new to portfolio tenancies, meaning tenancies which are first time to our portfolio of malls, right? And this is a very interesting varied mix of both F&B as well as non-F&B retail offering, right? And you see on the right-hand side, these are the [ Akandatam, ] right, the upcoming new to portfolio brands that have already been committed, but which have not commenced yet at our portfolio -- within our portfolio.

Next slide, please. Another key aspect of our strategy in order to sustain the strong performance is actually to weave our malls into the social fabric of the various communities that they serve. So there's a lot of focus on engaging enriching, exciting the community. And this is done across our malls. There are signature events.

There are also events that actually play to the heart of the community that has a more kind of like local flavor for the particular catchment, right? So what you see here would be this character fun walk that we've held at Waterway Point on the left-hand side. There's also emphasis on art creativity, family bonding as seen in these colors on shorts at Waterway Point.

So this is a very engaging program or event that we brought to Waterway Point in collaboration with an external partner. And that helps to live the lifestyle within the suburban state, right?

Next slide, please, Judy, right? So more examples, the beach party focused on ESR as well. So we've got this LINE Friends, whereby we've also embedded some CSR initiatives in the programming as well.

Next slide, Judy. Okay. So with this, I will hand over to Richard to take us through the final wrap-up of today's presentation. Thank you.

[Richard Ng, executive]

Yes. Thanks, Pauline. Just a very quick roundup of what we have shared today. Again, just wanted to emphasize the fact that the demand for prime suburban retail space is still strong amid tight supply, reopening of more outlets from some of the retailers, bringing in new brands, et cetera. So we continue to see robust operating performance from our end. Northpoint City South Wing, again, is going to start contributing towards our bottom line, and we are seeing the positive results coming through that. Proactive capital management is something that is ongoing.

It's something that we continue to watch this space. And as what Annie has shared just now, we have got some refinancing coming up for our FY 2026. Again, we will try to optimize that as well. Drive enhancement growth, something that we always look at and this is something, again, a very critical part of our business besides organic growth, besides acquisition. I think AEI is another area that we put a lot of emphasis and focus on because this actually helps to create additional value, additional income that we can add to our bottom line, right? So for example, we achieved 8% for our Tampines 1 AEI. And as Pauline shared, we are on target, on track to achieve about 7% for ongoing AEI.

So if you look at the contribution from all this AEI itself, it ranges 7% to 8%, which is a very good return even as compared to acquiring any asset, right? So we continue to explore alternatives. We have shared about next going to AEI for FY 2026. We are also looking at our other assets within the portfolio that we can start on our AEI once Hougang Mall is done. So this is an area that I hope that I cannot overemphasize the importance of AEI contributing to our growth as well.

On the organic front, the team is, again, very focused on driving footfall, driving tenant sales because at the end of the day, we want to make sure that not only are we getting very good occupancy, but our retailers are thriving. They are doing well, and our shoppers are happy to see all the new brands that we are bringing in, all the changes that we have done as part of our AEI, right?

With that, I'll end our presentation. Back to you, Judy, so we can do the Q&A. Thank you.

[Operator]

Okay. And now we will move on to Q&A, and I do see that Movine has a question. Movine, please?

[Movine, analyst]

Can we just start on Cathay update there? Like how much are they exactly in arrears, contingency plans you may have if Cathay actually closes? How much of the security deposits have been drawn down? And have you been paying out the rents that were in arrears?

Then the second question I have is -- any updates on AI plans at next Northpoint South Wing and not the sponsor has bought Yishun 10 site as well. And what's the plans for that property?

[Richard Ng, executive]

Okay. I think there are quite a few parts to your question, Movine. Let me try to address them and then Pauline, you can come in and chip in as well.

So the situation with Cathay, as you're probably aware, we did a letter of demand or rather we actually sent in a letter of demand at the beginning of this year. And they also -- with that, they actually made an announcement as well. So at that point in time, when we did that, we had some discussions, some negotiation and progressively, I would say that they have made payments. On a monthly basis.

Of course, we expected more. But in the current situation, I think they were able to pay us whatever that they could. And you probably follow the news as well. They came out to say that they're going to be doing some placement, et cetera. So it's an ongoing discussion. By and large, if you look at it, we continue to -- they continue to operate in the 2 malls. And one of the primary reasons is because we feel that our shoppers are still going for cinema. There's still a demand for cinema, especially there's a lot of movies happening during this period. So we do not want to disrupt that.

Like what I say at the same time, Cathay has continued to pay on a monthly basis, the amount -- various amount. And this discussion is something that we will continue to talk to them and continue to work with them, right? So at the moment, this is on the basis of what I've spoken about. As far as financials are concerned, we have fully provided for the amount up to today, and we continue to provide amount going hands for. And we also did talk about this in the last quarter that the contribution from Cathay towards our overall GRI is not material. It's actually not significant. It's less than 1%. So what I would like to emphasize is it's not going to impact our bottom line for our full year results coming out in the next quarter, right? So that's for Cathay.

For AI updates for NEX and South Wing, I will leave that to Pauline to share a little bit more. But in terms of Y 10, yes, FPL or Frasers Property, our sponsor has actually acquired or rather has entered into a contract to acquire the portion that's owned by Golden Village operating as a cinema. And as part of the transaction, when it's completed or if it proceeds, Golden Village will continue to operate the cinema for 18 months. So as far as we are concerned, we are still evaluating all options. Nothing to update at this point in time. But if anything develops further, we will come back to the market and share with the market.

[Pauline Lim, executive]

Yes. So maybe I'll just elaborate on the next AEI. So I think -- over the course of the past few months or so, we shared that we are on track to commence the AEI. We are still looking at a commencement date sometime in May or June, right? Essentially, now the process is in terms of getting the necessary authority approval. So we are working through that as we speak.

But in terms of the target commencement, no pushout. We are still looking at May or June for the major works to start, right? For Northpoint City South Wing, I think during the acquisition, we did mention that there is value to be extracted through single ownership. And there are many parts or several parts to that value extraction, right? Some of it would entail remixing some of the brands or the offering, right? So I would like to say that, that is on an ongoing basis, right? As and when we see the opportunities with lease expiries and so forth, we'll work to extract value.

And also the smaller scope enhancements, reconfiguration of space, that is something that is also very much at the top of our mind as the leases comes up. But in terms of the bigger asset enhancement, that would have to go through a due process. And we did share that as well in our earlier sharing. So as part of the lead up to the AEI commencement, we will have to go through various processes, including feasibility. And it's not just financial feasibility, it's also retail positioning feasibility to ensure that we deliver not just the quantitative outcome, but we also position the retail mall to do better going forward, right?

And that is a due process that we expect to take, say, based on our past experience with major AEIs, we are looking at, say, 12 to 18 months from the commencement of some of these initiatives. And it may vary from one project to the other, depending on the complexity. And also the sources of value that we are seeking to extract. So Movine, I hope I have given you some perspective on your question.

[Movine, analyst]

So in terms of the Yishun 10, is there a possibility to like remove the road or it is impossible during discussions with the authorities?

[Richard Ng, executive]

I think it's something that it's probably need to again, work with the authorities. I mean it depends on what is going to be done, what is going to be proposed for the site. I mean, as of now, it is just a proposal to acquire the Golden Village portion of the building. So these are possibilities depending on what is the approval like and what is going to be built, how much is going to be built. And I think I suppose the engagement of the authorities will have to continue. I mean, if there's a plan for that.

[Movine, analyst]

Is the idea will be getting rid of the road, right, like Junction 8.

[Richard Ng, executive]

Possibly as one. But of course, we have to be mindful that we do have access ingress egress into Northpoint City North Wing from that side. Our delivery is also -- for the North Wing is also done at that corner. So I guess it's not as simple as just removing the road, but I think there are also some other considerations that has to be considered.

[Operator]

Next up, we've got Geraldine from DBS.

[Geraldine Wong, analyst]

Maybe just a follow-up to Movine's question. When talking about Y 10 potential extension of the mall, I understand is it as feasible as just speaking. I've got to understand the [indiscernible] part of the mall is at that fact facing the road as well.

[Richard Ng, executive]

Yes, Geraldine, I mean, we are not even talking about expansion of the mall at this point in time. Like what I said, the sponsor is in the process and hopefully, it goes through to acquire the portion that's owned by Golden Village, and then they'll continue to operate 18 months. These are public information anyway. So at this point in time, I think we are just exploring various possibilities. That could be one option potentially, but I'm not saying that, this is something that we are looking at today. That's something that we're going to do. There's something that we're going to be fixed of doing. So we are just exploring various possibility at this point in time.

[Geraldine Wong, analyst]

Okay. Maybe just on the retail sales of 4%, I believe there will be some upside from Tampines 1 as well as South Wing. So are you able to give us a more organic number if you look at...

[Richard Ng, executive]

Okay. So we do include both. But South Wing itself, what we did is also we actually incorporated in the base line, the numbers from last year. If you strip out Tampines 1, I saw the number, I think it's still pretty positive, right? The total contribution of T 1 is not that significant because it's a smallish asset considered the whole portfolio that we have. Again, for South Wing, again, because you put in the base for both this year and last year. So again, it's about the whole portfolio actually saw an uplift in sales.

[Pauline Lim, executive]

So Geraldine, maybe if I can add on to that, right? If we were to strip out some of that or rather if we exclude the new acquisition as well as the upside from the asset enhancement, we're still looking at positive growth for the rest of our portfolio on a year-on-year basis. And we also monitor the general market very closely. So in terms of the performance of our portfolio over the past months or so, it is generally ahead of the overall retail market, right, as benchmarked by the retail sales index.

[Geraldine Wong, analyst]

I think it's very healthy and more to come with the SG60. Yes. If I can just squeeze in one more. For the Cathay space, what is the ongoing plans now? Is there any plans to reposition that space? I understand it's at a very high level. So there's some difficulty there...

[Richard Ng, executive]

Yes. I think that for us, I mean, what is happening now, we have to review the entire trade mix that we have in our assets. Of course, certain trade is also facing challenges, cinema being one of them. They are not really fully recovered since the pandemic. But a bigger question for us is also going forward, do we see that there's a need for us to continue having cinema in some of our malls. Currently, we have 5 of them. So the question is, do we need all 5 of them to have cinemas, maybe not all.

So some of those, we can look at opportunity to repurpose the space. And definitely, I think we are looking at currently at those 2 occupied by Cathay for us to look at opportunity to repurpose, bringing new tenants, bringing new trade that we believe could be a better traffic generator than what cinema could offer today.

So those works are ongoing. It takes a little bit longer because of the complexity of converting a cinema space, right? I mean if you know the way the cinema space has been structured, so there are tiering level stats and so on that is being built up. So it's a little bit more work involved, a bit more structural work involved and also technical requirements, et cetera, that we need to go through.

But by and large, I think we are looking at it as an opportunity because cinema typically, they take very big space. They are located on a higher floors. They don't pay you a very high rent. So for us, it's about finding a good opportunity to repurpose the space, bringing in tenant or tenants like what I said, that could be a better traffic generator.

And of course, we also hope that as part of the work, we get an uplift in terms of value and also rental income from the space that we are working on. But it's going to take a while for the work to be put in place because there's a lot of technical requirement, technical studies that have to be explored and we got to go through our consultants.

[Operator]

The next one, we've got Vijay from RHB Research.

[Vijay Natarajan, analyst]

A couple of questions. Firstly, on the next, is there any update on the income transparency? And on the same mall, in terms of AEIs, what are your plans? Is there a plan to increase the GFA? Is that possible? And what sort of CapEx we should expect for this?

[Richard Ng, executive]

Yes. Okay, Vijay. So a very quick straight answer for the income transparency. Again, it's something that's ongoing. It depends on both parties or the parties in this whole entire ownership. That is -- has to agree on any changes in terms of structuring. So it's nothing that has been concluded. It's an ongoing process that we engage and we reengage and every time we have opportunity, we will speak to them about this. In summary, there isn't an update on that.

For the next AEI, I believe we did share some numbers previously. I think we are looking at potentially being able to kind of work on about 60,000 square feet of GFA, 50% of which is going to be for retail, 50% of it is going to be commercial use. The plan is in a very advanced stage as what Pauline has mentioned because we are right at the tail end of finalizing some approval from different agencies because in order to go through such a massive AI, you need to go through different agencies.

You go through URA, you go through NEA, you go through LTA. So we need to go through the process to make sure that we get the approval or agreement for us to proceed. At some point in time, we will be able to come back and share ideas on what we are developing, what kind of space that we are creating, where is it going to be created. But by and large, I think we did indicate that the overall CapEx was between $80 million to $100 million in the past. We are keeping it to that amount.

And again, just to also reinforce that the funding for this CapEx will be coming from the joint venture company that owns the asset. So we do not need to come in any additional equity from FCT itself, right?

[Vijay Natarajan, analyst]

Got it. My next question is in terms of debt. Is there an updated guidance in terms of what debt cost you are looking at for FY '25 and '26? Also, FY '26, you have about 16% of the loans. If you have to refinance these loans based on the current market rates, what kind of cost savings or cost you would be looking at?

[Richard Ng, executive]

Annie, do you want to take that?

[Shyang Lee Khung, executive]

Yes. I will take the questions. Yes, for FY '25 guidance, it's going to be around 3.8% because there's only 1 quarter left and 76% of our debt has been hedged. So for FY '26, I think our guidance for debt is about mid 3%. That has taken into consideration during the repricing of the loan.

[Vijay Natarajan, analyst]

Got it. And you will be maintaining the hedge ratio at current level, 75%, 76%?

[Shyang Lee Khung, executive]

Yes. We will monitor and see what is the interest rate and put in place hedge when there's opportunity. But by and large, it should be around the 70s kind of region.

[Vijay Natarajan, analyst]

Okay. So mid 3.5 -- mid 3% for next year.

[Shyang Lee Khung, executive]

Mid 3%, yes.

[Vijay Natarajan, analyst]

Okay. My last question is in terms of divestments. Is there any still potential divestments which you are looking at in your portfolio? I think earlier you mentioned that Central Plaza office could be considered if it is optimized. Is that something which you are looking at?

[Richard Ng, executive]

Again, okay, I did not say specifically that asset has been identified. I mean the question came out and we say we are still working through our portfolio. Central Plaza, remain as an integral part of Tiong Bahru Plaza. We believe that owning the asset at this point in time, it's important. It's beneficial for us because there are still opportunity, I believe, to unlock some GFP. So I'd rather keep that space with us.

And at the same time, you're right. I mean, it's not -- if you look at the occupancy, it's not fully occupied. There's still room for us to improve the performance of Central Plaza. So we'll continue to work on that asset. Divestment is something, again, it's just an acquisition, right? Sometimes it's about opportunity. We do look at our portfolio every year to assess in terms of wholesale analysis to determine whether -- is there any assets that we think that is really optimal, something that we don't think we want to keep in the longer term.

But that having said, we also need to look at the market. Is there a market for us, even if we choose to divest, is there an opportunity for us to do so? Is there demand from the market to acquire retail mall assets because typically, the quantum is higher and so on. So those are the various variables that we need to look at, we need to consider before we talk about that. But of course, if today, somebody comes in and say, look, I'm prepared to offer you x amount, we will look at that opportunity as well.

[Vijay Natarajan, analyst]

Okay. Now just from a gearing perspective, you are at 40.4%, which is slightly higher than your normal range. So are you comfortable with this range for now? I mean, is there a need to lower it?

[Richard Ng, executive]

I think it's a question that today, we have managed to do a couple of things to bring it from 42 point something down to 40.04%. We'll continue again to explore if there's possibility to bring it down. Ideally, we would like our gearing to be below 40%...

[Operator]

Next up, we've got Rayson from HSBC.

[Rayson Khoo, analyst]

Maybe just a few quick follow-ups here. Firstly, on the gearing side. So I understand that ideally, it should be below 40%. Just wondering in terms of your discussions with your valuers, are you expecting some valuation uplift for your entire portfolio? That's the first question.

[Richard Ng, executive]

Okay. If I put it in a very general perspective, our income or NPI has grown, right? Our assets are performing better. And as we started the conversations with the valuers, one thing that we have established is there is unlikely any change in the cap rate, right? So even if the cap rate remains the same and if your income, the bottom line has improved, the trajectory of our income has improved. The potential for rental reversion is also positive as I've shared some of the data points with you. So I believe from that perspective, we should see some positive growth on valuation side, but it's still work in progress.

[Rayson Khoo, analyst]

I see, I see. That's good to hear. And maybe just a quick follow-up on the interest cost guidance, which is 3.8% for this year. Because I do recall that for the proceeds from the perpetual securities that they haven't been used to pay down debt as at the end of the third quarter, right? So just wondering the cost of the debt that you are going to repay for this $200 million in the [indiscernible]. And if there's going to be any potential savings in the interest cost due to that, the overall blended interest...

[Shyang Lee Khung, executive]

Yes. Rayson, I've taken that into account with the repayment of the [indiscernible] proceeds because, I mean, if you can see the first 3 quarters interest rate is high. So even if it's at 3.5%, if you blend it for the full year basis, it will be around 3.8%. So that has already taken into account the repayment of the [indiscernible].

[Rayson Khoo, analyst]

Okay. Got it. And maybe just a few questions. Just -- basically on the AEIs, I understand that you do have quite a few AEI opportunities. So typically, there has been usually just one AEI. And then if that's completed, you will be followed by another AEI.

Given that we do see that based on the Draft master plan, there is a lot of new rezoning to residential at Northpoint City. How does that actually change, how you think about the time line of implementing AEIs? Like would you be open to doing like 2 or maybe more AEIs concurrently?

[Richard Ng, executive]

I think that is definitely something we consider given the time line, the opportunity, et cetera. But one thing we also have to be mindful is we do not want to stretch ourselves too much. And it's very much also depending on the various scale of AEIs, right? So if it's something not too big, we could definitely squeeze in another one.

The timing, like what you clearly pointed out is also important. So is there opportunity for us perhaps to even stage out, right? So maybe some AEI, we can stage it to make sure that the overall impact to our bottom line, which is crucial, is not that significant. Having said that, we are always mindful that next AEI is going to be quite a huge AEI project, quite significant and so on. So whatever that we're going to put in place has to make sense in terms of timing, in terms of the overall management of the bottom line, et cetera, gearing cost, all of this has to be considered in totality.

[Rayson Khoo, analyst]

I see. Got it. And maybe just one final question. For the -- sorry, just back to Cathay. Since you guys actually like escalated it from being a demand letter to a statutory demand, just wondering what's the thought process behind this? And if it allows you to actually terminate their lease ahead of the expiry, which I think you shared earlier was 2028.

[Richard Ng, executive]

Yes. Pauline, do you want to take this?

[Pauline Lim, executive]

Yes. I think Rayson earlier when Richard spoke about Cathay, he did mention that one of the considerations that we had was also -- to a certain extent, right, the sustainability of the business of one of our retailers and also to meet the needs of our shoppers, right? So why did we then escalate the letter of demand to a statutory demand?

I think that is part of the legal process because we also have this fiduciary obligation. We need to balance this fiduciary obligation to kind of preserve our legal rights as well. But as much as possible, and in fact, we've been doing this over the course of since the arrear situation actually started, we have been actually working very, very closely with the operator in terms of their cash flows, their ability to sustain the business because we also don't want a situation where we disrupt them and we take away one form of retail offering to the shoppers. So -- yes...

[Rayson Khoo, analyst]

So like does it allow you to terminate the lease?

[Pauline Lim, executive]

Yes. We can terminate the lease, but it's a function of the alternative use for the space.

[Operator]

We've got the questions from Derek from DBS.

[Derek Tan, analyst]

I just wanted to have a few follow-up questions. I mean I hope you can give us some guidance on your reversion this quarter. Usually, I know you don't do it, but are you pacing in line compared to first half? Or are you stronger?

[Richard Ng, executive]

Okay. I would say, as I mentioned during the first half sharing that we came in at a pretty strong reversion. And I also alluded to the fact that I foresee the full year is going to end between what we achieved last year, which is 7.7% to 9%. And I think we are still on track to do that.

[Derek Tan, analyst]

Okay. Okay. Sounds good. Sounds good. And maybe the second question that I wanted to get a sense on is on your margins, right? Is there any opportunity for you to achieve some form of margin expansion in the second half? The reason being where utilities rates are versus what contracted. Is there an opportunity for you to capture some savings or that has already been done?

[Richard Ng, executive]

For utilities, I think we have pretty much locked in all the way to end FY 2026, except for a quarter for 1 or 2 of the assets. The rest are all locked in.

[Derek Tan, analyst]

I see. Okay. Okay. So stable, okay?

[Pauline Lim, executive]

We do see the rates coming down based on the lock-in rate for FY '26.

[Derek Tan, analyst]

I see. No problem. Yes. Thanks for that. So last one is on the [ Hougang ], I understand that the pre-leasing is really strong. I mean I think you're just in the midway to the AEI, right? Could you let us know whether are you above your underwriting assumptions? And what kind of yield on cost you think you can achieve?

[Richard Ng, executive]

Okay. We shared the whole project is estimated to come in at about 7% yield on cost. Happy to say that we are still pretty much on track or slightly above underwriting at this point in time.

[Derek Tan, analyst]

So your underwriting is conservative. That's all we can see. I gotta find positives from the numbers.

[Richard Ng, executive]

Yes, yes. I think we always, of course, have a little bit of built-in conservativeness into the projection. But at the same time, we are also mindful because there are certain tenants that we think it is important, tenants that we want to have in the mall, right? So as we progress through the negotiations, there will be some up, some down, but we are confident of at least achieving our -- the target that we have shared.

[Pauline Lim, executive]

Yes. And I think the other function of returns would be the CapEx as well, right? Until the project is completed, we cannot fully anticipate whether there could be surprises, whether there's variations and so forth. So it's not exactly being conservative, it's also taking a more practical approach to what we indicate to our investors.

[Derek Tan, analyst]

Got it. Got it. Got it. Sorry, just one last one. I may have missed this, but for Cathay, right, did you do a provision for that? Or is that something that we should look out for in the second half?

[Richard Ng, executive]

No. I mean whatever it's up to date has been fully provided for, and we will continue to provide. And I've mentioned this now is that the actual fact is that the overall impact to the bottom line is it's very immaterial, very small. It's less than 1% of our total GRI? So we don't see that impacting our full year numbers at all.

[Derek Tan, analyst]

Okay. So no negative surprises. So that's good. That's good. Okay. That's all for me.

[Operator]

Next up, we've got Joel from DBS.

[Joel Siew, analyst]

I just had 2 questions regarding debt. So the first question is, just wondering how does the funding market look currently on a cost perspective comparing, say, bond issuance versus bank loans?

And my second question is, I understand you use some secured bank loans. Just wondering from a credit rating agency angle, is there a limit to this? And like I understand you want to keep your investment-grade rating. That's -- those are my 2 questions.

[Shyang Lee Khung, executive]

Yes. Joel, in terms of the loans and bond, there is still some slight difference between the 2 pricing, but the bond market has been very, very active. I think the other differentiating point is that you have a slightly longer tenure if you tap into the capital market for the bond side of things. So if you were to compare against just the margin alone, I think there is some slight advantage in the bond versus loan at the moment, okay?

The second question is on the secured borrowings. Yes, our secured borrowings has increased to 36%. From a rating perspective, I think there isn't a direct impact to the rating. The rating -- what Moody's has rated has really taken into account the parameters of our secured borrowings.

[Joel Siew, analyst]

Okay. I'm just wondering, so for, say, if you are looking at the bond market, will you be looking to issue more? I know you have like maybe 3% currently in bonds.

[Shyang Lee Khung, executive]

Yes. I mean we will continue to watch the market. And then if there's an opportunity at an attractive rate compared to our loan, we will do that.

[Operator]

So we have come to the end of the Q&A, but I'll hand it over to Richard for his concluding remarks. Richard, please?

[Richard Ng, executive]

Yes. Thanks, everyone, for joining us this morning. And I think the questions that we have is also around some of the areas of perhaps some issues, some concerns that you guys have, and we hope that we have answered and given you more clarity. So maybe I just very quickly summarize a couple of things.

Cathay, we spoke about it. Again, I wanted to reemphasize that it's not going to impact our bottom line because it's not material. We continue to engage the operator. We continue to look at other opportunity or possibilities for us to repurpose the space.

In terms of the market performance, something that we have shared the results has been very positive. We are getting good traction in terms of our demand for space, 99.9%. We see strong sales pickup as well for our portfolio. And again, bottom line is it's part of our portfolio being the main provider for basic essentials, necessities, products.

So we are not so much impacted by the market volatility, et cetera. We saw traffic also increase in our malls. So all this are pretty much a positive direction that we -- the malls are operating at. Financing, it's coming down even though we would have liked it to be faster.

But again, the fact that we have to wait for refinancing to come in, we have a certain proportion of our rates are fixed. So -- but we are happy to see that at least the rates are trending downwards. And I hope seriously that they will continue to trend that way. And again, as what Derek was asking, we don't expect any shock for the next couple of months unless some unforeseen circumstances comes up. But other than that, I think we probably will be ending the year in a good position, right?

With that, we thank you once again for joining us this morning. Thank you.

[Operator]

Thank you, everyone, for joining us again this morning. We have come to the end of FCP's 3Q '25 business update. Any other questions, feel free to reach out to all of us. Thank you. Have a nice day ahead.