CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining us. So shall we begin our presentation for now. Over the next course of the hour, we will be having a short presentation before proceeding to our Q&A section. So we have here on the line today, Mr. Tan Tze Wooi, CEO; Joanne Tan, CFO; Yu Qing, Head of IPM. So as we begin our presentation by Tze Wooi, I will appreciate everyone can mute themselves during the call to maximize the quality of the call. Tze Wooi, please.

All right. Thank you, Nicole. Good morning, everyone, and welcome to CapitaLand China Trust's second half and full year results briefing. I'll take you through using the deck that we have uploaded this morning. I'll walk you through the key highlights and content. And we'll have a bit more time for Q&A later on. I think 2020 has been a very eventful year for us. I think while we navigate a very evolving business landscape brought about by the COVID-19 impact. We also charted ourselves towards a transformative growth path. We successfully expanded our investment strategy with focus on portfolio quality and also wanting to improve our income resilience. We made our first move into the business park space, significant move, 5 quality assets and going into 3 new provincial capital cities that will be of a higher growth. We raised our largest equity fundraising to date and also did our maiden perp issue. And coupled with the active capital recycling, we are able to bring on board a $1 billion, our largest acquisition to date on an accretive manner. We ended the year on a positive note. We crossed our market cap more than $2 billion and also seeing more active trading. I think it's a significant feature that CLCT now has become more -- in the investment radar of the investment community. To capture future growth, I think 2 things that we are actively doing. On one hand, is on the consumption. Our retail portfolio, you can see us accelerating the digitalization initiatives, embracing the omnichannel offerings environment, capturing both the online as well as the offline, the customer reach and the spending habits. And through our CapitaStar platform, we are now having more and more unique and more trendy marketing outreach able to do live streaming, promoting sales. On the other hand, if you look at where China's economy is heading towards I think we are now exposed to the business park space with China onshoring, the technology curve, trying to make themselves more self-reliant. We see that this area will see demand-led growth, especially among the higher tech space occupiers. So we have taken our first step towards the journey to build a more balanced and diversified portfolio as can be seen here in this chart. So to run-up for the year FY 2020, I think our revenue has been impacted by the COVID environment, 12.2% down versus last year. A couple of reasons. I think the landlords' rental relief extended feature quite highly on that. Overall, the operating environment has been not challenging. As a result, the portfolio's average occupancy is lower, arising from that slower leasing activity and the conversion and slightly longer feed up period that we observed. As a portfolio, we do see that the second half performance is improving and trending positively, as can be seen over here. At the same rationale flows down itself to the net property income. And -- slide earlier, please. So if we look at 2020 versus 2019, I think the loss of the Erqi from the divestment also play a part, but this is being offset by the 3 malls that we acquired towards the second half of last year. If you look at the next slide on the distributable income, I think arising from the slowdown from the net property income, a few things to take note. If you look at these 2 years. There are certain one-off effect that we saw last year, arising from the divestment from Wuhu from Saihan from Chengdu We do see some repatriation of the shareholder loans that allow us to enjoy a larger piece of the FX gain. Similarly, over in 2020, we have less of that. The other thing is in 2020. We also opened our new mall in c, so there's a little bit of that one-off transition from Saihan to Nuohemule as well as preopening cost is being booked into 2020. So this impacted the distributable income relative to last year. On a full year basis, we are having a $0.635, reflecting a 35% reduction vis-à-vis last year. But again, the key message over here is that you can see that the conditions, the environment that we're in, the performance, they are all improving, that shows the 2 half over the 1 half effect as over the slide shown here. The next slide shows the financial numbers. I think I have more or less have already articulated some of this. I think the key thing to take note is that one half, our DPU was about 41% down relative to last year, and the second half was 30%, and I think the full year is about 35% down vis-à-vis last year. Balance sheet side, I think we ended the year with the consolidation of Rock Square, we completed the acquisition. And that has moved our investment property and is higher. Our net asset value is $1.49. These are some of the distribution details. I think we have already done the advanced distribution earlier on of the $0.0275. So the next tranche that will be paid will happen around the 5th of March, and that's for the $0.058 and a few key dates there for taking note. For 2020, we ended the year, I think in terms of gearing, we have lowered it, I think, because of some of the pending acquisitions that have not been closed. So very healthy at 31.8%, giving us big headroom. Other metrics are steady, with slightly lower the average cost of debt. Interest cover remained stable. I think the term maturity also stable. In terms of the unencumbered assets, I think, because of the Rock Squares consolidation. We continue to maintain a very well distributed maturity profile for the borrowings coming through. We don't have in any particular year, a high load. I think we have done all the refinancing ahead of time for 2020. We are now evaluating the options, taking some tactical decisions on enjoying a low interest rate, while looking at what are the opportunities for us to refinance it out the different debt capital market instruments. I mentioned this that we have actively looked at diversifying our funding source. And if you look at it, the mix, the composition has improved with a little bit of onshore RMB as a natural hedge. We continue to stay focused on the hedging policy at about 80% fixed to get advantage of the low interest rate environment to secure our fixed rate component for the longer term. Let's look at the operating metrics. I think overall, we ended the year, portfolio occupancy at 94.1%. And if you recall in the last first half, I mentioned to you that no, we are looking to stabilize the portfolio occupancy, and this has been demonstrated through that quarter-to-quarter, that improvement. Obviously, within our portfolio, different assets to see, different pace of recovery and also the environment that we operate, I think we can talk a little bit more. Full year, our rental reversion ended negative of 4%. Shopper traffic and tenant sales, I think, continue the quarter-on-quarter that growth trajectory. This is a rundown of the year-end valuation of our portfolio. I think by and large, our portfolio in terms of the valuation, we have taken the conservative stance all the while. So you can see that not much of significant movement that we have booked. One particular note is on the Qibao. I think this is the asset where we are having a master lease. And the master lease will be coming up in 2024. We have the right to extend for a further 20 years under the master lease contract. We are evaluating our options. But what we have done over here is to take the conservative view that if we do not exercise the right and also to extend for a further 24 years, essentially, the value that we are carrying today is the carrying value that we end at 2024. So this is something that we have taken the view for this particular year. I mentioned that occupancy, I think you can see largely that most of the assets have been stabilized in terms of its occupancy. There will be more than transitional in and outs that I was alluding to during my one half announcement with you. I think the norm is that because of the softer leasing conditions, the slow activity, there's a little bit of that in and outs that you will see playing through. But by and large, I think if you look at the profile of our portfolio, I would say that Qibao continues to face a little bit more operating environment challenge. Grand Canyon as well in Beijing, and probably Aidemengdun. Above this 3, I think the rest, I would say, are trending quite nicely in the way that we wanted to execute some of our leasing strategies, trying to balance the occupancy rate as well as the kind of new trade concepts and the new brands that we would like to bring into the mall. This is a reversion breakdown. As I mentioned, if you look at the slightly weaker malls like the Grand Canyon and at Qibao, some of these are driven by some of the trade category, mix changes. There could be a higher-paying fashion tenants that go up, but based on the current asset plan on how we want to niche our mall in terms of its positioning in the catchment, we could have utilized the space for different use. And some of these have gone into the rental reversion calculation that we had. And I think I've shared with you that the rental reversion methodology that we have adopted all the while has been the more strict when we use the first year of the incoming versus the last year of the outgoing. And I think during this period of time, there's a little bit more, I would say, landlord assistance and flexibility in sharing some risk. I think these do peak into some of the calculation of the rental reversion numbers that we present. This is the expiry profile, lease expire profile for 2021. I think 2 things to take note. I think the bigger chunk of the Yuhuating that relates to the anchor space that will be coming due. So we have already more or less struck an agreement to take back space so that's happening. The other bigger chunk that you see is probably the bunching effect of the Aidemengdun, which during this year, we have signed a little bit more leases on the short-term basis that will take us through 2021. So these are probably the 2 assets that have a slightly bigger chunk. I think part of the job that we've done in the last half a year is to stabilize the bigger portfolio contributed assets, the likes of the Xizhimen, the Xuefu, the Rock Square and the Wangjing. So I think a lot of the work that we have done in the second half, I hope that sets the foundation for us to go into 2021, building on that foundation for us to bring in better tenant mix and also be able to probably secure a better rental asking expectation. This is as well, I think, quite consistent. Nothing much for me to elaborate. Next slide. I have mentioned this in terms of the quarter-on-quarter, you can see the traffic improving. Quite similarly, the next slide, you can see the sales improvement. This time around, we have sort of like given you 2 perspectives of how tenant sales are improving in our portfolio. I think the left-hand side gives you the perspective of the total sales flow that's happening in our portfolio. Arising from the lower effective occupancy, there will always be certain space that are not contributing sales. So part of that, it is 7% year-on-year recovery, you can attribute it to that gap because of the occupancy. But if you look at the space that have since reopened for trading, that sales per square meter is a measure of those operating tenants that are already generating sales flow in our mall. I think that number has shown to be more encouraging, and they are at the 95% level if you look at this quarter. I think this is something that we continue to be very active on the ground with our local property managers. I think a lot of new trends are coming through. We want to experiment. We want to stay close to new retailers with new ideas. And these are some of the things that we brought into our mall and also through marketing, using new channels of engagement. This is something that, I think, continuously, you see us doing more of such so that we can better connect with the shoppers' habits of today. At the same time, we continue to position our mall as the communities making place for the catchment. This extends to the time and also the weekends, festive seasons. And also, increasingly, I mentioned the digital way of engaging our customer. And I think more and more retailers are now onboard together with us to leverage on this platform to reach out to new customer base. We also welcome the opening of our mall in Inner Mongolia. I think despite a difficult leasing environment in 2020, where we have to really step up some of the lost time in preparing the mall for opening. I think we -- I think the team on the ground did a good job in terms of opening up by the end of the year with 100% occupancy. And I think this mall has potential for us in the longer term. It's twice the size on top of the MRT station that is now already live and operational. So long term, I think this is a good asset for us to continuously grow our market share in the market. And I think the new mall has brought in some of these tenant mix, new concept stores that is something new in the catchment. And I think this is going to resonate well with the shoppers. We have a strong lineup with some of these brands and concepts. And this is also riding on our eCapitaStar platform thing. I think it's something new in the market. So I think it's getting quite positive feedback. And I think this mall will continue to contribute as we enter 2021. I think let us look at the key strategies. I think we have always wrapped our pillars around that 3 core principles of creating, unlocking and extracting value. You see us taking that disciplined approach in reconstituting our portfolio in the last few years. We'll continue to do that. At the same time, I think from the operational side of things, we'll continue to look at our expanded portfolio to drive that organic growth and look inside our standard portfolio to see where are the potential asset enhancement, value enhancement opportunities. Next few slides, I'll take you through what are the things that we are focusing on. I think we started the year, again, by unlocking value for the Minzhongleyuan. I think most of you will know that this is a noncore asset, facing quite some operating challenges. We expect to complete the divestment by the first half. Similarly, Saihan is part of the swap deal. We have opened a new mall, now is for us to monetize the outgoing Saihan. So with these 2, I think will help us in terms of our balance sheet capacity when the divestment proceeds come in. We have taken the first step I mentioned to move CRCT from a pure retail REIT to something that is wider and be able to capture China's long-term economic emphasis. Longer term, I've shared that we want to shape our portfolio towards 4.33. We have done our first transaction on the business parks. I think this is something that the team will continue to hunt for new opportunities, both within the sponsor group as well as third party assets. I think since the expansion of mandate, we have been shown, I think, more interesting deal flows from different asset classes like the logistics and also further VPs from the other market. So I think this is something interesting, and we'll continue to pursue that acquisition-led growth. I mentioned these are the immediate priorities that we are focusing to execute. The Shuangjing, Yuhuating, we have secured about close to 45% of the space that we're going to take back from the anchor. We are already in the motion of looking at submitting some of these plans to the government to get the clearance. And put in place those AI works. So this is likely to have that effect coming in, in the second half of 2021. I think Rock Square, I have mentioned earlier that we continue to execute the strategies that we identified during the acquisition for the 3-year window. So this is ongoing. And I think some of these are, AI initiatives will help to bring upside to us in 2021. Over the medium term, the Xinsu portfolio is something interesting. I think I've shared during the acquisition that Xinsu is a signature business park in Suzhou and Suzhou is a very well location for us to look at the newer products. Given the strong location merits of this project, I think we want to work closely with the government to look at utilizing some of the untapped plot ratio to probably redevelop and repurpose some of this area to capture the newer needs of the enterprises that will come into this signature business park. I foresee that we will be pivoting a little bit more towards the R&D and also building newer factories and warehouse that can bring in the space occupiers of the tomorrow's enterprises. So this is something that on the medium term, we are working on it. We have just acquired acquisition. We will start the plan, submit most likely where we have a little bit more concrete things, we will share with you. I think this is something that we have done to be very active to reconstitute and keep rejuvenating our portfolio. You have seen us done that. And I think to date, you see us already unlocking value and monetizing the aging lower growth assets since IPO time. We had done 4 out of that 7 initial regional assets from IPO. The Wangjing, the Yuhu, the Saihan, the Chengdu. So if you look at the aging profile and the lower growth to the portfolio. These are the ones that we have already unlocked value and monetized. On the other hand, you see us entering into more promising cities, the Chengdu, Guangzhou, Changsha, Harbin. And with the acquisition recently, we also added 3 new cities of Suzhou, Hangzhou and Saihan. So I think this is really that step approach that we are taking to really strengthen our portfolio, quality and the shape. And I think we'll continue to build on this momentum as we go into 2021 to position CRCT as the largest, the multi-asset channel focused REIT. What we are focusing on, as we look this year, I think the outlook, I would say that in general, the operating environment has improved half-on-half, and I do expect that 2021, we still should expect improvement overall over of 2020. But that said, I think the sector that we are in, I think, is very susceptible to a lot of this resurgence of the COVID-19 cases. And whenever such cases happen, we do see that the Chinese government moving in fast. And most of the time, we do see them on the side of over wanting to make sure things are well contained. So I think the fact that our portfolio is quite exposed, I would say, to the northern sector of China and this northern sector seems to be taking a little bit more of those COVID cases. So we do see that our performance would be susceptible to some of this resurgence of the cases. And because of that, I think the confidence and sentiment continues to be cautious. What we can do, obviously, is to look at each market, each catchment, the malls positioning, and we'll try to balance our occupancy with the kind of trade concepts that we want to bring in the view will improve the appeal of the mall over the longer term. So this is something that I think we'll work closely with the ground to be able to refine and make sure we make the right decision at the right time point such as the mall on a total basis can continue to be very relevant and grow in the marketplace. I think I mentioned a little bit on the retail front. These are something that we will continue to focus, staying ahead of the trends, actively making us that digital-enabled and also wanting to bring and influence our own retailers into our malls, adopting the same mindset because only retailers who are able to capture both unlikely to do better. And this is something that on the retail consumption front, we're doing. And I think on the other side of things, we are actively looking to complete the transaction of the business parks so that this can then augment the stability and the portfolio earnings. Already mentioned on the reconstitution, I think we will continue to look at acquisition-led growth, both in-house and external. I think we ended the year with a strong financial position. I think we have a well balance sheet for us to capitalize such opportunities. I think with that, I'll end the presentation and open the floor to some Q&A.

[Operator Instructions] So we have a question from Terence.

This is Terence from JPMorgan. Just on touching on your last point on the impact of resurgence of cases in -- especially in the North, could you give us a sense of how that has impacted the malls trading in, let's say, in January this year?

Yes. I think if you look at some of these cases that you would have seen from the headlines, I think Beijing do have some resurgence in late December to January. And I mentioned that the -- especially in Beijing, the government is very, very cautious of containing it. So there are a couple of case -- positive cases being traced to our malls. And as a result, some of our tenants have to temporarily close to cooperate with the authorities to do some hygiene, sampling, et cetera. So we do suffer a little bit of mandates or rather the trade days downtime. You see this happening to one thing and recently in Xizhimen. But what I can say is that as new cases come through, the government moved fast. But what we also see is that the government now is -- the SOP is a little bit more tested and the amount of downtime that we see shortening. Just to share with you in June, July, that time when Grand Canyon was facing the same issue. We have to stop the mall for almost 3 weeks thereabout. But the recent cases in Xizhimen, we have to shut for about 1 week. So very hard for us to give you a very definitive guidance on how things would be. We constantly have to work with the local authorities to contain some of this spread. And I think from that point of view, they want to ensure all the testings are done. So you'll just say them all do the hydrogen testing, do the hygiene and then make sure that everyone goes for the test, and the results are coming up faster. And once they cleared it then you can go back and apply for the operating license to recommence your business. If you look at some of the cases, they happen near the community where our malls are servicing their catchment. These are the ones that you see immediate footfall impact. Typically, the local government will don't -- just publish a policy. We are asking people to stay at home, don't go out. And I think immediately, you see a little bit of footfall and pullback. But what's helping is that I think based on the last year's already kind of habits we have with our retailers, I think we can continue to leverage on the delivery, the online for us to help them continue some of these sales if need be.

Sorry, maybe just following on from that. For second half of 2020, we actually saw a dip in revenues and NPI, especially from the Beijing Malls and Grand Canyon. Is this because of the impact of the resurgence of cases? And has that also impacted reversions, especially for Grand Canyon?

Well, I mean, if you look at Grand Canyon, you're right, I think the reversions in Grand Canyon has been the most impacted. I mentioned that is also the bit of that area change, trade cap change. The area that we measure the rental reversion was the measurement of children and entertainment, trade can -- vis-à-vis and outgoing off of fashion. So that a numeric its itself into it. Grand Canyon is more impacted in the second half because of that resurgence effect. So the confidence level of retailers generally are softer. The main reason for Grand Canyon is because of the continuous extension of some of this relief to more impacted tenants in the likes of the cinema, the likes of the children education. So these are the ones that if you look at the pace of recovery, and the time where the government allowed them to trade back, these are the ones that are having slightly a bigger share in Grand Canyon. So that is one reason. The other reason, obviously, is if you compare year-on-year, half-on-half, Grand Canyons, effective occupancy is lower.

Also on the Beijing malls, the rest of the Beijing malls actually came down H-on-H, yes...

The H-on-H, I think effectively that there are -- again, there are 2 ways to look at it. I think the effective occupancy has been lower and there's a lot of ins and outs in transitioning. Although the committed occupancy level that you see that we report at the quarter end, you probably see them quite stable. But the actual occupancy that is actually churning the revenue is effective lower. And some of this downtime from the ins and outs impacted some of this revenue. In the Xizhimen case, we also have that additional of that relief extended in the second half. So that also impacted slightly towards the overall numbers.

If I may, I also maybe want to add on. From what we observed in second half of 2020, especially towards the fourth quarter. I think the recovery rate in the non-Beijing malls, we are seeing close to the 90% level, both in occupancy and sales. Whereas I think Beijing malls because of perhaps the weather as well as the more stringent as well as the cases that appearing in the North region, I think it's lagging behind slightly by that about 5 to 10 percentage points. So it's in the 80s rather than 90s. So I think that also contributed to the overall recovery. But if not for the recent January resurgence, December, January, we would expect recovery to actually follow the rest of the countries. But I think now given the situation, we will probably see a bit of setback. But I think, like say pointed out, the pace of recovery or rather the time taken to actually recover from a case, I think the Chinese government has actually improved quite a bit as well. So we hope that after this round and after the winter, it can be pick up. So we'll have to observe a bit more.

Now can we have Wai-Fai, please?

I'm trying to understand more about the weakness at Grand Canyon and Aidemengdun. Given that the negative was quite sharp, do you think whether it was because of the location, whether there was anything structural we should be aware about? And when do you expect stabilization, whether you need to do more fixing or not?

I think the Aidemengdun, I think, it's easier for us to reference. I think if you look at Aidemengdun and Xuefu. I think this is probably the case where we said that the dominant mall sort of have a stronger bargaining power. And as a result, the recovery that you see are faster. I think Aidemengdun in terms of its size, in terms of the catchment that it serves, it's a smaller play. As a result, when there are certain existing tenants that like preterminate, I think the time that we need to bring in quality tenants that will add to the overall improvement to the mall is taking a slightly longer time for us to convert. And I think that said, of course, the backdrop of where mall in the second half when this are happening. It's probably not the best time for us to bring on board a lot of tenancies because I think the retailers' ability and their own confidence and payments are probably not in the best window of time for us to do that. So as a result, I think from our point of view, it's always the case of how to balance keeping it some of this space and occupied? Or if you want to do something to it, such that overall, the mall still have a little bit of that shopping move to that. So I think some of, I would say, is happening in Aidemengdun. You can see that some of the some bigger spaces, the likes of the SMBs, the education, some of the fashions are also. So I think it's we are going through that period of time where you need to bring in more quality by as a result, you're not at the right window of time to probably expect a very good rent. So I think we have to be a bit more circumspect in looking at the rent reality vis-à-vis how we want to move to more from an existing state. So I think it's something that we will continue to calibrate with our ground, knowing the conditions and some of the options that we have. For Grand Canyon, I think 2020, we do see some exit of some of the tenants that I would say that may not be very of high quality. As a result, when the operating environment is actually they cannot even operate for 3 months, 6 months, or there's a lot of start and stops. You do see some of these operators reviewing whether they want to continue with the situation. So some of them may just take the easy way out and just a part of it and observe and wait and see. So I think Grand Canyon is slightly filling that in that competitive landscape. It has always been more a family mall targeting education. And I think this period of time, because of the claim down, not able to come in, in big groups, sort of like then they get some of these operators initial thinking that they want to come in and operate and yet, the business cannot take on. And therefore, there's again some casualty. So I think these 2 malls, I see a little bit more of stuff happening on the ground. And that's where we take a conscious decision on how to improve the situation on the total revenue system basis, right? We just want to see how to best calibrate. And we do see some of this occupancy stabilizing in the last half year. But as a result, some of the asking rentals, and we have to be a bit more circumspect on what we can get, yes.

For Grand Canyon, do you still expect this kind of double-digit negative in 2021?

Well, I mean, for 2021, I think more -- I will operate it this way, I think 2 half of 2020 is probably the maximum already heavy lifting, a lot of those are done. I think that is a tactical decision that we took. Such that we want to enter 2021 with a less of such. So I hope that sets the foundation for us as we enter 2021. There are a couple of expiries coming through in 2021 for the Grand Canyon. So -- but if you look at the load of renewals coming through, I would say that that's not a big lot. A bigger load has been done in 2020.

Okay. That is clear. For Nuohemule, I'm not sure whether I'm pronouncing it correctly. Can you check what was the NPI yield you were able to achieve?

Well, if you look forward, I mean, since we just opened and some of the preopening costs in the one-off charges of the devising commission, these are probably going to be booked. So if you strip this out and you analyze forward, I think we are probably closer to the 4% level for the first year. I think some of the typical operating, you know that we do give a little bit more rent assistance period in the initial ramp up. So this sort of like would work itself into the yield that we are talking about, yes.

Which is your target was somewhat...

Our target was somewhere between 5 to 6 at the end of the first cycle. So I mean, if you strip out the first year's impact of all these one-offs, I think we are probably close to 4.

Okay. So this was lower than Saihan, which was about 8%?

Well, I mean, we should not look at the yield on this basis. I mean Saihan, if you were to measure it, that is not a sustainable yield as we know. Yes.

Okay, Okay. Okay. And just lastly, on acquisitions. Given your broader mandate and also bigger pipeline now, how active do you look to acquire? Like, for example, is there a quantum you look at that we should expect to deploy annually?

Yes. I think we have quite frequent conversations around this. I think we would like to continue to actively rejuvenate and reconsider our portfolio, as you can see in the last few years. If you look at the volume of investment capacity, we do, it was starting off with like a $300 million when we acquired Rock Square, and we move on to like a $600 million for the 3 malls. And last year, we did about $1 billion capacity. So I think CRCT has step-by-step move ourselves into that bigger scale such that now, I think we can comfortably look at probably around the one big ticket size, which is closer to that 20%-plus AUM uptick. I think this is something that we feel doable, and this is probably the guidance that we can give there.

Next we have Eric. Eric from Nomura.

Actually, I have 2 questions. I think maybe we can walk with the first one. Regarding your Beijing Mall, you have this kind of CapitaMall Qibao. It seems like -- I mean, occupancy is underperforming, so do you have any latest view about how to manage this mall? Or do you see any kind of divestment opportunity on this one?

Yes. I mean very good question. I think we have always been looking tactically to exit some of this aging portfolio where relative to the market, the catchment, we are losing a little bit of the competitiveness. We are actively looking at opportunities to monetize and exit. I think that the guiding principle extends throughout as we discipline look at our portfolio review. In the case of Qibao, I think it is technically an operating lease with the first run date of 2024. I mentioned to you that given the landscape and the amount of CapEx, we probably have to put in, in order to really revitalize this mall. The view now is probably -- we would just let the operating lease end as we look into 2024. So I think from now to 2024, it's a case of how can we stabilize the mall and bring in certain trades to really serve the catchment needs. Of course, at the back of it, tactically, what we can do with the landlord, I think this is something but too early for us to share openly. But from operating level, we will cost contain it, try to synergize it together with our bigger Shanghai property team. On the revenue side of things, we'll continue to look at what are the shorter-term leases that we can bring on board into this mall to serve the catchment and probably also to improve upon the passing occupancy currently. So these are some of the focus that we are adopting for 2021 to 2024.

It's very clear. Just one last question. I think it's more drilling down on the portfolio lease expiring. I understand like the 2021 this year, seems like a 36% of the gross rental income, I mean, of maturing. I just want to know, like year-to-date, any kind of progress on this one regarding the renewable? And then what is the respective kind of rental reversion rate?

Well, I mean, because the -- our portfolio is really quite uneven, and it's quite mixed. So it's always very difficult just to give a very prescribed number. But what I can share is, I think, in December, we have actually done a few of the forward renewals that are naturally expiring in 2021. So about 5% of those that are up for renewal, we actually brought forward some of these renewals. And we still manage for overall achieved like a net positive of about 3%. That was in December. But I think come to January and now with the CNY and with a bit of resurgence, I think they expected it could be some slowing down of commitment. So I think it's a bit too early for us to prescribe a number. And rental reversion is also always a case of whether the expiring pool, we feel that the rental leases are high relative to the market and the mall. So I mean, I will share a little bit more. I mean if you look at our malls, I would say that Rock Square, we are still confident in 2021. We are able to revert positively, continuing that double-digit level. Because of the key work that we have done in the second half of this year, I hope that the stability of Xizhimen is such that I think we can phase off a little bit of the pressure point better, similarly, for Wangjing. Besides Rock Square, I think what is also leading in terms of recovery and confidence is probably the Shuangjing, Yuhuating, and coupled with the fact that we are taking space from Walmart, I think that would be something having an overall positive upside if you look through the whole year. The weaker ones, I already mentioned to you, I think that Qibao, Aidemengdun and Grand Canyon. These are probably the 3 still facing a little bit of challenges in terms of the asking rental expectation.

Next, we have Geraldine from DBS.

A couple of questions from me. So the first one being on rental rebates even for FY '20. So I think it was previously guided to be about 1 to 1.5 months. So has that figure actually changed given the Beijing resurgence and your new mall launch?

I think we ended the year closer to the higher range of that guidance. So probably approximate at 1.5% across our portfolio. But if you look through the assets within the portfolio, you do see a little bit more for malls that are impacted significantly more, right? And so take for example, the Minzhong Wuhan, I think our rebate is slightly higher in the 3-plus. The 2 Harbin malls. We have also extended slightly more. It's probably in the range of 2-ish. The Beijing ones because of the second half, the resurgence of the effect, we have slightly given a little bit more relative to our one half. So it's averaging about maybe around 1.2, 1.3. So overall, I think as a portfolio, I think like the Rock Square, the Xinnan, the Changsha, so these are the ones that we give less than the average. These are hovering about the one level, the low range. So all in, we are still within that, about 1.5, yes.

Okay. Okay. So is it safe to actually assume that our rental rebate in FY '21 will not exceed FY '20 level?

I think it's safe to assume that I mentioned that the general conditions and the environment, we do expect 2021 to be much better than 2020 as a whole. So definitely, from a landlord perspective, I think that amount should not happen as much. Yes.

Okay. And maybe one more on business park rentals and of rental rebates, are you expecting a lot there? Or are you going to guide maybe minimal rental rebates?

I think for business parks, I think it is quite a different asset class totally. It's less of the retailers and consumption play. It is more of the space occupiers, and I mentioned that the space occupiers of the business parks are typically the more resilient ones. They are the more the e-commerce, the technology, the Biomet. So these are the ones that if you look at that business, they are less impacted. And based on what we have observed for 2020 business parks, we generally don't have a lot of so-called rental rebates being extended. So I believe that resiliency is exactly the strategic pillar that we wanted to move our portfolio such that as the retail portfolios do have that volatility. I think this one come on board and gives us the stability of core earnings, the resilience of the occupancy as well as the stability of the rent growth, more visible than we can see entering 2021. So we look forward to the coming in to augment the overall CRCT portfolio.

Okay. Sorry. Maybe just 2 more short questions for me. So in terms of divestments, is that still on the book for '21, perhaps for some of the smaller malls that you mentioned also quite a few last year?

Well, I mean, if you look at the portfolio that we have now, again, if you look at the growth profile, the value add, we can work the mall harder. Obviously, aging of the mall. So these are some of the parameters that I shared with you will be the guiding principle as we take a disciplined view of looking through our portfolio. We always be looking at which assets probably at that cycle point, it makes sense for us to unlock value and monetize such that we can use the proceeds to pursue better quality and higher quality, higher growth prospects. So this is something that we will continue to do. I mentioned that there's a couple of master lease, so we will be starting whether we can repurpose the building by AI or does it make sense for us to divest it if the price is economically right. So these are some of the review points that will continuously be doing low performing, low growth, noncore. These are the philosophy that we have shared with you, and we'll continue to approach it from that manner in 2021.

Okay. Maybe just one last one on Nuohemule. This more actually has an excellent connectivity in terms of train, right? So if I'm not wrong, there are 2 lines connected via underpass to this mall. So can you give us an update on that. Has the mall -- sorry, has the train lines -- are the train lines up and running?

The -- yes, it's actually one line that is passing through, and we are on top of this train line. So the line is actually in operating already. So we are actually in the process to apply for their connection into our basement. So that's where we are in terms of the status of the connectivity.

Next, we have Vijay from RHB.

I have a couple of questions on acquisitions and the gearings. Firstly, on acquisitions, how attractive is CapitaLand's Guangzhou Knowledge City portfolio to you in terms of acquisitions? And do you see a possibility of acquiring Phase 1 in this year?

Sorry, can you repeat again the part on the CapitaLand's portfolio?

Guangzhou Knowledge City. Knowledge City in Guangzhou, is that something which is attractive to you? And do you think you can do it as a portfolio basis? Is that something -- a near-term target for you?

I think Guangzhou Knowledge City is an interesting long-term project that is government to government and also knowing it's going to be the future planning and the economy they are preparing for the city. So I think long-term wise, it is going to be an interesting project. Except that this project as we speak, it's cut up in many, many phases and stages. So as a REIT, I think we are more connection of wanting to get the piece that has more or less having income and stabilized. So I think we will be looking at -- working closely with the sponsor to look at which part -- which phase of some of these projects are ready to be reachable, and this is something that we will evaluate. But to participate in the whole project where you have that multiphase development stage, that is probably not the angle that the REIT would want to go in, knowing that we do have a limit on our development cap limit, yes.

Okay. Okay. Got it. You mentioned that you are seeing some assets being shown in Logistics segment as well. What's your near-term consideration? Would you be looking more from a sponsor portfolio? Or if you're looking at third party? And would you be considering data centers also for acquisitions, considering these are new economy assets?

Yes. Our focus is really to hand to spend more time to understand the newer economy and bring on board as we shape the portfolio. So I think that is the investment focus. And when we say that I think we look both internally as well as externally. So given that the sponsor doesn't have much logistics. So that inherently would mean that anything that we look at logistics would probably be third party. I think what we want to share with you is that CRCT, we are constantly evaluating deal flows in the marketplace, and we will look at the individual investment merits of such before we consider what works best, but the guiding is that we would like to focus more to grow the exposure of the newer economy sector.

Okay. Is data center also the sector which you are looking at in terms of China?

Yes. So data center under our expanded mandate, they actually come into that asset class as well. So that is also something that we are working closely together with our sponsor to spot opportunities and probably find a bigger collaboration platform with some of the local partners that can allow us that entry into this data center space.

And considering your gearing is at 32%, you have a good debt headroom. Does your future acquisitions, do you still plan to fund it with the mix of equity and debt, do you have a gearing limit as such? Or would you be doing more into debt-led acquisitions in the near term?

I think you rightly mentioned that we ended the year on low gearing, so that gives us actually quite a healthy that headroom. I think one of the slides we have shown that number to you. For any acquisitions, I think the plan is always to assemble the optimal plan, and we want to tap diversified funding sources. And I think it makes sense for us as we grow the acquisition, we also grow our equity base such that we become -- we scale up in the right manner that will make us a little bit more higher up in the order ranking of the REITs and get us into better indexes that people pay attention to us. So I think that guiding principle remains there. Our gearing policy is actually we prefer to stay below 40% mark, notwithstanding that the MAS limit is 50%, yes.

Okay. Lastly, I don't know whether I have missed something on CapitaLand Qibao Mall. What changed actually for 80% drop in valuation this year? And why is the valuation higher without master lease?

The main valuation difference is arising from the different valuation assumption. Last year, the one carried at FY '19 was valued on the assumption that we will continue to extend the master lease for a further 20 years when the 2024 come for renewal. We have the right to exercise to extend a further 20 years. And that was the basis the valuation was prepared. Now for FY '20, we took the view that we want to be more conservative in case we don't exercise the right or if the economics of that doesn't favor us. So we want to take the view that what happens if we don't exercise right and the lease falls off in 2024. So the basis of preparing for FY '20 takes a different stand, right? We are only valuing it up to 2024. And that essentially explains the big difference because of the valuation assumption change.

We have a couple more questions, and I think your questions are important to answer. We'll take these questions, another 3 more questions that we have. Next, we have Derek from DBS.

Just 2 questions for me. I just want to -- look, I look at the operational metrics, right, it's improving. And I'm just wondering whether if you look in 2021 you look on your retail organic improvement, right. How much of the decline in 2020, can you recover?

A very good question. I will put it maybe closer to 20%.

Okay. So whatever you drop, you think you can recover just like-for-like 20% of that?

I think as we enter 2021, I think we have a good chance to aim for 20% improvement over 2020 on a full year.

Okay. That's only for retail, right? Okay.

It's only for retail, yes.

Got it. So my next question is, I mean, I'm looking at your pre-pandemic DPU about $0.099. I was just wondering whether -- I mean, investors have been asking whether -- when do you think you can hit that level? I know it's tough to guide but by looking at your acquisitions is their internal target that you would like to hit this level within the next couple of years? Or just wondering whether you can share some thoughts on that?

Well, I mean, it's a good question, although it's very hard for us to guide you specific DPU amount. I mean if we look at where we are trying to expand our mandate and shift our focus. And hopefully, with that, we trade at a better cost of capital. So I think all this are part of the similar objectives that we have shared, and we want to achieve certain re-rating because of the quality and the earnings visibility and resilience of this, right? So I would just say that we should look at it from that perspective and what is an appropriate dividend yield that we should ascribe to this vehicle when we achieve those objectives. I think the numeric -- it's less of a guide right.

Okay. Yes. No problem. I just want to hopefully get some color.

But the thing to latch on is that, I mean, if you look at retail, I think 2020, definitely, it has come down. What we are seeing is that the general market should improve over the course of 2021. So that should help us in that uplift. And if you layer that over with the business parks that we have acquired, which comes in at an accretive level. So that will help to have another lever. If you look at it, the double lever that will make 2021 a better than 2020. Yes.

I have a question from [ Gula from BAH ].

Can I just ask, okay, for Qibao, does it mean that the valuation takes it into account that it will be 0 by 2024? That's the first question. And the second question is what would the NPI have been in 2020, if the business park acquisition had been done in January 2020?

You mean the -- okay. You're right in the sense that the valuers are valuing it assuming the lease tapers off in 2024. So what's left in terms of the property essentially were 0 rise, except for certain fixed assets that is in the books of the company. That's not going to be significant. So the main thing is that over the next 3 years, we are likely to depreciate the carrying value of Qibao over the remaining 3 years. On your question on the business parks, off my hand. I may not have the exact NPI, but I think we can refer back to the circular numbers on how much is that incremental -- you're asking us how much incremental NPI we would have added on if this was closed as of 1st Jan 2020. Is that your question?

Yes, yes. So that the total NPI for 2020 would have been different. I mean wouldn't have been down, what, 15% to 20%, yes?

That's right. That's right. Because 2020 is essentially a measure of our portfolio on retail only. So I mean, let us let's come back to you on the specific, shall we. I mean I may not have the exact number, but I can refer you to the circular. I think where we did disclose some of the NPI uplift, assuming that the BP comes in.

We have a question from Mervin. How far -- how close is CRCT buying a stake in Raffles City fund from its sponsor based on the prospective financial metrics? Will it be accretive?

I think we are closer than before the mandate expanded, test is the first key takeaway. We are closer because most of the projects in Raffles City are more stabilized. We are closer because their own fund life are reaching a stage where they have to evaluate exit options. Right. As for us, whether we can structure it to be accretive, I think we will take the deal to you when it happens. I think that is generally our guiding principle. We want to make it accretive. I've demonstrated that there are a couple of things we can do. We have a healthy debt headroom. We have that diversified funding sources, and we continue to recycle capital for us to bring on board. Acquisitions that would add strength to our portfolio and yet achieve that accretion upfront as much as we can. So I think that is how I would just answer you at this juncture. But we have a deal to take you through. We can talk in more specifics.

We have a question from Wai-Fai. What's your gearing after taking into account all the divestments?

If you layer in the completion of the 4 business parks, they are still in the virtue of being completed, I think our gearing will move to the 37-ish that we have guided in the circular. So that remains there. And after the divestment, we probably have a reduction of about a percentage over in terms of gearing level, yes.

Okay. We'll take the last question from Terence, JPM.

I guess just a final question from me. I understand that CapitaLand still has a number of stabilized assets. In terms of business parks, including Ascendas I-link in Shanghai, Ascendas, Ihab Suzhou and also the build-to-suit in the Beijing technological development area. Would these business by assets be in the pipeline or would they be of interest to you for acquisitions this year?

Definitely, they are in that new economy pipeline that we will evaluate. I think we do share with you that our first move, we have acquired this 5. I think we also want to look at the remaining pipeline. So that's definitely a yes. But as we assess opportunities, we also sometimes want to assemble different assets, different cycle points. And also, we want to evaluate both in-house and external. So this is something that we will evaluate in totality. But answer to you is yes, they're in our pipeline, and we will evaluate them.

Sorry, just last thing. Given that these are in the Tier 1 cities, more Tier 1 than the previous batch of business parks. How should we think about some of the cap rates coming into the portfolio for these Tier 1 assets or in general Tier 1 business park assets?

I think the quality, if it's like-for-like quality, like-for-like Tier 1, Tier 2, I probably put it around 100 bps differential.

We'll just have a last question coming in, it will be from [ Monchen ] from CLSA.

I just want to follow up on Mervin's question from JP. Regarding the Raffles Cities discussions, is that particular preference for, say, Tier 1 or upper Tier 1 cities?

I think both Tier 1 and upper Tier 1 cities falls within the investment criteria. I don't think we have a very clear definitive preference one over the other. I think it's more so of the price, the value, the passing yield, the underlying tenancies, the growth what can we do after acquisition relative to the catchment and some of these opportunities. I think we approach it from that angle more so than to just pick, say, 1 Tier 1 and will consider Tier 1 -- the so-called below Tier 1. I think as investment locations, they are good locations. They belong to our cluster strategies where we want to deepen our presence. So long as the asset quality, the pricing and the ability to bring them and then be accretive, I think we are guided by that more so than whether is it Tier 1 or not Tier 1.

Okay. Thank you, everybody. We have come to the end of our results briefing. Okay. So sorry. Gula, let me answer with regards to your question on the NPI uplift. Yes. Gula. What we have presented in the circular on -- in terms of the distribution income from BP is about $20 million on a full year basis. Hope that answers your questions. Thank you. So if you have further questions, just feel free to reach out to me. I would be happy to answer any questions that you might have. Okay. Thank you all for joining us, and have a good day ahead.

Okay. Thank you, and have a good day. Bye.