CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Thank you for joining us for our first half 2022 results briefing call. I'm Nicole, IR for CLCT. Let's just give us a couple of more minutes as we wait for another few attendees to arrive before we start. Can we just do a testing of our sound? Could you just let us know if you can hear us, please?

Yes, loud and clear.

Thank you. Okay. Well, I think we have quite a good amount of people joining us already. So shall we begin? So we have on the line here today Tze Wooi, our CEO; You Hong, Head of IPM. So over the course of the next hour, we'll be having a short presentation before moving on to our Q&A section. Along the way, feel free to pop in any questions by typing in the chatbox. [Operator Instructions] . So let's get down to it. Tze Wooi, please?

Okay. Thank you, Nicole. Welcome, everybody. Good morning. I hope everyone is keeping well. I think most of you are aware of our intention to improve the portfolio diversification. So in the first half of 2022, we would see how the last 2 accretive acquisitions completed in 2021, namely the business parks and logistics, how they have led to our growth and resilience. I just quickly run through the deck and keep a little bit more time for our Q&A. I think as most of you are aware, we are the largest China-focused S-REIT in Singapore. I think having a 20 diversified multi-asset portfolio, retail, business parks, logistics, highly oriented in the top Tier 1 cities, provincial capital cities. Each of our asset class have been actively managed such that our occupancy has consistently been above the market average. For this reporting period, our AUM and market cap have been kept steady with distribution at attractive yield and holding the return stable for people who are looking for China exposure. I think as a long-term China investment vehicle, I think our strategy has been to position the portfolio such that we can capture the new consumption patterns and the structural trends and also to align ourselves better with where we see China's economic priorities are. So you see us actively be constituting our portfolio by divesting the retail [indiscernible] assets and bringing on board 9 new economy assets, adding the pillar of business parks and logistics, boosting our whole portfolio resilience. And I think if you look at our 1 half results, this is very much a reflection of that enlarged portfolio and the boost coming from the new economy, making the full 6 months contribution. So top line revenue grew about 9.2% and NPI at 12.4%. If you strip down the different asset classes, I think most of us are fully aware that I think the retail performance in the first half, especially in the second quarter, are very much impacted by COVID resurgence that we see spreading across various cities over the different months. Our assets are impacted. So that resulted in a footfall of about 21% drop compared to last year and sales about 12.5% drop from last year. But if you look at the second quarter itself, I think the trough is probably in April and May. And as we see business resumptions coming back in June, you start to see that pickup in both business activities and people mobility. So you can see the month-on-month actually improving. I mean, if you look at the portfolio resilience where the new economies start to come in, and I think they're much stable and less impacted by the restrictive measures. So all in, I think the business parks and logistics continue to be able to revert healthily at a positive 6.4%, while retail is coming in at about 2.8%. So flow down to our distribution and our DPU. On an enlarged unit base, if not for the retention, we would have grown to 0.0432. But for prudent purposes, as I mentioned, during the first half close, that's when business activities are still coming back, and there's a little bit of the uncertainty in the operating environment. So we decided to hold back 5% and to be reassessed in the second half for release subsequently. I talk about that geographical and asset diversification. I think that flows down quite nicely to how we look at our operating metrics. On the ground, I think in the second quarter especially, leasing activities being slowed. I think the signing rate are being impacted partly by many cities and the decision-makers not able to travel freely during the lockdowns. But that said, if you look across the new economy, I think though occupancy had been slower, but the average rent per square meter, we have recorded broad-based higher relative to half a year ago. And if you look at the tenants that are contributing rent to us, I think substantially, they are coming from the essential and high-growth sectors. So this actually provides us a very good anchor and foundation as we take steps to look at the system as we look at the different assets and how we want to improve the tenant mix and the quality of the income. And another big area of focus is continuously looking at opportunities to extract value from our core holdings over at Grand Canyon and over at Wangjing in the first half. You see a little bit of these actions, especially Wangjing, where a 14,000 square meters of anchor department store space would be undergoing AEI. And I think as we speak, they are progressively being leased up, looking for opening at the early fourth quarter. And over at the capital management side, I think we are very pleased to update everybody that in terms of our 2022 borrowings, all have been refinanced. Nothing else in 2022, and we're already taking steps to engage the financial community to look at our 2023 refinancing. So I think we continue to see very good support from the banking side of things through our good financial standing and credit metrics. We continue to hold our debt competitively at 2.71 with a good term to maturity and through diversifying our funding sources. Another key tenet is we continue to hold to our hedging policy of fixing interest highly at 71% and also hedging our distribution in Sing dollars at 77% for this period. Let me just go down a little bit quickly. I think the gist have been summarized earlier. These are just a flow down. I think due to 1 half's -- I think the renminbi appreciation still relative to where we were last year, if you look at the net property income in Sing dollar terms, that resulted in a 15.9% year-on-year growth. And I think the rest of the numbers, I've already touched earlier. On balance sheet side, I think a healthy balance sheet with the near-term refinancing all addressed in our NAV after declaring the net of the distribution will be $1.47. Gearing profile, I think the RMB as of June, if you compare to the last period, I think there's a slight depreciation against the Sing dollars. So that translated essentially to higher gearing, although it's well within our guidance of 40% where we think we want to be around and within the regulatory limit of that 50. Average cost of debt and the coverage ratios, everything are very healthy as mentioned. And if you look across our funding sources, the onshore part of it ticks up close to 20%. So as we look at the offshore side where interest rates are hiking, and we have the fixing to address some of these risks. On the onshore side, we are actually benefiting from some of the leasing of the base rate that we are seeing at the LPR side of things. And if you look at our debt maturity profile, as I mentioned, the 130 standing at June have already been subsequently pushed up to 2027, as we speak today. So in essence, the debt maturity of 3.1 that was declared recorded as of June have now been pushed up to closer to 3.4 years. Those are the key notes, dates to take note on where we will be closing our books and also the distribution. Let me quickly run through a little bit on the portfolio metrics. I think the diversification, I've mentioned. If you look at where we are in terms of the AUM, the new economy is taking up about 22%. And geographically, we are also conscious of a bit of heaviness towards the Beijing side. And I think over the last 1 to 2 years, active reconstitution, we are now bringing more in terms of the footprint spread to Guangzhou and the Yangtze with the Delta site. That balance up things so that it gives us a better ability to resist some of this operating uncertainty. And if you look at how our portfolio is being made up now, I think essentially retail now pick up about 69. So new economy take up 31% in terms of the gross rental income. And if you look through itself, I think we are quite [ shook ] in the central sectors. And also if you look at the new economy side of the high-growth sectors, we continue to see good demand coming up from the electronics, the engineering, the infocom, the biomedical. I think these are all the R&D, the innovation that the economy that we have been talking about that China is trying to onshore. So our business parks are able to capture some of this space demand. In the first half, I think we have completed a fair bit. I think in retail terms, we have completed close to 69 -- sorry, 63% of what we have for the year. And for the business park side, we are at about 43% in terms of the NLA done. And if you look at some of these new tenants that we are bringing into our assets, they are coming from the sectors that I mentioned that are essentials and also growing. We'll continue to be quite stable for the kind of asset class that we are in. And I think in terms of the latest update on the ground, just to share that 100% of our malls are open fully. In terms of business parks, it has been operating as normal, and the logistic parks as well. I think for the period of Shanghai lockdown, they were closed for that period of time, but things are all back to normal in the 3 asset classes as we speak. This is a quick rundown of the retail's updates, I think I've mentioned. If you look at the trends, April to May is essentially the trough of where we see the business activities. But as we move to June, I think you start to see that reduction. So we are cautiously optimistic that things are on a better trajectory. As we look at the second half, where government is -- if you look at the latest policy signals, I think more targeted containment measures and a lot of policy stimulus coming through. So we are hoping that we are moving into a better business environment in the second half. [Indiscernible] run down, I think, have been stable. I think quarter-on-quarter, around the 95, 96. I think Qibao is continuing to face a little bit of that leasing renewals slow because of the expiry of the operating lease term. I think that's quite expected. But I think Qibao as a whole, it's a very small asset in our contribution. The other one is Xinnan. I think we continuously turning some of the tenancies. This used to be a very fast fashion heavy mall. And I think that we're going through that turn of lease renewals. The reversion recorded for retail, as I mentioned, is about 8% to 9% of our NLA done, recorded about negative 2.8%. And some of these new leases that we have brought in that are on the positive side of things, you can see the EVs and some of the ITs and F&Bs. These are the ones that are doing still predominantly well, especially for some of the rising names that we are seeing in the domestic market. Lease expiry, I think, is quite consistent over the period for -- and then the remaining lease expiry profile is also quite consistent with the rail that we are seeing. And just a quick sharing. I think in terms of where we are today, I think most of you will recall, during the heavy COVID period, we have restructured a fair bit of our leases to be pure GTO for short 6, 12 or 18 months. So I think things are moving a little bit more to normalcy as we start to see that the pure GTO component falling back to about 2% or 3% level whether is it by numbers or is it by NLA terms. These are some of the sharing that we have in terms of the operating work that we have done to get footfall back and to connect with our catchment shoppers just to consume some of these that we are doing and also injecting that sustainability focus in connecting with our community. At the new economy side, a quick rundown. I think Xinsu and Hangzhou Phase 3 continue to be ramped up very nicely in terms of the occupancy. The 2 Xi'an assets going through a little bit of the lease renewals. There are 7 big spaces that are falling due in the second quarter. And I think the renewal speed are also impacted by some of the COVID situation happening in the earlier part of Xi'an that delays some of these business decisions. In the case of Hangzhou, there's a little bit of also the lease renewals that we are backfilling at the reporting date. I think there are several smaller e-commerce spaces that have been let up. I think we're also doing a full review on the kind of tenant profile that we want to build going forward. So there's a little bit of that lease turnovers happening. But I think we're not that worried. I think this is a temporary window for us to review. And as we look towards the second half, I think the demand coming from the sectors are still strong. And I think the market rental are also moving in the direction. So I think we're balancing a little bit of that occupancy because of seizing some of these new names and the kind of sectors that we want to bring into our parks. I think this is quite a quick snapshot of where our parks' occupancy are trading relative to the submarkets. So the new names that we brought in, I mentioned, are in the sectors of electronics and engineering, the infocom and biomedical. I think these are the exact areas that we want to focus a lot on our leasing strategies to build that community. All in, 6.4% rental reversion for close to 14% of the NLA done. Real, I think, consistent for the profile of our assets. I don't have much to share. I think this is also some of the community work that we are bringing into the park that differentiate a little bit of how we are treating the community and also engaging different tenant communities together. Logistics have been steady. I think we just acquired this project 4 assets fourth quarter last year. I think this half, they are contributing for what we have intended the numbers to be. I think occupancy throughout has been stable. We've turned to a little bit of the lease changes that we are taking through as a reporting date. And for -- I mean, these are very small leases, by the way, the 2,000, 3,000 square meters, we continue to be able to capture some of this market rental vis-a-vis the last duration. In terms of rail, I think quite consistent. I think as we look forward, I think that the strategies, I think, most of you are fairly -- have been following us. I think we continue to focus very much on the 3 tenets of creating, unlocking and extracting. And you already see that portfolio reconstitution where when we brought in the 2 acquisitions. And we continue to be disciplined in looking at how we want to monetize or unlock value for the older assets and recycle some of these proceeds to bring in. And we continue to do that by evaluating both internal and external opportunities. And for those core holdings, we continue to be that active in our operations and looking at the mid-cycle or the right cycle point to conduct some of these AEIs and to extract values from those. And I think the journey for us is to really build up that sector diversified and well balanced. And I think we are on track to move there. I think I mentioned in terms of AUM, it's about 22, but in terms of rental income, we are already exceeding that 30%. I think with another cycle of opportunity in the new economy space, that will push us beyond the 30% mark. I think that will really stabilize some of these portfolio earnings, and we are able to seize more opportunities to reconstitute some of the retail holdings. I shared a little bit on this earlier on. I won't talk too much on the same thing. I think looking forward, I think I mentioned, I think if you look at the latest policy announcements, I think the Chinese government is watching the economy very closely, the employment very closely. And we start to see a little bit of that COVID measures also being eased off as we speak. And in terms of quarantine days, it has already been half and carrying a lot of more targeted containment measures where we don't see a widespread lockdown. So I think these are something that the government has already taken notice and will continue to calibrate on that front. Across our business for the 3 asset classes, I think the business parks continue to benefit from this overall structural upgrading towards the innovation-driven kind of sectors and continue to see government policy incentives supporting these areas. And I think our parks are well positioned to capture the flows of such. On the logistics side, we continue to see the consumption flows. And I think if you look at logistics, there's still a lot of demand for good quality, well located that helps the suppliers and help the manufacturers bring this closer to the market. I think this continue to see a stable demand. And on the retail front, I have mentioned, I think we'll continue to adopt a very flexible approach as we look at how we want to reconstitute some of our holdings. I think for the dominant assets, I think you are seeing us taking the opportunity to really look through which are the assets and the tenant mix that we want to bring in. I think overall, I would say that we need a little bit of the confidence and the sentiments to come up. Generally, I think the leasing environment is still cautious, but we're watching the signals for some of this confidence, hopefully, that we see as we approach the second half. I think with that, I think, Nicole, let's open up to more Q&A. Thank you.

Okay. Thank you, Tze Wooi. So I'll now proceed to the Q&A section. I see a couple of hands raised. Thank you for your enthusiasm. So first, we have Terence. Over to you.

Yes, just maybe a couple of questions from me. Very quickly on -- could you share on the retail rent, what was the dollar value in the second quarter and maybe also number of months? And also on the retention of the DPU, maybe elaborate a little bit more on why you decided to retain DPU in the first half? And is there a commitment to distributing this retained distribution in second half?

Okay. Thanks. I think for the amount of rent relief that we have booked inside our 1 half, I think it amounts to about 0.5 months of our retail portfolio's average monthly rental income. So that's 0.5 months. To context against what we provided in 2021, that numeric would be 0.3 months. And if you look at where we stood in 2020, we set aside about 1.2, 1.3 months. In terms of the retention, I think I elaborated earlier that the thinking is because as we close our 1 half books, I think the operating environment on the ground is just getting back. So I think there are several cases that we are looking at in terms to be more targeted, which are the assets, which are the tenants that require a little bit of that support. And some of these may involve a little bit of brand restructuring cases. So I think for prudent, we wanted to withhold a little bit of that 5% in terms of the distributable income, quite similar to what we did in 2020. I think if you recall in 1 half 2020, we also retained about 5%. And in 2020, because of the business picking up in the second half, I think the manager then released the retention some in the second half. So I think we'll be consistent in approaching our business on a prudent basis because the operating environment is just going back to a bit of normalcy, a little bit of things are going on, on the ground. I think it's prudent to [ withhold ] that some. And as things normalize and stabilize as we move into the second half, we will look at distributing that out, but it's not necessary to [ withhold ].

Maybe just on the retail rent rates again. I wanted to check -- I understand that potentially, there could be some government requirements to give rental waivers. Is that factored into what was distributed? Or is there -- could there be more coming in the second half from policy actions?

I think we are aware that there's a little bit of that policy guidance, but I think the policy guidance is more to really address some of the smaller SMEs. I think the government is doing their part to ensure most of these SMEs are able to progress in terms of their business, especially the lockdown, they have impacted them a little bit more. In our retail portfolio, and I think that's not much different from how we look at it now versus last year or 2 years ago. Each asset, I think each tenant will assess the need based on the impact, the current impact that they are experiencing and the kind of also negotiations that we are going through. So I think it's a little bit difficult for us to give you a very precise number or position that will take into consideration the landlord and the tenant's relationship and how we can continue the business. And we are always being reasonable in wanting to structure some of these so that we can ease them off a little bit in the short term when operating environment is not so clear. So to address what you are asking, the first half, we have booked in about 0.5 months. The amount that we retain, if you were to like we gross it back, it's probably setting aside another 0.25 months thereabout. So that it's probably where we feel is prudent that will make up like the whole year probably around that 0.7 months it is needed. So to context, I mentioned earlier, 1.3 months, in 2020, 0.3 months. So in essence, our view is we won't get as worse as 2020, but probably it will be needed more relative to 2021. So I think if we average that out for the 2 years, we are probably sitting exactly where the average range is. Actually, we did a stock take [indiscernible]. I mean, if you look at 1 half, our retail assets across the number of impacted days are actually close to 400 days impacted in terms of closure days, aggregate all the assets throughout the month, about 420 days, by the way, is correct. Context again closer to like 200 days in FY 2020 and maybe about 120, 130 days in FY 2021. So I think that gives you a sense that the second quarter this year, in fact, it's a lot of all this recurring start-stop that's probably impacting. So I think it's prudent for us to withhold a bit more to see how things go as we approach the second half.

Just to add, let me say, 0.5 months is on the retail portfolio. But if you're looking at the full portfolio at 0.3 months, which is what is in the [indiscernible].

And that also explains that because of our enlarged portfolio, so the impact to the retail portfolio is mitigated a little bit more relative to where we were. If you look at 2020, it's 100% retail-centric portfolio.

And just a final question from me. I wanted to ask on Slide 18, the leasing momentum seems to be slower for the new economy assets versus the retail assets. I guess you sort of alluded to this that there is maybe some changes in the leasing structure. But maybe could you share on how this is impacting your leasing? And how long do you think it would take to backfill some of that space?

Yes. So if you look at what we have done for retail and business parks, I think we are looking at our leasing strategies a little bit differently. I think in the first quarter of 2022 for retail, and we took opportunity to actually sign up some of these leases more. And I think that probably helps us a little bit in [ cocking ] that 62%, 63% ahead of what we intend to do. But on the business -- on the new economy side, BP especially, I think some of the leasing renewal decision was delayed, primarily due to the [ CI ]. I think there are several spaces that we were intending to secure in the space of 1 quarter and 2 quarters. I think in terms of the leasing momentum, it has not been as quick. Part of it is because people are not able to travel. And for new tenants that we want to bring in some of the decision-makers are actually based out of Shanghai and Beijing. So that slowed some of these leasing decisions. That said, I think if you look at some of the numbers that we are looking at, they are starting to backfill close to about 50% of where that level. We -- if there's a seamless renewal. So we are really being able to get close to 50% level for the individual assets, asset AIT and AIH. Hangzhou, the specific reasons, I think they mentioned the smaller e-commerce players. I think we have been leasing out individually. So I think we want to review whether that's a good way of doing it or we are wanting to lease out to bigger names that are more able to hold on to some of these more volatility environment. And specifically in Hangzhou, there's one tenant that we want to bring in, I think, requires a little bit of the government approval by nature because of the biomedical licensing condition. So again, the second quarter is not the best environment for some of these proving to take place timing. So a combination of all these hold back a little bit for the Hangzhou Phase 1 asset in terms of the occupancy. But I think we're not too worried in the sense that I think this is more a temporary window where at reporting date, the occupancy was not renewed. So a little bit of that vacancies that we are working through. But I think offset, I think if you look at the market, if you look at the sectors, you look at what the government is promoting in terms of bringing the kind of names to the parks, I think we are able to move the occupancy up at a higher rental as we approach the second half.

Thank you, Terence. Over to you, David.

I have a few questions. The first one is the Shanghai logistics lockdown, the property to be closed for some time. Did you offer any rent free? Or is there any revenue impact from the logistics side?

For the logistics side, we did not, and then we did not need to.

Okay. So -- yes, go ahead.

Primarily, these assets are also used as warehousing. So regardless, they will still operate because the goods are still in these warehouses. This one, at least for these logistics assets, we don't really have to give rental rebate.

Okay. Fine. So you are collecting rent even though they were officially had to shut down.

Yes. I mean, obviously during the months of April, May, because of the Shanghai lockdown situation, the logistics facilities are not running per normal. But I think once things pick up, the things are going through. So in terms of the collection of that rental, I think we are able to keep it up to date. So I think we don't need to face the same issue as what we're facing in retail because retail really need mall space, need that flow of customer footfall in order to transact their business. But for the new economy assets, I think that impact is quite different.

Okay. Got it. Now for the retail assets, I noticed that you don't break down the properties individually anymore. Could you give us some color as to like which assets were really affected? I mean, I think we know the usual suspects, but can you give us any color on that in terms of the rental reversions or whatever?

Okay. I think broadly, I would say that the assets that we are dominant continue to be performing okay in terms of the rental reversions. I think for renewals, we are seeing about at times, a slight negative or 0% to 1% depending on the assets. But some of the leasing strategies for the new leases that we are bringing in, then maybe we are able to stomach a little bit of the first year, a slight single digit of, let's say, negative 3% to negative 5% rental reversions. If we were to give you a quick sensing, the weaker assets, they are having more significant negative would be Qibao for very obvious reasons. It only has about 1.5 years run rate. I think in terms of the leasing options, that's not a lot. So I think that's the main reason. In terms of Xinnan, I mentioned, there's several tenant mix that we are churning through, and some of these are from the fashion area. So I think that one will continue to see a bit of negative reversions. Aidemengdun it's also relatively in that recovery mode in terms of the occupancy. So I think in terms of rental, we are doing that balancing act. The ones that are continue to be steady, seasonal, in fact, is already reverting positively. Rock Square continued to be steady. Yuhuating continues to be steady and then [ cocking ] positive single-digit rental reversions. Xuefu being dominant in Harbin. I think we do see quite a disparity, although Aidemengdun is negative, but Xuefu is still holding relatively all right in terms of the reversions figure. So I think that gives you a broad sense of different assets at different locations, having their dominant characteristics to behave differently. And also at the different juncture, we are positioning the assets differently. One thing for this 1 half, we are [ cocking ] a slight negative. But that said, it's -- because we have not counted the AEI component into that figure. So once the AEI component is put to 3Q and 4Q, that part of the rental reversion positive will start to contribute into our portfolio.

Okay. Got it. With regard to your debt profile, I mean, you have a lot of offshore debt. And you mentioned that it seems like onshore debt is getting cheaper, and offshore debt is more expensive. Is it reasonable to expect that it makes sense to try to increase your portion of onshore debt? And if so, like how much would realistically should we assume that you could increase the amount of onshore debt?

Yes.This is a good question. I think if you followed us, you will have noticed that we have moved from 100% offshore debt capital structure today, which is relatively close to about 80-20. I think we will look at potentially increasing the onshore debt when we look at acquisitions because most of the acquisition structuring would require a little bit of that onshore LTV to make the -- to have their tax shield onshore. So we continue to explore on that front. But that said, the way that the onshore loan works is such that they are a little bit more restrictive in terms of the loan purpose, and the proceeds may not be as freely able to move around. So we are still looking at the possibility of how we want to group certain onshore borrowing such that certain of the flow of the -- it can be better utilized among our portfolio onshore, whether it's to satisfy AEI or to address some of these ongoing CapEx needs. So I think onshore is taken more on that basis. I think longer term, potentially, we may move to closer to 70-30 thereabout, I would say. Today, the onshore loan has regularly come down. I think we used to be growing at 5, 4.75. I think today, we're growing above 4.5. I think the LPI today is 4.45.

Yes.

And on offshore, I think if you were to -- on a similar basis, 3 to 5 years ago and today, if you fixed it, it's also on the probably 3.5 kind of things. So indeed, it's converging. So I think we want to balance the whole borrowing capital structure such that we continue to be competitive at the overall cost of debt. And onshore, we look at acquisitions. We are not able to just pay down here and get up there and use the money freely as a REIT right now. So I think we are calibrating what's the optimal mix as we think through the end state that we want to go.

Geraldine, appreciate if you can share your question, please.

So my question -- my first question will be on operations. So for the retail component, will you still be looking at any form of insurance claims for your mall closures?

Yes. I mean, for insurance claims, it's always a rather, I would say, is not a clear-cut situation where you can. A lot depends on the ground situation, different district, different assets and also different insurers may interpret things differently. So what we have done is that we have collected better documentation on our front to see due to the COVID cases, for example, going through our malls. And if we are indeed asked to close for that purposes, then we may have the ability to use some of the costs to lobby for that. Not all the assets are successful. To date, Grand Canyon, we are successful. I think for Rock Square, we are very close to having a little bit of that coming in. That will help to cushion some of that impact, but it will not be 100%. I think the rest are less likely for the time being, but we'll continue to pursue depending on whether the insurance policy and the criteria can be met.

I think the essence is where possible, we will definitely be applying for the insurance claims. And there are also new developments that come through such as a maximum amount in which the insurance -- the amount in which you can claim as a cap that they put to it as well. So I think all in all, we are very -- we're monitoring it very closely. And wherever possible, we'll definitely be applying for this insurance claim.

My next question will be on the business park segment. Any rebates there? And what are the physical occupancies now?

As we speak, I think the business parks, they are operating normal. So again, for the 1 half results, the rental relief that we put in essentially are for all the retail portfolio. So for the new economy assets, we don't need to have that. I think as a reporting date, the business park occupancy, I've shared, I think, for the 2 bigger assets of Xinsu and Hangzhou 1, that is tracking up quite nicely. The 2 Xi'an projects are currently around -- if you look at where we reported is around 91 to 93. So that's where we are in terms of signing new commitments to come in. For Hangzhou Phase 1, I think I mentioned, this is where the current level are sitting as we look at some of these ins and outs that we are turning some of that smaller e-commerce tenancies that we have. It used to have quite a fair bit of that smaller, that 100, 200 square meters occupied by smaller enterprises in the e-commerce space. So we are reviewing because some of these e-commerce smaller enterprises, it may not be -- so from a quality point of view and also from a recurring point of view, some of them may be consolidated. So I think we are looking at how we want to use some of this space being renewed as we look forward. So things are stabilizing around this level as of June. But I think as we look at to next quarter, I do expect some improvement, especially in the 2 Xi'an projects.

If I can just ask one last question on FX hedging. It seems to have paid off a little bit in the numbers for this period. Can you remind us how far forward are you hedged? And any changes to your hedging policy that you want to implement?

Yes. Our hedging policy for FX has been consistently applied. I think we do not bunch them at any particular time point. So I think each quarter, there will be some contracts -- hedging contracts that are rolling off, which we would then be putting it up. Our policy is to hedge at least 50% of what we are declaring and distributing. So at this juncture, we are about 77% hedged, and some of these will be falling off maybe in the next quarter. Some are falling off in fourth quarter, and some are falling off in the first quarter. So I think we have been consistently doing that quarterly renewals of hedging contracts such that we don't subject ourselves at any one point, the market volatility because we're consistently paying distribution. So we'll continue to stay hedged at least 50%. So given where we think the RMB and Sing are trending as we approach 2 half, I think it's probably sensible for us to raise a little bit of that percentage. And that's what we are seeing now at 77%.

Thank you, Geraldine. Can we have [ Gula ], please?

I have a few questions. The first one is on disclosure. You used to -- I think David mentioned this, you used to disclose each asset in terms of revenue, OpEx and NPI asset by asset in a chart every half year. So -- but I do notice that it is in your annual report. So is that going to be the way going forward? Will you only be disclosing all this in the annual report? Okay. And the next question is, so will you just be disclosing the breakdown by sectors, retail, business parts and logistics that is in your financial statement? And that's the first question on disclosure. Do you want to take that? The next one is on valuation.

Yes. I think in terms of presentation, we are trying to synchronize a little bit on how we are disclosing in the annual report in terms of providing the segmental reporting. Individual assets are not being presented the same overview because I think as we grow, I think the focus is more on our portfolio instead of individual assets. And I think I've been able to -- I mean, I'm always happy to share a little bit more color in terms of how each assets within the portfolio are doing. [ A bit ] more of individual assets, but more from a portfolio standpoint.

Okay. Okay. So the next question on valuation. I'll come back to the individual assets in [indiscernible]. The valuation, so on the -- in the financial statement, there is this statement that the valuation reports discuss material valuation uncertainty. So I'm just -- when they are talking about valuation. So I'm just wondering how these valuation reports affect the ability to access funding for Chinese assets. This is for a general question for China as a whole.

I think the valuation report, that periodic report that -- I would say quite industry-wide valuation cost that we see in China values putting into China asset valuation. I think this is also in respect the COVID situation, and there's a little bit of that, a little bit of uncertainty. And I think things are evolving. So I think that's the general cost that we are seeing. But I don't think that by itself would result in any projects or any asset having difficulty accessing any funding. I think that's definitely not our experience. And I mean, based on our conversations with valuers and peers, I don't think that clause itself would result in any difficulty to do funding excess.

Then in terms of operationally, I remember Grand Canyon had a few issues in the past. And I'm wondering how those are being resolved and how it's performing now. And the other one is, is it Shuangjing which is master leased, where the master lease runs off soon, and you've got some plans in store to raise its valuation and its proposition?

That's right. That's right. Thanks, [ Gula ]. I think Shuangjin is definitely an asset that we are holding at very, very low cost in our books to date primarily because it's substantially master lease to 2 anchors that are paying very low rent. So that cycle coming soon in 2024. So we have internally looked at possibility to either reposition it into probably like a hybrid retail, office or we may just want to renegotiate and do retail via different forms. So I think there are possibilities that we are studying, but that is definitely an AEI or a little bit of redevelopment outside story for us because the cost base for us today allows us to capture that potential. So that is on our plan. But that is going to only happen likely in 2024. And if you put normal redevelopment timeline, probably 1.5 to 2 years count. So that's something that we are planning for that. Grand Canyon, I think we have gone through a little bit of recovery since COVID hit us. I think those are better in terms of occupancy. As a result, I mentioned because of that [indiscernible] balance occupancy rent. So the rent reversions has come down. And in terms of valuation, I think you asked me about valuation on some of the assets. I think if you follow Grand Canyon over the last 2 years, our valuation had also been slightly marked down to reflect some of these lower passing rental that are going through. So all in, I think we are conservative in the sense that we are not overvaluing our assets. And if we look through those aspects that are weaker in terms of performance, in terms of having more challenge to compete in today's environment, we have actually taken the valuation down consistently.

So on the -- can I just ask on the ESG front, okay, I'm just wondering, are you in any of ESG indices? And does being in these indices help to better access your ESG funds as investors? Is there any visibility on that?

I think this is a very trending [ attribute ]. We are increasingly bringing ourselves in terms of doing what we need to do in the ESG front. I think you already saw that in us using the first report in participating in GRESB and the whole mothership of CapitaLand having that 2030 [ Sustainability ] target. So we're all part of that. And I think that work has already initiated. And I think if you look at our subsidy fund, we have also been able to take on some subsidy loans, both on -- both Singapore offshore site and also onshore in China segment. But I think we are programming [ ourselves ] to go down that path in a more clearer manner. That said, I mean, from the investor interaction, I don't think at the current stage, it's a very clear marker to say that people invest in you because of this and that. So I think because we want to see the overall business being able to incorporate more ESG elements, and overall, the economics are still good. So I think we are very cognizant of this area. And I think we are trying our best to ensure that our business grow. At the same time, we put our portfolio of assets to be greener. So I think we have really kickstarted the initiative to offer bookings. So I think Wangjing and Rock Square are already on that path to get the green certificate done. So we have a program to -- every year within our portfolio. Incrementally, more assets would -- having their green certificates. So all this, I believe, will put us in a good position to attract investors who want to look at the investee companies who are paying attention to this space. But at this juncture, I wouldn't say it's a binary thing to say that if you have, therefore, if we do not, then they do that. So it's harder to quantify in that manner.

So my final question is on the acquisition pipeline. I'm just wondering what this is like from the sponsor and from third parties, given financing challenges that we've seen. Well, not CLCT, but certainly, but the other Chinese REITs that are listed here.

Yes. I think we shared with you that because of our [indiscernible] we are less worried about the refinancing front, and we've gotten that done. We are aware that the lenders are scrutinizing a lot on certain business, certain cash flows and certain assumptions. So I think we are in a good position because of all those things that I mentioned. Our valuations have never overstretched our [ gain profits ], and our cash flows always have had that. We continue to see good deal flows in the logistics space. And for business parks, I think more so we will be looking internally. There are a couple of assets within our sponsor that are reaching more stabilized state. So we have already gone into the 3 cities of Hangzhou, Suzhou and Xi'an. If you look at where the sponsors are having assets, I would think Suzhou and Hangzhou are places that we can continue to deepen and expand our business park portfolio. So that's something that we are focusing too on the business parks side. And logistics, we will be more careful in choosing the kind of cities that we want. So looking at the demands supply [ situation ] and the downstream tenancy profile. So I think these are some of the things that we are looking. Logistics are definitely compressed over the last 2 years. So I think whatever it is, we want to make sure that our entry price and then the will and then the tenant quality in terms of the market rent, I think it's something that we are watching very closely and valuing very closely, especially for third-party deals. But I think we continue to look at these 2 streams of engines of bringing us to that balanced sector that we want to move towards. And on the retail side, we will also be looking at opportunistic exit for some of the not-so-competitive and dominant assets and especially those that are smaller, require more CapEx and also the land tenure shortening. So I think these are strategies that are not new to you. And I think we just need to focus to execute and then repeat the recycling efforts.

Thank you, [ Gula ]. Can we pass the time on now to Derek, please?

All right. Derek from DBS here. I've got a few questions if you don't mind, I'll just ask one by one. So firstly, on your retail portfolio, right, if I just look at Slide 23, I understand that your portfolio is still 70% roughly of pre-COVID levels. So -- and would you say that your reversion is going to be still at current fairly modest levels until we see profitable sales achieved back to pre-COVID? Is that a general guidance that we should look at?

I think if you look at the retail reversions, I mentioned the stronger assets, we should expect them to perform better when the overall environment is picking up. So I think the space of Xizhimen, Rock Square, Hohhot, Xuefu, Nuohemule, I think these are assets that are holding a good position and have good catchment. So I think these are assets that will continue to do well. But as you know, because of the market is changing very quickly, some of these brands, some of these trade categories, we need to firstly churn them. Either we churn a name or we want to remix some of the NLA mix. So I think this is still going through in the retail cycle. And I think as we look at the whole environment, unless the confidence, I think retail builds upon confidence in consumer spending sentiment. So unless that whole environment is back to that level, I would say January retail, it's still in that situation where landlords need to be a bit more understanding as we're going to bring in new concepts in the first year. And that's where the rental terms on this will come in. So that's also another reason why we may not want to always be too fixated. We just won't manage rental reversion, but look at how that's being repositioned and be able to grow strength in terms of the tenant quality and mix and also to grow the income over the whole 1 to 2 years of that cycle. I think it makes better sense for us to look at retail business from that perspective and a very spot view about rental reversions. I think second quarter first half is not a good market for obvious reasons I mentioned for our portfolio. More than 420 days, we don't trade. So that result in that sales number, obviously, being much lower compared to pre-COVID. I think in the first quarter, we did share that if you look at 1 quarter 2022 versus 1 quarter 2021, we are already more than 100% in terms of sales level. And in terms of pre-COVID level, we are probably around that 80 to 90 depending on the asset range. Some have already reached higher than 90. But I think the second quarter and the first half because of those number of days not being to [indiscernible] is seriously impacted. I think the ability to go out and consume and spend, I think all this just weigh a little bit down on your sales. So I think we need a little bit of normalcy to go back. So it's very difficult for me to say if sales at this level, then better version can continue at the same level. But if you look at where we were reverting in 2020, 2021 and 2022, I think that negative coming down slightly right, the numeric. I think we started with negative 4, negative plus and now it's about at the negative [ 3 ]. So I think these are signs that as we improve the quality of our mall's tenant mix, I think things would improve. We can exit some of the weaker performance, then obviously, the portfolio quality will also go up and then the [ value ] also improve. So I think a couple of things that we are working on to strengthen the retail portfolio so that we can compete better.

Okay. Got it. Got it. If I move on to business parks, right, I noticed that your metrics are strong versus your submarkets. And your reversions are also positive, but occupancy quite mixed. I understand you mentioned it could be timing differences. But I was just wondering whether is there a risk that your -- these stronger metrics could weaken, given that your competitors may just lowball, and you may lose tenants. So just wondering whether is that a risk that we should be aware of or you don't think so?

Well, I mean, market is always competitive. I think China, there's always supply. I think it's very hard for us to say that competitors will not lowball rent to attract them. I think that is happening, operating environment. Whether we like it or not, there's some element of that. But I think what we want to position ourselves is that we are a quality landlord that can assist you and give you the good tenant network, the kind of services that we can link you up to upstream, downstream. I think that's how we have been positioning ourselves and for each of these parks that we are in, I think it's because of that approach of that, our ability to do all these differently and not just using the rent as 1 dimension for decision-making that has already served us well in the last few years such that our occupants are clearly ahead of the submarket. So I think these are strengths and foundations that we want to continue to build. I think this strategy will continue to be there. I think what we need to do is we need to work very closely with the local government to understand where the sectors are heading, like how EDB is doing in Singapore, how we plan at it, what are the sectors they want to bring into Singapore. So I think in a similar mindset, we also wanted to improve the ability to understand where the business parks are heading in terms of positioning, what sectors are in demand, who are growing, who are they trying to support in onshore and helping us to be able to connect to one and then branch it out. So I think this is our business, real estate business that on the ground, we have our teams to help us navigate. It's going to be a competitive environment all the time in China. So it's very difficult to say that people will use a brand, just have to be able to compete on more than rent.

Got it.

Yes. Just maybe to give you a color in Xi'an market, right? So example, our business park is probably the ones that we -- the international players when they come to Xi'an, we'll be the one to visit. And then make sure that if they rent, they will come to us because of the ability to like what we mentioned to manage and then also the tenant relationship and the quality of the property management services. So I think within that local submarket, there are a few other operators. I think we and probably GLP are the 2 that are the good quality ones which commands that higher occupancy and rent, whereas the market itself would have that if you make the grade or even low-grade buildings there, there are also other people who goes there just for the pricing. But I think we do have a different submarket on our own, not just competing directly on the pricing as well, yes.

Okay. But sorry, just one very quick one. I know you wanted to continue to grow the portfolio, but for this year, I'm just wondering, would you be a seller first before you buy or it depends?

I mean, for funding plan, it's always ideal that we can sell and buy and that's the [ bet ]. But I think where business stands, I think we just have to seize opportunity where it appears. And I think we -- I would say that our balance sheet is -- will shape up, I mean, for us to be able to see some opportunities where we deem fit. So I would prefer, but I think if things are not so ideal and opportunities present itself, I think we have other options to strengthen the portfolio first as we look at recycling the weaker ones later.

Thank you, Derek. And [indiscernible] it's already [indiscernible], but I do want to address some of the [ 3 ] [ other ] people's questions. So perhaps you could just extend the time a little bit more. Feel free to join up. If you have to go, please feel free to drop off as well. So over to you now, Michael.

So my question is on your retained income. You've got about 50-plus million. Are there any plans to kind of tap into any of that?

Sorry, Michael. Can you repeat your question again?

Yes. So you've got retained income from past divestments. I think the amount is about 50-plus million. Are there any plans to kind of release that to kind of short distributions?

We will evaluate it, but I think for the first half, we have deliberated. We thought that's probably not the best use of that divestment gain because where you see the portfolio today is very -- the business side of things, I think we would [indiscernible] using those capital to fund some of the transformational gaps. For example, as we divest the recycling proceeds are unable to bring in new assets timely. So I think our approach is to use that more for that kind of purposes rather than to get up where the underlying business is impacted in China in the second quarter. I think this is the real business side of things. We do not want to use that for this half, yes.

Okay. That's clear. And so you retained about 5% of your distributions. And just from the message that you're giving, it seems like the second half is looking better than the first half. But from the retained distributions, it does seem like you will be facing quite a fair bit of challenge. So where would the challenges come from?

Yes. I think we are looking forward to the second half cautiously hoping that things will do better. I think you already see the signs of June being better than May. But I think that's it. Business confidence, consumer sentiments and spending take a little bit of time to pick up. I think you need to see a little bit more good facts around the employment side of things, household income. I think these are trigger points and data points, I think, would be very important as you look at the retail side of the business. So I think we will be looking at approaching 2 half in a better operating environment but still having these macro issues to support it. The retention, it's more because as we close the books in 1 half, things are just going back. So there would be certain negotiations happening between the landlord and tenant specifically on what kind of relief or what kind of program that we can settle down. So there's still that element of uncertainty. And that said, although we see things are improving, again, because of China's this COVID policy, that will continuously be a little bit of this recurring or sporadic restrictive measures in place on our business. So I think it's -- in consideration of these total things that we decided we call about 5% to see how things go to cushion any further relief that we potentially may need to set aside. But we also do not want to compromise too much details right now as we negotiate the tenants, right? So I think it's a little bit more prudent on our side we hold at the distribution level. And if all things are okay, things stabilize and improve in the second half, we release the retention some. Similarly, that's what we did in 1 half -- 2 half of 2020. So I think that's how we are thinking about it and approaching the DI retention, but we hope that we are approaching a business environment operating level, better shape than the second quarter. I think the second quarter is probably the more severe if you look at where China, our business retail has been impacted, I mentioned 420 days impacted. So we hope second half would not be of the same magnitude.

Michael, do you have following up -- a follow question -- a follow-up question, please?

No, that's all.

Okay. Thank you, Michael. Can I pass the time to Vijay, please?

I just have a couple of quick questions. Sorry, I joined a bit late, so some of them may have been asked before. Firstly, maybe can you give some impact in terms of the inflationary pressures impact on your portfolio, either in terms of utilities or manpower cost? How has this impacted your portfolio?

For utilities, I think if you look at 1 half now versus 1 half year-on-year, it's probably ranging around a 10% to 15% uptick. But if you were to look at how much this represents, I think this only represent about 3% of our total portfolio revenue. And the utilities do impact our different asset classes slightly differently. I think most of like our new economy assets, a lot are actually passed through to the tenant space. There's not much of common area in terms of what landlord needs to do. Retail is a little bit more mixed and depending on the location and the form of utilities that we are drawing. I think the northern sector, electricity is probably a bit less, but I think it depends a little bit more on gas and coal. So I think different -- I think in China, I think that utilities impact is not as much as what we are hearing in some of the European or markets closer to home over here. So 10% to 15% increment. I think that's quite variable for our kind of business for the time being.

Okay. So it's overall negligible impact on inflation so far. Is that right?

It does have an impact, but I would say that it's around that level that's quite manageable.

Okay. Second, in terms of the debt as well as the debt refinancing costs, have you seen margins widen in terms of base margins or the margins which banks charge at this point of time for you?

I think for us, I think, because of our good financial and credit standing, we don't see that margin being opened up for all the refinancing that we have done. But the reference, the base rate has gone up. I think that is to be expected. So what has gone over the years like staggering on debt maturity and having 70% over being hedged to fix help to mitigate the trend of that rising reference rate. But from a credit margin standpoint, we are continuing to see that being held quite tightly. So this is the offshore side. On the onshore side, in fact, we are seeing a little bit more flat to quality. And we are beneficiaries of that in terms of the onshore lenders, and most of our onshore borrowings used to be passed through at about 5%. And I think we are able to refinance at 4.75 to now passings about 4.5. So I think we are able to mitigate some of these different markets interest rate behavior. And I think that is also why if you look at our reportable cost of debt, we are still very competitive at below 3% for China business REIT like us.

Okay. My last question, in terms of acquisitions and investments and divestments, I mean, the overall investment climate in China has been pretty weak in -- mostly because of getting financing conditions, et cetera. How has this impacted the cap rates? And how will this impact your strategy in the second half if you are not able to divest the price you want to or if you are not able to acquire at cheaper rates?

Yes. I mean, this is a very good question that we continuously will need to evaluate. If you look at the markets, and I think the quality assets, those are really core in good cities and the asset profile as the tenant quality, I think this continues to be very well sought after. So we don't see the cap rate so-called being expanded yet. I think you can say that generally for logistics, you can say that. For business parks, in fact, we do see a little bit of that cap rate compression, I think, primarily due to the awareness of investors onshore because of their seat. So there are a couple of business pet parks cuts that are a government-promoted policy supported and listed [indiscernible]. I think suddenly more awareness and investor education around that asset class, so you do see a little bit of compression at business parks. I think retail is, again, a very mixed kind of situation. I think if it's core, well run and people only want to acquire retail if potentially you have a good operating platform to be able to value add. If it's just looking at passive play, I think the interest in the retail asset class currently, like what you're seeing, the investment appetite is not high for this asset class. And there's [indiscernible] actions happening. So I would expect sellers are more willing to accept a lower price expectation relative to, say, 3 to 5 years ago.

Okay. But how would this impact your strategy of tuning your portfolio to new economy asset class, where there is quite a bit of demand and asset prices are quite high, whereas your retail portfolio, you might not be able to divest at the price that you want to?

Yes. So this is a continuous evaluation that we need to have. As I was alluding to earlier, I think our balance sheet continues to be quite healthy. Our cost of funding, we have the varied sources that potentially we can tap. So I think we have to be very selective in what we acquire and to review to make sure that it works for us given the kind of funding mix that we can put together. Obviously, we would prefer to recycle some of the existing holdings before we acquire. But let's see. I think we are still able to come up with some optimal funding plan. If the asset is one that is really on value and able to add strength and resilience to the portfolio, I think this is something that we'll evaluate in totality.

Thank you, Vijay. Now I'd like to pass the time on to [ Joel ], please?

I have 2 questions. The first one is regarding the FX rate of like CNY having a weakness against the SGD year-to-date. So is this a concern for CLCT in terms of your balance sheet regarding valuations and gearing and other ways you're looking to manage this? And my second question is regarding acquisitions. Would it be preferred that you acquired a remaining stake in the business parks or like looking at third-party assets?

The remaining stake in business parks, you are probably referring to the Suzhou, Xinsu, I suppose, because that's only one, it is within our sponsor pipeline. The other remaining stake are actually our local JV partner, they're more the government arm set up to run the parks. So I think it's probably the Xinsu that you are referring to. When we decided to move into Xinsu is also because we potentially see certain older industrial land plots. And we are actually engaging the government to potentially redevelop or to be able to up some of this plot ratio or to repurpose some of the older buildings. So I think that game plan continues to be there, which is why our sponsor is there to fund some of this engagement with the government. So I think from a strategy standpoint, it's probably not immediate that we are trying to take over the remaining 49%. Your first question, remind me again, I forgot.

Yes. So the first question is regarding the currency weakness like CNY against SGD. So in terms of like the balance sheet, are you concerned? And is there any way that you guys are looking to mitigate?

Yes. So I think if you look at how RMB trends Sing dollars, I think it has always been trending quite within a tight band. I think if you look at where we are in the first half, the first quarter is probably like 1 to 4.7, thereabout. In the second quarter it's about 1 to 4.8 thereabout. So it has been moving quite within a tight band. And if you look across the history of CLCT, it's probably moving at about 4.7 to 5.1 largely over the last 15 years. So I think RMB translation if RMB weakens, obviously, that will impact our earnings. That's one. Second, the translation terms, it will impact into a little bit of that here. So I think a couple of things that we are thinking of. I think we actively want to recycle some of the assets, especially the not the core ones. So that is one strategy that we are thinking to improve the balance sheet. We are not looking actively to hedge the balance sheet side of things because we are a long-term [indiscernible]. We don't hedge the equity side. So I think the renminbi weakness will potentially impact directly into our gearing. So that's something that we actively manage by looking at our asset book offshore and LTD onshore. So I think this is something that I mentioned earlier how we are rebalancing. Obviously, if you look at RMB weakness, then obviously, if you look into our acquisition, then there's also a cost of funding when we raise money in the same terms. So the acquisition will also reflect that. But we are not actively trying to hedge that RMB equity exposure. I think that's something that for investors we probably will understand that we are a China business. So that part would not be able to 100% mitigated away. And the other thinking is we have already shifted a little bit of that onshore gearing over time. We used to be 100% Sing dollar borrowing, but we have moved about 20% onshore. So that renminbi borrowing against the renminbi asset will help a little bit to mitigate some of these gearing and the natural hedging issue. Yes.

Okay. Thank you, everyone. Thank you today for your time. We have covered a wide range of topics for this briefing, and we hope that it has been insightful for you. So Joanne would like me to send everyone her regards for not being able to join us because she's not feeling too well. So before we go, Tze Wooi, would you like to share some closing remarks?

Yes. I think we have demonstrated, I think, in the last 2 years how we have actively reshaped our portfolio. And I think in the first half of this year, you start to see the new economy assets helping to get that added resilience. I think operationally on the ground, China is still going through a little bit of uncertainty because of the COVID policy. I think that is reflected especially in the second quarter of our performance in tenant sales and footfall. And we want to be a bit prudent to retain a bit of that distribution. We're looking forward to a better second half. I think given where China's policy signals are coming through, I think the economy is a big priority. Employment is a big priority. So I think once this starts to fill down, be implemented, the better confidence and sentiments flow through, I think our resilient portfolio will continue to be able to capture some of these trends. And then actively, we will continue to look at recycling some of these assets and bringing on more quality new economy assets such that the portfolio strengthen and probably continues to be shaped up. And while doing all this, I think we're very disciplined looking at financial metrics and growing our AUM, our market cap and ensuring the distribution remains at a very solid level and giving that stability and returns to investors who want that China exposure that our REIT business is all about. So I think with that, thank you very much for this morning's time. Have a good day, everybody.

Thank you. Bye.