CapitaLand China Trust (AU8U) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to CapitaLand China Trust 2Q 2025 Results Call. I'm Nicole, IR for CLCT. I have with me today, Gerry, CEO; and Joanne, CFO. Thank you all for joining us today. So we'll start off with a brief presentation followed by a Q&A session. Once the presentation concludes, we'll open the floor to questions. [Operator Instructions]. I would like to hand over the time to Gerry. Gerry, please.

Thank you, Nicole. Before I share more about first half results, I'd like to update everybody on the happy news that we have received unitholders' approval yesterday for the proposed participation in the new C-REIT CLCR. There was strong support at the AGM, we had 99.5% approval rate, which demonstrated that unitholders recognize strategic value of CLCT participating in this platform. Currently, we have 18 properties across 12 cities, 9 retail malls, 5 business parks and 4 logistics parks. Assuming we transact Yuhuating through the C-REIT, we will have 8 retail malls. In terms of asset allocation, retail continues to be our largest, currently at 71% gross rental income followed by BP about 26%, logistics is about 3%. Retail, of course, is resilient, have consistently been above 90% occupancy. BP and logistics, they are aligned with China's new growth priorities, but they have been weaker in this cycle. After the Yuhuating divestment, retail in terms of GRI will come down slightly just below 70% GRI. In terms of AUM though, retail will be up -- will fall from 76% to 75%. So still, we are very much predominant in retail. In terms of our trading yield, just to update, we benefited from positive unit price movement last quarter. So we are now trading at about 6.6% trading on trailing 12-month DPU basis, versus first Q where we were at 8%, right? So at 6.6%, we are about -- still about 4% spread over government bond yields. First half results, I'd say that overall business conditions have been soft, while among the 3 sectors, retail had relative resilience, logistics occupancy stabilized amidst rent resets and our business parks trend of weaker demand continues. Retail has been affected by the continued repositioning at our weakest mall, Xinnan, general weaker overall reversions and occupancy. The supermarket upgrading, that we are doing for 3 of our malls also affected our income by about CNY 8 million this half, but that would -- the completion of those supermarket upgrading, those AEIs that would start to contribute to us by year-end. For business park, that suffered the most in first half with lower occupancies in Hangzhou and Xinnan, affected for Hangzhou Phase II, we were affected by a pretermination of a service office tenant, which took up about 20% of the NLA of Hangzhou Phase II. And for AIT as well, as we also continue to backfill the vacancy created by a large tenant relocation a year ago. So first Q 2025 for BP was the lowest point in terms of occupancy. It was 83.7%, but we have since bounced back at the end of first half to about 86.9%. For Logistics, generally improved as we had improved occupancy in Kunshan and the Wu logistics portfolio versus a year ago. So under those conditions, our overall portfolio, first half gross revenue dropped by 6.3% year-on-year and NPI dropped by 8.1% year-on-year, excluding the Hangzhou Phase II service office tenant effect and the supermarket upgrading that we're doing. Gross revenue dropped by 5% year-on-year, NPL would have dropped also 5% year-on-year. Also the note, excluding those impact -- that one-off impact that I spoke about, the service office and the supermarket upgrading, first half 2025 NPI would have been comparable to the second half 2024. In terms of DPU. DPU for first half 2025 is SGD 2.49. We have retained the distribution -- distributable income attributed by Yuhuating for second Q due to the intending C-REIT IPO, excluding the effect, first half 2025 DPU would have been SGD 2.59, which is close to second half 2024 DPU of SGD 2.64 right? So if you look at the role of -- period-to-period, you could tell that our DPU in terms of the downward trend from first half 2024 to second half 2024 and then now first half 2025. Key milestones for first half, I've already mentioned, we have obtained unitholders' approval for our proposed participation in CLCR. The other thing that we've been working hard on is capital management. In April, we have announced the successful issuance of CNY 600 million CNH bond and that had accretive of 2.8%. We are continuing to work on reducing our cost of debt. In terms of our average cost of debt, we have cut -- in first half, we have cut it by 9 basis points. Joanne will cover that in more detail later. In terms of our percentage of RMB debt denomination, we are now at 41% at the first half, but we are doing more work on it. In fact, we are in advanced negotiation with banks, refinance some of our SGD denominated loans with RMB debt, and therefore, we are quite confident that we will be on track to reach this 50% target that we have set for this year. And potentially, we could outperform that target. Finally, we have also improved in terms of our sustainability targets, where we obtained LEED Gold for the R&D blocks of Ascendas Xinsu portfolio. And in terms of our green certification, we have improved on it. Now we are at about 68% versus in December we were 60%. And we've also increased our sustainability loans to 51%. Our retail operational data continue to show resilience. Retail sales trends have been growing, right? If you look at first half, shopper traffic grew by 1%. If you look at our tenant sales, it grew by 0.1%. You will know that we are doing some supermarket upgrading, which caused the closure of 3 supermarkets across our malls. So if you strip that effect out, we would have actually tenant sales we have actually grew 2.5%, right, 2.5%. One of the key things in the first half was, of course, May Day holidays, there has been a strong factor. During the month, sales actually grew 5%, right? So there has been a bright spot in terms of sales growth across the mall. In terms of key trade cat, our popular trade has been growing -- has continued to lead the growth of our tenant sales. If you look at F&B, which is a big portion of our trade mix now at 39%, right, that continues to grow at plus 4.3%, as we also continue to grow our F&B trade mix. And the other category is IT, right? Strong growth plus 17.8%. That, of course, has boost from consumption vouchers that continue to pay a factor in increasing Chinese consumer buying of gadgets, appliances. Toys & Hobbies grew at a very, very high rate of 46%. Again, very much catching on to the Pop Mart's strong momentum, and that's indicative of a rising -- continued rising popularity of collectibles toy market. Finally, Jewellery & Watches that is plus 18%. Sales increased predominantly from established brands in Beijing, right? Again, the popularity of investment gold continued to be strong among Chinese consumers. In terms of occupancy cost, we are at a healthy level of 17.7%. If you look back in history that really show that we are actually below historical levels, below pre-COVID-19 levels. For retail, I mentioned that we have been relatively resilient. Having said that there has been a slight drop in terms of overall occupancy. In first quarter, we were 97.7%. Now we are 96.9%, right? Some of these occupancy points loss are transitionary vacancies, but we expect to fill them in the next quarter. For example, Xizhimen and Grand Canyon Mall, we have already signed leases in July and the occupancy was close to 99% if we include those replacement tenants that we have signed in July. Xinnan continues to reposition. The team will be working hard to push our occupancy, which is now below 90% back to 90% by first Q and 4Q this year. In terms of the reversion is slightly wider negative reversion, so that's currently the reversion focus is minus 2.7%. That's driven by some of the actions that are happening in the portfolio, including there was mini-anchor repositioning at Rock Square, right? So basically, we are bringing a strong anchor to improve the overall circulation as well as draw at that area that we are bringing the anchor, right? There has been also a trade mix shift for our high rental vehicle tenants. Some of the EV tenants are consolidating, right? So because they usually pay a very high rent, so we would have to replace them with other tenants. And also rental support for F&B tenants during the B1 renovation in CapitaMall Wangjing. Business parks -- although the business park sector has been challenging, we managed to bounce back from the first Q lows of 83.7% to 86.9% with more competitive pricing on rents. As a result, rental reversion is at minus 8%. This is compared to end of last year, which were about minus 4.5%. So that certainly -- we certainly had to offer more competitive pricing in order to push up the occupancy. But there are some silver linings in BP, for example, Xinsu improved its occupancy, attracting a lot -- major U.S. tooling and engineering tenant, right? So there's MNC. And in Hangzhou II where we lost the large service office tenant, what we have done is we have worked hard to backfill that space. The space was about 20% of Hangzhou Phase II, so we have -- in Q1, we backfilled it to 45% in the first half of this year, right? We have already backfilled to 72%, but with some positive rental reversions, right? So that's something that we continue to work harder to see whether we can backfill the remaining as soon as possible. We continue to do better or on par as compared to our competitors in our BP sub-markets. If you look at the submarket occupancies as a whole, they have generally declined, but our own portfolios BP occupancy have generally improved [indiscernible]. Logistics was also an improvement in occupancy. Shanghai Fengxian has started to collect rentals in July after tenant renovation is completed. Chengdu has also improved occupancy from last quarter. We did do an early renewal of our anchor tenant in Wuhan, and that one lease contributed to the negative reversion that you see here on the slide of minus 24.7%. Overall, our portfolio occupancy across the 3 asset segments, right, has actually improved in first half to 91.6% from first Q, which was about 90%. So here, just to recap, our distribution for first half is SGD 2.49. Next, I will pass it over to Joanne to talk a little bit about our capital management efforts.

Good morning. Okay. If you look at this slide, technically for Gearing, we maintained our gearing at about 42%. I think despite the volatility in terms of the RMB fee where we saw weakening against Sing dollar. We still maintain our gearing about 42%, largely because of our effort to try to bring back more cash from China via the usual route that we usually do, which is through the distributor dividend payment. So with that, that actually helps to maintain our gearing. Cost of debt, I think, I think Gerry touched on it a little bit, I think we managed to save some interest and cost of debt has hence actually reduced by close to 10 basis points, largely coming from a few fronts. I think those efforts that we have done in terms of the RMB issuances and that one has actually come to fruition. We see that saving and also at same time, the LPR has also dropped. And also because of that [indiscernible] other factors that results the cost of debt to lower. ICR remains currently at 2.9x, average term to maturity is 3.6 years. I think as required by MAS, we also have a table that shows the sensitivity with regards to any movement in terms of the interest rates as well as the EBITDA. I think this ICR remains healthy at above the 1.8x set by MAS. Another little information with regards to the sensitivity on the FX movement on gearing, so every 1% impact to gearing is about 0.31%. In terms of debt maturity profile, I think 2025 we are all done. There's nothing that needs to be refinanced for 2025. In 2026, in fact 2027, in fact, we are talking to the banks to actually help us refinance this Sing dollar against RMB. I think the whole strategy is to actually pivot more to RMB debt to have a more natural hedging so that's what we are doing. We said I think we should be able to cover the 50% of our debt in RMB at the end this year. I think we remain diversified. We have introduced more form and shape of RMB denominated debt. So in the past, we've done FTZ and RMB. I think we are on the track to keep on looking at other ways and forms to actually issue RMB equivalent kind of debt. In terms of fixed and floating, we are about 87% fixed and floating 13%. I think that covers all the capital management related stuff. I'll pass on back to Gerry.

Thanks Joanne. So looking forward, happy to announce that there are some good news on the AEI, but we are still working on the 3 supermarkets AEIs to optimize our portfolio and enhance value for our unitholders. So in CapitaMall Xuefu, we launched the B.U.T Supermarket, they have opened in June, right? This is 6,600 square meters supermarket, smaller than the previous one. But if you look at the sales efficiency, it has been phenomenal. It has achieved 7x of the sales per square meter in the first month of opening than the previous supermarket. Hopefully, this momentum continue because it's a very good signs for CapitaMall Xuefu. B.U.T of course, is a very strong local operator, right, they offer quality products and attractive prices, and that's one of the reasons why we have gotten them in to basically anchor the space. In addition to the supermarket, our animation, comics and games themed street that is opening alongside this B.U.T upgrading, but will open in Q 2025. And we already have actually 100% of the space leased out, right? So we have, in fact, achieved a 13% total rental increase for this space already. Shopper traffic wise, in the first month, we have seen 30% increase in shopper traffic for the mall in total. Tenant sales also have increased 33%, and I also spoke about the 7x sales per square meter for the supermarket. For Wangjing, we continue to make good progress in terms of this AEI for the area that we are carving out to do the new retail supermarket concept, 7Fresh as well as the 17 popular retail and F&B units, right? You already see 78% of NLA sign, but with another 9% that we are under advanced negotiations, but AEI only complete in fourth Q, so we are making very good progress in terms of signing out leases. ROI expected for this AEI area is about 10%. In terms of BP and logistics, also happy to share Hangzhou Phase II, we introduced renowned Guochao which means a local brand, plush toy brand. This brand [indiscernible] the reason why we highlighted it right? It is a brand that is very much going viral in China. And they are known as brand that is trying to -- trying to take on Jellycat, right? So for them to now locate what would be the HQ in our Hangzhou Phase II is a sign of the attractiveness of our business parks versus our competitors, right? They will be putting both their office as well as their open public showroom, right, in our premises, right? And we are very excited about it. This is one of the examples that I very often talk about where CapitaLand itself has multiple ways of engaging with our tenants. They could be -- they are now using our business parks as well as using the dedicated showroom to allow their supporters to interact with them. We are also offering to them pop-up opportunity and markup opportunities in our malls to further grow their brand. And in time to come when the physical retail outlet plans are ready, they could also come and open retail units or retail stores in our malls. The other thing to share is that for Shanghai Fengxian, spoke earlier, the renovation or upgrading of the property has been completed by our anchor tenant, which is Shanghai Yunfeng, which is the top 3PL port logistics service provider, and they have done the renovation, They are put in CapEx. And now they are open for business, and we will start to collect rents in July. Finally, a recap of our strategy, which really no change. We are looking to build a balanced multi-asset portfolio to leverage on China's continued focus on consumption and innovation, right? In terms of creating value, we have spoken about the C-REIT, right, to be a key stakeholder in CLCR and broaden our access to China domestic capital market. We have taken the first step now by having the -- obtaining the EGM approval, we're going to unlock value through recycling CapitaMall Yuhuating. If we use all the proceeds to pay down debt, we will be able to improve our gearing by 120 basis points. We want to extract more value from our malls. You can see that from our activities in the 3 malls to upgrade the supermarket to drive some organic growth. Those are having good progress. And finally, we work hard at capital management, right, taking advantage of the lower interest rate environment in China right now and increasing our RMB debt so that our asset liability, currency matching is better, right? And finally, to close it off, in terms of business outlook, I would just like to share that trade tensions seems to have eased a little, right? Although the final deal between U.S. and China or what many refer to as grand bargain, right, is expected to take some time. So during this period, the uncertainty is holding back companies and the economy, right? Chinese regulators continue to look at ways to give stimulus. The latest have been -- in fact, the latest was just yesterday, we heard the latest news of direct cash handouts now to households with young children, right, in China to stimulate consumption, right? So the stock market in China is actually quite buoyant, right, supported by domestic liquidity and support from the Chinese government. So we hope and expect some wealth effect to filter through eventually. All these are good signs, but a lag is expected before the effects are felt more widely in the broader economy. With that, I end my presentation. Maybe I'll take some questions, Nicole, please.

Thank you Gerry for the presentation. So we do have a first question. Terence, can I pass the time over to you, please.

If I can ask a question on the finance side, much the finance cost outlook for 2025 or maybe second half of '25? And also, I want to ask on RMB. What's much the hedging level, and what proportion of income is hedged and what's the duration of the hedges? And maybe a second question for me, I wanted to ask, I'm not sure whether it was covered earlier, but I want to ask on the retention of the DPU? What should we expect there? How are you going to use the retained fund?

I'll take the first 2 questions. I think for the cost of debt, you can that for this quarter, we really saw in fact the improvement coming from the both CNH bonds that we have issued last year and also this year. I think for second half of this year, we expect cost of debt to hover around this level and with the initiatives that we talk about to get more banks to come in to actually lend us RMB or Sing dollar. I think that effect, we will see that more coming through next year. We expect another close to 10% -- 10 basis points as well for that. So that is the first question. And the other question is on the retention. So on the retention, I think because right now, in terms of the IPO, it has not launched yet. So in terms of the cutoff point, it's not clear. So until we are clear in terms of the cutoff, then we will know whether Yuhuating's contribution for 2Q sort of belongs to CLCT or belongs to CLCR. So in the event that it's clear that this Yuhuating's contribution does not belong to CLCT, then we will not do anything to the retention since that it is supposed to CLCR. And if for whatever event, the cutoff for the IPO is actually at a later time, then we will adjust the retention accordingly in next quarter.

In a way, I mean the SGD 0.1 that we are gaining is a estimation of the cutoff point, so that's why we're retaining it.

Sorry. So if the cut off -- I mean, if it belongs to CLCT, would you all look to distribute that.

Yes, yes, definitely.

Okay. If I may ask one more question on the reversions, especially for retail side, it seems to be weak. And you have mentioned that there were some specific tendencies. Could I get a sense of the outlook for retail reversions for the rest of the year?

Okay. I think the reversions, right, as you rightly point out, but first half, there were some specific tenants movements that affected the reversions. If you look ahead to the end of the year, we will likely expect or better than this level, but -- unfortunately, many of the movements was bunched up in the first half of this year.

And sorry, my earlier question on hedging. What's the RMB hedging for the income level?

Okay. In terms of hedging, I think we have always mentioned that our policy is to hedge at least 50% of the distributable income. And as of June, I think we had high level being close to 90%. And in terms of the duration, I think because this is really to hedge, the underlying cash flow income distribution. So technically, we don't hedge more than 1 year. I hope that answers.

Is it possible to share the hedging at what rate that is hedged?

I mean I think for the 30th of June month, definitely, those hedges are in the money.

Geraldine, can I have pass the time to you, please.

I just wanted to check on DPU for second half. Should we expect it to be a similar level of first half because of some debt [indiscernible] to reduce cost intercurrent levels?

Thanks, Geraldine. As we don't really give forecasts, but if you look at the slide that I showed regarding the role of period-to-period DPU, right? We can see a sort of trend, I would say. The fourth quarter -- I mean in the second half, I think the few good signs that we are seeing is for those one-off things that were in our portfolio are starting to be sort of resolved, right? Our AEIs will all start to contribute in the fourth Q. And our business parks, right, some of the one-off like, for example, the Hangzhou Phase II service tenant, we have ramped up the leasing and we will continue to ramp up the leasing, right? So I would expect the momentum to continue to be there.

One more on the C-REIT participation. I think you got more detail from your announcement about 107 is the expected amount you'll get back post the participation, I think we got more details from your announcement. About CNY 107 million is the expected amount you'll get back post the participation, right?

That is based on the floor price of CNY 748 million. That is a floor price only.

Okay. So if the actual check in line -- in accordance to time line, when will you actually get back the proceeds? Will it be this year or next year.

This will be definitely this year.

Any priorities for this CNY 107 million plus I see that you also have perpetuals upcoming to expire in October, would that be something you want to redeem?

I think the -- we are trying to keep the capital structure as solid as possible. That's one thing. In terms of our use of proceeds for Yuhuating, right, I've shared with our investors as well that, of course, the first thing that we are looking at is to reduce gearing, right? And if we do have a very positive result from the IPO proceeds, we have more financial flexibility to do other things with it, including unit buybacks, including if we need to catch up a little bit of the income due to the loss of Yuhuating's DI.

In terms of reversions, minus 3% for retail was actually a number that saw the AEI uplift from your previous competition, right, including Xuefu?

Actually, in terms of first half reversions, only the supermarket leases -- 2 supermarket leases were inside that Xuefu and Xizhimen, if I may recall correctly. But you would note that what's missing, which we have not put in or because they have not been completed is the whole AEI at Wangjing, right, which is in renovation and leasing mode, right, as well as the animation and comics area outside Xuefu, which we are still signing up some of the units. So some of those would not have been totally captured yet at a cutoff date.

Okay. So if we look at same-store basis without all this AEI, would it be a more negative number or...

It will more or less the same as last year. Last year, we were at just below -- just above minus 1. I think there's about the same traction.

Michael, over to you, please.

Just a very quick one. Is there any deals on the ground in China that you can share to see where cap rates are going and maybe an indication of where by year-end, maybe where cap rates will be trending?

Okay. At this moment, if you look at the valuation and what we learned from the ground and our valuers, the discount rates, cap rates have not really shifted that much since a year ago, I would say. So that's number one, that's the first point. Second point, I'm not -- I mean a lot of people know that even the newspaper articles in Singapore have wrote about it, the C-REIT market has been very buoyant, right? And the cap rate post IPO and at IPO has surprised many observers, but actually, it's not a surprising given that there are not many new products they are safe in China for insurance money and the retail investors to invest in and yields are very low in China, right? So I would think that in the second half of the year, as more of these transactions of injection in the C-REITs are completed at good prices, right, at a strong participation, right? There may be some spillover in terms of what valuers can look at in terms of data points for the valuation parameters. But this is -- to be honest, at this moment, speculation, I'm just looking at the trend for first half and it continues surely, the valuers in the industry would have to consider that as a strong supporting point.

My second question is on your occupancy cost, which remains very comfortable, I mean, well below COVID levels. But the reversion seems to -- does not seem to fully reflect that. Is there anything on the ground that has structurally changed a lot since COVID?

I think that, that phenomenon, we have spoken about since last year, and I think a lot of people know that the Chinese economy is uncertain, right? So consumer spending has been sort of stuck at a low level, right, low level. Even if you're talking about F&B, the average ticket size per [indiscernible] have sort of been stuck at a lower level than pre-COVID, right? So certainly, consumption spending has been affected. And that also weighs on our tenant when they renew leases, that's holding back in terms of being able to negotiate for stronger rental reversions, right? So you can -- you see that our occupancy rates continue to be quite high. What that means is the tenants are surviving, right? They are not as some people may imagine closing [indiscernible], in fact, they are surviving. Some of them are doing well, right? But they do feel very bullish to be able to say pay higher and higher rents or expand very extensively, right? Because it's just the moat and the uncertainty in the economy right now is weighing on it.

And then just drilling down in your trade sectors, it seems that discretionary spending is doing quite well. Do you expect this to sustain? And then what's the other trade sectors? How are they doing?

I would say that it is not a factor of whether discretionary is doing well or not. The Chinese consumer behavior has shifted for quite a while now, right? They favor experiential traits and traits that provide them some meaning in an affordable manner, right? So does that mean that experiential would be F&B, right? Because you need to come together, socialize, right? IT, in China, they are very tech savvy. It brings meaning to them. They need to chase to buy the newest technology, right? And then they can share with the friends what they have purchased, right? And toys and hobbies, right? that's affordable luxury for them. Certainly, they are no longer chasing luxury groups, right? But things like Pop Mart give them some excitement in their life. They can collect those items, post it on the social media, right? So those are the things that we've been seeing continued strength. Jewelry, of course, you could say is discretionary. But really, as I said, it's driven by the fact that because the economy -- the whole situation is globally is uncertain and people want some certainty and gold is something that offers a safe haven characteristics. And that's why we have seen gold -- investment in gold-related products, grow quarter-to-quarter this year now. In terms of other discretionary [indiscernible] that may not do that well, you can see that fashion continues to have single-digit drop, right, as well as some of our shoe and deck categories, right? So it's not all discretionary trade that is doing well. It has to be quite focused on the trends that Chinese consumer are going towards today.

[indiscernible].

Thank you for the presentation. I'm just wondering whether you could share or give more color in terms of your outlook for rental reversions for the new economy assets in the second half of this year, please?

Second half of this year, I think BP will likely be at these levels, right, either high single digits, maybe touching the 10s, right? So we explained what we are doing right now is to drive occupancy, you want to make sure that space is perishable, right? So we want to make sure we fill it up the space as much as possible. And that may come with some sacrifices in terms of rents, right? For logistics, I mean, we did the early renewal of that 1 tenant, right? That number that we stick around for a while, but we don't see many of those big tenant renewals happening again.

Just a follow-up question in terms of the retail reversions. I think previously you shared that this is likely to remain around current levels for the second half of the year. So just wonder whether this implies that you are still more concerned in terms of stabilizing occupancy versus that trade-off in terms of rental growth?

This is for retail, right?

For retail.

It's probably flat or better because there's a lot of -- I mean, the first half, unfortunately, had many of these repositioning happening in the first half, right? Second half, we have more good news to share when as our AEI completed, you can already see very good progress. So that will start to feed into the reversion numbers.

Is there any other further questions that we have from the floor.

This is Terence again from JPMorgan. Could I ask on potential divestments outside of the C-REIT, you have discussed that divestments of some of the logistics properties. Is that still the potential targets?

Yes. We are looking -- we are looking constantly at portfolio reconstitution options, right? But we also have to be cognizant of the fact that the market is weak, right? So we certainly don't want to sell into too weak market. And we continue to observe the market, including what other people are injecting into logistics C-REITs for their assets. And that serves a good data point for us, and we are studying it, and we are seeing whether at those prices in those locations, whether there are buyers who are interested.

Okay. And outside of the C-REIT, for some of the smaller retail malls, is that increasing interest?

I would say the -- if I look at the transactions today, the ones that make more pricing sense have been in the C-REIT sector. The private deals have been few and far between, especially for some of the Tier 2 cities, right? The fact is when the liquidity is lower, the Tier 2 cities actually are more difficult trade, right? So in the C-REIT market, at least we have demonstrated that -- or about to demonstrate that we can trade some of those Tier 2 assets by securitizing it into C-REITs. So I still feel that for our retail assets, at least at this moment in time, the C-REIT option is the best one, if you want to divest anything.

And would you only look to divest to CLCR? I mean given that there are probably some timing -- like it will probably take some time before you can do the next divestment into CLCR, assuming that is successfully listed. Would you look to sell to other C-REITs too.

Other C-REITs, is it?

Yes, other C-REITs beyond CLCR?

Okay. First of all, I mean, we can sell to anybody. We can sell to C-REIT. The C-REIT, we can sell to third-party buyers if there are any, right? But I've explained the reason why -- where we see pricing and liquidities at this moment, right? In terms of selling to C-REIT that are not within the CapitaLand Group. At this moment, my assessment is that the charge is probably quite low. If you look at how the C-REIT industry is evolving right now, right, the most of the C-REITs that have been set up has been sponsor backed, right? And the assets all came from the sponsors and the injection -- the asset -- the next asset injection, the follow-on injection has also been from the sponsor. And that, I think, is clearly by design, right? The regulator, NDRC takes a keen interest of each asset injection, right, and actually asks a lot of questions with regards to each asset that goes into each REIT. right? You can understand that for that reason alone, if you're trying to buy a third-party asset and trying to get it injected into a C-REIT and with a regulatory vetting process that is as rigorous, I would say, as NDRC, right? It's not really something that most seller would appreciate. It could take some time, yes, especially when you don't have all data.

Can I pass the time to [indiscernible].

I'm just back on the C-REIT question that Terence asked. The pricing is better within the C-REIT, why would the sponsor offer the property to you instead of CLCR? I mean that for the other malls that the CapitaLand Group have that you have the right of first refusal to? That's the first question.

I answer the question first?

Yes. Yes.

So as I said before, I mean, we still have the right of first refusal, right, that covers about CBY 18 billion of retail-related assets, right? The sponsor itself have SGD 18 billion of just purely retail-related assets, right? And I think that also does not include the [indiscernible] city portfolio, which is about another 100 billion -- CNY 120 billion plus of assets. And this is just from the sponsor. So the pie is extremely large, right, just to start off, first of all, right? Second, there is a sizing difference at this moment. I mean, when CLCR gets started, the size is just -- I think it will be just below CNY 3 billion. right? In comparison now, we are SGD 4.7 billion. So that's about CNY 22 billion -- CNY 23 billion, right? So some of those assets that the sponsor have will be pretty big significant, right, probably not something that CLCR can take on at this stage, right? We also have to go through its own capital raising, its own approval process and also need, of course, the shareholders to approve as well, right? Thirdly, right, also related to size, right, CLCT, that us, we are more flexible, right? We can take part stake. We can also take two stakes. CLCR, the C-REIT can only take 100% stake, right? So if there's a large asset, but a good large asset at a good price point, right, we are flexible enough to take some of that asset progressively, right? Whereas for CLCR, they don't have the option at this point in time, it's really quite binary, right? And I've mentioned a little bit about the rigorous process that in terms of asset injection, the NDRC and the other Chinese regulators are involved with. We can tell from our own example, we took about 2 years to do this -- set up this C-REIT. So the vetting and the timing is also an issue in terms of injection into the C-REIT. After leasing, for example, again, there's additional of 1-year moratorium before next asset injection can take place, right? So there are multiple factors. And then in terms of asset itself, they are looking at -- the C-REIT is looking at more income -- income-producing assets, whereas CLCT can do a little bit more of value-add opportunity where we can see some improvements being made and we can buy asset that needs a little bit of AEI or some reconfiguration, that certainly is more flexible on CLCT's part. So I would say that both REITs would have their own focus, would have their own speed to market, if you would. And CLCT have some of those advantage, right? But of course, CLCR have their advantage as well.

The second question is more on Hangzhou Phase II. Could you say that you -- the new tenant that is backfilling the 20% space that was vacated, would you say that the rents are higher than the existing rent?

Yes. So the service tenant -- service office tenant in Hangzhou Phase II, they're preterminated taking about 20% of that Phase II NLA, right? They were -- we treated them as anchor tenant at that time, so that they had a slightly lower rent. So because now where we took over the space and we are letting to smaller tenants, right, we are able to push up the rents, both whatever that this original big tenant was staying.

How much did you mention the amount above the old rent?

I didn't mention it, but it's a double-digit reversion, yes.

And do they start paying this year, do they?

Yes, they start paying this year, yes. But there's some lag there because some -- as we sign them up, we have to give them some fit-out, some of them, maybe some rent free.

Okay. Was there any chance of putting the business parks in a C-REITs. Is there?

Well, in the current market, there's already business parks C-REIT, so that factor point is there are business parks C-REIT in the market. And if you're talking about CapitaLand's plan, we are focused on making sure our retail C-REIT launch well, right? And then we will review plans to see whether they want to do other type of C-REIT.

Just one last thing on the C-REIT. Is there a minimum size?

There is not a minimum size -- in size of the...

Asset size.

Assets, okay. In my recollection, there's no minimum size, but most of the C-REIT when they go out in the market, they have been about -- now have been about CNY 3 billion, CNY 4 billion, sort of...

Geraldine?

So just extending to Gula's question, if, say, CapitaLand do come up with another C-REIT position and new economy assets, would that be something that you want to participate in? Because also mindful of your [ 40, 30, 30, 30 ] long-term target as well and divestments has mainly been in the retail space for you.

I think, number one, maybe I address asset allocation. At this point, although we are increasing our financial flexibility, I don't think it will shift our asset allocation by too much. We discussed with our investors and our board, we want to make sure that we have a relative resilience in our portfolio, right? So that's one thing to note. The second thing is we also participate. Of course, that's speculative, but you can imagine that sponsor definitely would put us in that discussion since we have worked well together, right? And certainly, we are part of the whole CapitaLand Group. If we serve our unitholders well to be able to monetize at a good price, certainly, we are joining.

Okay. I understand, Gerry. And back to the retail C-REIT, I understand that [indiscernible] look at to future injection into the new retail C-REIT?

Sorry, Geraldine, you sort of broke off in the middle part of the question. Could you repeat that?

Yes. So Gerry, I think 1 year post IPO, C-REIT can acquire again a retail asset. What would you expeculate them to be a requirement for asset injection on the C-REIT fund? Because there's no minimum size, et cetera, and probably accretion is going to be much easier for them?

You asked me to speculate what kind of assets will go mix into?

Yes, yes. Could they [indiscernible] from CRCT essentially, is there any that could fit their view?

I think CLCT, CLI and CLD are now joint strategic investors because we will be the biggest shareholders in that C-REIT. So all 3 of us look at our own strategic plan and see we have anything to offer to the C-REIT if we want to, right? So it's a little bit difficult to speculate what does mix that will go into the C-REIT. But from our perspective, the same principles that why we selected Yuhuating will still apply. We want to select the asset that we believe we have basically extracting true value from, right? And when we sell that -- when we sell that -- when we sell the asset, we must have a good use of proceeds for the money that's coming back.

Over to you, [indiscernible].

Just wanted to double check. I think you kind of answered this just now, but I just want to check. In terms of your plans for injection of assets to C-REIT, for example, so if you divest, for example, the kind of future outlook would most likely be that you divest towards a REIT rather than, say, a private deal for divestment with other private investors because you expect that you can get better values -- better values of divestment for an asset. And in that [indiscernible], when you divest, you expect this minimum pricing to be met, right, at the very least?

First, I did say that at this moment, it looks like the C-REIT market offers better value for the retail asset. But of course, market needs to move the cycle, right? So at this moment, I can say that it's because I see evidence of values being stronger there. So that's one. Two, you're asking about...

So I think at the end of day, for us, when we divest, we will always look to the party that can offer us the best pricing in the interest of CLCT. So yes, if CLCR at this point, as Gerry mentioned, offers the better price, we will look to divest into the C-REIT, but right now, I mean, we are also definitely open to talking to other third parties if the deal works in the best interest of us.

So what's the second question?

The second question is about the minimum pricing. Are you confident on that?

Okay, okay. Well, actually, I mean, first of all, the floor price set is based on the 2 independent valuations. So we are actually following MAS regulations, right? And we cannot sell lower than the lower valuation, which is CNY 748 million, right? If you ask me whether we feel confident when we go to the market after the IPO price, I would say I feel pretty good, given that the market has been pretty buoyant.

Okay. So just to follow on the first one, then -- the sense then is that retail investors and sponsors of C-REITs are more optimistic about the general Chinese per fee cost industry where than, say, more private investor base that might buy asset off [indiscernible] example, right? Is that the indication that you guys are getting from the market so far?

I think I was surmised to say that the way that to the Chinese authorities credit that they have made the C-REIT product in a way transparent and easy to understand for the investors in the China market, right? And of course, I said they -- you could say almost that they're overregulated, but they put their stem on it and really vet each asset that's going into each C-REIT, almost like a stem of endorsement gives the Chinese investors a lot of confidence right, when a C-REIT is listed. So in an environment when people are looking for yield and they're looking for safe use that someone that scrapped and safe, right, the multiple layers of safety that's sort of being offered through a C-REIT product, right, does appeal to many domestic investors, right? So if you look at the consumption C-REIT, they are trading right now is about 4% or below 4% for some of them, for the stronger ones, right? That is still better than the insurance player who needs to meet their cost of funds of 2% to 3%, right? The options are in the past to invest in government bonds, which have fell from, I think, 3% plus to now below 2%, right? So it's below the cost of funds, right? And for the retail investors to put their money in fixed deposits, that's 1%, right? So certainly, that whole yield trading environment make this safe -- perceived safe product to be very popular among the Chinese investors. So I would say that's helping it, right.

Can we turn over the time to Michael, please?

Michael from UBS. Just a quick one. I wanted to just get some clarification on the comment you made on the business park space. So you mentioned that Hangzhou Phase II, you're getting double-digit rental reversions for that. If I look at your business part reversions for the first half, that's minus 8%. If we move Hangzhou Phase II, what would the number be?

I don't have an exact calculation of it, but you will know it's probably higher. It's probably between 8% to 9% negative. You must remember the replacement tenant that we are having just 30% of Hangzhou Phase II. I mean the total portfolio is much larger than that.

So you've -- the minus 8% is basically dragged down by a lot of other renewals that you're doing.

That's right. So we exclude the -- I think exclude Hangzhou Phase II itself, as I said, probably about minus 8% to 9%, you'll creep up in terms of negative.

Thank you, Michael, for your questions. Since we have already passed the 10 o'clock mark, we will conclude the session for today. Just feel free to reach out to me if you have any questions. So thank you all, and have a good day. Thank you.