CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Welcome to CapitaLand China Trust First Half 2024 Results Briefing Call. I'm Nicole, IR of CRCT. I have with me today Tze Wooi; Joanne, CFO; and You Hong, Head of IPM. Our agenda for the next hour will be to begin with a short presentation before proceeding to our Q&A segment. We will take questions after the meeting. [Operator Instructions] I'd like to pass the time on to Tze Wooi. Tze Wooi, please.

Thank you, Nicole. Good morning, everyone. Thank you for taking time to attend CapitaLand China Trust first half results. I think most of you are aware that in the last few years, we have been working on to reshape our portfolio towards the China domestic market to capture longer-term growth that is more consumption and the innovation-led economy. So for the last one over year, I would say our full focus has been to really conduct the asset enhancements to our portfolio that make it a little bit more future ready. While trimming the noncore retail holdings to improve our balance sheet strength. So for this 1 half results, you would see that we are reporting for the first time our 9 retail performance but post AEI versus our 11 retail mall than we had last year. So let me just walk you through the respective financial and the operational highlights. If you look at the first half highlights, overall revenue slightly down. If you break down into the retail portfolio, I mentioned earlier, due to the absence of Shuangjing and Qibao slightly down. But on a comparable 9-month portfolio basis, the revenue actually showed a 4% improvement. The business parks portfolio amidst a very competitive leasing environment, I would say, we managed to do well in terms of our revenue in terms of maintaining it to be stable. The big negative variance for this half actually resulted from the weaker logistics segment, where we see lower occupancy as well as signed-in rentals. Extending into net property income side, overall, again, due to the exit of our key contributor, one of those overall NPI, taking that into account. But overall, the retail portfolio still increased 0.3% year-on-year. This is driven by a broad-based improvements that we see across our other retail malls particularly those that we have completed our AEI showing quite a commendable 18 over percent improvement. The lower NPI again resulted from the business parks and logistics that I mentioned earlier. For business parks in particular, although our revenue was flat, we actually did not receive as much of the government tax incentives relative to a year ago. Moving down to the DPU, I think you will see that because of those factors that I mentioned. And also during this period year-on-year, Sing dollar continued to be very strong, recording a 4 over percent strength against the RMB. So on translation, that hits into our Sing dollar DPU. If you look at half, that will be a little bit more comparable because last year, this period, the second half, I mean, there's no government tax incentives for the business parks. So I think that gives you a more equivalent basis. So on a year-on-year basis, I mentioned earlier due to the translation and the higher withholding tax for this period because we brought in more cash dividends from China to manage our offshore gearing, so you see the gearing being stabilized at 14.8% and also managing our stabilized cost of debt. So a little bit of those recording tax on a year-on-year comparative that we wrote some of this in DPU. I'll talk a little bit more over in the retail portfolio, but largely, you would see that our largest segment, showing quite good leading indicators, improvement in the area of traffic, sales, occupancy, et cetera. A little bit of operation highlights again for the three buckets of our assets. I think a lot of the AEIs that have completed continuous tenancy. Remix has been done. So a lot of anchor spaces revitalized and we also put in a lot of new offerings. So I think all this have helped us to be able to attract back the footfall and also capture some of the consumer spending that are normalizing back. So compared to a year ago, our retail performance has seen, I would say, very steady recovery and improvement. So right now, we are repositioning our two smaller assets. So I think this continues to be a lower weight after a majority of our assets have completed those active tenancy remix and enhancements. So you see that flowing through into our 2 quarters' results in terms of occupancy, in terms of footfall and sales. At the business park side, I think we have been focusing very much on targeting the sectors that we see having more demand and also working quite closely with our tenant community and also the government on what sectors they would like to attract into the parks. So by prioritizing some of these capture, you see the occupancy, we are able to maintain despite a rising supply situation. So we maintained the occupancy, and we brought in some domestic and international tenants. Some are quite curated in the sense that we have been able to attract some of the users, other footprint elsewhere to consolidate and expand their pick up into our parks. So I think this is something that is encouraging and we will continue the focus in that sector. On the logistics side, I think the last time we met, I updated you, we have four assets. Most of the wheel are arriving at the same point. So we have taken steps to derisk Wuhan and Kunshan and built that occupancy improvement in Chengdu. So largely, you would see over the last 3 months, progressively. We have stabilized the operations over the three assets, now leaving the Shanghai has set for us to reposition and reevaluate what are the longer-term plans for this asset. So if you look at our June cutoff, Kunshan was reported at about 85%, 86% occupancy. But since July cost cut off, we have managed to sign-in new leases that will move this asset to 99%. So largely instead with what I've mentioned to you our focus in terms of progressively stabilizing the three assets. On the capital management side, I think I'm happy to report that we continue to show healthy financials and show strength in this area. We've completed all our 2024 financing ahead of time. We have also taken active steps to refinance those debts that will be coming due in 2025 and 2026, able to refinance them at better interest margin. So I think this will start to filter in towards the second half of this year and into 2025. The other key initiative we have done is to really shift a little bit more of our borrowings to be more renminbi denominated so as to capture the easing interest rate cycle on that side. We started with about 10% to move into 20% last year, and we are on track to move to 30% this year. As of June, we are at 27%. So that LPR reduction have already started to show some interest savings for ourselves. As I mentioned, the active debt and cash management moving cash out of China back here. This active approach have resulted in us managing down our total interest cost in this environment. And we continue to be very healthy in terms of our credit metrics in terms of the ICR. We also took opportunity to increase the proportion of [ sustainability ] loans. And overall, continue to maintain a very steady and consistent high fixed and also FX hedging policy. Let me just zoom in a little bit more on the financials. I think this is just representation of what I mentioned earlier, looking at 1 half year-on-year, having a little bit of noise where I mentioned, 9 versus 11, a bit of that government tax. But if you look at against 2 half, I think that is a more normalized kind of comparison and you see the DPU reflecting that stage. For the balance sheet for June, I think we took opportunity to also look at some of the asset holdings. I think among the three asset classes, I think based on what we mentioned in terms of vacancy and also the negative rental reversion that we have secured, signed-in for logistics. I think having that discussion with valuers, we actively and more prudently actually adjusted some of the values down in June. So that is also managed into the valuation for June updated and that shows an NAV of 1.19 for this period. On the gearing, I mentioned, stabilized every case of that stabilized. I think what is interesting here is, I think, the latest MAS update on showing some sensitivity. So we showed that for the increase of 100 bps to our cost of debt passing. Our ICR continues to be very healthy and way above the guided limit. This slide gives you a very quick snapshot. Earlier I mentioned the 250 loans that are due in 2025 and 2026 have been secured and that will be pushed out into 2029 and 2030, respectively, as we go into the second half of this year. The right side of the pie chart shows you that shift of where we want to do reaching 27% as of June on track to reach that 30% so as to extract a little bit more of the interest savings that we are seeing at onshore level and those debt that are dominated in RMB terms. So the one that we did last year, the renminbi FTZ bond have already come in to help achieve some of these savings. Now let me move on to a little bit more on the portfolio side of things. I think CRCT continues to be one of the most diversified, I would say, in terms of where we are drawing our tenancies. Our top 10 tenants contribute less than 10%, and our highest contribution is only 1.6%. Broadly, we are growing our leases from a very well spread and represented three different asset classes. And as we continue to ship our tenancies and remix our profile, you can see that we have progressively moved towards sectors that are able to attract more of the consumer spend today and going forward. F&B is a clear example compared to a year ago, we have increased it. Looking at the business parks, again, we are looking at more domestic champions, those that are promoted domestically in terms of the electronics and engineering. So our parks actually positioned to work closely to capture some of these demands. Moving to retail. A very quick snapshot 9 malls across the six cities. This one had really gives us the encouraging statistics. I mean if you look at post AEI. Really, that has helped a lot in pushing the better performance that we see. All in all, shopper traffic improved double-digit 14% and sales continue to be hovering above the tenant market at 6 over percent. And you see this traffic improvement broad-based across all our nine malls. And if you look at those malls that are having completed their AEI, they are taking a proportionate higher contribution, which validates some of these proactive things that we are doing, taking back space from anchors. And going forward, we still see, I think, the next 1 to 2 years, pockets of opportunities as major supermarkets lease expiries come into play. So we're in that early review process to look at more opportunities to recover some of this space so that we can drive a little bit more of the rental redundancy on this basis. If you look at occupancy, largely holding steady compared to a year ago, you see that occupancy moving back to what I feel is a more normalized state. So I think you see all the key assets are moving high towards the 99, 98. So I think very comfortable. The only asset that I think are still a little bit of requiring a bit of more attention to tweak is Xinnan, I think that is still in relatively weak cycle where we need to rejuvenate a lot of this churn on the active leases that we are currently holding. So that cycle continues as we speak. Another key highlight on the share is if you look at where things are this half versus the last 1 to 2 years, I think largely things are more stabilized and normalizing. So you see the proportion of how many tenants we repaid has also been increasing to about 60%. And you look at profile of how we sign the leases. I think I explained that for new leases, typically, we have to lower a little bit of the upfront rental for them to derisk a little bit because they had to put in a long CapEx. But if you look at lease renewals that we are retaining. I think largely, you see that we're able to come off less pressure now. And some of these leases, we are renewing at positive. If you look at overall, 7 out of our 9 malls are already recording positive rental reversion. Even if you apply the method that we used to do where we measure the most strict of the first year's incoming rent versus last year of the outgoing rent, that continues to be easing off in terms of pressure. So I think that's a good sign that things are normalizing. The retailers -- our cost is normalizing. And it gives us a little bit more of the positive trajectory as we move into that cycle. So you'll see more and more malls reaching that level so that as we look into the second half and 2025, I think the trajectory for retail should be one that is improving. I think some of the cases that we just want to demonstrate and share with you, I mean, some of these new leases, new tenants that we brought in and help us to really boost a lot of the traffic and sales and we'll continue to see how we can have synergy on bringing more of such across our portfolio. These are some of the examples that I will just leave with you. And the business parks, again, if you look at where things are by business parks, largely, we are prioritizing to stabilize the occupancy. And we mentioned relative to the market. If you read some of the market reports, I think across the cities where we operate, a lot of new suppler are coming up. So vacancies have been increasing. But despite this backdrop, I think the teams have done well in terms of securing their renewals and also able to attract new entrants in the park, especially in promoting some of our existing tenants to expand and take up new spaces. And some of these tenants are coming from sectors that are the ones that you are targeting, for example, the biomedical, electronics and also the engineering. And if you look at the three cities, I would say Suzhou continues to be stable. In 1 half, Xi'an, it's stable. Hangzhou is the one where we continue to face a little bit more pressure, and you see us maintaining the occupancy. But as a result, the rental had to be adjusted. So I think all this take into account moving into how the leases are signed. So for 1 half, you see that negative rental reversion largely due to the Hangzhou ones bringing down overall to about negative 3 over percent. I'll leave this with you in terms of how we build that community of activities beginning on parks. Over to logistics, I think I mentioned earlier, as we move into July, the Kunshan occupancy has been pushed up to 99%. So really, if you look at the two assets that we started off and wanting to stabilize it. They have now reached 99%. Chengdu we have progressively moved the occupancy consecutively over the last 3 quarters to now 80 over percent based on the pipeline that we are seeing and negotiating, I do see 2 half improving over 1 half. So that really leaves only the Shanghai Fengxian that we are evaluating the options. I mentioned already, if you look at where things are, we see a little bit more traction in the space demand from occupiers. They are facing more of the consumer-related, retail-related industry. So these are the other sectors that will work very closely with our ground team to secure pipeline. I think -- going to the last section, I think our focus continues for 2024, as I guided, is really to drive asset performance. And you see post AEI, the retail asset class showing that the leading indicators are on a positive trajectory. I mentioned on traffic, on sales, on occupancy, on the cost and also the rental reversion. So I think the whole portfolio, although leaner, smaller, they are stronger moving forward to be more future ready. At the portfolio side, we will continue to be disciplined to look for opportunities to monetize and recycle the proceeds to strengthen our balance sheet. So that's something that we will stay very focused on the ground to and being agile to look at where are the potential deal opportunities to strike. And the large part is really to improve and enhance our financial metrics, and you saw what we have started off having the active debt capital market management, shifting more to the RMB. I think these are starting to show some of the savings impacts amidst the broader interest rate environment. So this continues to be our main focus for 2024. In terms of what we are watching, very closely, I think the Chinese government has just come up from very important kind of July meetings, and I think they have a lot of initiatives to implement. You see -- you're going to see -- I would see more and more of such details being implemented and being disseminated down to the local district, local governments to implement. And I think general to say is that they are watching the economy. They have a broad target and you already see some of these most supportive measures in terms of lowering the interest rate. And the key focus is really to bring back the confidence to the consumer and the business community. So I think this is something that I think that is watching. What we can control, I think we have shaped our portfolio to be really more resilient and more ready that when the confidence comes back and the market comes back, that our overall portfolio is of a better quality one to capture that growth and then right the economy. So I think with that, I will just hand back the session to Nicole, and we can do a little bit more Q&A. Thank you.

Thank you. Thank you, Tze Wooi, for your presentation. Now let's proceed to the Q&A segment. [Operator Instructions] I see that Terrence, you have a question. Could you please share that with us, please?

Thanks, Nicole. I just wanted to ask, especially on BP and logistics parks. So logistics parks minus 27% rent reversions. When should we expect some stabilization there? Is -- could you maybe share a bit more about how you're trading off rents for occupancies? And then on the BP side, I just wanted to get a set of what was the impact of this government incentives that were withdrawn and whether there is any more sort of like one-offs which are supporting or holding up NPI? Is this more of a stabilized number for this first half for NPI?

Yes. Thanks, Terrence. I think if you look at this slide, it gives you the quick view of what I have described earlier. The negative 27% rental reversion is quite consistent with what we have guided you in the last 3 to 6 months. So really those leases that have been secured for Wuhan, for Kunshan and for Chengdu. Those are were not traded. But actually, the whole market where we operate, we are seeing this short-term supply/demand imbalance. So I think most landlords are adjusting their rental downwards to reflect that. I think we are probably in line in with what we talked to the local leasing consultants, the agencies where we operate, I think this is probably the range that we are seeing. So the key question now obviously is the Shanghai one, where we are really starting to track some options. I think one way is to just look for tenants that can use the space immediately. That's one way. The other way is really to work closer with the local government. We are aware that they would like to pay a certain profile of tenants that can give them their tax base into that area. So we're also working on options where it makes sense to government, with the tenant, ourselves to do a bit of CapEx to specs up a little bit to suit their tenant needs. But in return, we signed a longer will that can more or less increase the kind of lease duration. So I think this is the only asset now that we are embarking on this more deliberation. The rest of them, we have signed these that are in the tune of about 2 years. So given the occupancy of where we reach almost full for Kunshan and Wuhan that will last us to the next cycle. Turning to a little bit more smaller spaces to lease up. I think that is something that I mentioned earlier based on the current situation, we see a little bit more pipeline and traction from consumer-related kind of users who like the fact that Chengdu Shuangliu is very near to the surrounding airports. So I think these are target sectors that we are focusing on leasing efforts. On the second question is on BP, if you look at BP, specifically, you mentioned about the government tax incentives. Just to give you a sense, I mean, last year, the full year of 2023 across our BP portfolio, the amount of tax that we received from the government probably works out to the order of about 5% of our portfolio revenue. And I would say significantly, those are in Hangzhou in first half. So you do see that tapering and falling off year-on-year, when you look at the government tax incentives not being able to repeat itself. So I think that is the things that we are seeing. How things would turn out in the second half, how things will go forward is quite difficult for us to say for sure. But we work very closely with government. And say for example, the ICR ones. The government sometimes would like to incubate certain tenant profile, certain sectors that we would like. And if we can work together, we stand again to also enjoy a bit of these tax benefits or incentives. I hope that gives a little of understanding of where things are. One half predominantly, we lost the last year's Hangzhou, that's the main factor that moved year-on-year. If we remove this, actually, I would say the business parks as a whole is quite flat, which is in line with the revenue.

Maybe I could ask just quickly one more question. I would just like to understand what's stabilized or what's the financing cost you expect for this year, especially given that you're shifting more of your funding to RMB?

So we expect to see last year -- if you look at our 1 half results, our divestment proceeds have helped to pay down in 1 half, that's why, we enjoy the savings. That shift towards RMB help us to neutralize a bit of their offshore but you need to reprice some of our fixed rate hedges. So all in all, our guidance is if you look at where things are, we are stabilizing at about 3.5 level where we see things going into the second half of this year.

Thank you, Terence. I'd like to pass the time on to Joy. Joy, please.

A question for me on tax. Can I just, to confirm that both the expiry of tax incentives as well as higher withholding. As these show on different -- in different lines in your accounts? Or this is all shown in just on the tax line itself?

So the government tax incentives is in the NPI line itself because that is a property level tax that we used to receive so that if you look at the business parks NPI, that is already in that line. The withholding tax line is a little bit not in the NPI level, but more in our distribution adjustment side, what you see, where this year, we repatriate a little bit more than a normal volume of dividends, partly to manage offshore gearing and partly because we managed to get some clearance on certain qualifying recording tax. So these are more one-offs that we are trying to achieve out of this 1 half. I hope I answer your question, Joy.

Yes. And for the second half, right, are we going to see the same amount of tax impact on the withholding level?

I would say we have done almost -- for the year, I rather say that we have accelerated some of this in 1 half. So we don't see a repeat in the second half, yes.

Got it. And I guess a follow-up to -- as you repatriate more capital from onshore, is there a science as to how your sort of CapEx requirement onshore is going -- you wouldn't be requiring that much of CapEx? And how does that indicate in terms of your sort of inorganic growth trajectory?

I think in terms of CapEx, we do have enough onshore cash. I mean 100% of our cash are generated onshore. I think what they've done in this 1 half is to bring back that bit of accumulative dividends that we have not brought back during the COVID. So I think it did not settle. So going forward, I think really, we have just gone through three major AEIs across the last 12 months. So I think for this year, we don't foresee big pay backs that we are in motion on spending. So I think going forward, I think I mentioned we are starting early review and discussions with several supermarket's anchors. Their leases will be due in 1 to 2 years' time, and there are signs of weakening or if there are opportunities for us to take that space a bit earlier. I think that's we are planning to do for 2025.

And in inorganic side...

I think I've said, I think the focus for current year is really to look at opportunities to monetize some of our existing assets, especially in the lower using ones, improve the balance sheet strength as we look for more inorganic growth. I believe there are opportunities that are there for us to capture. If you roll this out 6 to 12 months, but we need to strengthen our own vehicles in terms of ability to raise competitive cost of capital for us to capture some of these opportunities. So the focus is really organically shape up the whole portfolio, drive asset performance. There are room where we see -- I think in the second half, there are clear room where we can cost synergize a little bit more for our retail portfolio. I think that's an area of focus where we want to achieve as we drive the revenue side, we look for opportunities to exit some of these earmark assets. And I think with that, we are in a more right window, I would say, to look at inorganic growth.

Thank you, Joy. I believe we have Felicia on the line for [indiscernible].

Sorry, my video is not very good, but I have one -- just a one question. For the REITs warehouses, the rents for the new tenants, are they a lot lower than the rent for the tenant that just vacated. Could you give us some sense?

Yes, sorry, Felicia. So are you referring to the one that we signed in July?

Yes.

So the July one is more or less tracking around that the when management is about 30%. Rent down versus the earlier passing.

Okay. Thank you, Felicia. I'd like to pass the time to Harry, please.

I just have one question here. It's about the China's retail outlook. So as of July, what segment you see -- or trade do you see as outperforming the rest? And where do you see the opportunity for the company to actually outcompete and to gain the opportunity because we obviously the change of the consumer consumption happen this year in China. So a lot of change. Probably we see some downgrades. So you see how the company will benefit from the change of the consumer habits?

I think generally, you're right. I think the consumer habits are evolving. I think you're right now headlines that I think the Chinese consumer are also broadly tightening their belt to be more cautious and more rational in where they spend. So given this bigger backdrop, I would say the nine retail malls that we have are actually well positioned in the segment that are capturing this kind of consumers. The clear trend is if you look at what is outperforming. We have been increasing our F&B. And F&B is definitely one category in our malls that are doing well. In 1 half, I would say, across our 9 malls, all F&Bs have demonstrated their year-on-year improvement, largely because we are in the right segment that provide them the kind of price points and offerings that people are gravitating. The other clear outcome is because of the new offerings that we add in. So I think a combination of all this post AEI have positioned the mall to be able to capture some of these consumer spend that are gravitating towards value towards lifestyle choices towards services. So across our malls, you see F&B increasing better. Services are increasing better. If you look at even like IT spending, electronic spending, jewelry spending, I think these are the areas that we are improving and enhancing our trade mix and brand mix. At the same time, you see more of the consumers very taking towards this. The other key area that we have done is really to improve our essentials offerings, and you see us actively changing out those supermarket operators that are no longer able to connect with the consumers of today. So you see us doing that for Grand Canyon. You see us doing that for the [ Wangjing ]. We shrink them in Rock Square, we consolidate space back in [indiscernible], et cetera. So all these have helped us release more spaces to inject more of those things that are able to capture spend. So overall, that is what has been driving, I would say, the retail recovery in our portfolio. Just to give you a sense, I mean, if you look at where things are today, double-digit growth in traffic, improvement in sales across year-on-year. So that has made the trading environment a better one. That is a picture that I would like to leave with you for 1 half. And that said, I think the broader sentiments is still one that we have to keep watching. Consumer spend hopefully will improve as we go into second half as the government released a bit more targeted measures, whether it's in fiscal side or the monetary side to bring back on a bit of that more still could move. I think if you look at the Chinese, they are still recovering from a few years of that household wealth, very tight to the property sector. So I think that is clearly the #1 priority that the government is trying to stabilize, the economy, jobs, employment outlook, house disposable income is going to be a key area that the government would want to improve. And I think with these two things more stabilized, our portfolio will be in that segment to capture this spend.

Thank you, Harry. I would like to pass the time to Jarden, please.

Just thinking about your second half DPU. Capital management fund is very stable. You are working on retail [indiscernible] and new economy, maybe some race to prestige. So how should we look at second half DPU compared to first half DPU.

If you look through our portfolio, I would say 1 half logistics is probably where we see the bottom, right, I mean if you look at where things are, we are improving the occupancy for two assets to 99, then that will start to contribute our 2 half revenue. The Chengdu is progressively moving from the 60 to 70 to 80. So again, as we drive out occupancy that incremental coming. For anything that we signed into Shanghai will be incremental. So I think from a debt perspective, logistics is half-on-half should see stability or improvement. The key is really the retail. And I do see that with the higher occupancy that we have secured revenue should be stable to improving, despite we are running a 9 versus 11. The key is really to look at some of these running costs in the second half. Seasonally, our second half particularly have a higher running cost because of the cold weather. So a lot depends on the utilities front, whether we can see how things go for the utilities front because that sometimes is very driven by seasons. But where we can control, I think it's the staff related, the marketing, the maintenance. I think these are the ones that we are working very closely to really extract more cost synergies, I would say, in a bigger sponsored platform. So I think that is critical for us to maintain the NPI profile for the retail segment. Key now is the business part, right? The business parks, the business parks I mentioned, as we move into the second half, at least on a year-on-year basis, there would not be big strength in terms of the tax incentives. I think there will be some ins and outs because there are going to be a bit of expiries coming in the fourth quarter of this year. So a lot depends on whether we can secure the ins and outs in time. And also the downtime, if you want to factor in bigger spaces coming in. So I will just break down these three buckets for you to take away. Logistics should be improving half-on-half, retail, all the leading indicators on a positive trajectory. Cost is something that we are watching. For BP, there will be some big spaces up for renewal. I think we are really actively negotiating to make sure that the occupancy can remain stable. If you look at below the NPL line, I think that's where I mentioned the debt capital market side things should be stabilized to improving in terms of the interest cost, et cetera. Taxation for this 1 half, there's a little bit of one-off because of more dividend flow. We don't expect that to materially repeat itself in the second half because most of that have been brought in. So I think that gives you a large, I would say, run down on the DPU picture.

Thanks, Tze Wooi. I think I have missed it for the negative [indiscernible] reversion in logistics space. Is it -- how many reserves does it represent? With just one single a bit?

Well, if you look at the Wuhan and Kunshan, they are predominantly high percentage to single tenants. So they are broadly maybe like two to three leases thereabout. It's not a big number. They are predominantly anchored by a big space. In Chengdu, that's the one where we have a little bit more but it's not a lot for this 1 half that we have done. Yes.

Okay. So about five leases that supported these negative reversion.

No. So as a portfolio, then it will be maybe around 9, 9 to 10 logistics across the different.

More from Chengdu. Those two to three for Kunshan and Wuhan. So that gives you the broad rundown, three assets.

Okay. Okay. Got it. And I think Tze Wooi, going back to divestments, why do you see divestment opportunities? Because within logistics, probably with the volatility of rents, not sure how the big aspect is. And are you still looking to sell retail now? Or it's just a matter of price?

Yes, if you meet the right price, then maybe you'll consider them.

I mean from a divestment perspective, you're right. I mean it's always coming back to whether the price is reasonable. We are now a more diversified sector. I mean we don't focus on one at expense of the other. More so as a portfolio, how do we continue to build that resilience and quality. So looking at where the market is, I think we have to be a bit more tactical at times. Looking for suitable buyers who are able to handle back size transactions. And you specifically highlighted for logistics again, I mean, for the logistics, if there are opportunity for us to exit, use the money to improve our balance sheet strength and really to do that because it will be enhancement to our overall financial metrics and the DPU profile. So I think that's something we'll do. On the retail side, again, it's not a one-off. We are always reviewing through the retail holdings which are core and noncore, which are the ones that we are able to AI and continue to maintain relatively high dominance in the catchment that we want to do business. If they are the ones that are suitable, you already see us doing that. So out of our 9 malls, I would say, currently, the two weakest one, or the smallest one, right, Aidemengdun and Xinnan, who are less able to compete going forward. So if there are opportunities for us to exit, I think, again, this is something that we have earmarked, and would like to do that. But I mean, doing business in China, we just have really more tactical in current climate, not easy to find big portfolio deals. We have to grow more local monies. And you saw us doing that last year for one of our [indiscernible] assets. In fact, all our diverse today are all monetized to the locals. So I think that is something that we will continue to tap on our strength and our sponsor domain strength to help us look out for these monetization opportunities, yes.

Okay. [indiscernible].

I mean we just have to be having our antenna up on the ground level, be very sensitive to knowing how to cut a deal at what point in time, what motivates people. I think these are really the new sets that this climate will be valuable. And I think we have our sponsors domain strength around teams to help us look out for such opportunities. And I think that's where we're going to spend a bit more time to look for monetization opportunities there.

Okay. Hope for the best. If I can just dig in one more question. Post the Shuangjing completion, you actually did some share buybacks. So any updates on the share buyback strategy front?

Actually, most of the proceeds for Shuangjing have been utilized to reduce our expensive debt. So I would say those are the ones that help to achieve the year-on-year savings. I think once we are able to monetize more and bring the gearing down to a level that we want, definitely, the next divestment, the proceeds, we are probably looking at a combination.

Thank you, Jarden. Do we have any last few questions that we have on the call. Please feel free to raise your hands so that we can direct the time over to you.

So can I ask a question. Let's just ask on the business part. I understand that there are some leases coming due in the second half. I wanted to -- I understand trading off rents for occupancies, should we expect more negative reversions in second half for the business parks?

I think the more, I would say, income pressure would be seen in Hangzhou. I think that is what is consistently I've guided. You see this 1 half as a portfolio. We are reverting about negative 3.7%, largely driven by high single digits to double-digit Hangzhou. So I think if we were to continue to prioritize, I think that's something that we are looking at. The other studio, I mentioned it's more steady, more stable. So the key one that we are working in the second half is actually Ascendas in Xi'an Tower. That's the one I mentioned that in the fourth quarter, there are indications that there are tenants moving up. So we are also trying to capture consolidate other users in Xi'an into our parts. So I think we are actively negotiating for that to happen. So if that comes in, I think we should be okay in terms of the occupancy. But rental generally softer than what we expect in terms of passing relative to last year. So I think this is generally the kind of guidance that we can give. If you look at the vacancies in the marketplace, if you look at the sentiments around business expansion, consolidating footprint, but very cautious about spending a lot of CapEx. So I think all this critical business decisions that we have to deal with. So I think I do see a little bit of that coming from AIT and Guangzhou. The other two of Suzhou and AIH, I would say, relatively more stable.

Thank you, Terence. I'd like to pass the time on to Ida please.

I know that we are currently still quite a far away from the year-end portfolio review. But I just wanted to ask, if you any sort of concerns about revaluation losses on the portfolio, especially for the largest business parks given the very deep negative rental reversions. And also wanted to clarify what gearing level management is more comfortable with.

Yes. I mean our gearing policy has always been quite consistent that we are guiding at about 40% is where we would like it to be. I mean the latest MAS update suggests we have to goal post to look for or rather manage for all REITs, right, gearing is 50%. So at 40%, I think we are well within that kind of guidance of limit. And in terms of ICR, if you look at the guidance, it is 1.5x. As we run our business today, we are at 3x. So I think very comfortable in terms of our gearing relative to the latest regulatory limits. But as a policy, we would like to continue to maintain about 40%. So I think that's the gearing question. On the valuation question, we have active conversations with the valuers. And I think in June, because of the negative reversions that we have secured for our logistics and also the vacancies that we are seeing, the rental. We have marked down close to 7%, 8% in 1 half. So what we have on a conservative basis, already booked that in. So I think that will alleviate some of the pressure as we go into the second half for the logistics because we have already done that. Based on 1 half, what we are seeing in terms of the rent roll market rent, I think the valuers generally have moderated slightly down on rent growth and market rent given supply situation. But as a portfolio, we don't think the retail segment is going to move materially. For business parks, I think as a portfolio, we are outperforming, I say, the market in terms of occupancy, in terms of passing rental, in terms of the asset yield. So I think -- that is also an area where we feel less pressure relative to comps. So I hope that gives you a color of us already taking a bit of early action in June to address the more likely logistics segment in terms of the downward pressure on valuation, and we've done that in June. So hopefully, going into year-end, there will be less pressure. Retail as a portfolio I think there might be some adjustments because of the weaker rent that we signed and the moderation of market rent outlook, but it's not going to be very material as a portfolio.

Very good to hear that.

Thank you. Thank you, Ida. I'd like to pass the time to Peggy, please.

Just one question. I'm not sure whether it's been asked. You have a loss on -- that you have a gain on disposal of subsidiary of about 7 million. I can understand. But there is also a withholding tax on the gain of disposal and that amounted to 12 million. What is it? Is this -- are we talking about the same subsidiary? And if so, why is it higher than the gain itself? And you look that back for distribution, does it mean that it will not be actually be paid out in future periods? This is just my question.

So this side is a bit more financially technical because we are reporting for 1 half 2024, and we actually announced the divestment of Shuangjing mall way back in 2023 year-end. So the right way to look at it is to look at two periods to capture the full view. The withholding tax in relation to the divestment is because we have divested. We have made some divestment gain. So that is the amount of taxes that we need to settle before we can repatriate the Shuangjing divestment proceeds up. The fact that we have reflected loss in this period has to be met in conjunction with the last second half of 2023 financials because that was the period where we reflected the gain from the markup of our divestment price relative to our last carried value.

Yes. I [indiscernible] a bit. I think because we have made an announcement on the Shuangjing divestment last year, and for accounting-wise, we have to actually reflect the price that we have actually divested. So last year and we have listed the fair value of Shuangjing. And in terms of the line item, you will see last year, essentially it's actually the fair value gain, rising consulting. And then for 2 -- 1 half, because we have completed the divestment, as such, we will just based on the -- whatever we have not listed in terms of the value we tests, the NAV that we have. So that will reflect the gain on the disposal. But on the withholding tax front, we have to reflect whatever that we have paid for the gain that we paid for this investment. I hope I do make sense of we had a different line items.

It's really because of the two time periods of one reflecting the fair value up. And then this period where we have completed the divestment and we setup the relative recording tax in relation to that divestment.

Okay. [indiscernible].

The next question is whether the proceeds -- I mean, the proceeds have been you capitalized to pay down our debt. So that has been put to use already. Yes.

There's so more taxes related to this to be paid in future periods.

In terms of the divestment of Shuangjing. Because we have announced the completion. We have settled for everything for this 1 half period, yes, correct.

Thank you. Thank you, Peggy. I'd like to pass maybe last question, I'll ask two questions to Hana.

So I just would like to ask a little bit on your thoughts on the capital structure in relation to perpetual. So you have 100 million perpetual that is callable next year. And then with this change in terms of the MAS. I mean, consultations in the consultation paper stage. But for the, let's say, for next year, I mean, if rates -- I mean, obviously, it should come down, but it should be still at a level that's more expensive than your RMB and it can funding. So what do you think about -- would you take the opportunity to take this put by refinancing with cheaper CNY debt? That's my question.

Well, I mean I will look at it from two perspectives. One is, generally, we like our gearing to be around the 40%. I think that's the general guidance that we would like to ship the vehicle. So whether we'll -- what form we used to refinance or redeem the clubs, I think we still have a bit of time to evaluate how the market opportunities are as we approach October 2025. The good thing is recently, if you are aware there are kind of like some REITs who are issuing new bets that have better spread relative to the open. So I think if that market starts to open up, it gives us more opportunity to potentially look at a new club to replace and open. And as we advance into October 2025, I think there will potentially be more portfolio reconstitution that has been achieved. And that will then allow us to look at how we intend to refinance or more options that we can think of. But I think this is something for us to keep watch. It's not a decision that we need to take today. The clubs that we are having in today's context is definitely a good pricing. It's at 3.375%. Not likely that we can repeat it. Your question is whether will we think about using CNY debt to repay that if we can do potentially, for example, say, a Panda bond or a repeat of FTZ bond, I think it makes sense, but I pull that we want to watch also the gearing level. So I think that gives you a quick sense of you watch this space how it develops. We have time with different means to look at it to make it more optimal.

Thank you, Hong. Since we are already nearing 10:00 now, before we conclude the session, Tze Wooi, would you like to share a few words?

Yes. I mean, thank you for attending. I think we gave you a good idea of CRCT's performance. I think largely its focus really to drive our asset performance. I think that will be the focus for the year. We have seen us do that in 1 half. We continue to do that. We will definitely look for more opportunities to monetize some of our existing holdings that are not core and the lower yield, I think that can be achieved that will be an immediate boost to our vehicles. Longer term wise, I think we'll definitely look at more means to enhance our capital structure through that portfolio reconstitution. So I think this is going to drive our management efforts as we go into the second half of this year. Yes, so thank you very much for your time. See you again.

Thank you. Thank you, Tze Wooi. Thank you, everyone, for joining us. We trust it has been fruitful session for you and that you had a better understanding of our operations as well as our outlook. So please feel free to reach out to me with any questions. Thank you, and have a good day.