CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi, everyone. Welcome to CapitaLand China Trust Full Year 2021 Results Briefing Call. I'm Nicole, IR for CLCT. [indiscernible] with us today on ESE, we're very happy to be able to expect this meaningful day together with you, all, this morning. So we have on the line here Tze Wooi, our CEO; Joanne, CFO; You Hong, our Head of IPM. So both Joanne and I are [indiscernible] to commemorate this day. So more importantly, we have our CFO in [indiscernible]. Over the course of the next hour, we'll be having a short presentation before we proceed to our Q&A session. So we will take questions after the meeting. So we appreciate if you could raise your hands. And if you have any questions, I will direct the time over to you for you to ask your questions properly. So let's get started, and I'll pass the time on to Tze Wooi. Tze Wooi, please.

All right. Thank you, Nicole. Good morning, everyone. Welcome to CLCT's financial presentation, where you see the financial effects of our enlarged portfolio, the investment strategies that we took last year, how it led to our growth and resilience. So let me quickly walk you through the presentation deck. Since our broaden mandate, I think our portfolio has really been strengthened, new growth pillars and income streams. So today, CLCT comprises 20 well-diversified multiassets across retail, business parks and logistics. With the footprint that is highly oriented towards Tier 1 and high-growth cities. Our AUM and the market cap has steadily increased year-on-year. As we rejuvenate our portfolio to capture the trends and growth, we are setting ourselves a apart and we're trying [indiscernible] in terms of delivering an attractive and stable return to establishing ourselves for China. So despite 2021, still going through a broader tower dispenser environment, and also China, taking the zero COVID stance, management has stayed focused to achieve the strategies to build the portfolio's brand and income resilience across the market cycles. So acquiring the business parks and the logistics are in line with this strategy as we divested to much of our retail assets as part of our recycling as well. So for the year, we recorded the highest NPI of about RMB 1.2 billion, a 78% year-over-year growth, primarily on the back of the acquisition-related activities. And besides our financials, we took active steps on the sustainability front securing the first sustainability link loan that's tied to our China portfolio. Participated in the GRESB. Very happy with the positive scores, and recognized by the industry for our proactive investor engagement and outreach. So here, you can see that the growth pillars that we aligned will help the vehicle to capture the trends and opportunities on the marketplace. And with China and persist on the consumption, the technology innovation and improving the middle-income wealth group. So we are really well positioned in those sectors, leveraging with our sponsors to make -- to write on those parts. So the significant revenue and the net property income attributed to both the retail, where we own now 100% and consolidate Rock Square's performance. From occupancy, you generally see a sequential improvement across our portfolio on the back of an improving operating environment where our tenants are doing better sales, and we see more footfall coming from -- more versus last year. And looking at the [indiscernible] release 2021, we are also having to extend less of that relative to last year. So in terms of quantum, it's about 1/4 of what we extended in 2020. On the other hand, the new economy, they have already helped us to bring in the incremental growth. They contributed close to over 60%. I think the performance since acquisition has been steady on the front of both occupancy and the rental reversions. All in, you can see the sequential improvement. And we are happy to distribute a DPU of 4.5 cents for the second half, translating to 8.73 cents for the whole year. On an enlarged unit base, I think the DPU increased 37% year-on-year. So let me now walk you through on the numbers. Arising from the stronger renminbi exchange rate and a small favorable to us, you see the slowdown effect in symptoms of the net profit income down to the DI, especially the DPU I have covered earlier. Balance sheet-wise, I think we are healthy with year-end translation, again, because the renminbi are strengthening. Our NAV is 1.54 at the end of the year. Gearing, we had hold it at 37.7%, very much within the management guidance. Our cost of debt continues to be held tight at 2.62%, with healthy interest covers. Our funding sources have continuously been diversified as we balance both offshore and onshore, and we continue to have a high proportion of our interest rate fixed as well as the FX exposure. The maturity is well staggered as can be seen from this graph as we speak. The facilities that we are looking at are in already advanced stage of finalizing that will help to refinance as they come due around the middle of 2022. This is a distribution details for all of us to take a note. The record date will be on the 10th of Feb and the distribution will be on the 7th of March this year. Let's run through the portfolio stats. I think since our mandate expansion now is about 15 months, I think you can really see the shift of the diversification of our portfolio both in terms of the asset classes where now the new economy is close to 22%. And from a geographical diversification point of view, we are intentionally trying to rebalance to -- from moving away from the overly concentrated on Beijing. So you can see that, at year-end, the Guangzhou, which is Tier 1, has been gone up as well as our capture of the Yangtze Delta, which is commercially a very strong region. So these 2 now makes up close to 30% of our footprint. Expiry profile for our portfolio, comprising of 3 asset classes, I would say, has been maintained at quite a stable range in terms of the business that we are in. In the year-end valuation, I would say that if you look at the different subsegments, retail generally have been held -- are stable, with 2 assets, Grand Canyon and Aidemengdun, reflecting the valuation down on the back of that slow recovery in the occupancy and the signing rents that we are seeing. On the other hand, business parks for year-end has reflected a few percent valuation improvement. Let's take a quick look at the retail stats. I think year-on-year, both traffic and sales, we are showing that increment. But if you look at the graph, I think you can see that in the cities that we operate, especially running the last quarter, starting from around August-September, you can see China having sporadic cases. And this, in fact, impacted some of operating number of days. So all in, in the second half, we actually lost about 96 days of trading days to work alongside the local authorities in slowing down and also doing massive testing for those cases. But from -- on the other side, I think sales have been doing well year-on-year on a per visit basis. So actually, you can see that effective marketing and effective promotions as well as the mix and being able to capture some of this spending that run through our mall. Occupancy, we have guided for improvement every quarter. I'm happy to say that most of the malls now are trending back towards where they were naturally around in a pre-COVID season. Our #1 asset in Beijing has been trending close to full occupancy. As a result of all the proactive tenancy adjustments that have put in place this year, the performance of the lost are starting to gain back that momentum. I think the same strategies we'll adapt and be a bit more flexible as we look at how to treat some of the existing tenancies, balancing what are the new ones. They want to attract vis-a-vis some of the data formats that we're starting in the mall. [indiscernible] the portfolio for the full year, it's a negative 3.4% on the back of about 18% of the NLA, contributing about 82,000 square meters. The wheel for the retail has been quite steady. These are some of the examples of what we have brought in into our malls. The latest additions for some F&B concepts and some of the more trendy and partnering with tenants to raise environmentally awareness. So these are some of the things that we are using our mall as a place maker. Let's move on to the new economy. So you can see from the business park side of things, the occupancy have also been trending, I would say, steady towards the higher level of 96%, 97% since acquisition. And across our portfolio -- our assets, they are trending above the submarket competition. I think this arises from the good relationship that we have from the local government and sharing partner, which allows us prepare well in terms of what to attract and what kind of tenant community we are trying to build in our parks. And reversion-wise, I would say that the business parts have been trending very steadily, 7% over 2021, which constitute about 25% of the NLA and about 179,000 square meters. And if you look through the mix of what we are looking at, I think electronics engineering continued to be strong. Biomedical science when we look at reversions both new and also the renewals, these are kicking in quite steadily. And I think these are the growth sectors that our parts are exposed to for over 64%. So I think we are observing quite good confidence on the ground on this park renewals. Expiry profile across the different assets as can be seen over here, relatively stable in terms of their will. And these are some of the examples that we have introduced in the park community. Logistics, I think this is the acquisition that we had -- that was completed in November. So you can see that they started to contribute in the last 1 to 1.5 months of contribution. Since acquisition, I would also like to highlight another occupancy. It has been trending and improving, especially for [indiscernible] we're moving from 90% to 92%. And most of these tenancies come with the built-in rent escalation. And since the 1 of month, I think we have signed 4 -- renewed 4 leases and quite steady state of about closer to 30% organic level. So these are the expiry profile as you see more in the Wuhan and Chengduon. So I think most of you are very familiar with the strategies that we are executing for CLCT since our expansion. I think you can really see us taking that active reconstitution approach to create and allot. And then you can see us diversifying to 2 new asset classes and adding more resilient revenue streams to our portfolio. And also looking into how we're going to shape our footprint into the targeted growth zones and cities. And we do that by demonstrating the ability to go engage our sponsor in bringing in quality pipeline as well as the ability to source for new acquisition opportunities from third party. And we continue to stream and look at what are the existing assets as they go through their different life cycle, monetizing some of the older ones and bringing in new assets to give the growth capital lease and having a longer run rate. And for all the assets that under continue to look at opportunities to extract organic growth and also to apply [indiscernible] lands for assets that are reaching a stage where a lot of these anchor spaces are reaching the expiry stage. And we can do a lot of things to the area that we are taking back. This is the road map. And I think that we have shared that, in terms of 5 years, we really like to scale ourselves up. Near term, we are looking at more of the sizable and quality assets [indiscernible] in the new economy asset classes. And I mentioned that we'll continue to look for inwards and external as we look to diversify. And how to posture the REIT to better align with China's economic on growth. And you can see from -- quick one over here, now we are almost 22%, adding the new pillars of business park. At the same time, we continue to look at the exceptional value. I think we're excited. One thing is asset, since IPO, I think most of you are familiar, we've been top contributor all these years. And over the last few years, we have actively looked at how to recover some of the areas back from the current store. And we started in 2018, taking back 1 floor, a level before. And now we are taking back the remainder of level 1 to 3. So this will be -- giving us a good opportunity to really refresh and add new offerings to that zone, where we can attract more younger shoppers. And so far, I would say the work has been progressing well. I think over 30% of the NLA has been secured, and we're looking to look at what kind of mix to create around there that will have better synergies with the other floor levels that we are currently also renewing. On the other And, I think Asendas Xinsu, I think we have done a co-working space, leveraging on the Bridge Plus platform that we have across different formats in Suzhou, Guangzhou we're introducing that. I think, again, there is a good news of what we think are the space efficiency opportunity at level 1. And I think this is going to create a little bit more of the space demand. And also the tenant community within how we want to shape around in our project in Suzhou. So I think the outlook for 2022, I think, operationally, the business environment, I would say, continue to be challenging, given what we see happening across China. It's a very heightened pace of the COVID containment strategy right now. So in terms of consumer spending, I think the confidence level is quite susceptible to how things are being contained and how the COVID-19 situation has been controlled. And a lot are also premised on how the government -- so all this is coming out to stimulate. From what we can do, I think we continue to enhance our operating efficiency and the financial performance of those assets that are core to us as we look at new approaches to be very flexible and nimble towards the rate changing environment. So if you look at what the governments are doing, I think the stability of the popular I think this ran very high in terms of what the priority is. So we expect to see local governments boosting consumption, coming out with new policies, certain approaches in campaigns to drive that part of this. From our point of view, we continue to be nimble and flexible. We're looking at all the tenant mix and also to redefine some of these order formats and spaces to continually attract shoppers to come in. I think leasing environment continues to be competitive under this climate. And I think what are doing is to really look at consolidating the core assets and looking at opportunities to unlock and monetize some of those assets that have reached that cycle of growth. Business park side, I think we are well positioned, I will say, to benefit from the whole government -- central government's intention to upgrade the economy towards more innovative, more technology-driven. And these are the typical tenant base that our parks are exposed to. And we continue to see a range of policies, tools and incentives that will be channeling towards supporting their priorities. So I think business confidence on the ground in these sectors continue to be positive. And I think so far, looking at the leasing demand and the interest continue to be strong for those sectors that we are targeting. And I think logistics-wise, we continue to expect the underlying growth fundamentals to continue. I think demand is still strong coming from the e-commerce, the 3PLs and also the manufacturing. So I think this continues to be the underlying growth fundamentals that our past logistics are exposed. So I think that would end of the presentation, and let's have more Q&A. Over to you, Nicole.

Thank you, Tze Wooi. So I'll now proceed on to the Q&A side. We have Geraldine.

Happy Chinese New Year eve to everyone on the call. Maybe just to start the session, can you share with us more on rental rebates for both retail and new economy segments and -- as well as what you expect to pay in rebates this year?

If you look at the whole of 2020 and whole 2021, I think 2020, we extended close to about 1.3 months on our portfolio revenue. I think that number will start to be closer to like about RMB 150 million account level. So to contrast it to 2021, that number is closer to like the 25% to 30% range of that. So if you look at the underlying situation on the ground, I would say that we have done a lot to assist the tenants across 2020 and 2021 by giving some upfront rebates and also looking at leases. So all these are, I would say, in tapering as we enter earlier part of -- rather the latter part of '21. And from a retail business point of view, I think we stand more ready to support for pragmatic reason. I mean it's due to the local government deadlines that we have to stand out for, let's say, a week. I think it's very difficult for the -- our retailers to be paying rent, assuming like nothing is happening because their more point of sales is impacted. So I think we're going to continue to -- and then from that perspective, being more selective in looking at how to support what kind of tenants or what kind of periods. Going into 2022, I think it's a tough call to say how much we are going to give. I think it all depends on how the ground situation. I mean looking at where general markets are moving outside of China, I think you tend to be also wanting to be a bit more confident that as vaccination rates go up, China is developing their own mRNA technology as well. And after the important Olympics and also the key meetings, we are hoping that the environment will be shipping towards one that is more going back to a normal state. And I think with the government also adding more stimulus, all these are hoping that will help towards an improved environment to talk to the retailers and the business confidence start to comeback. So I think these are the things I can share with you, Geraldine.

Okay. If I may address another short question on retail reversions. So does this number account for leases before the COVID pandemic, so say your 3-year lease expiry are still kind of finishing up this debt short renewal?

Quite -- I would say the reversions that we have reported are typically taking the first year of the incoming versus the last outgoing. So I would say some are actually signed 3 years ago for the outgoing. There are a couple also 2 years and some short-term renewals happening. So it's actually a combination of all these factors. Typically, because of the [indiscernible] of about 2 to 3 years, you do see us signing rents now versus those that are tapering about 2 to 3 years that we signed ago. Yes.

Thank you, Geraldine. So now I'd like to pass on the time to Terence. Terence, JPM, please.

Happy Chinese New Year to everyone. I'd just like to ask 2 sets of questions. In terms of, let's say, going forward, CLCT has already pivoted into new economy assets this year. We saw about 21%, 22% of AUM in new economy assets. So would you consider more acquisitions in the new economy space this year? Or do you actually see opportunities for acquisitions, as I say, further retail integrated assets?

Well, I think longer term, I think the thinking is to really build a quality diversified portfolio that is as that resilient nature across asset cost movement and market cycles. That's it. If you look at where we are trying to do, currently, we are still about 78% retailable. I mentioned that the strategy is ready to look at which are the core retail assets that we continue to see opportunities for us to grow organically as well as there's due in AI opportunities. So I think these are the basket of all retail continue to want to keep and continue to look out for as well. At the same time, there are a couple of retail in our portfolio. I think we are showing a little bit of that stage, where growth is harder to come by and take into account the competition as also the balance lease. So I think these are some of the things that I mentioned earlier that we'll be looking out to reconstitute ourselves so that we can recycle. The emphasis is still on looking out for new economy, primarily because of the active deal front that we are seeing that can still allow us to add that resilience of income and also being able to help us grow accretively in terms of earnings. If you look at the business environment outlook, I would say the new economy continue to be more resilient. Just now Geraldine asked me, I think in terms of the new economy, there's not much of rental rebates that we need to give. Aside from those retail amenities, the smaller enterprises that are resigning in our park, vis-a-vis retail tenants, where their primary sales is true through our mall. So I think the way we look at the susceptibility to the zero COVID situation, I think having more new economy streams do give us the stability to anchor what we are going to do in terms of pivoting.

And in terms of my second question, I wanted to ask given the concerns on the credit loan of property developers. And we've seen quite a number of property developers announcing asset sales. How do you see the environment for divestments of your older retail mall and also the environmental acquisitions of new economy assets?

I think for that investment, I think we have to like what we have done in the past to really know the domain market as well. I think we have successfully divested, I would say, 5 assets, out of our original park. And we have done it through by understanding the marketplace, seeking out opportunistic -- or rather opportunity that are developing in the local marketplace. So I think this is going to be another strategy that we are going to look at as we look at how we should monetize some of our assets. On the acquisition front, I would say that the new economy sectors continue to be highly garnering a lot of interests. I think for obvious reasons, right? I mean we mentioned about these sectors able to be more resilient and also having that growth exposure and also receiving quite a lot of policies around those business. An example of what we can do is as we reconstitute, as we monetize, as we continue to look at the new economy assets, I think we are always trying to assemble that funding mix can allow us to bring in use that are accretive to the nature of business that we are building for the next few years. I think we work very closely with our responses in terms of opening up new opportunities in the spaces where we will not have a lot of readily available assets. But for those that are readily available and stable, I think that is something that we'll definitely be evaluating this year as well from our sponsor.

Next, we have Joy from HSBC.

Happy Chinese New Year. Two questions from me. First, on operational side. Could you share a little bit about where sales and sort of rent versus pre-COVID level? And I guess importantly, with this ongoing sort of lockdowns -- and temporary lockdowns, how does that affect your rental negotiations with retail tenants? Yes.

Okay. As a portfolio, I think sales we mentioned, year-on-year, we have improved. Relative to a more pre-COVID, the average line, I think we are still -- as a portfolio, we are still hovering closer to like 82%, 83% level. Obviously, within that portfolio assets, we have assets that are trending, recovering much faster. We are pushing closer to the high 80s to 90 level. And then you also have, what I mentioned, certain assets that are going through a little bit more, I would say, shots to their system in a recovery. I think if you look at our few cities, I think having is, I would say, on whole, impacted more than others across 2021. I think we did a mental count. It's like they are asked to go through this support 3, 4x. And have been -- have 96 days of impact to our operating numbers. So back to your question on how it impacts our negotiation. I think, obviously, we always try to do things -- and new things down at a best window of time. But whenever you are in the mode of negotiation and such things happen, chances are both parties would then have to take a longer time to commit. And this is where I mentioned that, at times, you have to do the balancing trade-offs of what we feel a window should be and how do we want to secure tenants over a shorter term or over medium term. So I think this all come into play. And I think I've shared many times with you guys that rental reversion, the way we report is just one metric to look at. But the business that is -- we are building for retail, it's really much more than just a rental metric kind of situation. So I think we have to think through what are the changes in consumer patterns? What are the physical mall spaces that we can do to add in certain highlights? So these are all park and parcel of that operating skill set, that we want to build on the ground. So I would say that whenever our malls are going through this stock in mix negotiation a bit harder, but what we have is the tenant relationship [indiscernible]. And I think we have the big platform with our sponsor together to work this through with the kind of tenants that we want to develop relationships over a longer time. Across the different tenants, I would say F&B continue, I would say, during this period of time to do well. If you look at our portfolio, we have consistently been diluting down the exposure to fashion and accessories that are more susceptible to negative reversions and having more impact. So I mean if you look at how we are shaping up our portfolio today, especially after adding in the new economy, retail exposure, if you look at fashion now only constitute about 15% of our portfolio in GRI. So in terms managing the thing, technically, what we are trying to say is that we will be taking a lot of all these adjustments, technical decisions along the way to improve the portfolio's business over a longer horizon. I think rental reversion is just one small metric that we have to bear in mind as we look at the bigger picture of competing in the marketplace.

That's very helpful. And just my second question is on acquisition and capital recycling. You mentioned a couple of times about looking at the portfolio. Could you just give a sense as what you can get from an exit cap rate on the retail assets today? What sort of the transaction cap that you're looking at for the new economy assets?

For new economy assets, I would say that largely, the very highly sought after tier cities, with the kind of asset classes, things are trending from 5 to even slightly to high 4. So I think these are the kind of transaction categories that we are seeing for the new economy for logistics. For business parks, I would say that there are lesser changing of hands. I think it all depends on who owns -- the operator behind. And typically, these are having a little bit of a JV concept with government. So I think for business parks, I would say, the transaction cap rates that we have to look at, it's probably closer to the 5 to 6 level. So I think that's just the broader side of things. For exit, I think it's harder to talk about the exit cap rate given some of the assets during the course of 2020 and 2021. The [indiscernible] income profile has been impacted. We have a lot of these one-offs of rent release and so forth. So I think that metric may be a harder one to generalize. But I would say that valuation that we have been keeping on our books are not excessive. If you look at the per square meter basis, if you look at the rent of use that we are trading, I think we are very much within range to be able to do something about it. Yes.

And then if I can just follow up on exit cap. Do you still see sort of active capital when you're looking at the traditional type of assets?

Very selective ones. And these are specialized setups with the intention to look for those value add and being able to come in and having that operating partnership -- operating skill set that you can do and reaching the portfolio. I think retail is going to require that part of skill set for you to really able to extract value out of it. I think it's no longer a very straightforward game. Other than that, local people are looking at potentially locations on what these buildings can play with respect to their own other business presence in that locality and what some of the redevelopment potential might come up. So I think these are the spaces and opportunities that we are keeping our antenna that reach up to look at how to find potential people to work around if we want to talk about exit.

Derek, we will pass the time to you, please.

Best wishes for this coming year of the tiger. And please try not to report in the even future years for our benefit.

[indiscernible]

Okay. Going back to the retail part of the business, you mentioned that you're probably around 82% to 83% of pre-COVID in terms of tenant sales for the portfolio. Do you have an in-house forecast for the tenant sales growth for this year? And what are some of the core assumptions in the forecast?

It's a very good question. I think the -- I would say we are trending for the stronger ones. We would like to close the gap this year to get closer to the 90% mark. Meaning that we are moving from 80s to the 90s level. We have a couple of assets that we are going through the AEI. So these are the ones that, post the AEI, I would expect sales to be able to even exceed the level that before of the 2019. So if you -- the situation now is that because of AEI, there is going to be a little bit of downtime so they will not be able to contribute. So particularly, if you look at -- one thing, if you look at Changsha, these are the AEIs that we are working through for the year. And as a result, the ability of the space to generate that full sales will be -- will have been taken into consideration. But post-AEI, I do expect to be able to run at sales that are better than 2019. The stronger malls, like Rock Square, have been doing good as a matter of fact. If you look at Rock Square going into 2022, I would say the tenant sales have already exceeded where they were in 2019. So you do have pockets of assets that behave differently, whereas the ones that, again, a bit longer impacted by this COVID, like the Aidemengdun small having a big education base, these are the ones that I think will continue to be a bit off from the '19 level. So I would say on a full portfolio, I think these are some of the metrics that I think I can share with you. It's probably harder for us to give you a definite number in terms of where we achieve for 2022.

Okay. And my follow-up question, with regard to potential acquisitions of new economy assets, I noticed on Slide 7, I believe, you have that diagram of like 4 pillars and the one on the extreme right. Yes, right there. So you have that gray shaded thing on the right. Is that a placeholder? Or are you expecting other new economy of assets to be there? Otherwise, 3 pillars would be just as good as 4. So why the 4?

Okay, this is fairly optics. I think from a business point of view, I think what we are trying to guide is that the new economy is going to help anchor. And if you look at where China is putting that priority, it's really about domestic consumption. And domestic consumption, you have the retail and the logistics. I think these are all trying to capture consumptions. Potentially, if you look at business parks, if you look at where technology, where the digital is going, our mandate technically can also include other hard assets that probably can along those tune of capturing the infrastructure, the digital part of things. I take a point, as of now, I think the focus is really these 3 are the ones that we are working on, I would say, from a pragmatic standpoint and also looking at some of the new flows that we are evaluating.

I'd like to pass the time on now to Terence Khi.

Happy New Year. My first question is for the business and lock parks. Could you please share what your outlook is with regards to rent growth and reversions?

I think for the business parks, I think we expect rental reversions to continue to be stable and positive around the mid 4% to 5% level. I think that is what we are seeing from the leasing renewals, discussions and also the interest and the demand that we are looking through our portfolio. There's a slide on the respective. Yes. So I mean just using this slide as a reference, Ascendas Innovation Towers and the Hangzhou Phase 2, these are coming off from what we typically called the 3-year lease cycle stage. So you see a little bit more volume that we are reverting of leases that we signed about 3 years ago. So you see a little bit of that push. Other than that, if you look at the organic patterns of our business for both new and also for those renewals, we are able to revert positively. So I think a good reference point, I think we'll continue to see that confidence on the ground. And we expect that 4% to 5% rental reversion for the portfolio as a whole. In the logistics space, I think I mentioned organically, we're also seeing that the market is growing at about 3%. I think for our well-located logistics in a very strong hub, I think that's something that we can move forward as well.

I see. And do you mind commenting a bit on the kind of rent growth in the market for these 2 segments?

I think the logistics, I think there's a lot of research article. I think it's really dependent on which tier cities -- in which specific markets -- I mean, for the markets that we are in, which is the Shanghai, the Fengxian Greater Shanghai site. And if you look at our location in Chengdu, which is very core and near to the airport and the transport node, et cetera. I think the general view is that leasing interest is -- continued to be strong. And the market rental rate of about 3% is probably in the order.

I see. And what about business parks?

Business parks are harder for us to generalize because business parks are very specific and unique to its own location and the tenants and the sectors that they are uprising. But I would view that 3%, 4%, 5% is probably where generally people are expecting for rent renewal.

Got it. Got it. And maybe just a last question to clarify. Do the business parks have rental escalations within them? Or is it just the log parks? And also, if there are, could you guide on the rate of the rental escalation?

We do have. Although from a -- proportion-wise, it's not as high. The fact that we raised the log park is because the portfolio comes actually with a high percentage of that. Our business parks do come with the rent escalation. So systematic, some are flat. Some are [indiscernible]. The percentage you can recall us the number that we had for -- let's come back to you a bit on the more specific. But definitely, if you look at the various parks, they behave a little bit like these submarket offices. Tenant profile are different. So they behave more like office setups. So we do not have very high, but I think organically, we do have, yes.

Wai-Fai, over to you, please.

Happy Chinese New Year. A few questions. Firstly, on your tenant sales. You mentioned, in respect to 82% to 83% of pre-COVID, are you able to break this down by Beijing and non-Beijing malls? And which do you think are the top 3 performing malls at the moment?

I would say top 3, in terms of the competitive capability in our portfolio, I think Xizhimen, Rock Square. One thing of this AEI, Changsha because after this AEI. So I think these are the ones that we look at sales performance. They are stronger, and they are already, I would say, pushing closer to the high 80s relative to the average portfolio of 82, 83. So these are the stronger performances in our portfolio.

And do you have a breakdown for Beijing versus non-Beijing markets?

For Beijing, non-Beijing, sales-wise, I think they are trending, I would say, not a lot of differences for the sales part of things. For traffic, I would say the Beijing malls are actually being lower relative to the rest of the malls. The northern sectors, Beijing has come under a little bit more tightened protocol for more frequencies. So I think that set itself into the metric that we report for the year. But for sales-wise, I would say Beijing is actually pulled up quite a fair bit by the stronger malls that we have of season ends. So that actually just tied off from Beijing, they are also very much in the 80s.

Yes. Okay. That's clear. Secondly, is it fair to say that rent reversion for 2022 would still be flat to slightly negative for your retail portfolio?

I think that is probably a good way to look at this. I think if you look at rental reversions and if we were to really break it down into those tenants that we retain and renew, I think it takes about probably 60% thereabout. And 40% you probably churn. I would say that more pressure comes -- more pressure in the sense that I think more rental flexibility terms that we have to come with when you want to attract new tenants into your mall, especially the [indiscernible] and [indiscernible] concepts, and they have to invest on certain capital expenditure. So these are the ones that you attract them. I think the rental rate for the first year, we probably have to be a bit more pragmatic about things. But for those trade renewals, we are looking at more flattish across the portfolio. All the subsegments, I think those have done well. F&B, we continue to see positive trends reversions as they renew themselves. So all in, give we are trying to churn quite a lot of the tendencies, I think for the retail, also taking into consideration the confidence because of COVID situation. I would say that small negative is probably something that we are looking at.

Okay. That's clear. In terms of capital recycling, it seems clear that [indiscernible] is a divestment candidate. But besides that, which other malls would you also categorize as non-core?

I think I'll start off by looking at a few parameters. I think looking at their running balance lease, that's one criteria we look at. The other one is looking at the current performance and how they are able to recover and cope looking at the competitive landscape. So I think this -- and obviously, is to see whether, the asset itself, we're able to have a lot of opportunities to reposition either from AEI or redevelopment. So I think, broadly, we are scanning our portfolio using those parameters. We tend to want to have malls that are bigger, well located, more able to compete with other places. Smaller ones, like I don't know probably not fit on the call. I think Grand Canyon, in terms of performance, have -- although we have been doing things to improve on it, but it's potentially also a candidate that we can look at to add long-term value. The rest of it I think I mentioned we are going through AEI. The one upside will come through later part of 2022 and 2023. Between those small ones -- there's another small one in Beijing. I think that's more a reposition and redevelopment play . The anchor leases are due in 2024. Well, that's something that we are looking at potentially to redevelop or reposition the building from a true master lease to [indiscernible], to something that we can do onto ourselves. Again, that will create -- that in development upside for us.

Just one last one, sorry. The lease expiry at Yuhuating, Xuefu and Aidemengdun seems high at 50% to 60%. Is there any rising risk we should be aware of for this 3 malls?

Let's see. Let me take a look. Wai-Fai, are you referring to this slide?

Yes. Yes. Yes, correct.

Yes. So I mean...

Okay. Okay.

Yes. So I mean.

I was probably looking at the wrong year, just Yuhuating then.

So this is the one. I think if you look at the typical year as we start the full fresh year, 20-over percent of NOA and 30% of the rental income is probably quite natural. Yuhuating is because of some shorter leases that we have entered in the last few years. They are probably coming through this year. Yes. I don't think we have anything very specific to highlight. Yuhuating, I think the warmer anchor space, I think more or less have been secured. So once the AEI is put into a program, we do expect a little bit of upside program once stabilized, similarly at Yuhuating.

Coming back to the question of the building escalation for the business park tenants, I think typically, like Siew Bee has mentioned, for the -- this is a live office for our typical 2 to 3-year lease tenants. We do not have building escalation. If it's beyond 3 years, then it's probably with the most tenant-specific the it tracks the inflation. So as a percentage, I think the tenant with rental escalation is probably not a lot less than 20%.

So I'd like to push the time to Derek now.

[Foreign Language] I just got a few follow-up questions. Firstly, on your -- this new economy assets, right? I'm just curious -- whether the current metrics are looking very good. Just going into 2022, are we confident that you will remain so? And any impact of this China clampdown, i.e., AuTec that some of your state economy tenants may think about downsizing? Any such discussions or no such thing at this moment?

At this moment, that is definitely something that we are watching closely. But I would say that most of the tenant base that we have, I mean, if you look at this slide, so far, I would say that the clampdown doesn't really directly impacted us very much. I mean, starting from retail, I think all of you have heard about the education sector being so-called impacted. But if you look at our own profile of our tenant mix, education is up at this juncture, only that 2%, 3% level. And you scan through that education, a lot are in our malls doing the interest type of things, like hobbies, talk about music, dance movements, photographies, apps as well and so forth. So these are not really the target ones. What we are seeing in the education sector is that there would be definitely be consolidation and collateral influence. As a result, our education, over the last 6 months, I would say we do have a little bit of downside risk to us. And we have actually moved them down from about 4% NLA to low 3% of NLA. So this is what we have done in the last half year for the retail side. Other than the education that come to mind, I think the rest of those -- if you talk about our essentials like F&B, supermarket services, these are not really being targeted. In fact, I would say that the whole middle income, the prosperity things and the segment that we are in, is very much playing into what the government's intention is. So I think on this front, we don't foresee a lot of regulatory impact to that. So moving to the economy. If you look at where our main tenants are coming from, they are coming from electronics, engineering, financial services, biomedical. So far, these are typical onshore. Their own names they want to promote in terms of promoting their own technology innovation and so forth. So we don't foresee many of such regulatory clampdown directly impact our tenant base. From the lease renewals that you have seen give us the confidence that I think as approach 2022, currently, the business on the ground, the confidence that we are receiving is still positive in terms of space demand in terms of reversions that we are seeing.

Okay. Sounds good. Just a follow-up. So on your AEI at Yuhuating, right?

yes.

So I presumed the department store is getting volume. So they have been scaling now over time. I'm curious on the total exit here. So do you reckon that -- I don't think there's any more anchors right at the mall. So do you think it can perform well with just largely special deal? Just your thoughts on that.

You mean for Yuhuating, is it?

Yes.

Correct. Correct. Correct.

So far, Yuhuating, are right, we have exited the department store. That is to be expected. Actually, if you look at our malls across our portfolio, we don't have department store, except Yuhuating. Yuhuating is actually the last -- what do you call that? The last one that we have with it. It took us a while to negotiate. I think they were also going through a little bit of, I would say, difficult decision making on because they have been sizing down. And the fact that they've kept this going for a long time was because it's still doing okay. But I think it reached a point where we thought that the big space allocated to them is not really helping, first of all, our business and their business. And I think we came into agreement to let go towards procure 2021. So now that we've taken back, we are relooking on the leasing synergies we have. Because the building is such that they occupy one tall block on one side, and below is actually their supermarket. So we continue to have the supermarket as the anchor. So there is -- another thing that we are actively discussing with them, because, again, there some potential, hopefully, that they can scale back as well and release more area for us. But one thing that has been, I would say, the part that is non-DSU-related. Have been going through at least 4, 5 cycles of reversions, adding on a little -- a lot of that offerings that resonate with the community. But this part of it has taken a long while and has become a little disjointed. So I think this recovery of space will definitely help us to reposition and cross the leasing walk across the flaws. And I think after that, AEI, we do expect some positive in terms of income.

I think part of our observation in the past few years of the department store as an anchor, probably does not so much on health. But in a way, sometimes even address the performance a bit, if you may. M&A Singapore, you have seen some examples. So I think we're not so worried that the department store goes out, I think the mall will still continue to do well. And by the way, I think, I'd like to mention, there's still a supermarket in this mall. Yes. So we are...

I mean we're not so worried about what we can do in the space. I think definitely the space taken back is a good upside story for us because we don't really -- the department store concept anymore in the positioning of the mall and the community that we are attracting. So it's more so of what can we create? What kind of new concepts, brands that we want to develop with our partners? I think that's taking more of the thinking time that our team is doing on the ground, more than whether we should keep the department store. I think the decision, not them, is definitely the preferred one. Yes.

I would like to pass the last question over to [indiscernible] please.

Happy New Year -- Happy Chinese New Year for tomorrow. Yes, I thought -- okay. Can I start with one question? Some of it I think you've answered. I just wanted to know which of your malls are facing the most competition? I'm aware Grand Canyon has given you some trouble. And you say the 1.5 in Aidemengdun is also quite small. So what about Xinnan? Is that -- that's the one in Chengdu isn't it? And is there a lot of supply in Chengdu? [indiscernible]

Yes [indiscernible], you're right. I think in terms of -- you frame it as competition. I think the malls that we are finding a bit more competition in their locality is probably [indiscernible], Aidemengdun and Grand Canyon. In Chengdu, in Xinnan, I think the location is all right. From what the mall is going through, it's a little bit of the tenancy. I think Xinnan came to our portfolio with relatively high proportion towards that fashion. And I think we all know that in the past few years that sector, especially if you talk about the fast fashion, the Zara's of the world, the H&Ms, their sales growth has -- and I think because of overexpansion. And I think across 2021, a little bit of those issues arising from cost of materials from. So I think all this are making trading performance and how they look at -- how they want to consolidate their physical store. So I think all of these are going through in the industry. And in terms of Chengdu's case, we are also going through that phase of when the leases are up for renewal. We continue -- if we continue at what kind of terms? Or do you take certain decisions on this prime space? There will definitely be a lot of time what can we do over the longer period of time that can make the mall have a more lasting attractiveness that can secure more shoppers into our mall? I think [indiscernible] going through and the specifically what's going through Chengdu in that now.

Okay. And then, of course -- is it -- the small mall in Beijing, what it's called?

Shuangjing.

This mall, it's Shuangjing.

Shuangjing. Shuangjing Mall. Yes. Yes. You once said that you had a chance to reposition or redevelop this. Is that still on the cards? I think you mentioned it again.

This is definitely in the preparation costs. For the longer time, it's master leased to 2 big spaces that take a 5%. So these 2 anchor leases are coming due in 2024. So I think we have already started certain conversations with these guys, making the intention clearer to them that we will likely want to do something to the building and not likely to extend on current terms. I mean these are the conversations that we are having. Obviously, there's a lot of work to talk to the pending authority, on the client, on what terms allow us to redevelop. It's a retail building that we are making for certain areas, for example, to do a little bit of hotel and offices coworking. So I think these are some of the ideas that our team has, and we are hopeful that engagement with the regulators, the authorities and also the tenants that we have with us. So this is really something that we're working through.

Is it very well located that you want to keep it?

It is in, I would say, very well mature location in [indiscernible]district, very dense and captive catchment. That said, you're right. I mean, we are looking at how do we optimize our asset value and returns. Do we do redevelopment? Or potentially do we then sell redevelopment potential, and with a potential to buy back when the product is reaching -- actually the REIT can be derisked. And also we don't have to take that downtime in asset cycle. So I think these are some of the business decisions that the team will run through. And we'll definitely share with you when we are at more appropriate time.

The other one is on your capital management. Because your onshore loans are like -- only like 20. Was it 20%? Is there -- are there any plans? Because PBOC is easing a lot while the -- obviously, the Fed is tightening. Is -- are there any plans to sort of have more onshore loans? What's the cost of debt onshore versus offshore now?

Overall, we are reporting an average cost of debt about 2.62 as can be seen from this slide. I think if you look at where our onshore loans, typically they are packed to the PBOC rate in the past, but now they call it loan prime rate. And you're right they are leasing. So I think if you look at where our capital investment, maybe is talking about potential interest rate increase on the offshore part. But I think we are fortunate in the sense that our onshore part will probably enjoy a little bit of that step down leasing. Just to share with you that after we complete the logistics portfolio, we managed to refinance those onshore debt from a level of 5-plus to now about 4-plus. So these are the opportunities that we continue such that we can bring down the onshore and overall our cost of debt. Not too long ago, we are almost 100% offshore. Now we are moving above 20% to onshore. And I think the general direction is that the onshore rates will continue to ease down, while the offshore rates will continue to rise. So I think they are no more converging. And this gives us that advantage and flexibility as we rebalance some of these loans. So onshore loans, we will definitely be picking it up during our acquisition nature and activities, because most of these companies onshore do have this loan for the tax shield purposes. So as we do the acquisition, that churn will be more onshore loans coming to the floor. Right now, obviously, there is still a differential -- LPR in China is growing about 4.65 or something around that order, 4.6. They just recently dropped 5 bps. Offshore is today on, let's say, a 5-year tenure. And you fix the rate, it's probably going about close to 3%.

So there's MPN. There's a bond that's due for refinancing this year. Will that be -- in dollar, will that be offshore?

Those MPNs that are coming due for this year is in sync. And we are claiming it at a much higher interest rate because that was brought in about 4 years ago. So this is another opportunity. As we refinance, we expect to be able to enjoy some improvement in refinancing rate.

Next, just on the banks. Chinese banks are willing to lend, right? It's not that there's a problem there, because some of your peers have seemed to have problems with -- this could be financed?

I mean -- yes, I mean, so far, we are fortunate. I think, first of all, our own vehicle service is a very stable vehicle. Our properties are stable. Cash flows are stable. And the banks that we have on our panel have been with us for a long time. So they understand the nature of our business. We have been having the rank of local banks in China from those names that you know. So I think we -- I just shared with you that we managed to refinance so that is not an issue. In fact, the banks are also looking at their loan books. And I think they will also be looking at the risk return profile. I think -- for us, I think the credit risk, the property and the cash flows, all these are giving them the comfort for smooth refinancing problems, the headwinds that the developers are facing. Because they come from a very different business nature, and they're opening up [indiscernible] we are not have been holding at this kind of 30-over percent leverage. -- repayment.

Thank you, everyone, to wait for your time. We've got a range of topics in this briefing, so we hope it was insightful for you. So before we go, Tze Wooi would like to share some closing remarks.

Yes. I mean just very quickly. I think where we stand today, CLCT, I think the portfolio is more resilient as you have seen. The financial effects of those new economy asset classes have come in to contribute, and we will continue to contribute further in 2022. In fact, they will contribute even more in terms of having the full 12-month effect. I think we'll focus on executing the strategies that we have laid out to build that diversification and also the income resilience as we shape ourselves into a more quality portfolio. So we believe that we will continue to offer a very good, attractive and stable return, giving investors that exposure to China's future economy. So yes, on this note, let me just wish everyone a Happy New Year. And we can welcome the Tiger with lots of good fortune and prosperity to one and all.

[Foreign Language]

So thank you all for joining us. Happy New Year to all, and wishing you a good health, happiness, prosperity. Thank you.

Thank you, everyone. Thank you for your time.