CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Thank you for joining us for today at CapitaLand China Trust 3Q 2023 Business Update Call. I'm Nicole, IR for CLCT. So I have with me Tze Wooi, CEO; Joanne, CFO; You Hong, Head of IPM. So over the next hour, we will begin with the presentation followed by a Q&A segment. So we kindly request that you hold your questions until the end of the presentation. So when we reach the Q&A portion, please use the raise hand feature, and I'll pass the time over to you. So let's kick start this session with a presentation from Tze Wooi. Tze Wooi, please?

Yes. Thank you, Nicole. Good morning, everyone. Welcome to CLCT's 3Q business update. I know there's many announcements coming today, so let's dive right straight to ours. So I think for this 3Q update, I think you can see that for CLCT's portfolio, the retail segment is actually gradually recovering nicely, and that's actually leading the overall portfolio shape. If one looks at the revenue, we are slightly down, primarily because of the new economy softer in terms of the third quarter into the occupancy. And also there are specific one-off kind of the Qibao business closure and a little bit of the Shuangjing. But overall, if you look at where the operating metrics are, I would say that the retail portfolio gradually recovering nicely. You can see the metrics across our occupancy, our traffic and our tenant sales are all gradually improving year-on-year as well as sequentially quarter-on-quarter. So driven by this underlying retail improvement, overall net profit income as a portfolio is plus 1.2%, 5% up roughly by the retail. If we strip out just the 2 assets I mentioned earlier, the overall retail NPI would have grown by double digits higher. And if you break down our retail holdings of 10 assets, essentially the top 5 assets, especially those that we have already gone through that staggering of the AEI. They have started to contribute much better. So these 5 attributing more than 80% of our NPI that have demonstrated that double digits year-on-year growth. If you look at 3 quarter, Sing dollar continues to be very strong against our underlying RMB. So when you translate back in terms of Sing NPI, that we factored that negative 8.4%. At the capital management side, I think we are very active in managing the kind of onshore and offshore kind of debt mix, RMB and Sing, and continuously moving our cash around, and we maintained our cost of debt at 3.55%. Fixed loan ratio continues to be high at 75%, while we also increased the proportion of our sustainability-linked financing. Some macro updates. I think all of you are aware, the GDP for third quarter has been published a couple of weeks ago at 4.9%, I mean, slightly ahead of the market expectation. And if you look at underlying, you can really feel that in consumption recovery is underway. And if you look at the retail sales, they have also been a bit more encouraging, and if you look at our October 7 days or 8 days of that Golden Week continues to validate that gradual consumption recovery is being observed. Retail sales are improving, and we do see some of this flowing into our own portfolio data point. The other key thing is on the business side of things. I think overall, the business environment continues to be a cautious one, although we are seeing a little bit of that stabilization in terms of the PMI, and also you can see the manufacturing data index start to move towards a better zone. And all the more in the last few weeks, especially this week, we continue to see the policy stimulus coming into be more targeted and also to stabilize and show the confidence. So in this macro, if you look at where our portfolio shape under the retail side. Exactly, that's our strategy to continue to look at how we can enhance our retail offerings, and some of these are completed in the third quarter and with the remaining in the fourth quarter. And these are the ones that will continue to drive the underlying recovery. Grand Canyon, third quarter, we have already put into operations, another portion. The bigger portion will come in towards the end of fourth quarter. And if you look at the sequential occupancy, retail now has been moved up to a high of 97.8%, I mentioned a bit of traffic both year-to-date as well as the third quarter. If you look at the third quarter, month-on-month, things are all leading to a balance sheet that gradual consumption is flowing in. New Economy side. I think despite the weaker or more cautious business sentiment, cost conscious, people are consolidating that footprint. We continue to maintain our occupancy at 90 over percent. At the same time, we have also been working on how we can position some of our parts to be more policy, sector-focused, enjoy some of this government's own push. And I think in [indiscernible] we are able to do that because we are attracting a lot of tenants that suit those policies support. As a result, we also received some of these tax incentive schemes that the government [indiscernible]. On the logistics side, I think we have a few of our assets, majority coming at the end of this year. So we are actively negotiating on some of the renewal options and advance very close to closing the east Wuhan, the rest are coming soon. Just a quick highlight on the capital management side. This period, we also established a sustainably-linked financing framework. So what it means is we have put in place this program for future tapping on loans or debt. We are able to measure on some of our subsea KPI that will help probably to save some of our costs. The other key highlight is that we have launched the FTZ offshore bonds, raising close to RMB 600 million. This is the first pilot program done by a Singapore issuer, 3-year paper at a 3.8% kind of coupon. So what this will help us that proceeds can reduce offshore, and we'll be using it to pay down some of the more expensive Sing dollar tower debt, arriving about close to 100% kind of 100 bps kind of financing cost savings through the early refinancing. So I think these are in line with what I've been guiding all of you that we are continuously looking at options on how we can raise the RMB-denominated part of our debt, so that it creates more natural kind of hedging. At the same time, we can take advantage of the more competitive cost of debt to rebalance some of the offshore rising costs that we are seeing. At the REIT level, I think we continue to improve on some of these initiatives that we want to do. More than 30% of our buildings now have been green certified. And last year, I think based on what we have done, we are also in terms of improving the scores across all the GRESB benchmark, the SGTI and the public disclosure. Moving to the capital management side. I think if you look at the gearing for this quarter due to a slight loan that we draw to fund the distribution, you see that movement essentially attributable to that. And also if you look at where the RMB and the Sing currency movement, that also explains a way about that 1% over in terms of the gearing. So cash has been repatriated from our onshore entities on its way back, and that will be used to hire the short-term loan that used to find the distribution and gearing will move down to the low 41. I mentioned earlier on the space float, we continue to maintain that consistent policy of making a higher [indiscernible] to mitigate, and I mentioned through the FTZ bonds, the direction of moving more weight to the RMB innovated debt also shift to 20%. Because of this active management, I think the other metrics are well managed because of debt. Interest cover continues to be healthy and above 3x and the maturity is 3.5. And if you count forward with the refinancing every time, we are probably stretching to the high 3.9. This chart gives you a quick overview that we have done. I mean the short-term 2023 I mentioned that will be repaid as we speak. 2024, the FTZ bond will be used to refinance early one portion of it, while the other portion that is due in 2024, we have already secured the financing to push it out to 2029. So essentially, we are all done and no refinancing needs until 2025. Let's move on to the portfolio. I think this slide, again, is a refresh and a reminder of how our portfolio shape have continuously been strengthened to add diversity and add that quality, so that no single tenant or big kind of concentration of risk. And if you look at the [indiscernible] building up retail, the AEIs are continuously putting in a lot more mix towards what we feel the spending can be captured, likes of F&B. We are lightening more on the fashion and also taking back space on the big bankers of [indiscernible]. So that's what I've been doing. In return, we've been putting in more towards the services. And I think there's room for us to push a bit more on Leisure, on Education known as the business environment start to normalize. At this long-term wise, I think that's what shopping malls serve the captive catchment in terms of lifestyle and the family. And if you look at the top 10. I think we continue to move towards more diversification and also the single tenant, the largest contributes about 2%. And over at the newer economy side, again, you can see where the sectoral push towards are more in line with where the domestic onshoring of all those enterprises that each part and each city and the local government would like to promote. I think that's certainly how we are aligning some of these leasing strategies. We will continue from the retail business part, continues to quite stable around the 2 to 3 years. Logistics, as I mentioned, more leases are due towards the end of this year. That's why you see some of the warehouse shortening. Quickly moving to the retail side. I think if you look at where year-to-date, I think overall as a portfolio due to the active AEI, our overall reversions have been able to land at a positive 2.8%. And what is very encouraging if you look at the 9 months across, I mentioned, these are the 5 malls that we are going through the sequential AEI. They started with Xizhimen in 2021, then Wangjing in 2022, Rock Square during 2023. So all this staggering of AEI now have come to help. And you see all this new [indiscernible] focus in terms of adding where the mix are, these are doing helping. So if you look at F&B, 9 months is that they are all showing good growth year-on-year. And if you look at these few malls, especially if you look back at their sales relative to where they were in 2019, some have already been on par and some have already exceeded. And we flow it down, we look at where some of the occupancy costs, the measure of the health index for some retailers. These have also moved back down to what actually a more healthy level. And I think it will let this sustain for another 6 months thereabout, as the tight turns, the more positive segments come in. I think we are in a better position to look at raising some of this potential rent. And leasing activities also gaining a little bit more momentum as we move towards the third quarter. I think overall environment for the retail is one that is gradually recovering, and we are very much on track. This slide gives you a very quick takeaway of what I just mentioned sequentially. If you look at where things are, you can see 1 quarter, 2 quarters and the third quarter. In terms of traffic, we are now almost back to pre-COVID level. Each quarter has improved. If you look at sales, that is actually where I meant as a portfolio, we are now 6% better than 2019. These are some of the examples I mentioned. These are the staggering of the AEI, and now it's bearing fruits. And in third quarter, Rock Square, again, some of this completion of the AEI and now help to contribute and bring some of these traffic back, not just for the zone, but overall, we've had much more comprehensive offerings, the whole more start to see more traffic, and [indiscernible] to all the other retailers. And some of these new tenants that we brought in are also showing very good sales in terms of per square meter relative to their peers and average. So this momentum hopefully will continue to be pretty positive. Same thing over at the -- the other side, similarly, traffic and sales have improved quarter-on-quarter since the Level 1 AEI has been completed. I mentioned earlier, Golden Week, I won't elaborate further. And overall, the occupancy, again, you can see, I mentioned the seasonal, the Rock Square, the one thing are now all moving more healthily towards a pre-COVID kind of occupancy. And seeing that, you can also see from where we started the year of in the 80s, now we have moved up to the occupancy of 95. And overall, in terms of the lease expiry profile, I think the balance work left for the last quarter is not a lot. So I think all eyes are more to complete some of these AEI and position more stronger for the year to come. I mentioned earlier, Rock Square, I'll just leave you with a little bit of this flavor. The whole of basement 2. We have now taken back some of the space underutilized because it used to be sublet by the anchor. So now that we take back the space and now we could give in more than 20 over new kind of stores that better attract the younger shoppers of what we are trying to reposition Rock Square to us. And at Level 3, I think the whole zone now also doing much better. It used to be 2 very dated [indiscernible] inherited. It's along lease. We managed to take back upon renewal. And I think these are some of the active efforts that will help to continue to strengthen the volume. I'll just leave you with a bit of this [indiscernible] these mall openings and the trends that we are seeing. Some of these activities that we continue to anchor ourselves with our community. Overall, at the new economy side, overall year-to-date, as a portfolio still trending about a plus 2.9 healthy reversions. We also see much better leasing activities. This last 3 to 6 months relative to the first quarter. And the first quarter was very quiet. [indiscernible] and I think most of the leases that we are looking at towards the fourth quarter, and I think most of them have already being secured as we speak. And we continue to want to bring in tenants from the sectors that we are seeing more sustainable growth and something that the onshore are promoting, and we see a little bit more push towards the electronics, more of the professional services and [indiscernible]. At the same time, I think we are also doing a lot of activities to upgrade, such that we continue to better attract and serve the tenants that we bring in. In terms of occupancy, I think it seems to continues to be very, very stable. Market vacancy continues to be relatively high, especially in Xi'an than in Hangzhou. I think that's where some of these lease renewals are taking a bit of time to balance some of this retention and also some of the new leasing directions that we want to move towards. Hangzhou, I mentioned, we are still quite exposed at concentration towards the e-commerce, especially the smaller enterprises. Some of their business models, operations are facing difficulty. So we're also going through that period of churn. There will be a little bit of that lease renewals and backfilling to do. And I think in terms of the occupancy, we are still doing better than the market, but it's going to be a very competitive landscape because of a short-term demand softening, a lot of the enterprises consolidating their footprint as small supply also comes in and inland locks are getting a little bit more incentive. So I think we are in that situation where we have to judge and position the asset on the longer term. How are we creating a little bit of occupancy with the kind of tenant sectors that we want and the kind of rent that we can achieve. These are some of the examples that we have brought in across our portfolio, just some examples of -- we continue to be able to attract [indiscernible] very strong for attracting MNC. So we continue to be able to do that 6,000 electronic sector. And since we continue on Suzhou retain a large portion of the tenants. I think this project is very stable and very solid [indiscernible]. DIT, [indiscernible] I mentioned competitive landscape, a lot of new supply growing our brands. So I think that's where we are in terms of balancing a little bit of the retention, and also focusing on the sector that can continue that is in line with the local government with incubate and enjoy some of these tax incentives. Hangzhou, I mentioned already. So I do see a little bit of softening in terms of asking rent, especially for our Phase 1. These are some activities. Logistics, I think I'll just highlight that some of these leases will be coming off at the end of the year. So again, I think there will be a little bit of that softening outlook in terms of their brand. Because again, if you look at the users of logistics, pretty much predicated on the growth of e-commerce, on trade, a lot of 3PL. I think some of the business has softened. And as a result, some of the players are going through that consolidation and there will be a little bit of footprint consolidation. So I think we are entering that cycle where I think we have to probably balance out a little bit of that retention and also taking a bit longer term, how can we position the logistics facilities. Probably it will be our CapEx so that we can bring in some tenants that can last a little bit longer. So I think these are some of the leasing options on the ground that we are deleveraging. I think I will just discuss it along the way later. I think just to end off quickly, I think our focus continues to be along the 3 tenets of creating and locking and extracting, and I think overall, we continue to want to shape the portfolio into one that small sector [indiscernible] to be able to capture the different cycles and the different values of where we see real estate opportunities are happening. At the same time, I think some of you have known that the local government are pushing, promoting the CV, some of the first batch of applicants are there, and we are also starting the fine details of how, as a foreign player, we can participate, and that is going to create additional [indiscernible] or additional recycling channel, potentially for some of our assets that are suitable. I'll leave you that. This is the basement 1 that we are still working towards the year-end opening. As we closed the quarter, we have really secured 92.6%, but as you speak, we have already secured 100% moving into October. So all eyes are on us, accelerating some of these fitout, making sure that all conditions are ready for us to open. And I think this mall will then start to contribute much more as we approach 2024. On the outlook side, I think all of you have been aware of the GDP, the retail sales and the series of policy announcements and stimulus. I think all in, we are feeling that the government is paying more and more attention to the economy. And hopefully, some of this focus of those measures will start to filter down and to be more targeted to support and bring back that overall confidence. And from our part, we can see we are continuously strengthening our retail, such that consumption comes back. Our malls are in much stronger position to capture business spots I mentioned, certain asset level, specific easing strategies have to be rolled out. And the logistics side, I think we will soften a little bit and see where the balance should be in terms of tenant retention and also striking and occupancy with a stronger tenant and have last longer. So with that, I think I'll hand back the time to Nicole.

Thank you. Thank you, Tze Wooi, for your presentation. So now let's move on to the Q&A segment. I'll let the pass the time on to Terrence. Terrence, please?

Just wanted to ask on logistics. Yes, that's clearly going to be a challenge going forward. Could you give us a sense of how bad the occupancies could get? And in terms of the reversions, what should we expect?

I mean, if you look across our 4 assets, I think each asset does come with its own specific kind of leasing, kind of options and things that we are thinking of. Straight on, I think we had 2 assets that are big space, single tenant kind. And I think for those that we are embarking more on the retention strategy, I think we are in the midst of closing. So it's not to really disrupt what we are going to negotiate by [indiscernible] that the asking rent and what the market is calling right now, potentially will be a double-digit kind of a record version now. [indiscernible] less of an immediate issue, because it has always been having a little bit of that multi-tenants and the staggering effect is such that not everything will be coming at the end of the year. So I do see a little bit more of the negative reversions pressure coming in our Wuhan and also in our Kunshan because of exposure to bigger tenants and, I would say, big space occupiers in this market. And I think in terms of negotiating, we do have to lower a bit of that rent asking in order to move some of the occupancy discussion. So I think 2 of this, we do guide to negative reversions on double digit. In Shanghai, I think we had also received indications that some of the users may want to return some space. So we are at a stage where delivering on newer options on what we can, whether we want to re CapEx a little bit to bring in a tenant that suit them. So this is where things are.

And so [indiscernible] the sense of when you say double-digit down, is it like the teens? Or could it be even more than that?

Really depends on who we are negotiating with. I think today, you just ask anybody in the marketplace, especially in dominant space users who are consolidating footprint, I think you'll probably ask you and consider 20% now.

Okay. And I guess then that leads into the question on year-end revals. I suspect, the economy should take a hit. But do you think that retail could help to offset that?

Overall, I think, as a portfolio, because of our sector diversify. As a portfolio, I think year-end, in terms of valuation down, we are probably expecting not too big a percentage move. I think it probably will be like a 1.5% [indiscernible] as a whole portfolio, where the downward pressure is going to be more asset specific and not so much of a general cut across. I think China, in terms of cap rates, we talk to the valuers. There's not much of a clear expansion as yet about what is moving some of this valuation, obviously, will be the market rent and growth [indiscernible]. So I think that part, it's also back to where your leases are signing in. So I think for some of the retail that we have seen, I would say that the stronger ones, we don't expect much, much movement. The weaker ones or single-out like for [indiscernible], those are going through occupancy and inventory emergence challenge for a while. I do expect that to come down a little bit. Smaller assets, [indiscernible] formats, I do see a little bit down. So maybe [indiscernible] potentially maybe Grand Canyon because of the slower recovery. The rest of them, I would think more or less, they are relatively stable because of where we think the tenant sales are coming and outlook are stable. On the newer economy side, I think there will be some downward reval happening in the Hangzhou for obvious reasons I mentioned, because of the occupancy and the market rent outlook. But again, I don't think that's going to be a very big kind of percentage point. So it's probably like 2% to 3%. Logistics are small by nature in our portfolio. Market rent weakness is where the valuers will probably shed some of the parameters. So overall, I would say that logistics, depending on the asset, potentially maybe around that 3% to 5%. So all in, if you look at where things are because of our rating, I think valuation should be relatively -- would have not downside. I would think that is there only [indiscernible].

And a final question from me. I guess given that gearing is somewhat elevated and you're seeing portfolio could take a little bit of a dip, would you be more open to doing divestments more just to bring gearing down to like that 40% kind of level?

Yes. So I mean we are, as a strategy, I mean, the focus I mentioned has always been looking in the 3 areas, right? I think in the divestment of some identifying assets is definitely something that we are moving towards. I think there are a couple of assets, I would say that we are moving closer. I think we hope to be able to say something where things are a little bit more firm. But definitely, divestment of more mature assets that has always been part of the strategy that we want, such that we can improve our balance sheet strength and being able to be in a position to reconstitute faster. So I think that's something that we're focusing to do.

Can I pass the time to [indiscernible] please?

Are you able to hear me?

Yes.

Okay. I got a few questions, I [indiscernible] for this quarter to be quite flattish, but still positive [indiscernible].

Yes, quite as a portfolio overall [indiscernible] correct. But again, you will [indiscernible] the stronger assets are better, the weaker asset [indiscernible] repositioning. They're going to that cycle [indiscernible].

Okay. And for the return reversion, there was a boost from AEI. Organically, are we still in the same negative stage? And if so, when do you expect it to turn positive [indiscernible] nicely?

Yes, yes. So again, I mentioned if you look aside from the AEI, some of the negatives are actually animated, primarily because of the repositioning exercise that we're going through exactly in Sing. So that one with a lot of lease renewals work being done and reposition and we are also changing a lot of the tenant mix. So that one is the primary, the main one, that is actually back down. But if you look at the stronger, more stable assets that we have already gone through like Xizhimen and like Nuohemule, like the Xuefu, [indiscernible] I think this one organically, they are able to hold. We don't have to go negative. Negative at times is because of that requirement on the purpose of wanting to attract stronger brands, such that we can grow leasing strategies around. I mean, that's part and parcel of our longer-term business. So we wanted to specific on one tenant or one quarter kind of metric, but more to look at how to strengthen the overall business and the asset competitiveness in the longer run. And that's exactly why we are continuously focusing different asset strategies, leading strategies at different point in time. And what we've done from the top 5 and top 6 in the last 1, 2, 3 years, now we are only addressing the asset because [indiscernible].

If I can just ask one question, [indiscernible] investor market actually softened because you have seen a lot of Chinese buyers in the local market. And even in the past, you are able to divest even say, low-hanging say, weaker assets within a portfolio like [indiscernible] something like that?

I wouldn't say no yes, this is [indiscernible]. You have to be reminded [indiscernible] potential interest comes from where and why [indiscernible] Square having understanding of the local market and kind of which helps us. I think different assets, you have to reach out to different profile. And people, they look at certain assets with our own business mind on what they potentially want to do. So I think this is how we are tackling some of the divestment opportunities. Largely, I think we have to go more local. And that is exactly what we have done. We mentioned rightly in [indiscernible]. All these are also divested to the local players who have a view of how this asset can be synergized with the overall business that they already had. So I think this is where we are moving the divestment discussion along and hoping, and we are negotiating with some of these prospects.

Thank you, [indiscernible]. Hi, Derek.

Can you hear me?

Yes.

I just -- follow-up question on your -- this FTZ bonds, right? So I think you tapped the CNH market. Just -- could you give us a sense whether do you think you still can tap this particular part of the capital market? Is there liquidity enough for you to do a second one? I'm just curious.

Your curiosity is mine too, embarking on this exercise. I think we are really pushing boundary by bringing our first to want to pilot this. We are fortunate that we have that. I would say, small window that we are to push this up. It's difficult for me to answer how big this market is. Will it be deeper as time goes by? It's very policy-driven, sometimes policy sensitive. Hard to say. But the good thing is that we have gone through that cycle of work. We know the process, what it entails, who are the stakeholders involved. So that's going to help us to better prepare for future. Issuance if that is the window as to how this market -- how deep, how much more really, I think it's very difficult for us to give you a good answer as well. Yes.

Okay. Okay. But the person that investors are largely onshore, is it all offshore?

The profile of people who pick these will typically be the banks. The backing ups, backing ups who have the investment debt on such products.

Got it. Got it. Got it. Then on that front right, how should we expect your interest rates to trend? I'm sorry, I missed it. You probably have said it. So next year, with this lower interest rate your cost debt should come down, right?

Well, it's always a balancing act, right? Because obviously, this RMB 600 million would help to bring down. But same time, you will know that some of your debt towers will also need to be repriced, right? So I mean some of this repricing will happen in the staggered manner in the next few years, because we also fixed our debt profile over the duration. So there will always be a little bit of debt that will be coming up for refinancing. But the good thing is as I look at 2024, my bigger portion will only come towards the tail end. So in terms of waiting, it's not going to coming all at the same time. So this early refinancing would really help to neutralize some of this rising debt cost that we need to reprice. The cost of the floating side of things is now only about 25%. So potentially, if there's any refinancing or -- sorry, any recycling proceeds that can come in to pay down some of this. So I think we are watching the capital management very carefully, which is why I asked very actively, wanting to take advantage of the lower RMB denoted cost of debt, what [ recap be ] the [ sing ] side and how we better hedged and also some of these options that we have.

Okay. Got it. So last one for me, right? So if you could you share what are your so-called limits in terms of, say, ICR how gearing that you will not want to see, i.e., are the banks watching this event closely, given that -- yes, versus the market, I'm just curious.

Yes. I think -- I mean we all know. So in terms of the ICR NES has a guidance of 2 to 2.5x, if you want to bring the -- more than 45%. But also the bank covenants today, we are well, well [ buffered ], I mean, most of the bank covenants are about 1.5x. So in terms of sensitivity, you have a lot of [indiscernible]. I'm not so watching as closely to some issues. I mean for us, [indiscernible] we are in good hands in sense that we continue to have access to a lot of financing liquidity. We are [indiscernible] both onshore and offshore. The fact that we've done this is to demonstrate that there are options for us as we balance offshore, maybe the cost of debt went up. We have this option to have this that can help to neutralize. And as we speak, our onshore debt has also been enjoying that lowering of the LPR, and we are also taking opportunity. I mean some of these functional loans, typically their financing period is longer, let's say, 7 years, 10 years. We also would take opportunity in [ seek ] refinancing. And I think in the last quarter, I did share with you [indiscernible] certain loans they are at a certain level, and we're financing it at below LPR. So some of the active steps we will take such that we will help to mitigate the rising interest side -- the same side will go through. I did guide you earlier, you wanted to know what's my cost of that guidance? Is it?

Yes, yes, yes. If you can actually come down. You said balance, right? By repricing of the loans?

I think it won't go through far for the year. I mean we will land [indiscernible] end the year around that 355, 360 there above. I think we're going to move too much. Because if you look at our debt, nothing is -- we have both for 2023 thereabout. So it's [indiscernible], right? And then we have already also guided you that I have refinanced 100 at lower. The balance, obviously, will be higher than optics come up for repricing. There will be a little bit of edging up, but you won't edge up so quickly because it's rated more towards the end. So I think all in, I don't know, cost of that EBIT. At best, another 25 bps up next year towards the end.

Okay. All right. Sounds good. I think we all can sleep well at night. All right. Okay.

Good to know that you're sleeping well. So no worries on that. And next over to [indiscernible], please.

[indiscernible] [ Philips. ] Just 2 from me. First on, what is -- which segment is still underperforming compared to pre-COVID level? And what government policy is helping the consumption? Do you expect more stimulated policy coming up?

Yes. I think there are policy measures that have consistently been rolled out to stabilize the overall confidence and sentiment. From a consumption point of view, I think the key metric to really look, it's actually employment and people's view of the household income, whether it is growing or not and will grow well. I think the metrics that we continue to look at. And also when people feel less confident, I think the savings rates have gone up. So I think these are where we are watching from a macro, but I think the government is definitely doing a lot to filter down such debt this consumption and payout. Because they know -- structurally, they are trying to move the economy away from their old model into one that is more consumption-led, more of the higher technology service kind of economy structure trying to go towards. So they are very aware that they need to have these elements in order for them to take place. So I think we just need to watch this space, give that time and see it out. I would say in the last one, [indiscernible], things have taken a little bit of more the tone and the signal of that support have come out stronger, I would say. I think a lot of this feedback, they probably are aware. A lot of the central governments work now is to assist the provincial and industry government, because some of these issues got to be grappled with at that local level. So I think this is what we are watching. You mentioned what are the business that have performed well and they did not as well pre-COVID. I think I shared earlier. Retail, because of our active churn. Most of our leading malls, I would say that versus 5 to 6 leading malls in terms of 3 quarter versus last year. We are doing much better. The 3 quarter traffic and 3 quarter sales compared to 2019. traffic, we are moving there. Sales, we have exceeded. We have a couple of malls. The smaller ones, they are weaker. They are not as well as 2019 yet, and that's why we are taking steps to deal with some of these tenancies. So there's a bit of a short-term churn that we had to undertake in order for 2024 to become better. And some of these assets, they are no longer competitive. I think we take an active approach to seek out exit opportunity. So I think by and large, that strategy is what we are trying to do more. The business parts and logistics, I would say, have been impacted by the demand softening. And I think depending on the users, some of their business models have gone through a bit of difficulty [indiscernible] challenge, because therefore model was predicated to support a lot of e-commerce, a lot of those high-growth exponential assumptions that possibly, may have overextended and therefore, now it's the time for them to reconsolidate exist model. Some may fall away. And therefore, in terms of space needs, I think they are doing that consolidation, and we are in that stage to see how we can present ourselves as a better landlord as they shift some of that footprint. So I think there will be a little bit of back filling for some of these spaces. There will be a little bit of that tenant selection, sector selection and also the kind of asking rent. So I think I would say this is the kind of business environment very competitive. A lot of the landlords, having empty buildings, hang carats, incentives. So we need to navigate properly in this very competitive environment, and also working very closely with the government to see what kind of sector and the prices they want to attract, and how can we combine [indiscernible] to the government in playing that bigger role. So I think these are some of the business on the ground issues that challenges that we have to continue to operate. And the good thing is our Logistics portfolio is relatively small. So I don't think that in terms of the contribution and waiting, in terms of any of the backfilling downtime is going to hit in a material aspect. More focus will be actually to accelerate some of this retail recovery because [ 74% ] of our business is there. And if this do well, we should mitigate and [indiscernible] compensation to save some of this business that we need a little bit longer time to bring it back to a more stable [indiscernible].

I'd just like to invite more people to raise their hands if there are any questions. Next, we have [ David ]. David, please.

Yes, a few questions. First, what happened to Capital [indiscernible]? What is the rental provision?

So you are aware that [ Chongqing, ] we have an anchor lease, master lease to a tenant. And I think the tenant is having some kind of business difficulty. And based on what we have observed, there are some [indiscernible]. So we took this opportunity to be a bit more prudent in setting aside some of these provisions. In case some of these areas collection to protect some of this income impact. So essentially, that is what we have done in this quarter. And it's also to -- in a way from a business standpoint, we are in the period where we need to so-called [indiscernible] property tax law. I think this move will help us to optimize a little bit on the expanding. So that drives some of the financial impact.

Okay. It's a little surprising because I would think that the business should be okay, right? I mean if it's a master lease and it's a retail stable retail asset, I mean, the underlying business is okay. So why is the tenant behind in rent?

Well, the master lessees on business model has also been going through a lot of changes, and they may not be in a financial position to pay out the existing master lease rent. I think that's where as a landlord, we are coming in to protect some of these potential rent relativity issue.

Okay. Okay. Next question, the [ Hansa ] Business Park, you mentioned that you have a high concentration in e-commerce and then you have some like smaller tenants there. If e-commerce is not a support -- a policy sector that the government is supporting, what are the sectors that the government is supporting and what would be your ideal tenants to take up some of the spaces there?

Yes. I mean this is a very good question, which is exactly what we have been actively discussing together with our local partner and also because of Japan is actually part of the state on this train. So I think while we appreciate when we say e-commerce is not [indiscernible]. I don't think we should paint in that way, but it's just that over the last few years, there's this over -- what's the right word. There's a lot of the activities that we wrap around all this very high growth, high assumption. And I think that part of the thing is now being more rated down the demand softening. So the whole ecosystem of people who feed into all this have faced certain business operations difficulty, the number of orders, the number of the revenues. So they are a little bit in that stage where they are fading off. What we intend to do is to take back some of this area and potentially lease up to someone that are stronger, they can add more cooling power. In terms of sector focus, I think [indiscernible] is still very much into techy stuff. Professional services is one that we have added as we move down on e-commerce, we have also added a bit of the [ lymphocon ] and we are trying to do a bit of biomedical -- but Biomedical, I would say that [ Sutro ] is much stronger, [indiscernible] is less. So I think these are some of the [indiscernible] that we are capturing. E-commerce, I won't say that we won't do, but we just want to say that we want to do with people with more holding power, and people potentially whose business model is stronger.

For the [indiscernible] Phase 2, some of the tenants that we're looking at is in biomedical and engineering space, also looking at professional services which [indiscernible] mentioned. And in Phase 1, we are focused more on professional services and also biomedical sciences because these 2 parts are actually very closely looking at [indiscernible]. Yes. So I think basically the tenant sectors are really more in the biomedical space that we are looking at as well as engineering.

Okay. And just to confirm, these are multi-tenanted properties?

Yes.

What is the typical size of a space? Typical [indiscernible] or a typical size?

I think they take from 300, 500. Some 500, 800. The bigger ones would be closer to 1,000.

Square meters.

Square meters. Yes, Yes.

Okay. And my final question, with regard to the FTZ bonds, the offshore bonds, is there any limit on how much you could tap in this market? I mean can you eventually refinance all of your offshore Sing loans with this facility?

So it's a good question. I think Derek earlier also mentioned. I think it's a function of where we feel the investor appetite would land, and this is really like a process where we do that discovery of the demand and it's very hard for us to say whether the limit can be higher. It's also a function of the policy window, the cost of funding and what coupon rate you are willing to accept. So I think there quite a lot of variables to look into. I mean, the fact we have raised like 600 potentially indicate to you that the liquidity at this window is not a lot. So I think we have to really watch this space, how it develops. In terms of refinancing, I think it's just for a Sing 100-ish kind of amount. I don't think that's going to be a big problem in 3 years' time. [indiscernible] see how things in this space.

Okay. And a final one, is the FTZ bonds, are they consistent with the capital structure of a CREIT is, let's say, the sponsor you want to transform into a CREIT, are these bonds consistent with that capital structure?

I see them as quite different. This FTZ bond is issued by a foreign issuer. The proceeds can be used offshore, I think that is what we like about this product. We also like the fact that the coupon is obviously lower than where we have the same stream bond. As to how this capital structure and CV, I don't see a direct transaction. I can see a reconnection. I mean the CVs capital structure is more domestic play, small and local ABS structure that all the underlying project company with the Siri holding that ABS. So it's still a very domestic level kind of securitization kind of layering. The FTZ bonds is really just assets of foreign issuer tapping the [indiscernible] bringing process onshore. So I don't see it, right? -- connection. But I mean if you want to understand a bit further, I think we can take it offline just to make sure that I understand what you are trying to figure out, yes.

Hi, [ Joel ].

I just wanted to ask one question. Are there any like seasonality in like your in the market? And that's my first question. And the second question is, are you noticing any changes in consumer patterns or behaviors? Yes.

Your first question is on seasonality on our business?

Yes. That's right.

I think if you look across our footprint, I think the Northern portfolio typically would enter into the core period sometime around this time, right? The October period [indiscernible] you need to have high utilities depending on more supplying that. Relative to the southern area, I think the Northern area will pick up a little bit more utilities, for example, the heating, whether it's state provision of the heating or do you have on-site heating. So I think in terms of them. Utilities not have some to happen a little bit on that season and key differences. And if you look at the other underlying expense of running our business, I don't think a lot of seasonality, but more of our own tenants, the best typically, you talk to the fashion people in the mind of autumn -- the period of autumn is probably the best time that they can jack up a lot of sales, because it's where the change of that weather, we have pushed a bit more sales. FMBs in different periods of time, they push our different menu. I think that's imported in terms of broadly describing our footprint in more geography related and each geography is [indiscernible] related. I don't think the behavior of consumers change a lot through the months that quite different. Consumer spend is a function of what is actually what we trying to actively assume. So in the data format of the [indiscernible]. So you see us exiting that. Big format at [indiscernible] are less and less attractive. That's why we are taking back a lot of spaces to use the same space, but we check more the right. The kind of revenue you also see is about a bit more lifestyle influence, Instagrammable influence. So these are some of the shifts. Where are people spending the money in the shopping mall. FMB I mentioned. I think beauty and health care, sporting apparel. In the last few years, jewelry, IT spending. Kind of good experiences we need to have been good. Leisure entertainment have gone through a very tough time in the last 3 years of COVID. I do see them improving and picking up more films. People now go back and watch movies. Education also, I would say, coming back from a very low point. I do feel longer-term shopping mall should have that enrichment of classes which is not the key focus on the education band, but more hobbies, more arts and crafts, music, dance, sports. I do see having that element, healthy lifestyle, healthy food. I think these are -- these are things that are happening around us all the time. And I think you have the Chinese equipment, the Chinese characteristics of brands that will also want to capture some of these younger people, where they like to be seen, where they like to spend, et cetera. Fashion clearly, I think it's harder and harder to capture spend, especially in a big way, picking up big spaces at shopping mall. So that's why we see that area productivity being short in some amounts that we are managing.

Just a follow-up question. So would that -- will you say sales changes during the core periods, people spending less during then?

Even during winter period, people spend?

Yes, for example.

I wouldn't directly attribute that. I wouldn't really attribute that because a different month, different seasons, the retailers, the tenants will adjust some of the merchandise to suit the different periods of time. Like what I mentioned, autumn to [indiscernible] typically is the period where they can push more sales.

I would like to take the last question from Joy. Joy, please?

Just wanted to check. For the anchor tenant and Chongqing, are they also tenant for your other malls? And have -- are they current on their payments?

This anchor tenant is the only one left in our portfolio. They used to be more with us. But over time, they've already exited in cheap [indiscernible]. We're really [indiscernible]. In Grand Canyon, we have taken back the whole of the basement. So the whole area now is being put to AEI. And you already see some of these impacts coming in and we talked about bringing a new anchor tenant and releasing a space for others. So this is the only one left within our portfolio.

I see. And just on the provision topic, do you see risk of other tenants and needed to provide towards your end?

This is the major one that I have made the provision. The rest I don't foresee so big, because this one is an anchor tenant. So in terms of dollar value, we have a little bit more than that. The rest of them, if you look at our tenancy profile, no single tenant contributes close to anywhere around 1-plus percent. So I don't think that's a big issue.

Terrence, please?

Sorry. Just on the standing at a -- so I may have missed it, but what was the value of the provision? And also Joy asked about, are they current on the rent for [indiscernible]?

Yes, the fact that we have made provisions because they are late with their current debt. That's the whole -- the why we have been wanting to bring this provision.

And what's the value of the provision? Sorry.

The value is actually is -- if we look at the second half of where they are with us, I think we are just like taking a kind of 3 months kind of value.

Is there a dollar value, [indiscernible]?

Is that necessary?

Okay. So maybe I understand that on the leases for [indiscernible] is due to the leases are due in 2024 next year. So when lessen the [indiscernible] lease rolls off, is there -- would there be an opportunity to divest? Or how are you looking at the small?

Yes. Yes. So it's exactly we bear in mind that we are managing some of this anchor master leases that have been there for almost 20 years. So we are actually in that stage of negotiation. And I think as part of that potential to monetize. I think this asset is one of them that we are working towards. So I think this is where we are. Depends on how we want to monetize it and the interested buyer how they look at things. I think that's the kind of business decisions that we'll make. It's very hard for us to [indiscernible] jeopardize negotiation, but I think the tanks we are trying to monetize [indiscernible] master leases and therefore, we have to address some of these balancing issues.

I think the conclusion is that Capital's contribution is actually quite minimal to us. That's one. And number two, actually something as an asset itself is actually very well located. So in terms of divestment opportunities was actively looking out for it. At the same time, we -- in terms of attractiveness to people in the real estate and looking at the asset itself, I think it does have some strategic locations attribute. So at least for this asset, I think we are actively, as [ Sean ] mentioned, looking out for possibilities as well. Yes. Okay. Thank you, everyone. Tze Wooi, would you like to round up the session today?

I think I mentioned quite a lot already. I think this quarter is really about the retail's recovery shaping the overall portfolio. And that's where the staggering of the AEI's would help. And I think the effort could gain in the last few years in addressing and strengthening the key leading malls. They will help to shape the trajectory forward. At the same time, I think the newer economy in terms of the business, I think that's where we are in the cycle, we were riding through. I think that's how we are looking it, such that the diversity of the entire portfolio can continue to bring that earnings resilience. And at the capital management side of things, you already see us actively working such that we continue to actively manage our cost of debt. At the same time, we are working on some of the divestment opportunities, such that we can strengthen the balance sheet. And as we look forward to reconstitute to that portfolio quality and [indiscernible] mentioned many times, then.

Thank you. Thank you, Tze Wooi, for your time. We hope the discussion has been very fruitful, and that it provided clear insights into our operation and our future outlook. So thank you all for joining us for the call. See you next quarter. Thank you.

Thank you, everyone. Thank you.