CapitaLand Integrated Commercial Trust (C38U) Earnings Call Transcript & Summary

Okay. Good afternoon all. My name is Derek from DBS. So welcome to CapitaLand Group Virtual Corporate Day. So we have planned [indiscernible] conference call, so we have various management teams touching on the various aspects of CapitaLand's vast property business. So in the first section today, the focus is on CapitaLand Group. So COVID-19 has brought economies to a standstill, but property developers like CapitaLand has responded nimbly, and we still continue to see change in the face of a new normal post the COVID world. So joining us today is Mr. Andrew Lim, Group CFO; and also Jonathan Yap, President of CapitaLand Financial. So Andrew will start with a overview of the first half 2020 results and also a few highlights of what to expect for the second half of 2020. Thereafter, we'll move on to Q&A. So before we start, can I request that everyone on the call, please place yourself on mute. And without further ado, I'll pass on to Andrew, who will start the presentation. Andrew, please.

Thanks very much, Derek, and good afternoon, and sawatdee khap to our investors who are joining us from Bangkok and elsewhere in Thailand. We're, unfortunately, unable to be with you physically this year, something which we aim to do every year. But to all investors and shareholders dialing in, it's great to see everyone online. Apologies for the slightly delayed start. I think what Jon and I will do for the next 45 minutes or so is we will start off with a quick recap of our first half results. And I'll spend a bit of time sharing with you our view of the group, where it sits from an operational standpoint. And the other half is obviously how we are pivoting the business in a strategic way for future growth. So there are 2 elements that I'd like to address in today's presentation. So perhaps I will use some of the slides that we used for the first half. And if we can get some of those slides up, I'll quickly run through some of them just to give you a sense of where the group is. Okay. So this is the first slide, I'd like to just walk through, again touching on that first aspect of the group, which was operational resilience. And when you think about CapitaLand, I hope that you see us as a diversified group that delivers a good portion of our income in a stable and recurring way. And that is something that we continue to strive to do. And obviously, COVID-19 has affected all businesses, including CapitaLand. But what I'd like to leave with you, particularly with this slide, is that by virtue of the fact that we are diversified business across geographies as well as asset classes, it gives us a better ability to remain operationally resilient through COVID-19. And if you look at this slide, on the top half of the slide, you first see how we are diversified from an AUM perspective across our geographies: emerging and developed markets as well as our 4 core markets of Singapore, China, Vietnam and India; and then on the top right-hand side by asset class. And here is, again, where we believe that the combination with the Ascendas last year was, quite honestly, something we couldn't have timed better. And you see that diversification really coming to the full when you look at the bottom half of the slide and how the business park, industrial and logistics segment has certainly contributed to providing that operational resilience when we look at the spread of operating EBIT across our 5 asset classes. On the right-hand side, you see no surprise, where 2 of the sectors, which have been most challenged by COVID-19, retail and lodging, we saw operational deterioration in our EBIT. However, on the other 3 asset classes where we are very active in: our residential business; our commercial workspace business; and again, most notably, our new business part, industrial and logistics business, substantial contributions not only from new asset classes, but an improvement in operating EBIT from the existing asset classes that we had. On the right of the slide, we've also shown you how fund management, an area which Jon looks after and a key growth pillar for CapitaLand Group, has also delivered healthy growth in operating EBIT. This EBIT is embedded in the asset classes depending on which fund sits in which asset class. But we thought it was important and useful to highlight to you that fund management, which many of you will know is a key growth area for us, is registering healthy operating resilient EBIT through the COVID-19 crisis. So if you were to take one thing away from this slide, please do take away the fact that I think our diversification and our status as Asia's perhaps most diversified real estate company gives us operational resilience going into the worst of the pandemic, which we hope has already passed with the second quarter, but allowing us to remain cash flow positive. We generated $300 million in net operating cash flow for the first half. And giving us this resilience and confidence to navigate through both on a fiscal level in our balance sheet and so on and so forth. So let's take away number one. Here on overview of the actual financials, as we have previously guided, you see on the top side, no surprise on the P&L, where the challenges from COVID-19 were felt. Revenue slightly down; EBIT, down by 71%; and PATMI down by almost 90%. Now obviously, the PATMI buckets comprise different areas, and I'll spend a little bit of time explaining the contributions to PATMI. But let's look at the bottom half of that -- of this chart, and you can see again the resilience that we have striven to ensure exists within the business. First of all, again, as I mentioned, operating cash flow, positive $300 million, giving you that operational resilience through what we hope is the worst of the crisis. We have been very disciplined in pulling in unnecessary costs. And we've achieved to date $150 million or so in total cost savings both in direct cost as well as indirect cost. And last, but not least, and I'll touch a little bit on this when I get to the strategic part of it, is to ensure that the balance sheet remains strong so that we have the ability to take advantage of interesting situations as they emerge in the next 6 to 12 months. Back to profit, and you can see again the composition of profit. When you look on the left-hand side at the operating PATMI, here is where I believe, again, the operational resilience comes to the full, where the operating PATMI drop was fairly modest. Where we felt most of the profit impact was in portfolio gains and also in our revaluations of some of our investment properties. Now portfolio gains, as you know, is a function of our ability to recycle capital and recycle that capital at a value that is above our fair value. What I think many of you understand is that in the first half of the year, our ability to recycle capital, along with many of our peers, essentially ground to a halt, where the ability to bring willing buyers and willing sellers together was severely impeded. And as a result, we were able to recycle just under $400 million in gross value terms. If you contrast this to the same period last year, I think we were doing more than $3.5 billion already by the first half of the year. So that gives you an indication that the market for us to recycle capital was just not there in the first half of the year. And as a result, you can see the ensuing drop-off in portfolio gains, where we dropped down to a very modest $9 million in measured in portfolio gains. And this has, again, impact, as you can see, on our profit for the first half. In terms of revaluations, this again is very much a function of the market as CapitaLand consolidates all but 2 of our REITs. 2 of the REITs that undertook valuations, namely CMT and CCT, registered modest investment property impairments for their portfolios. And we took our proportional share of these impairments. And that also contributed to the drop in PATMI of about 90% for the year. So again, I think it's important to, of course, register that PATMI was severely impacted. But when you drill down into the buckets that made up the loss of PATMI, we hope that you can have a better appreciation of the sources of why PATMI was so severely impacted. Right-side noncash share of impairments; and on the left-hand side, a relatively modest share of -- sorry, a drop in operating PATMI, signifying again that operational resilience that we have built into the business and the group. Okay. So I think I will stop there in terms of the operational side, again, leaving with you the resilience that we have built into the group. What I'd like to do if you can take the slides away is to just focus on the second half of the year. And perhaps now is a time where I can touch a little bit about our continuing desire to pivot the group strategically. For those of you who joined us at Strategy Day last year in November, I mean, you will know very well that we are continuing to achieve better balance across our geographies and across our sectors. We mentioned that we want to continue to grow our presence in new economy that began so well with the combination with Ascendas. And we believe that there is much more that we can do on that part of -- that asset class. Similarly, we also acknowledge that we were a bit heavy on retail, close to 40% of our AUM. And generally, EBITDA comes from retail. And we believe that there were pockets within our retail portfolio that were essentially noncore to us. And therefore, we -- in achieving better balance, we'll look to harvest these noncore retail assets in various geographies and deploying that capital to growing new economy. So this process, unfortunately, I think, got way late in the first half of the year, because there's this inability to recycle capital. Now that we are in the second half of the year and we're starting to see economies open and we see activities start to pick up again, we are cautiously optimistic that, that ability to recycle capital will come back. And that is why we have maintained our target of $3 billion gross value in recycling -- as a recycling target. So much will depend on the second half and what it allows us to do. We have a short list of portfolios, opportunities that we believe we will be able to execute for the second half of the year. So do stay tuned. And if we're able to do that well, then we are confident, again, cautiously optimistic we will hit our $3 billion gross value target, and hopefully in the process, deliver not only good capital portfolio gains, but also importantly, give us that recycling of capital that allows us to continue our strategic pivot into new economy and other areas that we believe are interesting. That is the articulated strategic story that should not be a surprise to most of you. The other aspect of it, I suppose, is COVID related. And in a direct sense, a crisis usually throws up interesting opportunities. And I go back to the fact that we have $14 billion in consolidated cash as well as undrawn facilities. This allows us not only to ensure that the lights stay on across the group, but it gives us substantial dry powder to take advantage of countercyclical opportunities as they may emerge in the next 12 to 18 months. And this is, I suppose, a new opportunity set that emerges out of COVID. And I would submit that not all companies have the same capacity nor the appetite to be able to take advantage of situations as they may emerge. So for those of you who are wondering about what to expect from CL in the next 6 to 12 months, I will conclude my remarks by saying: number one, operational resilience remains paramount and remains something we are absolutely committed towards. From the first slide that I showed you, I would hope that you would see that operational resilience thus indeed exist and is prevalent throughout the group. Secondly, as we think about the strategic pivot that we have articulated, we are in position to continue that pivot. Again, very much depends on what the second half allows us to do. But we have a subset of opportunities that we think we are able to execute on, which will enable us to hit our targets, hopefully giving us portfolio gain, driving ROE or helping contribute to ROE. But more importantly, if anything, allowing us to recycle that capital and seek out interesting opportunities that may emerge. Lastly, there are interesting opportunities that we see on the horizon. Sometimes, it is helpful to be patient to allow for these opportunities to develop further before we are confident enough that we should be pulling the trigger. So we maintain a very watchful eye on such opportunities. And the key takeaway for you is that we have the capacity and the appetite to undertake such opportunities as they may come. My last remark is that when I go back to the operational resilience and how we are further looking to build in the resilience in our operating businesses, that is what the subsequent segments are all about, where you will hear from our retail team talk about future-proofing the retail portfolio with omnichannel platforms, digitalization. You will then hear from the workspace team, our office, downtown office as well as our business parks and industrial teams on how we are thinking about workspaces as a complete holistic solution and a platform to our tenants who are adjusting the downtown versus their decentralized office needs. And then finally, you'll hear from our lodging team, where we believe that our segment, where we play in, the long-stay hospitality segment is particularly well suited for a post-COVID hospitality operating platform. These 3, please stay tuned, because here, you will hear about how we are future-proofing and building additional resilience in the current operating model so that we are well placed to deliver continued recurring income and growth in cash flow coming out of COVID-19. So perhaps I will stop there, and Jon and I are here to take your questions as you raise them in real time. Thank you very much.

Great. Thank you, Andrew, for the presentation. So for investors, feel free to post your for questions in the chat function, as usual, and I will read them out to you once it comes out. So probably, I'll start with the first question. Maybe to Andrew and John, your thoughts on how you think the real estate landscape has changed with the rise of e-commerce share the common ship of supply chains and so on. So how the group would like to position themselves in the future? We talk a little bit about new economy sectors. So -- but what about your existing exposure? So any thoughts on that?

Derek, you're a little bit intermittent. Can I just confirm, your question is how are we dealing with the challenge of our business like retail and offices as opposed to what we normally call as new economy? Was that the question, Derek?

Yes, it is.

Yes. Since I've half heard your question -- yes. Yes, for those that dialed in for our results announcement, you would have heard Chris Chong, our MD for the Retail business, presenting his online and offline strategy. That's exactly our answer, I guess, in view of e-commerce. And I guess every market is a little bit different. I think Singapore, particularly, I would say that is a very small country. So therefore, I guess, some of the benefits, so to speak, about e-commerce, may either be less apparent or maybe apparent in a different manner in Singapore. So I would say, to some extent, perhaps because of a circuit breaker, some of this need to not come out kind of brought us out with e-commerce. And for a long time, I guess, most retail landlords would tell you that some of e-commerce have never been quite the same like what we saw in other markets. And the way we look at it is moving forward as the consumer changes, because they're more and more tech savvy, as our lifestyles change, we expect both online and offline to come in, in a very meaningful manner. There are certain users, you can't do online, for example, a service is haircut; another, ladies going to the nail salon. All this, obviously, you have to get done physically. But at the same time, there are things that could be done online to make our life a little bit more efficient, like preorder our things, pick it up while in the mall or kids are in tuition centers. So there are many options where, I guess, online and offline can co-exist. And of course, in certain markets, I say China, clearly, where the e-commerce penetration is a bit higher. And perhaps, in fact, with e-commerce, the extended hours of retailing no longer tied to the conventional hours of, say, 10 to 11 in the morning to say 8 to 9 p.m. in the evening. You have midnight shopping sales, so to speak. So in a way kind of like prolonged hours of where we can interact with our consumer. And that also help our tenants in a way stretch their influence to their end consumers to. So I do think there are many opportunities on that front. On the office and, I guess, work from home is the topic, we talk about what's the future of the office, would everybody work from home. But we do know that certain things are very efficiently done from home. It takes away the need to commute. But at the same time, there are also certain things that can't be done, say, entirely from home, for instance, where it involves team collaboration, when -- everybody coming together to discuss and stuff. And a business like ours, which is real estate, it's going to be sometimes very hard to discuss about, say, for instance, design of spaces entirely working from home, because you can imagine the composition to go really [ real light ]. Do you see the spot in the top right-hand corner of the screen, what is the angle there, things like that, I guess, you need to come together. But -- and like any other companies, our tenants too, you want to build a very strong team. So building team culture, getting people together is something, obviously, a bit harder to do online. I think that's where, I guess, you need to come together. Again, I do think there's a good balance between working from home as well working from office. I think that's where our portfolio of assets straight up across various parts of Singapore and in other countries, various parts of those countries give our tenants the option of either they can be in CBD or they can even be in suburban location and coexist with us. And we can then give them a total solution, whether they want to be in [indiscernible] part of the country. And obviously, I think moving forward, that there's so much focus on hygiene, so much focus on how to make sure the office environment is safe for the end users, I think that's where our experience as a property manager would come in very handy too. I hope that addressed the question, Derek.

Okay. I'll move on to the next question that I received. So I think it's about core capital allocation. I think, Andrew, you mentioned just now about new economy sectors. I think previously, you just shared about developed and also developing markets exposure. I'm just wondering, going into the next 2 years, could you give investors a sense what will be more interesting? Is it more in Asia Pacific more in the developed world?

This is a very tricky one, Derek. As you know, we have so many unknowns at this point in time, right? We have the impact on businesses as a result of the pandemic. But then you also have a huge geopolitical situation emerging. And that has, in and of itself, tremendous implications as to whether you need different systems to apply to different geographies or sectors or political areas. So I would say that in the absence of clarity, the -- again, this -- my notion of diversification is important. And I would say, perhaps a little bit by design, but also a little bit by accident, when you -- when we step out looking at the group, and we said that 50 emerging, 50 developed. And out of the developed, we've got 20% allocated to, say, non-Singapore. To me, if you ask me whether that requires to be materially adjusted now, I would say no. I think we are of the view that until we have a definitive sense of something that requires us to pivot or change that strategy further. Then if we have a diversified approach to capital allocation in areas that we are comfortable investing in, right? So we talked a bit about ex-Singapore developed markets being much more operating in nature, where we don't have substantial presence, we don't have local development expertise, then let's limit that to areas which are relatively safe and we can manage it in the right way. So recurring income, operating assets, interesting sectors like multifamily, light logistics and so on and so forth, things that we can deliver cash flow relatively quickly and scale up without a lot of incubation time. I think these are areas which we can continue to comfortably invest in whilst keeping an eye on the overall picture and not getting too overweight in any area or any sector, just in case we have a situation geopolitically or from the pandemic side of things or some other influence that has yet to emerge that throws out more complexity for us. And then for our core markets, which we've shared as well, where we have the virtue of being on the ground, 20-plus years, we have a full team. We have the full development suite. We have the full product lineup in our core markets. Here, again, gives us the confidence that we've been there. We have local relationships. We have track record. And we can continue again to safely invest, even going up the supply chain, right, going up the development, residential products and so on and so forth. So the confidence levels are equally high in both our developed markets as well as our emerging markets, but for different reasons and for different products. And again -- this is, again, I would say, where a sustainable competitive advantage set in. And not everyone can accrue or acquire this expertise or skill set overnight. We may not get it 100% right, but I would say that over the long run, this ability to harness our DNA and our expertise and our track record through a carefully considered capital allocation, I think, will see us deliver sustainable returns to our shareholders. I think if anyone tells you that they have good visibility of what's going to happen in the next 12 to 18 months, I would treat that, honestly, with a great deal of skepticism or I would get this person, lock them away and use them exclusively for CapitaLand's all needs. But in all seriousness, when you talk to everyone on the Street, I mean, it is just a case of being as attuned as you can to what is happening in a very fluid way and being ready to respond and adapt and be agile as quickly as we can with capital, with our people, with our approach to investing and what we invest in. So I think that's where we have to force ourselves to be nimble.

Okay. And the next question that I've received on the chat group is on your financials, if you don't mind sharing. I think first half numbers were impacted by rental rebates in the retail space. Could you give us a sense how is second half 2020 looking like and any potential further assistance that you foresee providing to your tenants across our various markets?

Okay. Very quickly, if I cycle through. Let's start with Singapore. Singapore is well-documented. We have 2 months of rebates coming from landlord, 2 months of rebates coming from government. The landlord rebates were effectively used, except for -- effectively used as of today, because we did it in July as well, but that will not show up until the second half. So from a rebate standpoint, we are pretty much done in terms of mandated rebates. Now it shifts to the deferrals, which have also been put into law by the Temporary Measures Act. That is very much on -- first of all, you have to qualify. And secondly, you have to apply for it. We are still in very early days, because we are in August, which is the first month that typically you would expect tenants to apply. And the current level of applications remains actually quite low. But I would say that this is early days still. I think we want to see -- our malls are all open. 90% of our tenants are open for business. So it remains to be seen whether or not the ability to apply for -- the desire to apply for deferrals and your success rate in getting deferrals is -- remains to be seen. If you're open for business and you're generating 60%, 70% of your pre-COVID revenues, quite frankly, you're not going to get your application for deferral approved. So I would say that we're very much waiting to see how this plays out in terms of Singapore rental rebates with -- and deferrals in retail. China, also you will know, China is even further hit, right? We are effectively 100% open other than a few trades in China. And volumes, occupancies and tenant sales are between 60% to 80%, 85%, depending on city, depending on trade and depending on mall. So trajectories are positive. They're heading in the right direction. Relief is very much on a case-by-case basis. So certain trades, if you're a preschool enrichment classes, cinemas, I think these are well-documented cases of trades that have been particularly hard hit. These areas, we will certainly look to assist our tenants if it is needed. But there's no mandated requirement to help. So it is, again, going back to being a good partner to our tenants, being a responsible landlord and for businesses that we believe add to the mall experience, add to the value of the mall, add to the ecosystem and we can help, we will certainly look to help them through the crisis. I think those are our 2 key retail markets. Any -- were there any other sectors or...

Yes. So the key question was on retail. So thank you for that.

I suspect so, yes, okay.

Okay. Yes. Moving on to the next question. I think the question comes about recycling. I think it is something that came out in your earlier part of your presentation. I think where the unique part is that CapitaLand has got vehicles for recycling. I'm not sure whether you can give a sense, but you talk about $3 billion. So where can we expect the assets that you're looking to sell to either retail fund?

Yes. Maybe I'll jump in just to give Andrew a bit of break, so he can take a sip of water. Clearly, I think from CapitaLand perspective as well as from the funds that we manage, where the assets match the mandate of the fund, it only makes sense that we recycle. In fact, we offered them to the REIT that we manage. It makes absolute sense, I guess, from all stakeholders' perspective. But having said that, I think being an active and responsible investor, there will be some assets that perhaps we don't even believe where, see, we -- I meant both capital and as well as the relevant REIT or fund that we don't believe that necessarily are assets that we want to hold for the longer term, our assets which maybe make a little more sense for us to divest in the market. So those cases, obviously, when it happens, we obviously will do so. But to answer your question -- to answer whoever's question directly, where it makes sense of this -- the first preference will be for CapitaLand to sell the assets to the REIT, to our REIT dweller.

The follow-up question I got on the recycling of potential assets would be in Japan. I think previously, you have fairly sizable Japan exposure in both retail and commercial. Any thoughts on that at this moment in time in terms of potential recycling for this year?

I guess, for us, we indeed have a portfolio of retail and office assets in Japan. At this point in time, we have -- we were still holding on our balance sheet. And clearly, I don't think we have a particular REIT where the primary focus is Japan as of now. But with that said, I don't think that is -- given that it will not change, and at the same time, we do have ambition to grow our private fund side of things. So there are possibilities that at the right time, given the right pricing and right opportunity, we may well divest that into private funds that we create. But with that said, as I mentioned earlier, maybe there are some assets that perhaps we felt that should best unlock in terms of value by selling to the markets. So it's going to be a function of what is our ambition for the country and vision for the sector and whether or not we believe they're going to add substantial value and we're able to differentiate ourselves in the marketplace to basically run those assets for the longer term. So I would say it isn't really definitely not a one-size-fit-all in terms of the different sectors across in Japan.

All right. Okay. I think the next question that I received, it's on the multifamily platform. So is this something that we would expect the group to be looking to divest within the near term? Or you believe that it is something that will take a bit of more digesting on the balance sheet?

I'll answer a bit and welcome Andrew to add on. Clearly, when we acquired multifamily portfolio in U.S., we actually acquired with the intention to add value. And that suggests that we need to do some physical work and to bring the value out from -- up from where they are right now. So those value enhancement work is in progress. So I guess it's a little bit too early for us to talk about that divestment as of now. We have to complete the value enhancement process. So I think thereafter, I think there are many options. People have asked us whether ART makes sense, it could be a potential. But as I said earlier, all things being equal, we prefer, obviously REITs that are managed by us so that effectively add to both the buy and selling entity. But at the same time, we have to actually look at those cases and to the commercial to see what makes most sense for all stakeholders.

Okay. So the next question that I received will be on data centers. I think the group has data centers on the balance sheet. And is this something that the group would like to add on in terms of its capability beyond Singapore, say, for example, India or other parts of the world?

Yes. I think we see that the DC sector is very interesting. Certainly, going by asset prices and cap rates, most of the Street seems to agree. With DCs, you are talking about a lot of different factors that come in. You have a high degree of regulatory considerations. You have an emerging debate around the ownership and transferability of data, which can be an asset or potentially a big headache depending on which way this goes. You have a huge question on sustainability and carbon footprint. DCs are perhaps the most power hungry and -- of all of the asset classes out there. So you have to solve or think about how you want to articulate, how that fits into your overall ESG framework, which is something that we are paying a lot of attention to going forward. So when you put all these things in, you can say that the fundamentals are very attractive because of the overwhelming growth in demand for data. But we believe that it's not as simple as that or rather capital-lens approach is not purely along those lines. It's slightly wider -- or actually, I would say, a wider set of considerations. And then as much as we agree with the basic fundamentals of demand for data, I think it will also be responsible for us to have a think about how this might fit into all of these other considerations that we talked about. So that type of analysis takes a bit of time. Again, we've got the balance sheet to go after growing our DC platform. I believe that, particularly in Singapore, we have good potential to grow our DC platform with our existing asset base. But again, Singapore is a very good case in point where the issues that I raised are certainly also being looked at, at the government level. So you sort of want to make sure the government's direction is clear before we decide one way or the other, whether we want to aggressively, for example, grow our DC business in Singapore. So I think it's not as straightforward as perhaps the numbers and asset prices, again, and cap rates would suggest. But it's certainly an asset class that we are interested in.

Yes. If I may add on to what Andrew just said, in Singapore, obviously, we have a very decent, I would say, [indiscernible] significant real -- DC real estate portfolio that is being held within a REIT. We have quite a few DC assets within a REIT. Now obviously, they're just real estate, they don't invest as much compared to, say, DC M&E, which some of our peers actually are investing. So that as a result, in terms of value, it might not have been as obvious as what we see compared to some of our peers. But nonetheless, if you put that aside, it's actually quite a significant [ DCRE ] that we have in our portfolio. And that actually gives us a very good position to begin with to look at some of the other assets we have within the group, whether it's in the REIT or within the larger group, whether or not some of these assets could potentially be converted to DC usage. But clearly, the points that Andrew mentioned are very relevant. We have to make sure that we do it in a manner that makes a lot of commercial sense. At the same time, it's in line with what the government says, what the environment is telling us. So I think those are important consideration. But having said that, we are ultimately a commercial investor/developer. So we will take all consideration onboard and see what makes most commercial sense in each of those decisions. But nonetheless, we do have a good platform to begin with.

The next question I had is on your lodging business and also margins. I think the group has done well in terms of maintaining profitability and positive cash flow in first half. Any sense on the second half? What is data rate going to be like? In a worst case scenario, what should we be expecting on the lodging business?

Okay. I'll take a stab at that. Similar to comments made with the rest of the business, I think if you talk to Kevin and Siew Kim, I'm sure you'll do that later, you will -- they will tell you that they are cautiously optimistic that I think the worst is behind us. If you look at most of our lodging markets, as a system, we are averaging above 50% occupancy globally. But the range is very different. In China, we were 60%, 70%, and the latest numbers are north of 70%. Again, good indications that, that market -- Chinese market is pretty much heading towards a normalization in operations. And then in Southeast Asia, that is also above 50% as a system, helped by measures that, as I mentioned earlier, the long-stay product lends itself towards. So if you are looking for a place to temporarily park yourself to carry out some work, if you are returning and you need to self-quarantine yourself, if the government needs urgent space to put people who they are -- who they need to isolate or quarantine, then the long-stay product is usually right at the top of that list. So again, this is an asset class within the lodging space that lends itself to a COVID type or post-COVID type environment. One other thing that is also very interesting that is emerging is staycations and intra-country travel, particularly in markets like China, like France and even potentially, I would dare say, Thailand, where your ability to travel is still unimpeded. And therefore, instead of taking your vacation overseas, you are going to be much more inclined to travel within that country. And again, you want to do so safely with your family or your friends. That is where, again, a long-stay product, more space, more breathing space between units, more amenities suited for families, we believe, is more resilient and therefore more suited for post-COVID operating environment. So we put all these factors in together, we are cautiously optimistic that the second half is going to be better than the first half. Will it be back to pre-COVID? I think right now, we would have to say, it's a bit premature to say that we are going to be right back there by the end of the year. So I would prefer to err on the side of caution to say that we are emerging from a very tough second quarter operating environment for our lodging business. The signs right now suggests that the second half will be better as markets open, as travel gradually reappears, both domestically and hopefully in some ratio or form on an international basis. Once that happens and also our hospitality businesses are pivoting and adapting to provide a safe living environment, whether it's through technology or a different type of operating model, fewer physical touch points and so on and so forth, then it gives us confidence that we will see a better second half. The other point I would like to make is if you look at the number of new units we signed up in the first half is very, very interesting and instructive for us. I think we signed close to 5,000 keys in the first half of the year. Many of these new owners that signed up with the Ascott group did so because they similarly believe in the long-stay product that we offer. And they switched over from a short-stay operator to our model, which is long-stay. So that tells you that asset owners also agree that in the post-COVID environment, our model is more resilient and gives them better protection as we figure out how travel and how people are going to stay safely away from home. So in answer to your question, Derek, cautiously optimistic second half will be better than first half.

So my -- for the time, I think we've come to the end of our first session today. Thank you, everybody, for dialing in. Thank you, Andrew and Jonathan, for your insights. So everybody, I ask to please join us for the next session starting at 3:00 p.m. Singapore time. Please disconnect from here and join us in the next virtual room on the future of retail. Thank you, everybody.

Hi. Good afternoon, everyone. Welcome to Session 2 of CapitaLand Group Virtual Corporate Day. We will be discussing the future of retail here. And the onset of the COVID-19 pandemic has caused one of the greatest structural shifts in what we understand retail to be. We take a look at how various malls within Singapore and the region had navigated themselves around the COVID-19 pandemic while maintaining a symbiotic relationship with tenants. E-commerce alongside consumers' ever-changing habits and preferences will open a new chapter for the retail sector post-COVID-19. So we are very fortunate to have a panel of 3 leading retail reps from the CapitaLand Group that will discuss with us on how retail changes is happening within Singapore, China and also Malaysia. So let me introduce Mr. Tony Tan, CEO of CMT; Mr. Tan Tze Wooi, CEO of CRCT; any Ms. Low Peck Chen, CEO of CMMT. All right. Before we start, just some housekeeping issues. [Operator Instructions] So for a start, we thought we would do something different. We will pitch back with one of the polling questions and we will post it online. And then we will share the results in the [indiscernible] questions. So can we have the first polling question. Okay. This is on how much you would shop in the mall and shop online. So please free to give us your answers. Right. So let's kick back with a question.

So the first question is what are the challenges and opportunities that have been brought about by COVID-19 to the retail real estate industry. We will start with Singapore with Tony; and then followed by China, Tze Wooi; and then lastly Peck Chen. Tony, over to you.

Yes. Thank you, Rachel. So obviously, the challenges, of course, posed by COVID has been manyfold. If you look at it, there will be short-term issue that we need to deal with. On a longer-term basis, obviously, we need to also address some of the other longer-term implications that potentially may surface post-COVID. Short term, naturally, we are trying to -- now that we are entering to the Phase -- we've entered the Phase II reopening of Singapore gradually, the immediate priority, obviously, is to ensure that, first of all, the safety and the health concern of our employee, our staff and the shoppers that come to the mall are well taken care of. So all these basic hygienic factors, I think, we have to take into consideration. Naturally, we have to incur a little bit more of OpEx just to get the fundamentals right in place. At the same time, we also -- while we experienced a gradual returning of the shoppers, also how to ensure that the malls are able to cap it in a natural vibrancy, looking at how we could able to create some vibes, at the same time, not overstepping boundary and creating a health care issue. So those are challenges that you take care of as well. And then of course, finally, when shoppers come to the mall, how are we able to try to optimize as much as possible, ensure that they will be spending freely in our mall so that our tenants will be able to have a meaningful business to be conducted. So some of the key challenges I think we are dealing in the short term. Obviously, in the longer term, we will have to think through how we want to position the respective property that we own, whether it's downtown or suburban and taking in consideration potentially some behavioral change. And these are the things that will take a little bit longer term to manifest. While in the short term, we may see some natural behavior, because people are a bit concerned about coming to the mall. They are working from home, telecommuting quite a fair bit. But longer term, how that will land, I think, will take some time to observe that. But naturally, I think within the portfolio, as I said, probably we're going to drill down a little bit more in detail and see how we could potentially want to make some changes. So we've got to plan now, because the execution of the plan will take perhaps 1 or 2 years or 3 years or more depending on the kind of changes that we may anticipate. Yes. Opportunity-wise, I would say -- I mean, at any kind of crisis, you see opportunity. And one of the clear things that we have seen is the pivoting of our retailer moving, especially towards the omnichannel and it's [indiscernible] aligned with our strategy as well. It's probably -- you may have followed the news that we have been -- we have launched -- in fact, CapitaLand will launch the 2 new platform, Capita3Eats and eCapitaMall, which is really a strategy both short term and long term. Short term is during this period of time when retailers are trying to optimize and maximize as much sales channel as possible. This virtual online channel obviously is another outlet for them to move into and hopefully through our platform. We're able to create a better ecosystem for our retailers as well. In the longer term, how that kind of a dynamic will play out, obviously, we will also be watching carefully as well. But we find that it's an opportunity for some of the retailer who has been a bit hesitant about coming onboard onto this omnichannel, which we think is a long-term phenomenon. During this COVID crisis, especially during the circuit breaker period, I think we -- a lot [indiscernible] but to really pivot towards the online channel. And the 2 platforms that we launched actually, together CapitaLand, I think has been very effective and very useful to get the talent onboard. And that means in the longer term, obviously, we look at the business more holistically. It's no longer just purely on the sales that we conducted on the shop front. But collectively, the total potential sales that a tenant can achieve by working together with us, I think we would probably have a longer runway. And that composition will shift over time, the percentage. Whether it's conducted online or offshore, I think, will shift over time. But during this period of time, we felt that it was quite timely that we actually had these 2 new platforms in play. And hence, I think we find that a lot of retailers are responding quite positively. Maybe I can pass on to Tze Wooi to talk a little bit of the China market?

Yes, sure. Yes, thanks, Tony. I think as you think about the challenges to our real estate sector and the retail especially, I think it's probably good to put a time scale to when this COVID-19 sort of like entered our live and how long COVID-19 would likely be around us. I mean, China is probably the first one to face COVID. I still remember in the early January. I think because COVID started as -- really as a health issue, so you see a series of health-related managers that really disrupted how we as human beings interact, how we carry out our routine, social activities, how we run our business activity. So all this had a bearing on the retail asset class right on the outset because of the lockdown, because of the social distancing measures. So our retailers, in general, are faced -- going through this kind of unprecedented phase of the business environment. So I think this is really taking quite a toll on them. I think no business model is built for that, your revenue and your business flows are able to [indiscernible] run without any people coming and spend. So I think that's probably the first challenge that we see at a very early stage of COVID and how they impacted our retailers and our asset class. Of course, it depends on how COVID remains in our live and how long this has a bearing on the general economy. I think this is also something that we are very mindful of watching how the economic uncertainty will be brought about, how long this process will take. And it has a little bit of weighing down on the consumers' confidence. And I think retail, we very much depend on the spending confidence. So I think while this outlook is a little bit more uncertain, we expect a little bit more cautious in how people would spend, how they will prioritize their spending in terms of where they allocate their money, where they spend their wallet share. So this will also will play a part in how our retailers themselves would review their own business model for ourselves. It will also impact on how we view, how we use our space and how we collaborate with them in the time forward. So I think these are probably the immediate and the medium-term challenges that I think, as landlord, we have to sit down together with our retailers. And I think one good thing arising from this COVID, I think the landlord and tenant relationships have come to a point where I think we tend to see each other as business partners collaborating in how to build a more lasting ecosystem such that together, we can grow the business, we can build a more resilient and sustainable business practices. So I think these are some of the opportunities that we see going forward. COVID also, in a way, forces, maybe not a good word, but make everyone think harder on how to be more flexible and how to innovate in our respective spheres. So I think we will then approach the business collaboration with a mindset that it's more open, more flexible, more willing to collaborate. So I think this is an area where I think as landlord, we are moving our business towards. The other area of opportunity I can think of is everyone is moving towards digital during this period where physical activities are being prohibited. So I think this is also an area that it accelerates the way how we review, how we operate our own business. I think there are many good digital means of running, operating our business. I think there are good practices that we can put into our traditional brick-and-mortar business. I think this is also somewhere we can improve on and build upon on cost efficiencies and also to make sure that going forward, our business can embrace all this digital ability. One way where we are already starting very actively, it's how we embrace digital outreach to connect with our shoppers during this period of time and how we can connect our retailers with our shoppers within our own platform, which I think Tony has also mentioned. So I think this is something that as very active landlords, we have to be very adaptive to how people have now changed their way of life. So we have to make sure that we are ahead of the curve to be able to connect with our people using new means of reach out. Especially the younger shoppers of today, they have grown up in a very different environment. They are very well versed in social medias using handphones, smartphones, video, TikTok. So all these are new ways of reaching out. And I think we have already embraced all of these and put into our marketing outreach to connect the wider audience so that we can grow the business together. Yes.

Thank you, Tze Wooi. Yes. Now Peck Chen, please go ahead.

Okay. Thanks, Tze Wooi. From Malaysia front, perhaps just in terms of challenges, we summarized it into 3 challenges from movement restriction or control or closure orders to operational challenges and also to economy uncertainties. So to give you a bit background of what happened in Malaysia at the beginning of the COVID-19 pandemic, on ground, concern actually started from February 2020 when Malaysia reported its first case of COVID-19 case. And thereafter, from March 18, 2020, the local government, Malaysian government announced movement control order, we call it MCO. And it's where -- it's essentially a lockdown where from 18 March all the way until 4th of May, most businesses were not allowed to resume or to reopen. After 4th of May and it's where we entered into a recovery movement control period, where more businesses were allowed to resume operations. And now in July, from [indiscernible] industry-wise, all businesses were actually allowed to resume. So at the early stage of movement control, we did see retailers -- some of the retailers, say, for a case of fashion retailers, they actually faced difficulty in terms of obtaining their stock, the latest stock. I mean, in that case, the supply chain was actually impacted, I mean, partly also attributed to the closure of international borders as well. Ever since then, given the recovery movement control period, now that we are in, the supply chain has since recovered. And of course, [indiscernible] certain malls in Malaysia that are reliant on inbound tourism were impacted, especially from footfall perspective, yes? Then moving on to operational challenges. Because in Malaysia, we have gone through various stages of movement control, so that has also caused a certain level of changes or refinement to the SOPs on ground, be it by the federal government or by the state governments. So hence, that -- so that then confused operators like us and also retailers. But at the end of the day, we have actually overcome together. Shoppers -- like shoppers and anywhere else, they are actually adjusting to new norm, where contact tracing, mask wearing, physical distancing have become part of the new shopping experience. Moving on to the economy part, economic uncertainties not only from the global economic uncertainty, but also the fear of or the concern over resurgence of COVID-19 cases locally as well. So retailers understandably -- yes, actually, business sentiment has turned more and more cautious. And we have seen that most retailers have actually suspended their expansion plans. And some retailers actually canceled new investments as well, which we could understand. I mean, that's a reasonable [indiscernible]. And what is peculiar in Malaysia as compared to Singapore and perhaps in China is that in Malaysia, the central bank has actually implemented a 6-month loan moratorium from April to September 2020 with objectives to help the SMEs to ride out the challenges during the COVID-19, the pandemic. And even now that we are actually entering into second half of August and that the moratorium will end in September 2020. And generally, the business sense on ground is that the real sustainability has for SME, and in this case, where retail industry, most of them, the players, actually SMEs will be put to test, and it will reach the base. And [indiscernible] there are more businesses will be sustainable or will not be sustainable in the coming quarter, i.e., the fourth quarter. Consumer sentiments-wise, Malaysia, remains to be seen. Despite -- for my portfolio, we did see encouraging recovery in terms of footfall and also gradual recovery in terms of sales. Opportunity-wise, I'd say maybe on 2 fronts. The first one is digital acceleration, same as what Tony mentioned and also [indiscernible], except that the degree may be different, because it's in the other part of the world, in a separate country. So I would say from 2 fronts, retailers and landlords in Malaysia, the Malaysian government are very proactive in terms of promoting e-wallets to the extent that the Malaysian government are actually giving out a 50 ringgit cash incentive for new users to download e-wallet app or even the contact tracing app as well. So with that as a backdrop, then I think we are not surprised that adoption mix will actually increase much faster as compared to pre-COVID-19 level. So for retailers, effective, I would say, in-store technologies will gradually bring more traction, and in this case, e-payment, e wallet, definitely, it will become more and more ubiquitous. And self-checkout in some of our supermarkets, we did see the implementation of self-checkout. Maybe moving forward, more self-ordering and pickup, we'll see about that. For SMB retailers, innovation of services, I would say, for example, how they need to juggle between install dining and vis-à-vis the delivery or even pickups. I think that is something that SMB retailers would definitely look into, to perfect their service level and to be competitive. From landlord, the shift of focus for marketing strategy, or we call it Marcom strategy would be more from shifting from online activities to more digital focus. And also, it may also provide opportunity for us to jointly collaborate with some of the e-commerce players through their online platform or even through TikTok or even talk about live streaming as what is happening in China. Then the other opportunity, I would say, is -- actually, it's also timely for us to build trust with our community or with our stakeholders, for example, shoppers community and as shoppers, the community itself as well as the tenants. The trust can be built through our emphasis on the high level of hygiene and also awareness policies. So in this case, will be part of -- we make it as a part of shopper experience and to provide them high level of comfort and sense of safety.

Okay. Thank you, Peck Chen. Yes. Our next question is on online shopping. I think all 3 of you have spoken about how adoption of online shopping has been accelerating, just -- and the importance of omnichannel. Maybe if you could give us more details on how are you rolling out your 2 virtual platforms? And secondly, how does this change your rental structure or lease structure to your tenants in the future? Maybe we could start with Tze Wooi with China leading the e-commerce.

Sure. I think you mentioned the live streaming. I think this is something that we have already embarked on. Okay. Touching on the e-commerce platform, as you have known, I think we are one of the major landlord that has spent quite a lot of time thinking of how to build a stronger ecosystem. And I think over the last, I would say, 5 years in China, we've actually built up quite a strong foundation and the building blocks for us to capture this entire retail platform. Our CapitaStar today already have more than 10 of a million of members from the COVID -- this period. What we have done is also to bring on board as many of our tenants into this online platform that they can come in and look at using the wider CapitaStar platforms, functionalities, membership, system and onboard most tenants over here and through our marketing programs and initiatives help our tenants during this period of very difficult time to outreach people, be able to outreach and generate incremental sales. So during this initial phase, where we are quite successful in onboarding, I think the last count, we would have already on-boarded almost 1,000 over tenants onto this platform. And in terms of the product SKUs, we have already brought in, I think, to the magnitude of like 70,000 over SKUs. So during this period where the malls are facing physical restrictions where people cannot come to your physical space to shop, this online outreach enables them to continue to have a mind share and wallet share tapping of that catchment of people. And what we have observed anecdotally is over and above that typical catchment that our malls' tenants would be able to service typically that 3-kilometer to 5-kilometer radius. What we saw on the e-commerce platform is such that it enables them to outreach new customer base that are not from this typical 3- to 5-kilometer radius. So I think it's a good start. I think we are trying to encourage more tenants to come on board and using our wider CapitaStar membership outreach, be able to help them market and generate new mind share and capture new customer base and incrementally develop new potential to generate extra sales. How we look at this lease structure is looking at more like an extension of the physical agreement that we already have with them. Typically, we would offer them the same terms, in terms of the percentage of the sales, whether is it generated in the physical stores or whether they are transacted on the online platform. Typically, we will judge them a percentage that is around the same level. But during the initial period where we may need to onboard them, we may then subsidize them a little bit. I think all this said and done is actually to really create first of all that the awareness and large share reach out to the customer base and create that stickiness within the whole retail ecosystem that CapitaLand is trying to build up through the CapitaStar functionalities and create that stickiness and repeat spending. I mean over the longer term, I think let us see how this pan out. I think our lease structure, we have to be a bit more flexible, as I mentioned, in going forward. But I will still think, by and large, this pure sales turnover rent structure would still not be a high percentage in the order of things. I think this is probably what we have observed during this period of time in China. Probably leave a bit of time for the other 2 countries to also share that one.

Okay. Thank you, Tze Wooi. Maybe, Tony, maybe could you share with us whether are you seeing similar trends in Singapore, like in China?

Yes, pretty much along the same line in Singapore. We -- specifically, we have 2 new platform that was launched in 1st June, the eCapitaMall, which I mentioned, if it's really an e-commerce site, and Capita3Eats. Both are actually embedded into the CapitaStar apps. So it's actually a holistic integration of the digital capabilities. So that, that platform is actually a transactable platform. So when you put up anything that through -- that on sale, let's say, attendant put up their products or services or things that they want to promote on sale to that platform is transactable. I'll give you an example. I mean, for the CapitaStar, should I say -- for example, Capita3Eats, which is really an F&B focus. For shoppers, actually, they could do the online booking through the Capita3Eats. They can do a takeaway, if they want to. It means they actually can order and do a takeaway. They, of course, can opt the optionality to do select for dine-in as well. So we allow that flexibility for customers to eventually -- the shoppers to select the best suitable vote that they are comfortable with. Similarly for eCapitaMall, it's really a platform, which is catering for the non-F&B. And items put up, the SKU put up there is transactable. We can do a sale. So there's functionality. We have also the e-voucher that's embedded into the CapitaStar program. So that's, again, a voucher that you can acquire. So this tokenization and all that Tze Wooi talked about, I mean, it's already happening. The e-wallet thing is already happening in our system. So holistically, actually, this is to provide additional avenue for our retailer to reach out to our CapitaStar member, which today is more than 1 million in the Singapore context. From a business model perspective, like Tze Wooi has articulated earlier is quite similar, not only structured, it's sort of -- it's like extension of what we already have in the physical space. And at the early stage, obviously, when we get the tenant on board, there will be early part where we help them defrays over the costs for onboarding. But subsequently, the business model is quite similar. Essentially, we have a little bit of share on the revenue stream that has been transacted on the platform. So I think these are the direction that's going forward. I think the key, I would say, success that if you could achieve is that, eventually, any shopper that comes into our sphere, whether it's in the physical sphere or the digital sphere, they would have that full flexibility and optionality to do a transaction, whether they want to do it, they can actually go to the shop, look at product they want, go buy anything about it, eventually, they may actually be able to shop online. But yet all these sales should be captured in part and parcel of the entire relationship with the tenant. I mean this is something that we're working on, and grant is actually work in progress. But I think the general trend seems to be moving in that direction. Yes.

Follow-up questions on this topic in the chat group. Just looking specifically at your retail lease contract, in terms of flexibility, are you seeing shorter terms in terms of lease structure? Or are you seeing that flexibility given maybe a higher percentage of variable sales at the beginning of the lease and then that tapers off at the end of the lease? Could you give us some color to me?

Sure. So actually, it's a combination of those things that you mentioned. And of course, each retailer will have their unique circumstances that we have to take into consideration. Typically, there would be some flexibility. It could be a case where some of the leases, at the onset depending on nature of the tenants, we may have a shorter consideration duration and we look at -- in a way, it's 2 way to see how that will work out. And then through that period of observation and trading, we observe the pattern and, of course, we have to assess the full potential, what would be the potential, how far that potential tenant can go. And then we can strike a longer-term lease thereafter. So that could be just one example that we talk about flexibility. The other thing that we may also think about carefully, so flexibly not just the lease and revenue perspective. And obviously, there will be some implication. There's also flexibility on the cloud trade that tenant can do. And these days to have a pure single model kind of a trade type, I think, gradually is going to be challenged. And you see that a lot of the tenants are also adopting a different kind of business model in terms of trade. It can be hybrid. Now they may think about what they want to do in a day and what at night may be different. So we have to think about that as well. And you have to build that into your lease structure as well. So it could be a case of -- I mean, just hypothetically, certain trade that you think perhaps may be suitable for the day and perhaps you have a strict certain structural lease maybe so they kind of trade that. You could also revert to a certain different cloud structure. So I think we would take that with an open mind. Bear in mind that the business environment is evolving. Even with or without COVID, I think the consumers are evolving. So I think the retailers are changing as well. And as landlord, I think we have to -- where that flexibility had when we engage them, especially when we are always trying to find new exciting thing to the mall so that consumer will always be excited when they come to our physical space. And that is something that we will constantly work on, yes.

Okay. Before we move on to Peck Chen, maybe just one quick question in the chat group, who is responsible for the delivery of the CapitaStar in China and Singapore? I'll leave it to Tze Wooi and Tony?

I think as a group, we collectively look at how the CapitaStar program can add value and benefit the whole retail business. I think this is something, as a group, we are collectively looking into those things. And of course, for a REIT business point of view, there are certain assets they are in our REIT, and we work out a certain kind of marketing budget that we will be holistically looking at running of the business. There's no difference of how when we look at our marketing spend in the so-called pre-CapitaStar days, how are we likely to make good use of the marketing spend in order to generate tenant sales and bring footfall and outreach customers. I think very much in the similar philosophy now with CapitaStar on board, we are all trying to optimize collectively how to use this platform to give us that added firepower to gain that market share and generate the tenant sales. I think that's how we look at how the CapitaStar platform can help the retail business in the longer run.

Yes. So I think similar to what Tze Wooi see, obviously, there's a team that works on it and it doesn't belong to REIT. The manager of the property actually has their full responsibility to run the program as part and parcel, whether it's marketing perspective or from a business model perspective. But there's still this relationship with as a landlord because we are -- I know our interests are quite tied. Like I mentioned earlier, some transaction that transact through the platform, obviously, we will have to get the share of the income from a turnover rent. But how to pay for the cost for that infrastructure that has been built? So that's something the relationship between as a landlord -- as a REIT, as a landlord and the manager of the property, we have to strike out the right relationship. So it's not a -- I think I would say, our book interest are quite in line. We want to drive sales. Obviously, the property manager is also incentivized to drive sales. They are tied -- their fortunes are tied also to the performance of the REIT as well. Yes.

Okay. Just 1 more question on this CapitaStar. It could be a bit too early to give us a sense, but would you be able to give us some numbers on how much sales have been done through CapitaStar?

May I start first, I think as -- at the moment, it's still very small. And the integration, we talk about the Capita3Eats and eCapitaMall, we just launched in 1st June. We -- in fact, we took a month or so to slowly get the tenant on board. So I think it's a long runway. And I don't think it's something that we can obviously scale up exponentially in a short period of time, it'll take some time. In the meantime, we are not taking our attention off our physical mall as well, I know, well, we talk about the digital platform. And that potential additional firepower that the tenant could -- in terms of getting these sales from our -- outreach to our members. But at the end of the day, we still believe the -- bringing more ties will still be accounting for large, large percentage of the transaction done in the retail space. So it's still early days. We are watching this space, and we are proactively executing it as well. Yes.

I think I wouldn't put that number to be a high number. It's probably a single digit in terms of the online sales relative to the whole pie. But I think the way we approach signing a retailer today is such that when you come on board into our physical mall, we will very much like to offer you a similar ability to onboard to this. I think the discussion is such that when you are a retailer in the physical space, we would very much like you to be a retailer on that online platform as well. And how we look at it is more to augment is an ancillary to the core business that we are doing in a physical space. And this is ancillary to that. And I think the team running the physical malls have a good way of looking at how to balance and this -- and we talk about how do we strike a balance between the REIT manager and the property manager. I think this is all built into how we run the business. Yes.

Maybe, Peck Chen, I think just now you've mentioned a lot about your initiatives to drive online shopping on new channels. Just wondering in Malaysia, are the Malaysians adopting online shopping as quickly as you have seen in China and Singapore? And secondly, how does your lease structure change in Malaysia?

Yes. I think the adoption rate by Malaysians is actually quite high. If I remember correctly, based on one official quarter, it says it's about maybe more than 70% already, especially so in the urban area. So in this case, if I were to relate it back to the REIT itself or the malls under the REIT portfolio would be the way that we see it from CapitaStar, in fact, of the size, it's actually not as huge as in Singapore and in China. So our focus will be more on rolling out those promotions. For example, recently, we actually rolled out cashback every MYR 50 funding, you will immediately get a MYR 5 rebate of use ex purchase. So -- and also in the local context, the Malaysian tenants in general are still very loss conscious. And I think that opportunity that I highlighted earlier is that, that FY '19 pushes the tenants actually to rethink, let's say, what is role of digitalization in the products or in their services. So we are actually seeing from that angle and where we come from, it's actually to collaborate with our tenants and to support them in terms of like bringing in new partnership with e-commerce players who are actually very active in Malaysia. So to reach out to help the tenants, to reach out to the network in order to boost the tenants that will help tenants in terms of sales ultimately has listed into our variable rent portion as well. Yes. In Malaysia, I think the base -- the rent -- fixed rent and also GTO portion is still a relevant lease structure. We do see a request from tenants who requested for higher GTO percentage of GTO rent. We have yet to see a sizable number in terms of full conversion into pure GTO rent at this juncture. And in terms of short-term lease, yes, it's been happening, not only in our portfolio, but in upside of CMMT portfolio as well in the local industry. That happens most of the time when, for example, number one, are the landlord actually wishes to use the short-term lease to actually to have a retie to get a better or new tenants to be on board. And secondly, it could be that -- that could be a new concept or new products that are introduced by the new tenant, where the landlord also find it interesting and also could be complement -- could be complementing to the current tenant mix hands to incubate the concept. I think lease structure will need to be more flexible. In this case, the tenure also needs to be shorter compared to the difference.

Okay. I think it's very timely to pull out our poll results. Can we have the poll results, please? Sorry, can we have the poll results? Okay. Right. So actually, in the poll results, the same result. Majority of people would still like to shop in the mall, 70%, versus shopping online. And the next is actually 50-50. So this would give you a sense on, generally, what are the buyers thinking about. Okay. A handful of time, we have maybe about another 10 minutes there. So if you have any questions, please feel free to type in the chat box. Or I will just pause for 1 minute just in case anyone wants to ask a question. Okay. If not, then maybe I'll continue with some questions. Maybe this is directed to Tze Wooi. I think management recently talked about a period into new real estate classes. So maybe you could give us a sense of what is driving this thought and what kind of asset classes are you looking at?

Okay. I think this is very much in line with how we want to position CRCT. I think we have been sharing quite a lot. And I think as a group, we have also restructured some of the way that we -- or some of these REITs and so on. I think it's quite clear that we want to position CRCT as a long-term vehicle to whole China income-producing assets. So by that reasoning, I think it's only right that we start thinking about what's available in China over and above the pure retail that we have been doing. So I think that sets the backdrop of looking at what is potentially available in China for CRCT and being the long-term vehicle that we want to be able to recycle and be relevant, and that's how we look at looking across the opportunities. That's the first point. The second point is, I think, arising from this COVID. I think you have also shared earlier, looking at different sectors, they are probably subject to a slightly different kind of impact. So I think from a portfolio standpoint, I think we would very much like to add defensive attributes, diversify. I think something that COVID has taught us is probably diversify and also add different income streams that will make our portfolio a bit more resilient as we look at scaling up. I think the retail sector we've discussed. I think there's a little bit of sectorial challenges that we have to navigate as we go along. I think it's timely that if we have certain income streams that are more resilient, it allows you a little bit of more flexibility to be able to navigate and carry out some of this asset enhancement to repurpose or reimagine how retail space needs will become in the future. So I think by having that wider catch allows us to play out that different portfolio attributes as we look at how to develop and grow the REIT in a more sustainable manner. So I think this is how we look at things. Where we look at, I think, naturally, we always start from asset classes that as a group, we already have a presence and have domain knowledge and have the skill set and the scale for us to grow this business. I think this is how, generally, we will look at approaching the investment, looking at how we look at investments. Yes.

Okay. Okay. Maybe we have more questions on China and CRCT. So the question is actually on your 2 digital platform. So maybe if I could change a little bit, how does CRCT or CapitaLand manage -- some of your retailers already have independent e-commerce platform and then now you have your own virtual platform. So how do you integrate this 2? And for -- specifically for CRCT, you already have now 1,000 tenants on board. And are these tenants mostly with existing online sales already? Or they don't have at the moment?

Okay. I think the -- we are not that directly competing with those platforms that you are mentioning, probably the Alibaba's and the world's. I think what we are trying to do is to really be able to integrate the kind of offerings knowing that most of our tenants would also need to adopt a more omnichannel, multichannel way of expanding their customer acquisition. And I think as a landlord through the e-commerce platform, through the CapitaStar platform, we want to be able to offer our tenants this ability. They can come on board and utilize this membership program, loyalty program, repeat spending and be able to healthily work within the ecosystem. Some of these tenants, I would say, they are also having equivalent potential online spaces elsewhere. This is not to say that it is exclusive, but more so of us as a landlord, being able to offer them something that is over and above that physical outreach. I think I shared with you earlier that during this COVID period, because of the ability to onboard some of these tenants, they're able to use our membership platform and through our marketing, joint efforts through these promotions, through this live streaming, we are able to generate certain incremental sales that they will not have been able to, if they were not part this bigger ecosystem. So I think that's how we look at things. You asked us today, whether an F&B can go via our platform or go via another delivery platform. I think they are open. For us, we offer them that space for consumers who may not be the 3-kilometer radius catchment or some who are elsewhere, but who are users of the CapitaStar platform and like what they see in terms of the SKU, like what is being promoted. And this can then drive that incremental sales and be able to onboard new customer base that they typically would not be able to, if they are not onboard our entire ecosystem. So I think that's how we look at things, not so much of us trying to replicate ourselves, but more of an additional service to our landlord and tenant relationship.

Okay. The next question is also directed to you, Tze Wooi. Do you see Chinese developers actively developing new malls? And is it causing an oversupply situation in China?

I think the supply situation has to be really look at with a little bit more granular detail as in where they are. I think different cities are facing different points of the supply-demand dynamics. I mean if you look at where Beijing today is, I think it's quite clear from a policy standpoint. They are already restricting new retail supply in the core MYR 4 to MYR 5. So I think that policy has been there for a while. So I think any new supply that comes on stream is probably to support newer catchments where that catchment is underserved by that asset class. So I think, by and large, I think the policy planning has moved quite -- I would say, moved quite advanced to be able to understand this part of things. Increasingly, government policymakers are also very much looking at who our operators who are able to manage this asset class over a longer duration. I think they're very mindful of such going forward. So I think all this will then help to manage that supply-demand balance going forward. Yes.

Yes. Okay. Maybe one last question to you, Tony. Just a comparison between suburban and central located malls, would you be able to chat how's the rebound and recovery like between the 2 different locations of the malls?

So very interesting. We obviously see different phenomena during the lockdown period where we have COVID -- circle breakout period, suburban mall has been more resilient because a lot of people are telecommunicating and they are working from home. So suburban actually has got a little bit of advantage in terms of visitorship. Interestingly, when Phase II reopened, we actually will see more and more people -- as more and more people started to come back to the office, downtown mall are seeing, I would say, a quicker rebound in a sense. And especially over the weekend, I think we get -- a lot more shoppers are really streaming down to the downtown malls, more so than I think they probably -- I don't know whether it's a case of that's getting away from where they are spending most of the time during a weekday. But we can certainly see a lot of people streaming downtown. So we see a lot of nice uplift in terms of downtown. So today, we are about, from a recovery point of view, quite equal in terms of football recovery in downtown and suburban. Yes. With the exception of club key, obviously, it's a little bit challenged because of the unique circumstances, the clubs that are still operational. Yes. So I think we've seen quite a nice shift in a way that if I start to stream down to downtown, maybe for a change over the weekend, especially, yes.

Okay. Thank you to our 3 panelists. I think that's all the time that we have now. I think the government has also just announced expansion of Job Support Scheme and additional support from the government from Singapore. So we look forward to that. Hopefully, our retailers can survive in this situation. Okay. We will end this. And please do join us on the next session, Session 3, and you may dial in to the next webcast at 3:00. Thank you very much. You may now disconnect.

Thank you very much.

Thank you. Thank you. Bye.

Okay. Good afternoon to all, and welcome to Session 3 on the topic "Future of Work." So the COVID-19 pandemic has inevitably led to a structure shift in the way we work. And telecommunity will be something that will be widely adopted going forward. So business leaders are increasingly seeing the benefits our flexible working arrangement, while maintaining the same level of productivity with the aid of technology. Some believe that future of work will involve businesses cutting down on space, while many others or so feel that social distancing, the need for alternative work sites or satellite offices will also lead to an increase in demand for space. So we are very happy to have with us the management from the 3 leading office and business parks platform within the CapitaLand Group to get us through these trends. So we have William Tay, CEO of Ascendas REIT; Sanjeev Dasgupta, CEO of Ascendas and the Trust; and Kevin Chee, CEO of CapitaLand Commercial Trust with us today. Before we start, I would like to start with a polling question. You all would have seen on the screen now. So the question is post COVID, how often would you like to be working from home? So please help us try to understand forward trends going forward? Yes. I'll start with the first question, and I would like to post you all. So with this great work-from-home experiment from COVID-19, so what are firms saying regarding their need for workers to be in office and illustrate a little bit this broadly to include those in the manufacturing sector? So are we getting a risk of potentially a lot of share of space coming out of the market? So I will probably start with Kevin, followed by William then Sanjeev. So over to you, Kevin.

Well, I think to begin with, I think we need to take a step back. It's not a "one size fits all" that we are facing today. Clearly, when you look across countries, cities, companies and even individuals, the circumstances of each are very different, right? So when we talk to our colleague, our partners, our occupants, offices, if you talk to the bosses, quite often, they say, "Hey, we want our guys to come back." And I'll come back to the reason why they want their employees and the staff to come back to the office. And I guess for some of the smaller companies where perhaps they are smaller teams, where they can probably work best efficiently from a work-from-home or remote arrangement, perhaps maybe less for pressure to do that. So I think it very much varies from a company to individual and so on and so forth. Yes. But I think if you were to go back to that question, it's essentially an existential question. Yes. Essentially, it bolts down to what is the office for, Yes. And if you look at what has happened over decades, it's -- the office space has also evolved yes, over time. It's no longer purely a functional space to do work. It's gone beyond that. It's a space for collaboration. It's space for networking, bonding, for serendipitous and engagements. And for many companies, it's a place where innovation happens because that's where energy is, yes, and where we can actually get teams working on creating ideas together. I'm not saying that it cannot be done from a remote working arrangement. But I think the question then, I think, we have asked ourselves after answering the existence of question is, can you effectively do that strictly out of the office, say, for example, all -- everybody is working remotely. And I think the -- probably -- the answer is, probably, not entirely, yes, because ultimately, what is the company for. It's an aggregation of people, businesses who are looking at driving innovation and to be productive, right, in an effective manner. So if you can achieve that working from home or through a combination of working from home and working from the office, I think then you've made the objectives and your purpose of why you want to have an office or why you want to have some people working from home. But if you cannot achieve that, then I think, clearly, the office is here to stay.

Maybe, William, your thoughts on this trend going forward. Maybe business park and also manufacturing firms to one really need to be at on-site.

Right. Thanks, Derek. Just to recap for industrial and BP space, there are machineries, there are labs, there are equipments, which I think the government also mentioned, if you have access into such equipments, you have the right to go back to the office. Just to give you some statistics. BP and high specs actually has about 60% right now in terms of employees going back to office. Like and logistics, we are almost close to 90%, 100%. You can't just do without manpower in the office. So I think what Kevin has mentioned, it's not going to be a "one size fits all." Depending on needs, I think we do see customers and employers do need to have that as a consideration as they look at workspace solution. It may be a mix of office plus work-from-home flex space as a total solution because the dynamic workforce of today requires some flexibility. And office, like what Kevin has mentioned, which I totally agree, goes back down to social and corporate cultures, building collaborations, how can you do things like your talent mentoring when this work from home, you need to have the interaction, the communication, the collaboration to fuel the team spirit. In fact, we've -- I've talked to some of these start-ups. When first, the circuit breaker hits, they thought being a tech start-up, they can work from home immediately. They started that, and they thought they can continue this permanently. When the circuit breaker ended, they went back to office. We also have workshop like what co-working space in our industrial space. Today, it's about 80% or few back to pre-COVID because I think there is a momentum requirement to be in an office environment. So companies will work around whether who needs to be in office, who needs to be -- from working from home. And I'm sure this work solution will come up to be a more balanced one that fits the needs of the employer.

If I may add, Derek. It's an evolution. We're not talking about revolution. Yes. It's not going to be Day 1 work in the office pre-COVID. Day 2, post-COVID, everybody works from home. It's not going -- a revolution. As in all things in life, I think people will address and make adjustments that would effectively make sure that they can still, in fact, work effectively and productively and still be -- still innovate and create and add value. If you can't do that, then I think you'd have to make the adjustments accordingly.

So maybe, Sanjeev, could you provide us with some color on what you're seeing in India after this work-from-home experiment that we saw in India in the past few months?

So I mean, as you may be aware, in India, the number of infections is still high. And what we are hearing when we engage with our tenants is that while in the near term, there are concerns about health and safety, which are -- and as a result, they are encouraging the employees to continue to work from home, but there are a variety of challenges that are coming up. One, of course, is productivity is getting impacted. A lot of companies are really not talking about this very vocally because it has some implications for customers and shareholders and so on. But clearly, there is some impact. The other part of it is also is the IT services' workforce in India is quite young. And India has its own share of unique challenges around infrastructure, the number of people per home and so on, which is also creating further issues with regard to sustaining this on a very long-term basis. The other aspect, which is very important is if we look at the IT services sector itself, which is where about 93% of our occupiers come from in our portfolio, most of the companies who are in that space are still winning a lot of new work. Actually, this whole digital transformation has led to an acceleration of outsourcing of IT services to India. We're seeing the banks now pushing the digital banking much more actively. We are seeing retailers pushing e-commerce much more aggressively. And TCS, just anecdotally, which is one -- is the largest IT services company in India now in the top 10 in the world, has won 22% more new contracts over -- in this last quarter post-COVID compared to the same quarter last year. So IT services, as a growth sector, still seems to be fairly strong, which gives us hope that I think what we are seeing as the health and safety concerns get addressed over the next few months, we will gradually again see some degree of improvement in the physical occupancy in the perks. And we are already actually -- the last 2 months, in particular, in Bangalore, which is India's IT capital, we're already seeing many of the leases, which have been put on hold by some of the leading tech companies, the likes of Google, Amazon, et cetera, again, getting revived. So if we look at all of this and try to see where things might head in the next couple of years, I think there will be some portion of the work, which will continue to happen from -- happen remotely. But we still think that we will see 75%, 80% of the work coming back to the office for many of the same benefits like collaboration, productivity, et cetera, that we are seeing in other markets.

Derek, maybe I -- from Singapore. So just the IT services that Sanjeev mentioned, you look at our last results, half year results, you have seen our rental reversion for our business part has gone up 16%. As I mentioned, it was backed by shared services from financial institutions, electronics company, network company, so they have signed with us 3 to 5 years leases, and they are actually prepared to continue the journey for next 3 to 5 years. So essentially, this growth sector, I think they still require some real estate space.

Absolutely, yes.

Thank you all for the input. So before I move on to the next question, maybe just to let investors, if you have any questions you'd like to post, feel free to use the chat box. Okay, the next question that we would like to highlight is the key question on lieu of CBD address. So I think would it be less attractive in the future? Will decentralized office be more, say, attractive compared to CBD? And the main reason is because workers maybe do not want to come in too far to work. Maybe less in Singapore, but we would like to hear your thoughts on that. Maybe, Kevin, your thoughts on the portfolio.

I guess it goes back to fundamentals again, yes. Why in the first place are companies gravitating to the CBDs and urban centers at urban cores. It's a few -- a couple of reasons. The first one being the ecosystem that the central business districts have, yes, a network where your associated and affiliated businesses can work together, meet up quickly and get things done because you're all in the vicinity. There's one other factor, which is also very important. It's also the talent attraction and talent retention part of it. At the end of the day, especially in the growth sectors that we see today, for example, in technology, it counts on a lot of the younger set, yes, people who are tech savvy. And where do they want to be, the millennials and the gen zetas. Where do they want to be? They want to be where the action is. And that's typically in the downtowns. Yes. And this is actually not surprising because if you were to follow a global survey that CBRE did recently in July, they -- based on their survey of 126 global companies, less than 10% said that they wanted to decentralize. I think it says a lot about the allure of the CBD. Derek, like we say, every country is different, every city is different. I think in the Singapore setting, it's even more prevalent, the demand -- I think the demand for CBD space for a couple of reasons. One, the CBD, which accounts for 50% of Singapore Island white office stock. It's where all the quality office space is, right? So the bulk of all the Grade A space, your premium Grade A space, it's all in the CBD. So if a company is looking for the kind of space, that's where they have to be. And the second thing related to this point is that it's all about critical mass. Yes. So if you want to be -- even if you wanted to go outside of CBD, first of all, you may not find the same Grade A space or premium Grade A space outside the CBD. And you may not have the same concentration of quality office space to create, again, going back to the point about networking and ecosystem that these companies are looking for. So to your question, I think the allure of the CBD will remain. But I'm not saying that I'm sure William has got more to say about outside the CBD. I think what this situation that we are seeing today with COVID and remote working is that I think now you probably see a lot more cross-sharing of opportunities. There's been a lot of talk about hub and spoke. So companies may want to have a hub in the CBD or even a hub in a decentralized business park location and spoke in a satellite location. So I think there's probably a lot more opportunities for that in this current market because companies are probably more receptive to this idea as compared to what it was before.

Maybe to direct the question to William, I think probably it's the type of firm. So we may consider. I'm sure there will be still be -- CBD will still attract a large group of companies. But maybe, William, in your own portfolio, what type of firms have you seen inquiring about space, say, in the business park or in the suburban space at this point?

So Derek, the model about decentralization didn't happen right now or start to kick off right now. Essentially, it started years ago. I mean, if you look at our CBP, we have DBS, we have Citibank, we have UBS, we have JPMorgan, all looking at satellite offices for the less of a core businesses. So like what Kevin said, your core downtown will appeal to certain functions and needs, right? Your real estate strategy will be complemented with a satellite office, business park or suburban office. Why so is because if you look at the entire total cost structure, actually we look at Singapore, Singapore is not big place. But the cost differentiation is quite a fair bit. Between the CBD office and a BP suburban location, you can have between 45% to 65% savings if you look at suburban location. So suburbanization has happened long ago. And we also looked at how the suburban locations has improved over time. Now what Kevin mentioned, your entire amenities is very strong here in CBD. But if you look at the business park, it has transformed in the past 5 years. You look at one-off, today, one-off is well integrated with residential, with retail right in the heart, there are MRT stations and is well connected to universities, which is very, very attractive for the industry-based tenants. So we have seen Canon, Oracle, all has moved up of CBD into one-off. We also have seen technology players like Grab, Shopee, Razer all taking up -- putting up other HQ in the suburban location in 1 north and even in science park or other business park. So you asked about this tenant mix, tenant interest. End of day, it still looked at, first, if you are financial institutions, this may become part of your real estate strategy. But if you are industry player, industry company, not forgetting in Singapore, the planning parameters include 60-40. So if you are a technology industry player, 60% of your space must qualify as manufacturing, industrial or R&D before you can actually be admitted into a BP space. So there lies the cost differentiation where Singapore is able to keep costs low to attract businesses into Singapore. And that helps for our overall economy. And over time, I think, companies who need real estate strategy across 2 locations or if they like to be in a suburban location, the amenities, the Grade A business park offering today is there. And this may form part of their strategy where the HQ can be here in a business park and where they like, their spoke can be in CBD to be able to connect to the customers or their bankers or their lawyers, if they need to. So I think both will definitely make sense to different companies as they relook at their strategy. And also -- just also to mention that over time, if you look at business park space, it's actually a very limited supply. Singapore government don't push out business park that easily. If you look at the supply for the next 3 to -- 3 years, most of it is 100% pre-committed, which means that they have -- it's a controlled supply where it will change, it will increase over time with demand. And it's not just influx or a change of CBD office tenant and coming into business park. So this will actually go through a transformation, if you like, where the entire suburban location starts to rejuvenate, starts to increase their offering and becomes a good location for workspace.

Let me add, Derek. I think adding on to what William had to say, I mean, if you look at where the Singapore 2019 master plan is going towards, I mean, think the government is already talking about a move towards decentralization. And they want to create more mixed-use precincts. Yes. And I think this presents tremendous opportunities for a large group like CapitaLand with all our related platforms because while each platform offers a certain specific appeal or attraction to a particular investor base, but as a whole, we do certainly have a very wide and large footprint across Singapore, which not many players out there can replicate quickly or even possibly even. And when you have such a large footprint, the opportunities that you can leverage off and create and extract are tremendous cross-selling, physical cross-selling opportunities, it could be a digital platform enhancement opportunities where we can, again, leverage on and add to cross-selling beyond just space. I think that becomes -- that can also present opportunities, which we are very eager to look for to see how we can actually extract value from.

Maybe Sanjeev, your thoughts on IT parks in India, as -- is demand a little bit more captive? Or is there a play on this CBD to IT parks kind of move?

So the India CBD market is mainly focused on Mumbai and to some extent in New Delhi. So one interesting trend, actually, which is happening in CBD in Mumbai, in particular, is -- and it's there in many other gateway cities also off late is that the new occupiers are mainly the tech companies for their sales and marketing, their country headquarters, they're choosing to go into CBD. And the other is alternative fund managers like private equity firms and venture capital funds. It's really the traditional banks are growing space at a much slower pace. So if you look at BKC, we've had Apple, Facebook taking up large spaces for their India headquarters, which I think will be a trend which will continue to -- which will continue actually.

Before I move on to the next few questions, I would like to look at the answers to the poll on how many -- wow, okay, let's look at -- looks like a majority of the respondents would like to work at least 1 to 2 days. Also it's a tie between 2 to 3 days. So probably 50% would like to work from home or continue to work from home. There's a small proportion that would like to work every day in office space. I think unlike me, I've got families, this is -- that's not me. Okay. Let's move on to the next few questions.

Just to add, I think today, if you look at the -- in terms of density -- if you look at JDC statistics 2003, it was about 15 square meter and it has dropped down to about 10 square meter. It may increase given the fact that you probably need to provide safe distancing in the office. And the other couple effects that come out from the survey is things like working from home a few days in a week is not a new phenomenon. It may become more reality today because you've got to provide that technology and ability for staff to work from home. And an office design must cater for that flexible shift. So if you look at today, I don't think any of the company has one employee to one desk. It's probably less employees to a desk. It may become smaller. But in terms of safe distancing, you probably need to provide some space. It may trade-off eventually in terms of demand.

Yes. I mean, I think -- in also one of the things which I feel in these surveys or any of these office surveys, people are being asked, do -- would they like the option of working from home for a certain number of days a week? That is very different to telling employees that you just come into the office, you have to mandatorily work from the house. It's a very different question, actually.

Yes.

And it skews the answers people give, therefore.

I think to add as well, I mean, I -- I'm not sure whether companies would leave it entirely to the employees to decide from themselves whether they're going to either choose to work from home or from the office. I think it's very much activity based. Certain functions could probably work more effectively from a remote -- may not be from home, it could be remote, but certain functions would probably work more effectively from the office. So it's something which I think all of it's a new paradigm that we are in. And all companies are trying to feel a way through this. And certainly, we do not have an answer today. I think the drill is still out.

Sure. I think probably the answer will be a lot of employees want flexibility, essentially. Yes, that myself, I also would like to have some. Maybe a question that I received on the chat group, I mean, similar to the view of our work from home. Can tenants actually request for, let's say, lower space before lease expiry? Are there signs? Are you seeing at this point in time, given the fact that unemployment is expected to rise as tenants come to you to ask for a lean, let's say, put back off maybe 20% of the space. Maybe Kevin, you may can start anything on the portfolio?

I think whenever it comes to renewables, companies will always have to evaluate what their long-term requirements are. I think the challenge today that most companies face is that there's no absolute data out there as to what that ideal hybrid mix is. And I think it very much, again, as it depends on each company and their needs and the individuals and the employees. So they're figuring that out themselves. By and large, what we're seeing is that I think companies in an uncertain situation would probably just maintain a status quo. So quick to answer your question directly, I think what we are seeing is that, certainly, there are some companies who are maybe asking for some reduction in space. But by and large, we are also seeing companies that are also renewing existing spaces. And we're also seeing companies that are also expanding. So it's the whole spectrum of what companies want today. I won't say that it's one particular trend or in one particular direction that we're heading towards.

Okay. Maybe for William and Sanjeev, any thoughts that you can tell? Yes.

Yes, I share the same views. From our renewal trend as well as conversation with customers for new take up, rightsizing has always been there. It's not about work from home or COVID. The event may have triggered the consideration again during the renewal. But all voice downs to their business and their strategy, their business outlook. So rightsizing has always been there. We do see trends of downsizing expansion. The only thing that we don't see quite a huge takeup right now is new takeups. The new demand comes out to be slower and less compared to pre-COVID, which means that they are more prepared to renew. They're likely to stay. If they have -- still have good visibility of the business outlook, they may continue to sign 3 years, 5 years. But less certain now what Kevin mentioned, they may sign a short-term lease, 1 year, 2 years and then they evaluate because going through this crisis right now is a test of their business resilience. If they can survive this, I'm sure they can come back stronger. If they can't, they probably would want to put a plug as early as possible. So that 1, 2 years lease renewal may help them to be able to be more flexible and not tied down to a lease. And I've shared in my last business update and our results is that we have seen this trend and we'll be very accommodative towards their shorter leases. And over time, I think this will be helpful for tenants as we go through together in terms of going through this crisis. If they can come back 1 year, 2 years down the road and they can get new contracts, new business, they will continue with the leases. And we are there to help and we'll definitely be able to help them with shorter lease, longer lease. And you have known about all the rental relief that with the government and landlord has been given. And all this will come in handy for them to look at their business going forward. It's all about partnership, relationships and maintaining long-term strong partnerships and relationships.

Okay. Sanjeev? Yes.

So I think what we've seen is that the larger -- the majority of our tenant base are large multinationals. And most of them, at this point of time, don't want to take any decisions which will put the capital expenditure that they've already incurred in their office space at risk. So though the physical occupancy in the parks is relatively low, they would prefer that the real estate is available to them. And rather than making any major decisions about shrinking space and so on, because what they are not clear about is what will things like de-densification, et cetera, because of social distancing do to their office requirements. There are some of the medium to small companies who have really borne the brunt of -- or those who among them who have borne the brunt of COVID on their business quite sharply, there, we have seen some degree of pretermination or shrinkage kind of requests. But that's actually a fairly small part of the overall portfolio.

Sure. Okay. I've got a question here for Kevin. So how do you anticipate the role of property owners and also operators like co-working and service offices going forward? Any thoughts on that?

I mean I go back to the point about partnership. We are here to provide a service to help our businesses and our partners grow. Yes. So of course, the most basic service that we provide is a provision of -- is a provisional space. And of course, when we provide space, we must meet the basic hygiene factors. And over time, I think we're going to see these hygiene factors widen, especially in the office environment. You talk about things like contactless access, you talk about purification, air purification, wellness in your system in the building. So I think those are going to be bread and butter requirements that landlords must provide. But going beyond that, yes, again, as companies evolve, as companies shift in terms of what they need and what the space requirements are, I think it's incumbent on us or it's important for us as a landlord to see what we can do to support and enhance those amenities, right? So as an owner of a portfolio of assets alongside our sister platforms, I think we can provide a greater technology enhancements that would certainly make the stay in our properties even better. If you can provide other forms of amenities like flexible spaces, meeting rooms, which would again ensure that stickiness for them to be into want to be in our offices versus another building next door. Then suddenly, I think that's what we would be looking forward to do. And going back to your question about flexible space, I think there has been so many discussions and opinions about it. I think the fundamental point is that flexible space is here to stay. In fact, there'll probably be more demand for it. Companies will maintain a core space, but I think this COVID situation has brought to attention the importance of having flexibility within your system. And I think as a result that co-working spaces and service offices what we'll call in term of flexible spaces would probably increase in demand over time.

I think the follow-up question I received here in terms of space whether as a landlord, do you actually see taking over the business of providing this co-working space? I think I'm guessing that the question comes on the back on expected consolidation within the co-working space. I'm not sure the -- is that a strategy within the group?

Well, if you look at what we have in the group, CapitaLand has got a business called the Bridge+, which runs in business parks. CapitaLand also has a 50% joint venture with The Work Project. I think at the end of the day, these businesses are very different from our own businesses. They need to be run with a different mindset, a different approach. And there's no reason why we cannot continue to partner these businesses. But the relationship that we may have with these platforms may change. Right now it's largely a typical traditional lease, right, we pay a standard lease arrangement. Over time, it could be a -- there should be an increasing component of revenue share. And over time, it could be well arrangement where a clear management contract. So I think all these models are possible. The bottom line is how do we make sure that we maintain a sustainable business that can provide that value-add to our tenants.

Derek if I may add, the -- each of these co-working, whether there's consolidation or not, goes back to the need for economy of scale and how they ensure that they become competitive as a business offering to their customers. And many of times, we do see that different centers, different outlets actually target a different industry or customer. I'll give you some example. I mean if you are CBD here, if you're a co-working space solution, if you're targeting a very different customer from those that I have in our business park or even on industrial. Just now I mentioned our workshop, which is also a co-working model. I'm not sure whether you had a chance to visit where we actually hold some of the analysts and investors.

[indiscernible]

Yes. So in TP2, it targets a different industry, tech plus engineering plus serving the tenants in TP2 as overflow space. If they need additional space for 3 months, 6 months, they can take up a flex space or co-working space in our building. And now we just recently launched, in fact in January, workshop at Aperia. Again, it targets a different customers. If you look around Aperia, it's very much different customers from writer, photography, creative, the customers that comes to us. So our workshop in TP2, just I mentioned, is now back to 90% occupancy. Our workshop in Aperia, after circuit breaker, it has come back up to 50%, 60%. So it will still continue to be an offering for customers. And if you look at how we have embraced this as a landlord, working within our group to provide this as a solution because we know our customers, we know our catchment. If there are some offerings that we can't do it within the group, we definitely will be prepared to partner with third-party investors or third-party operators to come into our building to provide that. I'd also like to share that we also started looking at innovation co-lab (sic) [ co-innovation lab ] in Science Park 2, probably just a pre-announcement. We are going to announce this quite soon. But essentially, it's a smart-led where we looked at different industries coming into Science Park, and this is co-funded by IMDA and this actually helps customers from big engineering customers working with start-ups, finding solutions for all the problem statements. And we use this as a platform as well to bring in overseas innovation. So like you have seen in the past, how Science Park has always been the magnet for innovation since the day it was formed, working with university academics. So these are areas that we will look at different offerings to target different industry. And in AREIT property, we also have embraced that as a landlord offering. In our Nordic AEI, we have introduced meeting rooms, discussion areas in the lobbies, and we have introduced that in our One@Changi. And now with our Galen. We also have introduced that with our latest completion AEI. So as offering, where there's public space in the building, where there's space, we will provide the meeting rooms, discussion areas in order to provide that as a solution and enhance the entire offering to our tenants. At end of the day, it helps them with their cost as well as providing better stickiness, if you like, for them to renew with us.

All right. Okay, I've got the next question I've received here. I think generally, it talks about the ongoing narrative that we are hearing, worst is -- if we haven't seen the worst. I think -- but in terms of the first Q -- those first half numbers, you have noted that arrears are actually quite low across all 3 portfolios. Should we be worried? Or what's the -- doesn't seem to drive essentially. So what are thoughts at this point? Is the worst really over from your perspective? Maybe we start with Sanjeev, your thoughts before we move on? Yes.

So I would say that I think the April was a challenging month because I think both the tenants and landlords, in general, were trying to figure out how things would unfold. Our April collections are at about 99%. And our -- I expect our May and June collections to also head in a similar direction. What I think tenants have come -- as I was saying earlier, tenants have come to the conclusion that for now they definitely need the space. They do think that their employees will come back as and when things improve in terms of the COVID infections. And therefore, it -- and the other thing is that it's very hard for a tenant in this kind of an environment to go to their HQ and seek CapEx approval for relocation, because they'll have to spend substantial amount of money to go to a new office. And what they spend on fit-outs and electronics in a typical IT services office is almost equivalent to the construction cost. So it's not a small sum of money. And that's why I think we've seen collections to be quite robust on the office side. Retail has definitely been challenging. Thankfully, it's not a large part of our portfolio. Retail has been hard.

For Kevin or William, any thoughts? Worst is over?

Actually, when you say -- when you use the term, the worst is over, it molds the sense that it was very bad, right? But I would say, to be honest, I mean, I don't think in our office portfolio, we've seen arrears any different from what they were pre-COVID. I mean don't forget, at the end of the day, especially in office, they -- companies operate in office, they don't generate business or business out in office like maybe some retailers would. The business is generated outside of the office, yes, through their value-add change and so on and so forth. So I think, overall, for commercial, we have seen still very, very low arrears, which are typical of what it were -- they were like before COVID. I think for the retail components in our portfolio, they have -- our tenants, which is not big, our tenants have been supported April, May, June and also July. Certainly, we are looking forward to the economy opening up further beyond Phase 2. And when that happens, and especially for us when our office occupiers come back to our buildings to work, they start going to our F&B outlets in our offices, office buildings. That would certainly help a lot. Yes. But in the meantime, we are certainly monitoring the situation very closely. And we stand ready to support them no matter what because we know at the end of the day, they provide, especially in our F&B case, amenity to our office tenants. And that's why we're here, to make sure that we provide the best venues for companies to do business.

Okay. I'm mindful of time, we have about 5 minutes left, but I've got a few questions, but I'll probably pick the pertinent ones. So I've received questions on acquisition. So your thoughts on, say, second half of 2021, any ambitions for growth, be it within your portfolio or overseas? Maybe for -- maybe start with William, your thoughts on inorganic growth?

Derek, I mentioned a few times to you. We are definitely in the market looking at opportunities. To the investors and analysts on the call, as I mentioned in our last update, I think the market become more vibrant in fact, about April, May. I think circuit breaker period in Singapore, the events and happenings did slow down a little here in Singapore and overseas. And over the past 2 months, we have seen vendors restarting and looking at the divestments of the assets. Those funds that we've talked to in the past, put on hold, they are decisioned. Just tied through and look at what is the strategy that we need to deploy when there's more certainty. But there has been a lot of deals that comes out in the market right now. And to be honest, we are in the market looking at opportunities. End of day, as I've stressed many times, it has to be accretive to The Trust and it has to add value to The Trust. So today, in terms of acquisition, we continue to have interest in the countries that we operate in here in Singapore, Australia, U.K., Europe as well as U.S. And the asset classes you're familiar, business park, logistics, data centers, these are the same asset classes that you have seen that we have acquired and which we have stand today, very resilient portfolio, diversified across geography, diversified across asset class. In fact, your question is about rental arrears. It was low because we also have a very diversified tenant mix. More than 50% are in a very resilient industry. Our exposure to SME is less than 20%. So you can see the construct of a REIT has been well tested right now. And we looked at it from an angle of this strategy, it makes sense. And we'll continue this route forward.

Sure. Maybe over to Sanjeev, your thoughts on AIT, low gearing, huge capacity. Thoughts on what should we be expecting?

So definitely, we are -- I mean I wouldn't say that we are seeing a COVID discount in India yet. In fact, the listing of the Mindspace REIT 2 weeks ago was extremely successful. And actually, if anything, we're seeing a tremendous amount of interest in our REITs in India. So -- but I think there are pockets of opportunity gradually emerging, which will be more in the nature of value-add. So I think landlords in situations where they have taken on a lot of debt, in situations where they see a risk that some of their properties might see vacancy are beginning to explore -- start exploratory discussions to do some selective divestments. So I think -- but I still -- I do think that the momentum will pick up closer to the end of the year and Q1 of next year. So we are very actively evaluating.

Thank you, Sanjeev. Maybe time for one last question. I mean to Kevin. Your thoughts on the recent transaction. The 39 Robinson Road was done at a very, very low cap rate. So your thoughts on how you will put in place, say, valuers' thoughts about property values in the next -- by the end of the year?

You talk about the COVID discount, it was a COVID premium. Okay. I'm sure the reasons are not due to COVID. But certainly, I think we've seen a record price being set at least reportedly -- reported for a freehold property in Singapore. I think that's driven by probably other factors, but it's certainly belies the fact that Singapore is still very sought-after investment venue. It's a very, very recognized global gateway city for investment. And unfortunately, there are not a lot of -- there's not a lot of product out there available for sale or for that matter, even being developed. So going back to your question about valuations. When we reported our 30th of June valuation as part of our 2Q results, what was driving our valuation numbers was not so much cap rates, but more direction of where rents -- the expectation rents and rental growth, yes. That is tied to possibly more the economy, and I suppose, in a way, linked to COVID in terms of demand for new space and where rents are expected to be heading. The valuers did not expand cap rates. And I think based on what the transaction comps that we are seeing in the market, I don't think if a valuation will be done today, there'll be any justification for a valuer to want to expand cap rates at the very least part to maintain transaction volume.

Low transaction volume.

Yes. There's low transaction volume, so they probably maintain cap rates at west . Yes. So that's what's driving the market today in terms of valuations.

I mean I do think that the low-interest market -- interest rate environment is driving up listed equity prices, asset prices. So I really don't think there's going to be a valuation correction.

Okay. That's all the time we have today. Thank you, all 3 of you, for sharing your insights into the sector. Thank you, everybody, for dialing in. So Geraldine has set 5:00 on the future of travel, so thank you all. You may all disconnect.

Thank you.

Thanks, Derek.

Thanks, Derek.

Hi, everyone. This is finally the last session, future of travel. So the hospitality sector is definitely bearing the most brand from the pandemic. So what has it that the national travel and hospitality might only fully recover in 2024 and recovery will likely be very different across markets and across asset types. So the hospitality sector will likely emerge with a new phase after the COVID-19 by the -- with tech enabling virtual meetings, structural shifts to what we traditionally known as travel. So how will hospitality companies reposition themselves as they navigate through structural shifts in travel? So today, we have Ascott Residence Trust as well as Siew Kim, CEO of ART, to share with us how the company is reshaping strategies together with its hospitality operators to capture the hearts of the travelers of tomorrow. So I'll pass to Beh Siew Kim.

Geraldine, thank you so much for the introduction, and welcome, everyone, for rejoining the sector on future of travel. Yes, this is the last segment before end of the day, and I believe more of you are working from home. So okay, no rush to go anywhere. So stay on, okay? Because we have very exciting sharing with you on what we see the future of travel is like. And of course, we are most affected by the COVID impact on the sector. However, hopefully, we'll see that there is the most upside from our sector then, okay? So thank you once again for joining us. Very excited to be here. And I have a very different segment compared to the rest. The earlier 2, 3 sections, you can -- you have a few people on the panel on the Q&A. As for me, I'm alone here. So I will take you through some insights of the impact on the sector and what we are seeing on the impact on the hospitality sector rising from COVID. More importantly, how ART is positioning ourselves going forward, how we are making sure that we will be emerging stronger after the COVID-19 impact, how we have a resilient financial position to weather through this downturn. But more importantly, also what we're doing on our portfolio and know that we will emerge as a stronger player after this, yes? So I will take you through a couple of slides, give you some highlights on what we are seeing right now. And then share a little bit of what we are doing on our portfolio. And maybe after that, we will do a Q&A. So yes, so you can see the hospitality sector is most affected largely because of the closure of borders, no traveling, and that has an impact on the demand for accommodations in the interim, right? But what we are seeing, of course, is the impact is in the short term, while there are travel restrictions. But in the longer term, we believe that there will be recovery in the sector. So I will go through what are some of the travel trends and implications post COVID-19. How we're going up ourselves for the new norm and how we're weathering the downturn. And more importantly, building a stronger portfolio and our view going forward. Travel trends and implications. So this first segment, we have actually extracted some data, survey, what we are seeing right now in terms of tourism, in terms of travel. You can see on this slide, about 50% of countries, destination with borders currently remain completely closed. Many countries have now eased internal restrictions but international borders remain largely closed. About 44% as of July, destinations have actually eased restriction and this has actually increased from about 22% in June. So actually, in June, about 70-over percent of the borders are closed. But now come July, actually, about 40% have eased restriction. So more countries are opening up their borders for traveling. And we can see that, that actually have a positive impact on the pickup and the demand in the accommodation sector. Most countries actually depend -- in fact, the tourism contribute a significant portion of the GDP. And many countries are now eager to reopen their borders and reintroduce tourism back into their country. What we are also seeing when the borders open, there is a pent-up of demand. This is a way done by TripAdvisor. There are 5 stages of recovery. As you can see on the left-hand side of the chart, the first stage is decline when we were in January this year when most of the borders were closed, yes. Then on the second stage, it's when traveling kind of seized. But where we are right now is on the fourth stage of recovery. We are seeing that the domestic travel has picked up where borders are opened. There's domestic recovery right now, and that's where we are focusing our attention right now. If you look at the survey, many people are keen to re-travel again. 41%, generally, they got optimistic to make a trip again. I'm not sure like, for me, I'm very excited to be able to travel again. And I'm not sure -- I'm sure most of you out there are looking forward to your next travel, right? So generally, there is a pent-up of demand. People are ready to get out when they can. And we are seeing that happening right now, yes. When the borders open, people are out traveling. And what we are seeing right now is people are traveling to drive through locations, domestic traveling. And generally, people are more confident to travel at this stage right now. On the next slide, you see the hotels are reopening as lockdowns are lifted, okay? So the number of hotels that remains closed have actually reduced. In February and March this year, when there were lockdown imposed, you can see that in the graph here, in the chart here, there are several -- in fact, high percentage of hotels that were closed. But where we are right now in August, actually, a lot of hotels have now reopened. And this is a sign that recovery and demand has now picked up. And therefore, it makes sense for owners to reopen the hotel. For our portfolio, in the first half of this year, about 20 properties were temporary closed. That's about 20% of our entire portfolio. But since then, we have 13 properties that have now reopened. And 6 are scheduled for reopening in 3Q. So even in our own portfolio, we can see that more than 90-over percent of the properties will be opened by 3Q. So recovery is now seen across regions globally, and hotels are now reopening as lockdowns are lifted. You can see that in this -- in the next slide, there's a recovery across region in terms of occupancy. China is actually leading the recovery with occupancy at close to about 60%. So it's a very strong recovery as compared to the lockdown period when most of the hotels were closed, and occupancy was in the low single-digit for those that were opened. But where they are right now, recovery has been very positive. In fact, a lot of normalcy has now taken place in China. And now we are seeing the portfolio occupancy has gone up to about 60%. You can see the chart here as well in many countries and across the regions. Occupancy has picked up week-on-week across these countries, so we are generally seeing a very healthy pickup in August month itself. And that the people are just out to travel when they can. So these are very positive signs of recovery across the region as the borders are open and domestic traveling resume. Next. So what does this mean, okay? Post COVID-19, there will be some shifts. We are seeing some shifts in terms of consumer needs. First, in terms of priority, cleanliness and hygiene remains the most important on the consumer mind. It's not so much about on the location, but cleanliness is very important in choosing the place that they will stay. The other important shift is flexible booking. We noticed that the pickup in terms of bookings become shorter. And if bookings are made way in advance, consumer prefers flexibility in terms of being able to change their bookings in last minute. So as an owner, we are actually allowing a lot more flexibility for our guests in terms of booking. We are also seeing fewer groups, of course. Right now there is a requirement in terms of social distancing. And of course, group travelings are now restricted. And therefore, travelings are now more self-guided individual or small group. And that bodes well with the type of properties that we have in our portfolio, where people are able to stay in a self-contained apartment. Of course, right now our international borders are closed. There's a very strong domestic demand. And therefore, a lot more road trips and staycations within the country. Of course, PM just -- our DPM just announced, right, there's a boost in terms of tourism support. So most countries are now encouraging people to travel within the country. And therefore, we see the demand within the domestic sector right now. So what does this mean for us, what we call the Hospitality 2.0 in a post COVID-19 era. As an owner, we are looking at new users of space within our property. While we wait for international borders to open, we drive demand through the domestic demand right now. But we are also evaluating new users of spaces within our property. So I think that's important. While we wait for the borders, international guests to come back, we are looking for alternative users for our space. And for our property, there are a lot of opportunities for us to utilize and make use of new spaces to generate new demand. Of course, the well most important part of the new post COVID world is, of course, digital acceleration. You have heard the earlier speakers talk about the digital acceleration in their respective sector. It's no different for hospitality as well in all fronts. We'll talk a little bit more about it later. What's also important for us is in terms of agility, in terms of revenue management. I've talked about shorter booking times required by the guests. For our revenue management, it's important for us to be agile, adept and be able to react very quickly in terms of revenue management. What we are also seeing right now is arising from the current situation. We are also reviewing our cost structure. We'll be seeing linear cost structure going forward and certain operating structure changes post COVID-19. So this slide kind of summarize what we are saying that will impact the hospitality in the near term from the consumer demand. And then within the hospitality sector, how we will need to change and evolve so that we can meet the changes in terms of the business going forward. So how do we gear up for the new norm post COVID-19? ART, of course, we have a diversified portfolio. We have -- we are seizing, of course, opportunities in this crisis. We need to reinvent ourselves to capture the upturn going forward. While we continue to manage the current situations, we are, of course, leveraging on our operational excellency of our -- of our sponsor and our operator, looking at ways to pursue alternative sources of income, and we have been very successful in doing that for the past 3 months. We have also enhanced our product offering to meet new needs. And more importantly, looking at our operating cost structure to -- reduce operating cost structure going forward as well and adopting digital technology. Well, looking at the -- going back -- leveraging operational excellency. I think more importantly, during this period, we have a very strong portfolio, our overall presence. We have very diversified presence with no concentration risk, which is very important right now because you can see that the recovery in different countries will be different, as each country to go through the different cycle in terms of the COVID recovery. Having a diversified presence with no concentration, risk will enable us to remain resilient during this period. Currently, ART, we have a predominantly Asia Pac-centric portfolio. And our properties are all well-located in key gateway cities. We have a very strong balance sheet, very healthy liquidity position, which we believe that we will continue to ride through this cycle. We have a very strong balance sheet. I think more importantly, while we work on the existing portfolio, with very strong financial position. We are also looking at reinventing ourselves, looking at how we can rejuvenate our portfolio, our assets. We look at opportunistic divestment, which we have done so. Since 2019, we have recycled assets and recognized gains, significant gains above our book value. And that put us in a very good financial position. We have more than $2 billion in terms of debt headroom to recycle capital and improved our yield-accretive investments. Within our portfolio, there are also ongoing development. And we are looking at asset enhancements to continue to remain relevant during this period. So you can see that ART remains relevant. We are seeing opportunities right now even in crisis. We have entered the pandemic. We have a very strong balance sheet post our combination with AHT. And that put us in a very, very good position to ride through this cycle and continue to capture the future upturn in terms of the hospitality sector. It's important to remember, of course, we have a very, very strong sponsor. We work with them. And in fact, they provide a lot of expertise in terms of asset management on our portfolio and our assets, be it Ascott-branded properties or some of the third-party branded properties that we have acquired through AHT. The sponsor actually provides very strong guidance in terms of asset management. And this has helped us in the first half of the year, ride through this period through various asset management initiatives that we have done. Next. So rethinking hospitality. So what are we doing on our portfolio? What is important for us right now? We want to review confidence, reinvent our product offering so that when guests come back, stay with us, they feel confident. They feel they want to come back and stay with us. So there are various aspects in terms of our portfolio, in terms of our property that we are working on. First is, of course, the room. The most important aspect for the guests right now when they stay with us is hygiene and cleanliness. And that we are putting priority on in our property. Of course, we're also looking at common facilities. We are looking at the space, the design and configuration that allows us to continue to have the social distancing. But also we're thinking in terms of design to attract new sources of revenue in our portfolio. We are improving the technology and the apps that we are using in our properties, so that we can continue to optimize the processes be it from the guests' perspective or from the back-end processing perspective. And in terms of staff and processes, we are also working on improving the processes. So we are working on all these aspects within the property to ensure that we remain relevant for our guests going forward. Commitments for hygiene and cleanliness. This is the commitments by, of course, Ascott Cares program on hygiene and cleanliness for the guests to ensure that when they stay with us, a guest stay with us, we remain highly committed in terms of the hygiene and cleanliness at our property. We have also -- have accredited in terms of certifications on the cleanliness in our apartments. Riding on the work from home. This is the -- that was just launched by Ascott last week. In terms of work in residence initiatives, we are looking where guests would like to work from the apartments. We are reconfiguring the design within the apartments that allows them to be able to work within the apartments and also stay with us, and we have -- actually have very good traction in terms of the inquiries for such spaces as well. Space-as-a-service initiative was also launched by Ascott to work with different operators to use our space and to collaborate with them and to increase, of course, the use of our space within our property to generate new sources of revenue. Leveraging our digital touch point, working on contactless touch point, be it from the guests when they check-in, when they book their apartments, when they make payments. So working on the apps from the Ascott team, through also ensuring that the digital technologies are truly enhanced in our property. Okay. And of course, during this period, we have tapped on very -- we have tapped on the nontraditional sources of demand during the COVID period in the second quarter. In fact, we have very strong demand from the COVID-19 respondents, health care workers, isolation cases, people who need to stay away or be isolated. Our service apartment has remained very, very relevant during this period because of the space, because of the ability to have an own suite and also isolate. And that has actually drive very strong demand during this period and provided a very strong cash flow as well. So where we are, ART? We are leading global hospitality trust. As you can see, we have diversified with presence in over 15 countries. And our diversifications have actually helped us ride through during this period. In our portfolio, we have predominantly service apartments, about 59 service apartments, which is catered towards a long-stay and I do have shared this -- during the -- shared this morning that actually our long-stay service apartments have been very resilient during this period. It has provided the cash flow even during the COVID period. We are geographically diversified with 70% of our properties in Asia Pac. And of course, we have brands across the Ascott family as well as we have also acquired some third-party brands on our portfolio arising for our combination of Ascendas. I will quickly go through a few slides. It's about 5:30 now. This is Asia Pac. This is our -- this is Asia Pac, makes up about 70% of our gross profit. And as you can see on this slide, we have a diversified portfolio with no concentration risk. Next slide. And of course, we have a very strong balance sheet. We can see that our gearing is low at about 36%. That gives us a strong headroom for further acquisitions. We have very strong liquidity. We have close to about $600 million in terms of liquidity to ride us through this period. And definitely sufficient liquidity to cover our fixed costs for the next 2 years, even in a worst case situation. So our balance sheet remains very strong. And our debts have -- maturity is well spread. Banks have remained very supportive of us even during this period. And yes, so I think we will definitely ride through this crisis with sufficient liquidity to ride us through. Okay. Building a stronger portfolio. As you all know, we are redeveloping 2 assets. One is Somerset Liang Court. Okay -- sorry. Okay. So in terms of redeveloping our portfolio, we have recycled -- divested 2 assets, which we have announced, and this is recycled close to more than 50% of book value. We are continuously looking at our portfolio for portfolio reconstitution and are able to still, during this period, divest at a much higher value above our book value. And we have 2 assets in our portfolio that we are -- that's currently under redevelopment, Somerset Liang Court, which we have divested -- complete our divestment this year and we received our proceeds from our divestments in July. And the property will undergo on development in the next 4, 5 years. lyf one-north, this is our co-living property. Property will be completed by next year, and we'll welcome our guests on board coming next year as well. Commitment to sustainability. So during this period, we remain committed in terms of our sustainability effort through our ESG. Corporate governance has remained important as we continue to ride through this cycle. So just to wrap up in terms of view ahead. I started off by sharing with you what we are seeing right now in terms of recovery, in terms of broad-based recovery across all the different countries as borders are opened or restrictions are lifted. People are ready to travel. People want to get out, right? So we believe that there will be recovery as further restrictions are removed. Then I shared with you ART portfolio, how we are diversified, how we can ride through the different cycle in a different country. And we have a very strong balance sheet and we are rejuvenating our portfolio, looking at ways to continue to remain relevant even during this portfolio and also future-ready our existing properties for future travelers. So we are doing all these things so that we know that we remain relevant even after this COVID-19. Of course, in the near term, within the second half of this year, while we continue to see recovery, a resurgence of infections may hamper some of this recovery. But what we know is people are ready to travel when they can. And therefore, in the longer term, hospitality will remain relevant. While the situation now is delicate, international borders are still closed. In the longer term, we know that recovery will come back. Of course, in the second half of this year, RevPAU remain under pressure. I think Andrew addressed the point about recovery in the second half. Yes, we see pickup. But will we get to same level as 2019? The answer is probably, at this moment, no, because borders are closed and we need the international travel to continue. But I'm confident that when the borders are open, international borders are open, people will start traveling again. Like many of you, we all can't wait to go for our next holiday or trip. So while RevPAU remained under pressure in the second half of this year, there are many things that we need to work on our property, to continue to support our operators and our lessees during this period, so that we have a long-term sustainable relationship with our lessees and our operator. I would like to wrap up to say that in the earlier segment, we have our retail guys. We have our office guys, they talked about the combat against digital shopping or working from home. I'm confident to say that when traveling is allowed, yes, there will be a slow recovery, but there will be a recovery, and people will start traveling again, right? And as long as people travel, we will remain relevant because we can't sleep online. So definitely, we will still remain relevant post COVID-19. We will reinvent ourselves and make sure that we remain stronger after this period. Thank you very much.

Thanks, Siew Kim, for the color on that sector. And maybe we'll open up the floor for any questions and answer.

So to start the ball rolling, maybe I have prepared a couple of questions beforehand. So the first thing, how has Ascott Residence Trust or the group repositioned themselves during the pandemic? I think you shared about the new users of spaces and alternative revenue streams. So do you see this alternative revenue streams actually continuing on after the pandemic ends? So where are the [indiscernible] that we can look at for now?

Okay. So if you look at alternative stream during this period, a lot of it is derived through, of course, the COVID-19 respondents. These are the people that need the space -- alternative accommodation during this period. We also have alternative income coming from isolation cases during this period and essential travel workers that needs to travel during this period and stay away. So during this period, of course, these are the alternative income that we have derived that will supplement the lost income from the usual guests that we would normally have, right? Hopefully, post this period, when the guests are allowed to travel, right. And of course, we may not need all these COVID-19 responders staying in our properties or isolation cases going forward, then we may not have all this alternative income going forward.

All right. The next question will be on the pace of recovery. What do you expect to be the pace of recovery across your entire portfolio?

Okay. So if you look at China, right? China, of course, during the -- as country-wide, not just our portfolio, but what you're seeing in terms of their recovery from January when the pandemic started, when occupancy has dropped to low single-digit and many hotels were closed. And then come April, May, the pickup was actually very strong when they were allowed to resume travel. In fact, occupancy kind of doubled, right? And then where they are right now, sound occupancy in terms of the system-wide for Ascott is close to about 70%. So if you take China as a case for -- in terms of the recovery trend, that's what we are seeing. For ART portfolio, we are also seeing recovery. Of course, in the first quarter, in terms of occupancy, our occupancy was close to about 70-over percent, yes? Then, of course, second quarter, that's when we were most affected. And of course, I think the second quarter will probably be, of course, our darkest time during the pandemic crisis. From June to now where we are, we are seeing a week-on-week in terms of pickup on a portfolio basis, though it's gradual. But I think it's important that we are seeing an increase in terms of demand in pickup. So I think that's a positive sign. Of course, we can do a lot of forecasting and budgeting now. But as I shared earlier, a lot of the pickup now are a lot shorter. People tend to book in a shorter period. We do have, for our long-stay base -- long-stay service apartment, a base of guests with us. But in terms of the pickup for the rest, I think is a lot shorter booking. So it's a lot harder to predict, of course, going forward. But we are seeing a very healthy pickup on a week-on-week basis. And that is seen across globally as well as borders are lifted and restrictions are lifted. People are traveling, and demand will pick up.

I think we do not have -- we have the best idea as to when hotel and travel will resume that to normal. So I think right now shall we do an approach to actually see the sentiments on when people kind of have the mindset to travel again, either for work or leisure? So personally, I will be thinking maybe mid of next year. So I'm not sure what are your opinion -- what is your opinion on this, Siew Kim.

On when people will start traveling again. Okay, so I mean it's very clear right now for corporate, right? People will take -- the recovery will lag behind the leisure travel. So the next traveling pickup will definitely come from the leisure sector when they can do that. Corporate will take probably a bit more lag in terms of recovering. In terms of total time for recovery for the whole sector, some say it's 1 year, some say, it's 2 years. But I think it's anybody's guess. If, right, the vaccine is developed, people are safe to travel again, I would think that people will start traveling again. So the recovery could be shorter than 1 year or it could be longer. So it's really very hard to tell. I mean different people have different views. But I think what is more important is we remain relevant, whether the demand comes from the international sector or domestic sector. We continue to capture all sources of revenue in the interim, while we wait for the full recovery. Continue to reconstitute our portfolio, look at ways of generating income and weather through this downturn, right? And at the end of it, we know that the sector will recover and we remain relevant.

Touching on this conversion of apartments into work suites to capture the work from home trend. So we have a question on the cost of conversion. So who will be bearing the cost of conversion? And are you able to share with us the other new users or spaces that you are able to utilize from the current -- from your current portfolio?

Okay. So the conversion of spaces, right? Usually, it's not very expensive to convert. Because if you look at our service apartment, we already have the fixtures available, right? We do have, of course, a work desk, the big rooms. So for us to reconfigure the existing apartments for office use, it's just some furniture, FFE. So it's not very costly. As to who will bear it, it really depends on the costing and also depends on the -- of course, the budgets that we have with the guests. So far, we have set out a few apartments that we have converted, it's not very expensive. It's just a couple of thousand dollars to convert it, and there have been interest, inquiries in terms of using that space for work space. We have looked at various alternative users, and I think I've illustrated that in the presentation in terms of using the different spaces and leasing it out. The cloud kitchen that the sponsor have identified one of their kitchens to use, although that is not in the ART property. But those are some of the initiatives taken by the sponsor to look at -- always looking at ways to improve the returns of the properties' performance. We have also looked at, for our properties in the interim, while we know that international borders remain closed, converting some of our properties into maybe a longer-term corporate housing, long-stay instead. As you're aware that in ART, we do have about 11th rental housing in our portfolio in Japan. During this period, that portfolio has remained very resilient. Income was highly affected and there is a very good class property to own. And we have seen that during this period, income was highly affected, very resilient and we are also looking at ways to enhance our current property to look at how we can then convert some of them into the longer-stay corporate housing as well.

So we have another question on management contract terms. Should we be expecting any negotiations in the current management contract terms for the coming 1 year?

For management contracts, of course, in our portfolio, we do have different expiry. So when the contract terms expire, then we will look at renewing the contracts with revised terms based on the current market benchmark at that moment. So we do have management contracts that are on a continuous basis due for renewal, yes.

We have another question on your master leases. So if you were to look at your master leases as a downside protection when times are bad, can we get a sense whether the master leases are profitable right now at their own end?

Okay. So for hospitality, we are no different from the rest of the other sector like your retail when there's lockdown, people can't go to the shop, the tenant doesn't make money, they can't pay the rent. There's no income, right? So for hospitality, of course, we do have master lease. And during this period, some of the properties are suffering, right? As in like there is -- the occupancy could be low single digit, for example, in Japan or in Korea, in Australia. When they can't travel -- and in France, right, in Europe. So during this period, of course, the lessees will ask for certain waiver in terms of the rent. And the waiver could be in 2 forms: be it on rent abatement or in terms of rent deferral. So there are different approaches in negotiating some of these rent with our tenants, depending on the situation, and adjustments will be made accordingly. I think, ultimately, it's important to have a sustainable relationship. I mean as -- for us as a landlord, you can take every cent from your tenant, but if they can't pay the rent because it's through no fault of theirs, then we have to look at it in a longer-term relationship and have to take some adjustments in the interim.

We have another question on the impact of COVID-19 on hotels and service residences. Do you see these 2 asset classes being equally hit by the pandemic? And any changes or trends that you see going forward? So a lot of talk has been on staycations within Singapore as it is being pushed by the government right now. So do you see this benefiting your assets in Singapore?

So maybe I'll answer the first question. In our portfolio, we have more than 70% of our assets that are service apartment, predominantly Ascott-branded property with Somerset, Ascott or Citadines or Citadines Connect, right? And we have some properties that are what we call business hotel or we acquired from the -- when we merged from the Ascendas portfolio, they do have the typical hotel product with a bit more miles and convention. So during this pandemic, it's very clear that the service apartment properties are a lot more resilient, definitely less affected compared to a typical hotel. The reason is because there is a longer stay based in those properties, and we have guests that are already staying with us. So during the pandemic period, as a portfolio, these properties remains what we call GOP-positive. That means they are able to self-sustain in terms of their cash flow. But the hotels where the stays are a little bit more transient depending a lot on international travelers, these are the properties that are most impacted. In fact, in Kyoto and Tokyo, where we have properties, and those properties are very dependent on the transient guest short-stay, when the borders were closed and the occupancy was single digit. So that kind of affected, of course, the operational performance. Definitely a lot of difference between a pure service apartments versus a hotel. But having said that, of course, without international travel, the service apartment performance will still be affected. It's just that it's to a lesser extent as compared to a hotel.

We are fast approaching 5:50. So if we can just ask a last question. So Ascott has been very active in recycling assets through strategic sales, so gearing now is -- looks to be on the lower side compared to the historical. So are there any opportunities to acquire right now?

I think we have done very good recycling in the last few years. We were able to unlock capital for our investors. We have also, in the last few years, realized quite significant divestment gains in those divestments. And therefore, we have a result of divestment gains that we can actually use to distribute to our unitholders. So I think that there was a good strategic move that we have done for our portfolio. Our gearing now is about 36%, 35%. We have further divested 2 assets that was announced in July, that gives us a lot more debt headroom in terms of acquisition. I think it puts us in a very, very good position for strategic acquisitions to rejuvenate our portfolio and be able to buy, hopefully, distress assets in good location that we can see potential upsides going forward. So I think we are definitely in a very good position for us to continue to grow our portfolio, build a stronger portfolio post-COVID.

Thanks, Siew Kim. So we are fast approaching 5:50. So maybe to end this session, we can share with everyone the poll results. So it seems that the vast majority of investors voted for somewhere between first half and second half of 2021. So next year, it seems. So this year seems that the trend will still be domestic travel, perhaps some staycations. So next year will be the year for recovery.

Yes, yes, definitely. We believe that next year will definitely be a year for recovery. This year, we will have to take a stop, reset, continue to work hard on the portfolio, make sure we remain relevant and stay relevant for our guests, future-proof our property and build our -- build a stronger portfolio going forward. So for those of you who are in Singapore, if you have some tourism money to spend, you can spend it in our Ascott properties.

Thank you, everyone, for staying with us through the 4 sessions of CapitaLand Virtual Corporate Day. So it's almost 6:00 p.m., so take care, stay safe, everyone. All the best to Siew Kim and ART.

Thank you very much, everyone, for joining.