CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi, everyone. Welcome to CapitaLand China Trust Full Year 2022 Results Briefing Call. I'm Nicole, IR of CLCT. So a very happy Chinese to all of you, and thank you for joining us today for a briefing. So I think we have a good number of participants now, so we can begin. We have on the line here today Tze Wooi, our CEO; Joanne, CFO; and You Hong, Head of IPM. So over the course of the next hour, we will be having a short presentation, before proceeding to our Q&A section. We will take questions after the meeting. So we appreciate if you could raise your hand then if you have questions, and I'll direct the time over to you for you to be able to ask your questions verbally. So I'd like to pass the time on to Tze Wooi now. Tze Wooi, please.

Thank you, Nicole. Very good morning to all of you. Welcome to our full year results. Wishing everyone a very happy year of the Revit. Let me take you through the financial -- the highlights and the business highlights in the context of the second half on 2022. I think most people would know that China's two half is very disruptive kind of operating environment. But management has done to actively steer the portfolio to weather some of the COVID-19 impact, on the one hand, which is behind us and also how we position the business, we want to capture all 2023 opening. Let me just brief you take you through the slides. CLCT's 20 asset portfolio today, if you look at it, spending retail business parks in our logistics across the 12 cities have provided, they're geographical and also the asset class diversification with the new economy now closing in to about 32% of our income contribution. Notably, 5 of the top 10 tenants' group are now from the new economy sectors, improving the income resilience. So during the year, you can look at our portfolio, has been actively managed all above market occupancies, while we balance the leasing objectives to secure higher-quality tenants as the malls we position, and also at a parks, where we align with the more in-demand tenant sectors via both organic and AEI efforts. In total, we are delivering a $0.075 and distribution for the year. If you look at FY 2022, gross revenue and NPI has improved or grown 1.5%, driven by contributions from the business parks and the logistics, but negated by the higher rental relief and the operating conditions as well as some assets are being taken to do the AEI, so there's a little bit associated downtime. At the distribution level, further to what I've just mentioned earlier, there's a little bit of one-off proceeds received in the financial year of 2021, and also the higher interest rate environment and that impacted the distribution per unit. If I look at the operating data, I think what is positive to take away is that the retail segment has reported a positive 2.7% rental reversion, largely driven by what I mentioned earlier, the AEI efforts. I think for traffic down 20%, I think sales down that 13% level is something that I think all of us are quite familiar because of the COVID environment that we are in. On the other hand, if you look at the new economy sectors. Our leasing, direction and strategy has been focusing to secure the higher-quality tenants that are coming through from what I see as the sectors. They are seeing growth, like example, the biomedical, the engineering, electronics, the infocom. I think these are something that we are trying to capture and also to support some of our existing tenants' expansion. So I think this is part of the business, we continue to be ready as 2023 move into an environment where we are more focused on business activity levels. I mentioned slightly earlier, I think the FY Q2 operating headwinds, I think most of us are aware. And arising from that, I think, in 2 half and also for the full year, we set aside higher rental relief. Some of these are being negotiated on the ground. So this is something that will close the chapter for book close. We hope to be able to do better than that in terms of the actual settlement. And if any excess, provision will flow into the 2023. I also mentioned that if you look at what we have done in terms of actively managing the AEIs, that you see some of these efforts. Although 2022, you see a little bit of a downtime, but upside will start growing in with respect of 1Q, 2023 onwards a couple of bit more later on. All in, if you look at how we have diversify into the business parks and logistics, I would say, is very timely. I think it's demonstrated by the valuation in upside for the new economy assets. As a whole, our portfolio has gone up by 2%, largely driven by the new economy, giving us about 9% of uplift. S-REIT are going through a little bit of weakness, I would say. But if you look through retail, there's also pockets of assets that do well. They continue to hold the value. And some assets, they are not so fast in terms of recovery and assigned rents impacting the valuation pressure. Over 2022, I think sustainability efforts have also been something that we have been focusing. I think these are some of the examples. We continue to participate in GRESB, setting some targets for our buildings. And I think we have managed to deliver truly go certificate after the AEIs that we did at Wangjing and at Rock Square. And we also started to get the tenants more on board whereby implementing the green leasing contracts across our leases. And I think one of our logistics assets, we are also pioneering the local government to do the solar panel. And I think from the loan side, I think we have also moved up in terms of our loans, as a percentage that's sustainability linked. And at a Board level, the diversity, I think we have also -- what we get to improve some of these deliverables. Now I move on to the capital management very quickly. I think if you look at the 2 half's. I have already mentioned, I think the large part is attributed to the higher rental relief and also the certain associate downtime and one-offs at the NPI level as well as the distribution. All in the numbers are reflected. I mentioned, I think a little bit we can go through some of the details. On the balance sheet, I think one thing to take note is that come this year and I think RMB has weakened relative to Sing, if you compare to where we were last year. So I think if you look at just -- surely these 2 points, RMB has weakened close to about 90% relative to last year. So they're largely exiting some of these translation effect to the end review. Overall, at the capital metrics, I think we'll continue to hear all gearing below our guided policy of that -- at 40% level. Average cost of debt, there's a reflection of the base benchmark rates increase and some of the refinancing. You can see that because of that has inched up relative to the last quarter. The other metrics, I think we continue to maintain a very healthy level way above some of the covenant's level. And as a hedging, we continue to hedge both the interest as well as the CapEx relatively consistently at a higher fixed rate and also the -- more than 50% of our FX hedge. I think for the interest, I think you can look at how potentially interest rate continues to move up by, let's say, by about 50%, about 50 basis points and impact slowdown to the DPU is as such, and also to the ICR measure. Debt maturity, I think we have consistently staggered it. I think the average debt to maturity profile is about 3 over years. You can see how we are already completed all the 2022. And as we speak, the 2023, I think we have also secured the full facilities for the refinancing. So refinancing is out of the way. Increasing the sustainability-linked loans through some of this refinancing. These are some of the distribution details. I'll leave with you. A quick overview at the operating level. I think this is something that we continuously focus to augment our total portfolio to bid them on balance. Today, the new economy is taking up about 3.4% of our AUM. And I mentioned earlier, it's about 31%, 32% of our GRI. And also consciously, we are trying to improve our exposure to Guangzhou and the Yangtze River Delta side, and this has now collectively move up to the 30% mark. And then keeping to take note is if you look at our tenant base today, it's much more diversified with more than half coming from the essential sectors, and another big part coming from the high growth sectors that contributed by the new economy. So some of the exposure that, consciously, we are trying to reaching our tenant base, you can see the department store now no more in here. Fashion has, through time have also come down. And what has been replaced is actually the more in demand on the F&B and services. And on the business park side, you can see us also actively capturing some of the demand net growth coming through. I mentioned earlier the electronics, the engineering, the biomedical and infocom et cetera. All in, I think the active efforts that we have put in place have helped us to move retail into the positive territory. I mentioned one thing is a key booster where we take down the old department store and by -- although the associated downtime is about 9 months in 2022, but once it kicks off in the fourth quarter of 2022, you can see that whole zone bringing us the whole of the old rental. So this upside will grow nicely 12 months into 2023. And as we speak, Yuhuating has also consistently been delivering the organic. And there's one last of the Walmart levels that we are progressing, and this will also be competing towards 1Q of 2023. So again, the ticker upside will come in 2023. Just sharing a little bit on what are the sectors that we are -- as the leasing direction trying to capture, I mentioned a bit on the F&B and the services. I think these are some of the new offerings and new trade cat that we would like to enlarge. And through bringing in quality tenants, I think this is where we continue to capture some of the reopening spending. Some of these examples are taken from advancing and new parking. At the new economy side, I think things are stable and steady reversion has been consistently across all our assets, reflecting the demand that we are catching. I think we have been consistent for our portfolio as a whole is stable. At the retail front, I think if you look at the traffic and sales, I think it's more interesting, but this is a look back data point of how things have been in 2022. I think you will still remember that we started off the year quite on a good note, where you can see both the traffic and the sales are almost on par with last year, but the second quarter was where the Shanghai lockdown and the associated other cities all up, you can see the big gap. Then as we move in the third quarter, especially in Beijing, rebounding quite strongly, you can see the catch-up. I think it's fourth quarter really is where I think most of our portfolio cities a hit in terms of initially October, November. And subsequently, even though they have lifted up the COVID restrictions, I think there's a lot of community spread in the people mobility that's quite severely impacted. So just to context, I think if you look at 2022, as a portfolio collectively, our assets probably have more disruptions, about 4x compared to last year. And if you look at this fourth quarter alone in terms of Q4, almost bring us back to the same level as -- I think you can still recall, first quarter of 2020 when whole China arising for the Wuhan lockdown. So just to context that 2022 was a pretty much disruptive environment happening sporadically through vacant cities affecting our cost. But that said, I think we can see that the spending and the sales are not as severely impacted. People now come to the mall with a bit of more target focus. And so long as we are able to provide the kind of popular offerings, I think they are able to capture some of the spending. I mentioned services is something that we are seeing the IT, electronic gadgets and also a little bit of return of the watches, jewellery that we are seeing in some of our malls. This is also an interesting chart; I want to share with you. I mean if you look at how things are moving in the fourth quarter. I think some of these, I had mentioned earlier on how we started in October, and November was really the trough and actually come down. And as the COVID restrictions lifted, you can see the improvement in the uptick. But then subsequently, it's been impacted by a lot of the nationwide cases that affecting consumer mobility, one thing to come out and so the confidence. Actually, the other key component is actually a lot of our tenants do not have adequate staff to [ maintain ] their stores during the end of December. So that also explains a little bit of the issue on the ground. But that said, I think you can see as we progress towards the end of December, the Christmas period and also how things lead into the New Year and progressing it to what we are seeing in the Chinese New Year. I think we are confident that the business activity is coming back. Consumer flow is coming back. I think this is a good sign looking forward. So the indicators are pointing that the consumption spending will return. Occupancy, I think as a portfolio, we are holding it stable. There are pockets of -- I would say, a little bit more churn in the leases at Chengdu, Xi'an. The rest of the malls, I think a slight in the associated AI downtime, I think, are progressing fairly on track towards our plan. I think this is [ expiry ] profile, I think it's quite stable as well as you look at how things are looking into 2023. So some of the examples of us trying to catch some of the good growth and staying very close to the catchment traffic. Very quickly moving to the new economy side. I think over the second half, especially, I think that's where business activities are impacted. A lot of leasing cases and prospects and activities are very strong. So that's the main sequential if you look at last quarter, some drop in NCI and AIT and also the II Hangzhou. And II Hangzhou I think because of our exposure to a little bit more of the consumer price, the e-commerce online trend of our business, small enterprises. I think if you look at the business environment, in the 2 half, especially in the fourth quarter, it's not a good time to do a lot of planning, and some of the business dropped off. There's a bit of back filling that we are progressing right now as 2023 opens. There are some of the examples. Logistics, I think have been very stable. I think there isn't much change because of the leases and the high occupancy already. I think what we are trying to do now is to actively look for cost effects ahead of time as we enter 2023. So looking ahead, I think what we are focusing and just to wrap up. I think we proactively manage some of our assets notwithstanding that 2022 was a difficult operating environment. I think we took steps to really execute on some of the enhancement initiatives and embark on some of these big anchors, new anchors space recovery. I think that work is in progress, although there's a bit of downtime in 2022, the upside will grow and have a positive update coming into 2023. Especially in the China, the COVID situation behind us, I think we are definitely moving into a more positive business activity level in 2023. So we continue to focus and be guided by our strategic intention to create, unlock and extract. You see us improving the income resilience by diversifying and also looking at opportunities to enhance our portfolio quality through acquisition activities. At the same time, I think a lot of efforts are put on. I think last year wasn't a good year for a lot of business decisions. I think we are looking into a better window. So we're actively looking to monetize some of the older assets, how we recycle the proceeds to pursue our growth. I mentioned quite a lot on the retail side. I think you will see us shifting to a much more positive trajectory in 2023 based on the hard work that put forward in 2023 on all of these AEIs. The road map continues to build that resilient and diversified portfolio. I think it's going to take some time as the portfolio refine on the retail holdings, putting out the loan view, noncore, bring on new economy. I think that's something that we're focused to do as the market opens up this year. These are some of the examples that I mentioned, but we won't elaborate too much. I think this is something that we have guided you. I think it's finishing is continuing into 1Q. And this is going to be a nice pickup as the overall -- all Walmart space become rich and reconfigurated. And we are now bringing a lot of new domestic brands that resonate better to the local shoppers. This is something that we are also working on, and I think it's nearing full completion as we enter 1Q 2023. Again, this will help to update some of the revenue into 2023. For [indiscernible] just a quick highlight. I think all of us are aware that this is operating lease late in the year. If you look at the business, I think since the second quarter of the city shutdown in Shanghai for more than 2 months, a lot of tenants have not been able to operate nominee, and some decided to cease operations. And I think because of the underlying lease shortening, I think the leasing activities have also not been at a reasonable range of where we hope to do. So after looking at, obviously, the business and also the financials, I think it's better for us to bring forward the closure of this mall and hand over the mall to the landlord. And I think by doing so financially, we are better in terms of optimizing some of these running costs on operating this asset. So this is something that is in motion, and we'll be ending this. Offset, I think it's going to be a very minor financial impact to the whole portfolio that we have today. So on the outlook, I think I have already mentioned a little bit, I think with COVID situations having peaked and behind us, initial indicators, as you look towards December and January, you can see traffic, people mobility, the footfall and the sales coming back. I think this is something that, with the completion of AEI, our portfolio will be much well positioned to capture this spending. And I think as a government, I think we move forward to 2023, I think they have pronounced a few things that the economy is going to pick center stage [indiscernible]. So I think there's going to be a supportive fiscal monetary policy. So we look forward to all of these as the outlook more seems a more positive territory. And with our 3 asset classes, I think what we have done are well positioned to benefit from the old economy opening up. I think with that, I'll probably just end this presentation. I'll leave to the end conversations for end.

Thank you, Tze Wooi. So I see some raise hands that we have. First, we have is Terence.

I just want to ask on the level of rental relief. Could you share like the number of months sales offered in 2022? And would that be any expected relief this year?

Just to context, I think in 2 half '22, the amount of rental relief that we set aside, it's about 5x last year 2021, just to have a context because a lot of it was in 2022, 2 half. For full year, we are probably setting aside about 3x of what we put through in 2021. So just to translate that into a numeric one, for the retail segment, it's probably about 1.1 month that we have set aside for the full of 2022. But if you look at the larger portfolio, because today, we are not a 100% retail part, so that translates down to be about 0.81 of our average -- of the average rental revenue.

Right. Actually, that sounds quite similar, maybe even slightly less than when -- let's now call it 2 years the growth...

Yes, 100%. Yes.

Can I check for keep out? Should we assume contribution this year? Or would there be some expenses related to the closure?

You're right. I do expect a little bit of winding down charges and costs as we wind down the business. But I don't think there is going to be a big percentage for what our -- and large portfolio today will be. I mean if you look at what [indiscernible] contribution is actually very, very negligible in terms of percentage points. So there will be some charges, but I don't think it affects the big picture.

Sure. And for the interest cost, can we get a sense of what's the interest cost for this quarter, for fourth quarter? And how should we look at interest costs for this year 2023?

Well, I mean if you look at the cost of debt, we have shut down, I think you will see that cost of debt will increase from, I think, in the third quarter to now about 2.97. So that's the quarter-on-quarter, the basis point now. I think this is a reflection of our total borrowing basket, right? Because not all of those are subject to the benchmark rates increase. So what drive some of these, one portion is the floating part, and then the benchmark will increase. And the other part is because there are certain loans up for refinancing in 2022. So these are the 2 main ones that have moved their cost of debt up that you see in the fourth quarter that we will be assuring. Just a quick representation. I mean if you look at where some of our loans are repriced in the second half of '22 versus what was going. I mean, the base rates, we have moved to the range of about 135 basis points, quite reflective of what we are seeing in the benchmark price.

Right. And -- so in 2023, like is there any sense that you can give us? I mean I sort of back calculate that it feels like fourth quarter, the deposit debt was probably closer to 3.5%.

So the -- I mean, if you look at 3 years to 5 years, the base rate is trending around that range. Although I think in recent weeks, I think it has softened slightly, but that is probably where the benchmark for 3 years to 5 years we fixed it, that is probably the range. Our margin that we are getting from the banks continue to stay around -- will be around that 1 to 1.2 margin level. I think the one we had also shared with you, it will also -- it depends on what kind of tenor, what kind of refinancing you have in line, that's probably the order that we are seeing in terms of the benchmark rates increase.

Okay. Great. That's very helpful. And lastly, you mentioned that you're looking to monetize assets for growth. Are you looking to sort of like switch out retail into more business parks? Or how should we look at it? Or is it going to be like more retail?

I mean it's -- from a monetization standpoint, I think it makes more sense for us to monetize some of the mature holdings. So I think by logic, my reference that will be retail wants more time for us to monetize some of these, we have been holding it a long while. So I think that is something that we look to recycle. And as the proceeds come in, I think we continue to be a what might be kind of REIT holding. So it really depends on the quality of the assets that we want to bring in that can help improve the portfolio quality. I would say at this juncture, if we can bring in another business parks, that will be great because business parks is in demand. And we are seeing how the capital compression has moved up. So in reflection, I think what we have done in 2020 was a good buy because even sort of bought it later, you probably have to pay a much higher price to get that in. So I think if we can monetize some of the mature lower growth, lower yield kind of retail and recycle and the business parks and get the NPI updates, I think this is something that we are focusing to do.

Thank you, Terence. Over to you, Geraldine.

So a few questions. Maybe I take the retail one first. So the recovery was really seen from the last week of December. So from there, are you able to give us some color on traffic and sales in January? And has leasing demand picked up for the retail segment?

Yes. I think you look -- I mean, the trajectory that was providing was, I think, drawn up to the second to third week of January. But if you were to just project it up to full January, I think all in January will reflect the month-on-month improvement over December. Definitely, the trajectory is still strong. Although the percentage points, I think that if we look at our portfolio. I think not all the cities reflected same, typically for CNY period, our Tier 1 city loans are less in terms of football attraction because these guys are [indiscernible] jogging and then for 3 years, they have not been able to go back to their hometown. So this year, you really see a little bit of that people going back for the first time. So in terms of the month-on-month growth, we'll probably see a little bit more uplift in our Chengdu and those are most, but that said, it is still a good pickup over December. So that's more on the football and continuously what we see. I mean, just to share with you over the Chinese New Year period, some of these cinemas in our malls, who have been suffering quite a lot the last couple of years. We are able to capture this period and do quite good sales. And some of these sales are pushing almost to 90% of -- if you look at our previous average. So I think these are good signs to know that as a business activities come back, retailers in the various big techs are able to position themselves a digital culture the return of its [indiscernible] F&B continued to attract, especially in those newer concepts' ones. I think they are doing well. I just now mentioned a few of the -- sharing with you the services and also some of these more lifestyle electronics kind of things. I mean these are also being able to take up some of these spends. So I think we are definitely moving. If you look at where we are in 2022 and where things are going to be in 2023, the expectations that the business environment, the confidence will improve. So I think what is key is really to execute some of these enhancement initiatives, completed focused on getting the footfall back. I think the confidence will progressively return. So I think 1Q, 2Q is probably when we see with more of the pro-growth policy, the confidence coming back, the positive feel coming back. I think that's where the trajectory will move towards 2 half nicely into a more normalized operating environment, I would say.

If I can ask a few on the business park segment. Can you share the tenant profile of the Hangzhou type Park 1 and 2?

They're mostly, some of those e-commerce, online small enterprises who have built themselves on those very active small business, consumer facing over the last couple of quarters. Hangzhou is quite big in e-commerce and online. But from where things are in the 2022 environment, I think I would say most of them have not been operating easily. And I think some of the smaller ones decided -- may decide or not to continue. Some of this fall off in the fourth quarter. And fourth quarter, as you know, if you look at where China was, a lot of restrictions in October, November, December. That is not going to be a quarter where you can complete some of these leasing activities that we plan to. So there's a little bit of the vacancy that we need to do fill back. And so the Hangzhou are predominantly driven, I would say, by the e-commerce, I think there's also potentially a little bit of that semi landlord type. They take a little bit of a bigger space from us, and in turn, they sublet to some of this space. So I think the overall environment is such that the expansion trend is being reviewed. So I think there's a little bit of that vacancy both [indiscernible] Although, [ CI ] is more of the timeliness. I think there is a bit of the fourth quarter with the leases. They are meant to be renewed, but because of the slowness in some of dismissing decisions. So I look forward to 2023 being able to pull back some of these gaps. Yes. The other thing -- yes, so the other point I wanted to put across is -- as we review through our business parks, I think, especially for the Hangzhou. And you can see us also making a more conscious effort to Hangzhou support the tenants in our park that are already there and are expanding, and also the factors that you would like to attract. So I think there's a little bit of the sector mix also going on. So we may shape out a little bit of the occupancy. But that said, I think we're happy that at least at the reversion front, the demand of the signing rents and where the market is right now is much better than what in the past. So we are doing a little bit of the balancing of what we want to do as a leasing strategy against the occupancy target. We really hope that 2023 is a much better year where some of these intentions can be converted quicker.

Yes. I think some of the sectors that we are also targeting, we'll be more into those are aligned with the China long-term strategic growth like biomedical sectors, engineering, electronics and ICT. So these are the sectors that we also -- particularly for Hangzhou, we're also looking at sectors like biomedical. So I think we recently also signed about like quite a substantial space in the bio sector in Phase 1. So I think we are definitely going to look into more of securing quality tenants for our business parks in the coming quarters.

Can I just ask one last one on the valuation front for business park? Saw that there was a compression in cap rates, which was quite surprising. Can you share us, what assumptions has changed and where this new cap rate range is now at? It's my last question, Tze Wooi, Nicole.

Okay. I mean the cap rate range, I would say, is still about 5.5% or 6%. I think where we were carrying the value was probably slightly on the 6% side. We will know that some of the business parks have gone into the local C-REITs. And I think as a result, it creates a little bit more of the valuation benchmark and the liquidity. So I think if you talk to the valuers, that's how they have looked at our business parks relative to what some of these markets C-REITs transacting in terms of the passing deal. That said, if you look at our business park, although with the uplift in their valuation, our yield are still around of 6%. So I think just bring back the question earlier that we have bought a timely and at least during our holding period, that we see this capital compression.

Can we have David, please?

Just a question related to the valuations of the business parks. I mean, how could you possibly make -- how can you possibly make an acquisition this year, if you're going to buy it at like 5.5% to 6% yield. Your cost of capital still looks very high. So how will deal flow return this year, even though consumption will recover strongly? But how about the outlook for deal flow?

Yes. Good question, David. I think definitely, we are looking at retail to positively contribute in 2023 relative to '22. So that will help drive things up. I mentioned earlier, we are actively looking to monetize some of the more mature holdings. So that will help to give us better financial capacity. As all deals, when we look at acquisitions, we were looking at the sources of funding at the recent cost of capital. I think that's something that we will look at all the time. I think from the sponsor group from external, I think we continue to look at business parks hovering around the 6% handle. So I think there's something -- I wouldn't say it's not doable, but more so of timing and also the kind of sources of funding that we can get ready to bring that on. There's a bit of improvement in the share price. I think that helps in terms of the discount to NAV. So I think as a weighted cost of capital, you can monetize and strengthen our financial capacity. That's how we think about bringing in new acquisitions.

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

So can I ask a couple of questions about the retail side? Okay. So is there more retail supply in places like -- around Xinnan that's in Chengdu, isn't it? And then -- and because the occupancy fell quite a bit. And then there is Grand Canyon, which has always given you a few problems over the years. So is that a question about supply? And if you're looking to monetize some of these assets, what would you -- are you looking at the older ones? Because Xinnan and Grand Canyon went right in the IPO portfolio. And then also, are there any updates on Shuangjing that wasn't the IPO portfolio. But so you said that one would -- has a bit more prospects once you get it back from the master lessee. And then just wondering about your offshore versus onshore debt because you got like 283 million of offshore debt due this year. Are you going to refinance with similar kind? Or is it cheaper to go onshore? Because you've still got a lot of offshore with not so much onshore, just those questions. And then also, you -- there was a slide which said you want 30% retail, 30% new economy and 40% integrated developments. What would the integrated development be?

Yes. Thanks, [ Gula ] for the questions. I think -- let me just attempt to address them one by one. I think you mentioned the Xinnan that GC having the weakness in terms of the catchment supply, it's not just 2022 supply. I think the supply has been coming along. I mean in the sense that you can go back 2 to 3 years, there are new supply coming in that is not too far. So on competition and also with the COVID environment, a lot of the retail malls are disrupted. If you look at Xinnan, it was always positioned as a very young and a very special fast fashion heavy across the retail mall. So if you look back the last 2, 3 years, certainly these type of brands getting harder to get attractions in terms of capturing the footfall and expanding. Some of these fast fashion brands have also decided to consolidate some actually exist in certain market. So I think there's a couple of all of this. In particular, for Chengdu, I would say we started the year wanting to be positioned to lessen the exposure to fashion and bringing other trade categories. But we've gone through quite a few untimely hits obviously, I mean look at Chengdu in the first half, to be complete in July, that things are starting to get better. You compete again. And after it reopens in September it compete again. And then -- so intermittently, I think a lot of the retailers are just taking a pause to want to expand. And I think that leads into the occupancy and that leads into the performance variance. That's essentially what's scenario is all about. And I think if you look at the valuation, there's also big plan [indiscernible] Grand Canyon, it's also going through a little bit of repositioning. I think we are actively looking. I shared with you earlier what we did for Wangjing, it's to really paying back store. There are good opportunities for us to do the same. So we've already done the other one for reporting in Walmart, we have seen that. So we are also embarking on opportunities at Grand Canyon, where we are going to take back bigger spaces from the supermarket. And as a result, I think these are some of the things that are moving. So as a result, if you look at year-on-year, the performance will reflect is kind of not been normalized state, but more churn. So these 2 are, I would say, going through a little bit of debt churning. And as a result, the performance variance reflect that on debt. On the exit opportunity, I think we have taken the valuation down, and we hope that it'll be reopening, these 2 cities, I would say, are still good cities that we can look for opportunities, exit run in Beijing and Chengdu are still are well led. On potential exit on Shuangjing, you're right, this is another one that we're looking. We have really monetized for the original [indiscernible] Shuangjing is something that we're definitely looking because, it's in terms of the balance sheet side, our decision-making is also to shorten that, to monetize the one that have shorter balance lease and then recycle the proceeds to bring in assets that they can help us lengthen the duration. So this philosophy is going to try some of this investment and same decisions.

Second question is on the [ 23 million ] offshore debt that has to be refinanced. Is it this year, right, your outlook for the challenge this year?

Right. The debt, however, you rightly pointed out, is in Singapore dollar terms. So we have already secured the full facility for refinancing out here as well. So that is addressed. On your point on whether we can look at rebalancing it, I think this is something that we are actively looking as the true effects. Total cost of borrowing start to converge, we'll make opportunities together to gear up a little bit more onshore. The only thing is that we have to be very mindful that the purpose of the borrowings at current stage is not able to just borrow onshore and bring the money [ down ]. So we have trend, then as a portfolio, whether doing investment, divestment stage. We have rebalanced some of this as we attempt to do a divestment and an investment. How you want to gear a bit more onshore, something that we are looking as well. And the second question?

Second is on the I think the [indiscernible].

Yes. I mean that is something that I always guided that to be second, obviously if I could create a long game in China. You kind of know that there's opportunity of capturing some of these good quality assets in Tier 1 cities, but it's a pragmatic step. I think what we are doing these 2 years is definitely to strengthen the retail offerings. We still haven't done there. Despite a very difficult retail operating environment in the last 2, 3 years, I think that chapter hopefully is behind us. So this year, it will start to kick in. I'm actually quite positive if you look at one thing easily. I will get a much better update relative to last year because the whole of the whole zone have achieved double rental relative to the old one. So the full 12-month effects will be achieved. Another one that I'm positive on is new [ model ]. Similarly, we have also taken the Walmart space. So that is going to complete as we speak, and that's going to give us that very positive outlook as we enter 2023. Some of the more -- they are very particular for 2022 that we satisfy a very high rental revenue. I think it's more on the -- not more than if you look at the number of days. For example, it's almost 2 to 3 months, essentially 0 business towards the last of 4th quarter, to an extent, by the rent. We don't expect that to be repeated. So again, you will see that year-on-year, pickup in NPI coming from [ new home builder ]. Rock Square and Xizhimen continues to be raised organically. Rock Square also had a little bit of more AEI. I think we're also actively embarking to take back some of the anchor supermarket space. So again, that one [indiscernible] has been done. It will help us to propel. So there are pockets of all this, when I'm saying we're actually taking back big format spaces [ regionally ]. And there are, at least, work once it's done. Chengdu is going to be a nice pickup again also in 2023 than 2022. These are the stronger assets we are focusing a lot of time through AEIs or enhancements to capture their spending. So I think this is going to be a big look of how the NPL is going to be driven. The smaller assets [indiscernible] mentioned, we are bidding it out last year. Sing line, we are really repositioning. So that's expected to go down. The other side, I think smaller ones, they're looking for operations exit. [ Shuangjing ] is prime for exit. So I think these are some of the things that we'll continue to enhance the retail side. The business park side, I think earlier I mentioned, I think there's a good chance for us. We continue to look at some of the targets coming from our own sponsor group. So that's why we are also actively looking. So that is a portfolio quality churn, you'll see us bring better and better income streams that we'll support. There's more sustainable growth going forward.

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

Just sort of follow-up questions on divestment. Could you just share a little bit in terms of the current buyers in the market, their profile? Are they looking at things that are potential for conversion rather than a pure retail? Yes.

It will be city- and asset-specific. But you're right, as we engage, these are the kind of conversations we have. I think so far, I would say people who have interest and indicated interest are people who have already presence in the city, already having a little bit of the platform capability to do a little bit of repurposing it. If you recall a couple of years ago, we actually divested the [ rental ] engine . So actually, the buyer had bought it over and want to reposition it as office. So I think these are the kind of buyer profile that we are seeing. Either they convert to a full office or they want to convert it into a bit of a hybrid or they may have already existing kind of platform that can help to bring on their own offerings into that new building. So these are the kind of people that we are seeing for the Tier 1s. Similarly, for the smaller cities, I think we have to probably go very local. I think for the Tier 1, we have 2 prongs, one is more local. And I think for Beijing and Chengdu, with the opening of local economy, we hope to be able to get more traction. I think for '22, it's probably not the best environment for buying retail assets. So as things improve, hopefully, that foreign investment into China will open up again. And I think we do hear a little bit of very selective people who are in China before. And as the operating people on the ground, these are the ones we're trying to look out for new investments into China. So we hope to be able to engage further and develop that interest.

And then just a follow-up on -- in terms of rental reversions and all that, what's tenant's ability to pay today given they have suffered quite badly in 2022, right? I think sentiment has been very positive. But how much conversion can you get from sentiment to sort of actual cash uplift? And you mentioned quite a bit about some of the AEI coming through. Could you just guide us from quarter or half yearly how sort of timing of those?

So you're right. I think sentiments are definitely opening up more positively. I mentioned business activity levels have gone up. You start to see brands' decision-makers traveling around the different cities to look at sites. So I think these are all initial indicators that business activity is going to be better. How fast we can convert some of these, I think it is also really dependent on asset-specific. So I earlier mentioned those AEIs. We have been able to secure, I would say, very good private brands in. If you look at some of our guidance out there for the GCM tenant anchor space, I think we've already secured more than 80% of the level, both for the new part and also for the GCM. So both of these are expected to complete 1Q 2023. Just a quick sense, I think if you look at what we have shared, the GCM mini anchor will help to uplift about 7% of the 2023 relative to 2022 for the space, right? Similarly, for Yuhuating Walmart, for the progressive completion that we're expecting now, they will also uplift close to 10% where things are relatively year-on-year. There are a couple that we are working on. I mentioned GCM. That one will not be immediate. That one will be probably more a second half thing. And also in Rock Square, we also had another space recovery plan that we are working through. That will also be probably around 3 quarter where things will be more ready. So there will be a bit of this happening. So I would expect by 2 half of 2023, most of these will start to move back to a more normalized state. I think the uplift will come. We are entering to have -- entering to a more normal positive environment where business and [indiscernible]. So I think we're quite optimistic that the retail portfolio where that may see a year-on-year uptick, whereas the 2 -- economy is going to invest in, giving us their organic growth. So I think overall, our contribution is going to see improvement in this year.

Thank you, Joy. Over to you [ Tze Ping ].

I also have a few question on the retail portfolio. So I understand that the retail-leading momentum has improved. So for this year, would you be prioritized more on the rental improvement over occupancy? And how should we see your rental reversion this year at mid-single digit? Or could you share some numbers?

Yes. So as I've shared earlier on, I think we see embark -- AEI that we want to embark on. Overall retail rental reversions will be lifted by this. You can see the effects on the Yuhuating pulling up. So Yuhuating is going to be competing in 1Q. So some of this uplift will come through. I mentioned earlier, there are a little work that we are doing at GCM and at Rock Square. So by 2 half, some of this work will be completed, and they will be entering the operations. So some of the rental reversions, if you count all this AEIs, it's going to pick up nicely. I mean if you look at just our trend numbers for some of this supermarket take-back, easily, we are going to be able to drive the whole zone rental to double. And therefore, if you look at just -- looking at stable state, once you take-back and completed this thing, the rental will double, and that's how we'll get it. The pocket of weakness will continue to be at Xinnan. Also, this year, it's probably a lot of work is required to churn some of these tenancies. And I mentioned earlier, the repositioning and because of the large exposure to the apparels related. So that one is probably the asset that I'm looking at more negative. Other than that, I also mentioned that the seasonal is going to be steady. Rock Square is going to be steady. The few AEIs I mentioned will help them drive the whole retail portfolio to a positive rental reversion this year as well. You mentioned about occupancy. I think if you look at different malls occupancy, I think they have all this in the high 90s. So aside from reporting this, where sometimes there's a bit of frictional vacancies dropping off, not able to renew timing on the period end. Some of these will then be big time later on. So all in, we are still looking at above 95 for our retail assets. So I think that should help to move in that high level of NPI.

Okay. I have another question on the condos and business parks. I think you mentioned that it has high exposure to the e-commerce, consumer-facing tenants. So just wondering, can you share the percentage and also in terms of trade sector EBITDA? Are they in the top 3 or top 5 sectors?

We had that trade category, in fact I just put out [ the sector EBITDA ]. Yes. So if you look at how things are in terms of our new economy, so the electronics engineering, the ICTs, these are the top 3. E-commerce has dropped down the ranking because of some exit I mentioned earlier because of the -- and it used to be very vibrant. We are actually taking in quite a lot of the smaller business formats enterprises. So arising from some of the exit of these, the percentage contribution has started to come down. So I think this is what we are looking for. The top 3 are electronics, engineering and ICT. And these are the ones that we are actively looking to capture more expansion. And also biomedical. I think we have made some great breakthrough in our Suzhou assets and some in Hangzhou. And I think this is going to be an interesting sector to that trend [indiscernible].

Okay. Thank you. Thank you, [ Tze Ping ]. Now I'd like to pass the time to Vijay.

I think I have a couple of questions. Maybe I'll take it one by one. My first question is in terms of the retail sector. How do you see the distressed opportunities for the retail sector and the market? The reason why I'm asking is that you -- I mean you have previous sponsored CapitaLand acquired Borui Plaza in Beijing for a 30% discount. It was the one leader in the market in October. But if I look at your valuation, your valuations, on the other hand, are relatively stable. I mean was this 30% discount being factored into it? Did you look at this asset? And how do you -- moving forward, do you think retail would be a better opportunity in terms of yield accretion, I mean, compared to new economy for your portfolio?

Yes. Just to clarify, I think the asset that you were mentioning is the one that our sponsor bought in Beijing sometime in October, is that right?

Correct. Correct. Borui Plaza. I heard it was on EBITDA with a 30% discount.

Okay. So that setting is in context, I think that is the office building . And I think the passing occupancy is, if I recall, the statistics correctly, it's probably around 30%. So that hopefully behind is to see the consumer of our local renminbi funds to do more of the value add and to actually, at a later stage when we can bring the income up. So I think the profile of the asset is probably not suitable for CLCT. And it's also an asset that came through via a lot of, I would say, core auction. We need a little bit of that ability to work out situations at times. So I think the profile of asset, even though it's in Beijing, is probably not that suitable for us because it needs a little bit time for you to get the asset up into a steady state. So I think that profile doesn't suit us. So although we are aware of what they buy, the profile doesn't suit us. On your question whether we are seeing distressed retail assets and are we looking at it, I think we are shown at different junction by different agents or different people will move to us. So we are continuously seeing people willing to lower price expectations. But again, it brings us back to the fundamental strategy, we think by bringing in this asset helps to strengthen our portfolio, whether we have the synergy on the ground by bringing this one. It is in a city that we don't have any competitive advantage operating. Even though the price is reduced by 10%, 20%, 30%, we may not be strategic fee for us. So this is how we look at it. I mean we have been shown certain retail assets in certain parts of the Greater Guangdong area. That is not something that we actively want to be in, and therefore, we will pass it over.

Okay. The second, I think moving in terms of the business park space, especially Ascendas Innovation Towers in Singapore, Hangzhou Science & Tech Phase 1. There seems to be a steady stream of occupancy decline in this asset over the last 1, 2 years. I mean -- but firstly, are these tenants exiting the building to move into a new building? Are they downsizing? Maybe can you explain a bit on that? And the second point is that I noticed that occupancy has declined, but the valuation has jumped up by about 13% to 20% for these assets. Again, this doesn't sound like to me is the valuation cap rate based on evidence base? Or what growth value is to increase the value of the property while the asset is underperforming?

Yes. I think this is a good question. I think we do see some variations. Some of these exits I mentioned earlier is because of the tenants' own business model may not be able to be healthy going forward. And some of them, especially if you look at the last 1, 2 years, the operating environment and outlook is not one that promotes them to continue to want to expand. So some of them -- actually they keep some consolidation. So these are one category of exits that we are seeing. Another category, I would say, are more opportunistic in the sense that sometimes they may be able to get from the government certain negotiated or lobby kind of percentage for them to pick up space. Some of them may even do their own building, so end user type. So there's a little bit of such as well. And the area that we are in, sometimes there are new supply. And whenever there are new supply, there will be a little bit more than rent, what I should say, compete on rent. And I think this is something that we have to be mindful. So again, this brings us back to earlier what I shared in terms of its part, in terms of the leasing strategy and the direction, we are probably balancing a little bit of that occupancy with the kind of quality talent and enterprises that we won. And I think you see that a solution -- as a missing direction. In 2 half, I shared earlier, it's not a good window for most of these enterprises to move or rather to take our expansion plans or to commit to new CapEx, commit to new offices. So that's a little bit of that slowness in terms of leasing activity. So I think there a couple of those factors that you see on the business parks occupancy movement. But that said, if you were to compare our assets against other markets' frequency rate, I think CLCT are still very high levels of the occupancy stage. On the valuation, I would say the cap rate compression is the main one and also the outlook on the market rent that drives essentially our valuation uptick. On the other way around, today, if I will include, my -- these new assets are in the market, and they fetch that valuation. If you look at where the CVs are trading today, potentially they have been trading tighter. So that increased -- the entire value has gone up. So I think there's a couple of these factors that the valuers have taken into consideration as you look into the valuation. The occupancy ins and outs, I think these are more temporal in valuation language.

My last question is that I noticed that your sponsor has set up [ 2 ] China business park fund and has also acquired an asset with 100% occupancy interest. How should we see this moving forward? Are they your friendly peer? Are they your competitor? Or are they in a completely different asset class? Maybe you should do a joint venture, 20% stake in the fund. How does this work?

Good question. I think these are all within possibly [ same asset ]. We are a China-focused REIT. We are trying also to build a track record in renminbi fund. And at the current stage, renminbi fund in any kind of profile, the assets restricted. So we will join potential investments if the ticket size is something that makes sense for both. You have seen actually some of these examples with asset funds co-investing in a JV kind of arrangement with the private funds. So I wouldn't say this is not a possibility. I think it always comes back to market opportunity to develop funds, the size, the ability to raise funds. So I think these are all the more practical considerations. But as an asset class, as a geography, I think these are all within our costing structure something as we capture our own growth path.

Thank you, Vijay. Over to you, [ Joel ], please.

I just had like a couple of questions. The first is could you share, let's say, for your retail portfolio, generally tenant footfall and sales say, compared against 2019.

Against 2019, if you look at the full year 2022, definitely, it's still a summary of that because 2022 is not really a good representative there. So we are down, traffic about 20%. So against 2019, we are probably down another closer to 20%. So we are probably -- the whole 2022 is probably about 60% of where pre-COVID 2019 was. But we probably -- I understand the context of how 2022 footfall that I mentioned much earlier. But if you just look specifically in the January month, after things start to improve, our business activity and people mobility picked up. I think that [indiscernible] is closer much more. You read the specific number on January '22 versus January 2019. I think the gap is actually closer, it's no longer like a 34% gap. I think the gap is probably closer to 10% gap, depending on the various city selection. Few months it is -- typically not so kind of during the January. And this year, January, because the CNY effect, has been going forward. We can provide a little bit more color if interested.

Yes, sure. That will be useful for the January month. My next question is regarding -- could you share the occupancy cost of your retail portfolio? And perhaps when do you think you can start pushing for higher rents?

It's a question that's always on my mind. I think let's -- I mean I think you have to really appreciate the mentality of how these tenants have suffered in the last 2 or 3 years. Things are just behind us. Everybody is trying to start 2023. We're planning what we intend to do. I think let us have more positive vibes that economy is priming ahead, the feel-good factor because, ultimately, for retail business to do well, the consumers will have a good feel -- feel-good factor, and they are willing to come up with no restrictions. They are willing to spend more time out there socializing and spending. So I think a lot of retailers actually speak the sentiments are definitely much better compared to last year. But again, to commit and expand, you'll probably need a little bit of more data point for the confidence to give. So I think the first quarter leading into the second quarter are probably critical ones. In March, they are going to have a change of the government leadership, and we do expect the economy going to take very center stage. So we hope to be able to see more targeted economic policy, job creation, employment prospect, enriched growth, disposable income, family growth, all these coming together. I think as we know, in 2 -- second half of 2023, I think we have very good prospects, then consumption returns. And once it returns and because of our AEI that have already been done, we will be opening up into a much better window, as I mentioned earlier, be able to lease up and capture the spending, and the rental yield will go up. So I think we are definitely doing what we can in the first half so that we are ready to see the very strong uplift coming in the second half.

Sorry, could you share the number on occupancy costs for the retail portfolio if it's available?

Yes, occupancy cost, again, if you look at FY 2022 results, [ this may have been weak maybe ] ranges, I would say, maybe 23% all the way to closer to 30%. But that's not going to be very reflective of where normal state is. I would say normal state, we look at pre-COVID days, we are probably trending around 20 to 23, depending on various malls.

Okay. Last question is any worries -- and do you have any worries to hit FY '23?

I think from a business standpoint, I will leave the personal reason aside, but definitely, I think we are moving into a more positive environment. I'm optimistic that as China put the COVID chapter behind them. As they refocus on driving the economy, and I think economy is going to be top priority for the new leadership in [indiscernible], I think any new leadership would want to be able to demonstrate that. And I think in the last few years, I mean we all said about all these restrictions impacting people. I think job prospects, employment, household income, I think these are something that will bring back the confidence. And once that starts the motion, I think good thing about China is that whenever the engines get fired up, you'll start to see this happening fairly quickly. I think what's very important really is for our ground team for us to be able to capture this very quickly. So I think that's what we are focusing on, to leave the COVID chapter behind us. I think there's adequate provisions. And I think we're going to start 2023 on a good note, focused on AEI capture outside the second half of 2023.

Maybe you will add on a little bit more about the shopper traffic for the CNY period...

Yes. Just to -- I think because we just closed the month, the traffic and sales are still -- need time. So when we did check the China Golden Week traffic data, and it's actually over 90% from a portfolio standpoint of view versus same period last year. If you recall, same period last year, it was actually a relatively good period. That was before Shanghai COVID lockdown and everything. So I think that will likely continue the trend. And the other 2 things I want to maybe highlight is that, firstly, like as we mentioned, first-tier cities, this year, we have seen anecdotally a phenomenon where people are going back to second and third tier cities. So I think from -- this is like the first time in 3 years, 4 -- or 4 years, right? So I think this is actually -- does show that from the -- our second tier cities are actually doing better than the first-tier cities. The other phenomenon that we are also observing is that, sometimes the traffic in terms of recovery, I think we see an example within China as well. The traffic is actually a little bit lagging from a sales data because I think, like what we also mentioned, that this is kind of some of the shoppers, they are more targeted. And then they actually come to spend. But the people who just visit, because of the COVID, because of these 3 years, I think will come a bit less. So I think we are also waiting for the sales data to come in. And hopefully, I think we will be able to share a bit more in the first quarter some better color.

Thank you. I think that we have already passed the hour, but we'll probably take the last question from [ Terrence ]. Happy to also answer more questions if there are any, maybe, for the next like 5 minutes or so. So over to you, [ Terrence ].

Yes. This is [ Terrence ] from UBS. Can you share the rental rebates outlook for FY 2023?

I mean we don't have outlook for rental rebate. I mean we just closed the COVID-19 [ chapter ], looking forward to drive the engines to start the business ahead.

In January, would that be necessary?

In January, no. I think I mentioned earlier that we set aside adequate rent rebate provisions for us to support our targeted tenants. So I mean based on January, we don't see additional so soon, near to what we have satisfied.

So there are some tenants still utilizing some of these rebates, but it is based on cost provisions. It is the right interpretation?

It's easier for me to illustrate this way. There is certain rent relief that we set aside such that we have more certain outcomes in the tenants, let's say, as they enter a new lease with us going forward. So some of this rent relief is meant to be part of the package as they look into renewing the lease with us. Some of this rent relief can be a one-off, where I just wait for a certain amount of their fixed rent obligation for certain periods of time, where they are unable to treat normally due to the closure base. There could be a certain rent we need, for example, for us to -- for example, we work through for a certain period, we only benchmark that rent through their sales turnover. So when I say that, we have set aside adequate rent relief, it's a combination of all this potential that we will work through with them. So given that we just closed the books for December, we don't think, in January, we are going to see this -- another big amount to come through.

Okay. Then for Hangzhou, is it fair to say that the remaining 7.8% e-commerce exposure, is that the main point of weakness for the new economy side? And should we expect further churn from this -- for the exits from the 7.8%? And if you can help give us some context, how long should we expect for the backfill progress to come to it?

I don't think that we should say that e-commerce is out. I think, ultimately, Hangzhou is a very vibrant city where e-commerce is promoted. But if you look back in 3 years, tech companies like Ali, all these have been -- I would say that the whole business environment, the whole sector. But as things become clearer, I think you'll see a bit of Walmart back and all these technology companies coming back. I wouldn't say that e-commerce is on its way out, but more so of us selecting better quality tenants. They are more probably able to withstand longer certain business conditions. So I think what we have learned in the last 1 year is that we probably had many in terms of volume of smaller players, which creates a lot of leasing work to complete. Some of them are unable to continue. So we are now relooking at some of these strategies. We will be leasing into bigger spaces, leasing it to tenants that have better understanding and have track record with us. We want to expand. I think these are some of the spec sheet in how we look at attracting the e-commerce space or kind of what I already mentioned. If you look at the overall compositioning, where are the sectors that are promoted internally by the government, so we want to be able to capture and move our tenant quality better in line with the China policies. E-commerce is definitely still one of them. I won't say they are on the way out.

Got it. Sounds like you think longer than you [indiscernible].

I think it's fair enough. I think the business park is a little bit more chunky in the sense that once you convert one, the percentage points sometimes can move very quickly. But it takes a while for some of these chunky leasing decisions to be converted.

Okay. Thank you, [ Terrence ]. Thank you, Tze Wooi. I don't believe there's any more hands raised. I hope we addressed all your questions. We covered a huge range of topics in this briefing, and we hope that we have provided more color in terms of our business as well as the outlook-wise for China. So before we go, Tze Wooi, would you like to share some closing remarks, please?

I think 2 messages, I think China has turned the chapter on COVID. 2023 will be a year where everybody gets back to business, the economy will take center stage. I think we have that portfolio that's well-positioned to capture. I think what we've done in 2022 will position us well to capture 2023 and beyond.

Thank you.

Thank you, everyone.

Thank you. Happy Chinese New Year. Wishing you good health and happiness.

Thank you.

Thank you.