CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Welcome to CapitaLand China Trust Call on the Proposed Participation in CapitaLand Commercial C-REIT. I'm Nicole, IR for CLCT. I have with me today, Gerry, CEO; Joanne, CFO; and You Hong, Head of IPM. Thank you all for joining us today. So we are very excited to actually share with you more about the rationale of our participation. We'll start with a brief presentation, followed by a Q&A session. So once the presentation concludes, we will open the floor for questions. So if you have a question, just feel free to raise your hand, and I'll pass the time on to you. I'd like to hand over the time to Gerry.

Thank you, Nicole. Good morning to all. Thank you for attending this morning's update from CLCT. We are happy to share that together with our sponsor, CLI and also CLD, we have submitted an application to release a C-REIT on Shanghai Stock Exchange. The C-REIT is to be named, but we will call it CLCR for now. What I will do is to go through some high-level rationale for CLCT in terms of participating in this transaction. Now I think you are understanding that some of the transaction details are not disclosed or available yet as we have not published a circular, which requires regulatory approvals. The proposed C-REIT will be what is known in China as a consumption or retail C-REIT, its mandate is to invest only in wholly owned income-producing retail assets in Mainland China. CLCT intends to contribute CapitaMall Yuhuating in Tier 2 city, which is Changsha, as a said asset to the C-REIT; and CLI, CLD intends to contribute CapitaMall SKY+, which is in Tier 1 city, Guangzhou. CLCT will be a joint strategic investor with CLI and CLD on the first international sponsored retail C-REIT in China. The three strategic investors intend to collectively subscribe about 20% of the IPO units. The IPO units for the strategic investors will be subject to lockup as per China's C-REIT listing regulation. CLI will remain the asset manager of the assets in the C-REIT and the role of asset manager here is predominantly in property management. Both the proposed divestment of Yuhuating and proposed subscription for CLCT into the C-REIT are considered IPTs, so they are subject to unitholders' approval in the EGM. The transaction is also subject to review and approvals from the relevant Singapore and China authorities. For CLCT, this is a strategic opportunity to differentiate ourselves and get access to an onshore C-REIT platform through which we can tap largely captive domestic liquidity in China to recycle assets and unlock value. CLCT will also continue to have a ROFR from CLI. Post the listing, we may use the net proceeds from recycling Yuhuating to pay down debt or reduce -- pay down debt and reduce leverage, do unit buyback or a combination of both depending on our situation after the listing. Next, let me talk through the transaction benefits for CLCT. Firstly, this is in line with our road map to diversify as a multi-asset class China-focused S-REIT. By unlocking our mature Tier 2 retail assets, we strengthened our balance sheet and gain some financial flexibility and also diversify into a new investment asset type of the C-REIT. Next, this is a strategic opportunity for us to become a key stakeholder of the C-REIT and broaden our access to China domestic capital market. As the only REIT with access to China -- as only S-REIT with access to China's C-REIT market, we are able to differentiate CLCT from the rest, whether it's S-REIT or H-REIT. China domestic capital market and investor base is largely untapped by global REIT players. Through our participation as a strategic investor, we can also improve interest from qualified domestic debt and equity investors. In fact, we already have a small following among domestic equity investors, and we hope that, that broadens as we participate in this C-REIT listing. Finally, the C-REIT themselves has upside potential. The C-REIT market is growing and domestic investor interest is strong, due to the limited option for new place given that government bonds are trading at below 2%. If we look at the IPO price increase for consumption C-REIT that has been listed, post-IPO performance has been strong. In summary, the proposed transaction is our next step to build a future-ready portfolio and the participation in CLCR comes with long-term strategic benefits beyond the recycling of capital or purely financial returns. This, we believe, will truly differentiate us from other REITs. Timeline-wise, we have to conduct the AGM to get unitholders' approval as well as obtain the necessary onshore and offshore regulatory approvals before listing. Of course, an IPO is also subject to market conditions. The detailed timeline as well as details on the transactions will be announced in due course through a circular. As this is an IPT, independent valuations and an IFA opinion will be obtained for the transaction and be disclosed through the circular. Thank you. So next, I hand over to Nicole, maybe we can take some questions.

Okay. Thank you, Gerry, for your presentation. So now let's move on to the Q&A segment. Thank you, Derek, for your first question. Can you please unmute yourself. Derek?

I'm actually, Geraldine. I think, a surprising announcement. Maybe just some questions on my end. As for the strategic stake, 20%, I was just wondering how we should look at it with the rest of your portfolio? And I think interest for C-REITs, especially retail, is very strong now, up 30%. So are you actually able to lock-in any form of capital gains and any lock-in period?

Okay. Thanks for that question, Geraldine. So let me take each question. And if I miss any question, please let me know. So first the 20% stake, I think the -- if you note our presentation say collectively the three strategic investors, CLI, CLD and ourselves. We will collectively take this 20% strategic stake. This strategic stake is also part of the actually regulatory requirement, right, when the originators of the C-REIT, they are required to take some level of stakes and 20% is sort of the stick amount that one have to at least take, right? So in terms of the allocation, we will obviously need to discuss that internally among the strategic investors. But generally speaking, there will be a fair allocation, right, depending on the amount of interest that each party contribute to that C-REIT. So that's one part. Regarding the lock-up, I think, I mentioned that there is a lock-up for the strategic investors. So all three of us who holds -- collectively hold at 20%, we are subject to a lock-up. The lock-up is 5 years from listing, right? So that's the requirement for all basically C-REIT listings and C-REIT originators. Third is with regards to -- there's one more question on Capital gains, right? Okay. And on this point, as you can see, we -- at this moment, we have not disclosed divestment consideration that's because we require -- we do require an IPO process from this listing and the IPO process will determine -- basically determine the divestment proceeds. And of course, the competition, therefore, we have -- the exact competition we have to wait until then. But rest assured in our circular that's going to come up, we will put some ranges, and you can look at those ranges to make your calculations.

Okay. Gerry, I think, the last part I was actually referring to the strategic stake. So if say it goes up 30%, are you able to sell this to the public after your 5 years lock-up period?

Yes. So that's why there's a lock-up. After the 5 years period, we will be free of the lock-up.

Okay. Okay. Okay. Just one last quick one. Are you able to share the targeted yield and gearing for this C-REIT platform? Yes, I understand peers are trading at about 4% to 5%.

Yes. Okay. I think, generally speaking, I mean, we have not -- again, there are some details that we need to work out. But generally speaking, the C-REIT platform has a lower gearing limit and this slide itself -- this additional slide that we have provided on the differentiation of the S-REIT versus the C-REIT shows that. So at maximum, the C-REIT in China can have a gearing limit of 28.6. The exact amount, right, needs to be finalized, and we will disclose more details when the circular comes up. So that's one. In terms of the final dividend yield, again, quite difficult to give you exact numbers now. But I think what you have mentioned is correct. Today's market, the C-REIT market basically is trading at a distribution yield of between 4% to 5% and that is still the case.

Thank you, Geraldine. Can I pass the time on now to Joy, please?

Just a question on asset selection. How did you end up putting Yuhuating into the REIT? Is there a consideration of actually injecting more than just one asset? Maybe just some rationale.

Okay. Thanks, Joy, for the question. Okay. We did go through several rounds of looking through our assets what's suitable for our participation in this. And we selected Yuhuating. One of the reasons why, it's one of the smallest retail assets in our portfolio. And if you look at as a percentage of contribution, maybe it is about 3% of WAL, 3% to 4% of NPI, right? So that's one factor. And we want to use a smaller asset to basically start this, because it will take some time as well and these, sort of, assets to try this platform, right? Secondly, we're also looking for an asset that is already mature, and we have already reaped the AEI potential, and we see possibly no real big AEI potential in the near term. So fitting into really the logic of divesting mature assets, it's not that much upside left in that asset. So that was one. The other reason for it, as you can tell in 2023, actually, we have already done the big AEI on Yuhuating. We have reaped some of the benefits of that NPI increase in 2024 and 2025. So we thought that this is a good asset to unlock value and recycle. So these are the two -- these are the main reasons why we have selected Yuhuating. In terms of future assets to be basically injected or used to be recycled, I think it's a bit premature. We are still doing the first one. Our thought is that when we can do the second one and basically in the C-REIT environment, it takes -- it basically needs 1 year of clearing period that is by regulation from the listing to the next follow-on before the originators can basically inject new assets into the C-REIT. So between the listing and 1 year later, we will review and see which -- whether we have the need to recycle and which are the assets that perhaps fit the category of mature assets with less upside where we are -- we can think of unlocking some value, right? So that would be some of the considerations I have at that point in time. And also, of course, when I recycle, whether there's a good use of the proceeds that comes back. So that's also another consideration.

Got it. If I can just follow up, because I think, there are quite a lot of restrictions also on assets or the type of assets you can inject, can we get a sense as to what percentage of the portfolio are actually REITable into a C-REIT potentially?

You mean my CLCT portfolio, right?

That's correct.

Okay. I think, we have not -- we will not rule out any of the assets, first of all, right? So as you understand, the C-REIT market is evolving, right? It's evolving. In fact, it has changed quite a bit from the first batch already in, I think, 2023, right, 2023. So we are monitoring the situation. Theoretically, all our assets potentially can be available, right? But there may be regulation change that we have to take into account, right? That's something that I would say. But of course, for us, it's more important that we determine which are the ones that perhaps is truly mature in our eyes to say unlock value through the C-REIT. And the second thing is also in terms of market sizing, right? The market sizing currently, I'm not saying that in future is the same, currently, it is not that big for the C-REIT injection, whether it is IPO or follow-ons, right? The typical size is maybe less than CNY 2 billion, probably about CNY 1 billion for an asset. And you can basically only inject 100% of an asset in there. So size at each injection is also determinant. And if you look at our -- some of them -- our assets, some of them are actually quite large, right? So for those, we probably have to wait a while, while the market conditions basically catch up to it.

Okay. So now let's move on to the next question from [ Rachel ], please.

Congrats on being able to launch this. I think, we have been waiting for a while. So I think, maybe first question is on the 20% stake, how -- can I understand how do you get the 20% number? Or do you have any intention to increase this eventually or later?

Got it. Okay. Thank you, [ Rachel ]. So again, this 20% stake is a regulatory requirement by the regulatory authority in China. All originators required to collectively basically pick up this 20% stake. In terms of whether we can subscribe to more when the opportunity comes, the answer is yes, right, because we have got participation in the REIT and future follow-on, for example, if any one of the originators inject assets to the C-REIT, right, there will be new capital that's needed by the C-REIT and placement process will happen. At the time, we are also -- if we want to, we can also increase our stake.

Do you have a sweet spot of roughly what's the stake that you would like to have?

This, I think, will be something that we will disclose maybe closer when the circular is out. Yes, because obviously, the sort of shareholding is something that is not determined now. During the circular stage, we'll review it, and that's probably around what our sweet spot is, at this point in time.

Okay. And I'm not quite familiar with the C-REIT, but do you already have a targeted list of investors that you're targeting? Or is this for retail investors as well in China?

The C-REIT is a domestic product and we are -- basically, that means that only domestic PRC capital markets participants can buy, right? So they are institutions, domestic institutions. And they are also a small retail tranche, right, maybe about 10% to 20% is a retail tranche, right? So purely domestic. So no foreign or global player can actually buy those C-REIT.

Okay. And if, let's say, the C-REIT ticks off very positively, do you have plans that eventually this C-REIT will be the pure retail play and you can be potentially a logistics or business park play and split it quite clearly? Is that the ultimate plan in the future?

No, that's not the ultimate plan in the future. I mean, our own road map is to be diversified, right? So we want direct holdings of retail assets. We want direct holdings of logistics, business parks and maybe later on other asset class, right? So we view this C-REIT as another type of investment vehicle, right? And if you see how we, sort of, put it in this pie chart, we almost split it up to say that it is a separate sort of investment type that we do here.

Okay. And how about -- what's the cap rates of the two assets that's being injected at the moment now? And any tax implications if you were to inject into the C-REIT?

Again, the cap rates, I think, we will defer that closer to the -- when we basically publish the circular, right, because those transaction details, we have not disclosed as yet, right? That's one. But rest assured, we have -- we are required to go through an independent valuation process, right, as well as there will be IFA opinion on this. So certainly, the usual scrutiny of IPT transaction will come into play, yes. And the second question is -- the tax -- actually, there's not. There's...

We will be subject to the usual tax rate, but assuming it's just a normal kind of divestment, so the typical kind of tax that we will be imposed for any other divestment that we usually do. So no difference of whether it is split or pure divestment condition.

Can you remind us what's the tax -- what's the usual tax?

10%.

Yes. The tax -- typically for a transaction like this involving a share transfer, it will be a 10% on the differential of the share versus the original cost.

Okay. And the cap rates -- sorry, your portfolio cap rates now for the retail is roughly about 4%, 5%. Is that right?

5% to 6%. But [indiscernible] Tier 2 asset, right? Actually, on our books, even the cap rates for Tier 2 asset will be higher than the average.

Thank you, [ Rachel ]. I would like to pass the time to [ Jessie ], please.

A couple of quick questions from me, please. So I understand that the new China REIT plans to be a retail REIT. Is there any reason why we are focusing on retail? I think, we've seen some media reports about how some malls are still empty in China, because domestic consumption isn't back to what it was before the pandemic. And I suppose like what kind of retail assets are we targeting? I think, you mentioned that the two transactions -- sorry, the two proposed acquisitions are going to be malls from Tier 1 and Tier 2 cities, right, which are mature. Okay, so that's my -- my second question would be, well, I mean, like if C-REITs can only have one asset class, are there plans to roll out other C-REITs in the future? So maybe like logistics C-REIT, for instance?

Thank you for the question. Why retail? I think, from -- okay, actually, this is a CLI question, but also it is a question that we have talked about, right? I think, retail, generally, if you look at our performance, right, for CLCT, it has been quite resilient, right, especially the part of the market that we are in the middle market, right, which is basically the bread and butter malls, right, the mass market, not the luxury malls. So maybe some of the news that you are reading probably in the areas where there are more luxury malls, right, or more oversupply situation, right? Certainly, the malls that we have are very resilient, you can see from the high occupancies that we consistently have. And that's also true, I think, generally speaking, for most of CLI's malls, right? So I think, that's one factor that we believe that we can make a difference in terms of the participation in the C-REIT market by listing a consumption C-REIT. Secondly, actually -- the second factor is actually the bigger factor in fact, is our brand name for CapitaLand as an ecosystem is quite well known in China as a mall operator, a mall owner and a mall investor, right? So with that in mind, obviously, if we launch a consumption of retail C-REIT that will have stronger nexus and stronger attention from the domestic equity investors, because our reputation is such that we are strong with mall players. So that's on, why retail. In terms of the other types of C-REIT, I think, it's probably not something for me to speculate, right? Probably something that my CLI or CLI China colleagues will need to pick up on that, yes. But for now, we are focused on this consumption of retail C-REIT to make sure that it's a success.

Okay. Sorry, I just want to add one more question. I understand that the C-REIT will be for attracting domestic capital and also to potentially divest some of the mature assets from CLCT. But would there be any overlap in terms of the assets that both REITs in China might be acquiring?

Okay. Okay. Of course, they will need to look -- they are looking at retail and we are also looking at retail, so there may be some questions of overlap, okay? So maybe I would go to this slide. I think, there are key differences from the two REIT vehicles. As you know, the C-REIT vehicle generally is more [indiscernible] right? They are focused on income-producing retail assets. And income producing means that maybe sometimes you need to do -- when you buy assets, there may be some AEI that you may need to do a major AEI to order to reap the full benefit or the full upside from the asset. It's actually quite -- it's much harder to do in a C-REIT format, especially if you want to inject that asset into the C-REIT, right? So that's one difference where even though we are investing both in retail, there is a different spectrum of retail, right, that both are looking at. We, of course, happy with income producing. We are also happy with doing AEIs or we are happy to also take some assets where they may not be so mature yet, but we do some AEI and then we can reap the upside, which we have done in a few of our assets that we have bought, including, of course, Rock Square, which we have done many AEIs along the way to bring it to what it is today. So the other thing that I would say is, of course, the S-REIT can also do some development work, right? There may be a situation where we need to do some big redevelopment of maybe certain portions to reap the highest and best use of certain assets, right? That is something that the C-REIT at this moment cannot do, because they can only do income producing. And of course, for CLCT, we still have our ROFR, right? Our ROFR is basically still existing from CLI. So the only thing that perhaps when there's a mandate overlap is, of course, things that are not covered by the ROFR, right? In those cases where it is a balance sheet asset and it's not covered by a ROFR and maybe both vehicles may be interested in it, right, we do have a fair process where everybody -- both -- multiple vehicles, not only just CLCT or CLCR, even maybe some of the private funds who may be interested in the same project, right, they will be basically able to bid on a fair basis for those assets, right? And what matters usually is who -- which vehicle can satisfy the requirement of the seller, right? For example, for third-party assets, right, the seller sometimes value speed of transaction, certainty, beyond pricing matters, right? In this case, I think, because CLCT is a little bit more flexible, we probably will be the better -- the quicker alternative for those sort of sellers. CLCR, which I shared, do take some time in terms of regulatory approval and asset injection. So if you look at so far, most of the asset injection for CLCR has been from the originators rather than a third-party buy that is triggered by CVs itself. I hope that answers your question.

Can I pass the time to Terence, please?

This is Terence from JPMorgan. Yes, I just wanted to ask, I know that you shared on the timeline and is subject to the regulatory approval. But perhaps could you give us a better sense like if, let's say, the regulatory approvals come through, like how long would this take? Is this like a 6 months window or is it like a 1-year window before the listing?

I would say by the end of this year, definitely, we will have completed the whole process, yes. It's not a 1-year window, I mean shorter than that.

Okay. That's very helpful. And in terms of the tax, I wanted to ask also, is there any tax implication for your holdings of the CV itself? Is there any tax on the distribution of the CV -- CLCT?

Maybe I pass that to Joanne.

I think, it will be the same kind of tax that will be imposed like how CRCT will be paying for those distribution that came out from the SPV right now. So there's no difference [indiscernible]. So like currently for CLCT, when we receive any distribution from our SPV, those are actually subject to withholding tax of 10%. So in the event that this vehicle to actually pay distribution and one that we accept that distribution will be paid out to Singapore, then we will be subject to pay holding tax as well.

Okay. Great. And yes, I wanted to also ask on the other asset classes. I mean, like CLCT has the logistics park that you have mentioned that you may look to divest. Is there any other opportunities to that -- to start or to do a more new economy kind of CV for the other asset classes that CLCT hold?

As I was sharing -- perhaps, it's a question more for CLI, right? At this stage, I can say that we are focusing on the retail consumption C-REIT. If we make progress on other C-REITs, of course, we will share with the market.

Okay. And in terms of the fee structure, I understand that you are sponsoring the C-REIT. So would you be collecting management fees? Or how does the fees work?

So this one, we are the strategic investors. So technically, actually, what we show in the press release that CLI is a sponsor of that C-REIT. And the fee structure here, I think we will defer that in that disclosure until the circular, but there are some technical details that we need to work out. So during the circular, we will make it clear.

And maybe just final one for me on fees. Since PLI also does take management fees for managing CLCT, will there be a fee waiver for the C-REIT to CLCT?

Okay. I think, you're asking the same question, which I think the response will be the same. I mean, we are working out some details, right? It's better that once we work out the details, we put it in circular, then it will be a clearer answer for all.

I look forward to the circular.

Of course, I'm going to presume you have a preference.

The preference is, yes, not for -- to be charged twice for the same asset.

Yes, yes. I understand that. Thanks for the point.

Okay. Thank you, Terence. Can I pass the time to Derek, please?

Sorry, I was a little bit late. I'm just curious about -- I just have two questions, right? First one, could you give us a sense, right, post the divestment, how should we think about your -- your gearing should come off and the proceeds, should I assume that you're largely used to strengthen your balance sheet or will you share some with your unitholders?

Good question. Thanks for that, Derek. Okay, so once we divest, of course, some of the proceeds, some part of it will go into subscription of the [indiscernible] not a big part, right? The majority -- vast majority of it will come back to us as net proceeds, right? At this point, what we have written in the slides is that we can reduce our gearing, and we can also look at doing unit buybacks. So these are two clearly stated options, right? We are, as I said, maybe still a couple of quarters and the listing is done. So we'll take that time and review our own position and see whether which one is more important, right? But both are something that, in my mind, it's possible for us to do either one or actually a combination of both.

Got it. Got it. And it's not announced how much you will take in the REIT at this point in time?

Collectively, CLI, CLD and us 30% [indiscernible] but ourselves not yet, yes. It's a detail that will come in the circular.

Sure, sure, sure. Sorry, I'm just looking at you, I think, as an asset, right? So this is an SPV that you sell. I'm assuming there's an SPV loan there has to be cleared. So your net proceeds, if you want to do some rough calculation, we should assume that the first order of how the cash go out, you have to pay the loan first before you can do whatever you want with it then. That's how we should think about it, right?

Yes, yes. But the loan is quite small. At the moment, we do not have a bank loan on this asset.

We have [indiscernible] actually that means, the cash is [indiscernible].

Got it. Excellent. Excellent. Okay. Sorry, last one for me. I mean, Gerry, just broadly thinking, right? I mean, this is a very innovative structure. I mean, you have something that you can divest and you will be trading at 4% yield. I'm just wondering whether as an offshore REIT, right, you are yielding very attractive 7% over 8%. And with them buying developed and stabilized assets, will you think about doing more REIT on strategy that add value and/or potentially development over time? And if you see our peers restructuring themselves into staple. I'm just wondering whether CLCT in the longer term, should we see you morphing into a different animal or still too early?

I think, that's an interesting idea, not something that I haven't thought about, but I would say it's still early. I mean, at this moment, as I've been communicating, we're trying to, of course, make sure we improve our own financial flexibility. Then we can really talk about a greater portfolio reconstitution investment options, right, including the one that you have just said. Yes.

Okay. Sounds good. We look forward to you to close the NAV gap. That's the first one.

Thank you, Derek. Can I have [ Darren ], please?

Just a couple of questions. Can I ask what is the expected price to book for the listing of this C-REIT or price to NAV?

[ Darren ], thanks for that. Okay. So actually, again, it's not disclosed yet. But I think generally, if you look at the C-REIT market, right, they have been listed or traded close to book. And then, we're after listing because of the performance, particularly for consultancy REIT has basically been a slight premium to book.

I see. One more question is, what are the tax incentives like for C-REITs in general?

There isn't specific tax incentives, but I can ask You Hong to structure it maybe...

Yes. I think, there's a mature structure with actually public fund plus ABS that has been employed by almost all the REITs. I think, through that, there were some tax planning involved. But from a legal point of view, I don't think we are like the Singapore kind of a straight tax waiver kind of thing.

Yes, it's not like a tax incentive of stamp duty or lowering your corporate tax rate. The ABS itself -- ABS structure itself offer some benefit, because some of the holdings and maybe the interest and the debt that is issued by ABS are available for interest debt reduction.

Thank you, [ Darren ]. Vijay?

Congrats on this announcement. I think, first a few questions from me. Firstly, I know that you have been looking at the structure, evaluating the structure for a while in terms of looking at listing an onshore REIT. Has there anything changed in terms of China government policies or things that has made it possible to list the REIT at this point of time? And considering that there are host of approvals you need to get from the government to list the REIT in China and since you have made an announcement, can we say that more or less the announcements have -- you have secured that announcement and more or less the REIT is going to list approximately in 6 to 12 months at this point of time?

Thanks, Vijay. Okay. So I think, there is no big change in the direction of the China government. I think, they want to grow the C-REIT concept. I'll You Hong, maybe...

If I may? Yes, I think, the C-REIT market is actually quite new. It's been there for about 3 to 4 years. And it started with more of infrastructure-linked assets. And then, at the beginning, retail was actually not a REITable asset class. Somewhere I think about 2 years ago -- 3 years ago, they actually expanded the scope and admitted this so-called consumption infrastructure, which basically refers to the mall and other type of places where people shop. So I think, that's where this asset class become available for REIT. And then, we will -- I mean, like our sponsor is probably the first international one that do this. That probably is the trajectory in terms of the timing of -- or rather perhaps I can also share a little bit that the approval process is actually -- there were a few steps. We have actually gone to a stage where we are now at the level of the CSRC and Shanghai Stock Exchange, where it's equivalent of MAF and SGF, and the same set of review regulatory approval is actually quite typical in the capital markets that you've seen. So I think, we have cleared some of the earlier works of other agencies, governments to actually comply and be able to now submit this publicly.

But what You Hong has shared is that, CSRC and SSE may be familiar -- in a way, familiar processes for our analysts here, because they are like the MAS and stock exchange. But the work before this, right, there's also NDRC that we had to basically move through in terms of the approvals, which is something that is not really like Singapore, and that is actually a large part of the work, if you ask me. So we have cleared like a large part of the work now is really to getting the listing document station completed and approved.

Got it. So the regulatory hurdles have been cleared, it's just a paperwork that is pending and there is certainty, this REIT would...

We still need approval from CSRC and SSE, right, which is why we submit the application and then they have to review the application. But rest assured that actually, we have been communicating -- actually, the whole ecosystem has been communicating with China authority, including CSRC for a very lengthy amount of time. And I would say that all indications and interactions have been very positive of the CRI Group, including us, starting this as a hiccup.

Got it. That's very clear. I mean, since you have got the structure in place, I mean, why not go for a bigger REIT? You have just REIT'd out one of your second smallest asset into the new portfolio. You also have a cooling off period of 1 year before you can inject more assets into it. Obviously, there is a trading discount between onshore REIT and offshore REIT. Why not choose 2, 3 assets or a few assets and put it in a China REIT in a way that could unlock value from CLCT shareholders?

I was sharing earlier there's a size limit for the current market, right? So there is indeed a sweet spot to this. I think, we are -- the amount that we are targeting, right, between us and CLI, CLD, SKY+, plus Yuhuating is sort of in the sweet spot. Anything larger, it's difficult for the regulators to sort of approve and the market to look at and digest. They have been used to smaller REITs. We've very focused a few assets, maybe 1 to 3 assets in a bundle so that they can be clearer about what they are buying. That has been the market development and market culture of the C-REIT currently, which is why you cannot do suddenly a 15-asset bundle is too much for a new market.

So there's a cap on the size of the REIT that can be listed at this point of time?

There is an implicit market mechanism. I mean, I think, the regulators would look to having something out there that's simpler for people to digest.

Got it. My last question, is there any restrictions on the sales proceeds you generate out of this REIT? I mean, I know that the China puts a restriction in terms of if you divest an asset into REIT, you need to take back the capital and plow back into some of the domestic market assets or something. Is there some sort of restrictions in here?

But for CLCT, effectively no, but I'll let You Hong explain.

Yes. I think, the China regulations do actually have certain reinvestment obligations that requires the sponsor or the originators to undertake. But I think this is the part of the structure that we actually are working with our sponsor together and to make sure that we do actually are able to utilize the proceeds. But I think more details will be shared in the later stage where our circulars are ready.

Got it. Sorry, just if I may check, what is the likely timeline for this deal?

By our sharing, the listing of the C-REIT should be completed by this year.

Thank you, Vijay. We have the last person that has the raised hand, which is Terence. Anybody else, if you have any questions, please feel free to bring it up.

This is Terence from UBS. Just a question on the strategic rationale, again. Gerry, you mentioned unit buybacks as uses of capital this time around. But how likely is it for CLCT to do reinvestments into China down the road? Given CLI's goal of China for China and clearly, CLCR will have a more advantageous valuation as compared. So I guess, thinking like in the longer term, is it more likely that CLCR will grow and potentially CLCT may shrink over time? I just want to check if that's a fair characterization of the landscape we see?

Okay. First of all, I think I would say that, if you look at the press release, right, clearly, both CLCT and CLCR, right, we are part of CLI's ecosystem, meaning that CLI will want both [indiscernible] right? So the difference for CLCT, of course, we are a conduit for foreign investors, right? CLCR is mainly actually all domestic focused, right? We basically are trying to diversify our asset classes, right? So we have retail logistics business parks now. We will not rule out going into other asset classes, which will be more -- hopefully, will be more resilient, right? We are looking for more resilient asset class to grow into, right? So I think it's not the right characterization to say that, only CLCR will be growing and CLCT will not be growing. What we see currently is that through this participation of originators, we have ability to create a new recycling channel, right? And that helps us to bring back some capital from mature assets. And then, with this capital, we can continue to do our popular reconstitution, hopefully to introduce more new assets, and they have to be China assets. Of course, for us, China is actually Greater China, right? We can do Mainland China, Hong Kong, Macau, that's in our mandate, right? So I think, there's still sufficient avenue for growth for both CLCT and CLCR. The market is pretty big, right? We're talking about whole of China, whole of Hong Kong, whole of Macau for -- as far as CLCT is concerned, right? So of course, there are some short-term challenges like we have to -- like I think, Gerry and I were talking about it, we have to close the NAV gap. So this is part of the work that we are doing right now, demonstrating value, unlocking some value, right? And as we have more capital and we have opportunity, of course, we want to invest more.

And if you could help us recap if past instances of the consumption C-REIT listings have led to any cap rate compression for the CLCT retail assets? Because I remember that the infra C-REIT listing in 2022 was kind of like a price discovery event for CLCT. I think, it was a business park logistics asset.

Sorry, we cannot really hear you.

Post IPO...

You mentioned something about the cap rate compression post...

I can try to repeat. Are you able to hear me now?

Yes.

Yes. It is better.

Yes. So if you can help us recap if the past instances of consumption C-REIT listings have already led to some degree of cap rate compression for the CLCT retail assets? Because I think for the infra C-REITs listings in 2022, that had led to some valuation increases, I think, for either the business parks or logistics side.

For that, I think we have not observed that. The consumption C-REIT was actually first -- the first batch was actually last year only. And then, we have to look at the Tier 1, Tier 2 and see the cap rate difference as well as, I think, broader -- because to begin with, retail was probably a more liquid market than the BP, which I think at that point in time was very, very limited in terms of liquidity. So there is some difference there, but I think we will see.

Yes. I think, I'll add on to that. I mean, there's only so far, I think consumption C-REIT has been listed, right?

Less than that.

Yes. So probably the market effect of expecting the actual cap rates perhaps will take time to flow through that.

Okay. I guess the point being this listing is not that much of a price discovery event for the retail asset class.

It depends on whether you look at it from a short view or the long view. You're putting it in a very definitive answer, but we have to look at things at a short view or long view. I mean, it will mirror maybe what the S-REIT market has or many of the REIT markets that have gone through, right? But the market develops this is our main transaction site, surely, we will have some influence. But the question is whether you become the main transaction site.

Thank you, Terence. [ Rachel ]?

Yes, I do have a quick question. Does CLCT have a limit of how much you can hold in CLCR under your S-REIT rules?

I think, generally speaking, there is some breakdown of real estate -- income-producing real estate versus other type of authorized investments. This is basically MAS for all the REITs. So if the CLCR is for this purpose, actually under the authorized investments. Yes, so there is a limit. But the limit we have to refer back to the MAS as well as the total deposit property of the CLCT. But the exact number we have to look back. But I think if I recall, it's 15%.

Okay. Thank you, [ Rachel ]. [indiscernible], please?

Congratulations on this announcement. I have three questions. Two are very, very straightforward. I mean, and the third one is maybe perhaps a little bit -- needs a little bit more fresh. So what is the restriction in terms of size in terms of the RMB? Is it what you have, CNY 2 billion or is there -- is it larger than that? That's one question. And does CLCR need to own 100% of the asset? Those are the two straightforward questions. And then what's the structure of the REIT? Is it going to be like our S-REIT external manager model? I mean, are you -- does CLCR own a stake in the manager as well as a stake in the REIT? So if you could on that. And what is -- what -- I mean, does the C-REIT have an external model? Or does it -- can you have an internal model? I mean, what is the -- I mean, I have no idea about the C-REIT market.

Okay. I'll take the first two, then I'll let You Hong take the last one. Okay. First, restriction of size, as I shared earlier, I mean, if you look at the C-REIT they have gone [indiscernible] consumption C-REIT, we're talking about 1 to 3 assets typically. And the size, therefore, that we have seen are not large. That's of sharing -- that's -- you say, You Hong, between 2 to 3?

Yes. I think it's not the number of assets...

It's all one. We are the only one so far that's going at 2.

So as I said, it's 10:1 simpler bundle of assets for people to digest, right? In terms of the C-REIT itself, yes, you have to take 100% of the asset. The C-REIT you have to take 100% of the assets. We cannot take partial. That's what's regulated for the C-REIT. As far as the manager structure, I think generally, you can characterize it as externally managed structure, but I'll let You Hong maybe just introduce a little bit more.

Yes. So the -- all the C-REITs are actually managed by so-called public licensed REIT manager, which I think acting as a fund manager. So this is, I think, in our way of categorizing it's externally managed, yes. But I think the CL, CapitaLand, currently is not able to have the license. So actually, it's a third-party public fund they actually do the -- acting as a fund manager. So external fund manager. It's a external fund manager.

It's a external fund manager.

And then CLI's continued role is, they are managing the property...

Sponsor as well as the asset manager. Yes.

I'm sorry, CLI's role will be the sponsor and the property manager, is it?

Asset manager.

The fund manager is the asset manager usually in...

Asset manager, you see the slides here, they predominantly do -- what in the terms of the C-REIT perspective is these are guys who operate property manage -- so they manage the asset, right, versus maybe what maybe we certainly as asset manager as a fund manager, right?

Yes, yes. So the fund manager, is that an unrelated party? I thought CapitaLand had a license for like their equivalent of like a CMS license.

Not a public vehicle.

I mean, maybe this is not -- I mean, you should ask this the CLI. Does CLI plan to apply for something that this sort of this fund management license?

This question could be for CLI. So we can't really give more details than we know right now.

Okay. So the fees -- okay, so in terms of the fees, what happens? Does it go to CLI or does it go to this external fund manager or does it go to both?

There will be fees to the fund manager, and there will also be the property management or management fee to the operations manager, asset manager to the CLI, yes. So there will be different fee agreements governing that.

So in Singapore, you can set your own fee structure within certain limits. But what happens in China then? Does the fund manager get a certain set like fee? Is it the same for all these consumption REITs? And for the property manager, is it more like the Singapore way, I mean you can set a certain fee depending on the -- within certain limits? I'm just -- yes, because I follow the fee structure, so I'm just wondering what...

I would say that it actually follows the local or China capital market norms. And then, we are not the first one that actually -- or rather CLI is not the first one actually sponsoring a REIT, because there are other REITs in the -- so it will be benchmarked against that. But it's actually -- it could be different from how the Singapore market actually charge. So there will be some difference. But I think the details of which will then be on the China side of the disclosure to the regulators.

And this will be -- will it be in the circular?

You mean the structure of the...

I think it depends. I think, it's going to be publicly available in the China market when -- actually during that regulation approval. For us, the relevant information will then be presented to our unitholders in the circular, yes.

Okay. Got it. Okay. So that CLCT unitholders will only be looking at the fees based on the 20% -- the amount -- the percentage of the 20% that you own, right?

Yes.

Not 20%, it depends on the stake. You're talking about -- sorry, you're talking about...

Yes. Your stake in that 20%.

That's right. That's right.

Okay. I think, that's all for now. But lots of questions on this thing because you've got so many other assets in China. You've got Hong Kong, Minhang, those big malls, but only portions of them. So -- but that will be all for another time.

Can I pass the time to [ Kai Ye ], please?

I just have just a quick check. Given that it's an onshore-only structure, is there any regulation restricting C-REIT proceeds from being allowed to be repatriated out of China?

As I mentioned, there are regulations around the IPO proceeds in relation to reinvestment obligations. But I think we will work with our sponsor as to how to make sure that we can utilize the proceeds and the more details will be shared later stage at the circular level.

Yes. But rest assured, our intention is to bring back the cash because we wanted it for -- the big reason is we want it for our own financial flexibility.

Okay. Can I -- yes, [ Rachel ]?

Sorry, just one very quick one as well. In this table, CLCT has a ROFR to the pipeline of assets under CLI, is that right? But the CLCR will have a ROFR or C-REIT don't really have a ROFR?

C-REIT do not have a ROFR. Only CLCT have a historical ROFR on certain vehicles in CRI.

Okay. Okay. And moving forward, CLCR will not have any ROFRs as well?

Yes, there is no ROFR. I mean, it doesn't start with a ROFR.

Do we have any last questions coming through? Okay, if that's the case, thank you, everybody, for joining us today. Thank you, Gerry. Please feel free to reach out to me if you have any further questions. Thank you, and have a good day. Thank you. Thank you, everyone.

Thank you.